Francesco/who-killed-jfk huggingface dataset:
[157-10014-10144.pdf — page 131]
It was decided to invest, however, only in Eurodollar bonds that were "guaranteed by the American parent company." It was thought that "they were a pretty secure investment." On occasion, "when we got the advice of our economists on the DDI side, we took some government paper that they considered -- foreign government paper that they considered really a good security." Houston became the central figure in this investment scenario:More and more I continued on this Board of Directors as giving basic policy advice. We had long discussions on the areas of discussion, what to stay away from, what to go into, what it looked like as far ahead as they might think they could see. And more and more I would make the individual decisions on my own in light of their policy guidance and with the information which my staff in MUTUAL could get from the many friends they now had in various underwriting and investment places on an unwitting basis, who just thought they were customers. For instance, on the Eurodollar bonds, they were dealing with several houses who just thought the fellow was another investor coming into them and would get very detailed and on the whole pretty good advice, which often we could check from inside through some other of our sources. Profits from primarily the interest operations were very profitable, and these built up over the years quite rapidly and were brought into the insurance funding identified as profits for future possible use.It was always recognized that a policy decision might be made at any time that we had funds excess to the valid backing up of our underwriting, which would be brought back into the government for such disposition as might be appropriate at that time.In terms of actually providing insurance in the aviation and maritime field, a study would be conducted in each case where insurance was required. If it looked as though normal commercial insurance would handle it, as was the case with most of Air America's needs, then the particular entity would go ahead and procure the normal commercial insurance. If there was something peculiar in the operational setup that preclud d commercial.companies from accepting
[157-10014-10144.pdf — page 132]
-103-the risk or if there were security problems, then it would behandled through MHMUTUAL.What we would do when it came to aviation andmarine, we would go to one of the cooperatingcompanies and see if they wanted the insurancefor their own accounts, because we had madearrangements that if there were operationssecurity problems in any one claim, that theycould handle the investigation so it wouldn'tbe a problem if they wanted to take for theirown account. If they didn't want to take itfor their own account or they didn't want totake it all for their own account, they mightthen seed back to us what they didn't want.And it would be then underwritten technicallyout of MUTUAL's account, although they would bethe ostensible insurers.Several of the aviation entities, other than Air America whichdealt almost exclusively with regular commercial insurance com-panies, did nto feel quite secure with regular insurance. Theyturned to MUTUAL. MUTUAL would in turn offer the risk to one ofthe cooperating insurance companies. If they would take the risk,they would then negotiate the premium with the proprietary. Ifthey did not want the risk, "then they would seed back to us andwe would take the portion of the premium that should come back.Usually it if went through a company, they would take a smallunderwriting premium to pay their costs, 3 percent or somethinglike that. And the rest of the premium would go back in MUTUAL,if they were actually taking the risk."In 1970 the Inspector General conducted a survey of the secur-ities held by MHMUTUAL. He concluded that the project seemed tobe secure in its operations in the fields of insurance and invest-
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-104-ment. The IG looked at the investments from a security (i.e.cover) point of view in terms of MHMUTUAL's operational supportfunction. His concern was that each time MHMUTUAL bought asafehouse, for example, there was the possibility that audiosurveillance of the house by the Soviets would lead to a dis-covery of the purchase mechanism used by the Agency. He rea-soned that, therefore, the purchase of such items by the com-plex was operationally unsound because it exposed the entirecomplex to compromise if a foreign intelligence agency trackedback the transactions through various corporations. Accordingto the Inspector General, no funds of MHMUTUAL were used forspecific projects. What would occur, however, was that a projectwould transfer funds to the complex which would then disbursethem as needed through an appropriate entity. This method lefthim with major reservations about MHMUTUAL security when it sup-ported sensitive clandestine operations. Thus, MHMUTUAL's pro-vision of cover, funding for active operations, and record owner-ship acquired for sensitive operations was deemed inappropriateand, accordingly, the IG proposed separating operational sup-port activities of MHANVIL from the instrumentalities of MHMUTUAL.It was to be restrained to the purposes for which it had beenestablished in 1962** During the course of the IG inquiry no instances were discovered  where MHMUTUAL or its funds were used to influence foreign stock  markets or currencies. The Committee has also found no such  instances.
