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157-10014-10144

2025 RELEASE UNDER THE PRESIDENT JOHN F. KENNEDY ASSASSINATION RECORDS ACT OF 199

FK Assassination Systen

Identification Form

Date:

7/7/2015

Agency Information

AGENCY: SSCIA

RECORD NUMBER:

157-10014-10144

RECORD SERIES :

AGENCY FILE NUMBER :

MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE

07-M-49

Document Information

ORIGINATOR: SSCIA

FROM:

TO :

TITLE :

DATE:

PAGES:

SUBJECTS:

00/00/1976

263

SSCSGO, REPORT

DOCUMEN'T TYPE :

REPORT

CLASSIFICATION:

Secret

RESTRICTIONS: Consulied

CURRENT STATUS :

Withhold

DATE OF LAST REVIEW:

01/05/1999

OPENING CRITERIA:

COMMENTS:

y9.1

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Date: 08/07/95

Page :

1

JFK ASSASSINATION SYSTEM

IDENTIFICATION FORM

AGENCY INFORMATION

AGENCY : SSCIA

RECORD NUMBER

:157-10014-10144

RECORDS SERIES

: MISCELLANEOUS RECORDS OF THE CHURCH COMMITTEE

AGENCY FILE NUMBER

: 07-M-49

DOCUMENT INFORMATION

ORIGINATOR

FROM

SSCIA

TITLE

PAGES

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

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SECRET SENSITIVE

HH

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TABLE OF CONTENTS

PROPRIETARIES

• I. Introduction and Philosophy of Use

A. Operating Proprietaries

B. Non-Operating Proprietaries

. .

II. Statutory Authority for Proprietaries

1

.&®*•+*****

********* »

... ..

= z . = ,z÷e.

= <t =

. . . . ....

7

9

III.

Specific Controls

A. Agency Regulations and Policies

n n n : : , n

10

10

B. Project Reviews and Control

C. Financial Controls/Operating Companies and Non-

Operating Companies Keeping Books of Accounts

11

11

D. Financial Controls/Non-Operating Companies Except

Those Keeping Books of Accounts ...

13

E. Treatment of Profits

, . . . . . . ,, ==ea

14

F. Disposition of Funds Returned from Proprietaries

G. Disposal of Proprietaries

. . . =......., . . . . .==.

16

16

H. Relations with Tax, Regulatory, and Other Agencies

• 18

IV. A Description of the Various Proprietaries

Proprietary List

...

......

21

24

Employees of Proprietaries

as of October 1975

'.."*****

Funding and Payroll Mechanisms

Description of Major Headquarters-Controlled

Proprietaries as of September 1975 ...

Listing of Proprietaries During the Period 1952 through

1974 (Total 399)

41

42

43

46

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(i1)

V. The Disposal of Agency Proprietaries

a .

An Overview

.Д.

.............

59

.......................

59

Entities Dissolved

63

Entities Sold .....

68

Entities "Otherwise Disposed Of"

Description of Disposition of Entities Sold or

Otherwise

Disposed Of

. .. .....

****

71

74

b.

The Sale of SouthernAir Transport, Inc.: A Case

Study In Disposal of a CIA Proprietary

. 89-1

Background ..

.89-1

The Sale

...

89-4

Declassification of Relationship With CIA ... 89-14

Conflict Of Interest

.89-15

Conclusion ..

.89-17

VI. Project MHBOUND

VII.

Beyond "Doing Business":. Peak Non-Government Security

Investments by Proprietaries Active as of December

31, 1974

90

95

VII. MHMUTUAL: The Insurance-Investment Complex

99

a. A Brief History ..

99

b. Current Status

106

Stock Portfolio Performance Chart ..............

108

IX. The Air Proprietaries

********

113

X. Issues Posed, Conclusions, and Recommendations

** +

129

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SECRET PROPATETARTES

I. INTRODUCTION AND PHILOSOPHY OF USE

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

конок.

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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

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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, MuMUTUAL,

serious questions remain as to the propriety of using such a mechanism

to provide insurance and retirement benefits. This problem is detailed

later. (See Section VIII).

A. Operating 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

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have been used as partial offsets to operating costs. Aggregate

profits over the years have been relatively small. Only 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 (M-MUTUAL) •

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:

A United States frozen seafood importing company which

operates

in the Far East and provides cover for an Agency

employee engaged in intelligence activities. The Agency

provided $25,000 in capital to purchase anc

activate a

lornant but long-established privately-owned United States

seafood distributing company.

partner, who are cleared and

anto and product dier oution

The former owner and his

United States

for one-half the profits on seafood imports

rinanced by the proprietary.

The Agency subsequently

provided $10,000 annually for fiscal years 1972, 1973, and

• 1974 as working capital. The proprietary since

1971 has

provided excellent cover with

a minimum amount of business.

As of 20 June 1974, the proprietary had assets of $104,222.67

and a net worth (assets minus liabilities) of $74,051.15.

The company's financial accounts are handled by an Agency

proprietary management firm.

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A foreign travel service company which operates in a Southeast

Asia country and provides cover for an agent targeted against

the local Communist Party.

The company was established in 1973

with an initial investment of $5,900.

Operating proprietaries whose commercial purposes are in themselves

essential to

the CIA mission require much larger capitalization and

investment. They are staffed by Agency personnel plus cleared 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 Internountain

have been

sold, with operations ceasing on 28. February 1975; and the

corporation is in the process of being dissolved.

Air America, the Agency's largest proprietary, which is in the

process of liquidation, provided aircraft in support of Agency operations

in Southeast Asia. This support has been under cover of a commercial

flying service in fulfillment of U.S. Government contracts. Corporate

• Headquarters has been in Washington, D. C., with field Headquarters

in Taipei, Taiwan.

The insurance complex provides a mechanism for the payment of

annuities and other benefits to sensitive agents and for self-insurance

of risks involved in covert operations which, for security reasons,

cannot be attributed to the U.S. Government or handled through private

firms.

The complex was formed in 1962 as a clandestine commercial

support mechanism to provide death and disability benefits to agents

or their beneficiaries when security considerations precluded payments

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attributable to the U.S. Government. This function was broadened

to include self-insurance for many risks involved in covert operations,

including property risks incurred by operational activities of Agency-

owned air and marine companies. From an early date, the complex has

administered agents' escrow accounts and life insurance, and provided

annuity and pension programs for selected agent personnel employed by

the Agency. These programs are solely for the purpose of meeting the

Agency's obligations to agent-type personnel who have rendered services

over a substantial period of time and cannot be handled under normal

U.S. Government retirement programs. Individuals who qualify for the

CIA Retirement System or the Civil Service System are not handled

through the proprietary system. In addition, the complex has been

used to provide a limited amount of support to covert operations --

specifically, for the acquisition of operational real estate and as

a conduit for the funding of selected covert activities.

Intermountain Aviation, Inc., has the purpose of providing a

variety of nonattributable air support capabilities available for

quick deployment overseas to support Agency activities. The Agency

is in the process of disposing of its assets and terminating this

activity..

As of 1 July 1974 there were

71 operating proprietary companies,

of which 21 are part of the Agency's proprietary insurance complex.

The combined net worth (assets minus liabilities) of these companies

is approximately $57.3 million. Although some, such as those in the

insurance complex, are commercially self-supporting, most operating

proprietaries usually require budgetary support.

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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 comnercially managed, keep books of

account, and can withstand commercial and tax audit are:

A Florida corporation capitalized at $7,000 and whose legal

address is the office of a cleared and witting attorney.

Under the auspices of the Florida corporation, an Agency

officer established a branch office in a Central American

country and conducts a sporting goods business which provides

him cover.

Administration of the corporation, including

surchase of inventory for the branch office, is handled by

a proprietary management company.

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A Liechtenstein Anstalt which an Agency nominee established

using a reliable but nonwitting Liechtenstein lawyer as a

The Anstalt was used to purchase a property

in a European country from which an audio operation was

mounted against an installation of a Communist country.

Upon conclusion of the operation, the property will be sold

by the Anstalt and the proceeds

nominee.

Requiring less elaborate commercial administration because of

the nature of Agency taske performed are 31 legally incorporated

companies which are directly managed by Agency Headquarters specialists

operating in alias as signatories to the company bank accounts. Each

of these companies

generally have a capitalization of $5,000 or less

and are domiciled in the offices of cleared and witting attorneys.

No commercial books of account are kept, and in the event of a tax

audit the Agency has to brief the auditing authority. Depending on

use, administration may be as simple as maintaining bank accounts and

filing annual franchise taxes or more extensive as required when

obtaining Employee Identification numbers, paying personnel, with-

holding taxes and Social Security, and filing tax returns. Examples

of this type of Headquarters-managed proprietary corporation are:

A Nevada proprietary corporation domiciled at the offices of

a California law form.

Three members of the firm serve as

Agency nominee stockholders, directors, and officers for

the proprietary which hölds

title to two aircraft used by

the Agency for flight training and testing avionics equipment.

In this case, only administration is required to maincain a

bank account, file a franchise tax, and coordinate with the

law firm.

Although not proprietary corporations, but proprietaries in the

sense of being Agency-owned and administered, are 64 ostensible sole-

proprietorships. The Agency establishes and registers these sole-

proprietorships in the name of fictitious persons and opens a bank

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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."

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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

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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. Proprietarles are liquidated

as their usefulness

ends; new ones are formed as needed.

C. Pompatal Cops a ones and Non-Operating

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

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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.

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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

Section VIlland concerns MIMUTUAL, the proprietary insurance-investment

complex.

Financial Controls/Non-Operating Companies Except Those

Keeping Books of Account

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.

Signatories 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.

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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 Government Corporations Control Act, 31 U.S.C.

849, provides that Congress shall enact necessary legislation to make

available for expenditure such corporate funds or other financial

resources or limiting the use thereof as the Congress may determine.

It is further provided that "this section shall not be construed as

preventing the Government corporations from carrying out and financing

their activities as authorized by existing law . . ." The legislative

history explaining this section of the act states that "in cases where

no other law required a congressional authorization of expenditures,

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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,

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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 $50 million and more than 8,000 employees (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

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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

AiI 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.

NH 50955 DooId:32423532 Page 22

---

## Page 23

- 18 -

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 corporationis 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.

IN 50955 DocId: 32423532 Page 23

---

## Page 24

- 19 -

Those 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.

HH 50955 DocId: 32423532 Page 24

---

## Page 25

- 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.

50955

DocId:32423532

Lage 25

---

## Page 26

= 21 -

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 (comnercial

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 activicies in Guinea), and various

other miscellaneous categories.

The number of employees of proprietaries as of October 30, 1975

was 321. Of this number 78 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

NH 50955 DooId:32423532 Page 26

---

## Page 27

- 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-

taries 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

14,416 persons. Ninety-two percent of the employees were accounted

for by three proprietary complexes as follows:

JBGREED

10,218

TPTONIC

1,800

QRACTIVE

1,300

13,318

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

NW 50955 DocId:32423532 Page 27

---

## Page 28

- 23 -

currently has 63 employees. In addition to the proprietaries mentioned

above, the Agency managed 243 funding and payrolling mechanisms which

provided payrolling

services for 149 employees.

HIT

50955

DocId: 32423532

Page

28

---

## Page 29

- 24 -

PROPRIETARY LIST

AIR 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.

1. IUCONTROL

A Florida 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. IUBERYL:

A Florida corporation

based in South Florida; a small

air

service company which can be quickly expanded to meet Agency air

support requirements.

3. IUEPOCH

A Florida corporation which operates from an airport in the

Southeastern United States; a wholly owned subsidiary of LUBERYL

(immediately above) which operates a fixed base aviation facility;

provides

an alternative air support capability.

4. LUPIECEs

A Florida corporation based in Miami 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).

SCOR

CRET

---

## Page 30

- 25 -

JBGREED Complex

The below five companies comprised an air support capabil-

ity in the Far East.

All entities are in process of being

Tiquidated

or sold.

5. JBCRYING

A Delaware corporation with corporate offices in Washington,

D.C., which acts as the holding company for JBcHoKE, UBHEEDFUL,

and PROPRIETARY C (see below).

6. JBCHOKE

A Delavare corporation which corporate offices in washington,

D.C., which has terminated all flying services contracts.

pany will be liquidated by sale or disposal of assets.

7. JBHEEDFUL

A Taiwan corporation with corporate offices in Taipei 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

A Hong Kong corporation located in Hong Kong which provides

computerized accounting services for JBCHOKE.

9. PROPRIETARY C

A Thailand corporation located in Bangkok, Thailang which is

the custodian for JBCHOKE files pertaining to Thai employees and

contractual services in Thailand; will be dissolved when Thai law

? FROM

NOV 6 19P5

CIA

Single Entity

10. HBSANDTRAP

A Delaware corporation located at Washington National Airport

which has provided secure air support for Agency employees and clas-

sified pouches between Headquarters and other Agency facilities in

-2-i.

---

## Page 31

- 26 -

ORCI

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. ORBLOND

A Liberian corporation with a representative (banker) in

Brussels which pays book distribution costs; funds are controlled

by 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 the Brussels repre-

sentative, who is paid on a fee basis.

12. ORBLUFF

A Liberian corporation which is used as attribution for

Agency funding to the above two proprietaries; no employees.

13. POPORTAL/200

A German non-profit organization, located in Munich, which

acts as the home office of its Rome Branch and is also used as

the ostensible source of all the Agency funding to other project

entities; no employees; maintains a branch, PDPORTAL/500, in

Rome, Italy.

14. PDPORTAL/100

A limited partnership located in London, England.

15. POPORTAL/400

A corporation located in Paris, France.

16. PDPORTAL/ 300

A New York corporation located in New York City.

RECENT FROM

NOV 6 1975

CIA

---

## Page 32

... • 27=

Single Entities

17. TOMOSAIC

A Delaware corporation based in London which provided an in-

-ernational news teature service; the project also supported the

ublication of books of propaganda value: the news feature service

has been discontinued and the corporation

will soon be dissolved.

18. AELEDGER

A French 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

covertly in the USSR by Soviet dissidents; the periodical

attempts to encourage and assist activities of moderate segments

of Soviet society.

19. AEDYNAMIC

A New York corporation located in New York City which pub-

lishes periodicals and selected books for infiltration 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 regional nationalities; supports

the AEDYNAMIC branch office in Munich, Germany.

20. QRMYSTIC

A sole proprietorship located in the Washington metropolitan

area owned ostensibly by an Agency employee 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.

HOM

NOV t 1915

CIA

---

## Page 33

REET 28 -

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 New York company with no employees which serves as a

communication channel from Headquarters to LPREMEDY.

Single Entities

24. LPHOCUS

A New York management and accounting company (three em-

ployees) which provides accounting and related financial man-

agement assistance to other proprietary organizations.

25. LPSUGAR

A Maryland management and accounting company (three employees)

which provides accounting and related services to other proprie-

tary organizations.

26. LPBERRY/B •

A New York legal and accounting firm (three employees)

which provides legal and accounting services to other proprie-

tary organizations.

Insurance

MAMUTUAL Complex

The below 25 proprietaries comprise a clandestine support

mechanism which provides personal insurance coverages,

annuity coverages, and escrow account maintenance for agent

Or onnel in a manner to preclude attribution to the United

YOV ú 1975

CiA

CRET

---

## Page 34

= 29 -

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

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 Washing-

ton, D.C.; he is

the Agency manager of the insurance complex.

28. MHGRET

A Panamanian company which provides ownership for MHCROZE,

an investment proprietary, (see below) and owns an apartment in

Buenos

Aires; no employees.

29. MHCROZE

A Panamanian company which serves as an investment vehicle

and a primary mechanism for the management of funds, no employees.

30. MHSLACK

A Delaware corporation which provides payroll cover for project

personnel

and serves as an investment vehicle for funds; seven em-

ployees.

31. MAVODKA

A Bermuda 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 Panamanian company which serves as owner of MHLUMEN and

MHSPRAY, (see below); no employees.

NOV 6 1975

GIA

CRET.

---

## Page 35

-30 -

33. MHLUMEN

A Liberian company which serves as owner of MHFETCH (see

below) and as the source of an operational loan; no employees.

34. MHFETCH

A Bahamian company 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 Liberian company currently inactive and slated for dis-

solution; no employees.

36. MHWHIFF

A Bermuda company which is a reinsurance vehicle for all

types of casualty and property insurance for Agency proprietaries

and for life and annuity coverages for non-staff personnel; no

employees.

37. MHMOLAR

Liechtenstein anstalt which serves as the beneficial owner

of MHBOMBE (see below); no employees.

38. MHBOMBE

A Bahamian company which serves as a holding company for

MHTWANG and MHONSET (see. below) and as an investment vehicle;

no employees.

39.

MHONSET

A Delaware corporation which serves as an investment vehicle

and quarantor of a mortgage on a

former Agency activity; no em-

ployees.

40. MHTWANG

A Cayman Island corporation which handles certain annuities,

escrow, term life insurance, a pension plan and funding of MHPIQUE

(see below); no employees.

RECEA

:3OM

NOV € 1975

CIA

CRET

---

## Page 36

- 31 -

47.

MHPIQUE

A Florida company which provides payroll cover for three

non-staff personnel who handle the Cuban dependents

program

payments and correspondence; three employees.

42.

MHDELFT

A Swiss company which serves as a holding company for MHHAWSE

(see below) and as a

standby asset; no employees.

43. MHHAWSE

A channel Island company that serves as a direct underwriter

of term life insurance and annuity contracts for non-staff Agency

personnel; no employees.

44.

MHSEPOY

A Panamanian company 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

A Panamanian company which is slated for dissolution; no employees.

46. MHALATE

A Liechtenstein company which owns property in Lusaka; no

employees.

47. MHJORUM

A Panamanian company which directly underwrites death and

disability, term life and annuities for non-staff personnel, no

employees.

48. MHBLARE

A Florida company now in dissolution resulting from abandon-

ment of Agency project; no employees.

NOV : 1915

CIA

• 11:

---

## Page 37

•- 32 -

RLT

49. MHRUCHE

A Liechtenstein anstalt which is a general use standby

asset; no employees.

50. MHCLUMP

A Liechtenstein anstalt 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.

Logistics Support

The below three entities operated by the Office of

Logistics provide a covert procurement mechanism

for the Agency.

52. KMJAGGERY

A Delaware corporation located in Washington, D.C., 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. IPLENTIC

A Delaware corporation with an address in New York which

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.

• ROM

NOV 6 1975

CIA

1.71

-594ET.

---

## Page 38

SECK 33 -

54. Stock Account #3

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.

Cover Support

WUDIRK Complex

The below five entities located in New York comprise a

Foreign Resources Division activity which provides com-

mercial cover for certain personnel assigned to the

New York Base 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

entities will replace the ones in dis-

55. WUBODKIN

A New York corporation with offices in midtown Manhattan

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.

56. WUCURULE

A New York corporation with offices in mid-town Manhattan

which is styled as a management consulting firm; the entity will

be dissolved in the near future as soon as other cover facil

ities are available for the individuals presently covered by

the entity; used by New York Base personnel for employment

attribution and office space.

57. WUXIPHOID

A New York corporation with offices in mid-town. Manhattan

which

is styled

as a management consulting firm; the entity will

continue to provide cover support to the New York Base; used

by New York Base personnel for employment attribution and office

Odde

NOV & 1975

CIA

-10-

---

## Page 39

34 -

58. WUBACH

A newly established New York corporation with offices in

mid-town Manhattan which is styled as a management consulting

firm; was created to replace WUBODKIN and WUCURULE (above);

used by New York Base personnel

for employment attribution

and office space.

59. WUKNOX

A newly established New York corporation with offices in

mid-town Manhattan which is styled as a management consulting

Firm; was created to replace WUBODKIN and WUCURULE (above);

used by New York Base personnel for employment attribution

and office space.

Single Entities

60. LPPIKE

A New York importing company with a branch office in a

Far East country; the branch office provides cover for one

Agency employee; no employees in New York.

61.

MOKITH

A Thai company located in Bangkok, Thailand, which functions

as a travel agency and provides cover for one Agency employee in

Bangkok.

62. LKBASE

A Virginia corporation located in Washington, D.C., 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 Virginia corporation 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 DDO.

RECEIVED FROM

NOV 6 1975

CIA

SL NET

---

## Page 40

- 35 -

Personnel Services

Single Entities

64. SLAVE

A Delaware corporation having its principal office in Falls

Church, Virginia, 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

A California corporation, with its headquarters in Los

Angeles, 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, 1.e.,

badging, counter-audio inspections, etc., to

Agency projects in those cases where United States Government

involvement cannot be revealed; the company will be dissolved

by 30 June 1976.

66. MHCL IMB

Represented as

the Washington, D.C. branch office or

affiliate of a legitimate New York based public accounting firm,

but actually under sole control and administration of the Agency

Audit Staff, this facility enables site audits of Agency covert

projects by experienced Agency auditors.

67. VWCADENZA

A Maryland company located in Bethesda, 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

NOV to 1975

CIA

URFT

-12-

---

## Page 41

- 36 =

Operational Support

WUTACTIC Complex

The below 27 companies are managed by the Cover and

Conmercial Staff to provide operational support mechan-

isms for DDO foreign operations.

Some companies are in-

active and held for future use.

68.

LPCEMENT

A Liechtenstein 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

A Latin American 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.

70. LPKNIT

A Florida 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 Liberian corporation used to backstop a field agent in the

renewal of his visa; assets of $375; no employees.

72. LPCAMEO

A Liberian corporation used as the ostensible employer of

two Agency employees in the recruitment of a foreign agent; no

assets no real employees.

73. LPMISSIVE

IndiA Liechtenstein anstalt which holds a mortgage on property

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.

UlA

-13-

---

## Page 42

- 37 -

:

74. LPBANGO

A Liechtenstein foundation used to give ostensible grants-

in-aid to field agents as a source of their livelihood; assets

of $165; no employees.

75. LPABBEY

A Liechtenstein foundation presently inactive; assets

$3,202; no employees.

76. LPKITTY

A Liechtenstein foundation presently inactive; assets

$3,205; no employees.

77. LPALONE

A Liechtenstein foundation presently inactive; assets

$633; no employees.

78. LPDOUBLE

• A Liechtenstein

company used as a funding channel for a cover

placement, assets $2,853; no employees.

79, LPRAISIN

A Liechtenstein 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 Panamanian company used as a note holder in the sale of

an Agency proprietary entity; assets $1,818; no employees.

81. LPADYANCE

A Panamanian company currently inactive; assets $3,589; no

employees.

RECRVED FROM

NOV 6 1975

SECRET

-14-

---

## Page 43

=

*38 -

FORET

82. LPGLITTER

• 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

returned to the Agency; the company. has no employees.

83. LPLOTUS

A Panamanian company currently inactive; assets of $2,831;

no employees.

84. LPVISION

A Panamanian company currently inactive; assets of $2,831;

no employees.

85. LPRANGE

A Panamanian 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 Delaware 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 Delaware 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.

RECEIVED SOM

NOV 6 1975

CIA

• -15-

---

## Page 44

- 39 -

88.

LPEPIC

A Delaware corporation based in New York City 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 Delaware corporation currently inactive but retained for

future use; net assets of $2,023; no employees.

90. LPRERUN

A Delaware company used to provide compensation and tax

attribution to an independent contractor, assets of 97,094; no

employees.

91. LPGRASS

A Delaware company used as the ostensible investors of

funds in LPKILT; assets of $1,826; no employees.

92. LPSHUFFLE

A New York company incorporated but never opened for business;

being held in reserve for possible future use; no assets; no

employees.

93. LPDAIS

A New York 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 Massachusetts company incorporated to provide cover and

source of livelihood to an Agency employee on a tour in the Near

East; assets of $9,647; one employee.

NOMI

NOV b 1975

CIA

SECRETS-

---

## Page 45

= 40 -

Miscellaneous

Single Entities

95. CATAR

A. Liechtenstein 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 Swiss entity which holds a current equity interest (30

percent) in a European trucking company; all other owners of the

trucking company are unwitting of Agency interest and the Agency

has been trying to sell 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 Liechtenstein anstalt 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 Liechtenstein;

liquidating dividends will be returned

the Agency for credit

to Miscellaneous Receipts.

.::'

FROM

NOV 6 1975

CIA

SECRET

-17-

---

## Page 46

."

SET NET

- 41 -

Employees* of Proprietaries as of October 30, 1975

IUBETON Complex

JBGREED Complex

HBSANDTRAP

POPORTAL Complex

TOMOSAIC

AELEDGER

AEDYNAMIC

QRMYSTIC

LPPANDA Complex

LPHOCUS

LPSUGAR

LPBERRY/B

MHMUTUAL Complex

Logistic Support

Complex

WUDIRK Complex

LPPIKE

MOKITH

LKBASE

MKDILLY

SLAVE

MHBOUND/3

MHCL IMB

VWCADENZA

LPTACTIC Complex

CATAR

LPBYZAS/ B

LPESTATE

Totals

U.S.

Agency

Employees

3

2

0

1

0

1

1

and 60)

5

23

1

5

0

0

78

U.S.

Prop. Hire

116

31

0

10.

DO INO-OC

178

Foreign

Prop. Hires

1

30

0

9

0

20

3

00000

C

000100000

65

* No Foreign National Agency employees are presently employed by

Agency proprietaries.

TAB B

Totals

HOW-STOOGE

321

LUVi

NOV 5 1915

LIA

SECRET

---

## Page 47

SECRET

• 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.

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.

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. Notionals

• Total

31

67

228

326

MM

197:5

SEUNLI

---

## Page 48

- 43 -

DESCRIPTIONS OF MAJOR HEADQUARTERS-CONTROLLED

PROPRIETARIES FOUND ON THE SCHEDULE ATTACHED

TO A 2÷ SEPTENBER 1975 MENORANDUM TO THE

COMPTROLLER FPOM THE OFFICE OF FINANCE

R1779

LPBERRY/B

LPPIKE

PDPORTAL

POLEDGER

A one man, one secretary accounting and

legal 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 pro-

prietary are usually subsidized by the

Agency, however, during the past 12-

month period the proprietary did earn

substantial fees from legal clients in-

cluding a $20,000 fee which was congingent

upon the favorable sectlement of a civil

. case.

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 has earned substantial revenue,

however, in recent menths and for the

next year it is expected that the company

will be subsidized completely by the

Agency.

A complex of companies both in the U.S.

and abroad which comprise a worldwide

book distribution and manuscript pub-

lishing activity. Except for $4,000 to

$5,000 a year from outside sources, all

proprietaries in this complex are sub-

sidized completely by the Agency.

A small company in Europe which publishes

& weekly periodical and disseminates this

ind other material te recipients in and:

su: of Russia; the various written materials

projuced for dissemination by the company

contain Soviet dissident literature and

other

erticles to encourage and assist

acivities of moderate segments of Soviet

society.

This company receives outside

revenue from

the sale of its publications

ind over the past 12 months this revenue

contributed

to approximately one-half of

ine costs.

the Agency.

The balancRles provided bXOM

NOV 4 1975

CIA

SECHET

2353

---

## Page 49

PDDYNAMIC

VWCADENZA

MHBOUND

KMJAGGERY

QRMYSTIC

WUDIRK

LPHOCUS

- 44 -

A domestic based corporation with a German

branch which fosters the aims of a nation-

alistic group within the USSR and publishes

selacted 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.

A one man, one secretary, consulting

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.

MHBOUND/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

whose 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 companies in New York

which provide cover for personnel assigned

to FP. Division's New York Base.

The

three companies involved are supported

wholly by the Agency.

A two accountant, one secretary firm in

New York City which provides accounting

services for Agency proprietary organiza-

tions.

This company is supported almost

exclusively by the Agancy.

" FROM

NOV A 1915

CIA

2

SEGRET

---

## Page 50

LPBYZAS/ B

LPPANDA

MHMUTUAL

LPSUGAR

À European company with no employees

which holds the Agency's interest in

arother European company which was used

in the past to provide cover for one

Agency employee. This company is being

retained solely for the purpose of holding

an Agency investment. Until this invest-

ment is sold, the expenses incident to

the operation of the, company will be

wholly subsidized by the Agency.

One company in New York without employees

and a one accountant, part-time secretary

firm in Europe which provides accounting

support to Agency proprietary organizations.

This company is almost exclusively sub-

sidized by the Agency.

This is the Agency insurance complex which,

through interest and dividends earned on

its investment. portfolio pays for all

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.

