157-10044-10144 JFK Assassination System Date: WT/2015 Identification Form Agency Information AGENCY:  SSCIA RECORD NUMBER: = 157-10014-10144 RECORD SERIES: MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE AGENCY FILENUMBER: 07-M-49 Document Information ORIGINATOR:  SSCIA FROM: TO: TITLE : DATE: 00/00/1976 PAGES: = 263 SUBJECTS : SSCSGO, REPORT DOCUMENT TYPE: REPORT CLASSIFICATION : Secret RESTRICTIONS: — Consulied CURRENT STATUS: = Withhold DATE OF LAST REVIEW: = 01/05/1999 OPENING CRITERIA : COMMENTS : v5.1 ‘ 1 HY 50955 Docld: 32423532 Page 1
o » ct @ 08/07/95 1 JFK ASSASSINATION SYSTEM IDENTIFICATION FORM ea a a cae te ee ee em ee em ees eae 9 one oe cows cows owe votes wens sams cams ame ame ame None GERD SPD SD ED EN YY EY LY EP A ED ED EEE EEE CHEE AEH OPO (OUT (OUD Powe rouy couy cowy sore sna Mane Mane sane Mane wane) wane) ener AAAI SEER GEER GOED GE com com IED ED ED EP ED ee ee eee cer ey CD; SP AGENCY INFORMATION AGENCY : SSCIA RECORD NUMBER : 157-10014-10144 RECORDS SERIES : MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE AGENCY FILE NUMBER : 07-M~49 ORIGINATOR : SSCIA FROM ; TO TITLE : DATE : 00/00/76 PAGES : 263 SUBJECTS : SSCSGO, REPORT DOCUMENT TYPE : REPORT CLASSIFICATION : SECRET RESTRICTIONS : REFERRED CURRENT STATUS : POSTPONED IN FULL DATE OF LAST REVIEW : 01/05/99 OPENING CRITERIA : COMMENTS (R] - ITEM IS RESTRICTED HW 50955 Docld:32423532 Page 2
TABLE OF CONTENTS PROPRIETARIES ‘I. Introduction and Philosophy of Use ........ cece eee eee . A. B. Operating ProprietariesS 1.1... .. cece ec ee ee es Non-Operating Proprietaries ................. eee II. Statutory Authority for Proprietaries ................... TIL. Specific Controls oc ee eee ee eres A. Agency Regulations and Policies ........... 0.00005. e B. C. E F G. H Project Reviews and Control ............ dee eee eee Financial Controls/Operating Companies and Non- Operating Companies Keeping Books of Accounts ...... Financial Controls/Non-Operating Companies Except Those Keeping Books of Accounts ..............--50-- Treatment of Profits 2.2... .. ccc eee eee ees Disposition of Funds Returned from Proprietaries Disposal of Proprietaries ..... eee eee eee eee e eee Relations with Tax, Regulatory, and Other Agencies IV. A Description of the Various Proprietaries ...... neces yee Proprietary List ............. eee eee eee ee eee ee eee Employees of Proprietaries as of October 1975 ..... cates Funding and Payroll Mechanisms ......... 6c cece cece eeaes Description of Major Headquarters-Controlled Proprietaries as of September 1975 ............2500-5 ae Listing of Proprietaries During the Period 1952 through 1974 (Total 399) Lo. ccc ccc cc ee ee ee te eee eens HY 50955 Docld: 32423532 Page 4 Oo ss Ww F 10 10 11 Li 13 14 16 16 18 21 24 AL 42 43
V. Vi. VII. VIT. TX. X. The Disposal of Agency Proprietaries a. Project MHBOUND (ii) An Overview Entities Sold ... eee eee eee es Entities "Otherwise Disposed Of" ................. Description of Disposition of Entities Sold or Otherwise Disposed Of .......... teen tenets The Sale of SouthernAir Transport, Inc.: A Case Study In Disposal of a CIA Proprietary ........... Background ........- cece eens eee eees veceees The Sale oo... cee ee eee ee ee eens Declassification of Relationship With CIA ... Conflict Of Interest ........ ccc cece eee ee eee Conclusion Cee ee ee eee eee ee eee eee eee Beyond "Doing Business":. Peak Non-Government Security Investments by Proprietaries Active as of December 31, 1974 MHMUTUAL: The Insurance-Investment Complex ........... a. b. The Air Proprietaries Issues Posed, Conclusions, and Recommendations .......... A Brief History 1.1... cee ee ee ee eens Current Status 2... ec ce eee eee eee teens Stock Portfolio Performance Chart ............. HY 50955 Docld: 32433532 Page 5 ee Cr Pe Pe a SS ee ee
SIAC ral PROPRIETARIES - one ae | Vi we i3 aS ‘4 pheey Sy ™ tom wows CST NE e. . Questions have arisen as to CIA's use of proprietary mechanisms to help carry out the Agency's missions. In particular, concerns have been expressed about the Agency's financial and management control over these entities and about the treatment of funds related to such entities. A careful review of these entities has revealed that CIA's proprietaries are appropriately limited and controlled with careful consideration given to their use within the spirit and letter of the law. Proprietaries fall into two main categories: 1. Operating companies that actually do business as would any private firm; and 2. Non-operating companies or entities that appear to do business under commercial guise. These entities may be legally constituted as corporations, partner- ships, or sole proprietorships; or they may have no such legal standing, i.e., they may be "notional" entities which have bank accounts and backstopped addresses controlled by the Agency. Corporate proprietaries are incorporated in accordance with the statutory provisions of the jurisdiction of incorporation, are subject to the same review as any corporate entity within that jurisdiction, file applicable state and/or federal tax returns, and obtain the necessary licenses to conduct their normal business. The purposes served by them are two-fold: they provide cover, attribution for funding, and administrative assistance to agents’ Teg ae society Creat . my ‘ tot, HY 50955 Docld:32423532 Page 6
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 capa- bility 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 HY 50955 Docld: 32423532 Page 7
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 question- able 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 VIIT). A, Operating Proprietaries As 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 HY 50955 Docld: 32433532 Page 8
have been used as partial offsets to operating costs. Aggregate profits over the years have been relatively small. oniy two proprie- taries have shown significant profits: the Air America complex in fulfilling mostly Government contracts in Southeast Asia, and the insurance company handling trust funds and insurance (MHMUTUAL). The air proprietary overview, infra Section IX., details the dilemmas posed by size. Moreover, it sheds light on questions concerning whether commercial viability became more of a bronze god-than was necessary 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 incidental to its CIA mission -- such as an export-import firm which engages in commercial operations only to the extent necessary to provide cover for 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 operations are incidental to the Agency mission are: HY 50955 Docld: 32433532 Page 9
A foreign travel service company which operates in a Southeast Asia country and provides cover for an agent tarpeted 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 commer- cial 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 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 BW 50955 Docld: 32742793532 Page 10
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| | Although some, such as those in the insurance complex, are commercially self-supporting, most operating proprietaries usually require budgetary support. HY 503955 Docld:32423532 Page it
B. Nonoperating Proprietaries Nonoperating 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. HY 50955 Docld: 324243532 Page 12
- 8 - 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: 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 HY 50955 Docld: 324234532 Page 13
account on which Agency officers in alias have signatory power. Arrangements are made with cleared and witting businessmen to provide a domiciliary address for these entities at a law office or telephone answering service. These entities, like the proprietary corporation administered by Agency Headquarters specialists, provide cover, payrolling, and tax attribution for Agency personnel and are similarly administered. Another type of entity used by the Agency and a proprietary only in the sense of being Agency-owned and administered is exempli- fied by some 215 notional companies which are not legally registered but have names and bank accounts controlled by the Agency. The Agency arranges with cleared and witting attorneys or proprietors of telephone answering services to provide a domiciliary address and to refer any queries to the Agency specialists concerned. These notional entities are used to provide status and operational cover for Agency personnel involved in all types of high-risk intelligence operations. They are also used as ostensible clients for purposes of funding Agency pro- prietaries or bona fide American companies which provide cover and payrolling of Agency personnel. II. STATUTORY AUTHORITY FOR PROPRIETARIES The Agency's statutory authority to spend money for proprietary corporations 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 without regard to the provisions of law and regulations relating to the expenditure of Government funds; and for objects of a confidential, extraordinary, or emergency nature, such expenditures to be accounted for solely on the certificate of the Director and every such certificate shall be deemed a sufficient voucher for the amount therein certified." HW 50955 Docld: 32423532 Page id
-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 CONTROLS The formation and activities of proprietaries are controlled through various mechanisms to assure their proper use, as discussed . below. | A. Agency Regulations and Policies Headquarters Regulation 230-8 and Headquarters Handbook 230-1 prescribe the administrative procedures to be followed in the estab- lishment, operation, and liquidation of proprietaries (see Appendix B). An Administrative Plan (specifying the operational purpose, admini- strative 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 regu- latory control along with policy memoranda are intended to assure HY 50955 Docld: 324234532 Page 15
-ll- proper conduct by entities. Each Agency component involved is responsible for compliance, and the Chief of the Cover and Commercial Staff, the Director of Finance, and the Comptroller are particularly watchful in their areas of concern. B. Project Reviews and Control The controls and procedures applicable to each operating proprie- tary are specified in a project outline and administrative plan approved at the Deputy Director level. Normal control and administra- tion is carried out by a project officer at Headquarters. Semi-annual reviews are conducted to determine whether or not the operational need still exists, and regular audits are performed to assure proper management and financial accountability. Proprietaries are liquidated as their usefulness ends; new ones are formed as needed. C. Financial Controls/ Operat=ng Companies and Non-Operating Companies Keeping Books 0 ccounts Under Agency regulations, these proprietaries are established and managed to appear to be consistent with normal commercial practices and requirements of the type of enterprise concerned. Specific require-~ ments for the general management and financial controls of each such proprietary are provided in the administrative plan described above which specifies the basic framework within which the instrumentality is to operate. All facets of an administrative plan relating to funding the proprietary and its financial management are subject to the concurrence of designated representatives of the Director of Finance and the Comptroller. A primary purpose of this. coordination is to assure that the financial controls and procedures prescribed HY 50955 Docld: 324234532 Page 16
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 certi- fied public accountant. The initial and all subsequent passages of funds to such proprie- ‘taries 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 proprie- tary. 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. HW O50955 Decld: 32423532 Page i?
- 13 - The Chief of the Agency Audit Staff is responsible for the audit of Agency proprietaries, utilizing Audit Staff personnel under a | suitable cover arrangement or witting or unwitting public accounting firms as is most appropriate to the requirements of a particular proprietary. An example of the type of audit conducted appears at p. 105 Seetion Villand concerns MHMUTUAL, the proprietary insurance-investment complex. D. Financial Controls/Non-Operating Companies Except Those Keeping Books of Account J Entities in this category are financed if financing is required through the establishment of bank checking accounts on which Agency officers have signatory power in alias. All such accounts are maintained -in the accounting records of the Agency as current asset accounts subject to monthly reconciliation with statements of accounts issued by the depository banks. All passages of funds to these accounts add to the accountable balance 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 on behalf of which the entity was established. Signatorles are Agency officials who in each case execute a declaration of trust acknowledging Government ownership of the account. Payments are initiated only in response to request of an authorized official responsible for the operational activity for which the entity was established. The Chief of the Agency's Audit Staff is responsible for the audit of all accounts maintained for these entities. HW 50955 Decld: 32423532 Page 16
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 Profits The 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 Gowernment 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, HY 50955 Docld: 324234532 Page 19
the corporation, if it had means of financing other than annual appro- priations, could continue to operate in the absence of any action by Congress on its budget program." The statute creating a particular Government corporation may provide specifically that the corporation may use its profits in the conduct of its business. | The Government Corporations Control Act certainly did not contem- plate Government corporations in the sense that the Agency must have them. Neither is it feasible for Agency proprietaries to be created by act of Congress or overseen precisely as provided for in the normal Government corporation in the Act. Nevertheless, the Agency has felt that the appropriate and reasonable policy would be to treat and control them insofar as possible in accordance with the terms of that law. Such being the case, the Agency believes there is no need to have more restrictive rules applied to its corporations in the use of funds, including profits, than are applied to Government Corporations under the other Act or statutes. Thus, the use by a proprietary of its - earnings to carry on its corporate affairs without an offset against Agency appropriations is considered a legitimate practice and does not constitute an illegal augmentation of appropriations. With rare exception, principally the large air and insurance _proprietaries, operating proprietaries have not been self-sustaining from bona fide income. Such income, including profits, as is received is retained by the proprietaries consistent with the usual operating practices of business enterprises. The use of proprietaries' profits, however, is controlled, by annual reviews and audits within the Agency of the total capital, HW 50955 Docld:3274273532 Page 20
- 16 - investment, and profits situations of the corporations in the context of the operational objectives and the cover needs of the corporations. In effect the annual project review is based upon an audit as searching as that required for statutory Government corporations. F. Disposition of Funds Returned from Proprietaries Any proprietary with funds excess to its current or foreseeable needs is required to return such funds to the Agency. Also, all funds realized from the liquidation or termination of a proprietary are returned to the Agency except in a limited number of situations when transferred to another proprietary for "similar use." On the basis of an opinion of 3 February 1975 by the CIA General Counsel, the Agency has revised its policy for the treatment of all returns of funds from proprietaries; all such returns are to be remitted to the U.S. Treasury as Miscellaneous Receipts. Prior to this change in policy, returns had been treated as refunds of the previously recorded expenses up to the amount of such expense for a particular proprietary with any excess amounts returned to the Treasury as Miscellaneous Receipts (Appendix C) © G. Disposal of Proprietaries Air America, the Agency's largest proprietary, at its peak had total assets of some | (who accounted for more than 90 percent of the people employed directly by all proprietaries). It is in the process of being liquidated because it is no longer required. The Air America complex included a number of other companies with the Pacific Corporation as the holding company. The general plan for Liquidation of Air America is for the Pacific Corporation to sell off Air America, Inc. and Air Asia, Ltd. ( the Taipei maintenance operation). A private New York firm (R. Dixon HY 50955 Docld: 324234532 Page 21
-17- Speas Company) was engaged to estimate a fair market value for the complex. Although an intensive search for competitive bidders was made, the Agency was unable to find buyers for any of the affiliated companies except the Taipei maintenance facility. The sale of this company as a going concern to the successful bidder was closed on 31 January 1975. The remaining parts of Air America are being liquidated by sale of individual assets upon completion of existing contracts. Funds realized from the sales could be as much as $25 million and will be returned to the Treasury. Agency financial support for Radio Liberty and Radio Free Europe, both sizeable proprietaries, was terminated in FY 1971 and responsi- bility for their funding and operation was assumed by the Department of State. Southern Air Transport was sold on 31 December 1973 because its contingency capability was no longer needed. The Agency realized $6,470,000 from this sale. Cash received was $3,345,000 which included a $1.2 million award in arbitration of a dispute over the proceeds of the sale of an aircraft by Southern Air Transport after the sale of the company by the Agency. The balance was paid by the purchaser to Air America to retire a debt owed by Southern Air Transport. A group of employees of Southern Air Transport filed a civil action disputing the propriety of the sale of the company by the Agency, but the case was dismissed with prejudice on 17 July 1974. A more detailed list of various disposals of smaller proprietaries and what, if any, relationships remained thereafter between the Agency and any subsequent entity appears infra page 39, Section V. HY 50955 Docld:324234532 Page 22
H. Relations with Tax, Regulatory, and Other Agencies Management and control of proprietaries often requires “cooperative interface" with outside agencies to gain beneficial working relation- ships and, as necessary, any appropriate authorizations. These relationships are described below. For those proprietaries which maintain commercial books and other financial records. U.S. and State tax returns are prepared annually by commercial managers based on the corporation‘s financial records. For other entities where only internal Agency records are maintained, tax returns are prepared by Agency specialists in a manner to reflect the normal operations of a bona fide commercial business. Close coordination is maintained with the Internal Revenue Service, which is aware of the Agency's use of proprietary commercial entities. In the event an Agency entity is singled out for IRS audit, it has been agreed that the Agency, through the Office of General Counsel, will notify IRS of Agency ownership. The IRS then cancels the audit in order to conserve auditor .manpower. | The Air proprietaries necessitated contact with the Civil Aeronautics Board, the Federal Aviation Agency and the National Transportation Safety Board. Specific problems were discussed, usually with the Office of General Counsel of the agency concerned by the CIA General Counsel. The Air Proprietaries dealt with State Department and the Agency for International Development, generally on a contractor/customer basis, although senior personnel of those agencies were advised by the Agency of its ownership of the companies. HY 50955 Bocld: 32423532 Page 23
- 19 - These proprietaries which engaged in the shipment of weapons or other items on the Munitions Control list required Agency assistance in obtaining the necessary export licenses. The ownership of the companies was discussed with State Department Office of Munitions Control and the Bureau of Alcohol, Tax and Firearms. The radio proprietaries, while funded by CIA, did receive policy guidance from the Department of State to ensure that their broadcasts were in conformance with U.S. foreign policy. The Agency has intervened with the Department of Labor on behalf of survivors of employees of the proprietaries in order to assist them in receiving the available benefits under the applicable Workmen's Compensation Acts. | The Agency, on behalf of the proprietaries, interceded with the Defense Department to have the proprietaries'’ contracts exempt from the Renegotiation Board. There was a normal exemption based on the rules of the Board which was given for contracts performed entirely outside the United States. ' CIA requested the Air Force to consider the interest of the Agency in connection with the awarding of commercial contracts to its proprie- taries. Initially this was done in the mid-1950’s on the basis of a policy decision by the Operations Coordination Board that the air proprietary in the Far East, then operating at a deficit, was an instrument of value to national security. The Agency was able to maintain a standby capability without budget subsidies if awarded enough business to support large commercial aircraft. This applied to | the passenger and cargo aircraft. HW 50955 Docld: 32423532 Page 24
- 20 - The U.S. Forest Service was advised of the ownership of a pro- prietary and asked to award contracts to the’ proprietary in order to help it develop a commercial posture and permit its aircraft to be associated with that type of flying. HW 50955 Docld:324293532 Page 25
IV. A DESCRIPTION OF THE VARIOUS PROPRIETARIES The operational needs of the Agency have required it to venture forth into many areas where proprietaries were a perceived necessary vehicle. These areas have included air support, media publications, proprietary management (accounting and management) , insurance (personal insurance coverage, annuity coverages, and escrow account maintenance for agent personnel), covert procurement (general merchandise, arms, ammunition and police related equipment), cover support (commercial cover, such as management consultant firms, importing companies, travel agencies, energy research organizations, behavior psychology companies), personnel services (tape transcription, personnel investigations for . security clearances and approvals, public accounting firms, electoral and political analysis firm keyed into foreign elections), operational support (purchase of condominiums in foreign countries, sporting goods business in United States with sales in Latin America, various overseas foundations to provide grants, export/import firms, a company which | holds a note for certain U.S. Government funds borrowed by a consortium of aluminum companies for the extraction of bauxite in Guinea to insure U.S. control of bauxite extraction aétivities in Guinea), and various other miscellaneous categories. The number of employees of proprietaries as of October 30, 1975 [ss d|SCOF ~=this number were U.S. Agency employees, 178 were U.S. proprietary hires, and 65 were foreign proprietary hires. The various types of funding and payrolling mechanisms used by the Agency (Devised Facilities incorporated in the U.S.; Devised Facilities-Notionals which HY 50955 Doecld: 3274294532 Page 26
