Francesco/who-killed-jfk huggingface dataset:
[157-10014-10144.pdf — page 158]
-129-X: ISSUES POSED, CONCLUSIONS, AND RECOMMENDATIONSThe preceding sections provide a general picture of the nature, extent, purpose, function and problems of proprietaries. Not unlike other areas of our inquiry, the issues raised were not simply black and white. They were, rather, grey in nature. During recent years, particularly at the time of the Vietnam War, serious questions were raised about this proprietary capability. Much of the accompanying criticism stemmed from a lack of understanding of their role in the scheme of both United States foreign policy and intelligence. Some of the criticism stemmed from the suspected entrance of some proprietaries into areas where they were in apparent competition with legitimate business interests, such as the airline industry. It is not unusual that there would be misunderstanding since much of what would have explained the proper role of these entities had to remain secret for innumerable reasons. But the Committee has not been stymied by that same embargo and has had a broad look into these operations.In general, these mechanism have been operated with the utmost. concern for legality, propriety and ethical standards. What slippages have occurred were in the field and generally in the area of air opera- tors, not management. Moreover, their use and past expansion was a direct result of the demands placed upon the Agency by Presidents, Secretaries of State and the policy mechanisms of government. This is particularly true of the large air proprietary complex which was used to support paramilitary operations in Southeast Asia. The only exception to this is the investment-insurance complex which was established on Agency initiative to fill a pressing need.
[157-10014-10144.pdf — page 159]
# -130-A. An OverviewUsing broad authority under the National Security Act of 1949, the Directors of Central Intelligence have established Government-owned business enterprises, foundations and quasi-business enterprises ("notionals") to serve a variety of intelligence and covert action purposes. Chief among those purposes have been:1) Cover for intelligence collection and action projects.Commercial firms established in foreign countries have in the past and continue to provide plausible reasons for the presence of CIA case officers. Agency-funded foundations (e.g., the Asia Foundation) served as conduits of funds to scholars and groups doing research supporting U.S. foreign policy positions.2) Extension of Agency influence and information network in overseas business community. The very act of establishing a firm -- e.g., an air or shipping firm -- requires banking, insurance, and other services that entail support, communications, and intimate business relationships with the bonafide American and foreign commercial world. In turn, this entails at a minimum the clearance and access of outside top management into Agency business; the relationship on occasion can entail using the Agency's commercial contacts for information or assistance.3) Provide supporting services for covert operations.In paramilitary operations, airlife and sealift by Agency-owned carriers has many advantages -- flexibility, ability to implant photographic equipment and other sensors, etc. CIA agents, engaged in hazardous business ordinarily uninsurable, can obtain commercial insurance at standard or subsidized rates via MHMUTUAL, a conglomerate
[157-10014-10144.pdf — page 160]
of some 26 CIA-owned companies. In country locations where physical contact with the nearest CIA station is not operationally discreet, proprietaries can provide pay outlets and other adminis- trative services for CIA personnel and agents. On occasion, firms based in locations with permissive corporate laws and regulations -- Liechtenstein, Panama, Delaware -- can engage in many activities unrelated to their charters. For example, insurance firms can acquire real estate surrounding targeted embassies on a non-attributed basis.4) Actual conduct of covert action. In establishing the "radios" (Radio Free Europe and Radio Liberty) in the 1950's, CIA acquired a means of directly influencing populations behind the Iron Curtain. These, of course, were eventually disposed of and placed under the aegis of the Department of State, but related enterprises, such as the book distribution program, which had operated under radio sponsorship, continued within the Agency framework.5) Outlets for private investment. The Agency would deny that this is a purpose of proprietaries. Agency officials state that the standing policy is to prohibit the investment of operational funds of the CIA into private fields without explicit DCI authoriza- tion. Actually, the existence of proprietary enterprises which, on occasion, return sizable profits, affirms that private investment has indeed been a widespread Agency policy. Moreover, the Agency specifically has authorized MHMUTUAL to act as an institutional investor for its own and any other Agency proprietary. So the question really is one of definition and shading.