FROM

3

SEGRET

NOV 4 itis

CIA

---

## Page 51

:.

SENSITIVE- 46 -

PROJECT/

ENTITY

ABUNA (Same as JBCASHBOX)

AEEGGHEAD

AZMARSH

AEMIRROR

AEPOKER

AEWILOFIRE

AESILVER/D

AKAROA

AMIDEA

BEDEVIL

ВЕНОУЕ

BEL'^ -FUL

SGJAGUAR

BGMARQUE

BGSPEED

SGTENTS

BGTHANKS

CABANA

CALANCET

САРОХ

DEINDEED

DEWARK

DTCRAZE

DTLAMPREY

DILIQUOR

OTPHENYL

DTPIGGLE

OTPILLAR

DTTEEPEE

DUPLICITY/1

LISTING OF PROPRIETARIES

DURING THE PERIOD

1952 THROUGH 1974

(Total 399)

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

$

98,000

65,000

1,414

42,000

135

i,900

37,000

60,000

147,000

275,000

214,000

141,000

9,200

291,000

59,400

3,500,000

2,200

13,500

88,200

17,000

29,000

64,800

2,829,000

333,000

85,000

254,500

4,600

189,500

38,500

7,123,000

117,400

39,000

NET WORTH

BALANCE

31 DEC 74

$

84,400

SECRET

KEISTLE

REC FROM

NOV A 1979

CIA

---

## Page 52

-SLUHLI

SENSITIVE 47 - .

PROJECT/

ENTITY

ENDOMORPH

ENGAGE

FELIX

FUCITIES

FOREFLECT

FOHOLIDAY

FJSTRICT

FUARROW

FURIOSO/H•

FUSEE

GINSENG/G (waS GIMMICK)

HACKMORE

HALARC

HBDERRICK (was WU) (same as

HBCLUBHOUSE

OILSTONE)

HBSANDTRAP

HREDITOME

HL - CKORY

HBQUAIL

Housing Fund ISOLATION]

HTB ALARD

HTGARLIC

HTNAMABLE

HTPENULT

ICIRON

IUAIREDALE

IUQUEST

JUABATE

TUPAGAN

IUPROTON (*)

JBFOLDAGE

JBGREED.

LPCRYING

JBCHOKE

JBARGON

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

$

$

NET WORTH

BALANCE

31 DEC 74

5,300 (a)

202,000

6,200

33,000

7,959,000

77,464

304,000

23,000

22,000

25,000

31,000

600

9,500

917,543

1,103,000,

546,200

142,500

2,700

16,600

14,300

203,300

2,056,000

7,000

8,000

89,050

3,434,000

3,332,000

1,230,000

43,000

34, 110,000

3,484,000 (a)

880,000 (a)

7,220 (a)

31,778,000 (a)

RECT

FROM

(*) See attached schedule. for non-government investments.

(a) In process of liquidation

35

NOV A 1975

CIA

SECRET

SENDZUE

---

## Page 53

SEORETI

SENSITIVE

- 48 -

PROJECT/

ENTITY

JEGREED (continued)

JBHEEOFUL.

PROP B

PROP C

JBOPOSONIC

JBWHIST

JMATE:

JMDUST

JMHOPE

UMPOPLAR

KMHELMSMAN

KMARDISH

KMCA.RDUEL

KMCASADE

KNJAGUARO

KMFERRY

KMJAGGERY

MHOLENT

STOCK ACCT.

#2

Sr. STOCK ACCT. #3

TPLENITIC

KMOCHRIOD

KMPRICE

KHSMORCH

LADYCHAPEL

LOFURTHER

LCKNIFE

LCPEDANT

LCROPES

LFUPRISE

MIASTOR

LIL ISP/G

LIMERRY

LPBERRY (was BGLEADWAY)

LPBERRY/A

LPBERRY/3

LPBYZAS/A

LFBYZAS/B

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

• 1952-1974

$

NET WORTH

BALANCE

31 DEC 74

$

3,500

205,000

572,000

345,000

61,400

19,400

8,200

20,000

49,000

1,038,000

4,000

294,700

11,000

4,105,000

50,000

153,500

50,500

141,000

8,300

223,000

31,800

335,300

59,800

311,000

29,000

121,700

129,000

41,600

65,000

52,000

67,000

357,000

(a) In process of liquidation.

53,200

340(a)

357,000

RECE OM

NOV 4 1975

CIA

SECRET

---

## Page 54

SENSITIVE - 49 -

PROJECT/

ENTITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

NET WORTH

BALANCE

31 ĐEC 74

$

LPCAPTAIN

LP.CANAL

LPDICTUM(was ZRSALTY, (same as

WUBRINY) ZRSALTY).

• LPDICTUM/F

LPESTATE

LPSPICE (*)

LPDICTUM/P

LPSALINE (*)

LPETHNIC (same as WUAMICE)

LPCYHAMMER

LPHALTER

MODAISY

LPTOTEM

LPFUNNEL

LPGAMP

LPGLOBE

LPHOCUS (same as WUHOCUS)

LPJACK (*)

LPMINERAL

I 'AIL

LecHICKEN

20,000

34,800

500,000

931,900

87,000

206,000

75,000

1,597,000

800

67,000

5,400

242,000

1,500

27,000

29,000

88,000

49,000

52,000

13,000

LPMINOR

•LPMINOR/1

523,000

LPMINOR/G

91,000

LPMETAL

166,000

PULSE

9,000

"WUHALIBUT

311,100

LPPANDA (same. as ZRBADGE)

CHAIR Alsame as WUPSYCH!/

77,500

CHAIR 3 MUCHAIR/A & VUCHA1R/3) 7,000

LPCLOUD (same as. WUCLOUD)

5,900

LPMET (*)

16,200

LPREMEDY

34,000

LPRECLAIM

LPPITCH

58,000

LPROE/

LPPIKE

73,700

LPSIPHON

12,500

LPSUGAR

55,000

LPTACTIC

LPABBEY

. LPACROSS

3,500

1,700

$

2,000 (a)

84,400

• 10,500 (a)

81,200(a)

35,700

54,400 (a)

47,800 (a)

1,900

16,200

27,400

56,200

35,500

4,300

(*) See attached

schedule

(a) In process of liquidation

SECRET

SENSITIVE

open.

REPENTO FROM

?W.

197S

---

## Page 55

SENSITIVE - 50 -

PROJECT/

ENTITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

LPTACITC (continued)

LPABOUT

LPACTION

!. LPADVANCE

LPALONE

LPASSIST

LPBAIL

LPBANJO

LPBEAVER

LPBRAID

LPBRICK

LPCAMEO

LPCAREFREE

LPCEMENT

LPCHANNEL

L PCHAOS

LPDAIS

LPDARE

LPDECOR

| ODOLLOP

• JOUBLE

LPDRAGUN

LPDUPE

LPELECT

LPEPIC

LPFINAL

LPFLASH

• LPGAMP

LPGRASS

LPGLITTER (*)

LPIMPORT

LPKAYO

LPKILT

LPKITTY

LPKIVA

LPKNIT

I.PLAZY

LPLOTUS

LEMANTLE (*)

LPMASSIVE

LPORDER

• WUOUTDONE

LPOXAZOLE

$

1,000

4,300

20,000

6,000

2,500

11,400

1,900

2,200

2,200

4,200

2,000

16,000

64,000

500

2,500

31,000

21,000

28,700

3,000

4,700

7,000

19,000

1,300

49,000

1,100

101,900

15,400

2,000

1,418,500

1,100

700

10,600

7,000

6,000

12,200

55,000

3,700

591,030

2,400

68,500

15,000

5,100

(*) See attached schedule.

NET WORTH

BALANCE

31 DEC 74

$

3,600

400

1,200

1,800

86,200

20,500

2,800

3,600

6,600

2,400

132,000

7,800.

2,500

14,800

2,400

37,800

1,800

1) FROM

NUV a 1975

CIA

SECRET

enni

---

## Page 56

SEUNCI

CENSITIE -

51-

PROJECT/

_ ENTITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1979

-

LPTACTIC (continued)

LPPITCH

28,200

LPPURSUIT

2,100

LPRAISON

8,000

LPRANGE

750,000

LPRERUN

5,000

LPRIVER

4,000

LPROCKY

1,100

WUSENOR

2,700

LPSERVICE

•4,400

... LPSHADE

47,000

LPSHOFFLE

60

LPSHORE

6,700

LPSOLO

398,000

LPSUMMIT

5,500

•LPVISION

3,800

LPWAMPUM

40,000

• LPWEARY

4,400

LPWHISPER(same.a LPCAPTAIN/PHISHER9, 900

LPL TY/1

LPWANDER

LUMINANT

MENNONITE

THAMISH

PHANVIL/A

MHANVIL/B

MHANVIL/B

MHANVIL/F

MHANVIL/G

NHBOUND/ 1

(same as ZRLINEN)

NHBOUND/2

MHBOUND/3

THCLIMB

HMUTUAL

MHALATE

(*

MHBOMBE

MUCAREFUL

WUCHILI

(*

MHCLUMP

MHCROZE

• MHDELFT

*

WHDRYAD (*)

5,000

12,800

1,200

33,000

28,000

2,700

3, 300

2,400

2,000

135,900

28,000

351,600

45,000

155,900

2,251,000

39,900

20,000

75,500

2,026,600

9,400

52, 090

(*) See attached schedule

NET WORTH

BALANCE

31 DEC 74

2,500

5,900

14,000

5,900

2,400

1,900

1,800

2,800

494,400

20,000

• 103,600

873,335

81,400

1,605,200

9,300

46,300

RECI

NOY 4 1975

CIA

SECRET

---

## Page 57

SLUALI

SENSITIVE -

52 -

PROJECT/

ENTITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

NET WORTH

BALANCE

37 DEC 74

MHMUTUAL (continued)

MHEGRET (*)

WUFACET

(*)

MHFETCH

MHHAWSE:

MHJORUM

MHKEVEL

MHKOALA (*)

MHLIBERTY (*)

MHLITRE (**)

NHLUMEN

MHMATTE

MHMOLAR

*)

MHNAVAL

(*)

NiHONSET

(*

MHPIQUE

*

WUPRUDENT

WUSAFETY

(*

MHSEPOY

MHSLACK

TWANG

rasUNDER

MHVODKA

MHWHIFF

( *)

WHNERVE

MHFUGUE

MHSHANK

MIASTOR

MICLINIC

MIPACT

MIHOLOING

MIPUSHER

MKCOTTON

MKCRUSH

MKKILLY

MKPENNY (same as MKPENNY)

MOKITH

MONARRON

MONITION

$

35,000

1,128,000

1,261,000

48,600

715,000

357,000

250,000

4,400

1,600

59,000

49,000

850

26,800

126,000

28,500

1,025,000

412,799

18,000

691,500

638,900

33,500

7,053,500

8,385,000

325,500

244,000

34,700

2,500

21,400

37,000

459,000

35,500

356,000

20,200

51,700

52,000

$

33,800

(363,500)

54,600

141,500

211,200

35,500

550

199,000

15,900

(6,100)

574,800

648,500

(590)

8,230,000

6,361,000

17,600 (a)7 (b)

6,000

82, (a)

20,300

(*) See attached schedule.

(a) In process of liquidation.

(b) Liquidation completed in March 1975.

- 7=

SECRET

SENSITIVE

30

RECEIVED /ROM

MOV A 1975

CIA

---

## Page 58

SLURL!

SENSITIVE- 53

PROJECT/

ENTITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

NOVEL

NTEICACER

$

OBLIVIOUS

OKMAJOR

OKSALE

OQKADIAK

OQKAIL

PAFANFARE (same

as FANFARE)

PARABASIS

PANALRUS (was WU)

PBGREGALE

PBTEMPLE

POBASIC

PDBASIC/200

PDBASIC/100

PDBASIC/ 400

PDBASIC/300

PER CID

POL.. IS

PODEARLY

POVARSITY

POSPOKE(same as POVARSITY)

PBPOUTER

PSLAWFUL

51,200

80,768

14,600

411,000

46,600

92,800.

170,150

30,300

39,000

92,800

47,800

5,000

1,053,500

13,000

25,000

32,500

37,900

36,700

11,000

QKACTIVE

5,500,000

QKBOTTOM

4,179

QKFEARFUL

236,900

QKHUMMER

5,000

QKOPERA

7

,605,400

QKSHOGUN

21,000

QREASTE

533,000

ORBLAZE

QRBLOND

ORBLUFF

QRBEND

220,000

QRBIBB

102,500

QRBUZZ

12,900

QRDYNAMIC(same as AEDYNAMIC)

151,500

QRTENURE

89,200

ORTERRACE

40,700

QRGLAD

16,790

(*) See attached schedule..

NET WORTH

BALANCE

31 DEC 74

$

465,800

18,000 (a)

389,400

RECEIVED FROM

NOV A 1975

CIA

29

SECRET

---

## Page 59

SECRET

SENSITIVE -

54 -

PROJECT/

ENTITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

QRLEDGER

QRMASTER

QRMOSAIC

QRHAWKBIT

QRMYSTIC

QRCYNIC

QRTRIG

QRTROW (*)

165,500

538,600 .

106,000

9,200

100

775,700

RIPCORD

RIPSNOTER

ROCKOIL

RONDURE

200,000

457,300

3,879,000

29,500

SEASONAL

SERING

SGSUMMON

SILVER/A

SIP 7ZLE

SL.

SOPRANO

SORTIE

STRANWEED

STSKI

39,900

10,500

62,100

1,250

32,000

35,000

15,000

16,000

28,000

11,500

TENACIOUS

21,000

TETARCH

243,300

TGVIVID

23,700

THADMIRE

42,000

THOPUS

TPFOCUS

25,000

1,764,000

TPFOUMART

97,500

TPGLARE

525,000

TPGULLET

70,000

TPHERSEY

326,700

TPMANJACK

62,600

TPPELLENT

635,000

TPSAUCER

210,000

TETONIC(same as FJINDULGE) 34, 260,000

TURBINE

17,000

TUXEDO

25,000

(a) In process of liquidation.

NET WORTH

BALANCE

31 DEC 74

91,400

94,500(a)

2,700

4,900

- 9-

2-8

SECRET

RECRAT: FROM

NOV & 1975

CIA

---

## Page 60

.:."

SECRET

SENSITE -

PROJECT/

EQUITY

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

UNAU

UNTWIG

UT- 00-67-61

$

6,000

$

1., 200.

69,600

VWCADENZA

12,200

2,600

WSFLUFFER

291,000

WSPELICAN

34,900

NSREVOLT

14,900

WSWATERSOAX

6,000

WSWIDDER

32,700

HUADIOS

WUTABOO

243,400

WUAMPLE'

WUCOTTON

27,000

WUATLAS.

HUPESKY

192,000

WUAVON

546,600

HUE ON

IUBERYL

723,700

IUCONTROL

70,000

IUEPOCH .

72,200

IUPICES

28,000

LOBSTER

1,700

72

., 200

28,000

53,000

WUSETTLE

11,200

WUBEVY (same as ZRGUIDE)

262,800

WUCLOAK (same as ZRCLOAK)

WUABOUT

8,000

WUACROSS

1,437

WUDUSTER

100,000

HUHARP!

210,000

WUHUMID (was WUSHINE)

815,700 (same as WUSHINE/WUHUMID)

WUMANTLE

687,000

WUOCEAN

8,200

WUSEASIDE (sme WUSHINENUEA: DE)180,000

WUSNAPPY

WUWAMPUM(sme as WUEMBARK/

1,100

1,315,000

NUDIRK

NUWAMPUN)

WUBODKIN

102,500

WUCRULE(are a WUDIRK/WUSTILET10,91,000

WUXIPHOID

41,300

50,100 (a)

112,500(a)

41,300

(a) In process of liquidation.

FROM

My 4 1975

CIA

-10-

SECRET

---

## Page 61

SECRE!

SENSITIVE - 56

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

PROJECT/

EQUITY

WUEMBARK

WUHALFLIN

HUENTREE

WUMOREL

WUFILET (same as PBLANGUID)

WUFLOWER

WUPROOF

WUSWAMP

WUGAZELLE

WUBLONGUN

WUGIRAFFE

WUZEBU

WUHELPFUL

WUMUG

WUPADDY

WUACROSS

WUORDER

WUTROUBLE

WUPANEL

WUCORAL

WUPEACE

WUP I GMY

WUSNAPPY

WUPILOT

WUTWINE

WURABBIT

WUDOLPHIN

WUSAUTE

WUSAXA

WUACUTE

WUSHINE (sare as ZRSHINE)

WUCOMET

WUSHINE

WUINVEST

WUNOTICE

WUPUMA

WUREVEL

HUSOLID (same as ZRSOLID)

WUTOPSY

WUTRADE

WUSTAKE

WUSUNTAN

WUFLAME

NET WORTH

BALANCE

1 DEC 7S

• 573

$

250,000

8,500

25,500

1,537,000

48,000

62,600

365,700

380,700

252,900

16,600

53,400

12,000

450

395,000

556,900

351,700

375,000

150,400

44,000

77,000

983,000

15,500

1,400,000

1,254,000

325,000

149,000

(81,000)

261,000

1,972,000

460,000

387,800

44,000

ED FROM

NOV ^ 1975

CIA

20

d: 32423532

---

## Page 62

SECRET

SENSITIVE - 57 -

HIGHEST NET

EQUITY BALANCE

ON

AGENCY RECORDS

1952-1974

. NET WORTH

BALANCE

31 DEC 74

PROJECT/

ENTITY

WUVENTURE

LPARCH (same as LPARCH)

WUABLE

WUBAKER

YJPASTIES

YOBLADE

YODOOR

YOENTITY

YOTART

YOYARD

YQFLUENT

YQFLUX

ZRBENCH

ZRCREST

ZRAVAST

LIFF

ZRDAMSEL

ZRDRIVE

ZRDROVE

ZRMORBID

MORGLAY

ZROCCUR

ZRTINDER

ARCORONA

$

69,000

209,000

$

3,000

2,300

636,000

285,000

82,000

755,000

285,700

356,000

33,000

2,300 (a)

118,000

72,000

4,277,000

100,000

57,500

211,000

12,000

59,000

845,000

THE FOLLOWING ARE ON CCS NON OP LIST

(NOT INCLUDED IN ABOVE "OF"LISTING)

These proprietaries are not on Headquarters,

Office of Pirance records; hence no net worth

fiqure was presented. CCS estimates that no

one of these companies had a net worth of over

$50,000 during their esistance.

CATAR

LKBASE

AHMUTUAL

NHBLARE

MHRUCHE

WHSPRAY

PROPRIETARY D

SLOGAN

(a) In process of liquidation.

RE

NOV 4 1915

CIA

-12- 25

SERDET

---

## Page 63

- 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 anc

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

expansion of that proprietary record.

I think we

are about right in terms of where we are now.

NH 50955

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63

---

## Page 64

- 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

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.

HW 50955 DocId:32423532 Page 64

---

## Page 65

- 61 -

(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 of 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 of 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 fron 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

cryptonyms 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.

NW 50955

DocId:32423532 Page

65

---

## Page 66

- 62 =

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:

50955

DocId: 32423532

Page

66

---

## Page 67

• 63

SL3133.

TAB A

ENTITIES DISSOLVED

...i,si..=

REC

ARCM

AIR SUPPORT

HUSOLID/WUTRADE

WUSOLID/WUTOPSY

WUDERRICK/WUCLUBHOUSE

WUCLOAK/WUOCEAN

WUCLOAK/WUSEASIDE

WUCLOAK/WUSNAPPY

IUQUEST/ IUPROTON

WUBETON/WUGLOBAL

WUBETON/WUAISLE

WUSHINE/WUINVEST

WUSHINE/WUREBEL

WUGAZELLE/WUEASEL

WUGAZELLE/WUGIRAFFE

WUPADDY/WUTROUBLE

MARITIME SUPPORT

YOENTITY/YODOOR

YOENTITY/YOMONEY

YOTART

IUMUG

IUHISTEP/IULAPEL

IUHISTEP/IULATCH

OPERATIONAL SUPPORT

LPTACTIC/LPDECOR

WUTACTIC/WUDARE

LPTACTIC/LPDRAGON

LPTACTIC/WUELECT

LPTACTIC/LPFINAL

WUTACTIC/WUFLOOD

WUTACTIC/WUGAMP

LPTACTIC/LPHUMID

WUTACTIC/WUIMPORT

WUTACTIC/WUKIWA

WUTACTIC/NERVE

LPTACTIC/LPPITCH

WUTACTIC/WUROCKY

WUTACTIC/WUSUMMIT

WUTACTIC/LPWAMPUM

_PLACIIC/LPWHISPER

_PTACTIC/LPORDEF

Dr: 0115

T- 30955 200

DocId:32128532 Pare 7727

---

## Page 68

-

---64 -

TAB A

Page 2

(OPERATIONAL SUPPORT - Cont'd)

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

WUDIRK/WUCURULE

WUDIRK/WUBODKIN

WUENTREE/WUMOREL

WUPANEL/WUCORAL

WUPILOT/WUTWINE

LPBYZAS/A

WUBRINY/WUTROCHUS

LPDICTUM/ F

LPDICTUM/P

LPMINERAL/LPCHICKEN

LPARCH/LPDUCAT

WUATLAS/GIBLUFF -

27999

11 i

RET

QUBUZZ

MHAMI SH

LPPANDA/LPCHAIR/B

LPBERRY/A

WUSUNTAN/WUFLAME

WUSUGAR/B

INSURANCE

MHANVIL/B

MHANVIL/D

MHANVIL/F

MHSPRAY

MHKEVEL

MANAVAL

200.:1

NS 50955 Docid: 32423532 Page 68

9237-1

Posse

---

## Page 69

".

TAB A

Page 3

COVERT PROCUREMENT

WUMINOR/I

WUMINOR/WUHALIBUT

LPMINOR/LPMETAL

WUMINOR/PULSE

IUAIREDALE/IUOASIS

FOUNDATION OR INSTITUTE

AEWILDFIRE

LPUNITY/1

MEDIA

VOACORN/VOACTOR

FUSEE

YOYARD

TOMOSAIC/TOHAWKBIT

COMMUNITY DEVELOPMENT

WUETHNIC/MODAISY

WUETHNIG/LPHALTER

WUETHNIC/LPTOTEM

PERSONAL SERVICES

MKCRUSH/MKPENNY

MKCRUSH/MKCOTTON

BEUSEFUL

BGJAGUAR

ENDOMORPH/ ENGAGE

INVESTMENT

LPDICTUM/K

LPDICTUM/LPSPICE

LPDICTUM/WUSALINE

RESEARCH & DEVELOPMENT

MHSHANK

i win:

RECENTO

FROM

NSC v 1975

17,

KH 50222 DocT 32423532 Page 69

---

## Page 70

- 66 -

SEGRET

TAB A

ENTITIES DISSOLVED

AIR SUPPORT

JBGREED/JBCRYING (In Liquidation)

JBGREED/QKHEAVERLY (In Liquidation)

JBGREED/OKHEEDrUL (In Liquidation)

JBGREED/JBCHOKE (In Liquidation)

ZRBENCH

WUBETON/ WULOBSTER

MARITIME SUPPORT

YOBLADE

AMCRAFT

AMSALLY

MEDIA AND/OR PUBLICATIONS

ESMIDWAY

AMIDEA

AMWIDE (SLOGAN)

AMRAPT

WURABBIT

INSTITUTE OR FOUNDATION

LPWANDER/T

LPWANDER/2

LPWANDER/3

LPWANDER/ 4

JMCLIPPER

QRBIBB

PBGREGALE

QRTRIG

COVER SUPPORT

JMDUSK

FUARROW

YQFLUX

KGHELMSMAN

ECIRON

GINSENG/G

SECRET

RECENT FROM

Le: "113

32423

=.?.

---

## Page 71

- 67 -

NECRET

TAB A

ENTITIES DISSOLVED (Continued)

OPERATIONAL SUPPORT

LPGLOBE/WASH

SLIGO

SLAPJACK

LOGISTICS SUPPORT

STOCK ACCOUNT #2

KMFERRY

KMKANGANI

MHOLENT

OPSOMIC

MANAGEMENT & ACCOUNTING

LPPANDA/LPCLOUD

INVESTMENT

WUVENTURE/WUABLE

WUVENTURE/WUBAKER

COMMUNITY DEVELOPMENT

WUAMICE

SECURITY SERVICES

MHBOUND/1

MHBOUND/2

729 :

REM:

SECRET

---

## Page 72

- 68-

The following entities were sold during the referenced period:

1...

NW 50955

DocId: 32423532

Page

72

---

## Page 73

- 69

- it. 19.41

ENTITIES SOLD

AIR SUPPORT

WUSHINE/WUCOMET

WUSHINE/WUELBOW

WUSHINE/WUNOTICE

WUSHINE/WUPUMA

WUGAZELLE/WUBLOWGUN

WUGAZELLE/WUZEBU

ZRCREST/ ZRAVAST

ZRCREST/ZRCLIFF

WUCLOAK/WUDUSTER

WUCLOAK/WUHARPY

WUCLOAK/WUVITAL

IUQUEST/ IUABATE

IUQUEST/ IUPAGAN

WUSAXA/WUACUTE

TRAVEL BUSINESS

WUBEVY

COVER SUPPORT

POEARLY

CALANCET

STFANWEED/STDOLLAR

STMYSTIC

MIHELEN

MIPACT/MICOUNCIL

INSURANCE

MHTHROW

MAMATTE

MHIRONY

FROM

i ".:

* Substantial Assets Sold; Entities Dissolved

14. 1509,54

123532, Page 13

. •

TAB B

---

## Page 74

-70 -

SECHET

TAB B

ENTITIES SOLD

AIR SUPPORT

JBGREED/JBARGON

FOUNDATION OR INSTITUTE

DE INDEED/ IUINHAUL

TRAVEL SERVICE

LPJACK

LOW COST HOUSING

WUFLOWER/WUSWAMP.

RESEARCH & DEVELOPMENT

HTNAMABLE

RECEN" 13051

DEe 70 195

SECRET

1032 Pave. 79

8.56

---

## Page 75

- 71.

The following entities were "otherwise disposed

of" during the

referenced period:

NW

50955

DacId: 32123532

• Page

75

---

## Page 76

- 72.

i. .

TAB C

ENTITIES OTHERWISE DISPOSED OF

AIR SUPPORT

WUEMBARK/WUHALFLIN

WUSTAKE/WUHOBBY

WUSAXA/WUBLUSEE

MOMARRON

WULAZY

COVER SUPPORT

YUPASTIS

FOUNDATIONS OR INSTITUTES

QRBEND

ZROCCUR/ZRMIDDY

QRSENSE/KMOCHRIOD

AESILVER

MEDIA

PAWALRUS

POVARSITY

QRGLAD

AEEGGHEAD

ACCOUNTING & MANAGEMENT

LPCAPTAIN/LPCANAL

OPERATIONAL SUPPORT

LADYCHAPEL

WUTACTIC/WUDOLLOP

int

RECEIVED FROM

---

## Page 77

- 73 -

SECRET

TAB C

ENTITIES OTHERWISE DISPOSED OF

MEDIA AND/OR PUBLICATION

LILISP/G

AMHIM

QKACTIVE

QRMASTER

TPTONIC

TPTONIC/ FJINDULGE

TPTONIC/ZRNACARAT

ZRCANNY

DTHABEAS

DTEMBARGO

ZRTINDER

QRTROW

PAFANFARE

QKFEARFUL

WSFLUFFER

DTPILLER

DTLAMPREY

..QKOPERA/DTGODOWN

COVER SUPPORT

QRMUGWUMP

TRAVEL SERVICE

TGVIVID

OPERATIONAL SUPPORT

AMOT

REGENED FROM

OCC :0 10/S

SECRET

---

## Page 78

- 71 -

There follows a description of the disposition of entities

sold or otherwise disposed of during the referenced period. Iwenty-

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

NH 50955 DocId:32423532 Page 78

---

## Page 79

=72-

Finally, assets were sometimes given to other proprietaries but

without the benefit of a merger.

NW 50955

DocId: 32423532

Page 79

---

## Page 80

~ 76

S80.41.