- 22 - are not incorporated but are sole proprietorships; and Notionals, which are merely business names, are not formally constituted or registered which do business at the address of an answering service or witting attorney) totaled 326 as of October 31, 1975. There were 31 Devised Facilities, 67 Devised Facilities-Notionals, and 228 Notionals. There follows a list of some of these proprietaries with brief descriptions of .their functions. There are 97 in number. Following that list is a description of the major headquarters-controlled proprie- tarles provided as of September 24, 1975. In addition, there is included a listing of all proprietaries during the period 1952 through 1974 (total 399) with the highest net equity balance on agency records and the net worth balance as of December 31, 1974. The smallest net worth balance is $400 and the largest is $31,778,000. The year 1967 was selected to demonstrate the number of employees in use by Agency proprietaries. In that year, the Agency owned approxi- mately 158 proprietaries. These proprietaries employed approximately |lpersons. Ninety-two percent of the employees were accounted for by three proprietary complexes as follows: JBGREED TPTONIC QRACTIVE TPTONIC and QRACTIVE (Radio Free Europe and Radio Liberty) were turned over to the Department of State and are now being managed by the Board of International Broadcasters. The JBGREED complex (air support capability in the Far East) is in the process of liquidation and HY 50955 Docld: 324234532 Page 27
currently has| _ pmployees. In addition to the proprietaries mentioned above, the Agency managed 243 funding and payrolling mechanisms which provided payrolling services for|_|employees. HW O50955 Decld: 32423532 Page 26
ort = 24 - PROPRIETARY LIST © ATR SUPPORT IUBETON Complex The below four companies comprise an air support capabil- ity for worldwide contingency use. The complex is based in the Southeastern portion of the United States with cer- tain commercial business operations overseas. 7. IDUCONTROL A{__| corporation which acts as the holding company for -the principal operating company in the complex (immediately below); assets consist solely of stock in the principal operating company; no employees. . 2. IJUBERYL Al corporation hased in La small air service company which can be quickly expanded to meet Agency air: support requirements. 3. IUVEPOCH Al |corporation which operates from.an airport in the Southeastern United States; a wholly owned subsidiary of IUBERYL (immediately above) which operates a fixed base aviation facility; provides an alternative air support capability. 4, TUPIECES A{____ | corporation based in [which acts as a purchas- ing agent for aviation supplies for the activities of the complex; can provide the same service for prospective Agency air support activities; is a wholly-owned subsidiary of IUBERYL (above). iad sf rig tg oN ; ae:
7 25 - JBGREED Complex The below five conipanies comprised an air support capabil- ity in the Far East. All entities are in process of being liquidated or sold. ; 5. JBCRYING |corporation with corporate offices inl which acts as the holding company for JBCHOKE, JBHEEDFUL , and PROPRIETARY C (see below). 6. JBCHOKE . tana . A| | corporation white corporate offices in [ which has terminated all flying services contracts. The com- pany will be liquidated by sale or disposal of assets. 7. JBHEEDFUL A corporation with corporate offices in| [which ceased flying operations in 1968 but has continued to provide ticketing and other services on behalf of other affiliated com- ‘panies. 8. PROPRIETARY B BL ea wach Corporation located in| which provides ‘ computerized accounting services for JB : 9. PROPRIETARY C At... corporation located inl lwhich is the custodian for JBCHOKE files pertaining to Thai employees and contractual services in [___ will be dissolved when| law no longer requires retention of these records. Mf ; a . PROM - Single Entity NOV 6 1975 U | A. 70. HBSANDTRAP A [corporation located at | [Airport which has provided secure air support for Agency employees and clas- sified pouches between Headquarters and other Agency facilities in
the United States; the company has accepted commercial charter Flights from non-Agency customers for income and cover purposes. Media Publications The below six companies comprise a worldwide book dis- tribution and manuscript publishing activity. 11. QRBLOND A orporation with a representative [| in | which pays book distribution costs; funds are controlled y members of the New York corporation (PDPORTAL/300 - below) and paid through this corporation to avoid some of the problems of funding a domestic company in the total amount required to effect project operations; no employees except for thet ~Trepre- sentative, who is paid on a fee basis. 12. QRBLUFF AE ram [corporation which is used as attribution for Agency funding to the above two proprietaries; no employees. 13. PDPORTAL/200 A[__] non-profit organizati ted inf __| which acts as the home office of its __and is aTS6 used as . the ostensible source of all the Agency funding to other project entities: 4 employees; maintains a branch, PDPORTAL/500, in. E o z I 14, PDPORTAL/100 A limited partnership located in| | 15. POPORTAL/400 A corporation located inf | 16. PODPORTAL/300 7 ce A corporation located in | | pms ale RECT OY FROM NOV 6 1015 “ wi ShEss hee ta arad anys “ane nt Mra TREES, te P R
-_ i i ¥. Single Entities 17. TOMOSAIC Al ____|corporation based in[/|which provided an in- ternational news feature service; the project also supported the publication of books of propaganda value; the news feature service has been discontinued and the corporation will soon be dissolved, — 18. AELEDGER A corporate entity located in Europe which publishes a foreign-language weekly periodical, which is disseminated to recipients in and out of Russia and contains articles on Soviet and Bloc matters including a large amount of material prepared covertiy in the USSR by Soviet dissidents; the periodical " attempts to encourage and assist activities of moderate segments of Soviet society. 19. AEDYNAMIC Al | corporation located in| ereaeiinich pub- lishes periodicals and selected books FOr infi ration into the soviet Union and distribution to travelers and Soviets residing outside the USSR; fosters regional nationalism within the USSR; Supports a private organization of ionalities; supports the AEDYNAMIC branch office in ae 20. QRMYSTIC A sole proprietorship located in the | metropolitan area owned ostensibly by an Agency employeé whose journalistic services are utilized in support of foreign operations. ; | — Proprietary Management LPPANDA Complex The below three companies support a one man accounting and management company in Europe which provides services to other proprietary operations. PaUy NOV 6 1975 : cep | | ; . maa fb h 4 ; doth Cae a at Neg Pe ities a hee a Ne a te Ta ae ie Ng aN gaye ROI “eh Net e yA Ee ee Gk ee Bes Mes ‘a ee Rey natin me 4 LAPSES DSR RB ENTE OL
{ 21. LPREMEDY A one man accounting and management company located in Europe. , 22. LPCLOUD A dormant company at one time associated with the cover of the individual now covered by LPREMEDY. 23. LPCHAIR/A A[___|company with no employees which serves as a communication channel from Headquarters to LPREMEDY. Single Entities 24. LPHOCUS AL arar management and accounting company (three em- ployees} which provides accounting and related financial man- agement assistance to other proprietary organizations. 25. LPSUGAR — A management and accounting company (three employees) which provides accounting and related services to other proprie- tary organizations. “y 1 26. LPBERRY/B - al —_—flegal and accounting firm (three employees) which provides legal and accounting services to other proprie- tary organizations. ae : Insurance MHMUTUAL Complex The below 25 proprietaries comprise a clandestine support mechanism which provides personal insurance coverages, annuity coverages, and escrow account maintenance for agent . ; «> Personnel in a manner to preclude attribution to the United whee? ov 6 1817S GA : i phe ene ae ae PE Ra Se ‘ Ee
States Government. The complex also underwrites. insurance _risks of certain proprietary organizations and administers : the pension plans of these organizations. In addition, the complex has been used to provide a limited amount of | support to other Agency operations -- specifically, the acquisition of operational real estate and as a conduit for a the funding of selected foreign covert activities. Twelve full-time employees are involved in the management of the complex, with the assistance of three proprietary manage- ment firms. All expenses except for the salaries of Govern- ment employees assigned to the complex are paid from earned income. The companies involved are: 27. MHANVIL/A An attorney at law operating as a sole proprietor in 3; he is the Agency manager of the insurance complex. 28. MHGRET A[_ | company which provides ownership for MHCROZE, an investment proprietary, (see below) and owns an apartment in | | no employees. © 29. MHCROZE A company which serves as an investment vehicle and a primary mechanism for the management of funds, no employees. 30. MHSLACK AT corporation which provides payroll cover for project personnel and Serves as an investment vehicle for funds; seven em- ployees. 31. MHVOQDKA A company which is a reinsurance vehicle for all types of casualty and property insurance for other Agency proprietaries and directly issues death and disability, term life, annuity and - other coverages for Agency non-staff.personnel; no employees. 32. MHDRYAD A] company which serves as owner of MHLUMEN and HHSPRAY, (98 below); no employees. NOV 6 1975 : 4 1 , | ‘ , av eee One Re OC eee a oO Cenc) aaa ER SA a SE =
33.  MHLUMEN A{____| company which serves as owner of MHFETCH (see below) and as the source of an operational loan; no employees. 34. MHFETCH © aca which serves as owner of MHKOALA and MHWHIFF (see below}; an investment vehicle and manager of non- staff pension plan; no employees. 35. MHKOALA A company currently inactive and slated for dis- solution: no employees. 36. MHWHIFF A | company which is a reinsurance vehicle for al] types of casualty and property insurance for Agency proprietaries and for life and annuity coverages for non-staff personnel; no employees. 37. MHMOLAR anstalt which serves as the beneficial owner of one (see payny’ no employees. 38. MHBOMBE A company which serves as a holding company for MHTWANG and MHONSET (see. below) and as an investment vehicle; no employees. 39. MHONSET A mor op orporation which serves as an investment vehicle and quarantor Of a mortgage on a former Agency activity; no em- _ ployees. 40. MHTWANG A {corporation which handles certain annuities, escrow, term life insurance, a pension plan and funding of MHPIQUE (see below); no employees. fei
; an: 41. MHPIQUE : Ss AL___\company which provides payroll cover for three non-staff personnel who handle the Cuban dependents program payments and correspondence; three employees. , 42. MHDELFT A company which serves as a holding company for MHHAWSE (see beTow} and as a standby asset; no employees. : 43. MHHAWSE AE ompany that serves as a direct underwriter of term Tifé tnsurance and annuity contracts for non-staff Agency personnel; no employees. ~ 44, MHSEPOY A aay ant tommy that serves as beneficial owner of MHUNDER (see below) and for direct underwriting of term life and annuities for non-staff personnel; no employees. 45. MHUNDER AC] company which is slated for dissolution; no employees. 46. MHALATE Al | company which owns property in[__|;_ no employees. 47. MHJORUM af ____company which directly underwrites death and disability, term life and annuities for non-staff personnel, no employees. , 48. MHBLARE Al ____Fompany now in dissolution resulting from abandon- ment of Agency project; no employees. Sat ey sa coe pe STE SEE = : oe ne gees 2% < aN Ay ies aes kee ing Zo:
49. MHRUCHE Al Janstalt which is a general use standby asset; no employees. 50. MHCLUMP Al lanstalt which serves as a standby asset for general reinsurance use; no employees. 51. BGJASMINE A European insurance and reinsurance company which issued direct death and disability coverage to contractor personnel en- gaged for a DDS&T project, and reinsured other risks arising out of the project; no employees. BK * . 4 Logistics Support The below three entities operated by the Office of. Logistics provide a covert procurement mechanism for the Agency. 52. KMJAGGERY w i repre ng i . A corporation located| |which. purchases general merchandise in a manner which cannot be traced to the United States Government; total purchases from. January to September 1974 were $437,500; no outside commercial business; five employees. 53. TPLENTIC A[ corporation with an address inf ____hhich arranges research ‘and development and production contracts in a manner which cannot be traced to the United States Government; the company has no employees and is managed by Headquarters officials in alias. Bowe = i: + eg : ROM NOV 6 1975 —— on : eS oe apres yer * ie, 7 Z ay. ats Crit imaa’, ARK ee yA ata tek DEVE ES, oe aN ge fs Ca aes PEN iste odes att At oO POO ie Laas aR I ee
94. Stock Account #3 A corporation with an address in which purchases arms, ammunition, and police related equipment in a manner which cannot.be traced to the United States Government; the company has no employees and is managed by Headquarters officials in alias. Cover Support WUDIRK Complex . The below five entities located in | comprise a Foreign Resources Division activity which provides com- mercial cover for certain personnel assigned to the | of FR Division; no commercial activities are undertaken by the companies in the complex, and all- revenue comes from Agency sources; two of the entities are in the process of dissolution, and two recently established entities will replace the ones in dis- solution. 55. WUBODKIN AL |corporation with offices i which is styled as a management consulting firm; the entity will be dissolved in the near future as soon as other cover facilities are available for the individuals presently cover-. ed by the entity; used by New York Base personnel for employ- ment attribution and office space. 96. WUCURULE A[_____] corporation with offices in| | which is styled as a management consulting firm; the entity wi be dissolved in the near future as soon as other cover facil- ities are ayailable for the individuals presently covered by .the entity; used by New York Base personnel for employment attribution and office space. 57. WUXIPHOID AL___ corporation with offices ic which is styled as a management consulting _firm; the entity will continue to provide cover support to the| | used byL Ipersonnel for employment attribution and office "3 spac ac VR 6 Pay NOV G 4978 LIA papier “see wks hed (ee a asks OF : NP acacta po taeta, tates
58. WUBACH A newly established[_|corporation with offices in lwhich is styled as a management consulting Firm; was created to replace WUBODKIN and WUCURULE (above); used by personnel for employment attribution and office Space. . 59. WUKNOX A_newly estahlished|____—_| corporation with offices in | which is styled as a management consulting firm; was created to replace WUBODKIN and WUCURULE (above); used “by! lpersonnel for employment attribution _and office space. - Single Entities | 60. LPPIKE A[_____|importing company with a branch office in a Far East country; the branch office provides cover for one Agency employee; no employees in 61. MOKITH Al company located inf |which functions as_a travel agency and provides cover for one Agency employee in 62. LKBASE a[____,_| corporation located in| | which, in the past, has provided cover and funding for nonofficial cover officers in the middle east; it is styled as a research organiza- tion on energy matters and is now in the process of liquidation. 63. MKDILLY A Icorporation operating out of the residence of its president in Northern Virginia; the company provides cover for one Agency officer: who provides behavior psychology assistance to the 500. NOV 6 1975
Personnel Services Single Entities 64. SLAVE A | corporation having its principal office inf] | which provided a centralized facility in the Headquarters area with the capability of fulfilling field and Headquarters requirements for tape transcription and document translation; three employees; steps are now underway to convert two of the employees who were proprietary hires to contract employee status and move the function to Agency controlled buildings. 65. MHBOUND/3_ po rer catirte herees with its headquarters in| which conducts personnel investigations for security — clearances/approvals. in those cases where no United States Government interest can be disclosed. It also renders security assistance, i.e., badging, counter-audio inspections, etc., to Agency projects in those cases where United States Government involvement cannot be reveated; the company will be dissolved by 30 June 1976. 66. MHCLIMB ‘Represented as the oc branch office or affiliate of a legitimate[ |based public accounting firm, . but actually under sole control and administration of the Agency Audit Staff, this facility enables site audits of Agency cavert projects by experienced Agency auditors. — 67. VWCADENZA ‘Td company located in[_} which is used as cover for an Agency employee who provides electoral and political analysis on South American andEuropean elections; he also trains Agency personnel in polling techniques and electoral analysis; no outside business.. FROM WV 6 195 id
- 36 - , a os Operational Support WUTACTIC Complex The below 27 companies are managed by the Cover and Commercial Staff to provide operational support mechan- isms for DDO foreign operations. Some companies are in-. active and held for future use. , os 68. LPCEMENT Al | company used to purchase a condominum apart- ment in France for use as a listening post; net assets $84,226; no employees, being terminated in the near future. 69. LPKILT Al | company established to provide cover and funds to an East Asian agent; agent exports goods to Latin America for resale; gross sales last year of $1,000; assets $12,870; one field agent. oe 70. LPKNIT Al corporation formed to provide cover and source of livelihood to an Agency employee in Latin America; employee open- ed branch office of this parent company and sells sporting goods; ‘gross sales last year (first year of operation) $3,367;. assets $14,125;. one employee and wife. 71. LPPURSUIT A[___|corporation used to backstop a field agent in the renewal of his visa; assets of $375; no employees. 72. LPCAMEO A |__| corporation used as the ostensible employer of two Agency employees in the recruitment of a foreign agent; no assets no real employees. 73. LPMISSIVE Pyne mS oR MAL | anstalt which holds a mortgage on property ae ' "in Austria used by a field agent; assets of $788; the mortgage ~ NOV 6 1975 is not recorded on the books of the corporation; no employees.
74. \LPBANGO A foundation used to give ostensible grants- in-aid to field agents as a source of their livelihood; assets of $165; no employees. 75. LPABBEY AL foundation presently inactive; assets $3,202; no employees. 76. LPKITTY al __| foundation presently inactive; assets $3,205; no employees. 77, LPALONE A foundation presently inactive; assets $633; no employees. 78. LPDOUBLE Al company used as a funding channel for a cover placement, assets $2,853; no employees. . ; 79, LPRAISIN A anstalt export/import firm formed to provide additional Status and prestige to an employee operating in alias; assets $7,942; no employees. 80. LPBRAID A[____lconpany used as a note holder in the sale of _an Agency propriétary entity; assets $1,818; no employees. 81. LPADVANCE A [|__| company currently inactive; assets $3,589; no employees. I 3 S Ss Rroriven | nv 8B SECRET
~ 38 - We Cath : . : fA i eng? ry 82. LPGLITTER A [ reer company which was used as an investment vehicle for funds reserved for new commercial operations requiring Agency investments; The investment project was terminated and all funds returned to the Agency; the company. has no employees. 83. LPLOTUS Al |company currently inactive; assets of $2,831; no employees. 84. LPVISION A{ __—_—_—_|company currently inactives assets of $2,831; no employees. 85. LPRANGE AL | company which holds a note for certain United States Government funds borrowed by a consortium of aluminum companies for the extraction of bauxite. in Guinea; purpose of United States Govenment involvement was to insure U.S. control of bauxite extraction activities in Guinea; the note, issued . in 1961, was in the principal amount of $2, 855,000, balance of $1, 752, 000 has remained uncollected since 1962, when payments stopped, (at the time the Government of Guinea nationalized the extraction effort); aside from the note, the company has no other assets and has no employees. 86. LPSHADE A | company previously used as a holder of a note on a loan to a field agent; company now inactive; assets of $2,829; no employees. 87. LPMANTLE A corporation which is used to collect the proceeds from the sale of Agency proprietary entities and to refund such proceeds to the Agency; at 31 December 1973, total assets $650,220, total liabilities $633, 897, total stockholders equity $16,323; no employees. rie Dolan NOV 6 J9T§ _— ol A a a -15- . - | | |
- 39 - i 88. LPEPIC A corporation based in| with a branch office in the Far East which provides Commercial cover to a con- tract employee in the Far East targeted against foreign intelligence; net assets $27,265; one employee. 89. LPSHORE A[__|corporation currently inactive but retained for future use; net assets of $2,023; no employees. 90. LPRERUN A company used to provide compensation and tax attribution to an independent contractor, assets of $7,094; no employees. 91. LPGRASS AT ere omeany used as the ostensible investors of funds in ; assets of $1,826; no employees. 92. LPSHUFFLE AL company incorporated but never opened for business; being held in reserve for possible future use; no assets; no employees. 93. LPDAIS AL ag [Corporation based in New York with a branch office in Europe. Used as the ostensible employer of an Agency employee during his tour in Europe targeted against foreign intelligence; net assets $6,845; one employee. 94. LPDUPE - A company incorporated to provide cover and source Of TivéTihood to an Agency employee on a tour in the Near East; assets of $9,647; one employee. NOV 6 4975 BPP CS Ren tl inate othe SORE SAA eee a OES
i , Miscellaneous single Entities 95. CATAR AL corporation operated by a lawyer in Europe which has been used as the lessee of apartments of operational interest in two European cities; also used as the ostensible employer of certain Agency employees in the Far East_when they operate in alias; no real employees; funds have been passed through the company bank account in amounts necessary to meet lease payments and maintain commercial image; net worth of about $5,000 (represents minimum bank balance); company now in the process of dissolution. 96. LPBYZAS/B A entity which holds a current equity interest (30 — percent) in a European trucking company; a1] other owners of the trucking company are unwitting of Agency interest and the Agency has been trying to seli its equity since 1973; both entities provided cover for a career associate for four years; when sale is completed, LPBYZAS/B will. be dissolved and proceeds returned to the Agency for credit to Miscellaneous Receipts. 97. LPESTATE A| Janstalt with no employees which owned a house of operational interest in a European city; the house was recently sold and the entity will be dissolved as soon as the proceeds from the sale are received and the company can be liquidated in accordance with the laws of | liquidating dividends will be returned to the Agency for credit to Miscellaneous Receipts. RIT an ghd NENTS el Toe oy ipa 2 A Oe WE a tie ty
TAB B Employees* of Proprietaries as of October 30, 1975 U.S. Agency U.S. Foreign Employees Prop. Hire Prop. Hires — Totals TUBETON Complex 116 JBGREED Complex HBSANDT RAP PDPORTAL: Complex TOMOSAIC AELEDGER AEDYNAMIC _ QRMYSTIC LPPANDA Complex. LPHOCUS LPSUGAR LPBERRY/B “MHMUTUAL Complex Logistic Support Complex WUDIRK Complex LPPIKE MOKITH LKBASE MKDBILLY SLAVE MEBOUND/3 MHCLIMB VWCADENZA LPTACTIC Complex CATAR LPBYZAS/B LPESTATE GW ul w . MN AOOoa 2 owoovoo—, eewweli coun) po = Fe i Tl poce--acceccse WNOAOONOOOS poo~eececcacce —l md o ao an Totals a rr Jk TBST _ * No| — lagency employees are presently employed by Agency proprietaries. NOY 0 1975.
| - 42 - TAB C FUNDING AND PAYROLLING MECHANISMS 1. The various types of Funding and Payrolling Mechanisms used .by the Agency are described below: a. Devised Facilities--Those Agency-owned and managed mechanisms which are incorporated in U.S. jurisdictions (various States) with nominee stockholders and are used to provide nonofficial cover pay- ‘roll support to Agency assets who do not have to show highly visible cover employment. They are also used for other nonofficial cover support tasks such as funding of proprietary organizations. No books of account are maintained but annual tax returns are prepared by Headquarters specialists in a manner to make it appear that the mechanism is conducting normal commercial business. Since the tax return cannot be substantiated from commercial records, the Internal Revenue Service (IRS) must be notified of Agency interest in the entity in the event of a proposed IRS audit. Management, including direct control of the corporate bank accounts, is effected by ‘specialists at Headquarters. Funds are transferred from Headquarters ' to the bank account of each.entity in amounts and at times necessary , to meet funding obligations; otherwise, minimum balances are main- tained in the accounts to keep them open. ; aa aed . fl b. Devised Facilities-Notionals--Those Agency-owned and managed mechanisms similar to Devised Facilities except that the mechanisms are not incorporated; they are sole proprietorships. The same administrative procedures are used as for Devised Facilities. t 4p: a c. Notionals--Those Agency-owned and managed mechanisms which are merely business names (not formally constituted or registered) which ostensibly do business at the address of an answering service or witting attorney. Operating officials are usually fictitious and management is effected by specialists at Headquarters. These entities are generally used as funding attribution for monies paid to bona fide corporations in reimbursement of cover costs for Agency assets, and they are also used to fund proprietary organizations. The same administrative procedures are used as for Devised Facilities. 2. As of 31 October 1975, the number of mechanisms in each category is as follows: a. Devised Facilities b. Devised Facilities-Notionals c. Notionats - Total [.. a
LPBERRY/B LPPIKE PDPORTAL PDLEDGER ' case, _proprietaries in this complex are sub- ~ 43-5 IVT AJOR HEADQUARTERS-CONFROLLED UND ON THE SCHEDULE ATTACHE ER 1975 MEMORANDUM TO THE = J (ps. OM THE OFFICE OF FINANCE i U co 22 A one man, one secretary accounting and egal firm in New York City which pro- vides services to Agency proprietary clients as well as commercial customers. The majority of the costs of this oro- prietary are usually subsidized by the Agency, however, during the past 12- monta period the oroorietary did earn substantial fees from legal clients in- cluding a $20,000 fee which was congingent upon tne favorable settlement of a civil ¥ é é A small importing firm in New York City which provides cover for one Agency of- Ficer in the Far East. In the past, the company nas earned substantial revenue, nowever, in recent menths and for the next year it is expected tnat the company will be subsidized completely by the Agency. q ‘ e , sae ANI womrnnienanae anna 3 nal eb re 3 A complex of companias both in the U.S. end abroad wnich comprise a worldwide book distribution and manuscript pub- lisning activity. Except for $4,000 to $5,000 a year from outside sources, all sidized completely by the Agency. & small company in Europe which publishes. ‘@ waakly oariodical and disseminates this and other material te recipients in and. cut Of Russia; the various written materials produced for dissemination by tne company contain Soviet dissident literature and gather erticles to encourese-and assist acvivities of moderate segments of Soviet saciaty. This company receives outside revenue from tne sale of its publications and over ine past 12 months this revenue - contriouted to approximately one-half of | _ the costs. The balanch figs, provided : RI ‘2 Agency. 4 1915 ROW . CIA *b ate Vatied “at eee ee : pee ae eee,
PODYNAMIC VWCADENZA MHBOUND KMJAGGERY QRMYSTIC WUDIRK L HOCUS f™ - 44 - A doiastic based corporation with a German brancn which fosters the aims of a nation- alistic group within the USSR and publishes Selected books and periodicals for distri- bution to members of this nationalistic group. The New York and German offices under this project are largely subsidized: by the Agency with some revenue to the German office from the sale of publica tions. 7 A one man, one secretary, consul tina company which provides Agency officers with training and advice on polling tech- niques as applicable to foreign operations. | This company is wholly subsidized by the Agency. , - -MH3OQUND/3, a security services company: —- which supports Agency programs involving contractor personnel and offers limited Services to commercial customers for cover purposes. This company is almost completely subsidized by the Agency. A small purchasing company operated by the Agency, Office of Logistics, which provides covert procurement for that office. This company is wholly subsi- dized by. the Agency. A sole proprietorship in the Washington - area ostensibly owned by an Agency employee © ~~ wnose writing and research talents are utilized exclusively by the Agency in support of overseas oparations. This company is wholly subsidized by the Agency: A group of three comsanies in Naw Yurk which, provide cover for personnel assigned to FR Division's New York Base. The three companies involved are Supported wholly by the Agency. A two accountant, one secretary firm in wan York City which provides accounting © services for. Agency proprietary organiza-~ tions. This company is supported almost exclusively by the Agency. vf
LPB VRE iZAS LPPANDA /3 MHMUTUAL LPSUGAR - 4G - A European company with no employees Which holds the Agency's interest in another European company which was used in the past to Provide cover for ona Agency employee. This company is being retained solely for the Purpose of holding an Agency investment. Until this invest- ment is sold, the expenses inctdent to the operation of the company wil] be wholly subsidized by the Agency. One company in New York without employees | and a ona accountant, part-time secretary firm in Europe which provides ‘accounting support to Agency propriatary organizations. This company is almost exclusively sub- Sidized by the Agency. ye This is the Agency insurance complex which, through interest and dividends earned on its investment. portfol ja, pays for al] Project expenses except for funds provided by the Agency to meet the salary costs of staff and contract employees in the complex. ; A two accountant, one Secretary firm in the Washington area which provides ac- counting services to other Agency pro- prietary organizations. This company is almost completely subsidized by the Agency.
BUPLIC we , “ cBgTTy 27 46 - BEE yc LISTING GF PROPRIETARIES DURING THE PERIOD 1952 THROUGH 1974 (Total 399) HIGHEST NET ~ EQUITY BALANCE ON ‘NET WORTH PROJECT / AGENCY RECORDS BALANCE ENTITY 1952-1974 31 DEC 74 ABUNA (Same as JBCASHBOX) § 98,000 $ AEEGGHEAD 65,000 AcMARSH 1,414 AEMIRROR 42 ,0G0 AEDOKER | 5 AEWILDFIRE 37,000 AESILVER/D 60,000 AKAROA 147,000 AMIDEA . 275,000 BEDEVIL 214,000 BEHOVE 141,006 BEUCTEUL G,200 SEY.CfB 291,080 SGJAGUAR 59,400 84,400 BGMARQUE 3,500,000 , BGSPEED 2,200 SGTENTS 13,500. BGTHANKS 88,200 CABANA 17,000 CALANCET 29,000 SAPOXK 54.800 DEINDEED 25,829,000 NEWARK 333,000 DTCRAZE 85,000 DTLAMPREY 254,500 DILEQUGR 4,600 OTPRENYL 189,506 DTPIGGLE 38 ,500 DTPiLLAR 7,123,609 DTTECPEE 117 ,409 ITY/1 39,050 # =D mi NOV 4 i985 CIA
HIGHEST NET | EQUITY BALANCE ON NET WORTH PROJECT/ AGENCY RECORDS © BALANCE ENTITY 1952-1974 31 DEC 74 ENDOMORPH $ $ ENGAGE 202,000 — §,300(a) . | FELIX 6,260 FUCITIES 33 ,C00 FJREFLECT 7,959,000 FJHOLIDAY - 77 454 FISTRICT 304 ,C00 FUARROW 23,60C0 FURIOSO/H - 22,000 FUSEE 25,000 _GINSENG/G (was GIMMICK): 31,600 HACKMORE - 6600 HALARC 9,600 HBDERRICK (was WU)(same as HBCLUBHOUSE QILSTONE) 917,543 ‘  HBSANOTRAP 1,103,099 HRESITOME . 546,200 He -CKORY 142,50 HBQUAIL 2,709 Housing Fund ISBLAT LON] 16,630 HTB ALARD 14,290 ~ HTGARLIC 203 ,300 HTNAMABLE 2,056,000 HTPENULT 7,009 ICIRON, 2,209 IUATREDALE 89,099 IUQUEST . TUABATE 3,454,000 3,484 ,090(a) TUPAGAN 3,332,060 889,000(a) IUPROTON (*} 1,930,000 _ 7,220(a) JBFOLDAGE = = 43,600 JBGREED 34,110,600 31,778 ,000(a) LPCRYING REET JBCHOKE co me JBARGON NOV a 1975. CIA (*) See attached schedule. for non- government investments. (a) [a process of liquidation Mee ge ype : Bgrelx ise fadeee iabeaivie eee g FORE re tt bea Pie Wes. ote belt ee ae cs Se My ey ‘
— Mf iis | Lo Pr Vd ocyeit un 48 - SeMSHAVE HIGHEST NET EQUITY BALANCE ON NET WORTH PROJECT/ AGENCY RECORDS BALANCE ENTITY —. 1952-1974 31 DEC 74 JBGREED (continued) S $ JBHEEOFUL PROP B PROP C JBOPOSONIC : 3,500 JBWHIST 205,000 OMATE MDUST - 512,000 JMHOPE 345,000 JMPOPLAR 61,400 KMHELMSMAN, ' 19,400 KMARDISH 8,200 KMCAROUEL 20,c00 KMCASADE 49,600 KNJAGUARO . 1,088,000 KMFERRY 4,000 KMJAGGERY - 294,700 © MHOLENT 11,c00 S- STOCK ACCT. #2 4,105,090 Se. STOCK ACCT. #3 . 50,060 TPLENITIC ti 153,360 KMOCHRIOD 50,500 KMPRICE = ~  . 441,000° MSMORCH 8,300 LAGYCHAPEL 223,000 LCFURTHER 37,800 LCKNIFE 335,300 LCPEDANT .  §9,3090 LCROPES 317,600 LFUPRISE MIASTOR - 29,000 LILISP/G . . 121,760 LIMERRY . 129,090 LPBERRY (was BGLEADWAY) = ~—- 44,600 LPBERRY/A 65,000 LPBERRY/B 52,609 53,200 REC; | LPBYZAS/A 67,090 340(a) Cui Saag LEBYZAS/B 357 ,000 357,000 tag (a) In process of liquidation. oa . “~ APT? . en a) MD an rye SrA NT Se a te : Bea eT yetty bet ane i ioe ve ea
HIGHEST NET EQUITY BALANCE ON Het WORTH PROJECT/ - AGENCY RECORDS BALANCE ENTITY 1952-1974 31 DEC 74 LPCAPTAIN S$ 20,000 $ . LPCANAL 34,800 2,000(a) LPDICTUM{was ZRSALTY,(same as 500,000 _ WUBRINY): ZRSALTY), » LPDICTUM/F 931,900 LPESTATE . 87,000 | 84,400 LPSPICE (*) 7 206 ,000- "10,500(a) LPDICTUM/P 75,090 LPSALINE (*} .1 ,597 ,GGO i peranic (sane as WUAMICE) LPCYHAMMER 890 LPHALTER 67 ,cOG _MGDALSY . ; 5,400 LPTOTEM ~ 242,000 81,200(a) LPFUNNEL 71,500 LPGAMP 27,000 LPGLOBE 29,200 LPHOCUS(same as WUHOCUS) 88,000 35,700 LPJACK (*) 49,000 . 54,400(a) © LPMINERAL 1°40 52,000 Le UWI CKEN 13; 0cO LPMINOR | -LPMINOR/1 523,009” ~LPMINOR/G 91,090 LPMETAL | : 166,000 47 ,800(a) PULSE a 9,000 . “WU AALTBUT 311,700 LppaNoa(same as ZRBADGE) CHAIR A(same as HUPSY CHES 77,500 71,900 CHAIR B WUCHAIB/A & NUCHAIQ/3)°7,599 LPCLOUD(Same as WUCLOUD) 5,600 LPMET (*) 16,290 16,200 LPREMEDY 34 G06 27,400 LPRECLAIM LPPITCH os 53 ,G2d LPROE/ a . . LPPIKE © - 3,705 56,200 ~ “nae LPSIPHON : 12 306 | Ere adera er Dn LPSUGAR 55,600 35,600 ; ‘HOM LPTACTIC . _ sy LPABBEY 3,509 4,300 . E975 LPACROSS - * 4,760 ; (*} See attached schedule OEADIT (a) In process of liquidation QE! oryarelye - ‘\ Q rest bista hen, = ae ey rae a % wig ihe fae i ee Meee aw SEES ‘poate
PROJECT/ ENTITY LPTACITC (continued) LPABOUT. LPACTION !, LPADVANCE LPALONE LPASSIST LPBAIL LPBANJO LPBEAVER LPBRAIO LPSRICK LPCAMEQ _ LPCAREFREE " LPCEMENT LPCHANNEL . LPCHAQS LPDAIS LPDARE LPDECOR f SHOLLOP JOUBLE LPDRAGUN LPDUPE LPELECT LPEPIC LPFINAL LPFLASH - LPGAMP LPGRASS LPGLITTER (*) LPIMPORT LPKAYO LPKILT LPKITTY LPKIVA LPKNIT L.PLAZY LPLOTUS LPMANTLE (*) LPMASSIVE ’ LPORDER . WUOUTOONE ~ LPOXAZOLE -1952-1574 (*) See attached schedule, Tike fe HIGHEST NET EQUITY BALANCE i . NET WORTH AGENCY RECORDS BALANCE 31 DEC 74 1,080 4,300 20,000 3,600 6,000 400 2,500 17,400 1,900 : 1,200 2,200 ; 2,260 1,800 4,200 2,000 16,000 64,000 » §00 2,500 31,000 21,000 98,700 3,000 4,700 2,800 19,000 3,600 1,300 49,000 : 6,600 1,100 107,900 15,400 7 2,000 ._. 2,400 1,418,509 132,000 1,750 7900 10,600 , 7,800. 7,030 2,500 .6,690 12,200 55,090. - . .3,/788 2,400 591 ,C90 37,800 86,200 20,500 14,800 2,400 1,809» 68,500 15,090. 5,109 “FROM nov 4 1S
PROJECT/ “ENTITY — LPTACTIC (continued) HET ST EQUITY BALANCE q “AGENCY RECORDS 1952-1974 LPPITCH 28,200 LPPURSUIT 2,100 LPRAISON 8,000 LPRANGE 750,000 LPRERUN 5,c90 LPRIVER 4,000 LPROCKY - 1,100 WUSENOR 2,700 LPSERVICE 4,400  LPSHADE 67,000 LPSHOFFLE 60 LPSHORE 6,700 LPSOLO 393 ,000 LPSUMMIT 5,500 -LPVISION 3,800 LPWAMPUM 40,000 - LPWEARY - 4,400 LPWHISPER(@me as LPCAPTAIN APS HSFERG 5900 LPL TY/] 5¢c0 LPWANDER 5,0c0 LUMINANT 12,800 MENNONITE 1,200 MHAMISH 38,090 MHANVIL/A 28,000 MHANVIL/B 2,700 MHANVIL/B 3,300 MHANVIL/F 2,400 MHANYIL/G 2,060 MHBGUND/1 (same as ZRLINEN) 135,990 MHBOUND/2 28,060 MHBOUND/3 351,600 MHCLIMB 48,600 MEMUTUAL MHALATE (*) 165,600 MHBOMBE (*) 2,251,000 WUCAREFUL (*) 29,500 WUCHILI (*) £9,050 MHCLUMP (*) 75,390 MECROZE (*) 2,626,600 NHOELET (*) 9,20 HADRYA D (*) 62 039 (*) See attached schecule NET WORTH BALANCE 31 DEC 74 2,500 5,900 14,000 5,900 2,400 1,900 1,800 2,800 “103,600 Be “Saag Bae ROT SES TC sittia, Dee ae eft Bs 30. anor Rou ‘e te oe ee ee ROV a 1975 a
~ QEUAT | [ i ! i HIGHEST NET . | | EQUITY BALANCE l ON NET WORTH PROJECT/ AGENCY RECORDS BALANCE ENTITY 1952-1974 31 DEC 74 MHMUTUAL (continued) MHEGRET (*) . '§ 35,000 $ 33,800 WUFACET (*)  - 1,128,000 MHFETCH (*) 1,261,000 (363,500) MHHAWSE: .(*} 48 ,600 54,600 MHJORUM (*) 115,000 141,500 MHKEVEL (*) 357 ,000 MHKOALA (*) 250,000 211,200 MHLIBERTY (*) 4,400 - MHLITRE (*) 1,690 MHLUMEN em 59,000 . 35,500 MHMATTE (*) 49,000 MHMOLAR .(*) 850 550 MHNAVAL (*) 26,800 MHONSET (*) 126 ,000 199,000 MHPIQUE (*) 28 ,500 15,900 WUPRUDENT (*) 1,025,690 - WUSAFETY (*) 412,799 MHSEPOY (*) 18,000 (6,100) MHSLACK (*) 691 ,500 574 ,800 "TWANG (*) 638 900 648 ,500 ruiUNDER (*) 33,5010 "(590) MHVODKA (*) 7,053,500 ~ 8,230,000 MHWHIFF (*) 8,385,000 6,361,000 MINERVE MHF UGUE 325,500 ol MHSHANK - 244,000 17,600(a)Z(b) ante HIASTOR 34,700 = te MICLINIC 2,500 arte MIPACT . see MUHOL BING 21,290 ena MIPUSHER 37, ‘o00 ote MXCOTTON 459,000 Pati nee h<CRUSH : ; ee: MKKILLY . 35,500 6,000 HOV 4 1975 pecs MKPENNY (same as MKPENNY) 356,090 82 ,000(a) ws MOKITH 20,200 - 20,300 CLA pees HOMARRON | 51 ;700 . MONITION 52,000 - (*) See attached schedule. (a) in process of liquidation. | (ob) Liquidation completed in March 1975, -7- r(it mT Parti | Qcuaiug ad Lae SS Je OS ee ine Sa Ss oe
~ uit! ~ . EMOTE 53 - HIGHEST NET _ EQUITY BALANCE ON NET NORTH =o PROJECT/ AGENCY RECORDS BALANCE ENTITY 1952-1974 31 DEC 74 NOVEL $ 51,200 $ NTEICACER 80,763 . ; ! OBLIVIOUS | 14,600 ! OKMAJOR 417,000 OKSALE 46,600 OQKADIAK 92,800 OQKAIL SO 170,150 PAFANFARE(sama as FANFARE) 30,300 PARABASIS - 39,000 PAWALRUS (was WU) 92,800 PBGREGALE ° 47 ,800 PBTEMPLE “5,000 | POBASIC 1,053,500 465,800 PDBASIC/200 PDBASIC/100 ~ PDBASIC/400 PDBASIC/300 PEt “CID 13,0C0 POLS 25,900 PODEARLY 32,890 POVARSITY POSPOKE(same as POYARSITY) 31,900. 18,000(a) PBPOUTER : 36,700 . PSLAWFUL 11,600 QKACTIVE Le 5,500,000 GKBOTTOM . 4,179 CXFEAREUL 235,900 OXHUMMER 5 50% “QKOPERA 1,605,400 QKSHOGUN 21,000 ORBASTE 533 ,600 389,400 ORBLAZE - Oo, QRBLOND ORBLUFF . | | QRBI83 - 102,590 | RECre FROM QRBUZZ 12,990 . . oo ORDYNAMIC(same as AEDYNAMEC) 151,590 NOV a 1975 _ QRTENURE ; 89,200 ae ORTERRACE 60,700 -_ | Ch QRGLAD 16,790 HS (*)} See attached scnedule,. OF : ‘ sp Se OT ant ™ ‘e: mp ee AERP a a
t HIGHEST NET i EQUITY 3ALANCE . ON NET WORTH : PROJECT/ . AGENCY RECORDS BALANCE e ENTITY . 1952-1972 31 DEC 74 — QRLEDGER $ 165,500 -§ 91,400 QRMASTER > 5382600 | | QRMOSAIC ; | QRHAWKBIT 106,000 94,500(a) : QRMYSTIC . | QRCYNIC 9,200 2,700 cen QRTRIG , 190 Co ene QRTROW (*) 775,700 | . RIPCORD 260,020 i RIPSNOTER 457,300 | ROCKOIL 3,879,000 — RONDURE - 29,500 : eS SEASONAL . . 39,990 abate SERING . 10,500 SGSUMMON 62,100 SILVER/A 1,250 SIPNZZLE 32,009 SL. 35,000 4,900 SOPRANO . 75,090 SORTIE 16,600 STFANWEED 28 ,000 STSKI 11,600 TENACIOUS 21,600 TETARCH . 243 300 TGYIVID 23.760 THADMIRE 42,000 THOPUS . 25.00 TPFOCUS 1,764,000 TPFOUMART 97,500 - TPGLARE 525 C00 TPGULLET 79,660 TPHERSEY a 326,70 TPMANJACK ~ 62,630 a, JPPELLENT 635,C00 MPM ELE ype ene TPTOMIC(same as FJINDULGE) 34,260,090 | . om TURBINE "47,080 : : NOV 4 1975 ie TUXEDO 29,090 ; (a) In process of liquidation. i C | A -9- 2 CEA DLT nr SOR eS NS Whe tee see eee oe Se Re ceded Ree eee seecadee He Stas arte ele an tp Ses
HIGHEST NET EQUITY BALANCE | ON NET WORTH BALANCE 3% DEC 74 2,600 1,700 72,200 28 ,000 815,700 (same as HUSHINE/MUHUMID) PROJECT/ ASENCY RECORDS EQUITY 1932- 1974 UNAU $ 6,000 UNTWIG 1,200. UT-00-67-61 69,600 VWCADENZA 12,200 WSFLUFFER 291 ,000 WSPELICAN 34,900 WSREVOLT 14,900 WSWATERSOAK 6,000 WSWIDDER 32,700 WUADIOS WUTABOO 243 ,400 WUAMPLE.‘ WUCOTTON 27,000 WUATLAS- ' WUPESKY 192,000 WUAVON 546,600 WUE JN TUBERYL 723,700 TUCONTROL 70,000 TUEPOCH 72,290 “TUPICES — 28 ,CGd LOBSTER 53,000 WUSETTLE 14,200 WUBEVY (same as ZRGUIDE} 262 ,800 WUCLOAK (same as ZRCLOAK) WUABOUT 8,000 | WUACROSS 1,437 WUDUSTER 100,000 WUHARPY 210,000 WUHUMIED {was WUSHINE) WUMANTLE 687 ,000 MISeRer 8,200 WUSEASIDE(sme SHUSHINEUSEA TEN8O,000° WUSNAPPY - 7,700 WUWAMPLMN (sie as WUEMBARK/ 1,335,000 nUOTRK WUWAMPUM) WUBODKIN 2,506 WUCRULE(are & WUDIRK/» isTILeTTOST 000. WUXIPHOID 41,300 (a) In process of liquidation. 50,100(a) 112,500(a) 41,300
i oO : —  SECKC! ey te . EMS LYLE 56 - ~ ras ™, 133 tie oa? uIGHEST NET EQUITY BALANCE —— : neT WORTH provect/ AGENCY RECORDS BALANCE | Equity 1952-1974 31 Dec 24 A \yuEHBARK . | i 950 ,009 g 500 7 a" yyHALFLIN 95,500 “4 WQENTREE WUMOREL yur rLet (seme as pBLANGULD) 1,537 000 WUFLOWER WUPROOF 2g ,000 \USWAMP 62 ,009 WUGAZELLE opEe Vj BLONGUN 365,708 ae | YUGIRAFFE 43,9 ,7 00 TA WUZEBU ; 252,900 mm \WUHELPFUL 16,000 WyMuG 53,400 WUPADOY . WACROSS . 42,000 WUORDER £50 “ara \UTROUBLE 396 ,000 eng iWUPANEL » WUCORAL 556,900 ME PEACE . 351,100 a UPLGHY Ad SNAPE 375 ,000 ‘WUPILOT | : | WOTWINE . 150,400 WURABBIT VUDOLPHIN 44,000 . WUSAUTE 77,009 : WUSAXA . 983 ,000 - WUACUTE 15,900 , WUSHINE (SA%° as TASHINE) . COMET. oe 1,400; \WISHINE 1, . WUTRVEST WUNOTECE WUPUMA nara WUREVEL ie: WYSOLID (same as 7RS0L1D) : wuToPsy \ 972 ,000 \ WUTRADE 0 \ WUSTAKE 4 WUSUNTAN WUFLAME ; Sot < » ne Vat ran elfen ae
DECK! | , HIGHEST NET EQUITY BALANCE — ON . NET WORTH PROJECT/ AGENCY RECORDS . BALANCE | ENTITY 1952-1974 31 DEC: 74 | WUVENTURE a LPARCH (same as LPARCH) § 69,000 $ | WUABLE '- 209,000 WUBAKER 3,000 YIPASTIES 2,300 2,300(a} YOBLADE 636,000 YODoOOR 285,000 YOENTITY 82,000 YOTART 755,000 YOYARD . ~ 285 ,700 YQFLUENT . 356 ,000 YOFLUX 33,000 - ZRBENCH _ 418,000 ZRCREST . ZRAVAST 72,000 . CLIFF 4,277,000 ZRDAMSEL 100,000 ZRORIVE 57,500 ZRDROVE 211,000 ZRMGRBID. MORGLAY 12,000 ZROCCUR 59,000 ZRTINDER ARCORONA . 845,000 THe FOLLOWING ARE ON COS NON OP LIST (NOT INCLUDED [N ABOVE 'OFYLISTING) CATAR LXBASE . These proprietaries are not on Headquarters, MHMUTUAL Office of Finance records; hence no net worth SE: - MHBLARE Figure was pr2sented. CCS estimates that no Feb MHRUCHE one of these companies had a net worth of over ; MHSPRAY $50,000 during their existance. “HOV 4 iki PROPRIETARY D Vb SLOGAN ( i A (a) In process of liquidation.
~ 59 - V. THE DISPOSAL OF AGENCY PROPRIETARIES - a) An Overview The Agency has emphasized the degree to which the extensive proprietary system it has maintained in the past has been disposed of in recent years. Indeed, according to the current Chief of the Cover and Commercial Staff, at least in so far as large proprietaries are concerned, “because of multitudinous reasons they will be viewed as the solution of last resort."* Size was a problem and made it “inevitable that cover would not last." Moreover, there simply is not a need, according to the Agency, for the kind of capabilities supplied by an Air America either now or in the foreseeable future. In this regard, the Agency has indicated that no "real proprietaries" are in planning because there are no such operational requirements before the Cover and Commercial Staff (hereafter CCS"). But the Committee has learned from its study that the Agency retains the * As William E. Nelson, Deputy Director of Operations, noted recently to the Rockefeller Commission: I think by and large that the day of the big proprietary is over. We have attempted over the past few years to try to squeeze down on those kinds of proprietaries and I think we have really gone now to a fairly small number, and a fairly tightly controlled group of proprietaries who are doing legitimate operational jobs, particularly in the media field. Our experience with proprietaries in the past has been if left by themselves, they tend to absorb larger and larger amounts of government money and are not particu- larly for a business. They. are not very viable in the business sense and quickly become suspect as not having any commercial validity. And we have, I think in the past ten years, we have in this past ten years gotten rid of an enormous number of proprietaries in this field. I don't foresee us getting in the immediate future into any expansion of that proprietary record. I think we are about right in terms of where we are now. HY 50955 Docld: 324234532 Page 63
- 60 - capability "in being” to create even large proprietaries.* More- over, numerous "shelf" corporations are kept available to provide cover. These latter entities are generally only of the notional variety and pose no threat either competitively or in terms of domestic activity beyond the Agency's charter. Nonetheless, the Agency has emphasized the need to retain this general vehicle for at least one purpose: to retain assets. The CCS has indicated that a method is needed to keep "good men” who are loyal, but who need continuing work in both their ordinary and also somewhat byzantine fields. Consequently, proprietaries offer a viable alter- native to solve this dilemma of maintaining assets. As a result of this, the Committee studied which proprietaries had been sold or otherwise disposed of during the period from 1965 to 1975.. It sought to find out which of those proprietaries so dis- posed of in the last ten years maintained a significant relationship with the Agency by contract or informal understanding for any purpose, More specifically, the Committee sought answers to the following questions: | (1) How many proprietaries, by type or function, have been dissolved or sold as a going enterprise or otherwise disposed of by the Agency? * Mr. Nelson closed his recent testimony with a caveat: I can visualize, however, depending on what happens to the Agency in the future, the possibility that we might want to use more proprietaries, particularly in the field of cover if this gets terribly tight or terribly difficult. But the average operational purpose, except for some of these media operations, all we need is cover and I think that most of the proprietaries that we have fall into that category. HY 50955 Docld: 324243532 Page 64
- 61L - (2) How many proprietaries have been sold, or their assets sold, to persons, or a group including persons, who had previously served as directors, officers or employees of the proprietaries? (3) In how many instances were proprietaries sold pursuant to a written agreement, or an unwritten agreement or understanding, that the purchased proprietary, any successor entity or the parties purchasing the proprie- tary's assets would provide the Agency with goods, services or other assistance? In each case, indicate the nature of the business involved, whether the agree- ment was written or, if unwritten, the way it is reflected in Agency files, and the amounts of any specific business volume, retainers or financial support agreed to in connection with the proprietary's transfer. This request covers both firm contracts for the provision of goods and services and general agreements that the parties acquiring the proprietary or its assets would provide them, at the Agency's option, if requested to do so. . (4) In how many instances did the parties acquiring the proprietary in fact subsequently provide goods, services or other assistance to the Agency, whether or not there was a written or informal agreement of such a relation- ship at the time the proprietary or its assets were acquired from the Agency? Indicate for each instance the nature of the business, the dollar amounts of the transactions involved and the period of years during which they occurred, Our study revealed that during the indicated period 209 proprie- taries were dissolved, sold or otherwise disposed of, thus substan- tiating the Agency's claim that it had moved decisively to extricate itself from this area of activity.* But in a very real sense it is nearly impossible to evaluate whether a "link" still exists between the Agency and a former asset related to a proprietary because * The Agency's Office of Finance originally compiled a list of 305 eryptonyms of “entities" which were dropped from Office of Finance records at Headquarters during the period 1965-1975. Nineteen (19) other entities were added from other Agency divisions. Later this list was reconciled with other Agency records to eliminate cryptonym changes and other administrative actions not related to the actual disposal of a proprietary organization. Ultimately, these admini- strative eliminations” totaled 115. HW 50955 Docld: 3242354532 Page 65
- §2 - circumstances can be conceived of whereby even though formal and informal Agency ties are discontinued, social and other ties remain. The impact of such liaisons is difficult to assess. The following entities were dissolved during the referenced period: HW 50955 Docld: 32423532 Page 66
ae . ENTITIES DISSOLVED a ED DUEVED AIR SUPPORT = WUSOL ID/WUTRADE a WUSOLID/WUTOPSY ; WUDERRICK/WUCLUBHOUSE ; WUCLOAK/UOCEAN WUCLOAK/WUSEASIDE WUCLOAK/WUSNAPPY : IUQUEST/ IUPROTON ‘ | WUBETON/WUGLOBAL _ WUBETON/WUAISLE 7 WUSHINE/WUINVEST : WUSHINE /WUREBEL WUGAZELLE/NUEASEL ' WUGAZELLE/WUGIRAFFE WUPADDY/WUTROUBLE 4 MARITIME SUPPORT MARITIME SUPPORT 9 YOENTITY/YODGOR oi YOENTITY/YOMONEY zo YOTART :: — IUMUG if | IUHISTEP/IULAPEL IUHISTEP/IULATCH , OPERATIONAL SUPPORT : ; NA LPTACTIC/LPDECOR . WUTACTIC/WUDARE _ LPTACTIC/LPORAGON LPTACTIC/WUELECT LPTACTIC/LPFINAL WUTACTIC/WUFLOOD WUTACTIC/WUGAMP LPTACTIC/LPHUMID WUTACTIC/WUIMPORT WUTACTIC/WUKIWA WUTACTIC/NERVE LPTACTIC/LPPITCH WUTACTIC/WUROCKY WUTACTIC/WUSUMMET ae _ WUTACTIC/LPWAMPUM Ree OPRAds LPTACTIC/LPWHISPER eric LPTACTIC/LPORDER peng ae eran _ tg ew ay tT! HW. 0955. thea debt etare ate : SHEET oe Boh SEE OT meer a a at ‘ ' me ~ e - TAB A [e ees a +. he He ‘ Ce one Pee,
TAB A Page 2 (OPERATIONAL SUPPORT - Cont'd) . 2 WUTACTIC/WUABOUT _ LPTACTIC/LPACROSS . WUTACTIC/WUBAIL LPTACTIC/LPCAREFREE WUTACTIC/WUCHAOS COVER SUPPORT STLARGO STMOD = STLAD — STUPLIFT/STKNAP STUPLIFT/STPACER MIPACT/MIHOLDING HALARC MIPACT/MOPUSHER — CYTABARD cies WUDIRK/WUCURULE WUDIRK/WUBODKIN | * WUENTREE/WUMOREL par WUPANEL/WUCORAL WUPILOT/WUTWINE LPBYZAS/A WUBRINY /WUTROCHUS LPDICTUM/F LPDICTUM/P LPMINERAL/LPCHICKEN LPARCH/LPOUCAT WUATLAS/GIBLUFF — ACCOUNTING & MANAGEMENT QUBUZZ MHAMISH LPPANDA/LPCHAIR/B LPBERRY/A ae WUSUNTAN/WUFLAME = i WUSUGAR/B ae INSURANCE MHANVIL/B eames MHANVIL/D ns pe "  MHANVIL/F 7 fe ed ae MHSPRAY re aa os MHKEVEL — MHNAVAL : : Ener Roe ee eed ne 50555 “Docla:32 32423532 Page et: See ig ee de a ae aoe dean Rt 6 Tet ae Seen? erty tt! ‘ tate Me pew: £ an “hey os * ns fee at ti. ‘ Set
mrarmiirny op TAB A Page 3 COVERT PROCUREMENT WUMINOR/ I WUMINOR/WUHAL I BUT LPMINOR/LPMETAL WUMINOR/PULSE IUAIREDALE/IUOASIS FOUNDATION OR INSTITUTE AEWILDFIRE LPUNITY/1 MEDIA UCACORN/VOACTOR FUSEE YOYARD TOMOSAIC/TOHAWKBIT COMMUNITY DEVELOPMENT WUETHNIC/MODAISY WUETHNIC/LPHALTER WUETHNIC/LPCYHAMMER WUETHNIC/LPTOTEM PERSONAL SERVICES MKCRUSH/MKPENNY MKCRUSH/MKCOTTON BEUSEFUL BGJAGUAR ENDOMORPH/ ENGAGE INVESTMENT - LPDICTUM/K LPDICTUM/LPSPICE LPDICTUM/WUSALINE RESEARCH & DEVELOPMENT MHSHANK pn CEG j Ce, ge aes vot ste ‘* 1 ROE mp tem . f “tel” poo, : . . 1 ¥ ‘a toe Ba wf 4 \4, Phe, -
SEGAET TAB A ENTITIES DISSOLVED | AIR SUPPORT JBGREED/JBCRYING (In Liquidation) JBGREED/QKHEAVERLY (In Liquidation) JBGREED/QKHEEDFUL (In Liquidation) JBGREED/JBCHOKE (In Liquidation) ZRBENCH WUBETON/ WULOBSTER MARITIME SUPPORT . . fe YOBLADE AMCRAFT AMSALLY a ; ae . - *& MEDIA AND/OR PUBLICATIONS a — : ob. ESMIDWAY AMIDEA : . bo AMWIDE (SLOGAN) | AMRAPT . i WURABBIT INSTITUTE OR FOUNDATION LPWANDER/ 1} LPWANDER/2 LPWANDER/3 LPWANDER/ 4 JMCLIPPER - QKBOTTOM © QRBI8B PBGREGALE - QRTRIG Recrn" AER AM je! mtg at iD id COVER SUPPORT JMDUSK GA FUARROW | YQFLUX ‘ KGHELMSMAN . ECIRON ; GINSENG/G SECRET 1S teen atlanta mene) Sonaeccnnrdnna Marae erent eaemt ere Fore + poate ete eee ee erpemeeenat tenet em eee seen eee mes
~ 68 - The following entities were sold during the referenced period: ; e HY 50955 Docld: 324234532 Page 72
_ - 69 =) w ah Mea TAB B ENTITIES soip SXUTTIES SOLD a cre AIR SUPPORT a WUSHINE/WUCOMET Foy WUSHINE/WUELBOly WUSHINE/WUNOTI CE WUSHINE/WUPUMA WUGAZELLE/WUBLOWGUN | WUGAZELLE/WUZEBY | ZRCREST/ZRAVAST cel ZRCREST/ZRCLIFF WUCLOAK/WUDUSTER — WUCLOAK/WUHARPY | WUCLOAK/WUVITAL 3 . * TUQUEST/IUABATE *  TUQUEST/IUPAGAN | WUSAXA/WUACUTE a TRAVEL BUSINESS ABAVEL BUSINESS WUBEVY so COVER SUPPORT ae a POEARLY CALANCET 4 STFANWEED/STDOLLAR a ' STMYSTIC _ 4 . MIHELEN 7: ~ MIPACT/MICOUNCIL | ' INSURANCE . ‘ MHTHROW 7 MHMATTE ; ; | MHTRONY Ir PCC rnp . bee ‘ome * Substantia] Assets Sold; Entities Dissolved
TAS B ; | ENTITIES SOLD 7 AIR SUPPORT JBGREED/JBARGON FOUNDATION OR INSTITUTE DEINDEED/ TUINHAUL TRAVEL SERVICE LPJACK LOW COST HOUSING WUFLOWER/WUSWAMP . RESEARCH & DEVELOPMENT HTNAMABLE
-71- The following entities were “otherwise disposed of" during the referenced period: / HW 50955 Decld: 32423532 -Page 75
- 72.- morse “sy. drt, ‘ Esmee BE | TAB C ENTITIES OTHERWISE DISPOSED OF — . + gets + ce AIR SUPPORT cxmne WUEMBARK/NUHALFLIN WUSTAKE /WUHOBBY WUSAXA/WUBLUSEE MOMARRON . WULAZY Sac diiass COVER SUPPORT oe YIPASTIS | — FOUNDATIONS OR INSTITUTES QRBEND ZROCCUR/ZRMIDDY QRSENSE/KMOCHRIOD AESILVER MEDIA PAWALRUS POVARSITY QRGLAD AEEGGHEAD ACCOUNTING & MANAGEMENT LPCAPTAIN/LPCANAL OPERATIONAL SUPPORT LADYCHAPEL WUTACTIC/WUDOLLOP Ui Sad bids nie 36255 J NES Page ta a TT : ee bon oan x a — . Tih Wk s Rage le eng te neat AL Tn Seen ah owt, “ey Pe site “ae Seger as water Te ha Se che
_ - 73 - SECHET ENTITIES OTHERWISE DISPOSED OF MEDIA AND/OR PUBLICATION — LILISP/G AMHIM . : QKACTIVE °C a QRMASTER a TPTONIC | TPTONIC/FJ INDULGE TPTONIC/ZRNACARAT FOUNDATION OR INSTITUTE ZRCANNY DTHABEAS DTEMBARGO ZRTINDER QRTROW 4 PAFANFARE QKFEARFUL WSFLUFFER DTPILLER DTLAMPREY QKOPERA/DTGODOWN | COVER SUPPORT QRMUGWUMP TRAVEL SERVICE TGVIVID OPERATIONAL SUPPORT AMOT SECRET BN om Rec rghae ance OR
~ There follows a description of the disposition of entities . — sold or otherwise disposed of during the referenced period. Twenty- nine (29) of the entities were sold or given to witting individuals (former officers, employees, managers, contractors, etc.) Five (5) were sold or given to witting individuals who had no formal rela- .. tionship with the proprietary. Ten (10) proprietaries continued to. provide goods or services to the Agency after the disposal. Thirty-— four (34) proprietaries did not continue to provide goods or services to the Agency after disposal. In nine (9) instances the provision or offer to provide goods or services were formal or informal condi- tions of the sale or gift. In thirty-seven (37) instances this was not the case. Six (6) proprietaries were sold to unwitting individuals or organizations and thus no provision for services or goods was indi-- _—) cated: Several miscellaneous dispositions developed which did not fit neatly into any of the above categories, For example, there was one merger of an Agency proprietary. with another Agency proprie- - tary. In two instances the Agency retained a non-proprietary rela- tionship with a former employee. On two occasions the Agency turned over proprietaries to other government departments and on one occasion “it sold a proprietary to another government department. There were | several instances where the Agency gave the assets of a proprietary after liquidation (books, materials, etc.) to previously uncompensated participants in the various ventures. On occasion, the corporate shells were given to attorneys in lieu of fees for dissolution. Some participants were permitted to retain proceeds of sales in order to ‘continue the original effort of the particular proprietary. And HY 50955 Docld: 324234532 Page 7h
-Q- wl finally, assets were sometimes given to other proprietaries but without the benefit of a merger. HY 50855 Doecld: 3274294532 Page 79
er wei A, TAB D DISPOSITION OF ENTITIES SOLD OR OTHERWISE DISPOSED OF: * WUSHINE/WUGAZELLE - t ZRCREST - WUCLOAK/WUDUSTER - WUHARPY - WUCLOAK/WUVITAL - Pikes og bares, The six air proprietaries in the WUSHINE and WUGAZELLE complexes were sold as a package in 1969 to a group of witting U.S. businessmen who had acted as nominee officers, directors, and stock- holders for the companies in the WUSHINE complex. Although the group offered to provide cover and/ or air support to the Agency after the sale, this offer was not made a condition of the sale, and no understanding or contract was negotiated for prospective purchase of goods or services or cover support. To date, the proprietaries sold have not been used by the Agency. These two air proprietary entities were sold in 1974 to the businessman who managed both entities during the period of Agency ownership. No agree- ments for the continued use of the entities sold were negotiated or implied at the time of sale, and, to date, no subsequent use has been made of the entities by the Agency. This air proprietary was sold in 1968 to the -witting businessman who managed the entity during the period of Agency ownership. No agreement for the continued use of the entity sold was negotiated or implied at the time of sale, and, to date, no subsequent use has been made of the entity by the Agency. This air proprietary (parts procurement) was sold in 1965 after all assets had been removed (a corporate shell) to the witting group of businessmen from which the entity was originally purchased. No agreement for the continued use of the entity sold was negotiated or implied at the time of sale, and, to date, no subsequent use has been made of the entity by the Agency. This air proprietary entity was sold in 1972 to an unwitting, bona fide airline company. No agreement for the continued use of the entity was negotiated or implied at the time of sale, “ue « Ff ; 4 - Pee tee, and, to date, no subsequent use has been made pak of the entity by the Agency. (ete? catia ges Nee soem ee we aie ak, oe SERS ET | ioe Pcs aie Scr phat Lf oe: . a ai we . oan "ste te? Se st we . weet hie i)
TAB D Page 2 IUQUEST/IUABATE/IUPAGAN - Substantial assets of these two IUQUEST air proprietary entities were sold in 1975 to a a bona fide aviation company which was made witting ~~ for purposes of the sale. No agreement was nego- an Sn tiated or implied at the time of sale for Agency eo use or purchase of goods or services from the — company which purchased the assets. To date, no boas goods or services have been purchased from the buyer. The entities were subsequently liquidated. This air proprietary entity was sold in 1971 to an unwitting businessman. No agreement for con- tinued use of the entity by the Agency was negoti- ated or implied at the time of sale, and, to date, . Sebeeod no such use has been made of the entity. a WUSAXA/WUACUTE WUBEVY _ This proprietary, which published travel guides and was used as cover for Agency officers world- wide, was sold in 1968 to the editor of the travel guides. The editor was an Agency employee and retired at the time of the sale. No agree- ment was negotiated or implied for the continuing use of the entity after sale. To date, no goods or services have been purchased from the entity by the Agency. POEARLY - This proprietary entity, which provided status and access cover for several case officers in the Far East, was sold in 1975 to unwitting purchasers. . There have been no Agency contacts with the purchaser since then. All sale pro- Rete ceeds were returned to the Agency. . a . meee CALANCET - This proprietary, which provided cover support Lo in Europe, was sold in 1965 to a witting, bona ieee fide company which provided technical assistance : and marketing support to the proprietary during the period of Agency ownership. No agreement was negotiated or implied for prospective use of the entity by the Agency, and no such use oe was made by the Agency. The bona fide company, Sa, did, however, continue to provide cover for Be a Agency officers in other areas and under offices a not related to the former proprietary's business be activities. re STFANWEED/STDOLLAR- This proprietary was an import-export firm which Lay ce provided cover for one Agency employee in the REC ye SOOM Far East. The entity was sold to the Agency AY ' employee in 1966 at the time of his retirement per _— from the Agency. No agreement was negotiated HY 50955 —Deeld:32423532 Page Bi
TAB D Page 3 STFANWEED/STDOLLAR == or implied at the time of sale for the Agency's ee (continued) purchase of goods or services, and, to date, Pa ge no such use has been made of the entity. - STYMYSTIC - This small proprietary, which provided cover for one Agency employee in the Far East, was liqui- dated in 1974. A covert relationship has con- tinued with the owner of the parent company of which the Agency proprietary was a subsidiary. The owner provides cover in the parent company for another Agency employee, and the parent company moved into the premises vacated by the : subsidiary and was allowed to take over fixtures —— and a rental deposit at no cost. : MIHELEN - This proprietary, which provided cover for one Agency case officer in the Far East, was sold in 1974 to two locat-hire employees of the firm. All Agency connections with the firm were severed at the time of sale. MIPACT/MICOUNCIL - This proprietary, which provided cover for one- Agency employee, was sold in 1970 to the un- witting members of its Board of Directors. At the time of sale ali Agency connections with the entity were severed. MHTHROW - This proprietary (part of the insurance complex) was formed for the purpose of purchasing an apartment overseas which was used for operational purposes. When the apartment was no longer of operational use in 1970, the company (and the apartment) was sold to a non-Agency connected party. No agreement for the continued use of the corporation or the apartment was made with the purchaser, and, to date, no such use has been made of the entity or the apartment. MHMATTE - This proprietary (part of the insurance complex) was established to purchase an apartment overseas of operational interest to the Agency. When the apartment was no longer needed for operational purposes in 1970, the corporation (and the apartment) was sold to a non-Agency connected party. No agreement for the continued use of RECT cy the apartment or the entity was made with the . FROM purchaser, and, to date, no such use has been made ner - of the apartment or the entity.