[157-10014-10144.pdf — page 161]
# Size of U.S. Financial StakesThe size and variety of U.S. Government financial stakes in CIA proprietaries has already been described in great detail. The attached Table I gives an overview of proprietary income and expenditures over the years. Some 450 proprietaries have been created over the years with 20 presently active (See Table II.) The largest sixteen proprietaries received about 80% of U.S. investment (i.e., subsidies). Accordingly, most proprietaries are shown to be small-scale operations. In many cases -- the so-called "notionals" -- the overseas proprietary actually conducts no business at all; it simply has a commercial charter, staff, and cover arrangements for Agency collection and action projects.Table I also shows that proprietary income consists of a mixture of CIA subsidy and income. In some cases, the outside income is from sources outside the U.S. Government income -- e.g., Air America has received income for aircraft maintenance of KLM airliners in Southeast Asia. But for the most part, proprietary income is in the form of "cross-orders," from CIA and other Government Agencies.For example, the CIA paramilitary project in the Congo placed orders for aircraft engines and pilot services with Intermountain Aviation, Inc. As an example of order placed by other U.S. Government Agencies, AID contracted with Air America to carry rice shipments in Laos. In this sense, many proprietaries are analagous to what are called "intragovernmental funds" or "industrial funds" in traditional U.S. Government budget and accounting terms.Table I shows, and as we remarked previously, that compared with earlier years, the size of proprietary expenditures has markedly declined. The potential for future expansion is nevertheless present.
[157-10014-10144.pdf — page 162]
-133-Indeed, new proprietaries have been formed within the last several years.In terms of U.S.. budgetary impact, Table I indicates that proprietaries do not add much new capital to CIA available resources -- i.e., while they have a very large expenditure level and momentum over the years, the "cross-order" phenomenon means that most of these expenditures originated in CIA and other U.S. Government appropriations and that net profits generated by outside business or investment have been relatively small. On the other hand, another way of interpreting the figures is to observe that nearly half the $1.6 billion gross income of CIA proprietaries has been supplied by sources outside CIA.Table II shows the pattern of income, expense, and net U.S. investment for the twenty largest proprietaries now active, reviewing their financial experience in the twelve months preceding June 30, 1975, or the indicated reference date. The two biggest proprietaries, Air America and MHMUTUAL, are seen to dwarf the others. Air America will be phased out by June 30, 1976, ending CIA's owned airlift and returning an estimated $20 million to the U.S. Treasury. MHMUTUAL will continue.Today, the CIA operates 45 major proprietaries, of which 25 are in the process of liquidation. The 16 biggest proprietaries did a gross total of $4 million business in 1975, compared with an average volume of $75 million annually in the heyday period of proprietaries, 1967-1973, exclusive of CIA subsidies. On the subsidy front, the contrast is equally striking: no net subsidy in 1975 vs. $26 million annual subsidy in the 1967-73 period. Put differently, if these sixteen biggest proprietaries had operated throughout
[157-10014-10144.pdf — page 163]
-134-kinds realized in 1975 ($4 million), the total gross income wouldhave aggregated $116 million. Actually, the CIA reports thatfor this for this period gross income aggregated at $1,606 million.By this measure, CIA's biggest proprietaries are shadows of theirformer selves; their annual gross income of $4 million is aboutone-fourteenth of the average gross annual income of $55 millionduring the 29-year span. Shrinkage would be even greater if thesefigures were adjusted for the effect of inflation.The chief impact is decline of the bigger air proprietaries.The Agency estimates that of some $761 million of outside income,at least $658 million was generated by Air America ($559 million)and Southern Air Transport ($99 million), in the period from incep-to 1975. As late as 1974, these two airlines were garnering some$50 million in outside contracts. With their disposal, total CIAproprietary annual outside income in 1975 therefore shrinks tothe cited $4 million level. Most of this residual is representedby MHMUTUAL, the insurance investment complex, where Agency invest-ment are generating an outside income of about $3.5 million annually.In programmatic terms, this contrast of today and yesterdayreflects the decline of paramilitary operations in Southeast Asia.Large volumes of outside orders by Defense and AID, along withsizable levies by CIA components and some maintenance and passengerincome from commercial operations, had been generated by a covertwar. In turn, these operations had their echoes in Agency airsupport for the Congo, Cuba, and other areas. Looking toward thefuture, will new air proprietaries be established? The CIA thinks
[157-10014-10144.pdf — page 164]