TAB D

DISPOSITION OF ENTITIES SOLD OR OTHERWISE DISPOSED OF

WUSHINE/WUGAZELLE

-

ZRCREST

WUCLOAK/WUDUSTER

WUHARPY

WUCLOAK/WUVITAL

FROM

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 solo

nave 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.

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

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,

and, to date, no subsequent use has been made

of the entity by the Agency.

DecE S7ta4532, Page

---

## Page 81

mates

TAB D

Page 2

IUQUEST/ IUABATE/IUPAGAN - Substantial assets of these two luQuesT air

proprietary entities were sold in 1975 to a

bona fide aviation company which was made witting

for purposes of the sale.

No agreement was nego-

tiated or implied at the time of sale for Agency

use or purchase of goods or services from the

company which purchased the assets.

To date, no

goods or services have been purchased from the

buyer. The entities were subsequently liquidated.

WUSAXA/WUACUTE

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,

no such use has been made of the entity.

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

There have been no Agency contacts

with the purchaser since then. All sale pro-

ceeds were returned to the Agency.

CALANCET

-

This proprietary, which provided cover support

in Europe, was sold in 1965 to a witting,

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

was made by the Agency. The bona fide company,

did, however, continue to provide cover for

Agency officers in other areas and under offices

not related to the former proprietary's business

activities.

STFANWEED/STDOLLAR

FROM

This proprietary was an import-export firm which

Per East over for one Agency employee in the

The entity was sold to the Agency

employee in 1966 at the time of his retirement

from the Agency. No agreement was negotiated

i:..

H4 50955-20014 32423592 Pate 81-

- 7-

To argis

---

## Page 82

STFANWEED/STDOLLAR

(continued)

STYMYSTIC

-

-

MIHELEN

MIPACT/MICOUNCIL

MHTHROW

MHMATTE

RECT" TO FROM

.:!!

Doet 32123532.

- Pace

578 -

TAB D

Page 3

or implied at the time of sale for the Agency's

purchase of

goods or services, and, to date,

no such use has been made of the entity.

This small proprietary, which provided cover for

one Agency employee in the far cast, was 11qu1-

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 ander provides could the te parentany

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.

Agency case officer in the Far East, was sold

Agency to tro

in 1974 to two local-hire employees of the firm.

at the time of sale.

This proprietary, which provided cover for one

Agency employee, was sold in 1970 to the un-

witting members of its Board of Uirectors.

At the time of sale all Agency connections

with the entity were severed.

This proprietary (part of the insurance complex.

vas formed for the purpose of purchasing ai

apartment overseas which was used for operational

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.

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

the apartment or the entity was made with the

purchaser, and, to date, no such use has been made

of the apartment or the entity.

SEGRET.

passes ican

---

## Page 83

-

21-79 -

MHIRONY

-

WUEMBARK/WUHALFIN

WUSTAKE/WUHOBBY

WUSAXA/WUBLUSEE

MOMARRON

HULAZY

RECEPTA FROM

TAB D

Page 4

This proprietary was established for the use of

the insurance complex, but it was never activated.

The corporate shell was sold in 1974 to the un-

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.

air proprietary cLY en is with another

This air proprietary was sold to the businessman

who 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

entity on behalf of the Agency in 1968.

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

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.

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

the company, and the corporate shell was given

to the attorney who established the entity in

lieu of paying his prospective fee for dissolv-

ing the corporation.

Shone!

---

## Page 84

- 80 =

YJPASTIS

QRBEND

ZROCCUR/ZRMIDDY

QRSENSE/ KMOCHRIOD

AESILVER

PAWALRUS

RECE

C:i

-

TAB D

Page 5

This proprietary, which provided cover support

abandoned when the country has overrut, vas

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 d15-

posed of in 1968 when all 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

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 tast. 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.

SECRET

3

---

## Page 85

- 81 -

SE A

POVARSITY

QRGLAD

AEEGGHEAD

LPCAPTAIN/LPCANAL

-

REC

FROM

TAB D

Page 6

This proprietary publishing firm in

the Far

East provided cover support for one Agency

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.

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.

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

approved operational expenses.

Some of the

remaining stock of foreign language books was

given to a cleared and witting contact who had

served without compensation as an officer of

the proprietary mechanism.

The remainder was

shipped overseas to be distributed by the

overseas mechanisms of the operation which are

not proprietaries.. They continue to distribute

books with Agency subsidy support.

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 shell to the U.S. businessman who had

backstopped the company without compensation.

No support has been given to the entity or use

made thereof by the Agency.

DAC :

NH: 509550

---

## Page 86

LADYCHAPEL

WUTACTIC/WUDOLLOP

DEC : :

- 82 -

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

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.

SSO ET

---

## Page 87

sEcier

JBARGON

DE INHAUL

RECEIVEn

DEC 1?

TAB D

Disposition of Entities. Sold or Otherwise Disposed Of,

2070

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 JARGON

would continue to provide aircraft maintenance,

supply, and bookkeeping services to JBCHOKE, the

former parent company of JBARGON.

Since the date

of sale, BARGON 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?fe

and in 1965 the Agency sold the bank (through

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

SECRET

7

Ve.92

---

## Page 88

DEINHAUL (Cont'd)

LPJACK

WUSWAMP

HTNAMABLE

-

REST

DEC 10 19/3

CIA

-22122537

Hage

SECHA1, - 84 -

in concert with the original objectives of the pro-

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.i 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

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.

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

the subsequent purchase of services or products

of WUSWAMP, and no such purchases were made.

Nevertheless, WUPESKY continued to provide cover

for the Agency Employee until 1973.

This proprietary was a non-profit organization

which undertook high risk scientific research

programs in support of Government sponsored

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

were sold to a profit making corporation which

created a subsidiary around the assets purchased.

The proceeds of the sale were distributed among

2

SECRET

---

## Page 89

LILISP/G

AMHIM

QKACTIVE

QRMASTER

RES

SECRET - 85 -

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/l, 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.

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

• 3

SECRET

---

## Page 90

QRMASTER (Cont'd)

TPTONIC

TPTONIC/ FJINDULGE

LPTONIC/ ERNACARAT

ZRCANNY

DTHABEAS

REC®

60391

SZ0N 1 - 86 -

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 it without sufficient working

capital. Consequently, the Agency arranged for

a 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.

manager formed his own corporation which contracted

with the Agency for services including the continued

management of the company sold of which he was still

president.

A management dispute resulted in the

removal of the manager from the first corporation

and the bank seized the guarantee for the line

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

SECRET, 4

---

## Page 91

DTHABEAS (Con't'd)

DTEMBARGO

ZRTINDER

QRTROW

PAFANFARE

RECEIVED FROM

DEC 10 1975

-87 -

-

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.

This foundation was established in 1938 without

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

gave the office furnishings to the witting directors

of the foundation with the stipulation that the

furnishings would be turned over to the university.

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.

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

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.

This foundation type proprietary provided grants

and other support to individuals and organizations

of interest to the Agency, in the Near East.

At

the project's termination residual funds were

turned over to one of the witting trustees to

permit the continuation of the activity for a.

period of time without Agency support. No further

Agency support has been given to the organization.

5

SEGRET

3

---

## Page 92

- 88 -

SHONAT

QKFEARFUL

WSFLUFFER

DTPILLAR

DTLAMPREY®

QKOPERA/ DTGODOWN

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 same one

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-

duals 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

SEGRET

---

## Page 93

= 89-

SECRET

QKOPERA/ DTGODOWN

(Cont'd)

QRMUGWUMP

TGVIVID

AMOT

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 leave 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.)

RECEIVED FROM

1P/10205

7

SECRET

---

## Page 94

b)

THE SALE OF SOUTHERN AIR TRANSPORT, INC.:

STUDY IN DISPOSAL OF A CIA PROPRIETARY

A CASE

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

NW 50955

DooId:32423532 Page 94

---

## Page 95

-

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 had been over 200 supplemental carriers

in existence. By 1960 there were only 18 still operating. Air

HIH 50955

DocId: 32423532 Page 95

---

## Page 96

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.

HW 50955

DocId:32423532 Page 96

---

## Page 97

-

-

THE SALE

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 (Charles Kane and 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 SAI. 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.

**

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

wH 5095 interes52123532 Page 97

---

## Page 98

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 employees. The CAB

officials had no problem with option (2). On/5, May 1972, the DCI

was presented with the results of the meeting with the CAB chairman.

He approved the recoumendation 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

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

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shall affect any authority of the CIA. In addition, 50 U.S.C. 3

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 MI. 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

aircraft. 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

c. Disposal as going concern

$2.1 million

d. 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 this price to the management would require simultaneous payment

in full of the $3.2 million note payable to Air America through

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Actus Technology (as the associated land holding company had been

renamed) and would not include any equity in the

Leak/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

deadline date of October 1, 1972, was established; otherwise Mr.

Williams was advised that the firm would be dissolved

and the assets

liquidated. Although MI. 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

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unable to raise by January 20, 1973, the additional funds required

for the original purchase price of $5.9 million, including the Air

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. Mr. Williams cited a

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

Payment of debt to Air America

$2.145 million

3.125 million

Credit for payments to AAM since

10, (June) 1972, in liquidation of

long term debt

.335 million

Total payment $5. 605 million

Prior to accepting Mr. Williams' offer,

CIA representatives

worth thank CAB.

again discussed the sale

of SAT to Mr. Williams, Mr. R. Tenney

Johnson of CAB indicated that the board would be interested in

seeing SAT continued. Mi. 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. Williams.

On January 19, 1973, the DCI approved the sale of SAT to Mr.

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. Such sale would constitute a

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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 SAI. 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

Docket No. 252-64. It was anticipated that CAB approval would be

forthcoming within 60 days:

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

They, appled

operating as a supplemental carrier. This pressure wao 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 Airwaÿs (ONA)

indicated that ONA would not oppose the sale if Mi. Williams would

voluntarily renounce his rights to Trans-Pacific routes. World

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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.

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=

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.

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 SAI 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

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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.

b. Mr. Williams to pay off $3,125,000 owed to Air America.

c. Agreement subject to Mr. Williams obtaining $4 million

loan.

d. Agreement to be subject to SAT withdrawing application

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, MI. Williams received a commitment from

The First National Bank of Chicago for a loan of $4.5 million thereby

making the October S, 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.

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-

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 5,

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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 class action suit in U.S. District Court for Southern

Florida against Southern Air Transport, Inc., and the Central Intel-

ligence Agency. The employees as plaintiffs sued for injunctive

relief and damages. In this suit the employees alleged:

a. That the CIA sold the stock of SAT to Mr. Williams

illegally,

b. That SAI 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 SAI by,CIA. 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

affidavit of Mr. Harold L. Brownman, Deputy Director for Management

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and Services of the CIA, was presented in court.

In the affidavit

thie

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

not being government employees and not being CIA employees 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 employées

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 Agency 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

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

Agent and retired Managing Director of Air America, Inc., made

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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 preliminary to the negotiated final

sale.

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 Agancy 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

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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 SAI during CIA ounership vas at the direction of 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

overment 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

The CIA acquired ownership of SAT and its real property owning

affiliate, by purchase of all outstanding shares of capital stock

on August 5, 1960. Such acquisition was accomplished under the

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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 DOD 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

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accomplished without revealing ownership by CIA, CIA approved

exploring the sale of SAT to its previous owner and current

nominal President, MI. 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

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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.

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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, for consultation, for

guard work, and for investigations.

Anderson Enterprises, Inc. developed legitimate business

contracts with agencies

of the Federal government and with commer-

"Anti-

cial firms. The provisions of the so-called Pinkerton Act pro-

work

hibit a company engaged in investigative/from contracting with

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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. (ASSI) 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

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• 92 -

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;

(1) TWOFOLD - was an Office of Security cryptonyn 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.

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(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,

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- 94 .

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-

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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 I. Lee

Bean and Paul Hellmuth of the Boston law firm of Hale and DorI

* He was in fact a legitimate tradesman.

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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

international

changes in the

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:

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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-

cional 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.

components, are insistent upon pursuing an

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.

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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

lave the authority without a sufficiently large conti-

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.

Nitr

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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 of 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 expenc

funds as

contained in Section 8 of the ClA Act of

1949, as amended. This authority provides

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(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-

the Agency's

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.

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VII. BEYOND "DOING BUSINESS": PEAK NON-GOVERNMENT SECURITY

INVESTMENTS BY PROPRIETARIES ACTIVE AS OF DECEMBER 3T, 1974

• As described infra, M-MUTUAL (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, IMJAGGERY 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 allas. 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

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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

in a certificate of deposit.

QRIROW 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

NW 50955

*

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.

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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.

IUQUEST 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.

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SCHEDULE I

PEAK NON-GOVERNMENT SECURITY INVESTMENTS BY PROPRIETARIES

ACTIVE AS OF 31 DECEMBER 1974

PROJECT/ENTITY

MEMUTUAL

LPPANDA/ LPMET

IUQUEST

LPTACTIC/LPGLITTER

LPTACTIC/LPMANTLE

QRTROW

ABDERRICK/ HBSANDTRAP

LPDICTUM/LPSPICE

LPJACK

KMJAGUARO/ KMJAGGERY

KMJAGUARO / SPECIAL

STOCK ACCT. #3

TYPE INVESTMENT

See Portfolio

Time Deposits

Certificate of Deposit

Security Note - Pepsico

Corp. N.V.

Convertible Subordinated

Debenture from Sale of

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

+00,000

* 5,440

50,000

144,000

100,080

35,000

149,000

37,500

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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)

b)

reinsurance of aircraft damage or lability risks

ostensibly insured under commercially issued policies

(for cover);

extending term life insurance, annuities, trusts and

workmen's compensation for independent contractors

and agents working for the Agency who are not entitled

c)

handling escrow accounts* for agents;

d) limited operational support activities, i.e., holding

real estate formerly used in Agency operations abroad; **

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.

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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

they would stand up under

tried to investigwould any normal insurance outfit.

investigation

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

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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 because 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

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.

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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

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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

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. If

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 of 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 MIMUTUAL. He concluded that the project seemed to

be secure in its operations in the fields of insurance and invest-

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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 MHMUTDAL.

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.

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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

nonthly reports in detail which went not only to me but

to Colonel (L.K. ) White (the Comptroller) and the

Director.

These were very detailed reports which often

raised questions which went back for answers.

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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 MMUTUAL

are under non-official cover.** The Office of Finance has indi-

cated 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 ClA recirement

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.

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$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. Currently, 60 percent of the

investments are in Eurobonds, 20 percent in off-shore time deposits

in U. S. banks, and

the balance is in common stocks, debentures

and commercial

paper of various types. For example, the current

breakdown is:

$7 million in time deposits abroad;

$2.4 million in Common Stock (at cost) ;

$20.8 million in Eurobonds;

§1 million Eurodollar convertible debentures;

$.5 million in short-term commercial paper overseas; and

§.2 million in domestic debentures.

The performance of the MIMUTUAL stock portfolio is noted at

this juncture. Comparisons of cost against market value for the

years 1970 through 1975

are given first.

Following that are the

gains or losses on the sales of stock for the years 1963 through

1975.

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SECULI

33

R1819

STOCK PORTFOLIO PERFORMANCE

Comparison of Cost Against Market Value

Year

1970

1971

1972

1973

1974

1975

Cost

$ 3,792,804

1,123,651

2,969,403

2,650,904

2,440,686

2,440,686

Market Value

$ 3, 089,294

1,009,301

2,8/2,551

1,242,915

699,422

876,507

Gain

or (loss) on Sales of Stocks

Year

1963-1969

1970

1971

1972

1973

1974

1975

Total Gain

Gain or (loss)

$ 197,348.15

(19,910.64)

118,943.90

310,346.37

150,447.03

(172,796.04)

- D -

• $ 584,378.77

RECEIVED FROM

• 1975

NOV

Li,d

SEChET

095J

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-109 "

Included as Appendix D is an in-depth list of common stock

purchases from 1971 through September 30, 1975. In addition, there

are

schedules of portfolio sales from 1964 through 1974.

A 100k at the Project MIMUTUAL 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 telated 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

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• =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 MIMUTUAL

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.

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36

-

As to the issue of safeguards against misuse of project funds

or insider information by the Agency, the Chief CCS has told the

Committee that compartmentation, the honesty of the Chief of CCS,

and display of the

portfolios to appropriate congressional commit-

tees are what have prevented or will prevent such abuse.

Houston agreed with the three safeguards outlined by the CSS

Chief.

However, he ladded a fourth:

When we were investing in stock, I would have the

list of stock, the portfolio, reviewed by our con-

we had

any contract

relationship with any of the companies involved, we'd

either refuse to - Well, a couple of times our invest-

ment advisor recommended

a stock which I knew we had

big contracts with,

and I told the board no, this in-

volves a conflict of interest.

We won't touch it.

And if we had anything from the Agency contract office

that indicated a relationship, we would either sell

the stock or wouldn't buy it.

Houston believes that the complex should continue in some form.

One reason is that "assets are few and far between." The acquisi-

tion of a board of directors, the establishing of accounts, basic

credibility and relations with the jurisdiction in which the entity

is located are not easy things to do according to Houston. This

creates the "tendency, once you've got something that looks good,

to hang on to it." He would recommend in this regard that the

Agency be constantly forming new companies and phasing out old ones

on a rotational basis so that the same complex would not remain

for security reasons.

Fhe currier

Bie

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37

-.

So it's not easy but I still think that they

should make the effort. [The Chief CCS] knows

ny views on this pretty well, and we're all

vorried about the security of the damn thing.

But we don't know another way to do it.

He believes that the current method while not perfect is the best

that can be devised. The problem, of

course, is that the genera-

tion of funds for these companies must literally be shown to be

legitimate and non-governmental if the beneficiaries are to be

protected. Consequently, if the government were to create an

office that would funnel money to these companies without the

benefit of investment, this would create the risk that a trace-

back investigation by a foreign power could discover that the

entity is being funded by the U.S. government. Houston closed by

saying that he would invite any controls that Congress would choose

to put on the mechanism in terms of insuring propriety.

The Chief of CES has E

steed characterized thi

insurance complex as "indispersable"

and as ar stems

for which then is no wable alteriative. 11-27-76, Tr. lay

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THE AIR PROPRIFTARIES

Lawrence R. Houston, the former General Counsel of the Agency,

was involved in the establishment of the first set of proprietaries

of the Agency back in the late 1940's and early 1950's. As noted

later on in section 10, page

, Houston has concluded that

proprietaries should be a mechanism of last resort. He asserts

that the Agency learned this in part "the hard way and almost all

of the lessons involved probably came out one way or the other in

connection with a major aviation proprietary in the Far East.

Others had there own special problems, but I think the Air America

complex had pretty near everything."

The theory of the acquisition of Air America in 1949 was denial

of the assets to the Red Chinese. The CIA first arranged advances

to the company to keep them going when they were running short of

cash in 1949. These advances were used up and were actually credited

to the purchase price

eventually. The airline at that time had

been organized by General Claire Chennault and Whiting Willauer.

It was a joint venture with the Chinese Minister of Transport and

was called Civil Air Iransport. Houston described it

as follows:

This normal aviation organization, this would have no

neaning at all, was completely at all, it would have

not standing in international law, aviation rights, or

any of that.

But it worked for what they wanted, which

was to take supplies up-country into inland China and

then to bring back whatever cargo they could get commer-

cially: tallow, hides, bristles, all that sort of trade,

and then they traded that off for their own account.

And

awhile the operations was fairly successful, the C-47's

and C-46's.

To finance this activity and to facilitate the trading of produce,

their lawyer, Thomas Corcoran, had organized a company. That company

was known as C.A.T. Inc. In addition there was a Panamanian

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42

corporation which was involved that did most of the funding.

There was also an envy known as the Civil Air Iransport. "to further

complicate the picture, at this time Chennault and Willauer were

also negotiating with the Chinese CNAC, for the takeover of their

planes and equipment." Chennault and Willauer came to the Agency

in connection with that operation in the Spring of 1949. At that

point the Nationalist Chinese were being "squeezed down south by

the Communists and they were really backing down toward Shanghi,

restricting their area of operation and consequently the produc-

tivity of their commercial venture." Chennault and Willauer indi-

cated to the Agency that unless they got help they would have to

go out of business.

The agency held a series of meetings in which it was determined

that it had a need for some air transport for some of its operations

particularly involving arms and ammunition and consequently the

Agency needed a contract with someone.

And so we entered into an arrangement, I think in

about September of 1949 whereby we would advance

them, the figure of $750,000 sticks in my mind,

against which we could draw for actual use of the

planes at an agreed on rate. :

And we did draw

down,

I think, all the flying time and expended the

$750,000 between

September and about January, at which

time

we suspended any further payments or draw-downs.

I think the money was exhausted.

Chennault

and Willauer came to Washington about January or

February of 1950 and through a series of negotiations, the Agency

agreed to advance them more funds, taking at the same time an option

to purchase the assets of Civil Air Iransport, with the liabilities

left to their account.*

Any unused portion of the advances were to

be credited to the purchase price. They then operated through the

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Spring of 1950 under this arrangement and Chennault and Willauer

"came in in the Summer of 1950 and said again they were

in desperate

straits for funds." Once again a series of meetings was held at

which the prognosis was that the operations in the Far East would

have a continuing need for secure airlift and also, there was a

general estimate that the loss of this airlift to the Chinese

Communists would give them a considerably greater advantage than

then possessed because they had almost no airlift of their own at

that time. "The Agency then made the decision that they would

exercise the option given there was no objection otherwise."

The Agency felt that it was necessary to get the concurrence

of the Department of State. Frank G. Wisner,, at that time the

Head of the Office of Policy Coordination (OPC) which was respon-

sible for conduct of covert actions as opposed to clandestine in-

telligence, and Mr. Houston visited Mr. Livingston Merchant, who

was Assistant Secretary of State for the Far East.

He and I went to see Mr. Merchant and explained the

situation. And Mr. Merchant reminded us. that it was

basic U.S, policy not to get the government in compe-

tition with U.S. private industry. But under the parti-

cular circumstances, in particular as there was really

no.U.S. private industry involved in the area, and they

agreed it was important to divide the assets to the

Red Chinese.

State would go along on the understanding

that we would divest ourselves of the private enterprise

as soon

as such a divestment was feasible, and all of

the circumstances that might obtain.

Of course; the divestiture of these entities did not actually

occur until 1975.

And, indeed, some of the entities still as yet

have not been divested. Mr. Houston noted, however, that:

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-M -

We did not disregard that guidance because after

very considerable use of this asset during the

early '50's, there was a question of whether to

continue it, and the matter was taken up in the

National Security Counsel. And Allan Dulles, as

Director, opposed that we continue the ownership

and control of the assets of Air America, as it

then was known including the subsidy as needed.

And there was a subsidy at that time. It was

about $1,200,000 per year.*

This consideration by the National Security Counsel as to whether

or not to continue to retain this asset and Mr. Dulles' recommenda-

tion that it be retained occurred in 1956.

During this period of time the business of the air proprietary

consisted almost entirely of Agency cargo carriage under contracts

which were usually using a military designation. The company was

not organized, according to Houston, to fly common carriage and

had no status

in the international air business.

The evidence indicates that during this period of time, there

were two struggles going on. One was where control should lie in

the Agency and the other was the policies to be applied to the

operation of the company itself.

The struggle within the Agency ranged all the way from

sort of quiet management discussions as to what was good

management, to sometimes rather vociferous auguments of

whose in charge here.

And the operators

always

said,

well, we need

to call the shots because it's our operation.

And this is what we were running into all the time,

15 21

of red hot operators opposed to what we would consider good

management.

* *Houston indicated that there had been a subsidy running to the

entities since 1949. "$1.2 million represented about the maximum

subsidy given until, I believe, about 1958 was the turning point,

and from 1958 on, there was no

subsidy as such that went into it.

The reason for that, of course, was that the air complex had become

"money-making."

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45

The management of the air proprietary at this time was in the

OPC structure and was therefore responsive to operations. An

example of some of the problems which were created as a result

of this is the acquisition in August of 1950 of the entity.

Houston was participating in the negotiations. He had been

in-

vited to do so by Frank Wisner.

OPC was a curious organization. Determined as being

attached to the Agency for quarters and rationing

with policy guidance from State, which was an impossible

situation. Very nice fellows were doing the negotiating

with Wisner -- Frank Lindsay and Chad Breckinridge, who

is now dead. Frank Lindsay has been head of ITEK and

quite unknown to me, when they made the agreement to

purchase carrying out the option, they gave the vendor.

-he right to repurchase at any time within two years.

And I thought this was really inconsistent with our whole

position.

And during the next two years they negotiated

out that repurchase agreement and in its place substituted

an agreement to give them a first refusal, if we were to

dispose of the airline.

That first refusal plagued us for

years.

They use to make all sorts of extraordinary claims

under it and it was never exercised and eventually it was

sort of forgotten when Chennault and Willauer died. It

ran to them personally, whether it ran to them and

two

others personally, and

they all

are dead now.

But this

shows a part of the learning curve, which was thing we

were going through.

It also became clear that the organi-

zation of the airline was really impossible, it's sort've

semi-formal partnership with the Ministry of Transportation

or the Ministry of Communications

(of the Nationalist Chinese

Government).*

That basically describes the preliminary situation from the period

1950 through 1954. It was in 1954 that George Doole first came

onboard as a consultant. Doole and Houston went to the Far East in

the summer of 1954 to observe the operation. "George went out

there

* The Nationalist Chinese had by this time retreated to Taiwan, they

maintained a maintenance base tied to Hainan 'The maintenance base

at that time was on a LST and a great big steel barge.

And we brought

the LST

and the steel barge up to Kiaoshung, and it was really extra-

ordinary what a maintenance job they did on what was almost impossible

facilities.

I went down and was enormously impressed by the difficul-

ties and how well they

had overcome them, noted /tow. or

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specifically to look at the organization of the Airline." In this

regard, it is noted that at the time the Agency purchased the Air-

line it had formed a Delaware corporation to buy it which was first

called the Airdale Corporation, counsel for which was Brackley

Shaw. Shaw and Doole were both very concerned about the technical

organization of lack of it, of the operation. Doole demonstrated

to Houston

to my satisfaction that it was an absolute situa-

tion and that no one out there had the slightest

understanding of the problem or what they were up

against, or wanted to

do anything about it (in terms

of airline management).

As a result of this Shaw and Doole planned the organization which

they thought was necessary. for the future of the operation. Hugh

Grundi was installed as President of the corporation by the end of

1954. Management responsibility internally was given to Lyle Shan-

non "who was a management type, although he was assigned to the

DDo, or by that time it might have been the DDP."

The upshot

of this review by the Agency was that the theory

of running the airline was that it would be managed by manage-

ment to be responsive to Operations. "but not managed by Opera-

tions."

In order to improve its cover "the Chinese not only were wil

ling, but at that

time wanted it to be the airline that showed the

flag of China.". This was done on overt records through Civil Air

Transport Company, Itd., which was thê subsidiary of Pacific Corp-

oration.

Pacific Corporation held title to 40 percent of the

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47

equity in the corporation. and 60 percent of the equity was osten-

sibly owned by the Chinese, who gave deeds of trust to the Agericy

for their shares. This overt arrangement demonstrated for purposes

of international law that the company was majority-owned and con-

trolled by Chinese. The Chinese continued to

press the company

to get into the international common carriage field. The company

had several DC-4's and began modest operations between Hong Kong,

Taipei and Tokyo, They graduated to DC-6's, and it was at this time

that the Agency first got into the question of competition with U.S.

industry. Northwest was then flying to Tokyo and Seoul and to

Manila, and was trying to obtain rights into Hong Kong. Don Nyrop

had noted the Agency's interest in this area when he had been

Chairman of the Civil Aeronautics Board in the late 1940's and the

early 1950's. Houston told the Committee:

He (Nyrop) became head of Northwest, a very tight

manager,

a very capable fellow, and

he used to

complain that we were interfering, we were taking

passengers off his airline, and we would go to him

and say, we have to keep the airline in this busi-

ness because the Chinese say they need an international

airline.

They're not ready to start their own yet.

And it is necessary to its overall cover status as

going commercial concern.

By 1959 Mr. Nycop was complaining that the Agency was doing too much.

Finally Nyrop decided to complain to

the Civil Aeronautics Board and

the Agency agreed to place it before that Agency for a decision.

A meeting was held with the entire Board, at which time Nyrop was

able to make his case "for the fact that he was a private industry,

he should not be interfered with by government competition."