€or 79 - . TAB D Page 4 MHIRONY - This proprietary was established for the use of Eecy the insurance complex, but it was never activated. Bn The corporate shell was sold in 1974 to the un- van witting attornies who served as resident agents. No agreement was made with the purchaser for the continued use of the entity, and, to date, no such use has been made of the entity. WUEMBARK/WUHALF IN ~ This air proprietary was merged with another a air proprietary (ZRCLIFF) in 1968. WUSTAKE/WNUHOBBY ~ This air proprietary was sold to the businessman whdO managed the proprietary during the period of Agency ownership on the condition that the Agency would buy back the proprietary if the contract which sustained the proprietary was not renewed by USAID. The USAID contract was not renewed, and the businessman dissolved the mace entity on behalf of the Agency in 1968. tee _ WUSAXA/WUBLUSEE - This air proprietary was disposed of by trans- ferring all assets to another air proprietary and turning over the corporate shell to two unwitting foreign. national nominees. No agreement with the nominees for the purchase of goods or services subsequent to the turn over was negotiated or implied, and, to date, no use has been made of’ the entity by the Agency. mea Res ee MOMARRON - This proprietary was established in the Far East - by two foreign agents of the Agency to provide support services for Agency-sponsored air opera- tions. The company failed, at least partly due to embezzlement by the two agents, and was liquidated apparently in late 1962 or early 1963. The Agency station in the country involved continued to maintain a covert relationship with the two agents who were politically significant for some time after the liquidation. The re- lationship was non-proprietary. e, “sd Ro, ‘ee F : x. an : Lay 2. ahs 3 ‘ ia MULAZY - This proprietary was involved in support of air activities for a.large Agency paramilitary program in Africa. At such time as the program was concluded, all assets were removed from mth ree P the company, and the corporate shell was given JRECE' " cROM to the attorney who established the entity in oO BE lieu of paying his prospective fee for dissolv- pos me ing the corporation. eae et 4 fs te Ween om, rE a fw eee rn nee A BABE * Me ba ee ~ .
Riches YJPASTIS - QRBEND - ZROCCUR/ZRMIDDY - QRSENSE/ KMOCHRIOD - AESILVER. - PAWALRUS — - any pas ve in “Bie ME PAABRE: DaP bao Rats Baas. FE TAB D Page 5 This proprietary, which provided cover support for one Agency officer in the Far East, was abandoned when the country was overrun by Communist forces. The assets left behind will be written off. This proprietary, non-profit organization was turned over to its management in 1967 when the Agency withdrew its support to the entity. No further Agency support has been given to the entity, and the management intended to continue the program with private and USAID support. This proprietary non-profit, medical organiza- tion was disposed of .in 1967 by transfer of all of its assets to the witting Board of Directors for continuation without Agency support. No further Agency support was given to the entity. This proprietary, non-profit entity was dis- posed of in 1968 when ali assets were turned over to the witting trustees who intended to continue the operation with private support. No further support was given to the entity by the Agency. This foreign proprietary research institute was disposed of in 1967, at which time the Institute was surge funded to permit it to continue operations for approximately two years while a search was made for private funds to enable continuation of the Institute or permit its orderly liquidation. In mid-1969, the Institute ceased its activity since sufficient private funds could not be located to fund Institute programs. No Agency support was provided after 1967. This proprietary entity published an English language periodical in the Near East. The publishing rights plus certain assets were sold to indigenous purchasers and the proceeds of sale were used to pay off corporate liabilities prior to dissolution of the entity. Since the periodical continued to publish articles which coincided with U.S. objectives for the area concerned, the Agency provided limited support to the new owners to enable them to continue the publication. oak cebu
Bed TAB D - Page 6 POVARSITY - This proprietary publishing firm in the Far mv East provided cover support for one Agency has employee who introduced foreign books and articles to Far Eastern media sources. In 1975 the firm was de-registered and certain assets were sold to a former employee of the firm who re-registered the firm under a different name. The Agency employee who was provided cover by the entity is still active in the Far East under a new cover and the only contact with the purchaser is in the interest of maintaining the cover story of the active Agency employee. No support is being extended to the re-registered entity. eo cr Be QRGLAD - This activity provides support to a foreign based asset to permit him to publish a foreign language journal. The activity was inaccurately and inappropriately categorized as a proprietary when an Administrative Plan was prepared in 1971. The error was corrected in 1975 when the activity was accurately categorized as a controlled sub- — sidy. The operation continues with Agency subsidy support. , AEEGGHEAD - The U.S. proprietary portion of this book pub- lishing activity was legally liquidated in - 1968. Funds remaining after settlement of all liabilities were transferred overseas to other : parts of the operation and were used to meet s approved operational expenses. Some of the remaining stock of foreign language books was given to a cleared and witting contact who had =a served without compensation as an officer of CS the proprietary mechanism. The remainder was shipped overseas to be distributed by the nee a. overseas mechanisms of the operation which are ae not proprietaries.. They continue to distribute ’ fooks with Agency subsidy support. - LPCAPTAIN/LPCANAL ~ This proprietary, which provided management and accounting services for Agency activities in Europe, was disposed of in 1974 by removal of all assets from the entity and transfer of the corporate shel] to the U.S. businessman who had backstopped the company without compensation. REL. of Peh4 No support has been given to the entity or use Vin.” ™ made thereof by the Agency. en) tplals : #2095 ey Rese? BAIABAR 5 BR. Paar 8: ay AS: fee RE ao es wh a a pest * ae See, cchiad wt Nine che, cate, see.
LADYCHAPEL WUTACTIC/WUDOLLOP roan d, TAB D ’ Page 7 This proprietary was established to purchase an apartment building in Europe for Agency office and residential use. In 1968, then the build- ing was of no further use to the Agency, the entity with the apartment building was ostensibly given to the Department of State as a gift. The Department actually reimbursed the Agency for the building in Washington. The Agency, on behalf of the Department, is attempting to liquidate the company. This is complicated by a disputed foreign tax claim. This operational support mechanism had no assets at the time of its disposal in 1971, and the corporate shell was turned over to the attorney who established the company in lieu of payment of his prospective fee for dissolving the entity. pet rr 1, 9 4 reg id A b be i
JBARGON DE INHAUL TAB D Disposition of Entities. Sold or Otherwise Disposed Of % This air support proprietary (maintenance facility) — was sold in January 1975 to a bona fide aviation concern which was made witting of the Agency's ownership of the firm for purposes of the sale. At the time of sale, it was agreed that JBARGON would continue to provide aircraft maintenance, supply, and bookkeeping services to JBCHOKE, the former parent company of JBARGON. Since the date of sale, JBARGON has provided $612,000 worth of. aircraft maintenance, supply, and bookkeeping services to JBCHOKE; JBCHOKE is now in the process of liquidation. This proprietary lending institution (bank) was established in a European country in 1955 to provide loans and outright grants to non-communist cooperatives. The proprietary was ostensibly owned {backstopped) by a bona fide U.S. foundation which was subsidized by the Agency, and the bank was managed by a bona fide management company on behalf of the Agency. By 1962 when it was determined that the bank had accomplished its purposes, the Special Group (predecessor to the 40 Committee) instructed that the bank be phased out in an orderly manner over the next five years. Various disposal plans were considered over the next few years, and in 1965 the Agency sold the bank (through its ostensible owner--the foundation) to the firm which managed the bank during the period of Agency ownership. In payment, the foundation accepted notes from the management firm, payable over a four year period. It was expected that the payments of the purchase price would come from the proceeds derived from the repayment of various types of loans made by the bank, and it was recognized that ‘ certain unsecured bank loans were of questionable collectibility. Accordingly, that portion of the purchase price which was tied to the repayment of these loans was subject to adjustment for litiga- tion expenses associated with collection and a 20% collection fee. . Also, this portion of the purchase price was not subject to interest on the unpaid balance. It was also agreed that the bank would administer a fund of $100,000 set aside by the Agency for continuing grants in less than $25,000 amounts for Agency approved activities which were
DEINHAUL (Cont'd) ~ in concert with the original objectives of the pro- ject.. In 1967 under the terms of the Katzenbach Report, it was necessary for the Agency to discon- tinue its support to the bona fide U.S.s foundation {ostensible former owner of the bank as mentioned above) which had acted as a collection agent for the sale proceeds. Incident to the Agency's dis- “engagement from support of the foundation, the foundation was allowed to keep all proceeds from Subsequent payments on the purchase price for the bank. 4 LPJACK .o- This travel service proprietary was sold in 1975 ' to an Agency employee at the time of his retirement. This individual had ostensibly owned the firm but _in fact only managed it for the Agency. No agree- ment was negotiated for the continued use of the travel service by the Agency, however, the Agency was using the travel service at the time of sale largely for the purchase of airline tickets for travel in support of sensitive projects. This practice still continues, and it is estimated that Agency business represents about 30% of the gross airline ticket sales of the entity on an annual basis. WUSWAMP - The Agency owned 50% of the equity in this foreign entity which constructed low.cost housing in one of the less developed countries of the world. The Agency's equity was sold to. WUPESKY, a private. company which. provided cover for an Agency employee who managed the Agency's foreign low cost housing © ; _ program. No agreement was made with WUPESKY for eo, Ri the subsequent purchase of services or products a of WUSWAMP, and no such purchases were made. Nevertheless, WUPESKY continued to provide cover for the Agency Employee until 1973. i « cd smpterer eniee iran: ~ oF aberuanSaet cheered Bie te meeps ete eo , . - ts % a! . . § a ¥ HTNAMABLE - This proprietary was a non-profit organization oo which undertook high risk scientific research programs in support of Government sponsored reconnaissance programs. In 1966, the Agency decided to terminate its proprietary relationship with. the entity and it was determined that, because of the charter of non-profit organizations, any proceeds from the liquidation would have to be given to other non-profit organizations or - - foundations. Accordingly, the plant and equipment ce a were sold to a profit making corporation which | Res . ‘ "created a subsidiary around the assets purchased. The proceeds of the sale were distributed among
LILISP/G AMHIM _ QKACTIVE QRMASTER several non-profit organizations. under Agency control. An unwritten condition of the sale was that the Agency would contract with the,new organizi- ation for scientific research of interest to the Agency in the amount of about $900,000 over an eighteen month period. Only about $770,000 was so committed, and all Agency relations with the successor organization were terminated in 1968. This media type proprietary provided cover for an Agency employee who arranged for a foreign motion picture firm run by an American to produce and distribute foreign language films throughout Latin America. For funding purposes, the proprie- tary borrowed working capital from another prop-. rietary, LPBERRY/A, and paid production and . -distribution costs in anticipation of a return on the proceeds of film distribution. The prop-~ rietary was dissolved in 1961, and all rights to the net profits of distribution were assigned to LPBERRY/A in return for cancellation of the note it held from the proprietary. After much wrangling with the American owner of the film — production and distribution company, it became evident that appropriate reports were not being submitted covering recoupments or net profits and the Agency negotiated a settlement which pro- vided that LPBERRY/A and the distribution company would render no further claims against each other. Relations eased at that point. . This media proprietary compiled, published, and distributed a newsletter overseas. In 1975, when the Agency withdrew its support, it was decided to discontinue the publication activity, and the assets of the company were turned over to AMHIM/1, the editor and manager, to enable him to maintain a status independent of the Agency as a commercial print shop. This proprietary radio broadcasting activity was turned over to the Department of State for support and subsequently placed under the control of the Board of International Broadcasters for continued — operation with Congressional support. — 7K This media type proprietary which was -involved in radio and TV projects was established in 1963 and continued under Agency ownership until 1969 when it was’ sold bes — i = . bes ol ret os — z Pe oe a ¢
QRMASTER (Cont'd) TPTONIC TPTONIC/FU INDULGE LPTONIC/ZRNACARAT ZRCANNY DTHABEAS wt™ CA Om: Mee ” : ty to its manager with full expectation of continued operation with heavy Agency subsidy. At the time of sale, substantial funds were removed, from the. entity leaving jt without sufficient working capital. Consequently, the Agency arranged for .@ line of credit through. a bank guaranteed by the funds removed from the entity. Subsequently, the manager, with Agency permission, sold the entity to a group of foreign nationals. The manager formed his own corporation which contracted with the Agency for services including the continued _ Management of the company sold of which he was stil] president. A management dispute resulted in the removal of the manager from the first corporation and the bank seized the guarantee for the Tine of credit which had been drawn down and used as | working capital for the first entity. The manager, no longer supported by the Agency, is the channel through which the Agency is to receive repayment -of loans which arose out of the line of credit. So far, the Agency has received. no payments. ‘These three proprietary. entities were part of a substantial radio broadcasting activity which was turned over to the Department of State for support and subsequently placed under the control of the Board of International Broadcasters for continued operation with Congressional support. This U.S. foundation type proprietary served as a funding. mechanism for a labor organization supported by the Agency. In 1968 all assets plus a termination grant were turned over to the group of U.S. businessmen who backstopped the - Agency entity. All Agency funds destined for the labor union were transferred to that organization, and the Agency created a foreign funding company (QRSPIDER} utilizing the same businessmen to continue support to the union. The foreign entity. is still in being, although inactive, and will be dissolved after all tag end negotiations are concluded with the former management of the labor organization which continues in revised form without Agency support. This proprietary non-profit entity was supported by the Agency until. December 1974 when all Agency funds were withdrawn and the furniture and.fixtures ©
DTHABEAS (Cont'd) - were given as a gift to the witting directors who proposed to continue the entity as a private’ organization. No further. contact has been main- tained with the entity. DT EMBARGO - This foundation was established in 1938 without 7 ‘. Agency support. After a long period of inactivity, the Agency took over the entity. in 1953 and used it to support a publication produced at a U.S. University and aimed at Latin America. In 1967, the Agency withdrew its support to the publication, withdrew Agency funds from the foundation, and 4 gave the office furnishings to the witting directors oe of the foundation with the stipulation that the furnishings would be turned over to the university. ZRTINDER - This proprietary institute was supported by the Agency until 1968 when all assets and liabilities plus a termination grant was turned over to the management and ostensible owners of the entity to enable the organization to continue without Agency control or support. No further contact was maintained with the organization. QRTROW - This former proprietary is an institute located in Europe which seeks to influence and encourage moderate and pro-democratic youth leaders and government officials concerned with youth and higher education. The Agency withdrew its support from the.institute in 1974 and turned over all assets to the management of the organiza~ _ tion. In addition, the Agency provided surge - funding in the amount necessary to enable the entity to exist in reduced form for about one year during which time the management would attempt to. arrange private support. All Agency employees involved in the project terminated their employment relationship with the Agency or were reassigned, and the Agency has not rendered further assistance to the operation. ; 0 PAFANFARE - This foundation type proprietary provided grants oo ’ and other support to individuals and organizations of interest to the Agency. in the Near East. At : the project's termination residual funds were f Ne turned over to one of the witting trustees to QS ~ permit the continuation of the activity for a. period of time without Agency support. No further. ‘Agency support has been given to the organization. cERET iN ys tei Tee ipa a aan ewan pte Meant ene ee 2 oP SS a eggtinceattpee Ake hase eet MOMASS Bal
QKFEARFUL WSFLUFFER DTPILLAR DTLAMPREY. QKOPERA/DTGODOWN =" ~ 88 - AAT cawhk This foundation type proprietary provided support to a bona fide international organizatiOn interested in international legal matters. At the time the Agency withdrew its support for the activity in 1969 the assets of the proprietary plus termination funding were turned over to the witting Board of Directors. The organization, now under a new name, continues to exist without Agency support. This foundation type proprietary provided funds to a bona fide foundation involved with the development of international cooperatives. At . the time the Agency withdrew its support from the: cooperative program, the entity was dissolved, however, it had been anticipated that the entity would be the recipient of funds resulting from the sale of a proprietary lending institution in Europe. The bona fide foundation which was part of the funding channel for the European bank was allowed to retain the proceeds of the sale when WSFLUFFER was dissolved. See the write-up under DEINHAUL for more details of the sale of the European bank.. This foundation type proprietary supported indivi- duals and organizations of interest to the Agency in the Far East. At the time the Agency withdrew its support for the activity in 1967, the assets of the organization with a substantial termination payment were turned over to the witting Board of Directors of the entity. . The entity has continued its work without Agency support. This foundation type proprietary supported an international organization concerned with indivi- duais in the teaching profession. At the time the Agency withdrew its support from the inter- national organization, the proprietary was .~ dissolved after making one last termination grant to the international organization. The inter- national entity has continued without Agency support. This foundation type proprietary supported individuals and international organizations involved with cultural matters. -To give the entity substance and provide funds for day-to-day administration, the Agency started the organization with a substantial grant which was invested in 6
QKOPERA/DTGODOWN (Cont'd) QRMUGWUMP TGVIVID AMOT ie income producing securities. At the time the Agency withdrew its support, the assets of the entity were given to its witting Board of Directors with the understanding that approximately 60% of the portfolio of investments would be retained by the organization to sustain its continued operation without Agency support, and 40% of the proceeds of the portfolio would be immediately granted to other organizations and activities which fostered the objectives of the QKOPERA project. This small proprietary provided cover for one individual overseas. In 1972, the employee resigned and expressed a desire to continue the business without Agency support. . Accordingly, the meager assets of the entity were sold to the resigned employee. Payment for the entity took the form of offset against funds due the employee on separation, lump sum teave payment, return travel, etc. The Agency has had no further interest in the entity. This proprietary travel Agency provided cover for an Agency employee overseas. When the employee was reassigned in 1966, all assets wére converted to cash and turned back to the Agency. Neverthe- less, an indigenous employee of the entity, and a contact of the Agency Station in the country involved, was allowed to take over the name and clientele and continue the business. No commit- ments or agreements were made for continued use of the business, and no support was sub- sequently provided or sought from the business. This proprietary, which produced economic and sociological reports in support of Cuban opera- tions, was dissolved in 1973 and its assets turned over to another proprietary, SLIGO. SLIGO was subsequently dissolved in 1975 (see list of dissolved entities.) } a 7 merecagreme ates ayer og 4 . . af i . ao ge : , x 4 4 a t f { i ham: i ee bpnaerso ES erand , f t - 4 2 cs
b) THE SALE OF SOUTHERN AIR TRANSPORT, INC.: A CASE STUDY IN DISPOSAL OF A CIA PROPRIETARY. BACKGROUND Southern .Air Transport Incorporated (SAT) is a U.S. Air Carrier, incorporated in the State of Florida on October 31, 1949, From its inception until. its purchase in 1960 by the Central Intelligence Agency (CIA), it was privately owned by Messrs. Fredrick C. Moor and Stanley G. Williams. It was purchased by the CIA on August 5, 1960, and owned by the CIA through December 31, 1973. CIA sold the | firm back to Mr. Williams on December 31, 1973. ‘The decision to acquire Southern Air Transport was triggered by a change in the regulations governing the award of Military Air Trans-. port Service (MATS) contracts. On April 1, 1960, Air America (AAM).- had begun flying a seven-month MATS contract operating out of Tachikawa. AFB in Japan, to other Pacific locations. In June of 1960, the De- partment of Defense (DOD) and the Civil Aeronautics Board (CAB) changed the regulations governing the awarding of MATS contracts to require | that bidders hold at least a Supplemental Certificate of Convenience and Necessity for an Air Carrier and that they participate in the Civil Reserve Air Fleet Program (CRAF). Air America did not meet either of these new criteria and could not obtain appropriate waivers to them. The Air. America heavy airlift capability represented an asset for use by: the U.S. Government in future operational contin- gencies throughout the Far East area. Loss of the MATS contract | would result in under utilization of aircraft and air crews and the HW 50955 Docld:32473532 Page 94
HY MATS contract revenues were needed to sustain these assets. Therefore, it was proposed that either AAM should obtain the necessary certi- fication.or that the Agency should buy another commercial firm that already held these certifications. The October 1, 1960, contract date and the need for public hearings and lengthy proceedings mili- tated against AAM applying for the certificate themselves. Also, again in order to avoid lengthy public hearings, which would be time- consuming and generate public exposure, it was decided that the ownership of the company to be acquired must be kept completely separate from AAM. This solution was concurred in by the CAB, the DoD, the CIA, and AAM management. | It was anticipated that if the new company were awarded the ongoing MATS contract, it would actually perform the flying service | but would use equipment under conditional sale from AAM and would employ personnel transferred from AAM. Under inter-company agree- ments Air America would provide all maintenance work, ground handling, and other services for which it would be reimbursed by the new company. In this way, Air America would share in the revenues generated by the MATS contracts. The proposal to purchase a supplemental carrier and operate it under the above arrangement was approved by Allen Dulles as Director of Central Intelligence (DCI) on July 15, 1960. Funds from the Clandestine Services budget for FY 61 were made available for the purchase. Were - After World War II there hed-been over 200 supplemental carriers in-existence. By 1960 there were only 18 still operating. Air 5039355 Docld:324235532 Page 35
Hy America management made a survey of the 18 and determined that Southern Air Transport in Miami, Florida was the most attractive as a purchase possibility. It operated two C-46s.-- one owned, one leased -- between Miami and points in the Caribbean and South America. Its associated company owned the four-acre property on which SAT was located. Moreover, it operated at a modest profit and had no long-term debts. | Negotiations for the purchase of SAT were successful and on August 5; 1960, the CIA exchanged $307,506.10 for all outstanding shares of capital stock of SAT and its real property owning affil- iate. The Agency owned these shares in the name of Roger C. Hyatt, a former board member of Air America. Mr. Hyatt together with Percival Brundage and Perkins McGuire were added to the SAT board of directors. Under CIA management ‘Southern Air Transport operated with two semi-autonomous divisions: the Pacific Division and the Atlantic Division. The Pacific Division performed the MATS contract and supported Agency heavylift requirements in East Asia. The Atlantic Division continued to operate in the Caribbean and South America; doing the same sort of flying SAT had done prior to Agency acquisi- tion. The Atlantic Division was also able to furnish certain support for the Cuban and Congo operations. At the peak of its activities, the SAT fleet, comprised of both owned and leased aircraft, included Douglas DC-6, Boeing 727, and Lockheed L-100 Hercules aircraft. 50955 DBoclId: 32423532 Page 96
THE SALE 5 In 1972 it became apparent that the Agency's air capabilities” were becoming excess to its needs, and that political realities | and future operational requirements in the post-war era of Southeast. Asia would not require large air proprietary assets. On April 21, 1972, the Director of Central Intelligence approved in principle . the divestiture of CIA ownership and control of the Air America complex and Southern Air Transport. He approved recommendations calling for Air America to be retained until the end of the war in Southeast Asia, the immediate elimination of the Pacific Division of SAT, the sale of the two 727 aircraft leased to SAT by Air America, and subsequent divestiture of Agency ownership and control of the . remainder of SAT.* Specific note was made that conflict of interest should be avoided and that no employee should receive a windfall ‘ benefit as a result of these transactions, ** In May 1972, Agency officials { Jand Lawrence Houston) met with the Chairman of the Civil Aeronautics Board, Secor D. Browne, and his Administrative Assistant, Edwin Rector, to seek informal | advice as to the best way to disengage from SAT. Three alternatives were discussed: (1) dissolve the company and sell the assets; (2) sell ‘the assets to the current operators of the company; (3) sell SAT to, or merge SAT into, one of the other supplemental carriers. * The Director determined that 'we no longer should retain air proprie- | taries purely for contingent requirements and that on the record, there- fore, the Agency should divest itself of the Southern Air Transport complex entirely. He stated the opinion that the desirable course of action would be dissolution, although he realized that the problems were many and complex. Also, he did not rule out other solutions _ which might achieve the end and yet better satisfy the interests of .- all concerned:' 7 = . ** A condition imposed by the DCI was that"in the disposition of any of the assets involved nothing inure to the benefit of Agency employees or former employees or persons whose relationship with the Agency has been or is of such a nature as might raise a question of conflict of - interest! HW 50955 FoAS eS s193530 Page 97
The CAB chairman discouraged option (3) because it would involve > public hearings and would be subject to criticism by the other supple- mentals. Option (1), although least troublesome from the legal and © exposure standpoints, would further reduce the shrinking number of — U.S. supplementals (by 1972, there were only eleven supplemental carriers left) and would be unfair to SAT emp Loyees. The CAB officials had no problem with option (2). On 5\ Ma 1972, the DCI was presented with the results of the meeting with the CAB chairman. ' He approved the recommendation to explore the sale of the equity in SAT to the current management. It was noted that SAT had been operat~ ing as a supplemental carrier for 25 years, none of the employees of SAT had ever been an employee of the Agency and that both the Depart-_ ‘ment of Defense and the, chairman of the CAB considered it in their | best interests to keep SAT as a viable carrier rather than dissolving 7 ’ the company and selling the assets. The rationale behind selling . | SAT intact to its management was: | a. Liquidation would deprive the U.S. of a useful air carrier and would be unfair to the employees. | b. Sale of SAT as a going concern on the open market would gene- rate an unacceptable level of public interest and scrutiny. A publicly advertised disposition would run contrary to the Director’ s statutory mandate to protect intelligence sources and methods. c. Although a potential for conflict of interest and windfall profit existed, sale of SAT to its management would best satisfy the requirements of everyone involved. | The DCI was, apparently, allowed this flexibility in method of ~ disposal by statute. 40 U.S.C. § 474(17) provides that nothing in ‘the regulations relating to disposal of surplus government property HY 50955 Bocld: 32423532 Page 98
> shall affect any authority of the CIA. In addition, 50 u.s.c. § 403(d)(5) provides that the Director of Central Intelligence is responsible for protecting intelligence sources and methods from unauthorized disclosure. It was determined that sale of SAT stock to Mr. Williams in a confidential manner would best prevent damage to national security and foreign relations of the United States which could result from disclosure of ‘CIA ownership. Agency officials began exploring ways in which SAT could be sold to its management without permitting a windfall to accrue to the buyer and in a way that could not be construed as a conflict of interest. To establish a reasonable selling price, the Agency asked the Certified Public Accounting firm of Lybrand, Ross Brothers and | Montgomery (now doing business as Coopers & Lybrand) to perform a ’ valuation study. They in turn engaged R. Dixon Speas Associates, Inc., aviation consultants, to establish an evaluation for the aireraft. The following values were developed: | a. Book Value of SAT. . — $3.9 million b. Estimated Total Value of SAT Capital Stock on Open Market $2.645 million ¢. Disposal as going concern $2.1 million ad. Liquidation Value $1.25 million e. Agency Investment -$1.5 million Based on these figures, the Executive Director-Comptroller on August 17, 1972, approved an asking price of $2.7 million. Sale at thig price to the management would require simultaneous payment ~ in full of the $3.2 million note payable to Air America through HW 50955 Docld:32473532 Page 99
Actus Technology (as the associated land holding company had been Cy renamed) and would not include any equity in the leasp/purchase ? agreement between SAT and Air America for a Lockheed L 100-30 Hercules aircraft. Although this $2.7 million price was less than the $3.9 million book value, it did exceed the fair market value of the company as calculated by professional appraisers. The appraisals — were based not on depreciated purchase prices for assets, as reflected in book values, but rather on either the earning power of the- assets adjusted to "present value" or the current resale value for all assets. | On August 23, 1972, Mr. Williams was advised of the asking price - for SAT of $2.7 million for the acquisition of stock and $3.2 million for payment of debt to Air America or a total of $5.9 million. A | 5 deadline date of October 1, 1972, was established; otherwise Mr. Williams was advised that the firm would be dissolved and the assets liquidated. Although: Mr. Williams contended the asking figure should be reduced since the outstanding loan to Air America had been reduced since the date of the study by Coopers & Lybrands, Mr. Williams stated he would attempt to work out financing within the deadline date of October 1, 1972. This deadline was extended by the Agency to December 4, 1972. | On December 5, 1972, Mr. Williams submitted an offer for SAT of $5 million which comprised $1. 875 million for the acquisition of SAT and $3.125 million to pay off the debt to AAM. On December 26, 1972, the Executive Director-Comptroller approved the recommendation that Mr. Williams' offer be rejected and that if Mr. Williams was HW 50955 Docld:32423532 Page 100
ed for the original purchase price of $5.9 million, unable to raise by January 20, 1973, the additional funds required America debt, that.the Agency proceed with Liquidation plans and dismissal of SAT employees not later than February 1, 1973. On January 11, 1973, Mr. Williams submitted a new proposal to purchase SAT for a total price of $5,605,000. tentative commitment for a loan of $4.0 million and his offer was contingent upon an additional loan. The offer called for a total payment of $5,605,000 broken down as follows: Acquisition of stock for Actus and SAT $2.145 million Payment of debt to Air America 3.125 million Credit for payments to AAM 10,\June) 1972, in Liquidation | of long term debt since .335 million Total payment $5. 605 million Prior to accepting Mr. Williams’ offer, CIA representatives beth thea CAB. again discussed the sale of SAT to Mr. Williams, Mr. R. Tenney Johnson of CAB indicated that the board would be interested in — including the Air Mr. Williams cited a seeing SAT continued. Mr. Johnson stated it would not be necessary to surface the Agency's name as the true owner of SAT in the CAB proceedings, and that he did not anticipate any problems with other supplemental carriers as a result of the sale to Mr. On January 19, 1973, the Decl approved the sale of SAT to Mr. oo Williams. > Williams. It was noted. that Mr. Williams' offer was within 5 percent of the original asking price, was above the independent evaluation for sale as a going concern and was at a figure which would not seem to give the buyer windfall profit. HW 50955 Docld:324293532 Page 101 Such sale would constitute a
oo, clean break-away of SAT from the Agency with the exception of a one year extension on the lease/purchase agreement for an L.100-30 air- craft from SAT. This agreement for sale between Mr. Williams and the Agency included a provision that any profit derived from the sale of assets within one year would constitute a windfall and would be added to the total sale price. | On February 28, 1973, the Board of Directors of SAT executed corporate action on the Agreement for Sale of SAT to Mr. Williams. Closing date was established at not later than 30 days after CAB approval. On March 1, 1973 application for approval of acquisition of control of SAT by Mr. Williams was filed with the CAB under Decket No. 252-64. It was anticipated. that CAB approval would be forthcoming within 60 days. on “ Subsequent to the agreement for sale and application to CAB, several supplemental carriers generated a great deal of pressure to prevent SAT from being sold to Mr. Williams and to prevent SAT from operating as a supplemental carrier. This’ pressure was—applied | ‘through their Congressional representatives, the General Accounting Office, the General Services Administration, and other ways. The . various supplemental carriers objected to the sale of SAT for a variety of reasons. Basically each objected to the portions of SAT's operating authority which would allow SAT to compete with it. Specifically, representatives of Overseas National Airways (ONA) indicated that ONA would not oppose the-sale if Mr. Williams would voluntarily renounce his rights to Trans-Pacific routes. World HY 509455 Docld:32423532 Page 102
“ Airways and Trans International Airways (TIA) objected to SAT operating any aircraft as large or larger than-a 727 in the Far East. Saturn Airways objected to SAT bidding on any domestic MAC. contracts. To restrict SAT to satisfy all potential competition could make SAT sufficiently unattractive as a profitable investment — | that financing could become unobtainable. With this in mind the Agency took the position that agreement for sale of SAT had been executed, subject to CAB approval. If the CAB ruled against the - sale and ownership reverted to the Agency, the Agency would cease any bids or service under MAC contracts and dissolve SAT. Two of the other supplementals, Saturn and ONA, expressed interest in buying SAT. ONA did not. make a cash offer. On June 29, 1973, Saturn Airways, however, made a cash offer of about $2 million ‘ in excess of what Mr. Williams had offered. There were, however, according to the Agency, compelling reasons not to pursue these offers. Agency officers had reason to believe that ONA was not. as interested in actually buying SAT as they were in getting a commit- ment from the Agency which could be used to compromise the Agency's position in future CAB hearings. Three reasons for not accepting _ either offer were: a. Any merger with another supplemental carrier would necessitate a very difficult series of CAB hearings during which all other major supplementals would certainly voice loud and strenuous objections. HW 50955 Docld:32423532 Page 103
-~ b. To sell the firm on a sole-source basis to either outside buyer without soliciting public bids would be contrary to sound business practice and would attract even more adverse publicity. c. Both offers were made directly to officials of the © CIA and not to the stockholders of record. Although the relationship between the CIA and SAT was the subject of much public speculation, such relationship was still | classified and an acceptance of either offer would be a violation of security and cover. | These procedures were unaeceptable to the Agency and dissolution of the firm or sale to Mr. Williams continued as the most acceptable method of divestiture, subject to CAB approval. . | a) . In view of the objections by other supplemental carriers to the sale of SAT to Mr. Williams and the award by the Air Force of a Logistics Air contract (LOGAIR) to SAT, the DCI directed on July 31, 1973, that SAT be dissolved, that SAT withdraw from the LOGAIR con- tract and withdraw its application for renewal of supplemental certificate. Mr. Williams was advised of this decision, but made a counter’ offer to purchase the company under the previous financial | offer but turn in his supplemental certificate, withdraw application for acquisition for sale from CAB, and operate SAT as a commercial carrier under Federal Aviation Regulation Part 121 authority. Such action would remove SAT from direct competition with the supplementals, but leave it with a worthwhile market in which to operate. Addi- tionally, no CAB hearing would be necessary to obtain this type of HW 50955 Docld:32423532 Page 104.
CJ operating authority. . On October 1, 1973, the DCI agreed to entertain the proposal to continue the sale of SAT to Mr. Williams as a Part 121 operator, but on the condition that Mr. Williams must obtain prompt financing. Otherwise, the firm would be dissolved. | On October 5, 1973, the SAT Board of Directors approved and executed a new agreement for sale including the following provisions: a. Mr. Williams to acquire stock of SAT Actus for $2,145,000. OO | b. Mr. Williams to pay off $3,125,000 owed to Air America. ec. Agreement subject to Mr. Williams obtaining $4 million loan. | d. Agreement to be subject to SAT withdrawing application N for renewal of its Certificate of Necessity and Convenience for an Air Carrier (Supplemental Certificate). e. ‘Lease/purchase agreement for L-100 between AAM and SAT to be extended one year. . f. Anti-windfall provision to be effective for one year from date of sale. ; On November 29, 1973, Mr. Williams received a commitment from The First National Bank of Chicago for a loan of $4.5 million thereby making the October 5, 1973, agreement operative. On November 30, 1973, the DCI approved the sale of SAT in accordance with the October 5 agreement for sale. On the same day, the application to the CAB for acquisition of SAT under Docket No. 252-64 was withdrawn. HW O50955 Docld: 32423532 Page 105
) and petition. for cancellation of certificate and termination of exemption authority was filed with an effective date of December 30, 1973. On December 31, 1973, the sale was closed, the note to Air America was paid off, and Stanley G. Williams became the sole owner of SAT. | In early January 1974, CIA officials learned from Air America Management that SAT had exercised the purchase option of the lease/ purchase agreement between SAT and Air America for the Lockheed | L 100-30 Hercules aircraft. The option sale price from Air America was $3,150,000. SAT immediately resold the aircraft to Saturn __ Airways for $4,350,000 turning a quick $1.2 million profit. The Agency interpreted this sale as a violation of the anti-windfall provisions of the agreement for sale. On January 25, 1974, Air ” America executed an Escrow and Arbitration Agreement on behalf of the CIA with SAT on the disputed $1.2 million profit. The agreement called for $750,000 to be placed in escrow with the American Security and Trust Company of Washington, D.C. The escrow funds were to be held as a Certificate of Deposit purchased at the prevailing market rate. It was further agreed that SAT would also place in escrow a Promissory Note to Air America for the remaining $450,000 of the- disputed amount. The note was to bear interest at the same rate currently being earned on the Certificate of Deposit in escrow. It was arranged that the escrow deposits plus accrued interest would be paid to the party deemed in favor by an arbitrator with each party to pay one-half of the costs of arbitration. On September 35, HY 50955 Docld: 324273532 Page 106
(J 1974, the arbitrator ruled in favor of Air America. This decision caused an additional $1,304,243 to accrue to the Agency from the SAT sale. This was the sum of the $1.2 million under arbitration plus accrued interest, less the Agency's share of arbitration. costs. DECLASSIFICATION OF RELATIONSHIP WITH CIA In March 1974 the employees of SAT retained an attorney and brought a lass action suit in U.S. District Court for Southern Florida against Southern Air Transport, Ine.) and the Central Intel- ligence Agency. The employees as plaintiffs sued for injunctive relief and damages. Tn this suit the employees alleged: | a. That the CIA sold the stock of SAT to Mr. Williams illegally, . | ‘ b. That SAT had embarked on a program to sell off its assets, depriving the plaintiffs of employment, c. That the plaintiffs were entitled to the benefits of the CIA Retirement and Disability System, and d. That their civil rights had been violated. In view of the publicity arising from the allegations made by’ the other supplemental carriers during the CAB proceedings and the publicity arising from. this suit, it was determined that no useful purpose would be served by continuing to deny the true ownership relationship of SAT by, OIA. It is noted, however, that the opera-_ tional activities performed by. SAT on behalf of CIA were and remain. classified. As a part of the Agency's defense in this suit, an a affidavit of Mr. Harold L. Brownman, Deputy Director for Management HW 50955 Docld:324273532 Page 107
”~ and Services of the CIA, was presented in court. In the affidavit Mr. Brownman delineated the relationship between, CIA and SAT and the authorities for purchasing and Later selling the capital stock of SAT. He also defined the employment status of the plaintiffs as hot being government employees and not being CIA emp Loyees and therefore not being eligible for participation in the CIA Retire- ment and Disability System. in the Order Granting Motion for Summary Judgment, the court found that the sale of SAT capital stock to Mr. Williams was not in. violation of law; the plaintiffs claim to be U.S. Government employees and entitled to CIA retirement benefits invalid; and that the SAT employees were not deprived of any civil right under any state Law.: AS a result, the action was dismissed with prejudice as to the . plaintiff. Although this suit did cause the relationship between ~ the Avency and SAT to be officially made public, it did establish, in a court of law, two points favorable to the Agency: _ a. The sale of SAT to Stanley Williams violated no laws and was within the authority of the DCI; and b. The directly hired employees of CIA-owned proprietary firms such as SAT do not necessarily enjoy the status of U.S. Government employees. CONFLICT OF INTEREST In the SAT divestiture, the Agency took precautions to avoid conflict of interest. | Mr. George A. Doole, Jr., retired Staff oo Agent and retired Managing Director of Air America, Inc., made _ - HY 350955 Docld:3742354532 Page 108
a several offers to acquire SAT. [In early 1972 he and some other members of AAM management made. an informal offer to buy SAT. Then on August 7, 1972, Mr. Doole told Mr. ‘Charles W.. Kane, Agency — “official responsible for the management of SAT and AAM, that he, . in association with World Airways and TIA, wanted to offer "book value" for SAT. He stated that they were not interested in SAT's certificate, but rather in the equipment and that if allowed to. make an offer, it would be one that would not require CAB hearings. In both these cases, the Agency's General Counsel determined that because of Mr. Doole's close association with the Agency, the offer would be unacceptable. In later discussions, Mr. Doole asked to be allowed. to bid on SAT in open bidding. The General Counsel's posi-- tion on this request was that open bids would be begging the question in terms of conflict of interest. In any transaction this complex, selecting the bid is only a préliminary to the negotiated final. sale. 7 | | Another potential conflict of interest involved Overseas National Airways. From the time the Agency first decided to divest, until the sale to Mr. Williams was consummated, ONA expressed con- tinuing interest in an ONA/SAT merger. Their representative making these continuing overtures to the Agency was retired Admiral William F.. Raborn, former Director of Central Intelligence. Admiral Raborn made literally. dozens-of phone calls to Agency officials and arranged many meetings) all for the purpose of pressing ONA’s case to purchase SAT. ONA also proposed. to arrange ‘shadow financing" for Mr. Williams - if he would agree to merge with ONA at some later time. These offers HW 50955 Docld:327423532 Page 109
3 were all rejected because merger with another supplemental was. not an acceptable solution and the apparent conflict of interest was too great. The sale of SAT to the President of the firm, Mr. Stanley. Williams, was another area of possible conflict of interest. However, Mr. Williams was not an employee of the U.S. Government during any period of association with SAT.or CIA. He had been the owner prior to CIA acquisition and his role as nominal President of SAT during CIA ownership was at-the direction o CIA which made or approved all decisions in regard to acquisition of aircraft and other major policy. determinations. Additionally, this potential area of conflict had been recognized at the outset of sale pro- ceedings, which was the basis for obtaining third-party professional . evaluation and appraisals and the provision in the sale agreement — against windfall profit from disposition of assets. An underlying philosophy for sale back to Mr. Williams was to restore the corpo- ration to the status of private ownership once the need for it as a Government-controlled entity had terminated. Such action was considered in the best interests of the SAT employees as well as in the interest of the U.S. Government to maintain another viable commercial air carrier. CONCLUSION | d ownership of SAT and its real property owning The CIA acquire res of capital stock affiliate, by purchase of all outstanding sha on August 5, 1960. Such acquisition was accomplished under the HY 50955 Docld: 324233532 Page 116
authority of the Central Intelligence Act of 1949 in order to acquire a certificated air carrier to support its foreign intel- _ligence operations. The purchase was accomplished after consul- tation and approval by the CAB and the DOD, and was not in violation of Section 410 of the Federal Aviation Act. Following determination by CIA in 1972 that ownership of SAT was no longer required to support its foreign intelligence opera- tions, the CIA undertook to dispose of SAT under the authority of the CIA Act of 1949 and the specific provision in the Federal Property and Administrative Services Act of 1949 (FPAS Act) that nothing in ' the act shall impair or affect any authority of the Central Intel- ligence Agency. ‘In the case of Robert Farmer, et al., vs. Southern Air Transport, Inc., et al., the U.S. District Court, Southern District of Florida, Case No. 74-467-CIV-WM, upheld the authority of CIA to dispose of Southern Air Transport, Inc. In disposing of SAT, the CIA determined after discussions with CAB that SAT should not be sold as a going concern in an open competitive market nor should merger with another air carrier be considered. Such action would involve lengthy procedures, hearings, and publicity which posed a threat to CIA's ability to protect intelligence sources and methods. While CIA initially was inclined to dissolve SAT and sell the assets, CAB and pop both indicated their desire to maintain SAT as a supplemental commercial air carrier. Since this solution also would be in the best interest of the SAT employees and there were indications this could be HY 50955 Docld:32423532 Page i111
- 89-19 - accomplished without revealing ownership by CIA, CIA approved exploring the sale of SAT to its previous owner and current .nominal President, Mr. Stanley Williams. The CIA took reasonable precautions to assure that a fair market price was received for the sale of SAT, and that no short term windfall profit would ensue. The CIA was mindful of conflict of interest problems, and obtained independent professional advice and guidance prior to executing an agreement for sale. The sale price finally received by the CIA exceeded the parameters estab- lished by this independent study. In retrospect, it is possible that open competitive bidding for sale of SAT as a going concern could have achieved as much or more return to the U.S. Government for the assets of SAT. However, such assessment is only conjecture since this market was not fully tested. Also this method of disposal had the potential for greater publicity and revelation of intelligence sources and methods. In retrospect, the alternate solution of dissolution of the corporation and sale of assets probably would have created less publicity but again this is only conjecture, since the SAT employee law suit may well have been forthcoming in any event. | In conclusion, the CIA obtained a fair market value for the sale of SAT as evaluated by an independent professional appraisal. The legality of the disposal of Southern Air Transport by the CIA has been tested in court and has been shown to be fully within the statutory authorities and responsibilities of the DCI. The HY 50955 Docld: 324234532. Page 112
~ 89-20 - . precautions taken and the procedures established by the CIA consi- dered the varying factors of responsibility for public funds, con- flicts of interest, U.S. Government interests for the aviation industry and its employees, and national security. The CIA actions in the disposal of SAT, accordingly, were reasonable and proper. HY 50955 Docld: 32423532 Page 113
VI. Project -MHBOUND In 1958, at the time construction of the new CIA headquarters building in Langley was begun, a small counterintelligence opera- tion was established to maintain surveillance of activities to prevent hostile penetration and sabotage. It was successful in its objectives and, therefore, upon occupancy of the building in 1962 the Project, now known as MHBOUND, was established as an outgrowth of the initial effort. From a single office in Arlington, Virginia, the project ex- panded to four field offices (Arlington, Falls Church, Los Angeles and St. Louis). Also, it grew from a single corporate entity into three separate corporations. The parent organization in 1962 was Anderson Enterprises, Inc., which operated in the greater Washing- ton area and was set up to create a bona fide commercial corpor- ation which would perform security services on a competitive basis for any and all individuals and companies which might require ‘them, as well as Federal and local governmental units. In addi- tion, it would conduct operations for the Office of Security of the CIA. This activity proved most successful, with customers utilizing it for document destruction, fr consultation, for guard work, and for investigations. | Anderson Enterprises, Inc. developed legitimate business contracts with agencies of the Federal government and with commer- cial firms. The provisions of the so-called Pinkerton Act 'pro- ~ work hibit a company engaged in investigative /from contracting with HY 50955 Docld: 324233532 .Page 114
- 91 - the Federal government. In order to protect the commercial cover, it became necessary to form a separate company to handle investigations in response to the requirements of commercial firms. Further, it became necessary to set up notional commer- cial firms through which to fund MHBOUND.for investigative work levied upon it by the Office of Security. At the time this split was accomplished, Anderson Enterprises, Inc. changed its name to Anderson Security Consultants, Inc., with its head- quarters remaining in Arlington. The new company was called Anderson Security Services, Inc. and made Los Angeles its home office. As activity expanded and work increased, a third corp- oration called General Personnel Investigations, Inc. was organ- ized and also headquartered in Los Angeles. On January 23, 1966, for legal, cover and operational rea- sons and increased administrative efficiency, Anderson Security Services, Inc. (ASST) merged into General Personnel Investigations, Inc. (GPII) and remained incorporated in the state of California. . Upon the merger, ASSI ceased and GPII succeeded it. The corpor- ate officers and the board of directors of all three companies consisted of the same persons. Subsequently, GPII was sold and new legal straw men were introduced as officers, directors and shareholders. The home office of General Personnel Investigations, Inc. was subsequently established in Falls Church, Virginia in March 1966 for greater administrative efficiency and firmer mone- tary controls on the projects as a whole, and to greatly enhance HW 50955 Docld:32423532 Page 115
cover viability. Also of particular note, the “home office", - with its investigative charter, has been used in the conduct of covert investigations. In addition to the conduct of investigations, MHBOUND was used in the following activities: (a) TPOCTONAL - covert monitoring of construction of CIA Headquarters building; (b) Monitoring of construction of West Gate Research Park buildings, which were to be occupied by Agency components; (c) TAPIR - covert monitoring of construction of CIA print- ing services building; (d) ZULU - surveillance of DOD civilian employees suspected to be potential defectors to Soviets; (e) STPROBE - testing security effectiveness at domestic DDS&T sites and contractor facilities; (f) MERRIMAC - monitoring of dissident groups in D.C.;* (g) AEDONOR - the proprietary hired and paid contract guards for one phase of this activity; (h) ISOTROPIC - the proprietary was a civilian contractor for the guard force at this installation; (i) TWOFOLD - was an Office of Security cryptonym for an oper- ation to recruit, process and train undercover internal security agents for the Bureau of Narcotics and Dangerous Drugs; * This. particular project and other aspects of MHBOUND's domestic activities are treated in greater detail in the Committee's Staff Report dealing with the operations of MHBOUND. HY 50955 Doocld:324254532 Page 116
(j) DELICATE - security support for DDS&T project, consisting mainly of badging and entry controls, background investigations, | and escort of sensitive material; this is the only such activity currently being serviced by MHBOUND; (k) PINEAPPLE - physical surveillance of an Agency courier suspected of living beyond his means; also involved a surreptitious entry into his apartment; (1) BOOTS - physical surveillance of an Agency employee "who maintained contact with people of questionable loyalty"; also in- volved an audio penetration of the employee's apartment and a mail cover. Funding for the proprietary is accomplished through a cut-out mechanism whereby the Agency sends U. S. Treasury checks to ten contractors. The proprietary then bills the contractors for "services rendered" in the same amount as received by the contractor via Treasury check. Funding: for the other corporations was done through use of notional firms. The ISOTROPIC guard force contract was handled by intra-Agency transfer of funds. BNDD reimbursed the Agency for all TWOFOLD expenses, except for salary of the one staff agent. DOD reimbursed the Agency for all ZULU expenses. Los Angeles is the only MHBOUND office currently in operation. During Fiscal Year 1975, 2,226 investigations were conducted, 6,125 man-hours were rendered in support of DELICATE, and a total of | $551,000 was expended. Purely commercial income averages between $20,000 to $25,000. Much of this comes from walk-in business, which, HW 50955 Docld:32423532 Page 117?