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-105-At the time of this 1970 review by the IG, MHMUTUAL held a surplus of $9 million. It also earned income from sources supported by public taxation. It appears from the questions that were raised at the time about briefing congressional committees on MHMUTUAL that this was not done, providing a situation where an organization with assets of $30 million has been created and was operating without oversight knowledge or approval. Moreover, because MHMUTUAL was no longer a project after its removal from the Domestic Operations Division, there was no annual allotment and no annual operational review.Houston indicated that MHMUTUAL had been operating "before we told our committees any detail. I think it was mentioned as a problem that we had to make arrangements to cope with insurance problems fairly early on. But the fact that it was a business and a business of this substance was not done for some time. My recollection is there was not deliberate avoidance; we just didn't get to it." On the question of lack of annual project review, Houston commented that this was "technically correct." But, he added,As a matter of practice I would say that MUTUAL was more carefully reviewed in some respects than almost any other project in the Agency in the sense that we had the bookkeeper inside the project who was a finance officer and bookkeeper. The project published at least monthly reports in detail which went not only to me but to Colonel (L.K.) White (the Comptroller) and the Director. These were very detailed reports which often raised questions which went back for answers.
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-106-The Inspector General was invited in, according to Houston. In addition, the Finance Office kept its own books in the proprietary accounts branch on MUTUAL. Such reviews were done, he said, "on a constant basis."We were very conscious of the amount of money involved and the possibilities of someone trying to, someone yielding to temptation and trying to do something with all of this money.b) THE CURRENT STATUSThe project currently consists of twenty-six (26) companies of which five (5) are domestic. All of the clients of MHMUTUAL are under non-official cover.** The Office of Finance has indicated that the current net worth of the project is $18 million which is the result of retaining earnings. It was originally capitalized in 1962 with $4 million. A Washington, D. C. lawyer (MHANVIL) is currently the investment manager and he provides day-to-day direction. MHANVIL is a sole proprietorship proprietary of the Office of General Counsel. Total assets are currently** MHMUTUAL itself is only for covert non-staff officers of the CIA. In essence, it only works for what would broadly be described as "agents," those not entitled to participate in the CIA retirement plan or in the Civil Service Reitrement Plan. They are primarily foreigners, and usually DDO employees. Those individuals who were formerly known as contract agents and who are now known as independent contractors also participate in MHMUTUAL. In the case of most agents, the CIA contributes 7 percent and the agent contributes 7 percent, in keeping with CIA practice for regular employees. In cases where the agent is well along in years and contributions from the Agency and the agent would not provide enough funds to capitalize an annuity, the Agency provides the initial capitalization; however, approval of this must come from the DDO.
[157-10014-10144.pdf — page 136]
$31 million, most of which are held outside the U.S. The companies do not write insurance in the United States, but rather reinsure with cooperating companies who then sell the risk to the CIA for a percentage of the premium. The policies are written directly abroad. Each of the U. S. companies pays little tax and a proprietary auditing firm audits the books of MHMUTUAL. This method of self-insurance enables the Agency to funnel money where needed in any of its project categories. Currently, 60 percent of the investments are in Eurobonds, 20 percent in off-shore time deposits in U. S. banks, and the balance is in common stocks, debentures and commercial paper of various types. For example, the current breakdown is:$7 million in time deposits abroad;$2.4 million in Common Stock (at cost);$20.8 million in Eurobonds;$1 million Eurodollar convertible debentures;$.5 million in short-term commercial paper overseas; and$.2 million in domestic debentures.The performance of the MHMUTUAL stock portfolio is noted at this juncture. Comparisons of cost against market value for the years 1970 through 1975 are given first. Following that are the gains or losses on the sales of stock for the years 1963 through 1975.