-135-not -- but the matter is not resolved as discussion below indicates. Ultimately the program question is whether there will be future U.S. involvement in covert wars -- and whether, if so, some substitute for CIA-owned air support can meet the operational requirements of secure, well-maintained local aircraft in place, with responsive schedules and capacity to gather a limited amount of signals and imagery intelligence. The Chief of CSS ventured the possibility that third-country assets could be used. Another possibility is use of U.S. military aircraft, overtly or "sanitized". One thing became clear: CIA sees itself as entering a different era of proprietaries. It has rejected the long-held doctrine of "stand-by" capability -- i.e., the notion that it is worth investing considerable capital and operating resources in airlift, sealift, and other assets primarily targeted toward contingency requirements. Instead, assert the Agency representatives, CIA is keeping today's and tomorrow's proprietaries strictly centered on current operational tasks. The test of retention is the utility of a proprietary in carrying out assigned roles instrumental in approved Agency projects. This concept can be examined by listing the twenty major proprietaries which the Agency says will survive into the post-1976 time frame:| Code Name  | Latest 12-mo. Earned Income ($000) || ---------- | ---------------------------------- || LPBERRY    | $43                                || LPROE/PIKE | 139                                || PDPORTAL   | 5                                  || BASTE      | ($1,250 subsidy)                   || BASIC      | (1,126 subsidy)                    || PDLEDGER   | 102                                || PDDYNAMIC  | 35                                 || TENURE     | ($199 subsidy)                     || TERRACE    | (76 subsidy)                       |NW 50955 DocId:32423532 Page 165
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-136-VWCADENZA ( 36 subsidy)MHBOUND ( 432 subsidy)KMJAGUARO/JAGGERY 809QRMYSTIC/CYNIC ( $10 subsidy)WUDIRK 0XIPHOID ($ 191 subisdy)BACH ( 50 subsidy)KNOX ( 50 subsidy)LPHOCUS 22LPBYZAS/B 2LPPANDA 21CHAIR/A ( 4 subsidy)REMEDY 21MHMUTUAL (consolidation of 21 firms) $3,560LPSUGAR 34 (plus $35 subsidy)The above listing covers only the 20 biggest proprietaries which currently operate and which will survive liquidation. It excludes 25 major proprietaries currently operational but being phased out -- such as Air America and other airlift.What does the whole picture of currently operated proprietaries look like? How many and by what major types?The Numbers of CIA Proprietaries, by type, as of July, 1974 are:Operating proprietaries 71(includes 21 props. in MUTUAL insurance complex)Non-operating proprietaries 38Devised facilities 31Devised facilities/Notionals ("DFN"'s) 61Subtotal, externally registered 201Notionals -- no external registration;Identity and financing wholly within CIA control 215Grand total, current proprietaries 416
[157-10014-10144.pdf — page 166]
Generally, the notionals have increased in number by about 30% since the current CCS chief's takeover of Cover operations in 1967. This reflects a policy of increasing the number of cutout arrangements to increase security i.e., reduce likelihood of outside discovery of the identity of agents or case officers working under cover of the end-point notional by introducing intermediate notionals for payments or identity backstops.What does this tell us about basic distinctions of one type of proprietary from another? First, it indicates that external registration divides the pot in half. Those which have some form of legal standing with U.S. (State, local) and foreign corporate regulatory and tax authorities are subject to external governmental scrutiny. This occasions additonal expense and manpower to assure that in all respects this group of proprietaries behaves in accordance with local law and commercial expectations.The second group -- the notionals -- exist only as names on doors and phone directories and stationery, with backstopping for identification provided by Agency switchboards, mailstops, and check issuance.The next level of distinction is within the class of legally registered proprietaries: those which carry on a commercial income-producing operation and those which are simply cover arrangements, with at most a bank account and an attorney backstopping calls and mail. The latter are shown in the table above as "devised faciltiies" and "DFN"'s.Within the class of commercial, income--productive proprietaries, there is a distinction between those which are wholly dependent upon
[157-10014-10144.pdf — page 167]
-138-CIA income in the form of orders placed and/or subsidies; and those which have mixed outside and inside income.Even for those with mixed income, it is possible over the years to distinguish those which have outside income wholly within the U.S. Government (i.e., a mix of CIA-derived income and income from other Government agencies) and those which have both U.S. Government income and income from private contracts.C. Visibility in the BudgetAccountability to the President and Congress depends in budget review upon the extent to which the Federal agencies' budget review upon the extent to which the Federal agencies' budget requests provide enough information to make possible well-formed judgments. Therefore, Circular A-ll, issued by the Office of Management and Budget, prescribes the financial schedules and analytical and explanatory supporting data which all Federal agencies must provide in their budget submissions, consistent with the Budget and Accounting Acts of 1920 and 1950 as amended.The Central Intelligence Agency regards itself as subject to these prescriptions. The Agency limits its application of this principle, however to provision of such A-ll materials as OMB and the Congress ask for.With regard to proprietaries, this policy has resulted in near invisibility of proprietaries in the CIA budget submission. Circular A-ll requires agencies to provide schedules and narrative for each public enterprise or intragovernmental fund. The utility of such data is to reveal all sources of funding, purposes and