for cover reasons, cannot be refused. Over the past few years, this has involved badging operations for private companies, i.e. airlines, schools, etc. The company has never made a true profit. To maintain its image among its competitors, however, its books reflect a small profit on which Federal and state taxes are paid. The office presently employes four staff agents, five contract agents and fourteen proprietary employees. During Fiscal Year 1974, the project expended 2.9% of the OS budget ($551,000 vs. $19,026,530). . MHBOUND, as noted, has provided support to the Office of Security and Agency operators on sensitive covert operations and investigative matters, CI/CE support for components of the Agency, custodial support, courier support on truly covert activ- ity, guard support, special non-government and sensitive inquiries _ (CI/CE probes through STPROBE), technical and physical support in surveillances and Agency proprietary support. Its commercial capabilities have included: confidential consultants, internal security management, security surveys, counter-audio measures and inspections, development, installation and maintenance of security protective equipment and devices, classified material storage equip- ment, secure destruction of classified waste, incinerator equipment sales, polygraph examination, investigations (personnel), and industrial undercover activities. A unique example of its Agency security function was project STPROBE, which utilized both security probes and security pene- HW 50955 Docld:327423532 Page 116
- 94-1 - trations. A security probe is a testing of the current effec- tiveness of all or part of a security system within an Agency or Agency contractor's installation. A security penetration is an internal covert investigation and search targeted at possi- ble subversive elements within a facility who may be engaged in foreign intelligence or acts of sabotage or who by lack of security discipline or gross malfeasance may be weakening the security structure of the project or facility. It is, in essence, counter- intelligence against a domestic installation. Eastman Kodak, for example, was the target of a probe. An agent was sent under the natural* cover of a union construction man to Eastman to gain employment as a pipefitter. He succeeded in gaining access to the target, and developed information on the installation and its personnel in surrounding areas of the union hall, bars, cafes, and in other appropriate places around the target area. Similar probes were conducted against Pratt and Whitney in West Palm Beach, Florida, Lockheed Aircraft Corporation in Burbank, California, and other targets in New York, Nevada, and Arizona. These entities serve a useful function within the scheme of necessary security required by sensitive Agency operations. Their utility, however, as in the case of nearly all proprietaries is relative to policy and "flap" demands. As one Agency commentator phrased it. when Newsweek revealed the relationship of L. Lee Bean and Paul Hellmuth of the Boston law firm of Hale and Dorr * He was in fact a legitimate tradesman. HY 50955 Docld:i32?423532 Page 119
- 94-2 - with the CIA in setting up proprietaries: Proprietaries have been and will continue to be an important tool to achieve selected operational objectives. Their use, however, has been drasti- cally cut back, more because of changes in the international scene and in operational priorities than as a result of embarrassing exposures. Of course, as has been the case with nearly all other proprietaries, not everyone within the Agency has been satisfied with the mechanism. Indeed, there has been constant review, criticism and internal restraint due to a certain fear and suspicion of entities such as Anderson which are "out there" and not readily accessible to the leash. For example, in June of 1964, the Chief of the Operation Support Division wrote to the Deputy Director of Security (Investi- gations and Operational Support) concerning MHBOUND's policy and procedures. In terms of operational objectives he noted that they had “created an operational support entity of dubious capability and with ill-defined objectives or purpose."" He suggested that they “look this ugly duckling in the face" and see if it could be terminated gracefully or "see if we can nurture it into a productive and responsive bird of acceptable countenance."* He “received the definite impression that there may be some grey area with regard to the internal channels of command and admini- strative direction." He noted that there was confusion resulting -* In many cases these concerns dealt with the inability of the entity to provide adequate cover. for itself in order to more adequately fulfill its role. In one instance, the physical backstopping of MHBOUND was inadequate. After this was rectified, one official noted: ; It is felt that this step has strengthened the Anderson Enterprises’ cover, both in Boston and Washington so that now the company could withstand any inquiries, except that of an official govern- ment investigation. HW 50955 Docld: 32423532 Page 120
from lack of a clear-cut distinction “at just what level policy matters may be decided .. ."' Management procedures for the | project were such that "under the current status everyone may take credit but no one could be blamed.'' As far as operational capa- bility was concerned he remarked: Quite candidly, I am somewhat concerned about the operational capability of Project MHBOUND. It seems, as a result of its Topsy-like growth, to be oriented toward the military and the building trades. Quite candidly, it is felt that the base must be broadened. Further, I am far from convinced that we have yet developed anywhere near the professional status neces- sary to "sell" this Project as one having unique opera- tional capabilities sufficient to justify its existence. In other words, I am not impressed with the capability as it now exists nor am I sure that we can sell this product and then be assured that it can perform in a satisfactory manner. His comments concerning the attitude of Agency personnel were not unique to this proprietary, but they are set out here as illustra- tive of the singular problems these entities pose. His remarks also show the dangers inherent in some areas of this activity. It would seem that this Agency, particularly operating components, are insistent upon pursuing an "ostrich policy" when it comes to their operational security ' procedures. I have personally witnessed almost hyster- ical reactions to criticisms as well as total rejections of practical suggestions with regard to operational security procedures. Now it seems to me that we are going about this in a very awkward and embarrassing manner. WE ARE, IN EFFECT, ALLOWING. THE WRITERS OF SENSATIONAL BOOKS SUCH AS THE "INVISIBLE GOVERNMENT" TO PROVIDE THE NECESSARY INFORMATION AND PRESSURE ON TOP AGENCY MANAGEMENT TO CORRECT GLARING AND STUPID COURSES OF ACTION BEING PURSUED AT THE WORKING LEVEL. “I have been the object of considerable personal ridicule due to my stand in opposition to the unrealistic cover and operational security procedures as they relate to certain aspects of (CIA Operational Base) for example.: HY 50955 Docld:324233532 Page 121
- 94-2-b - IF we had the authority and capability to have made an objective probe of this sensitive activity we may have been able to have surfaced these obviously ridi- culous procedures in such a manner that corrective action would have been taken. Now is the time to present the case in light of the abiding fear of publi- city currently permeating the Agency. I recommend that we go after the authority to make independent (uni- lateral) probes and/or probes requested and known only at the very highest levels of the Agency with the results discreetly channeled where they will do the most good. There necessarily follows the unpleasant subject of money. As distasteful as it may be, it is no good to have the authority without a sufficiently large confi- dential fund set aside and earmarked for independently iniated activities. He emphasized that if the Agency did not take the above kind of action to monitor its “image" at the operational level, "we will continue to be plagued with the unsolicited and uncontrolled critique through the newspapers, periodicals and books." He critically concluded: Further, I challenge anyone to deny that such exposes to date are largely true and usually the result of our own ‘ostrich policy" and refusal to face the fact that we have operated in some relatively amateurish manners over the years. HY O50955 BDocld:327423532 PFage 122
- 94-3 - Such concerns have extended beyond these operational levels to general issues of propriety and legality. For example, as noted earlier (supra, p. 90) the so-called "Anti-Pinkerton Act" prohibits a company engaged in investigative work from contracting with the Federal government. But. . the Agency and its predecessor organizations began contracting as early as November 1942 with certain commercial, investigating companies to perform in- vestigations and to provide commercial credentials to, and cover backstopping for, Agency investigators. As of March 1975, the Office of Security had a relationship with three such companies which issue their credentials to Agency inves- tigators and backstop the cover of same. Two of the three have previously “conducted limited personnel investigations" on behalf of the Agency. During that same period the Director of Security asked the General Counsel of the CIA whether the “Anti-Pinkerton Act" prohibited the Office's continued contractual relationship with these three private companies or their employees for pur- poses of conducting investigations or providing cover, or both. The General Counsel responded as follows: I am aware that in fulfilling the responsibilities placed upon your office in support of the Agency's mission, many investigations must be conducted with- out revealing Agency interest and in some, without even revealing Government interest. Absent the relationships you question, you could not discharge your responsibilities. It is this inability to accomplish your tasks which causes recourse to the Agency's rather broad statutory authority to expend funds as contained in Section 8 of the.CIA Act of 1949, as amended. This authority provides HY 50955 Docld:32433532 Page 123
~ 94-4 - uw (a) Notwithstanding any other provision of law, sums made available to the Agency by appropria- tion or otherwise may be expended for purposes necessary to carry out its functions, including -- (1) personal services, including personal services without regard to limitations on types of persons to be employed, .... * * * * (b) The sums made available to the Agency may be expended without regard to the provisions of law and regulations relating to the expenditure of Government funds; and for objects of a confiden- tial, extraordinary, or emergency nature, such expenditures to be accounted for solely on the certificate of the Director and every such certi- ficate shall be deemed a sufficient voucher for the amount therein certified. It is my opinion that this authority permits the Agency to continue the two practices as set out above without fear of violation of the Anti-Pinkerton Statute. He closed, however, with the following admonitions: There are, of course, other dimensions to the question you raise. As a matter of policy I believe the prac- tices should be reviewed at the highest levels within the Agency and, perhaps, cleared with the Agency's oversight committees. In addition, if one of these relationships became public, it must be recognized that there will be allegations that the law has been violated. On balance, it is my view that these consi- derations are not so significant as to warrant a termi- nation of the two practices with the three companies. It is suggested, however, that any subsequent, projected association with a detective company or private investi- gative company beyond the three present companies be reviewed with this Office prior to its initiation. HW O50955 Docld: 32423532 Page i124
- 95 ~ VII. BEYOND "DOING BUSINESS": PEAK NON-GOVERNMENT SECURITY INVESTMENTS BY PROPRIETARIES ACTIVE AS OF DECEMBER 31, 1974 -As described infra, MHMUTUAL (the insurance and pension complex) has invested heavily in both domestic and foreign securities markets. Its portfolio runs the gamut of notes, bonds, debentures, etc. But other proprietaries have also used this investment route as a method _of increasing capital and insuring adequate cover. For example, KMJAGGERY is a Delaware corporation located in Washington, D.C., which purchases general merchandise in a manner which cannot be traced to the United States Government. It provides covert procurement for the Office of Logistics (CIA). Its total purchases from January to September 1974 were $437,500. It has no outside commercial business and has five employees. Yet, as of December 31, 1974, that entity had invested $149,000 in time deposits. Another covert procurement mechanism under this same Office is SPECIAL STOCK ACCOUNT #3. “This is also a Delaware corporation with an address in Baltimore which purchases arms, ammunition, and police related equipment in a manner which cannot be traced to the United States Government. The company has no employees and is managed by Headquarters officials in alias. As of December 31, 1974, that entity had invested $37,500 in a certificate of deposit. -LPJACK was a travel service which was sold recently to an Agency employee at the time of his reitrement, who had ostensibly owned the firm before but in fact only managed it for the Agency. As of | December 31, 1974, that entity had invested $35,000 in a certificate HW 50955 Docld:327423532 Page 125
- 96 -— of deposit.* LPDICTUM/LPSPICE was an investment company which was dissolved. As of March 31, 1973, it had invested $100,080 in Petrolcos Mexicanos, S.A. Mexico. | HBSANDSTRAP is a Delaware corporation located at Washington National Airport which has provided secure air support for Agency employees and classified pouches between Headquarters and other ‘Agency facilities in the United States. The company has accepted commercial charter flights from non-Agency customers for income and cover purposes. As of December 31, 1974, it had invested $144,000 ina certificate of deposit. QRTROW was a former proprietary and is now an institute located in Europe which "seeks to influence and encourage moderate and pro- democratic youth leaders and government officials concerned with youth and higher education." According to the Agency . The Agency withdrew its support from the institute in 1974 and turned over all assets to the management of the organization. In addition, the Agency provided surge funding in the amount necessary to enable the entity to exist in reduced form for about one year during which time the management would attempt to arrange private support. As of March 31, 1972, that proprietary had invested $50,000 in time deposits. LPMANTLE is part of the WUTACTIC complex managed by the Cover and Commercial Staff to provide operational support mechanisms for DDO foreign operations. It is a Delaware corporation which is used * The Agency today uses this firm for the purchase of airline tickets for travel in support of sensitive projects. It is estimated by the Agency that CIA business represents about 30% of the gross airline ticket sales of the entity on an annual basis. HW O50955 Docld: 32423532 Page 126
to collect the proceeds from the sale of Agency proprietary entities and to refund such proceeds to the Agency. At December 31, 1973, its total assets were $650,220 and its total liabilities were $633,897. Total stockholders equity was $16,323. It has no employees. As of December 31, 1974, it had invested $400,000 in a convertible subor- dinated debenture from the sale of a company and $45,440 in notes receivable. Another company in this TACTIC complex is LPGLITTER. It is a Panamanian company which was used as an investment vehicle for funds reserved for new commercial operations requiring Agency investments. The investment project was terminated and all funds were returned to the Agency. The company has no employees. As of December . 31, 1973, it had invested $246,757 in a Security Note of Pepsico Corporation, N.V. LTUQUEST was part of the air support complex of the Agency proprie- taries. Substantial assets of it were sold and the entity dissolved. As of December 31, 1974, it had invested $215,000 in a certificate of deposit. | LPPANDA/LPMET is part of the management and accounting complex. As of December 31, 1974, it had $470,000 invested in time deposits. BW 50955 Docld:3274235532 Page 127
- 98 - SCHEDULE I PEAK NON-GOVERNMENT SECURITY INVESTMENTS BY PROPRIETARIES PROJECT/ENTITY MHMUTUAL LPPANDA/ LPMET LTUQUEST LPTACTIC/LPGLITTER | LPTACTIC/LPMANTLE QRTROW ABDERRICK/HBSANDTRAP LPDICTUM/LPSPICE LPJACK KMJAGUARO/KMJAGGERY KMJAGUARO/ SPECIAL STOCK ACCT. #3 HY 50955 Docld:324233532 Page ACTIVE AS OF 31 DECEMBER 1974 TYPE INVESTMENT See Portfolio Time Deposits Certificate of Deposit Security Note - Pepsico Corp. N.V. Convertible Subordinated Debenture from Sale of Company Notes Receivable Time Deposits Certificate of Deposit Petrolcos Mexicanos, S.A. Mexico Certificate of Deposit Time Deposit Certificate of Deposit DATE 12/31/74 12/31/74 _ 12/31/73 12/31/74 12/31/74 3/31/72 12/31/74 3/31/73 12/31/74 12/31/74 12/31/74 AMOUNT $470,000 215,000 246,757 400,000 45,440 50,000 144,000 100,080 35,000 149,000 37,500
- 99 - VIII: MHMUTUAL: THE INSURANCE-INVESTMENT COMPLEX a) A BRIEF HISTORY MHMUTUAL is a complex of insurance companies, most of which are located abroad, operated by the Agency to provide the following services: a) reinsurance of aircraft damage or liability risks ostensibly insured under commercially issued policies (for cover); b) extending term life insurance, annuities, trusts and workmen's compensation for independent contractors and agents working for the Agency who are not entitled to U.S. Government benefits; c) handling escrow accounts* for agents; d) limited operational support activities, L.e., holding real estate formerly used in Agency operations abroad; ** and e) investing in domestic and foreign markets to obtain earnings to fund the above. MHMUTUAL was created in 1962 to provide death and disability bene- fits to agents and beneficiaries when security considerations pre- clude attribution to the U.S. Government. The losses during the Bay of Pigs prompted its establishment. From sixty-seven (67) to seventy-three (73) companies operated originally under the Domestic Operations Division and later a board of directors controlled by the Office of General Counsel. This internal board of the project made investment decisions. * Escrow accounts are established when an agent cannot receive his full payment from the CIA without attracting suspicion. The funds not paid to the agent go into escrow accounts and are invested under MHMUTUAL. -** The CIA's domestic real property holdings appear as Appendix E. HW 50955 Docld:32423532 Page 129
- 100 - Lawrence Houston, retired General Counsel of the Agency, testi- fied that his office instigated the establishment of MHMUTUAL. This was because his staff would be the repository of all problems related to the death or disability of a person during the course of his Agency work. These problems were all handled in what Houston called a very "sketchy way" and this was simply undesirable from all points of view. Moreover, when the Agency went into air proprie- taries on a large scale there were certain risks which simply could not be underwritten: commercially. So somewhere in the late 1950s or around 1960, I think I was the one that posed that we might organize our own insurance entities. I had a couple of lawyer friends deep in the insurance business, and I suggest I talk to one of them, and he promptly said, well, it so happens that I have a couple of offshore insurance entities that I can make available to you. And we took a look at them. It looked like they were or- ganized properly for the purpose. They cost practically nothing. They were just shells. But they could be filled out. So if my recol- lection is correct, we acquired these two as the first step in what became the MUTUAL project. Simultaneously, the decision was made that if the Agency was going to maintain such a capability, they had to have enough body and backstopping so that if a suspicious foreign intelligence outfit tried to investigate, they would stand up under investigation as would any normal insurance outfit. In other words, they had to appear’ to have finan- cial stability, they had to have names that could stand up and answer questions, and in other words appear to be in the normal business of writing the type of annuities (and) insurance, death. and dis- ability. This concept was totally organized originally then under the Domestic Operations Division. DOD eventually recommended that the complex HY 50955 Docld: 32423532 Page 130.
- 101 - be transferred to the Office of General Counsel. This occurred, and it remained there until Director Colby decided in conjunction with Mr. Houston to transfer for operational reasons to the Cover and Commercial Staff. This was done because CSS had the expertise and manpower. Moreover, Mr. Colby took exception to the Board concept bécause he felt that it diluted the line responsibility by which all other projects were administered. . As the number of insurance companies grew to cover increasing demands placed upon the Agency by more agents, the general fund which was retained to backstop all the needs of these companies grew, and "the question was what to do with your money." Houston explained _ Now, insurance companies are normally in the business of investing their funds, and so this being the normal thing, it appeared to us necessary to preserve the nor- mal appearance of these insurance companies to carry on investment programs for the funds involved, and there were a variety of investments to be considered. You could go into U.S. Treasury Bonds, notes and bills, but actually, from the point of view of insurance bus- iness practice, this was very unusual. It would be very, very unusual in the insurance field. Usually some of them would have some investment in bills, notes or bonds, but it was a very small part of their portfolio, and to put it in nothing that that we thought would be a dead giveaway. So we first went in the direction of having a general portfolio somewhat similar to the nor- mal insurance company's investment practices, and I originally recommended that we have the board of direc- tors so that we could have available and demonstrate that we had available the best competence the Agency had in- ternally to pass judgment on what to do with their money. Because of shifts in the stock market which made it not look as promising as it had been during the 1960s, MHMUTUAL went into certificates of deposit, the Eurodollar market and the bond market. HW 50955 Docld: 32425532 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 Direc- tors 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 pro- fitable, 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 in- surance was required. If it looked as though normal commercial in- surance would handle it, as was the case with most of Air America's needs, then the particular entity would go ahead and procure the nor- mal commercial insurance. If there was something peculiar in the operational setup that preclud d commercial.companies from accepting HW 50955 Docld:324293432 Page 132
~103- the risk or if there were security problems, then it would be handled through MHMUTUAL. What we would do when it came to aviation and marine, we would go to one of the cooperating companies and see if they wanted the insurance for their own accounts, because we had made arrangements that if there were operations security problems in any one claim, that they could handle the investigation so it wouldn't be a problem if they wanted to take for their own account. If they didn't want to take it for their own account or they didn't want to take it all for their own account, they might then seed back to us what they didn't want. And it would be then underwritten technically out of MUTUAL’s account, although they would be the ostensible insurers. Several of the aviation entities, other than Air America which dealt almost exclusively with regular commercial insurance com- panies, did nto feel quite secure with regular insurance. They turned to MUTUAL. MUTUAL would in turn offer the risk to one of the cooperating insurance companies. If they would take the risk, they would then negotiate the premium with the. proprietary. Lf they did not want the risk, "then they would seed back to us and we would take the portion of the premium that should come back. Usually it if went through a company, they would take a small underwriting premium to pay their costs, 3 percent or something like 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 to be secure in its operations in the fields of insurance and invest- HY 50955 Docld: 324234532 Page 133
-104- ment. The IG looked at the investments from a security (i.e. cover) point of view in terms of MHMUTUAL's operational support function. His concern was that each time MHMUTUAL bought a safehouse, for example, there was the possibility that audio surveillance 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 entire complex to compromise if a foreign intelligence agency tracked back the transactions through various corporations. According to the Inspector General, no funds of MHMUTUAL were used for specific projects. What would occur, however, was that a project would transfer funds to the complex which would then disburse them as needed through an appropriate entity. This method left him 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 inappropriate and, 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 been established 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. HY 50955 Docld: 32423532 Page 134
~105- At the time of this 1970 review by the IG, MHMUTUAL held a surplus of $9 million. It also earned income from sources sup- ported 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. HW 50955 Docld:32423532 Page 135
-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 in- volved and the possibilities of someone trying to, someone yielding to temptation and trying to do something with all of this money. b) THE CURRENT STATUS The 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 indi- eated 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 independ- ent 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 capital- ize an annuity, the Agency provides the initial capitalization; how- ever, approval of this must come from the DDO. HY 50955 Docld: 32423532 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 pro- prietary 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. Curtently, 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. HW 50955 Docld:32423532 Page 137 —
ey “ipasa >. "RO Se Year 1979 1971 1972 1973 1974 1975, Year STOCK PORTFOLIO PERFORMANCE Comparison of Cost Against Market Value Gain 1963-1969 1970 1971 1972 1973 1974 1975 Total Gain Cost Market Value $ 3,792,804 $ 3,689,294 1,123,651 1,069,301 2,969,493 2,872,557 2,650,904 1,242,915 2,440,686 , 699,422 2,440,686 , 876,507 toss) on Sales of Stocks Gain or (loss $ 197,348.15 (19,910.64) 118,943.90 310,346.37 150,447.03 (172,796.04) -0- _ $ 584,378.77 RECENWE" FROM Livi oECKET Bt | au 2 4 on is 4 a ee * naire a eh. 27 ; Re hoes Spent be aR ies
“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 fix- tures) 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 evalu- ation 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 instru- mentalities administered abroad by foreign accounting companies was limited to examination of financial reports and such other documentation as was available at Head- quarters. These latter examinations provided us reason- able assurance that Agency resources, totaling about one percent of project accountability, are adequately pro- tected. That audit concluded that MHMUTUAL "“continue(d) to be admin- istered in an efficient and effective manner and in compliance HW 50955 Docld:324235532 Page 139
. -110- with applicable Agency regulations and directives." Prior audit reports had commented on the need for a revised administrative plan and in accordance with these reports, the audit noted, a “new plan was approved in March 1975." In addition, "(m)inor administrative and financial problems surfaced during the audit were discussed with MHMUTUAL officials and resolved." The audit noted 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 property and from miscellaneous transactions) was $4 113,590.00. The total expenses for that year (allocation of premium income to reserve 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, directors fees, entertainment, and miscellaneous) were $2,459, 260.00. These combined for a net income of $1,654,330.00. The current Chief/Central Cover Staff has focused on MHMUTUAL in a number of interviews with both the Rockefeller Commission | staff and our own. He has suggested that the real question for MHMUTUAL is what should its role and shape be after the termina- tion of the large air proprietaries. One of MHMUTUAL's original purposes was to provide reinsurance for Air America, CAT, Southern Air Transport, Inter-Mountain Air, and the other air proprietaries. With their passage, a reorganization and redefinition is needed. HY O50855 Docld:327423532 Fage 140