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# STOCK PORTFOLIO PERFORMANCEComparison of Cost Against Market Value| Year | Cost        | Market Value || ---- | ----------- | ------------ || 1970 | $ 3,792,804 | $ 3,689,294  || 1971 | 1,123,651   | 1,069,301    || 1972 | 2,969,403   | 2,872,557    || 1973 | 2,650,904   | 1,242,915    || 1974 | 2,440,686   | 699,422      || 1975 | 2,440,686   | 876,507      |Gain or (loss) on Sales of Stocks| Year       | Gain or (loss) || ---------- | -------------- || 1963-1969  | $ 197,348.15   || 1970       | (19,910.64)    || 1971       | 118,943.90     || 1972       | 310,346.37     || 1973       | 150,447.03     || 1974       | (172,796.04)   || 1975       | -0-            || Total Gain | $ 584,378.77   |
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- 109 -Included as Appendix D is an in-depth list of common stock purchases from 1971 through September 30, 1975. In addition, there are schedules of portfolio sales from 1964 through 1974.A look at the Project MHMUTUAL Consolidated Balance Sheet for December 31, 1974 will give some idea of the scale as of that late date. _Current assets_ (cash in banks, premiums receivable, advances receivable, accounts receivable, client notes receivable, rent receivable, interest receivable, and investments maturing in one year) totaled $6,910,891.00. _Investments_ (time deposits, bonds and commercial paper, and stocks at market value) totaled $25,342,772.53. _Fixed assets_ (real estate and furniture and fixtures) totaled $73,084.12. _Other Assets_ (prepaid insurance, recoverable deposits, and other prepaid expenses) totaled $32,682.00. These combined for _Total Assets_ of $32,359,430.45.As usual, the Project was subjected to an extensive audit for that year.The audit included site examination of books and financial records of 12 of the instrumentalities administered by Agency-owned management firms as well as review and evaluation of related records, controls, and procedures at Headquarters. Five instrumentalities administered by Agency-owned management firms are located abroad and will be audited later. Audit of the other six instrumentalities administered abroad by foreign accounting companies was limited to examination of financial reports and such other documentation as was available at Headquarters. These latter examinations provided us reasonable assurance that Agency resources, totaling about one percent of project accountability, are adequately protected.That audit concluded that MHMUTUAL "continue(d) to be administered in an efficient and effective manner and in compliance
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with applicable Agency regulations and directives." Prior auditreports had commented on the need for a revised administrativeplan and in accordance with these reports, the audit noted, a"new plan was approved in March 1975." In addition, "(m)inoradministrative and financial problems surfaced during the auditwere discussed with MHMUTUAL officials and resolved." The auditnoted that *total income* for that year (from interest, premiums,gain or loss on sale of securities, dividends, rentals, profes-sional fees, gain on foreign exchange, gain on sale of propertyand from miscellaneous transactions) was $4,113,590.00. The*total expenses* for that year (allocation of premium income toreserve for claims, interest, salaries, rent, accounting fees,taxes, loss on property write-off, legal and other fees, communi-cations, depreciation and amortization, travel, equipment rent,real estate expenses, pensions, dues and subscriptions, directorsfees, entertainment, and miscellaneous) were $2,459,260.00. Thesecombined for a *net income* of $1,654,330.00.The current Chief/Central Cover Staff has focused on MHMUTUALin a number of interviews with both the Rockefeller Commissionstaff and our own. He has suggested that the real question forMHMUTUAL is what should its role and shape be after the termina-tion of the large air proprietaries. One of MHMUTUAL's originalpurposes was to provide reinsurance for Air America, CAT, SouthernAir Transport, Inter-Mountain Air, and the other air proprietaries.With their passage, a reorganization and redefinition is needed.
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## 36As to the issue of safeguards against misuse of project funds or insider information by the Agency, the Chief CCS has told the Committee that compartmentation, the honesty of the Chief of CCS, and display of the portfolios to appropriate congressional committees are what have prevented or will prevent such abuse.Houston agreed with the three safeguards outlined by the CSS Chief. However, he added a fourth:When we were investing in stock, I would have the list of stock, the portfolio, reviewed by our contract people, and if I found we had any contract relationship with any of the companies involved, we'd either refuse to -- Well, a couple of times our investment advisor recommended a stock which I knew we had big contracts with, and I told the board no, this involves a conflict of interest. We won't touch it. And if we had anything from the Agency contract office that indicated a relationship, we would either sell the stock or wouldn't buy it.Houston believes that the complex should continue in some form. One reason is that "assets are few and far between." The acquisition of a board of directors, the establishing of accounts, basic credibility and relations with the jurisdiction in which the entity is located are not easy things to do according to Houston. This creates the "tendency, once you've got something that looks good, to hang on to it." He would recommend in this regard that the Agency be constantly forming new companies and phasing out old ones on a rotational basis so that the same complex would not remain for security reasons.![signature]NW 50955 DocId:32423532 Page 141