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-139-levels of expenditure, and at least approximate indications of performance through comparisons of past and proposed funding by activity. As applied to proprietaries, the CIA, perhaps, should have been providing a whole family of schedules for the proprietaries which *actually* do business (i.e., excluding "notionals.")Then, there is the question of the program impact of proprietaries. Table I indicates that proprietaries in fact have been heavily involved in CIA intelligence collection and covert action. None of this is shown in the CIA budget submission. Yet a bona-fide policy review of the budget requires programmatic judgments of the necessity and appropriate use of proprietaries in overseas areas.The Angolan question has brought into sharp focus the role of the CIA's Contingency Reserve. All U.S. aid to forces in Angola came from this fund. The only place in the budgets of CIA where proprietaries have taken on even a limited visibility is in those years when supplemental financing was needed to establish or strengthen a proprietary. The budget then shows, tersely, that for a past year or for completed portions of the current years that Contingency Reserve drawdowns had been made for such purposes. For example, one past budget showed a certain amount for "RFE," meaning a subsidy for Radio Free Europe, but providing no justification materials. In turn, this practice reflects the unwritten, *post-hoc* nature of the Contingency Reserve financing process in effect, an Executive Branch supplemental in which Congress is informed after the OMB has acted. The budget does not normally indicate Agency intentions to create or establish a proprietary in the
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-140-budget year ahead. For any other Federal agency, the notionof establishing a new publicly owned enterprise without advancenotice to the Appropriations and substantive committees ofCongress would be proscribed.For the small-scale proprietaries, those which require smallsubsidies to get underway, CIA is able to launch them withoutsupplemental financing -- i.e., within its regular budget --and, therefore, these remain completely invisible in the Agencybudget submission.D. Some General Considerationsa. The relationship of utility to size: The evidence estab-lished a dilemma faced by CIA planners who recognize that propri-etaries can sometimes be most effective operationally when theyare large; indeed, as in Laos, there can be a thrust toward enormityimposed by the very nature of the operation. The dilemma is thatlarge size conflicts with deniability: In areas of the world ortypes of activity where there is little commercial appeal or fewoperating commercial firms, where would large-scale enterprisesget financing but from the U.S. Government? Laotion operationsactually could not be covered in the end. The experience suggeststhat proprietaries may have limited utility for paramilitary opera-tions in the future.b. The factor of competition with private enterprises. DoCIA proprietaries of the income-producing class unfairly competewith private U.S. businesses, both with regard to their Governmentfinancing and their secrecy? Is the utility to the Government of
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-141-such a kind and of such magnitude that CIA proprietaries should be retained regardless of their competitive impact? Generally, the CIA believes that CIA operating proprietaries do not compete with U.S. private enterprise because they tend to do things which the latter are not equipped, motivated, or staffed to perform. For example, CIA proprietaries purchase weapons and foreign armaments and technical devices; conduct security clearances; purchase real estate; insure uninsurable risks; train foreign policy forces; run airlines in remote areas or on commercially unattractive routes. Would private enterprise do any or all of these things;It is true that private enterprise does a lot of similar activity under contract to the Government, including highly sensitive contracts for CIA in technical intelligence collection and research and development. If CIA scrapped its proprietaries and coopted private firms, suitably cleared, would this be more desirable in policy terms? In economy? In operational flexibility?c. Relative scarcity of commercial and official cover. The continuing push of CIA for notionals reflects the scarcity of U.S. Government official cover in many areas of the world, the developing desire of U.S. companies not to cooperate.Some question concerning profits have been raised. Does proprietary profit constitute a significant add-on to the resources available to CIA? How is such profit treated in the budget? How is it controlled? How can the Congress (or the President, for that matter) be sure that proprietary profits are not siphoned off to accomplish projects not countenanced by the regular CIA budget?
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-142-First, profits (defined as net income to a proprietary after coverage of operating expenses) are relatively small. Even in the days when the most profitable air proprietaries were at full swing, the most that any single firm netted was $3.9 million (Air America in 1967). Over the entire period 1947-1975, total profits have been $50 million, an average of about $1.6 million annually, for the 16 biggest CIA proprietaries. And in these years, a net loss was sustained three times -- $2.5 million in 1971, $0.5 million in 1973, and $0.3 million in 1975. Looking to the future, after liquidation of the air proprietaries has been completed, there is forecast to be only one profitable proprietary: MHMUTUAL a complex of insurance, reinsurance and, and escrow-holding companies which derives most of its profit from investment portfolios. MUTUAL's net income in 1974 was $1.8 million and this general magnitude of profit is expected in the foreseeable future.As for treatment in the budget, there is both a policy and procedural aspect. The policy of CIA has changed; in February, 1975 the General Counsel of CIA ruled that profits of proprietaries and proceeds of liquidation must be returned to the Treasury as miscellaneous receipts and cannot be used to augment the Contingency Reserve or otherwise be applied to CIA operations. This ruling overturned the practice of the past which, on the few occasions where profits were not applied to augment net worth of proprietaries --i.e., plowed back into the enterprise or investment portfolios--, was to apply proprietary net proceeds to the Contingency Reserve for later release to operations.