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48

The Agency explained its situation, the cover need, the Chinese

pressures, and the fact that they were keeping the carriage to

what they thought was a minimum

that appearances could stand;

And it ended up by one of the members of the Board

turning to Nyrop and saying, Don, you ought to be

glad that you don't have a really good, reliable

competitor in there.

He said, If you were being

competed with by private business, you'd have real

headaches.

You ought to be

real glad that it's not

worse than it is. And that's the end of that.

Houston conceded that some passengers were going on basically CIA

planes instead of Nyrop's Northwest planes. The impact, however,

was minimal. Moreover, the CAB in this proceeding was advised of

the dilemma. They did participate in discussions with both the

Agency and the particular business entity that

was making the com-

plaint, and the CAB, after hearing both sides, "came down on the

side of the Agency after making a reasoned judgment."

By this time the airline's commercial international business

was not making money. A maintenance contract work, which was being

done at Taiwan, however, was "normally a money-maker, and this was

primarily, although not exclusively, with the U. S. Air Force.'"*

There were management problems in terms of the maintenance

aspects of this operation. This originally stemmed from the fact

* The LST and barge which had previously been used for maintenance

purposes became inadequate.

saten an a very good ant le was re syst es pote a che

E Systems' role in the

acquisition of proprietary assets is detailed later.

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that individuals out in the field are not particularly astute at

costing their contracts. Doole gave excellent advice in this area.

Moreover, Doole was quick to advise when an operation is bordering

on not being responsive to the demands of good management. Houston.

cited one instance when Doole replaced a controller in the corpor-

ation who was very able but "had his own ideas

of bookkeeping and

controls."

Doole insisted that the corporation put in bookkeeping

and controls completely consistent with U. S. CAB and FAA prac-

tices. And of course the maintenance contracts with the military

were audited constantly by the military audit

teams that were

right in the plant.

By this time the Agency had organized an exemption from the

Contract Renegotiation Board.on the grounds that if the renegotia-

tion personnel became too involved in the business, they might

recognize that this was not a straight commercial operation and

discover

the fact that the CIA was involved. The Agency went to

the head of the Contract Renegotiation Board and got a letter from

the Department of Defense asking for an exemption on what the

Agency and the Department considered "perfectly legitimate grounds."

Indeed, there was a basis for exemption in the Renegotiation Act

if the business was entirely overseas, which was the case with this

cirline. And so, the exemption was granted on, that basis. The

Agency was concerned, however, by the fact that it had in principle

made a type of profit, over 40 percent on these Air Force mainten-

ance contracts, that might have well have been the subject of re-

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50

negotiation had it not been subject to the exemption. "So the

question was what to do about it. And finally, we made a volun-

tary repayment against part of the profit on that contract to the

Air Force."

As noted previously, the commercial airline aspect of the

operation was not making a profit and

in fact operated mostly at

a loss. Indeed, there were periods of time when the C-46's

and C-47's cargo carriers were very busy on either CIA contracts,

the Korean War, Diem Bien Phu, and other paramilitary aspects.

There would be periods in between these activities when there was.

nothing for the airlines to do. Nonetheless, the airline was still

saddled with expenses such as crews' salaries and maintenance of

the aircraft which sat on the ground.

So George posed, and we finally organized, the stand-

Okinawe act, which was an apparent military entity of

It was our entity, but it had a military

designation. I can't remember the name for it. And

that entity contracted with Air America for so

many

hours of cargo stand-by to be available any time on

call, and that they would pay so much for that capa-

bility being maintained.

.. so that is how we kept

the subsidy going to maintain them during periods

when there was not profitable flying.

Another area of concern was the question of the relationship

with the Internal Revenue Service. From the very start, the company

management was informed that they would be required to pay the

appropriate U. S. taxes, and while there were the usual business

arguments about whether certain items were appropriate for taxation

and whether certain deductions should have been granted, the rela-

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tionship maintained with the IRS was basically a normal one.

Houston recalled that in the mid-50's the company, Air America,

received a notice that they were going to be audited by the IRs.

Company officials came to the Agency and indicated that this might

pose a problem in terms of security. The Agency went to the Com-

missioner of the Internal Revenue Service and indicated that

they would like to have the Commission conduct the audit and have

the audit done by a team on an unwitting basis to

see what they

could find out.

"We thought it would be a good test of the secur-

ity of our arrangements."

They put a very bright young fellow on and he went in-

to it. They came up with discrepancies and things that

would be settled in the normal tax argument, corporate-

IRS argument, and all of these were worked eventually,

and then we went to this fellow and said, Now, this

was owned and backed by the CIA, the U. S. Government.

What was your guess as to what was happening?

he said, Well, I knew there was something there,

and I thought, what a wonderful asset it would be for

Russians to have, but I came to the conclusion that

it was Rockefeller money.

Thereafter, the IRS would be notified if it began to conduct an audit

on an Agency proprietary, and the audit would be discontinued.

As the operations of Air America developed the problem of large

cargo carriers arose. In the early days of its operation the airline

was using C-54's, which had an extremely limited range but were able

to perform notwithstanding under demanding circumstances. Discussions

proceeded

during that period about modernizing the equipment and

the Agency, through the proprietary, bought DC-GAB's, a conversion

of the DC-6, which had large cargo doors installed in it. They,

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however, did not maintain any jet equipment at that point. This

cargo system which they developed was getting heavily into a mil-

itary air transport contract system. The system was first known

as MATS, and then it became MAC.

They got MATS contracts, and Air America got these,

and these were very good to keep a constant utiliza-

tion at a good

rate, the MATS rates were usually good,

because the policy was not to do competitive bidding

for the lowest bidder because then you got the poorest

service, but give good rates to the

carriers, and then

require

the carrier belong to the Civil Reserve Air

Fleet.

In 1956 MATS changed its policy and required that bidders on

the contracts to be certificated. Of course, there was no real way.

that Air America could become certificated and so the Agency decid-

ed to purchase Southern Air Transport. While it was technically

a separate entity, not involved in the Air America complex, it was

actually an integral part from the management point of view, in that

all management decisions were centered

again in George

Doole and

the advisory team in the Agency. MAC eventually also decided to

require that bidders not only have to be certificated, but had

to have equipment qualified for the Civil Reserve Air Fleet and

this meant jet equipment.. As a result. the Agency went into the

acquisition of Boeing 727's. Mr. Doole eventually convinced Boeing

that they should modify the 727 to enlarge the ventral exist, which

was already in the plane, so that the plane would then have a large

airdrop capability. Boeing did so modify the plane and it proved

entirely useful for these purposes. "So the theory was that the

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53

727's would be used on MAC contracts to be available on an over-

riding basis if needed for some major national security operation.

They were used, usually when they had spare time.

To my recollection, they were only called off once,

off the actual contract time, and this was for a

possible use which didn't go through. But the White

House asked if we had the capability to move some-

thing from here to there, I think from the Philippines

to somewhere in Southeast Asia, I don't recall, and so

they

sent word to management that they wanted a plane

available at the earliest opportunity at Clark Field.

• They pulled one of them off the MAC contract and had

it available, I think ready to go, in twelve nours,

all set for the operation.

never called. But it showed what the capability was.'

And what they had to do was get substitute service

for the MAC contract.

During the late 1960's several Chinese airline enterprises started,

both of them on quite a small basis, but one of them which became

CAL had official backing. This occurred while the CIA's proprie-

tary was still flying under the flag of China. With the establish-

ment of these indigenous Chinese nationalist airlines which would

fly these routes, the Agency began to plan reducing its inter-

national carriage work. It decided it would keep the MAC contracts

because this did not bother the Chinese. There was in fact no com-

petition in this area. But plans were started to reduce the inter-

national common carriage. This Agency proprietary, Civil Air Trans-

port Company, Ltd., which had been organized in 1954, had the right

in international air auditing' to negotiate for air routes. That

was the entity that therefore did the common carriage. Thereafter,

Air America did the American contracting followed on then by

Southern Air Transport, due to its certification. Southern was

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brought on to perform the MAC and MATS contracts with planes

leased from Air America, which included 727's. Southern Air

Transport actually owned one 727 and leased two from Air America.

Houston noted that it was at this time that an internal de-

cision was made "we probably couldn't justify this major airlift

with the big jets,

and so we started giving rid of them. See, they

had no utilization

to speak of down in Southeast Asia. A couple of

supply flights went into India, and I think we used prop planes for

that, to my recollection." So the Agency began to phase out the

727's. This, of course, led to the decision to divest the Agency

of Southern Air Transport and eventually of Air America.

Internal management problems were assisted in 1963 by the

establishment of an executive committee of the board of directors

of the Pacific Company, Ait America and Air Asia. The overt board

of directors in New York City passed a resolution organizing an

executive committee, which included Mr. Doole and two other directors.

Covertly, the Agency put with that executive committee some of its

representatives. This resulted in management and the Agency being

represented on the executive committee of the Board, and permitted

the viewpoints of management, Agency and the operators to meet in

this executive committee

to consider policies and make actual deter-

minations and give guidance to the company. Houston indicated that

this mechanism was extremely effective in controlling the company.

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55

So I think for the last, oh, fifteen, eighteen

years, the proprietary management system was on

the whole pretty effective fromthe Agency point

of view.

I think we knew what was going on.

think we were able to get things up for decisions,

and if we couldn't resolve them at the staff level,

we would take them up to the Director for decisions;

quite different fromthe early days in the early 50's

that I described, and the operators at Least made the

claim that they had the right to call the tune.

During this period of time Operations people

were getting themselves involved in the acquisition

of aircraft and which were getting awfully damned

expensive at this time, and

separate projects were

going after some of this expensive equipment without

consideration of what might be available elsewhere

to the Agency by contract or old aircraft. And so

the Director of Central Intelligence set up EXCOMAIR,

of which I was Chairman, and had representation from

both the operation and management and finance out of

the Agency, to try and coordinate the overall control

and acquisition and disposition of aircraft.

Indeed, a February 5, 1963 memorandum entitled

"Establishment of

Executive Committee for Air Proprietary Operations," noted that

the Committee was "to provide general policy guidance

for the man-

agement of air proprietary projects, and review and final recommenda-

tions for approval of air proprietary project actions." Houston

indicated that EXCOMAIR "was sort of an amorphous group" which tried

to focus on the question of whether it reviewed the needs first and

then came up with recommendations on the operational solutions, or

whether the operators came up with a solution and put it through

EXCOMAIR.

Houston noted that EXCOMAIR worked

on a very informal

basis because "I knew all these people well, and I said. 'Let's get

together and sort these out.'" He indicated that EXCOMAIR was

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5G

reasonably effective in getting overall coordination. It was re-

sponsible for making a thorough inventory of all the equipment

that the Agency had in the aviation field, and by and large was

able to keep track of who needed what and whether an asset was

available that could take care of a problem without the necessity

of acquiring a new asset.

According to Houston,

a general shift in thinking at the

Agency occurred between 1968 and 1972 on the desirability of their

holding substantial contingent capacity of airlift. The records

seem to indicate that Mr. Houston apparently convinced the Director

in the early 1970's that the capacity should no longer should be

retained. Houston commented on this assessment as follows:

Through what knowledge I had of the utilization

of the various assets, it seemed to me that util

ization, particularly of large assets, that is,

heavy

flight equipment, was going down to the point

where

there was very little of it. Consequently, we

couldn't forecast a specific requirement. Such Ie-

quirements as you could forecast were highly con

tingent.

But I also remember a couple of times

putting the caveat into the Director that with a

changing world and with the complications in the

aviation field,

once you liquidate it, you could

not rebuild, and so you ought to think

very, very

carefully before getting rid of an asset that did

have a contingent capability.

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X: ISSUES POSED, CONCLUSIONS, AND RECOMMENDATIONS

• The preceding sections provide a general picture of the nature,

extent, purpose, function and problems of proprietaries. Not unlike

other areas of our inquiry, the issues raised were not simply black

and white. They were, rather, grey in nature. During recent years,

particularly at the time of the Vietnam War, serious questions were

raised about this proprietary capability. Much of the accompanying

criticism stemmed from a lack of understanding of their role in the

scheme of both United States foreign policy and intelligence. Some of

the criticism

stemmed from the suspected entrance of some proprietaries

into areas where they were in apparent competition with legitimate

business interests, such as the airline industry. It is not unusual

that there would be misunderstanding since much of what would have

explained the proper role of these entities had to remain secret for

innumerable reasons. But the Committee has not been stymied by that

same embargo and has had a broad look into these operations.

In general, these mechanism have been operated with the utmost.

concern for legality, propriety and ethical standards. What slippages

have occurred were in the field and generally in the area of air opera-

tors, not management. Moreover, their use and past expansion was a

direct result of the demands placed upon the Agency by Presidents,

Secretaries of State and the policy mechanisms of government. This is

particularly true of the large air proprietary complex which was used

to support paramilitary operations in Southeast Asia. The only

exception to this is the investment-insurance complex which was

established on Agency initiative to fill a pressing need.

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A. An Overview

Using broad authority under the National Security Act of

1949, the Directors of Central Intelligence have established

Government-owned business enterprises, foundations and quasi-busi-

ness enterprises ("notionals") to serve a variety of intelligence

and covert action purposes. Chief among those purposes have been:

1) Cover for intelligence collection and action projects.

Commercial firms established in foreign countries have

in the past and continue to provide plausible reasons for the

presence of CIA case officers. Agency-funded foundations (e.g.,

the Asia Foundation) served as conduits of funds to scholars and

groups doing research supporting U.S. foreign policy positions.

2) Extension of Agency influence and information network in

overseas business community. The very act of establishing a firm

-- e.g., an air or shipping firm -- requires banking, insurance,

and other services

that entail support, communications, and inti-

mate business relationships with the bonafide American and foreign

commercial world. In turn, this entails at a minimum the clearance

and access of outside top management into Agency business; the

relationship on occasion can entail using the Agency's commercial

contacts for information or assistance.

3) Provide supporting services for covert operations.

In paramilitary operations, airlife and sealift by Agency-owned

carriers

has many advantages -- flexibility, ability to implant

photographic equipment and other sensors, etc. CIA agents, engaged

in hazardous business ordinarily uninsurable, can obtain commercial

insurance at standard ór subsidized rates via MHMUTUAL, a conglomerate

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of some 26 CIA-owned companies. In country locations where

physical

contact with the nearest CIA station is not operationally

discreet, proprietaries can provide pay outlets and other adminis-

trative services for CIA personnel and agents. On occasion, firms

based in locations with permissive corporate laws and regulations

- Liechtenstein, Panama, Delaware -- can engage in many activities

unrelated to their charters.

For example, insurance firms

can

acquire real estate surrounding targeted embassies on a non-attri-

buted basis.

4) Actual conduct of covert action. In establishing the

"radios" (Radio Free Europe and Radio Liberty) in the 1950's,

CIA acquired a means of directly influencing populations behind

the Iron Curtain. These, of course, were eventually disposed of

and placed under the aegis of the Department of State, but related

enterprises, such as the book distribution program, which had

operated under radio sponsorship, continued within the Agency frame-

work.

5) Outlets for private investment. The Agency would deny

that this is a purpose of proprietaries. Agency officials state

that the standing policy is to prohibit the investment of operational

funds of the CIA into private fields without explicit DCI authoriza-

tion. Actually, the existence of proprietary enterprises which,

on occasion, return sizable profits, affirms that private investment

has indeed been a widespread Agency policy. Moreover, the Agency

specifically has authorized MHMUTUAL to act as an institutional in-

vestor for its own and any other Agency proprietary. So the question

really is one of definition and

shading.

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• B. Size of U.S. Financial Stakes

The size and variety of U.S. Government financial stakes in

CIA proprietaries has already been described in great detail.

The attached Table I gives an overview of proprietary income and

expenditures over

the years. Some 450 proprietaries have been

created over the

years with 20 presently active (See Table II.)

The largest sixteen proprietaries received about 80% of U.S. in-

vestment (i.e., subsidies). Accordingly, most proprietaries are

shown to be small-scale operations. In many cases -- the so-called

"notionals" -- the overseas proprietary actually conducts no business

at all; it simply has a commercial charter, staff, and cover arrange-

ments for Agency collection and action projects.

Table I also shows that proprietary income consists of a mixture

of CIA subsidy and income. In some cases, the outside income is

from sources outside the U.S. Government income -- e.g., Air America

has received income for aircraft maintenance of KLM airliners in

Southeast Asia. But for the most part, proprietary income is in the

form of "cross-orders," from CIA and other Government Agencies. •

For example, the CIA paramilitary project in the Congo placed orders

for aircraft engines and pilot services with Intermountain Aviation,

Inc. As an example of order placed by other U.S. Government Agencies,

AID contracted with Air America to carry rice shipments in Laos.

In this sense, many proprietaries are analagous to what are called

"intragovernmental funds" or "industrial funds" in traditional U.S.

Government budget and accounting

terms.

Table I shows, and as we remarked previously, that compared

with earlier years, the size of proprietary expenditures has markedly

declined. The potential for future expansion is nevertheless present.

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Indeed, new proprietaries have been

formed within the last

several years.

In terms of U.S.. budgetary

• impact, Table I indicates that

proprietaries do not add much new capital to CIA available resources

-- I.e., while they have a very large expenditure level and momentum

over the years, the "cross-order" phenomenon means that most of

these

expenditures originated in CIA and other U.S. Government

appropriations and that net profits generated by outside business

or investment have been relatively small. On the other hand, another

way of interpreting the figures is to observe that nearly half the

$1.6 billion gross income of CIA proprietaries has been supplied

by sources outside CIA.

Table II shows the pattern of income, expense, and net U.S.

investment for the twenty largest proprietaries now active, review-

ing their

• financial experience in the twelve months preceding

June 30, 1975, or the indicated reference date. The two biggest

proprietaries, Air America and

MHMUTUAL, are seen to dwarf the

others. Air America will be phased out by June 30, 1976, ending

CIA's owned airlift and returning an estimated $20 million to the

U.S. Treasury. MHMUTUAL will continue.

Today, the CIA operates 45 major proprietaries, of which 25

are in the process of liquidation. The 16 biggest proprietaries

did a gross total of $4 million business in 1975, compared with an

average volume of $75 million annually in the heyday period of

proprietaries, 1967-1973, exclusive of CIA subsidies. On the subsidy

front; the contrast is equally striking: no net subsidy in, 1975 vs.

$26 million annual subsidy in the 1967-73 period. Put differently,

if these sixteen biggest proprietaries had operated throughout

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kinds realized in 1975 ($4 million), the total gross income would

have aggregated $116 million. Actually, the CIA reports that

for this for this period gross

income aggregated at $1,606 million.

• By this measure, CIA's biggest proprietaries are shadows of their

former selves; their annual gross income of $4 million is about

one-fourteenth of the average gross annual income of $55 million

during the 29-year span. Shrinkage would be even greater if these

figures were adjusted for the effect of inflation.

The chief impact is decline of the bigger air proprietaries.

The Agency estimates that of some $761 million of outside income,

at least $658 million was generated by Air America ($559 million)

and Southern Air Transport ($99 million), in the period from incep-

to 1975. As late as 1974, these two airlines were garnering some

$50 million in outside contracts. With their disposal, total CIA

proprietary annual outside income in 1975 therefore shrinks to

the cited $4 million level. Most of this residual is represented

by MHMUTUAL, the insurance investment complex, where Agency invest-

ment are generating an outside income of about $3.5 million annually.

In programmatic terms, this contrast of today and yesterday

reflects the decline of paramilitary operations in Southeast Asia.

Large volumes of outside orders by Defense and AID, along with

sizable levies by CIA components and some maintenance and passenger

income fron commercial operations, had been generated by a covert

war. In turn, these operations had their echoes in Agency air

support for the Congo, Cuba, and other areas. Looking toward the

future, will new air proprietaries be established? The CIA thinks

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not -- but the matter is not resolved as discussion below indi-

cates. Ultimately the program question is whether there will

be future U.S. involvement in covert wars -- and whether, if so,

some substitute for CIA-owned air support can meet the operational

requirements of secure, well-maintained local aircraft in place,

with responsive schedules and capacity to gather a limited amount

of signals and imagery intelligence. The Chief of CSS ventured

the possibility that third-country assets could be used. Another

possibility is use of U.S. military aircraft, overtly or "sanitized"

One thing became clear: CIA sees itself as entering a different

era of proprietaries. It has rejected the long-held doctrine of

"stand-by" capability - i.e., the notion that it is worth investing

considerable capital and operating resources in airlift, sealift,

and other

assets primarily targeted toward contingency requirements.

Instead, assert the Agency representatives, CIA is keeping today's

and tomorrow's proprietaries strictly centered on current operational

tasks. The test of retention is the utility of a proprietary in

carrying out assigned roles instrumental in approved Agency projects.

This concept can be examined by listing the twenty major proprie-

taries which the Agency says will survive into the post-1976 time

frame:

Code Name

LPBERRY

LPROE/PIKE

PDPORTAL

BASTE

BASIC

PDLEDGER

PDDYNAMIC

TENURE

TERRACE

Latest 12-mo.

Earned Income "($000)

$43

139

5

($1,250 subsidy)

( 1,126 subsidy)

102

35

(5199 subside

subsidy)

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VWCADENZA

36 subsidy)

MHBOUND

432 subsidy)

KMJAGUARO / JAGGERY

809

QRMYSTIC/ CYNIC

( $10

subsidy)

WUDIRK

0

XIPHOID

(§ 191 subisdy)

BACH

50

subsidy)

KNOX

50

subsidy)

LPHOCUS

22

LPBYZAS/ B

2

LPPANDA

21

CHAIR/A

4

REMEDY

1. 21

subsidy)

MHMUTUAL

(consolidation of 21 firms) $3,560

LPSUGAR

34 (plus $35

subsidy)

The above listing covers only the 20 biggest proprietaries

which currently operate and which will survive liquidation. It

excludes 25 major proprietaries currently operational but being

phased out -- such as Air America and other airlift.

What does the whole

picture of currently operated proprietaries

look like? How many and by what major types?

The Numbers of CIA Proprietaries, by type,

as of July, 1974 are:

71

Operating proprietaries

(includes 2i props. in MUTUAL insurance complex)

Non-operating proprietaries

Devised facilities

Devised facilities/Notionals

("DFN"' 's)

Subtotal, externally registered

38

31

61

201

Notionals . no external registration

Identity and financing wholly

within CIA control

215

Grand total, current proprietaries

416

Ntr

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Generally, the notionals

have increased in number by about

30% since the current CCS chief's takeover of.

Cover operations

in 1967. This reflects a policy of increasing the number of

cutout arrangements to increase security -- i.e., reduce likeli-

hood of outside discovery of the identity of agents or case

officers working under cover of the end-point notional by intro-

ducing intermediate fionals for payments of identity backstops.

What does this amin tell us about basic distinctions of

one type of proprietary from another? First, it indicates that

external registration divides the pot in half. Those which have

some form of legal standing with U.S. (State, local) and foreign

corporate regulatory and tax authorities are subject to external

governmental scrutiny. This occasions additonal expense and man-

power to assure that in all respects this group of proprietaries

behaves in accordance with local law and commercial expectations.

The second group -- the notionals - exist only as names on doors

and phone directories and stationery, with backstopping for identi-

fication provided by Agency switchboards, mailstops, and check

issuance.

The next level of distinction is within the class of legally

registered proprietaries: those which carry on a commercial in-

come-producing operation and those which are simply cover arrange-

ments, with at most a bank account and an attorney backstopping

calls and mail. The latter are shown in the table above as

"devised faciltiies" and "DN"'s.

Within the class of commercial, income--productive proprietaries,

there is a distinction between those which are wholly dependent upon

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CIA income in the form of orders placed and/or subsidies; and

those which have mixed outside and inside income.

Even for those with mixed income, it is possible over the

years to distinguish those which have outside income wholly within

the U.S. Government (i.e., a mix of CIA-derived income and income

from other Government agencies) and those which have both U.s.

Government income and income from private contracts.

C. Visibility in the Budget

Accountability to the President and Congress depends in budget

review upon the extent

to which the Federal agencies' budget

review upon the extent to which the Federal agencies' budget re-

quests provide enough information to make possible well-formed

judgments. Therefore, Circular A-ll, issued by the Office of Manage-

ment and Budget, prescribes the financial schedules and analytical

and explanatory supporting data which all Federal agencies must

provide in their budget submissions, consistent with the Budget and

Accounting Acts of 1920 and 1950 as amended.

The Central Intelligence Agency regards itself as subject to

these prescriptions. The Agency limits its application of this

principle, however to provision of such A-11 materials as OMB and

the Congress ask for.

With regard to proprietaries, this policy has resulted in

near invisibility of proprietaries in the CIA budget submission.

Circular A-ll requires agencies to provide schedules and narrative

for each public enterprise or intragovernmental fund. The utility

of such data is to reveal all sources of funding, purposes and

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levels of expenditure, and at least approximate indications

of performance through comparisons of past and proposed funding

by activity.

As applied to proprietaries, the CIA, perhaps,

should have been providing a whole family of schedules for the

proprietaries which actually do business (i.e., excluding

"notionals.")

Then, there is the question of the program impact of propri-

etaries. Table I indicates that proprietaries in fact have been

heavily involved in CIA intelligence collection and covert action.

None of this is shown in the CIA budget submission. Yet a bona-

fide policy review of the budget requires programmatic judgments

of the necessity and appropriate use of proprietaries in overseas

areas.

The Angolan question has brought into sharp focus the role

of the CIA's Contingency Reserve. All U.S. aid to forces in

Angola came from this fund. The only place in the budgets of CIA

where proprietaries have taken on even a limited visibility is in

those years when supplemental financing was needed to establish or

strengthen a proprietary. The budget then shows, tersely, that

for a past year or for completed portions of the current years

that Contingency Reserve drawdowns had been made for such purposes.

For example, one past budget showed a certain amount for "RFE," .

meaning a subsidy for Radio Free Europe, but providing no justifica-

tion materials. In turn, this practice reflects the unwritten,

post-hoc nature of the Contingency Reserve financing process -- in

effect, an Executive Branch supplemental in which Congress is in-

formed after the OMB has acted. The budget does not normally indi-

cate Agency intentions to create or establish a proprietary in the

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budget year ahead. For any other Federal agency, the notion

of establishing a new publicly owned enterprise without advance

notice to the Appropriations and substantive committees of

Congress would be proscribed.

For the small-scale proprietaries, those which require small

subsidies to get underway, CIA is able to launch them without

supplemental financing -- i.e., within its regular budget --

and, therefore, these remain completely invisible in the Agency

budget submission.

D. Some General Considerations

a.. The relationship of utility to size: The evidence estab-

lished a dilemma faced by CIA planners who recognize that propri-

etaries can sometimes be most effective operationally when they

are large; indeed, as in Laos, there can be a thrust toward enormity

imposed by the very nature of the operation. The dilemma is that

large size conflicts with deniability: In areas of the world or

types of activity where there is little commercial appeal or few

operating commercial firms, where would large-scale enterprises

get financing but from the U.S. Government? Laotion operations

actually could not be covered in the end. The experience suggests

that proprietaries may have limited utility for paramilitary opera-

tions in the future.

b. The factor of competition with private enterprises. Do

CIA proprietaries of the income-producing class unfairly compete

with private U.S. businesses, both with regard to their Government

financing and their secrecy? Is the utility to the Government of

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such a kind and of such magnitude that CIA proprietaries should

be retained regardless of their competitive impact? Generally,

the CIA believes that CIA operating proprietaries do not compete

with U.S. private enterprise because they tend to do things which

the latter are not equipped, motivated, or staffed

to perform.

For example, CIA proprietaries purchase weapons and foreign arma-

ments and technical devices; conduct security clearances; purchase

real estate; insure uninsurable risks; train foreign policy forces;

run airlines in remote areas or on commercially unattractive

routes. Would private enterprise do any or all of these things;

It is true that private enterprise does a lot of similar activity

under contract to the Government, including highly sensitive con-

tracts for CIA in technical intelligence collection and research

and development. If CIA scrapped its proprietaries and coopted

private firms, suitably cleared, would this be more desirable in

policy terms?

In economy? In operational flexibility?

c. Relative scarcity of commercial and official cover. The

continuing push of CIA for notionals reflects the scarcity of U.S.

Government official cover in many areas of the world, the develop-

ing desire of U.S. companies not to cooperate.

Some question concerning profits have been raised. Does pro-

prietary profit constitute a significant add-on to the resources

available to CIA? How is such profit treated in the budget? How

is it controlled? How can the Congress (or the President, for that

matter) be sure that proprietary profits are not siphoned off to:

accomplish projects not countenanced by the regular CIA budget?

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First, profits (defined as net income to a proprietary after

coverage of operating expenses) are relatively small. Even in

the days when the most profitable air

proprietaries were at full

swing, the most that any single firm netted was $3.9 million (Air

America in 1967). Over the entire period 1947-1975, total pro-

fits have been $50 million, an average of about $1.6 million

annually, for the 16 biggest CIA proprietaries.. And in these

years, a net loss was sustained three times -- $2.5 million

in 1971, $0.5 million in 1973, and $0.3 million in

1975. Looking to the future, after liquidation of the air pro-

prietaries has been completed, there is forecast to be only one

profitable proprietary: MHMUTUAL a complex of insurance, reinsurance

and, and escrow-holding companies which derives most of its pro-

fit from investment portfolios. MUTUAL's net income in 1974 was

$1.8 million and this general

magnitude of profit is expected in

the foreseeable future.

As for treatment in the budget, there is both a policy and

procedural aspect. The policy of CIA has changed; in February,

1975 the General Counsel of CIA ruled that profits of proprietaries

and proceeds of liquidation must be returned to the Treasury as

miscellaneous receipts and cannot be used to augment the Contingency

Reserve or otherwise be applied to CIA operations. This ruling

overturned the practice of the past which, on the few occasions

where profits were not applied to augment net worth of proprietaries

--i.e., plowed back into the enterprise or investment portfolios--,

was to apply proprietary net proceeds to the Contingency Reserve •

for later release to operations.

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The budgetary presentation and review procedures only par-

tially focus upon proprietary profits. MUTUAL's profits are

invisible in the Agency budget; they are taken into account and

subject

to scrutiny only within CIA; operationally, the DDO annual

operational review has the most detailed grasp of MUTUAL at the

Agency review levels.

A stadard set of public enterprise fund

schedules, as prescribed by OMB Circular A-11, would be appropri-

ate for making MUTUAL visible in the Agency budget. Other commer-

cial proprietaries should show these schedules as well. The

Agency has indicated that the Comptroller is working with DDO and

DDA to develop a new style and content of budgetary presentation

and review procedures for CIA proprietaries in future budgets.

To what extent can these new procedures prevent abuses of

proprietary profits? To what extent do they preclude the need

for legislation in this area? What form of Congressional oversight

is needed here-- at what point should Congress exert control?

Improvement of visibility in the budget of proprietary resources

and provision for review of the major proprietaries as a regular

part of budget review by CIA, OMB, and Congressional Committees

would seem to preclude most of the dangers of abuse. On the other

hand, there is one type of abuse for which additional Congressional

scrutiny and safeguards may be needed: the possibility of a small-

scale, high-risk covert project directed by the President or DCI

which is not covered by the regular appropriation but financed by

proprietary profits.

No foolproof preventives can be designed by

law or regulation; nevertheless, the possibility of such abuse or

avoidance of Congressional review can be minimized by requiring

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that all CIA proprietaries have an operational charter approved

by Congress which forbids launcing activities by proprietaries

or using their funds which are contrary to the charter. This

internal CIA standard would probably strengthen the existing

requirement that

covert action projects be certified by the

President and flagged to Congressional Cormittees. At present,

MHMUTUAL has such a charter (not reviewed or set by Congress) which

restricts MUTUAL to insurance operations. This charter was

established in 1974 (called an "Administrative Plan") and must

be formally amended before the Chief of Cover Staff will authorize

use of MUTUAL resources for other missions.

Private Investment by_CIA.

The authority of the Agency to engage in private investments

and its general policy ambivalence on this matter already have been

noted. Two types of general as well as budget issues are presented,

one the inverse of the other: 1) Could or should CIA engage in

investments which could accumulate funds outside the budget process

and hence be available for operations that have not public scrutiny

outside CIA? 2) Is CIA investment policy too restrictive in regard

to bank deposits? Specifically, should CIA place large amounts

. 0E

money in private banks without charging interest? Some 20% of its

annual $1.2 billion of appropriated and advanced funds goes into

private deposit here and abroad, with year-end balances of about

$150 million and average deposits considerably greater. The banks

selected get an interest or investment bonus. Their selection is

non-competitive, rooted in historic circumstance, albeit in insti-

tutions that have shown themselves flexible and responsive in

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providing the Agency services. Much more investigation is

needed here and we

encourage the new oversight committee to

study this issue in greater detail than we have been able.

Probably this is one area where exclusion of the General Account-

ing Office from CIA audits has had an unfortunate effect: Whether

or not there has been abuse, there is no outside reviewer of a

complex set of financial records and relationships and conse-

quently the question of confidence in the Agency's role in this

area may have been eroded.

What is the future for proprietaries?

• Discussion on these questions already has been covered in part.

No new proprietaries are in formation or planned. This past fis-

cal year, 1975, one new proprietary was created to purchase a site

for the new location of the New York CIA base; it serves as a

real estate holding company or lessor for land and building.

The main provison for new growth is the plan of some years

standing for establishment in MHMUTUAL of several corporate "shells"

- legally constituted and registered companies that do very little

commercial business but which can be adapted to various new CIA

missions. To adapt to these new missions, as noted, would require

CIA to amend the MUTUAL Administrative Plan. But this could be

done quickly; the existence of the shells avoids the leadtime of

creating new corporate entities, with all the complications of

local laws and risk of exposure.

While CIA proprietaries are small today compared with yesterday,

they are so largely for administrative reasons-- i.e., responsive

Nt 50935 DocId: 32423532

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to Executive Branch direction. In this sense, there is no

reason in law, although there may well not be another era or

set of occasions when CIA will find proprietary expansion to

be operationally desirable. The Congress should be a partner

in the process of reviewing such expansion, if it should occur,

by providing

for changes in the charter process. Another approach

is the setting of substantive guidelines for proprietary operation.

This approach is typified by the post-Katzenbach guidelines that

prohibit CIA operation of tax-exempt foundations.

Lawrence R. Houston, the former General Counsel of the Agency,

was intimately involved with all of the proprietaries for his

entire tenure with CIA. Consequently, his views have been invalu-

able to the Committee in reviewing and evaluating the history

and the role of these mechanisms. In the course of a far-ranging

interview with the Committee Houston concluded that proprietaries

"should be the last resort for use to backstop Agency activities."

He grounded this opinion on the fact that:

they are cumbersome. To be properly run they take

a normal business for operational purposes.

really a built-indichotomy there that leads to a contin-

al contlict with policies.

And due to the number of

people involved, there is a security problem on the

old grounds that security doesn't go by the mathematical

increase in the number of people. It goes geometrically

as to the number of people, the security risk.

This assessment seems correct based on

all the evidence.

The current Director of Central Intelligence has insisted on

the streamlining of such operations, and is keenly aware

of the

potential for abuse. (See appendix F). It is, for example,

HH 50955 DocId:32423532 Page

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the current written policy of the Agency that "to the degree that

domestic proprietary or cover companies are required, a clear

justification will be developed as to the relationship of their

support of our overseas operations."

In the one area of continuing large-scale activity, the

investment complex, the Director has moved to insure propriety

even in an area where there is no evidence that any illegal con-

duct has occurred. The current policy, established as of

June 1975 is:

Project MHMUTUAL will be operated in conformance with

appropriate legal restrictions. Arrangements are being

made for the briefing of the appropriate Congressional

committees. Particular attention will be given to

avoiding any possible conflict of interest situations

with firms

with which the Agency has contracts.

Parti-

cular concern will also be exhibited over possible

improper influence on the stock market or stock dealings

through the investments involved in MHMUTUAL.

The Committee is mindful of the potential danger inherent in such

operations. Therefore, it recommends that the review of this

and other similar projects by the appropriate oversight Committees

be stringent in the extreme.

The disposal of proprietaries has also generally proceeded

along legal and ethical lines with more than due concern for con-

flicts of interest. Most notable in this spectrum of actions was

the degree to which the Agency tried and did in fact avoid any

conflicts of interest when it sold off Southern Air Transport.

Such internal vigilance no doubt should and will continue. More-

over, with the establishment of a permanent oversight committee,

the CIA's job in this regard will be made easier because it will

be able to report on its dealings on a regular basis and avoid

criticism.

50955 Doold: 32423532

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HH

50955

DocId: 32423532

Page

178

Inception through 1964

1965

1966

1967

1958

1969

1970

1971

1972

1973

197÷

1975

TOTALS

SEBRET

TABLE I

SUMMARY CE 16 MATOP PROPPIEZARIES BY VEAR

RETLECTIIG APPROXDIAIELY 80% OF TOTAL FUNDS *

DIRECT

FUNDING

SUBS DDY

$378,596,533

424,549,432

36,917,328

43,416,970

30,252,926

35,395,835

32,674,350

34,073,032

1,212,896

2,367,003

327,191

(275.382) **

3644 L08.109

AGENCY

CONTRACTS

$ 13,293,782

7,824,682

15,497,300

121,476,541

21,876,197

22,375,362

20,134,250

23,968,141

28,525,628

21,224,434

14,240,049

209,527

$210.530.220

OT-ER INCOE

CURS DE

OF ACENCY

$236,372,776

35,324,243

46,189,505

69,625,534

61,385,548

57,313,623

57,214,125

48,957,610

45,433,428

53,430,302

45,524,446

4,034,6c9

$760.865.820

GROSS

TOTAL

628,268,091

87,698,357

98,594,139

139,519,045

113,514,671

115,074,820

110,022, 725

107,008,783

75,171,952

76,977,744

60;091,076

3,907,844

$1:635.903.843

TOTAL

EXPENSES

600,17,4,573.

74,697,484

94,713,002

134,622,493

111,330,900

110,304,688

108,871,504

109,535,656

70,254,485

77,470,477

60,033,050

4,290:226

$1,556,200.238

$28,093,518

13,000,373

3,881,137

4,896,552

2,183,771

4,770,132

1,151,222

(2,526,873)

4,917,467

58,E25

( 323,022)

$52.604.620

* This information has been extrapolated from a number of sources and represents the best approximation we can make based upon the time and

information available.

** No Agency funding during 1975; this credit represents miscellaneous accounting adjustments.

---

## Page 179

NH

50955

DocId: 32423532

Page

179

15071'5

Cash

Investmenus

Other Asnots

lived Asscio

lobal Arocto

LiABILITIES

NOT WORTH

Investment

Cains & (Losses)

USUAL LIABILISILS AND NET WORTII

ACIVITY FOR TWELVE MONITES INDED

Findin

Income - Othcr Agency Sources

Inconc - Artoide Commciciul

Expensco

NOTES:

(a)

Interest Income

LPOBRRY/B

$ 26,190

9,1:82

1108

31,0:30

923

$383,699

(352,5112)

$ 36.157

$ 37,080

3/31/75

112,2221

3,085

110512

43,215

scuits

TABLE II

ACTIVE MAJOR HIEADRUATIERS CONTROBLED PROPRICIARINS

FINANCIAL CONDITION AND SUMMARY OF FUNDING, INCONE

AND EXPENSES FOR IWELVE MONZIL PERIODS SHOWN NEC

PER ANUY RECORDS 30 JUNE 1975

LPROE /

IPPIKE

$ 34,674

13,043

6,03

1 3i,220

131

$218,464

(1614, 375)

154, 039

$ 54,220

6/30/75

$ 51,120

11.39, 1128

1217, 18F

PDRASIE

(PDPORTAL)

PDBASIC

279,887

6,063

7,113

223,003

1.42

$ 310,660

36,150

11.828

=.

370, 07

60,003.

$6,033,311.

7)16.1123)

292,921

$ 223,063

3/31/15

$2, 250,000

10

$1, 015,860

(X-**•x)

14, 357,7413

(1, 047,252)

310,585

$ 370,017

*6/30/75

1, 126, 500

1,832

11,115,930

(*-X-X-ж)

PDLEDGER

I::

+..

104,008

6'76

1:7, 335

10,

286

1322111

411,01.0

812,365

(720,900)

Đ1,405

€ 132,125

12/21/74

206,000

102, 363

322,432

PDDYNAMIC

EDAMNURE

POTERRACE

$ 119,555

$ 26,288

183

1 016108

1, 9311

120,205

$323,1118

(763,830)

$ 59,618

1 62,552

6/30/25

022,200

1, 805

1190, 526

$257,4411.

(231,153)

₫ 26,238

1 26,208

6/30/75

/ 70.000

T 35.733

1201, 728

VWCADENZA

621.

0096

174

$235,710

(231,213)

1,503

1. 1,677

3/31/12

$ 36,110

17iT, 7iT,200

517,900

42,575

i 11, 1.

153,7

101, 1

807,0

1.&

$5, 000, 136,

(i03)

LE) 205

$ 57.422

12022

6/30/15

131.718

1757.71

5010(2)5

163,058

New projects, no financial statements submitted to dato, figures are for one qualici.

Consolidated figures not available.

Latest period for which financial statements have been submittca.

POBASTE and PDBASIC are being consolidated into one (1) entity, POPORZAi.

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## Page 180

50955

DocId

423532

Pave

ASSCIS

Cash

180

Investrands

Other Assots

• Fixod Masets

Tosal Assets

LIASILIRTES

HEE VORTE!

TOTAL LIABILITIDS AND MET WORTIL

ACTIVLIY FOR IVALVE MONTIS ENDED

Minding

Incomn - Othez Agency Sonices

Income - Cutside Commicrcial

Mischaes

NOTES:

TABLE II

FINANCIAL CONDITION AD SUMMARY OF LUDDIG,

INCOME

AND EXPENSES FOR IVELV MONCH PURICOS SIGN BETCH

PER AGENCY

RECONDS 30 JUNE 1575

QRAYSHIC/

ARCYNIC

$3,974

500

627

5,101

11

$78,657

(714,567)

$ 5.000

$ 52101

6/30/75

7:10,000

i; = 0-

$13,745

WUXIPHOID

WUDIRK

WURAC!!

$ 17,757

2,296

11,071

1 31,127

$ -O-

$50,525

120,

=5

$296,000

(264,873)

$ 31.127

1. 32,127

3/31/75

1191,000

230

$50,525

150,525

$20,225

6/30/75

$50,525

=0=

$19,800

(x-x-x-)

- 0-

(x)

ITUKNOX

$50,000

150,000

- 0-

$50,000

150,000

1150,000

6/30/75

150,000

-0-

(a)

(0)

Intercot Income

Includes $423,002.00 in Insurance premiums

from other Agency components

LP:COUS

LPI3Y2A5/15

$ 7,000

24, 348

3.052

$ 2,700

7,95!1

335,93.1

37, 537

1.696

22003

3,760

$01:5,000

$1112,832

(913, 300)

(23. 1113)

$ 31.700

0129, 189

$ 34,100

433,225

6/30/75

12/31/14

$ 76,213

$ 22,252

i -0-

$ 99,600

IPPANDA

EPCKATR/A

(Consolidatod)

MANUTUAL

21,710

12,720

$ 1,548

19113,172

1,826

D,20

10,831

171, 198

25,57,1'2

2,531,515

6: 453

155, 355,439

427,212.754

$376,3115

(31323

515)

2,770

1. 2,110

6/30/75

3,965

1116,031

1201: 365

$ 22,216

6/30/15

127.165

$15,000

6.107

750,189

B2B

122,355,138

6/30/15

107,113

LESUGAR

$ Idi, 379

803

1.262

122.221

11,252

$6?11,520

1502

7055

216,02

$ 35,200

2,280(r) (r) 1-0-

$ 12,738

2,215

+ 2,550, 10666) 7

Ner projects, no. financial statchents

subniteer!

to date, figuico are for onc quarter.

Consolidated figures not available.

Latest period for which financial statements have ac:

submitted.

PDBASTE aù EDBASIC are being consolidated into one

(1) entity, POPONDAL.

---

## Page 181

Annex A

Memorandum of Law

Legal Authority to Dispose of a Proprietary

January 1974

REI

ROM

OCT 80 1915

---

## Page 182

SESRE1

MEMORANDUM. OF

.V

DOES IHE CIA POSSESS THE LEGAL AUIHORITY

TO SELL A WHOLLY-OWNED GOVERN-

MENT AIRLINE WITHOUT RECOURSE TO

THE FEDERAL PROPERTY AND ADMINISIRATIVE

SERVICES ACT OF 1919, AS AMENDED?

RECEIVED FROM

UCT 30.1975

CIA

I. FACTS

There exist two airline corporations wholly owned by the

United States Government, which corporations were purchased by, and

are under the direci control of, the Central Intelligence Agency. Ownersh:

of the corporations was acquired by means of appropriated funds expended

by the Agency under its confidential funds authority, the procurements thus

being made outside of the Federal Property and Administrative Services

Act. Both corporations were created by the Agency to assist it in fulfilling

its statutory responsibilities and, over the years, both have engaged in

many sensitive support activities in the furtherance of the national security

of the United States. It has been widely reported in unclassified media thai

the Central Intelligence Agency on behalf of the United States Government i:

the de facto owner of the corporations. Notwithstanding, that ownership is

still a classified fact. The activities and missions of these corporations

in support of the national security of the United States would have been

impossible il United States Government ownership had been oificially

admitted. Within this contert it is the statutory responsibility of the Direci

of Central Intelligence to proteci the overi commercial posture of these

corporations and the classified nature of certain of their activities.

NH 50955 DocId: 32423532 Page 182

81B3ET

NOW

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## Page 183

SEGRET

the Direcior has deiermined thai the corporations die no longer required

by the Agency in the discharge of its responsibilitics, thai they are excess

to Agency requirements, and ho has directed that they be disposed of

cither by sale or liquidation.

II. STATUTES

The Federal Property and Administrative Services Acü Of 1949,.

as amended, (40 U.S.C.A. 471 et seg., hereinafter referred to as !the

Act"'), is in general the controlling statute insofar as Government propert;

is procured, used and disposed of:

It is the intent of the Congress in enzcting this

legislation to provide for the Government an economical

and efficient system for (a) the procurement and supply

of personal property and nonpersonal services, including

xelated functions such as contracting, inspection, storage,

issue, specifications, property identification and classifi-

cation, transpotation and traffic management, establish-

ment of pools or systerns fos transportation of Government

personnel and property by motor vehicle within specific

areas, management of public utility services, repairing

and converting, establishment of inventory levels, establish-

ment of forms and procedures, and representation before

Federal and Staïe regulatory bodies; (b) the utilization of

available property; (c) the disposal of surplus property; and

(d) records managemeni. 40. U.S.C.A. 471.

As an executive agency, the Central Intelligence Agency is within the puer

of the Act (10 U.S. C.A. 172; 481), but along with a number of other agenc:

and activities, it was

exempied

¿rom thie Act:

RE

FROM

Congress, departments, agencies, corporations

and persons exempied from provisions

OCF 80 1575

2

WW 50955 DocId:32423532 Page 183

1197959-99

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## Page 184

SEGRET

Nothing in this Act shall impair or affect any

• authority of

NW 50955

(17) the Coniral Intelligence Agency;

10 U.S. C.A.115(17).

The Act's legislative history provides an insight into the bread:

of the exemption and, to a limited degree, Congress' inteni for giving it.

Special axemptions from the act. - This sub-

section crempis from operations under the act a

number of activities requiring special treainant.

Chiel among these are programs for price support,

stabilization, grants to farmers, and foreign aid;

procurement procedures under the Armed Services

Procuremezi Act of 1947..; the stock-piling of

critical materials; the national school lunch program;

the Housing and Home Finance Agency with respect

to the disposal o residential property; the Atomic

Energy Commission; and the Central Intelligence

Agency.

It is not intended by these exemptions thai those

administering the agencies of programs listed shall

be free from all obligation to comply with the pro-,

visions of the aci or from all jurisdiction of the

Administrator. On the contrary, it is expected that

they will as far as practicable procure, utilize, and

dispose of property in accordance with the provisions

of the act and the regulations issued thereunder,

particularly so far as common-use items and adminis -

trative supplies are concerned. Likewise, it is intended

that the Administrator shall have full authoiity, with

respeci to the agencies or programs mentioned, to

NEGE FROmake survays of, and obtain roporis on, property and

property-management praciices, to cooperate in the

OCT 90 1915

CIA

establishment of inventory levels, and to report

excessive stocking, in accordance with the provisions

of section 206 (a) (1) and (2).

3

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SERRET

177

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## Page 185

SECRET

In other words, to the extent that compliance with

the act and submission to the jurisdiction of the

Administrator will noï so 'impair or aticci the authority'

of the several agencies to which the subsection applies

as to interfere with the operation of their programs, the

act will govern. Any disputes that arise can be settlad

by the Presideni under the authority to prescribe policies

and directives vested in him by section 205 (a). U.S. Coda

Congressional Service, 1949, Vol. 2, P: 1504 (emphasis

added)

One anthority of the Contral Intelligence Agency which complác

application of the Ace would "impair or affect"' is clearly the Agency's

authority to expend confidential funds.

The sums made available io the Agency Inay

be expended without regard to the provisions of lair

and regulations relating to the expenditure of Gorein-

meni funds; and for objects oí a confidential, extra-

ordinary, 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. Sec. 8(b),

CIA ACi Of 1949; as amended; 50 U.S. C.A. 403j(3).

The CIA Act of 1949 (63 Stat. 208, P. L. 81-110) became effective June 20,

1949; the Aci (63 Staï. 378, P. Li. 81-152), July 1, 1949.

The question of law thus presented is: in selling and disposing

of the two airline corporations, must the Agency adhere to the Aci and

submit to the jurisdiction oi the Administrator, General Services

Adminisiration?

0 FROM

D05 30 1975

NH 50955 DocId: 32423532

Page 185 /1A

SEGRET

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## Page 186

SECRET

II. ARGUMENT

The broad authority afforded the Agency by Section 8(o), supra,

is conclusive-"(t)he sums made available to the Agency may be expended

without regard to the provisions of law and regulations relating to the

expenditure of Governmeni funds;.." That authoity is enhanced, not

limited, by the Aci-"(Nothing shall impair or affect the authority of-.

the Central Intelligence Agency", and by the Act's legislative history. It

follows naturally that the Agency's authority to procure on a confidential

basis ivithout recourse to the Act inherently carries with it the authority

to dispose on a confidential basis without recourse to the Act.

. By say or

an extrome hypothetical, suppose the Agency had procured a Soriet

weapor's system, without Soviet knowledge. Using Section 8(b) authority,

it had expended funds through a secure facility for the procurement and

brought the system to this country where it was studied and tested. By

virtue of the testing the Government was able to develop electronic counter

measures which would effectively nullity the system. Upon a determinatio

that the system is of no further use, can it be seriously argued that its

disposition by the Agency should be anything other than confidential? The

purchase was confidential; possession of it by the United States Governmesi

was confidential; and, the knowledge gained and the countermeasures

developed are confidential. To hold otherwise would render the intended

purpose of Section 8(b) a nullicy.

RF:

*N FROM

5d955 DocId:32423532 Page 186

5

ЗЕСЛЕТ

061 90 1975'

PIA

---

## Page 187

SECRET

The short expression of Congressional intent found in the Act':

legislative history supports the view that the Agency's activities in the

confidential funds area are not within the purview of the Act. "As far'as

practicable... " procurement, use and disposition should be ":.. in accordi

with the provisions of the Aci... particularly so far as common-use items

and administrative supplies are concerned." It is suggested that a Gover:

ment-owned, but overtly commercial, airline used in support of foreign

intelligence activities does not fall within a "common-use items and

administrative supplies'' categorization. Similarly, if the last paragraph.

of legislative history (emphasized portion) quoted above is read in the

negative, the proposition becomes clear: ".. - (I)he act will... (noi).

govern... (it)... compliance with the act and submission to the jurisdiction

of the Administrator will... 'impair or affect the authority' of the several

agencies to wnich the subsection applies as to interfere with the operation

of their programs...." Were the Agency required io comply with the

Aci and submit to the jurisdiction of the Administrator in the exercise

of its confidential funds aulzority, not only would that authority be impaire

or alfected, but many of the Agency's most significani statutory authoritie

and responsibilities yould be frustrated.

) FROM

UCE on 1975

Nw 50055 DocId: 32423572 | gage 187

6

SECRET

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## Page 188

SECRET

•In looking at CIA's express authority to procure on a confidenti

basis and examining the nature of its implied authority to dispose, genera

statements on the rules of statutory construction are helpful. Foi

example:

Where a statute confers powers or duties in

general terms, all powers and duties incidental and

necessary to make such legislation effective are

included by implication. Ihus it has been stated, 'An

express statutory grani of power or the imposition of.

a definite duy carries with it by implication, in the

absence of a limitation, authority to employ all the

means that are usually employed and that are necessary

to the exercise of the power or the performance of the

duty..

That which is clearly implied is as much a

pari of a law as that which is expressed.'

The rule whereby a statule is, by necessary

implication, extended has been most frequently

applied in the construction of laws delegating powers

to public officers and administrative agencies....

Thus where the power to create an oifice is granied,

the power to abolish it will be implied, and where an

administrative body is given power to enaci regulations

or exercise quasi-judicial powei, the pover to provide

for internal rules of procedure will be implied.... The

power of a municipality to sue and be sued was held to

imply the power to employ special counsel for those pur-

poses although the city had a regular salaried attorney.

A municipality, empowered by statute to construct sewers

for the preservation of the public health, interest and

convenience, was permitted to construct a proiecting wall

and pumping plant which were unnecessary for the proper

working of the sever, but were essential to public health.

Sutherland Statutory Construction $ 5402.

Ull 30 1975

WW 50955 DocId: 32423532 Page f188 A

7

SEGRET

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## Page 189

SECHET

Similarly,

.. (I)t has been held that an expiess statutory

grant os a right, power or priviloge carries with it

by implication, in the absence of a limitation, all

the means that are usually employed and thai are

necessary and proper to the exercise or enjoymoni

of the right, power or privilege granted. In such

case, the power necessarily implied is a pait of

the legislative act. There is even authority in

support of the rule that power in a statutory grant

may be implied although it is not indispersibla.to

the exercise of the powers granted.

50 Am. Jur-""

Statutes $ 428.

Cases which speak to the subject of implied statuory powers

are abundant. In Schmiedigen v. Celebrezze, Judge Holtzof held that.

"(I)t is a well established principle of statutory construction that every

legislative enactment musi receive a sensible and reasonable construction

that sould effectuate its purposes.

If a strict, literal interpretation woul

frustrate the objective of the législative body and would lead to an absurd

or futile result, it must be avoided."

245 F. Supp. 825, 827 (1965): In

U.S. V. Jones, where a statute gave iederal officers the power io enforce

compliance with the law but was silent on the power to arrest the court

stated:

REGL

AT 50955

OX8 30 2975

DocId: 32423532 Page 18

So, though the terr arrest is not used in the

statute, the language employed necessarily implies

ONthat such power was included.

8

SECRET

---

## Page 190

SECRET

Necessary implication refers to a logical

necessity; ii means that no other interpretation

is permitted by the words of the Acts constiued;

and so has been defined as an implication which

results from so strong a probability of intention.

that an intention contrary to that imputed cannot be

supported. The term is used where the intention

with regard to the subjeci matter may not be mani-

fested by explicit and direct words, but is gathered

by implication or necessary deduction from the

circumstances and the general language.

Consequently that which is implicd in a statui. is

as much a part of it as that which is expressed,

for a stautory grant of a power carries with i,

by implication, everything necessary to carry

out the power and make it effectual and complete.

204 E. 2d 745, 754 (1953); certiorari denied,

98 L. Ed. 363; renearing denied, 98 L. Ed. 104.

IV. CONCLUSION

Adherence to the Federal Propexiy and Administrative Services

Aci in disposing of the two airline corporations would do far more than

impair or affect Agency programs. it would endanger the national security

which the statutory authorities available io the Agency were designed to

protect. The Central Intelligence Agency, because of the unique statutory

ROM

UCT 80 1075

GIA

WW 50955 DocId: 32423532 Page 190

9

CERE

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## Page 191

SECRET

grant provided it in Section S(b) of the CIA Aci, and because of the unique

nature of its statutory responsibilities, possesses both the express powe:

to procure property confidentially without recourse to the Aci and the

implied power to dispose of property confidertially without recourse io it

ACt.

RESPECTFULLY SUBMITTED

Gary M. Breneman

Assistant General Counsel

Centre: Intelligence Agency

P9M

0Cl 30 1975

CIA

NW 50955

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10

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Annex B

HR 230-8 and HHB 230-1

Concerning Regulation and Administration

of

Agency's Proprietaries

)M

Vil sn 1975

CIA

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... SECRET

PLANS, PROGRAMS, AND PROJECTS

HR 230-8

8. ADMINISTEATIVE PLANS, LIQUIDATION PLANS, AND FISCAL

ANNEXES

a.. GENERAL

(1) In the furtherance of some Agency objectives it is necessary to establish,

operate and support overt instrumentalities which do not have ostensible

affiliation with the U.S. Government. These ostensibly private organiza-

tions which may be susceptible to scrutiny by a variety of tax and regula-

tory authorities, the press, hostile elements and others, require operational

security of a high order. It is essential that they are established and

managed in accordance

with normal practices and requirements of the

type of enterprise concerned, and that they are staffed with qualified

personnel those cover histories are compatible with such employment.

It is also essential that there are adequate general management, financial

and security controls consistent with both operational efectiveness and

the requirements of nonattribution, for the protection of the Agency's

• (2) The controls and procedures which are applicable to an instrumentality

will be specified in a

project outline and administrative plan or fiscal

annex. Standards and format for administrative plans and fiscal annexes,

as well as for liquidation plans to be followed when an instrumentality is

to be discontinued, are prescribed in uHB 230-1..

b. POLICY

(1) The establishment or continuance of an instrumentality is justified only

when it contributes to the accomplishment of the Agency's mission and

Is operationally determined to be the most advantageous means of gaining

a particular and necessary objective. The purpose of an instrumentality

shall be to conduct secret operations or support such operations under

cover of its overt function.

(2) No binding commitment with respect to the establishment of any in-

strumentality shall be inade before the approval required by this regu

lation has been obtained.

c.

DEFINITIONS

(1) PROJECT. A project is a management device through which specific

operational activities are undertaken to meet programmed objectives.

Budgeting and finarcial accountability are maintained against the project

for funds and resources authorized for it.

(2) INSTRUMENTALITY. An instrumentality is a corporation, a foundation,

partnership, sole proprietorship, or other legal entity (within the private

sector,

domestic or foreign)

for which specific, funds

or

other assets

have been authorized under a formally approved project. Within a project

there may be one or more instrumentalities.

— (3) Proprietary. A proprietary is an instrumentality in which the Agency

acquires ownership of a controlling interest, through appropriate

nominee or legal entity arrangements. The Agency exercises, through

stockholder or other equity arrangements, control of the instru-

mentality in terms of the policy, administration, formulation of

budgets, and the application of funds.

(b) Operational Investment. An operational investment is the acquisition

by the Agency of an equity in an instrumentality, through appropriate

nominee or legal entity arrangements, of less than a controlling

interest, with the expactation of recovering some or all of its invest-

ment. Any influence the Agency may exert over budget formulation and

Revised: 1 Augost 1969 (161)

GROUP 1

Encludad from automalie

cangrating and

d-cisuifration

15

SECRET

Wil 80 1375

NW 50955 DocIat3440532 Page 193

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HR: 230-8c(3)

SECRET

PLANS, PROGRAMS, ANEROJICIS

the application of funds is a matter of negotiation. (NOTE: Operational

loans shall be handled

in accordance with provisions of HR 30-9

and chapter Ix of HHB 30-1.)

(c)

Subsidy. A subsidy is the contribution of funds or materiel to an

instrumentality by the Agency, with the Agency acquiring no equity

in the asseis nor right of participation in either the income or

the profits of the entity. (Payments to foreign liaison services

are

excluded from this definition.) There are two types of subsidy:

(1) Controlled. A controlled subsidy involves support of an instru-

mentality whose income is primarily derived from Agency funds

and which is therefore largely dependent upon such support. To

the extent that the Agency is able to exercise control it does so

through the formulation of budgets, the requirement for financial

accountings, and the application of funds. Where a project consists

of a combination of separate subslay and proprietaly instrumen-

talitles, proprietary regulations will be applied to the proprietary

instrumentality.

(2) Noncontrolled.

A noncontrolled subsidy involves support of an

instrumentality. to which negotiated fixed-sum incentive pay-

ments of Agency funds are made, but budget formulation and

the exercise of discretion over expenditures are at a point es-

sentially beyond Agency control Evaluatlon of performance Is

a matter of operational judgment, not necessarily related to the

amount of the fixed-sum payments.

(d) Funding and Pryrolling Instrumentalities. A funding or payrolling

Instrumentality is used to lund or payroll Agency activities when, for

reasons of security or cover, funding or payrolling must be accomplished

through an overt mechanism. The Agency has legal or beneficial orner-

ship of a funding or payrolling instrumentality through appropriate

nominee or legal entity arrangements. Although these instrumentalitles

are proprietaries, they operate under special authorizations that may

vary substantially from the requirements of this regulation and

HIB 230-1.

-(3) PROJECT OUTLINE. A project outline is a written plan for accomplishing

• programmed operational objectives. Uyon approval by appropriate au-

thority it becomes the framework within which the project is implemented

and its effectiveness initially evaluated.

(1) PROJECT RENEIVAL. A project renewal is the approval after evaluation

by appropriate authority for continuation of a project beyond the period

'covered by its initial approval or previous renewal. The renewal may

update or supersede certain provisions of the project outline.

• (5)

ADMINISTRATIVE PLAN. An administrative plan is a supplement to

the project outline which upon approval by appropriate authority consti-

tutes the administrative framework within which the instrumentality is

to operate. To that extent it replaces all Agency regulations, except this

regulation and HIR 230-9, in the management of project instrumentalities,

their internal activities and non-Agency employees. An administrative

plan is required for all projects establishing and utilizing proprietaries,

operational investments, funding and payrolling instrumentalities, and

controlled subsidies.

(6)

TERMINATION. Termination is the discontinuance of a project or an

instrumentality, upon written approval of the Deputy Director or Head

of Independent Office concerned.

(7) LIQUIDATION. Liquidation is the settlement of accounts of an instru-

Inentalits; the final disposition of its remaining assets, and dissolution of

the instrumentality.

16

Revised: 1 August 1959 (464)

MOM

SECRET

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NN 509$5 DocId: 32423532 Pard 194

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SECRET

PLANS, PROGRAMS, AND PROJECTS

FR 230-8d

•(8) DEACTIVATION. Deactivation is the discontinuance of the functioning

of an instrumentality, with the charter or franchise retained but in an

Inactive status, perding determination as to liquidation or reactivation of

the instrumentality.

(9) LIQUIDATION PIAN. A liquidation plan prescribes the procedures for

implementing a properly authorized operational decision to terminate

the Agency's active use of a specific instrumentality and to dispose of

portion oi the assets. An approved, plan is required for

liquidation of all proprietaries, operational investments, and controlled

subsidies with proprietary aspects. No liquidating action sill begin untu

the liquidation plan has been approved.

(10)

FISCAL ANNEX A fiscal annex is a supplement to the project outline

that sets forth funding arrangements, specific accounting control, 11-

nancial reporting requirements, and writeoff provisions. A fiscal annex

is required for all noncontrolled subsidies.

a. AUTHORITIES AND RESPONSIBILITIES

(1) AUTHENTICATION OF ADVINISTRATIVE PLANS, LIQUIDATION PLANS,

AND FISCAL ANNEXES, (HEREAFTER CALLED SUPPORT SUPPLE-

MENTS)

(a) The joint approval of the Deputy Director having Juisdiction over

the project and the Deputy Director for Administration is required for

(1) establishment, deactivation, or reactivation of an instrumentality;

(2) all support supplements and amendments thereto, Including spe-

cific deviations because of unforeseen or emergency conditions;

(3) transfer between projects of any instrumentality and remaining

assets.

(b) Advances of funds to an instrumentality before approval of the related

administrative plan or fiscal annex require the approvai

Deputy Director concerned, the Deputy Director for Administratlon,

and the Comptroller.

(c) All liquidation plans require the approval of the Deputy Director con-

L,

cerned and the Deputy Director for Administration.

(2) PREPARATION

(a) The Operating Official having jurisdiction over the project is re-

sponsible for the preparation and coordination of the administrative

plan or fiscal annex, and, when required in connection with termina-

tion of the instrumentality, the liquidation plan.

(b) Administrative plans require the concurrences of designated repre-

sentatives of the General Counsel; the Director of Finance;

Comptroller; the Director of Security; and the Chief, Cover

Commercial Staff. Liquidation plans require the concurrences of the

designated representatives of the General Counsel; the Director of

Finance; the Chief, Cover and Commercial Stafl; and in addition,

the Comptroller for those liquidation plans involving the disposition

of assets with an estimated market value in excess of $50,000. The

assistance and counsel of other offices will be obtained when their

functional responsibility is involved.

(c) Fiscal annexes require concurrence of the Director of Finance and the

L.

Chief, Cover and Commercial Statf.

#STevisell: 29 October 1974. (340)

REC

FROM

• 16.1

SECRET

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NH 50955 DocId: 32423532, Paup 195

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HR 230-8d(3)

SECRET

PLANS, PROGRAMS, AND PROJECTS

(3) PERIODIC REVIEW AND REAFFIRMATION. The Operating Oficlal

responsible for the project will revlew each approved administrative

plan or fiscal annex at least once each year, coincident with considera-

tion of renewal of the project and will either

(a) affirm in writing to the responsible Deputy Director that the previously

approved provisions remaln adequate and valid; or

(b) Initiate appropriate revision when changing circumstances dictate the

need.

Now 32.

8 28 AM '74

0/COMPT

--÷.

•:?. ;.

18.2

Revised: 29 October 197* (8:0)

VOM SECRET

Ull ?! 1975

# 50955 DocId: 32423532 : Page 196

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J"I"

PLANS

PROGRAS, AND PROJECTS

HHB 230-1

FOREWORD

FOREWORD

Rescission:

HHB 230-1 dated 1 August 1969, 10 January 1973, and

16 March 1973

This handbook incorporates the Agency procedures pertaiding

to the administration of project instrumentalities that will

be

followed in carrying out policies prescribed in HR 230-8.

FOR THE DIRECTOR OF CENTRAL INTELLIGENCE:

JOHN F. BLAKE

Deputy Director

for

Administration

DISTRIBUTION: SPECIAL

FROM

Wil on 1975

CIA

Revised:

29 October 1074

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NW 50955 DocId:32423532. Page 197

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S-E-C-R-E-T

PLANS, PROGRAVS, AND PROJECTS

HHB 230-1

CONTENTS

CONTENTS

Paragraph

1.

2

3

4.

(.

5..

6

7.

PURPOSE.

GENERAL.

• ADMINISTRATIVE PLAN PRESENTATION

STANDARD PROVISIONS AND REQUIREMENTS OF

ADMINISTRATIVE PLANS •

a.

BUDGETING. •

b.

FUNDING.

REFUNDS.

AGENCY CERTIFICATION AND APPROVAL.

ACCOUNTING. IN AGENCY RECORDS

PROTECTION OF U.S. GOVERNMENT INTEREST

PERSONNEL POLICY . .

INSURANCE COVERAGE

CASUALTY PROVISION

LEGAL SERVICES .

SECURITY POLICY. •

Not used

AUDIT.

FINANCIAL ACCOUNTING AND REPORTING

BORROWING, LENDING, AND PLEDGING OF ASSETS

INVESTMENT POLICY.

REAL PROPERTY AND OFFICE FURNISHINGS

LIMITATION ON INDIVIDUAL DISBURSEMENTS AND

CONTRACTUAL ARRANGEMENTS

SPECIAL ADMINISTRATIVE EXPENSE POLICY..

t. TERMINATION AND LIQUIDATION. •

CONTINGENCY CASUALTY PLAN.

LIQUIDATION PLAN

FISCAL ANNEXES .

a. GENERAL.

b. ACCOUNTING PRINCIPLES.

C.

FINANCIAL STATEMENTS

d.

USE OF CERTIFICATION AS EVIDENCE OF FULFILLMENT

OF THE PURPOSES FOR WHICH FUNDS WERE ADVANCED

e.

USE OF CERTIFICATION FOR OPERATIONAL REVIEN. :

f.

FINANCIAL DATA FOR OPERATIONAL PURPOSES.

g. REIMBURSEMENT FOR OPERATIONAL DEFICITS

h.

FORMAT OF FISCAL ANNEXES. . .

Page

1

1

1

2

5

5

6

6

8

8

8

9

• 10

• 10

.11

•11

+12

•12

• 13

•13

•14

•14

• 15

.15

.. 15

•16

.16

•16

•16

ull on 1915

CIA

NY 50955

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FROM

Revised: 29 October 1974

Page 198

iii

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S-E-C-R-E-T

PLANS, PROGRANS, AVD. PROJECIS

HHB 230-1

1

SUPPORT SUPPLEMENTS FOR AGENCY INSTRUMENTALITIES

1. PURPOSE

This handbook sets forth guidance for developing support supplements

(administrative plans, fiscal annexes, and liquidation plans) governing

Agency instrumentalities, as required by. HR 230-8.

2. GENERAL

Properly approved support supplements modify or waive specific provisions

of Agency regulations except HR 230-9 and, in lieu thereof, set forth

the provisions for special authorizations and management control of

instrumentalities in the conduct of their affairs. They are designed to

promote

a.

the most effective management, to include staffing of each instru

mentality with personnel qualified to manage it in accordar ce with

Agency objectives, under sound personnel policies

and practices;

b.

the establishment of an effective budgeting, accounting, and re-

porting system that will produce accurate, timely, and useful re-

ports of financial status and financial results of the operations

of each instrumentality;

C..

the establishment of an accounting system for the instrumentalities

that is compatible and reconcilable with Agency financial records;

d.:

the highest degree of cover and security compatible with the overt

character of each instrumentality and its operation of support

objectives;

€.

the effective Agency control of funding to, and assets held by, the.

instrumentalities;

En FROM

the orderly deactivation or liquidation of any instrumentality that

Cuit an 1975

has ceased to be of operational value to the Agency:

CIA

3.: ADVINISTRATIVE PLAN PRESENTATION

The administrative plan presentation should consist of (a) a memorandun

requesting approval of the administrative plan by the Deputy Director

having jurisdiction over the project and the Deputy Director for Admini-

stration; (b) the administrative plan (usually drafted by the support

element in the operating component concerned); and (c) a concurrence

sheet evidencing concurrence in applicable provisions of the administra-

tive plan by the designated representatives of the General Counsel; the

Comptroller; the Director of Finance; the Director of Security; the

WW 50955 DocId: 32423559VISage 133 October 1974

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M 5095

S-E-C-R-E-T

HHB 230-1

PLAVS PRUJRAMS, AND PROTECTS

4

Chief, Cover and Cormercial Staff; and such other Agency components

whose

functional responsibilities are involved. The memorandum should

state the project's operational objectives, the reason why it is believed

that an instrumentality is the most advantageous means for attaining the

objective, the type of instrumentality to be used, funds approved for

the current year, funds programmed for the ensuing fiscal year, and, in

the case of a revised plan, a statement as to the need for the revision

and funds expended for the past two years.

4. STANDARD PROVISIONS AND REQUIREMENTS OF ADMINISTRATIVE PLANS :

Standard provisions and requirements of administrative plans are listed

below.

Á single reference may be made in each administrative plan that

the provisions of HHB 230-1 are applicable.. Substitute or additional

provisions may be included in each plan to the extent necessary wherever

the

standard provisions and requirements are not applicable.

a. :: BUDGETING

:: (1) : Purpose

cuters

The approved annual operating budget for a project provides

the means to integrate it into the planning and budgeting

system of the Agency.. The process tor the annual renewal of a

project permits the appropriate Deputy Director, through his

review, evaluation, and formal approval of the project and its

• operating budget, to authorize the continuation of the activity,

under which funds may be advanced, controlled, expended, and

accounted for, within the terms of the approved operating

budget of the project.

The approved operating budget of the

project provides a basis for an objective evaluation of the

real (total) cost of the activity, to include:

(a) Funds Available

, Clear identification of funds either available or presumed

to be available to the project (or instrumentality) from

all sources during the period of the proposed operating

budget, which will include

(1)

any prior-year funds (beginning cash balance, in-

cluding liquid assets) ;

(2

other U.S. Government (non-CIA) funds;

other CIA funds;

(3)

(4)

0Cd on 1975

(5)

CIA

DocId: 32423532 Page 200

all other income;

the new funds requirement of the projer. (from

current appropriation).

Revised: 271.200.: 1974

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S-F-C-R-E-T

PLANS, PF RANS, AND PROJECTS

HHB 230-1

4b

(b) Proposed Expenditures

Clear identification of all proposed expenditures. re-

quiring cash, broken down in sufficient detail to separate

(1) fixed expenses (overhead); and

(2)

operating expense.

(c) Estimated Cash Balance at the End of the Fiscal Year

(2) Preparation

• (a)

Operating budgets are to be prepared annually for each

approved project, with a detailed breakdown for each

instrumentality.

The budget will cover the past year

(estimated obligations), the current year (proposed), and

a forecast for at least

the next year's operationshin

agreement with the limitations contained in the relevant

operational program. The categories of expense will be

consistent for all years and; will follow the general

/Classification of accounts in its prescribed accounting

reports, to facilitate comparison and justify increases

or decreases (overhead vs. operational; stateside vs.

overseas; salaries, travel, etc., as applicable).

(b): Scheduling of approvals of operating budgets will conform

with the schedules established by the appropriate Deputy

Director for annual project renewals.

(c)

The Office.of the Comptroller is to be provided a copy of

the approved operating budget for the project immediately

following formal approval by the appropriate Deputy

Director... This requirement also pertains to any subse-

quently approved revision of the project operating budget.

b.

FUNDING

(1)

/ROM

Instrumentalities generally should be provided with cash not

in excess of three months' normal operating cash requirements.

Further funding of any instrumentality should be deferred

whenever available funds exceed this limitation.. If substan-

tial amounts above this limitation are on hand, the instrunen-

tality should be required to return the excess to the Agency.

and 39.1975

CIA

Revised: 29 October 1974

3

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S-E-C-R-E-T

HHB 230-1

4b (2)

PLAN ENGRASS, AND PROJECTS

4911d0t

(2)

Funds in any instrumentality that are in excess of normal

operating requirements may be held for operational purposes

when justified by the appropriate Operating Official and when

approved by the Deputy Director concerned and the Deputy

Director for Administration in the folloving circumstances:

(a)

In order that the instrumentality may present periodic

financial statements reflecting substantial cash balances

and investments for the purpose of strengthening cover

and providing the appropriate stature in the commmity of

its operations

:1?.

(b) To permit the instrumentality to make investments for the

purpose of providing income in such amounts that will

lend the appearance for cover purposes of not having to

rely solely on periodic contributions throughout the year

173) (Agency funding)

-(C): To provide the instrumentality with funds for any un-

wrusually large anticipated disbursement(s) in order to

" preclude undue attention which might be created by in-

Ejection of a large amount of funds and their immediate

withdrawal

(3)

(4)

Funds, as needed, will be made available to an instrumentality

through various appropriate funding mechanisms in coordination

with the Cover and Commercial Staff and the Office of Finance.

All funds received by the instrumentality will be deposited in

its bank account(s) whose use and authorized signatories have

been approved by the Operating Official responsible for the

project.

Dual signatories are preferred on all bank accounts.

All bank accounts established by instrumentalities will be

reported to the Office of Finance when opened, or notice

thereof will be included as a part of the first financial

report submitted by the instrumentality covering the period in

which the bank account is established.

Data reported will

include the name and address of the bank; names and titles of

signatory authorities; the reason why an account is operable

only by a single signatory, it such is the case; and whether

the signatories will be covered by a fidelity bond. Bank

accounts normally will be in the name of the instrumentality

unless deemed operationally inadvisable by the responsible

Operating Official, reported and explained concurrently to the

Director of Finance for review. If the bank account is to be

"in some other name, appropriate protective control documents

'will be executed

Revised: 29 October 1974

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PLANS, PROORANS, AND PROJECIS

HHB 230-1

Oll on 1975

4c.

C.

(5)

Requests for advances of funds to instrumentalities must indi-

cate (a) the specific purpose of the advance; (b) the identity

of any intermediate instrumentalities used to introduce the

funds; and (c) the accounting treatment to be given the funds

in each receiving instrumentality, as well as any other infor-

mation that will assist in the clear identification of Agency

funding on overt records and statements.

(6)

The concurrence of the Director of Finance and the Comptroller

and the approval of the Deputy Director concerned are required

for a transfer of funds to be made between instrumentalities

öf different projects. Excepted from this requirement are

transfers involving payment for actual services rendered,

reimbursement of expenditures made in behalf of the trans-

mitting instrumentality, or accommodation funding.

REFUNDS

Trotti Si

¿ (1) : All refunds from instrumentalities to the Agency, whether

2 permanent or temporary, must be explained by a memorandum

tu worristating the purpose of the refund and the effect of the refund

on the overt records and statements of the instrumentality.

(2) In the event funds are to be returned to the Agency under

paragraph 4b(1) above, the Operating Official having juris-

diction over the project will devise the method of repayment

-*Commercial Staff.

d.

AGENCY CERTIFICATION AND APPROVAL

- The project case officer will review financial statements submitted

by the instrumentality (see paragraph 4n(3) below) and attach his

certification that "to the best of my knowledge and belief the

statements are true and correct and the reported expenditures are

within the scope of the project authorization.".

In addition, the

financial statements will be approved by an appropriate Agency

approving officer and forwarded to the Proprietary Systems Branch,

Office of Finance, at the earliest possible date and not later than

sixty days after the close of the accounting period; extensions of

time will be granted by the Director of Finance upon appropriate

and reasonable request. Approval procedures for the writeoff of

assets are outlined in HHB 30-1 chapter VIII for cash and receivables

TRO and HR 45-6 for inventory or property items. A copy of tha financial

statements will be forwarded to the Office of the Comptroller.

When the instrmentality is funded by more than one Agency component,

the case officer certification and approving officer appioval of

such components also will be obtained.

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S-E-C-R-E-T

HHB 230-1

4e

PLANS, PROGRAMS, AND PROJECTS

e. ACCOUNTING IN AGENCY RECORDS

The Office of Finance is authorized to accept the financial state-

ments referred to in paragraph & above, for appropriate recording

in the Agency's system of accounts.

£. PROTECTION OF U.S. GOVERNMENT INTEREST

"(1). In the case of a stock-issuing instrumentality, all purely

• nominal stockholders (as specifically differentiated from

Agency-controlled holding companies or non-Agency connected

beneficial shareholders) either will endorse in blank at time

jof issue the stock certificates. issued in their names or

execute an irrevocable stock power covering the stock issued.

(2)

In the case of a nonstock-issuing instrumentality, control

documents protecting the equity or other interests of the

Agency will be executed. Those documents may be overt or

classified, and will be prepared by the Office of the General

: Counsel.

The classified documents will be executed on behalf

Uncher t

of the Agency by the Special Contracting Officer, Office of

.:: Personnel.

•(3) : The executed stock certificates, irrevocable stock powers,

declarations of trust, memoranda of understanding or other

control documents evidencing Agency equity or interest in

instrumentalities will be forwarded promptly to the Propri-

etary Systems Branch, Office of Finance, for recording and

custody. • When such documents need to be retained by an in-

strumentality, the reasons that necessitate such retention

will be reported to the Proprietary Systems Branch, Office of

Finance, by the Operating Official responsible for the project.

in no prote.

This report will detail the documentation retained and the 10-

cation and type of safekeeping facility in which it is held,

and include a signed statement of the custodian acknowledging

responsibility. for the documents.

When possible, copies of

the documents will accompany this report.

g.

PERSONNEL POLICY

(1) Unless covered in the project outline, certain personnel data

must be included in the Administrative Plan. This should set

forth a table of organization, salary scales, benefits and

allowances to be provided, and a statement of key personnel

sclection procedures. Such data will be reviewed and approved

ER byithe Director of Personnal.

UCI OÁ 1975

I s095b DocId: 3212662 Paye 201

Revised: 29 October 1971

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S-E-C-R-E-1

PLANS, PROGRAMS, AND PROJECTS

HHB 230-1

4h

(

MT

50955

•(b)

RECENTA

FROM

(c)

VET 30 1975

CIA

DocId: 32123532 Page 205

(2) Neither salaried employees of instrumentalities nor persons

engaged by instrumentalities in other than an employee status

will receive pay in excess of the maximm rate of a GS-15

unless approved by the Director of Central Intelligence.

(3)

No commitment regarding benefits or insurance coverages will

be made to personnel of an instrumentality until such proposals

have been reviewed and approved by the Deputy Director con-

cerned and the Director. of Personnel.

(4) If cover employment is to be provided Agency personnel, such

action requires prior coordination with the Cover and Commercial

Staff on an individual basis.

(5)

The employment of an individual who will be responsible for

the maintenance of the instrumentality accounting records will

be subject to approval by the Director of Finance.

h.

INSURANCE COVERAGE

(1)

The insurance program required by proprietary instrumentalities

will be coordinated with the Cover and Commercial Staff for

implementation through MINUTUAL facilities or through an

alternate method agreed upon by the responsible directorate

and the Cover and Comercial Staff. Insurance coverages

provided through M-MUTUAL include, but are not limited to,

workmen's compensation, aviation, marine and other equipment

coverages, property damage, liability, fire and extended

coverages as well as those personnel coverages referred to

below.

(2) All staff and contract employees as well as detailed civilian :

and military personnel

assigned to a proprietary instrumentality.

are entitled to the statutory or contractual insurance bene-

fits applicable to them by reason of their Government employ-

ment status.

All personnel directly hired by a proprietary

instrumentality are entitled to the following:

(a) Life insurance and conmitments for death and disability

benefits in the performance of duty in accordance with

HR 20-49.

Retirement pension and annuity benefits if approved by

the Director of Personnel.

Medical and hospital insurance benefits if approved by

the Director of Personnel. MNUTUAL does not normally

either directly underwrite or reinsure these coverages,

but the Cover and Commercial Staff will provide advice

and assistance upon request.

7

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HHB 230-1

41

PLANS, PROGRAMS, AND PROJECTS

i.: CASUALTY PROVISION

See paragraph 5 below.

j. LEGAL, SERVICES

The Office of General Counsel at all times will be kept advised of

the current status of the legal requirements of the instrumentality

and will be responsible for accommodating its legal problems and

for approving the use and the fee of outside counsel. Any attorney

used by an instrumentality will be selected or approved by the

121: Office of General Counsel.

K. SECURITY POLICY

:

(1) Unless covered in the project outline, there should be a

statement in the Administrative Plan outlining the security

requirements. This should include the types of operational se-

curity approvals; physical and document security controls;

261?

contact and commnications procedures between the instrumentality

and the Agency; security indoctrination of personnel; procedures

for periodic review of operational security and related matters

=""

by CI Operations; emergency procedures, if applicable; and

requirements for storage of classified or sensitive material.

(2) An instrumentality will be managed in a manner consistent with

its overt purpose to avoid disclosure of its true nature and

the Agency's connection with it.

No non-Agency person will be

made witting of the true nature of an instrumentality without

prior approval by both the Operating Official concerned and

the Director of Security. Ail persons considered for em-

ployment. in an unwitting capacity also will be reported for

approval, with appropriate biographic information.

The respon-

sible directorate may establish additional requirements and

procedures as required.

1. Not used

m.: AUDIT

An audit program will be developed and implemented in accordance

with the requirements of HR 31-1. The prior approval of the Chief,

Audit Staff is required for the employment of either witting of un-

witting public accountants for audit pu:poses.

COM

UGA 3n 1975

8

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Revised: 29 October 1974

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WW 50955

PLANS, PROC_ 1S, LUND PROJECTS

H-B 230-1

4n

n.

FINANCIAL ACCOUNTING AND REPORTING

(1) The instrumentality will maintain an accounting and a fináncial

reporting system consistent with the dictates of cover and

security and approved by the Director of Finance:

(2) The accounting system will provide

(a)

full recording of the financial operation of each instrumen-

tality;

(b) control over and accountability for all funds, property,

and other assets for which each instrumentality is re-

sponsible;

(c)

information required for integration of instrumentality

accountings into the accounting records of the Agency;

Dras

• (d)

any other financial or cost information required for

effective management of the instrumentality by there-

sponsible Operating Official.

(3)

The instrumentality will submit the following financial state-

ments and related data on at least a quarterly basis:

(a)

Balance Sheet.

(b)

(c)

(d)

(e)

(g)

Statement of Income and Expense.

Summary Statement of Cash Receipts.

Surmary statements of each transaction in Certificates

of Deposit and interest-bearing accounts.

Schedule of salaries paid to Agency staff and contract

personnel.

1. Schedule of salaries and expenses, classified by general

categories, paid to directors and principal executives of

the instrumentality.

Schedule of cash in bank accounts with certification that

reconciliation with instrumentality accounts has been

made and revieved.

FROM

(h)

If an asset has been written off during the reporting

period, a schedule also will be included with the fi-

0CT 30 1975

CIA

nancial report describing the item(s) written off and the.

circumstances that support the writeoff action.

Writo-

off action is subject to the approval procedures in

HMB 30-1 chapter VIII and HR 45-6.

DocId: 3242 Revisee 287October 1971

9

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40

PLANS, PROGRAMS, AND PROJECTS

+l 30 1975

CIA

NH: 50955 DocId: 32h03532 Page 208

(i) Any other financial reports required by the Office of

Finance and concurred in by the Agency component re-

sponsible for the project.

(4)

The statements will be certified as true and correct by the

principal agent of the instrumentality. The statements will

clearly reflect Agency funding for the period covered, or such

funds will be identified in a covering memorandum signed by

the appropriate once or ringe neuring specific identi-

fication of the manner in which the funding is recorded on the

books of the instrumentality.

In addition, the covering memo-

randum will identify all fictitious accounts and amounts in-

the balancesset, liability, capital, income, or expense accounts.

which are distorted to cover present or antici-

pated Agency funding or interproject transfers of funds or

equipment. If overt records must be deceptive for cover

purposes, supplemental reporting should give complete and

accurate infornation for internal. Agency records.

0..

BORROWING, LENDING, AND PLEDGING OF ASSETS

i3.8

The prior concurrence of the Director of Finance and approval of

the Deputy Director having jurisdiction over the instrumentality

are required for borrowing or lending funds or pledging any asset

by an instrumentality: Bank overdraft privileges will be con-

sidered as borrowings and require the same concurrence and ap-

proval as stated above.

Notional borrowing or lending in order to

pass Agency funds between instrumentalities for approved funding

purposes does not require the above concurrence and approval.

p. INVESTMENT POLICY

(1) When an Operating Official wishes to invest funds that have

been approved for retention in accordance with paragraph 4b(2)

above or funds that are a portion of the three months normal

operating cash requirements, he will forward to the Director

of Finance for his approval a memorandum recommending the

investment of funds:

The memorandum recommending the in-

vestment of funds will provide the following data:

(a)

Reason for the investment.

ROM

Types of investment recommended, restricted to the following:

(1) U.S. Government securities.

(2)

Interest-hearing accounts or Certificates of Neposit

in menber banks of the Federal Reserve Syston only.

Revised: 29 October 197:

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PLANS, PROS, MVD PROJECTS

HHB 230-1

4q

OCT 9n 1975

CIA

Non-U.S. Government securities; list specific issues

reconmended for purchase.

(c) Maximum amount recommended for investment in each type.

(d) Length of time investment of funds is anticipated.

(e) In the event of investments in securities, state the name

in which they will be registered and the type and location

of safekeeping facilities

to be used for the securities.

(2) After initial approval of the Director of Finance, the instru-

mentality may, at its discretion, make continuing investments

in U.S. Government securities or in interest-bearing accounts

or Certificates of Deposit of approved bank(s) having maturities

of one year or less.

Each purchase of Certificates of Deposit

having maturities of greater than one year and each investment

in non-U.S. Government securities must have prior approval of

the Director of. Finance and the Comptroller.

q.

REAL PROPERTY AND OFFICE FURNISHINGS

(1) • The lease of real property requires approval of the designated

Agency approving officer for the project concerned. Purchase,

construction, improvements, or alterations of real property.

(except improvements or alterations included in approved

operating budgets) require approval of the designated approving

officer for the project concerned and, in appropriate cases,

the technical authorization of the Director of Logistics.

(The component responsible for the project will maintain a

record of real property held by the instrumentality, including

the following information as applicable:

country or state of

location; type, i.e., purchased or leased; size, i.e., square

permanent improvements or alterations totaling 31,000 or more;

annual rental and term of lease, unless the property is acquired

for. less than 12 months and the rent does not exceed $250 per

month. This information will be made available to the Director

of Logistics upon request.)

(2)

The procurement of office furnishings not included in approved

operating budgets requires the prior written approval of the

Operating Official responsible for the project.

PROM IMITATION ON INDIVIDUAL DISSURSEVENTS AND CONTRICTUAL ARRANGEMENTS

Except for funding transactions, any disbursement in excess of

$5,000 or contractual arrangement of more than 12 months' duration

requires the prior approval of the designated Agency approving

officer for the project concerned.

NH

5p955

Revised: 29 October 1974

DocId: 32423532 Page 209

11

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HHB: 230-1

45

S.

PLAN,

# NOGRAMS, AND PROJECTS

SPECIAL ADMINISTRATIVE EXPENSE POLICY

(1) Travel and subsistence expenses incurred in behalf of the

instrumentality by authorized representatives will be paid on

the basis of actual and necessary expenses.

When actual and

necessary expenses excced the maximum allowable rate established

for reimbursement for actual expenses under HR 22-7, the

claimant will provide detailed justification. Authorized

representatives may include stockholders, officers, directors,

employees, any individual retained in a professional or inde-

pendent contractor capacity on a fee basis, and staff agent or

contract personnel wholly integrated into the project. Air

transportation less costly than first-class will be used to

the extent practicable.

When first-class faxes are paid, such

payment will be justified in writing in the files of the

instrumentality.

•(2)

Operational entertainnent expenses incurred by any of the

above personnel will be reimbursed on an actual cost basis in

accordance with HHB 30-1 chapter IX, to the extent that such

expenses are reasonable and necessary to the accomplishment of

operational objectives.

Cook 900111

(3)

Directors of instrumentalities may be paid up to $50 per day,

and travel and subsistence expenses for their attendance at

directors' meetings, except that the payment of $50 per day

will not be allowed to directors having an employment.re-

lationship with the Agency or with the instrumentality.

(4)

Expenditures authorized in paragraphs s(1), (2), and (3) above

will be reviewed at periodic intervals by the responsible case

officer to evaluate the necessity for such expenditures and

their reasonableness.

t. TERMINATION AND LIQUIDATION

(1). The Administrative Plan will provide that when a proprietary

project or part thereof ceases to have operational value or

will cease to have such value in the inmediate future, the

responsible Operating Official will prepare and submit to the

Deputy Director concerned for his approval a proposal to

NOnterminate the project of a part thereof.

The proposal will set forth any conditions or considerations

vUl 20 1975

that have a bearing on the decision to discontinue the project

or a part thereof and include the date that it is recommended

operations cease.

(3)

The. liquidation plan will be prepared in accordance with the

provisions of paragraph 6 below.

IN 50955. DocId:32423532 Page 210

Revised: 29 October 1974

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S-E-C-R-E-T

• PLANS, PROC _IS, MUND PROJECTS

HMB 230-1

5

(4)

If the proposal includes deactivation of any project instru-

mentality, together with a disposition of a portion of its

assets, the memorandun will set forth, in an attachment, in-

formation concerning planned disposition, after settlement of

obligations, of cash and noncash assets of the instrumentality.

The plan for partial disposition of assets rcquires the same

approvals as a liquidation plan.

5. CONTINGENCY CASUALTY PLAN

A contingency casualty plan should be prepared for instrumentalities if

required by HR 20-49.

6. LIQUIDATION PLAN:

When the Deputy Director concerned has approved liquidation and dis-

solution of a project instrumentality, a liquidation plan will be developed

by the responsible Operating Official to cover liquidation of the assets

and liabilities of the instrumentality as required by HR 230-8 and in

accordance with the format and substance set forth below. It will be

forvarded for approval as provided in HR 230-8d.

Identification of irstrumentality(s) to be liquidated

b.. Approval for termination (cite approved proposal as required in

paragraph 4t(1) above)

C.

A concurrence sheet showing concurrences in the applicable pro-

visions of the liquidation plan by the designated representatives

of the General Counsel; the Director of Finance; the Chief, Cover

and Commercial Staff; the Director of Logistics, When real and

personal property holdings are involved; other Agency components

when their functional responsibilities are involved; and the Comp-

troller when assets of an estimated market value in excess of

$50,000 are involved

d. Financial Statements

Furnish a current statenent of assets and liabilities, and a pro-

jected statement of assets and liabilities at date of termination

to include terminating expenses.

RECEN

OCT. 90 1975

CIA

hern Method of Liquidation

(1)

Party responsible for actual liquidation. Explain ho liquida-

tion of the instrumentality will be handled, such as by princi-

pal agent, cleared and witting attorney, etc.

(

Revised: 29 October 1974

13

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HHB 230-1

PLANS, PROGRAMS, ANU PROTECTS

N₩ 50965

(2) How will the instrumentality be disposed of?

(a) Will it be disposed of intact? If so, by bid, negotiation,

gift, etc.; OT

(b) Will the instrumentality shell be transferred to another

Agency project; or

(c) Will the charter be terminated; or

Will the instrumentality continue to operate without

Agency participation; or

(e)

Will the instrumentality be deactivated but retained in a

dormant state for future possible use?

Requirement, if any, for additional funds to cover liquidation and

estimated date of financial liquidation

2636

• Disposition of Assets and Liquidation

(1) If the instrumentality is not to be sold intact, how will

...!.

noncash assets be disposed of? By bid, negotiation, transfer

to another Agency project, gift, etc.?

(2) Include a positive recommendation to be developed in consulta-

tion with the Director of Finance for the disposition of all

cash assets including funds recovered or realized through the

liquidation process.

h. Final Audit

The plan should provide for a final audit before the instrumentality

is liquidated or sold.

i. Authorization for adjustment of Agency financial records for profit

OT loss

j. A positive statement that the Office of Finance is authorized to

make necessary adjustments to the instrumentality's investment

account based on the final liquidation financial statement

7. FISCAL ANNEXES

a. GENERAL

Use of the fiscal annex is based on the principle that accounting

requirements should be determined by the nature of the relationship

between the instrumentality and the Agency, the degree of control

RECRA ROM

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OCt an 1915

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PLANS, PROGR

"VD PROJECTS

HHB 230-1

7b

exercised by the Agency and, finally, the availability of meaningful

accounting data within the instrumentality: In this light, fixed,

pro forma accounting requirements are not sought; rather, each case

will be approached individually through the fiscal annex with a

view to establishing accounting requirements that will assure that

use of Agency funds is controlled and adequately documented to a

degree consistent with the nature of the instrumentality. and its

relationship with the Agency: A fiscal annex is required for all

noncontrolled subsidies.

b. ACCOUNTING PRINCIPLES

The purpose of the fiscal annex is to document the particular fiscal

realities of an individual noncontrolled subsidy (HK 230-8C(2)(C)(2)).

The fiscal annex may authorize appropriate deviation from normal

Agency accounting requirements. It should establish funding arrange-

ments, specific accounting controls, financial reporting requirements,

and writeoff.provisions consistent. both with the fiscal realities

and with the Agency's responsibilities for proper use of funds.

Accounting control should be established through the use of Agency

advance accounts, intransit accounts, and memorandum accounts to

follow the flow of funds from the case officer to the ultimate

recipient.

:c.:: FINANCIAL STATEVENTS

Provision should be made in the fiscal annex for financial state-

ments to be used as the final element of accounting control through

use of Agency memorandum accounts

7T.1!.

(1) when financial statements are the normal practice of an instru-

mentality;

(2)

when they are available to the Agency within the operational

relationship; and

(3).

when. the Agency contribution is identifiable therein.

d. USE OF CERTIFICATION AS EVIDENÇE OF FULFILLMENT OF THE . PURPOSES

FOR WHICH FUNDS WERE ADVANCED

When meaningful financial statements are not available and the

nature of the operation is such that insistence upon financial

"services rendered" in the form of a certification signed by an

USt 30 1975

CLA

appropriate case officer and approved by the designated Agency

approving officer for the project concerned. Such certification

executed on requests for advance subsequent to the initial advance

(

should read substantially as follows:

15

Revised: 29 October 1974

NW 50955 DocId: 32423532 Page 213

'EZ IMPET

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S-E-C-R-E-T

• HHB 230-1

7e

•PLAÑO, PROGRANS, AND PROJECTS

NW 50955

I certify that to the best of my knowledge and belief funds

advanced to this project have been or are being used for the

purposes for which they were drawn and further advances are

warranted.

In these instances appropriate evidence of receipt of funds by the

instrumentality or its representatives normally will constitute

full accounting for use of the funds and no memorandum accounting

procedure need be used:

e..

USE OF CERTIFICATION FOR OPERATIONAL REVIEW

In addition to the use of certifications to support use of funds,

:.Operating Officials occasionally desire to use this procedure to

-02.d: ensure that appropriate periodic review of the financial aspects of

the instrumentality is accomplished by responsible officers.. In

such cases the fiscal annex may provide that certifications will be

the basis for recording and clearing the memorandum account even

though accounting requirements are satisfied prior to such re-

i cording and clearing:

St? W11"

111:

f. FINANCIAL DATA FOR OPERATIONAL PURPOSES

Occasionally operational interest in projects requires that certain

financial information be obtained from the instrumentality. This

" information ordinarily consists of data regarding the use of funds

that indicates that such use is, in general, consistent with the

purpose of the project.

Although these data are of accounting

signiticance, the tormat, arrangement, and objective of the reports

may be in a form that is not susceptible to technical treatment and

recording in the accounts of the Agency. In such cases the fiscal.

annex should indicate that the financial report is required for

operational but not accountability purposes.

g. REIMBURSEMENT FOR OPERATIONAL DEFICITS

If the amount of Agency support is determined by the operating

deficit of an instrumentality, payments must be supported by finan-

cial statements or other satisfactory evidence establishing the

amount of the deficit.

h. FORMAT OF FISCAL ANNEXES

Although the format is not rigid, the sections described below are

the minimum requirements of a fiscal annex. Other sections may be

added as necessary.

PROM

16

Revised:

29 October 1974

VEl an 1915•

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PLANS, PROCIS,

AND PROJECTS

THB

2.30-1

7h(1)

(1) Purpose and Instrumentality

Furnish a brief, sterile statement of the nature and purpose

of the project and instrumentality to be used. Include a

brief description of the Agency's relationship with the in-

strumentality, showing the degree of control that the Agency

can exercise over the facility in its use of and accounting

for funds.

(2) Funding

Describe the basis for advances to the instrumentality, and

the mechanisms to be used in introducing funds into the activi-

ty; state whether it will be funded by headquarters or specified

field stations. Any special or unusual requirements should be

set forth in this section.

(3) Accounting and Writeoff

Define the accounting requirements applicable to the instru

mentality and prescribe the documentation required to permit

certification and writeoff by the authorized certifying officer.

The use of memorandum accounts should also be described in

this section.

DISTRIBUTION: SPECIAL

(

REC

CEN

•D FROM

Ul en 1975

• 1

Revised: 29 October 1974

NN 50955 DocId: 32423532 Page 215

17.

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OGC

7-0331

3 February 1975

MEMORANDUM FOR: Director of Central Intelligence

SUBJECT:

Proprietary Withdrawals and the Contingency Reserve

•1. I am attaching a memorandum of law entitled "Proprietary

Withdrawals and the Contingency Reserve." This was discussed with you

last week.

2. It is obvious that a number of policy decisions and actions will

flow from this decision. Our congressional committees need to be appro

priately informed, the Comptroller will need to work out certain adjustments

with OMB, and I also believe there are certain policy decisions that the

Comptroller will have to work out with Finance with respect to pending

transactions which would have placed returns from proprietaries in the

Reserve. I shall send copies of this memorandum of law to all interested

components and will assist them in any way they wish.

Jala lanie

Attachment

CC:

DDA

DDO

OLC

Comptroller

D/Finance,

RE

VED FROM

OCC:JSW: sin

OriginU bladdres see

ER via E: Sacty w/ali

CIA OGG Subj: APPROPRIATIONS Wiati

1 - Chrono

E-2 IMPDET®

CL BY 0U0276.

WW 50955 DocId: 32423532 Page 216

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croici

0C0 15-0330

3 February 1975

MEMORANDUM OF LAW

SUBJECT:

REFERENCES:

Proprietary Withdrawals and the Contingency Reserve

A. Memo to DCI fr C/CCS, dtd 8 Jan 74, subj:

Project MHMUTUAL Policy

B. Memo for the Record fr Comptroller, dtd 19 Aug 74,

same subject

1. Reference A recommended that there be returned to the Agency

Reserve starting with calendar year 1973 that portion of MHMUTUAL annual

profits not required for Project needs. The Director approved the basic

paper on 8 February, but noted "surplus funds from MHMUTUAL earnings

will be returned to the Treasury rather than the Agency Reserve."

Reference B recorded a telephone decision by the Director that "[when

funds are withdrawn from proprietaries, they will be transferred to the

Contingency Reserve...."

2. The purpose of this paper is to examine the legal aspects of these

policy decisions. The concept of the Reserve was established in 1952 as a

means by which the Agency would have flexibility to fund projects or

activities which had not been contemplated in the normal appropriation

request. Its pürpose was to create a mechanism to provide furds for

unforeseeable requirements which would be more rapid and secure than

the supplemental appropriation procedure employed by other Government

agencies. The Reserve has been funded by direct appropriation and by

transfer of unobligated appropriations at appropriate times after the close

of the fiscal year. Funds were and are released from the Reserve only with

the approval of OMB with subsequent notice of each Reserve withdraival

furnished in writing to the two appropriations committees.

RECEIED FROM

JUN 80 14/3

GIA

E-2 HIPDET

CL BY 000276

BENNET

NW 50955 • DocId: 32423532 Page 217

11

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3. In lieu of a specific annual appropriation act for the Agency,

OMB by letter notifies the chairmen of the two appropriations committees

that the Agency budget of a specific number of dollars is contained in the

DOD appropriation request. The letter also specifies the accounts in which

these funds are located. In the past where there were appropriations to the

Reserve, that letter would specify the amount of the operating budget and

the amount to be applied to the Reserve. After committee action, appropriate

letters, sometimes separately and sometimes jointly signed by the chairmen

of the two committees, are sent to OMB specifying what has been approved

for the Agency budget and confirming the accounts in which they are located.

Thereafter, the necessary transfers to the Agency are accomplished pursuant

to the authority of Section 5 of the CIA Act of 1949, which was specifically

worded so as to permit appropriations for the Agency to be placed in the

accounts of other agencies and then transferred to the Agency free of all

limitations and restrictions on the appropriation from which transferred.

The effect of this was to permit those funds to be expended under the authori-

ties of the CIA Act of 1949, rather than the authorities of the appropriation

acts from which transferred. A transfer under other authority such as the

Economy Act would require that the funds be spent in accordance with

limitations of the appropriation from which transferred, both as to purpose

and annuality. Unlike any other agency, our "appropriation act" is the

process described above and consists of the following principal elements:

a. the OMB letter;

b. the chairmen letters;

c. the DOD appropriations act approved by the whole

Congress and signed by the President; and

d. the transfers to the Agency approved by OMB and

authorized by Section 5 of the CIA Act of 1949.

4. The question then arises whether a return of money from a

previously established proprietary can be placed in the Reserve and

later expended by the Agency under the law. There are several provisions

of law based on Article 1, Section 9 of the Constitution, which states that "no

money may be drawn from the Treasury, but in consequence of appropriations

made by law," Twenty years after the Constitution was ratified, the act

from which present law derives was enacted. That law is section 628 of

Title 31 of the U. S. Code which states:

Except as otherwise provided by law. sums appropriated

for the various branches of expenditure in the public service shall

RECEIVE

- be applied solely to the objects for which they are respectively made.

and for no others.

JIN 30 1915

CIA

2

REGRET

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SECRET

5. Illustrative of the uniformly strict interpretation given to 31 U.S.C.

628 is a decision rendered by the Comptroller General to the Secretary of

the Treasury and reported at 37 Comp. Gen. 732 (1958). In this case

Congress had authorized an appropriation for payment of inequitable losses

in pay sustained by military officers under emergency economy legislation,

but did not thereafter include funds for this purpose when it enacted appro-

priations for the Treasury. The Commandant of the Coast Guard had advised

a subcommittee of the House Committee on Appropriations during appropriation

hearings that, unless the Committee had an objection, it was intended to pay

such claims for losses in pay from the Coast Guard appropriation for "Operating

Expenses." Thereafter, the General Accounting Office Claims Division deter-

mined that over $30,000 in such claims were allowable, but the Comptroller

General was forced to conclude that no claims could be certified for payment

because there was no available appropriation earmarked for their payment.

Citing 31 U.S.C. 628 and stating the rule that "the appropriations provided

by Congress to the Federal agencies may be used only for the objects for

which they are made and no others," the Comptroller General decided that

the statement made by the Commandant before the House subcommittee did not

have the effect of making funds appropriated as "Operating Expenses" available

for payment of the special claims. The Comptroller General held that the

appropriate recourse was to submit a request for appropriation to the Congress.

6. In 1849 the Congress sought to buttress the appropriation principle

set forth in the Constitution by passing a law from which is derived 31 U.S.C.

484, which provides in part:

The gross amount of all moneys received from whatever

source for. the use of the United States,…. shall be paid by the

officer or agent receiving the same into the Treasury, at as

early a day as practicable, without any abatement or deduction

on account of salary, fees, costs, charges, expenses, or claim

of any description whatever.

Also, Section 487 of 31 U.S.C. (originally passed in 1877) provides specifically

that all proceeds of sales of public property of any kind, (with certain excep-

tions not relevant here) shall be deposited and covered into the Treasury as

Miscellaneous Receipts and shall not be withdrawn or applied, except in

consequence of a subsequent appropriation.

7. Where the Agency makes funds available to establish a proprietary

or to add additional investments, the funds arc recorded on Agency books

as having been expended and the Director certifies to the expenditure

RE

AVED FROM

JUN 30 197S

CIA

3

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SECRCI

under section 8(b) of the CIA Act of 1949. I am informed that when an

expenditure of this type is recorded on Agency books, nevertheless, a

memorandum account is maintained so that the Agency has a record of the

precise amount of Government funds invested in the proprietary. I am also

informed that, if a proprietary were to be fully liquidated with the proceeds

scheduled to go to the Reserve, but the funds returned are in excess of the

investment, the excess would not be placed in the Reserve, but would be

credited to Miscellaneous Receipts. Where funds are returned to the Agency

from a proprietary, the current procedure is for the Agency to "reverse"

the original expenditure entry and, for those funds which are to go into the

Reserve, the Reserve account on the Agency books is credited, with notifi-

cation to OMB .

8. Let us take a hypothetical situation where 20 years ago the Agency

expended $l million to establish a proprietary. At that time the $l million

would have been recorded as expended, certified under the Director's

authority for purposes contemplated by the appropriation of 20 years ago.

In the meantime, that $l million would have been spent by the proprietary

for salaries, purchase of equipment, or for other purposes. The Agency

either supplemented its original expenditure with additional monies or the

proprietary might have made a profit during these years. This proprietary,

at Agency direction, now liquidates its activities, including the selling of

assets. Under the Constitution and the laws cited above, it is my opinion

that the law requires all such return of funds to the Agency to be covered

into the Treasury as Miscellaneous Receipts.

9. The Agency may not legally expend these funds once again without

the approval of the Congress, and by that I mean the full appropriations

process and not merely the approval of OMB and notification to our two

appropriations committees. The essential element missing in this latter

procedure is that there has not been an appropriation bill approved by the

Congress as a whole and signed by the President. In effect, the Agency

would have had its appropriation supplemented without the full appropriation

process.

General Counsel

REGENED FROM

JUN SO 1975

CIA

4

982797

NH 50955 DocId: 32123532 Page 220

---

## Page 221

11713131

8238/818

50g

---

## Page 222

59605

DTO00

R1819

Date

Purchase

GEGEZ

3/31/71

4/ 5/71

4/5/71

Chea

4/23/71

4/23/71

ZZZ

6/ 9/71

6/10/71

6/10/71

.10/21/71

11/ 1/71

12/ 7/71

11/ 1/71

6/19/70

7/11/69.

Stocks

Electrical Equipment

Combustion Engineering

Combustion Engineering

Combustion Engineering

Combustion Engineering

Combustion Engineering

Total and Average Price

McGraw Edison

McGraw Edison

McGraw Edison

Total and Average Price

Insurance

Crum. and Forster

Hanover Insurance

Hanover Insurance

Total and Average Price

Ohio Casualty

Office & Business Equipment

IBM

Texaco

No. of

Shares

•1000

500

500

100

2900

5000

3500

1000

500

5000

5000

1000

1000

2000

1000

400

4000

Common Stock

Purchased at

Per Share

Amount

61-3/4

61-3/4

61-5/8

69-3/4

69-7/8

66-3/4

43

43-1/4

42-3/4

43

29-7/8

36-7/8

38-5/8

37-3/4

43-3/4

275

37-1/3

62,201.18 °

31,115.90

31,038.30

7,020.98

203,810.21

335,186.57

151,597.50

43,496.30

21,576.90

32.30

216,670.70

149,375.00

36,800.00

38,650.00

75, 450. 00

43,750.00

110,281.00

149,365.60

Per Share

62-1/8

62-1/8

62-1/8

62-1/8

62-1/8

62-178

34-1/4

34-1/4

34-1/4

34-1/4

31-1/2

41-1/4

41-1/4

41-174

48

336-1/2

34-3/8

31

December

Amount

62,125

31,062

31,063

6,212

180,163

310,625

119,875

34,250

17,125

171,250

157,500

41,250

41,250

82,500

48,000

134,600

137,500

ECEIVED FROM

NOV 1 0 1975

CIA

1971

P/E Ra:

18

14

11

36

10

---

## Page 223

NH

50955

Dog

sate of

›ur chase

Common

Stock

Stocks

No. of

Shares

Purchased at

Per Share

Amount

Per Share

31 December 1971

Amount

P/E Ratir

0/11/64

5/18/66

Utilities

VEPCO

VEPCO

Total and Average Price

533

800

1333

32-3/8

32-15/16

32-11/16

17,241.07

26,331.94

43,573.01

20-1/2

20-1/2

20-1/2

10,926

16.400

27,326

11

$ 1,123,651.88

$ 1,069,301

Not shown above are stock options to buy 7,500 shares of Arabian Shield Development Company stock @ $.25 per share...

The option is

good until April 3, 1975.

December 31, 1971, prices on Arabian Shield are 1-5/8 - 2-1/8.

MOM.

---

## Page 224

50955

late of

›archase

3/23/72

6/20/72

8/21/72

1/28/72

3/ 6/72

3/ 8/72

6/9/72

1/72

11/ 2/72

8/21/72

11/10/72

Stocks

Automotive Supplies

Irvin Industries

Javelin Corporation

Broadcasting

• Metromedia Incorporated

Conglomerates

W.R. Grace

W.R: Grace

W.R. Grace

Total and Average Price

Electrical Equipment

McGraw Edison

Food and Beverage

Quaker Oats

Quaker Oats

Total and Average Price

Food Services

Servomation Corporation

Servomation Corporation

Total and Average Price

5000

6000

5500

5000

2000

1000

8000

5000

3000

1000

4000

7500

150

7650

COMMON

OCK

Purchased at

Per Share

13-5/8

22-5/16

38-1/4

29-15/16°

29-1/16

28-1/16

29-172

43-1/4

Amount

67,929.63

133,875.00

210,218.00

149,683:16

58,121.08

235, 093.80

216,670.70

40-1/2

40-7/8

40-5/8

28-5/8

Sck Div

28-1/8

121,389.50

40.864.00

I62,253.50

214,765.80

214, 765:80

Per Share

9-1/8.