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So it's not easy but I still think that they should make the effort. (The Chief CCS) knows my views on this pretty well, and we're all worried about the security of the damn thing. But we don't know another way to do it.He believes that the current method while not perfect is the best that can be devised. The problem, of course, is that the generation of funds for these companies must literally be shown to be legitimate and non-governmental if the beneficiaries are to be protected. Consequently, if the government were to create an office that would funnel money to these companies without the benefit of investment, this would create the risk that a traceback investigation by a foreign power could discover that the entity is being funded by the U.S. government. Houston closed by saying that he would invite any controls that Congress would choose to put on the mechanism in terms of insuring propriety.The Chief of CCS has characterized the insurance complex as "indispensable" and as an item for which there is no viable alternative. (1-27-76; Tr.12-1
[157-10014-10144.pdf — page 142]
# THE AIR PROPRIETARIESLawrence R. Houston, the former General Counsel of the Agency, was involved in the establishment of the first set of proprietaries of the Agency back in the late 1940's and early 1950's. As noted later on in section 10, page, Houston has concluded that proprietaries should be a mechanism of last resort. He asserts that the Agency learned this in part "the hard way and almost all of the lessons involved probably came out one way or the other in connection with a major aviation proprietary in the Far East. Others had there own special problems, but I think the Air America complex had pretty near everything."The theory of the acquisition of Air America in 1949 was denial of the assets to the Red Chinese. The CIA first arranged advances to the company to keep them going when they were running short of cash in 1949. These advances were used up and were actually credited to the purchase price eventually. The airline at that time had been organized by General Claire Chennault and Whiting Willauer. It was a joint venture with the Chinese Minister of Transport and was called Civil Air Transport. Houston described it as follows:This normal aviation organization, this would have no meaning at all, was completely at all, it would have not standing in international law, aviation rights, or any of that. But it worked for what they wanted, which was to take supplies up-country into inland China and then to bring back whatever cargo they could get commercially: tallow, hides, bristles, all that sort of trade, and then they traded that off for their own account. And for awhile the operations was fairly successful, the C-47's and C-46's.To finance this activity and to facilitate the trading of produce, their lawyer, Thomas Corcoran, had organized a company. That company was known as C.A.T. Inc. In addition there was a Panamanian
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corporation which was involved that did most of the funding.There was also an envy known as the Civil Air Transport "to further complicate the picture, at this time Chennault and Willauer were also negotiating with the Chinese CNAC, for the takeover of their planes and equipment." Chennault and Willauer came to the Agency in connection with that operation in the Spring of 1949. At that point the Nationalist Chinese were being "squeezed down south by the Communists and they were really backing down toward Shanghi, restricting their area of operation and consequently the produc- tivity of their commercial venture." Chennault and Willauer indi- cated to the Agency that unless they got help they would have to go out of business.The agency held a series of meetings in which it was determined that it had a need for some air transport for some of its operations particularly involving arms and ammunition and consequently the Agency needed a contract with someone.And so we entered into an arrangement, I think in about September of 1949 whereby we would advance them, the fig figure of $750,000 sticks in my mind, against which we could draw for actual use of the planes at an agreed on rate. And we did draw down, I think, all the flying time and expended the $750,000 between September and about January, at which time we suspended any further payments or draw-downs. I think the money was exhausted.Chennault and Willauer came to Washington about January or February of 1950 and through a series of negotiations, the Agency agreed to advance them more funds, taking at the same time an option to purchase the assets of Civil Air Transport, with the liabilities left to their account. Any unused portion of the advances were to be credited to the purchase price. They then operated through the
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Spring of 1950 under this arrangement and Chennault and Willauer "came in in the Summer of 1950 and said again they were in desperate straits for funds." Once again a series of meetings was held at which the prognosis was that the operations in the Far East would have a continuing need for secure airlift and also, there was a general estimate that the loss of this airlift to the Chinese Communists would give them a considerably greater advantage than then possessed because they had almost no airlift of their own at that time. "The Agency then made the decision that they would exercise the option given there was no objection otherwise."The Agency felt that it was necessary to get the concurrence of the Department of State. Frank G. Wisner, at that time the Head of the Office of Policy Coordination (OPC) which was responsible for conduct of covert actions as opposed to clandestine intelligence, and Mr. Houston visited Mr. Livingston Merchant, who was Assistant Secretary of State for the Far East.He and I went to see Mr. Merchant and explained the situation. And Mr. Merchant reminded us that it was basic U.S. policy not to get the government in competition with U.S. private industry. But under the particular circumstances, in particular as there was really no U.S. private industry involved in the area, and they agreed it was important to divide the assets to the Red Chinese. State would go along on the understanding that we would divest ourselves of the private enterprise as soon as such a divestment was feasible, and all of the circumstances that might obtain.Of course, the divestiture of these entities did not actually occur until 1975. And, indeed, some of the entities still as yet have not been divested. Mr. Houston noted, however, that: