Francesco/who-killed-jfk huggingface dataset:
[157-10014-10144.pdf — page 6]
- 2 -and covert activities; and they provide services not securely available through normal commercial facilities. Because these instrumentalities are established as private organizations, they must be established and managed, to the extent possible, in accordance with practice and requirements that are normal for the types of enterprises they give the appearance of being.Of the legally constituted entities, the Agency uses the corporate form in most cases because of the advantages and flexibility of corporate management control. These corporations are legally organized under the laws of a state, country, or other jurisdiction and are either wholly owned by CIA or controlled through majority stock ownership. Services of bona fide businessmen are enlisted as nominee officers, directors, and stockholders.The Agency generally has employed proprietaries when it was the only way, or clearly the best way, to achieve an approved objective. Under Agency rules proprietaries are established or allowed to continue in existence only so long as they contribute to accomplishment of the Agency's mission and remain the most advantageous operational means of achieving certain particular and necessary objectives. Current policy calls for limited use of operating proprietary mechanisms. The capability to use the mechanism is to be retained (this the Agency terms its "capability in being"), and smaller entities used.A review of Agency files shows that the number of operating proprietaries has been consciously pared by about 50 percent since the mid 1960's. These reductions began as a result both of the Katzenbach guidelines associated with the National Student Association affair in 1967 and the CIA's own IG survey in that same year. In addition, the
[157-10014-10144.pdf — page 7]
- 3 -need for proprietaries has declined as a result of a general shift in emphasis away from covert action; transfer of Radio Free Europe and Radio Liberty to the Board of International Broadcasting with funding through State Department; continuing liquidation of the assets of the Air America complex as requirements for CIA support in Southeast Asia have diminished; the sale of Southern Air Transport and the continuing liquidation of assets of Intermountain Aviation with their exposure in the press and the decreased need for contingency air capabilities.The evidence establishes that activities of all proprietaries, directly or indirectly, support the Agency's foreign intelligence collectio or covert action missions. Some of these proprietaries are located within the United States for reasons of operational or administrative necessity, but their ultimate impact is overseas. Some of the questionable domestic uses of these entities is dealt with in the sections of the Report on "Chaos" and related programs. And in one area, MHMUTUAL, serious questions remain as to the propriety of using such a mechanism to provide insurance and retirement benefits. This problem is detailed later. (See Section VIII).A. Operating ProprietariesAs discussed in greater detail later, operating proprietaries conduct business in the commercial sphere, but they are not in direct competititon with privately owned corporations to such a degree as to deprive the private companies of legitimate income. There is no doubt, however, that they were and are in competition. The Agency has been careful to limit the amount of commercial business engaged in by these proprietaries to only that necessary to support the viability of the commercial cover and keep it alive in the commercial world. Revenues
[157-10014-10144.pdf — page 8]
- 4 -have been used as partial offsets to operating costs. Aggregateprofits over the years have been relatively small. Only two proprie-taries have shown significant profits: the Air America complex infulfilling mostly Government contracts in Southeast Asia, and theinsurance company handling trust funds and insurance (MHMUTUAL).The air proprietary overview, *infra* Section IX, details the dilemmasposed by size. Moreover, it sheds light on questions concerningwhether commercial viability became more of a bronze god than wasnecessary to maintain adequate cover.Operating proprietaries may be large or small in terms of capital-ization and total assets, depending upon the functions they perform.When the commercial purpose of an operating proprietary is incidentalto its CIA mission -- such as an export-import firm which engages incommercial operations only to the extent necessary to provide coverfor a CIA officer in a foreign country -- a minimum capitalization,usually in the neighborhood of $25,000 or less, is all that is required.Examples of an operating proprietary in which commercial operationsare incidental to the Agency mission are:A United States frozen seafood importing company whichoperates in the Far East and provides cover for an Agencyemployee engaged in intelligence activities. The Agencyprovided $25,000 in capital to purchase and activate adormant but long-established privately-owned United Statesseafood distributing company. The former owner and hispartner, who are cleared and witting, provide training,business management, and product distribution in theUnited States for one-half the profits on seafood importsfinanced by the proprietary. The Agency subsequentlyprovided $10,000 annually for fiscal years 1972, 1973, and1974 as working capital. The proprietary since 1971 hasprovided excellent cover with a minimum amount of business.As of 20 June 1974, the proprietary had assets of $104,222.67and a net worth (assets minus liabilities) of $74,051.15.The company's financial accounts are handled by an Agencyproprietary management firm.
[157-10014-10144.pdf — page 9]
A foreign travel service company which operates in a Southeast Asia country and provides cover for an agent targeted against the local Communist Party. The company was established in 1973 with an initial investment of $5,900.Operating proprietaries whose commercial purposes are in themselves essential to the CIA mission require much larger capitalization and investment. They are staffed by Agency personnel plus cleared commercial employees as required. Among the Agency's operating proprietaries of this type are four management companies which provide commercial assistance to other proprietaries and an audit firm which conducts commercial audits of operating companies and those non-operating proprietaries with substantial assets. The Agency's largest operating proprietaries are Air America, an insurance complex, and the aviation facility, Intermountain Aviation, Inc. The assets of Intermountain have been sold, with operations ceasing on 28 February 1975, and the corporation is in the process of being dissolved.Air America, the Agency's largest proprietary, which is in the process of liquidation, provided aircraft in support of Agency operations in Southeast Asia. This support has been under cover of a commercial flying service in fulfillment of U.S. Government contracts. Corporate Headquarters has been in Washington, D. C., with field Headquarters in Taipei, Taiwan.The insurance complex provides a mechanism for the payment of annuities and other benefits to sensitive agents and for self-insurance of risks involved in covert operations which, for security reasons, cannot be attributed to the U.S. Government or handled through private firms. The complex was formed in 1962 as a clandestine commercial support mechanism to provide death and disability benefits to agents or their beneficiaries when security considerations precluded payments
[157-10014-10144.pdf — page 10]
- 6 -attributable to the U.S. Government. This function was broadened to include self-insurance for many risks involved in covert operations, including property risks incurred by operational activities of Agency-owned air and marine companies. From an early date, the complex has administered agents' escrow accounts and life insurance, and provided annuity and pension programs for selected agent personnel employed by the Agency. These programs are solely for the purpose of meeting the Agency's obligations to agent-type personnel who have rendered services over a substantial period of time and cannot be handled under normal U.S. Government retirement programs. Individuals who qualify for the CIA Retirement System or the Civil Service System are not handled through the proprietary system. In addition, the complex has been used to provide a limited amount of support to covert operations -- specifically, for the acquisition of operational real estate and as a conduit for the funding of selected covert activities.Intermountain Aviation, Inc., has the purpose of providing a variety of nonattributable air support capabilities available for quick deployment overseas to support Agency activities. The Agency is in the process of disposing of its assets and terminating this activity..As of 1 July 1974 there were 71 operating proprietary companies, of which 21 are part of the Agency's proprietary insurance complex. The combined net worth (assets minus liabilities) of these companies is approximately $57.3 million. Although some, such as those in the insurance complex, are commercially self-supporting, most operating proprietaries usually require budgetary support.
[157-10014-10144.pdf — page 11]
- 7 -## B. Nonoperating ProprietariesNonoperating proprietaries vary in complexity according to their Agency task, are, for the most part, either corporate shells or less that facilitate foreign operations, and clearly pose no competitive threat to bona fide businesses. The most elaborate are legally licensed and established to conduct bona fide business. They have nominee stockholders, directors, and officers and are generally directed by one of four Agency proprietary management companies. The company address may be a Post Office Box, a legitimate address provided by a cleared and witting company official or attorney, or in a few cases the address of a proprietary management company. They maintain bank accounts, generate business correspondence, keep books of account which can withstand commercial and tax audit, file State and Federal tax returns, and perform normal business reporting to regulatory authorities in order to backstop fully their Agency tasks. They are moderately capitalized, generally around $5,000, and their net worth at any one time varies according to the Agency task they are performing. As of 31 December 1973, 38 of these companies had a combined net worth of approximately $325,000. Of this amount, almost $200,000 was operating capital for three companies which provide cover for several Agency personnel. Examples of two non- operating companies which are commercially managed, keep books of account, and can withstand commercial and tax audit are:A Florida corporation capitalized at $7,000 and whose legal address is the office of a cleared and witting attorney. Under the auspices of the Florida corporation, an Agency officer established a branch office in a Central American country and conducts a sporting goods business which provides him cover. Administration of the corporation, including purchase of inventory for the branch office, is handled by a proprietary management company.
[157-10014-10144.pdf — page 12]
- 8 -A Liechtenstein Anstalt which an Agency nominee established using a reliable but nonwitting Liechtenstein lawyer as a resident agent. The Anstalt was used to purchase a property in a European country from which an audio operation was mounted against an installation of a Communist country. Upon conclusion of the operation, the property will be sold by the Anstalt and the proceeds returned to CIA via its nominee.Requiring less elaborate commercial administration because of the nature of Agency tasks performed are 31 legally incorporated companies which are directly managed by Agency Headquarters specialists operating in alias as signatories to the company bank accounts. Each of these companies generally have a capitalization of $5,000 or less and are domiciled in the offices of cleared and witting attorneys.No commercial books of account are kept, and in the event of a tax audit the Agency has to brief the auditing authority. Depending on use, administration may be as simple as maintaining bank accounts and filing annual franchise taxes or more extensive as required when obtaining Employee Identification numbers, paying personnel, with-holding taxes and Social Security, and filing tax returns. Examples of this type of Headquarters-managed proprietary corporation are:A Nevada proprietary corporation domiciled at the offices of a California law form. Three members of the firm serve as Agency nominee stockholders, directors, and officers for the proprietary which holds title to two aircraft used by the Agency for flight training and testing avionics equipment. In this case, only administration is required to maintain a bank account, file a franchise tax, and coordinate with the law firm.Although not proprietary corporations, but proprietaries in the sense of being Agency-owned and administered, are 64 ostensible sole-proprietorships. The Agency establishes and registers these sole-proprietorships in the name of fictitious persons and opens a bank
[157-10014-10144.pdf — page 13]
- 9 -account on which Agency officers in alias have signatory power.Arrangements are made with cleared and witting businessmen toprovide a domiciliary address for these entities at a law officeor telephone answering service. These entities, like the proprietarycorporation administered by Agency Headquarters specialists, providecover, payrolling, and tax attribution for Agency personnel and aresimilarly administered.Another type of entity used by the Agency and a proprietaryonly in the sense of being Agency-owned and administered is exempli-fied by some 215 notional companies which are not legally registeredbut have names and bank accounts controlled by the Agency. The Agencyarranges with cleared and witting attorneys or proprietors of telephoneanswering services to provide a domiciliary address and to refer anyqueries to the Agency specialists concerned. These notional entitiesare used to provide status and operational cover for Agency personnelinvolved in all types of high-risk intelligence operations. They arealso used as ostensible clients for purposes of funding Agency pro-prietaries or bona fide American companies which providecover and payrolling of Agency personnel.## STATUTORY AUTHORITY FOR PROPRIETARIESThe Agency's statutory authority to spend money for proprietarycorporations in support of Agency operations derives from Section 8(b)of the CIA Act of 1949. This Act states:"The sums made available to the Agency may be expended withoutregard to the provisions of law and regulations relating tothe expenditure of Government funds; and for objects of aconfidential, extraordinary, or emergency nature, suchexpenditures to be accounted for solely on the certificateof the Director and every such certificate shall be deemeda sufficient voucher for the amount therein certified."
[157-10014-10144.pdf — page 14]
- 10 -The language contained in Section 8(b) is adequate authority to exclude the operation of these proprietary corporations from the law governing Government corporations in 31 U.S.C.A. 841 et. seq. However, the CIA General Counsel ruled in 1958 that the CIA should comply with the principles in that Act to the extent possible, and this has been done. Attached as Appendix A is a classified Memorandum of Law by the Agency's Office of General Counsel on CIA's authority to acquire and dispose of a proprietary without regard to provisions of the Federal Property and Administrative Services Act, which position was upheld by the U.S. District Court in the Southern District of Florida in dismissing the suit Farmer vs. Southern Air Transport on 17 July 1974.### III. SPECIFIC CONTROLSThe formation and activities of proprietaries are controlled through various mechanisms to assure their proper use, as discussed below.### A. Agency Regulations and PoliciesHeadquarters Regulation 230-8 and Headquarters Handbook 230-1 prescribe the administrative procedures to be followed in the establishment, operation, and liquidation of proprietaries (see Appendix B). An Administrative Plan (specifying the operational purpose, administrative and management procedures, and cost) and a Liquidation Plan (specifying details of liquidation and disposition of funds when liquidation is contemplated) must both be coordinated among components concerned and approved at appropriate management levels. This regulatory control along with policy memoranda are intended to assure
[157-10014-10144.pdf — page 15]
- 11 -proper conduct by entities. Each Agency component involved isresponsible for compliance, and the Chief of the Cover and CommercialStaff, the Director of Finance, and the Comptroller are particularlywatchful in their areas of concern.B. Project Reviews and ControlThe controls and procedures applicable to each operating proprie-tary are specified in a project outline and administrative planapproved at the Deputy Director level. Normal control and administra-tion is carried out by a project officer at Headquarters. Semi-annualreviews are conducted to determine whether or not the operationalneed still exists, and regular audits are performed to assure propermanagement and financial accountability. Proprietaries are liquidatedas their usefulness ends; new ones are formed as needed.C. Financial Controls/Operating Companies and Non-OperatingCompanies Keeping Books of AccountsUnder Agency regulations, these proprietaries are establishedand managed to appear to be consistent with normal commercial practicesand requirements of the type of enterprise concerned. Specific require-ments for the general management and financial controls of each suchproprietary are provided in the administrative plan described abovewhich specifies the basic framework within which the instrumentalityis to operate. All facets of an administrative plan relating tofunding the proprietary and its financial management are subject tothe concurrence of designated representatives of the Director ofFinance and the Comptroller. A primary purpose of this coordinationis to assure that the financial controls and procedures prescribed
[157-10014-10144.pdf — page 16]
- 12 -for the proprietary are compatible and consistent with normal practices and requirements for the type of instrumentality being established. The Director of Finance representative is the Chief of the Commercial Systems and Audit Division, a position normally occupied by a certified public accountant.The initial and all subsequent passages of funds to such proprietaries are from the current year Agency operating budget. Receipts of funds by the proprietary are documented as appropriate ostensibly to appear to be from a source usual to a commercial enterprise of similar type, e.g., capital stock, paid in capital, income from ostensible sales, etc.The Agency treats all disbursements to such proprietaries as current year budgetary expenditures and concurrently establishes as a control mechanism a fully reserved investment account which is reconciled periodically to reported net worth of the proprietary as reflected in required financial statements received from each proprietary. Each such statement is reviewed to reconcile the approved financial activity of the proprietary to reported changes in net worth before adjusting the Agency investment account to conform with the reported net worth.All control documents evidencing Agency equity or interest in the proprietary, e.g., executed stock certificates, irrevocable stock powers, declaration of trust, etc., are held in safekeeping by the Commercial Systems and Audit Division/OF provided that when such documents need to be retained by the proprietary, a report will be made to identify the documents retained, location, name of custodian and reason for the retention, and copies of the documents, if appropriate.NW 50955 DocId:32423532 Page 17
[157-10014-10144.pdf — page 17]
- 13 -The Chief of the Agency Audit Staff is responsible for the auditof Agency proprietaries, utilizing Audit Staff personnel under asuitable cover arrangement or witting or unwitting public accountingfirms as is most appropriate to the requirements of a particularproprietary. An example of the type of audit conducted appears at p. 105Section VIIIand concerns MHMUTUAL, the proprietary insurance-investmentcomplex.D. Financial Controls/Non-Operating Companies Except ThoseKeeping Books of AccountEntities in this category are financed if financing is requiredthrough the establishment of bank checking accounts on which Agencyofficers have signatory power in alias. All such accounts are maintainedin the accounting records of the Agency as current asset accountssubject to monthly reconciliation with statements of accounts issuedby the depository banks.All passages of funds to these accounts add to the accountablebalance of the accounts. No income is produced by these activities.All disbursements from these accounts are charged as current expendi-tures in liquidation of obligations of the operational activity onbehalf of which the entity was established.Signatories are Agency officials who in each case execute adeclaration of trust acknowledging Government ownership of the account.Payments are initiated only in response to request of an authorizedofficial responsible for the operational activity for which theentity was established.The Chief of the Agency's Audit Staff is responsible for theaudit of all accounts maintained for these entities.
[157-10014-10144.pdf — page 18]
- 14 -Balances of each of these accounts are monitored periodically to assure that balances do not exceed a level warranted by the activity for which the respective account was established. Balances excess to current requirements and balances for entities which are dissolved are returned to the Agency and in turn remitted to the U.S. Treasury as Miscellaneous Receipts. (See discussion of Disposition of Funds Returned from Proprietaries on p. 16.)E. Treatment of ProfitsThe CIA General Counsel, in a 6 January 1958 memorandum, ruled that "income of proprietaries, including profits, need not be considered miscellaneous receipts to be covered into the Treasury but may be used for proper corporate or company purposes." This subject was reviewed and the opinion reaffirmed by the General Counsel in July 1965. The policy of retaining profits has continued, although as already noted only a very few of Agency proprietaries have ever been profitable. The CIA's legal basis for retaining profits for the use of the operating corporate entities is discussed below.Section 104 of the Government Corporations Control Act, 31 U.S.C. 849, provides that Congress shall enact necessary legislation to make available for expenditure such corporate funds or other financial resources or limiting the use thereof as the Congress may determine. It is further provided that "this section shall not be construed as preventing the Government corporations from carrying out and financing their activities as authorized by existing law . ." The legislative history explaining this section of the act states that "in cases where no other law required a congressional authorization of expenditures,