10-1/2

32-1/2•

26-1/2

26-1/2

26-1/2

26-172

40-3/8

25-5/8

• 29

December

Amount

45,625

63,000

178,750

132,500

53,000

26,500

212,000

201,875

135,000

45,000

180,000

1922187

3,844

RECEIVED FRE

NOW 10 1375

1972

P/E Ratio:

15

13

19

13

16

---

## Page 225

50

ate of

chase

2

27124/72

age

9/14/72

07/19/72

.1y20/72

5/18/72

.0123/72

.0727/72

1/ 8/72

2/24/72

3/15/72

COMMON STOCK

Stocks

Housing

Shapell Industries

Insurance

Hanover

Insurance

Hanover

Insurance

Hanover Insurance

Total

and Average PriCe

Leasco

Monarch Capital Corporation

Office and Business Equipment

IBM

IBM

Total and Average Price.

Retail Clothing

Associated Drygoods

Associated Drygoods

Total and Average

Price

No. of

Shares

5000

1000

2000

200

3200

5000

5000

Purchased at

Per Share

Amount

25-1/2

52

51-3/4

52

51-778

20-1/2

•17

127,859.50

52,000.00

103,575.00

10,400.00

165, 975.00

102,731.20

84.925.00

300

500

800

1600

2000

3600

380-1716

378-5/8

378-578

54-7/8

58-1/8

58 - 578

114,020:00

188,925.00

302,945.00

87,826.00

116, 266.60

204,092.60

Per Share

20-5/8

54-1/4

54-1/4

54-1/4

54-174

19-1/8

18-1/4

402

402

402

52-1/2

52-1/2

52-172

29 December

1972

Amount

103,125

P/E Ratic

12

54,250

108,500

10,850

I73,600

95,625

91,250

120,600

201,000

321,600

10

37

84,000

105,000

I89,000

RECEIVEN roar.

115.

---

## Page 226

50955

nate of

ler chase

2

$ 3/72

12/22/72

aug

1/64

5,18/64

2

26

Stocks

Utilities

American Tel & Tel.

American Tel & Tel

Total and Average

Price

VEPCO

VEPCO

Total and Average Price

COMMON

JCK

No. of

Shares

10000

5000

15000

533

800

I333

Purchased

at

Per

Share

Amount

43-9/16

52

46-3/8

32-3/8

32-15/16

32-11/16

435,545.00

260,147.00

695,692.00

17,241.07

26,331.94

43,573.01

2.969,403.98

Per Share

52-3/4

52-3/4

52-3/4

22-3/8

22-3/8

22-3/8

29 December

Amount

1972

527,500

263,750

791,250

11,926

17,900

29,826

2,872,557

Not shown above are stock options:

to buy 7,500 shares. of Arabian Shield Development Company stock @ $.25 per share.

The option is good until July 29,

1975.

December 29;

1972, prices on Arabian Shield are 2-1/4

to 2-5/8.

P/E Ratio

12

11

RECEIVED FROM

NOV 1 0 1975

CIA

---

## Page 227

40

ZFZE:PI000

Date of

purchase

14/72

8/72

6/72

11/72

$ 8/72

Stocks

Automotive Supplies

Irvin Industries

Javelin Corporation

Broadcasting

Metromedia Incorporated

Electrical Equipment

McGraw Edison

Food and Beverage

Quaker Oats

Food Services

Servomation Corporation

No. 'of

Shares

5000

6000

5500

5000

4000

.7650

COMMON STOCK

Purchased at

Per Share

Amount

13-5/8

22-5/16

38-7/4

67,929.63

133,875.00

210,218.00

43-1/4-

40-5/8

28-1/8

216.670.70

162,253.50

214,765.80

Per Share

7-3/4

19-5/8

28-7/8

31 Dec 1973

Amount

15,000

12,000

42,625

98,125

115,500

11-1/2

RECEIVED FROM

HON 1 0 1975

87,975

CIA

P/E Ratio

---

## Page 228

*50955

DocTd

Date of

Purchase

3.

2/72

P.

'agé

2/73

4/73

1/73

9/72

10/72

11/72

5/72

2/73

*0/72

1/73

Stocks

Housing

Shapell Industries

Insurance

American Reinsurance

American Reinsurance

Total

and Average Price

Gulf Life Holdings

Hanover Insurance

Hanover

Insurance

Hanover Insurance

Total and Average Price

Reliance Group

Reliance Group

Total and Average Price

Monarch Capital Corporation

U.S. Fidelity and Guaranty

No. of

Shares

5000

..8000

2000•

10000

24,000

2000

4000

400

6400

5000

2000

7000

5000

1100

COMMON STOCK

Purchased

Per Share

25-1/2

42-7/8

38-1/2

42

17-3/4

26

25-7/8

26

25-778

20-1/2

12-5/8

I8-174

17

40-1/4

at

Amount

127,859.50

342,850.00

• 77,000.00

119, 850.00

426,572.95

52,000.00

103,575.00

10,400.00

165,975.00

102,731.20

25,332.00

I28,063.20

84,925.00

44,280.94

Per Share

7-3/4

24-1/4

24-1/4

24-174

10

12

10-1/8

10-1/8

10-178

9-3/4

36-1/8

31 Dec 1973

Amount

38,750

194,000

48,500

242,500

240,000

24,000

48,000

4,800

76,800

50,625

20,250

70,875

$8,750

39,737

WO GA33

SL6T O1 MON

HID

P/E. Ratis

---

## Page 229

NH• 50955

DocId: 324

bate of

#Purchase

Page

2/72

3/72

COMMON STOCK

No. of

Shares

Purchased at

Per Share

Amount

P/E. Rat

5/64

6/64

Stocks

Retail Clothing

Associated Drygoods

Associated Drygoods

Total and Average Prico

Utilities

VEPCO

VEPCO

Total and Average Price

Per Share

31 Dec 1973

Amount

42,200

57,750

1600

2000

3000

800

533

1333

54-7/8

58-1/8

56-576

87,826.00

188,055,60

26-3/8

26-3%

32-15/16

32-3/8

32-11/16

26,331.94

17,241.07

• 43,573.01

2,650,904.83

14-1/2

14-1/2

14-1/2

11,600

7,728

19,328

1.242,915

Not shown above are stock options to buy 7,500 shares of Arabian Shield Development Company

The option is good until July 21, 1974. December 31, 1973 prices on Arabian shield are 1-3/4 - 2-1/4.

RECEIVED FROM

NOV In 1975

CIA

---

## Page 230

.50955

DocId

ate of

utchase

5

3

7172

86/72

6/72

11/72

8/72

Stocke

Automotive Supplies

Irvin Industries

Javelin Corporation

Electrical Eguipment

McGraw Edison

Food and Beverage

Quaker Oats

Food Services

Servomation Corporation

•No. of

Shares

5000

6000

5000

4000

7650

COMMON STOCK

Purchased at

Per Share

13-5/8

22-5/16

Amount

67,929.63

133,875.00

43-1/4

216,670.70

40-5/8

28-1/8

162,253.50

214,765.80

Per Share

1-1/2

11-3/8

13

5-1/2

31 December

Amount

7,500

6,000

56,875

1974

B/E Ratic

52,000

42,075

+*9

HID

SL6T VI MON

---

## Page 231

99605

lite of

Pürchase

N2172

2/73

4/73

1/73

9/72

10/72

11/72

5/72

$ /73

1/73

Stocks

Housing

Shapell Industries

Insurance

American Reinsurance

American Reinsurance

Total and Average Price

Gulf Life Moldings

hanover

Insurance

Hanover Insurance

Hanover

Insurance

Total and Average Price

Reliance Group

Reliance GrOUp

Total and Average Price

Monarch Capital Corporation

U.S. Fidelity and Guaranty

No. of

Shares

5000

8000

2000

I0000

24,000

2000

4000

400

6400

5000

2000

7000

5000

1100

COMMON STOCK

Purchased at

Per Share

Amount

25-1/2

42-7/8

38-1/2

42

17-3/4

26

25-7/8

26

25-178

20-1/2

12-5/8

18-176

17

40-1/4

127,859.50

342,850.00

77,000.00

419, 850.00

426,572.95

52,000.00

103,575.00

10,400.00

165,975.00

102,731.20

25,332.00

128,063.20

84,925.00

44,280.94

Per Share

5-1/2

13

13

13

6-3/8

5-3/4

5-3/4

5-3/4

5-3/4

5-

3/4

5-3/4

5-374

8-3/4

25-3/4

31 December 1974

Amount

27,500

104,000

26,000

130,000

153,000

11,500

23,000

2,300

36,800

28,750

11,500

40,250

43,750

FROM

RECEIVED

NOV In 1975

CIA

P/E Rati

Def

---

## Page 232

HM 50955

DocId

Date of

Perchase

2

2/72

19/72

5/64

6/64

COMMON STOCK

Stocks

Retail Clothing

Associated Drygoods

Associated Drygoods

Total and Average

Price

No.

of

Shares

1600

2000

3600

Purchased

at

Per Share

Amount

54-7/8

58-1/8

56-578

87,826.00

116,266.60

204, 092.60

Utilities

VEPCO

VEPCO

Total

and Average Price

•800

533

1333

32-15/16

32-318

32-1116

26,332.94

13,243:07

441

м.686

31

per share

December

Amount

1974

P/E Rati

17-7/8

17-7/8

17-778

28,600

35,750

64,350

8-1/4

8-1/4

8-174

6,600

4, 397

I0,997

$699

RECEIVED FROM

NOV 10 1975

CIA

---

## Page 233

:50955

DocId

wDate of

Purchase

2

35

32

ahed

EEZ

2/72

3172•

6/72

11/72

8/72

Stocks

Automotive Supplies

Irvin Industries

Javelin Corporation

Electrical Equipment

McGraw Edison

Food and Beverage

Quaker Oats.

Food Services

Servomation Corporation

COMMON STOCK

NO.

of

Shares

5000

6000

5000

4000

7650

Purchased

at

Per

Share

Amount

13-5/8

22-5/16

43-1/4

67.929.63

216,670.70

40-5/8

28-1/8

162,253.5

214,765.80

30

Per

Share

18-3/4

September 1975

Amount

P/E Rat

20,000

6,000

93,750

15

18

-5/8

72,000

,981

RECEIVED FROM

MOV 1 0 1975

HID

---

## Page 234

HH

50955

DocId

Date of

Purchase

3

i3

2

P

age

2/72

2/73

4/73

1/73

9/72

10/72

11/72

5/72

2/73

-0/72

stocks.

Housing

Shapell Industries

Insurance

American Reinsurance

American Reinsurance

Total and Average

Price

Gulf Life Holdings

Hanover

Insurance

Hanover

Insurance

Hanover

Insurance

Total

and Average

Price

Reliance GrOUP

Reliance Group

Total and Average Price

Monarch Capital Corporation

U.S. Fidelity and Guaranty

No. of

Shares

5000

8000

2000

10000

24,000

2000

4000

400

6400

5000

2000

7000

5000

1100

COMMON

STOCK

Purchased

Per Share

25-1/2

at

Amount

127,859.50

42-7/8

38-1/2

72

17-3/4

26

25-7/8

26

25-778

20-1/2

12-5/8

18-1/74

17

40-1/4

342,850.00

77,000.00

419,850.00

• 426,572.95

52,000.00

103,575:00

20,400.00

I65,975.00

102,731.20

25,332.00

128,063.20

84.925.00

Per Share

8-1/8

13-3/4

13-3/4

13-3/4

6-7/8

6-3/8

6-3/8

6-3/8

6-3/8

6-1/8

6-1/8

6-1/8

9-1/4

29-7/8

• 30

September

Amount

40,625

110,000

27,500

137,500

165,000

12,750

25,500

2,550

40, 800

30,625

12,250

42,875

46,250

32,863

1975

P/E Rat.

Def

Def

Def

12

HIS

SIST U I NOW

---

## Page 235

99609 + AN

Boate of

Hurchase

SE

GE!

abe

2/72

3/72

5/64

6/64

COMMON

STOCK

Purchased at

Per

Share

Amount

Stocks

Retail Clothing

Associated Drygoods

Associated Drygoods

Total and Average Price

Utilities

VEPCO

VEPCO

Total and Average Price

No. Of

Shares

1600

2000

3600

54-7/8

58-1/8

56-5/8

87,826.00

116,266.60

204,092.60

800

533

I333

32-15/16

32-3/8:

32-11/16

26,331.94

17.241.07

43,573.01

440, 686.83

30

September 1975

Amount

•P/E Ra

Per

27

27

27

Share

43,200

54,000

97,200

11

11-3/4

11-3/4

11-3/4

9,400

6,263

15,663

RECEIVED FROM

NOV in 1975.

CIA

---

## Page 236

NOTES ON THE SCHEDULES OF GAIN OR LOSS

ON THE SALE OF MAMUTUAL INVESTMENTS

Note #1

The MAMUTUAL portfolio, from which the attached schedules of gain or loss

= on the sale of investments were taken, is not an accounting document in the

sense that it is used to account for funds handled by the Activity. The purpose

of the portfolio is to provide management with a picture of the investments held

by the complex at any point in time.

The portfolio is not audited per se, and in

past years no attempt was made to insure that each presentation tied directly

back to the previous portfolio; that has been done in recent years.

Due to the

lack of audit, certain errors were not discovered, and they were carried forward

to the present. One example is on the 1970 presentation of the sales of stocks

to date.

The total sale price of $2,226,883.29 when subtracted from the total

purchase price of $2,246,793.93 results in a loss of $19,910.64 instead of the

loss of $27,802.99 as shown under the column marked gain or (loss) on sales.

The total gain on sales to date should therefore be $177,437.51.

For some un

known reason, the balance carried forward to the 1971 schedule of gain on the

sale of equity is stated as $206,314.47 which involves an overstatement in the

as 5206, 314.47 which

cumulative gain on the sale of equity in the amount of $28,876.96. This error

has been carried forward to the present.

Note #2

The portfolio figures cannot be directly tied in with the financial state-

ments for MHMUTUAL in the case uf bonds since the statements reflect an average

cost for all the bonds of a particular issuer, and the appreciation on a dis-

counted

bond is recorded as income each year with a commensurate increase in the

book value of the bond.

Note #3

The only bond transaction during 1970 was the sale of $50,000 of U.S.

Treasury bonds. This transaction is found on the schedule titled "Debenture

Investments.

RECEIVED FROM

NOV ! ^ 1975

CIA

SECRET

HW 50955 DocId: 32423532.

Page

236

---

## Page 237

At tet fam

sortiabio

s0ale of

Brurchasa

11/22/644

1/2216'1

E

7123/011

4/00.06)

Sier Pici

121

1/10/46

151/64

Stocks

Burlington Industries,

InG.

Notional Steel Corporellon

Scold Foper Corpony

Z

J. C. Penny Cerpony:

colatin Diadoosling System

Scrll.1088:e.7n 66832009

North Marleon Aulällon

corn Prideres company

Come ral balle M111010s

Penel file ind Cooperallen

8/1:

Freezore

Sulptur Corpony

3!

5/4.1

Chrical

11/:!440;

1/6/56)

Hark WaY. Trust Carpany

2111/61

General Printeraree Corparalion

3/13

1/6/1

3 1'

1.11.01:1

lif:

Garager Tire E Fuller Company

2123/60): 1133/03)

Guli dil Carporation

1/11:8.1

lilaich Secal Corporation

1/15/65)

Scarie. (6.0.) G6o-upny

Wins astersion

marline ders life Insurance

PORTFOLIO SALES OF STOCKS TO DATE

No. of

Sharss

300

300

1100

2.50

408

6n0

300

500

1400

1200

9U0

400

150

1200

600

2000

600

200

1000

1000

2000

2009

3000

Total

Purchie Price

1650

13.812.93

16.559,,22

37.556.77

16.218.21

16.690.58

20.016.60

16,332.75

26.691.00

11, 813.03

501, 712.36

38.613.52

48,633.48

15,504.26

13.018.00

31.936.18

14, 302.60

101,334.37

15.514.82.

13,801.800

13.134.46

169.801.20

104.000.62

100.024.90

150,125.211

139.412.79

Date of

52lc

6/ 8/65

11/ 4/66

11/ 1/66

11/4/6.6

11/ 1/66

11/19/66

1/16/67

::181/61

1/41/61

17/10/67

E/ 5/68

11/77/68

11/78/69

11/71/11

11/:7/6.8

1125/69

2/39:09

1170/(9

7/26/69

11/30/59

4/30/69

4/33/615)

18/17/69

11/-7/69

Net

sale Price

20.465.70

• 11.500.11

28.213.79

18.112.15

21,006.113

23.9019.15,

15.052.19

91.279.43

1.118

1:8.21%.21;

64,901.16

22,370.03

51.012.10,

25.166.1:

26.:82.46

111.410.01

211. 017.05

16, 300.17

19,226.60

194.095.63

82.959.74

202. 2141.06

011.306.21

193.333.59

Goin or

$ 6,6,3.77

(4,5:%.11)

(0,9.2.53)

(3.166.1 5)

5.9:3.00

2.210.10

11.059.01)

(4 11?.".?)

15.693.18

16.:17.19

1:1:3.

17.015.51

10,001.67

0.312.13

413.37

35.8.3.?1

19.815.61:3

(21.120.538

21333

3.71

The fureign bosed companlos are not subject do U.S. Taxes ou capllal grins.

Nel dividendo reported are met annum received after adrel ione of 30 per sing Federal Vichholding

- 7-

RECEIVED.

2975

NOV 10.

CIA

---

## Page 238

NW 50955

DocId: 32423532

Page /238

17:70

4/73

Hilli?

lil

1/73

119/71

i.!

i!10

1/10070

1'19!79

11/1475

1/11:170

1!16:10

1/1:79

i,110"!"

11, 3173

S10:6S

Sales Through 1969

Apricon done Produees

feeline Marural Cas

Industries

circrodi Milling Machira

Circo Cali

Dr. Por: 6:

Concrud

Pinanies

Gircial Freddy

Liverig talional life

liational Cash liegister

ACA

selly oil Products

Tie polis

U.s. Fidelley 6 Guorordy

Talel Solae 1970

Toral Sales to dose

LOSTERLI SALES 2S

_SINCE TO BATE

10. ul

2alk2

3000

4000

2670

2:00

6000

2000.

1000

1:00

500

• 6090

1,10

4000

1(00

1,00

3000

8000

Lincham trice

21.163.380.20

208,001.00

188.007.33

170.009.09

114.723.52

140.605.67

146.521.20

08.761.51

71.216.80

112.901.80°

110.240.55

138,600.00

216.030.00

160.426.85

60.150.00

36.142.56

104. 356.00

175.216/2

22,2:6,222.23

53.613.224.21

i Ferciga-based companies are not rajeel 1a U.5, laxes on capilal goin.

12/31/70

Portalio.

30!c

156.529.

154.

157.

84.233.

170.309

I:;:

11%.

133

102.

1145

31,0R6

87

81

. 00

104,071.

257

22

$2.226,213.29

33.221.211.23

r?:.

* *1

512,

1.1

22: 2061

S_32.522

S152 2A

G2206

10)

-

5487

O1 MON

---

## Page 239

of

171

30/71

16/71

171

71

10/71

/14/71

11/71

17/71

17/71

/10/71

29/71

22/71

117/71

1/71

22/71

/ 11/71

5/71

1/11/71

5/71

121/71

'71

3.771

125/71

118/71

116/71

1/15/71

120/71

127/71

Stocks

Sales Through 1970

Abbott Laboratories

American Tel. & Tel.

American Electric Power

Ampex

Bankers National Life

Bankers

National Life

Bankces National Life

Central & Southwest

Control Data

Coca Cola

Continental Telephone

Chubb Corporation

DI. Pepper

Eastman Kodak

Emerson Electric

Flcetwood Enterprises

Ford Motor

Gillctte

Hardce Foods

llouston Natural Gas

Johns Manville

Libcity National Life

MMM

National Cash Register

Pepsico

Pillabury

Reynolds Metals

Scott Paper

Shappell Industries

Southern Company

sterling Drug

: 12/31/21

EQUITY SALES TO DATE

No. of

Shares

4000

4000

5000

4000

1000

1500

1000

1000

1000

4000

8000

2000

2000

3000

2500.

1000

3000

3000

5000

60

6000

6000

2000

2000

4000

2000

1000

5000

4000

10000

4000

Total

Purchase Price

$ 3,584,897.25

257,534.86

200,373.50

185,594.44

146,568.14

29,750.00

14,625.00

29,750.00

18,229.01

143,370.36

317,479.10

206,557.89

121,500.00

33,357.50

198,656.73.

186,167.11

38,219.13

154,237.41

165,947.09

60,000.00

3,121.15

236,410.04

131.279.00

163,032.52

106,738.00

238,440.41

91,178.57

55,107.47

166,649.10

129,613.25

281,317.00

121,807.73

Net

Sale Price

$: 3,791,211.72

278,083.99

193,615.88

141,819.03

89,542.58

33, 500.00

50, 550.00

31,250.00

16,509.06

37,129.84

394,210.53

166,017.41

131,750.00

63,383.59

218,339.70

185,189.

51

16,260.26

181,127.95

133,250.78

69,224.35

2, 005.16

256,064.81

178. .200.00

230,733.11

78,830.51

255,933.19

107,153.84

21,025.77

117,592.02

137,822.01

197,966.00

172,658.95

Gain or

(Loss) on Sale

$ 206,314.47

20,549.13

(6,757.62)

(43,775.41)

(57,025.56)

3,750.00

5,025.00

1,500.00

(1,719.05)

(105,9.10.52)

76,734.13

(39,610.48)

10,250.00

30,026.09

19,682.97

(077.93)

8,011.13

26,890.54

(32,696.31)

9,224.35

(218.99)

19,615.80

16; 021.00

67.700.80

(27,907.10)

17,192.78

12,975.27

(31,381.70)

(19,057.08)

8,178.76

(83.351.00)

'50, 851.22

1975

RECEIVED

---

## Page 240

9

Date of

5120/71

0/18/71

1730/71

10/15/71

429/71

418/71

8/19/71

6724/71

ge 240

EQUITY SI.

¿S TO DATE

Stocks

U.S. Fidclity & Guaranty

U.S. Fidelity

& Guaranty

Univorsal Oil Products

Warner. Lambert

Western Casualty & Surety

WestcIn Casualty

& Surety

Western Casualty & Surety

XCrOX

Total Sales : 1071•

Total Sales

to Date

No. of

Shares

3500

3500

1000

2500

400

1400

2200

2000

Total

Purchase Price

127,361.80

154,000.00

113,111.75

102,020.50

25,000.00

93.100.00

139, 975.00

161,652.30

Net

Sale Price

160,076.61

172,035.59

102,221.53

105,513.66

31,100.00

112,150.00

174,200.00

221,912.48

Gain or

(Loss) on Sala

32,711.01

10,035.50

(11,223.22)

2,505.16

6, 100.00

10,750.00

31,025.00

60,290.18

118,943.90

325,258.37

HIS

SL6T 0.1 NOM

---

## Page 241

NW 50955

DocId:

ate of

1/72

8/72

÷/72

690-2/72

14y 21/72

8/18/72

2/11/72

1/ 6/72

1/ 9/72

1/10/72

1/18/72

8/ 7/72

4/3/72

8/17/72

I/ 2/72

3 / 7/72

1/7/72

8/9/72

8/10/72

9/14/72

Stocks

Sales Through

1971

American Reinsurance

Ashland 011

Combined Insurance Company

Combustion Engineering

Crum & Forster

Crum & Forster

Dean

Witter

Gulf Life Holdings

Gulf Life Holdings

Gulf Life Holdings

Hanover Insurance

IBM

International Tel & Tel

John Deere

Life Insurance of Georgia

Nationwide Corporation

Ohio Casualty

Old Line

Life

Insurance Company

Old Line Life Insurance Company

Texaco

Total Sales 1972

Total Sales to Date.

12 31/12

EQUITY SALES TO DATE

NO.

of

Shares

Total

Purchase. Price

8000

8000

5000

5000

2000

3000

300

2700

1200

2100

2000

400

7000

5000

2500

10000

1000

500

6000

4000

331,687.40

220,314.00

122,500.00

335,186.57

59,750.00

89,625.00

6,900.00

137,927.17

60,574.92

104,372.42

75,450.00

110,281.00

433,870.42

321,471.10.

83,125.00

110, 000.00

43,750.00

16,925.00

203,115.88

149,365.60

Net

Sale Price

386,350.00

235,986.93

131,375.00

364,278.67

60,712.50

99,000.00

8,196.36

151,531.74

66,958.65

119,390.69

98,750.00

159,316.80

394,861.05

358,647.16

93,000.00

130,875.00

49,000.00

21,875.00

262,500.00

133,935.30

Gain or

(Loss) on Sale

$ 325,258.37

54,662.60

15,672.93

8,875.00

29,092.10

962.50

9,375.00.

1,296.36

13,604.57

6,383.73

15,018.27

23,300.00

49,035.80

(39,009.37)

37,173.06

9,875.00

20,875.00

5,250.00

4,950.00

59,384.12

(15,430.30)

310,346.37

635,604.74

HIS

S167

0I MON

ОЗA303

---

## Page 242

5 GI

ZE:PIOOd

cgurity

ades through 1972

merican Tel and Tel

erican Tel and Tel

Mrican Tel and ICI

merican Tel and Tel

-S. Fidelity and Guaranty

ngersoll Rand

ontinental Corp

• R. Grace

•S. Fidelity and Guaranty

hio Casualty

hio Casualty

afeco Corp

•S. Fidelity & Guaranty

Total Sales

1973

Total Sales to Date

111174

No. of

Shares

10000

5000

800

1000

9000

2000

4000

5000

8000

1000

1000

4000

4000

2900

EQUITY SALES TO DATE

Date of

Purchase

Date of

Sale

4/72

12/72

11/72

2/73

2/73

1/73

1/73

2/73

1/72

1/73

2/73

2/73

2/73

1/73

1/73

1/73

2/73

5/73

6/73

7/73

10/73

10/73

10/73

11/73

11/73

11/73

11/73

11/73

Purchase

price.

43-9/16

52

378-5/8

51

51

40-1/4

67-3/8

40-5/8

29-1/2

40-1/4

44-3/8

44-3/8

50-7/8

40-1/4

Sales

Price

53-1/2

53-7/8

430-7/8

51-1/4

50-7/8

41-7/8

72-1/2

40

28

40-1/4

44-3/4

44-1/2

49-1/8

•39-3/8

Gain or

(L035) on Sale

$635,601.74

99,60.74

9,150.35

41,772:09

264.99

(1,123.68)

3,162.80

20,514.91

(3,519.37)

(11,136.53)

24.01

375.00

500.00

(7,000.00)

(2.147.28)

$150,447.03

$786,051.77

RECEIVED FROM

NOV 1 0 1975

CIA

---

## Page 243

NO.

of

Shares

EQUITY SALES TO DATE

Date of

Purchase

Date of

Sale

Purchase

Price

through 1973

gmedia

swan Shield Devel. Co.

-cals

5,610

7,500

8/72

4/74

7/74

10/74

37-1/2

1/4

1!175

Sales

Price

5-7/8

13/16

Gain or

(LoSS) on Sale

$786,051.77

(176,996.04)

1,200.00

$613,255.73

RECEIVED FROM

NOV 10 1S75

CIA

---

## Page 244

NW 50955

DocId: 3

es

through 1974

2

Page /244

9/1/75

EQUITY SALES TO

DATE

No. of

Shares

Date of

Purchase

Date of

Sale

Purchase

Price

Sales

Price

Gain or

(Loss) on Sale

$613,255.73

VIJ

SL6T 01 AON

---

## Page 245

CIA Domestic Real Property Holdings*

CIA has a variety of real property holdings in the United

States ranging from the major, overt Headquarters complex in McLean,

Virginia, to small leased "safehouse" apartments in many cities.

Real property holdings also include

seven CIA-controlled installations

used as training sites, supply depots, research and development

centers, and communications transmitting and receiving facilities.

The 237 domestic real property holdings are summarized for this

report as follows:

a .

Overt or nominal properties (overt properties are

identified as CIA; nominal properties as Executive

Office of the President, but CIA control is admitted

upon request) of which there are sixty-two (62);

b. Official cover properties (identified as under the

control of other U.S. Government agencies and CIA rela-

tionship is classified from CONFIDENTIAL through TOP

SECRET) of which there are fifty-three (53);

c. Safehouses (properties, generally apartments or resi-

dences and generally leased, acquired for covert meetings)

of which there are eighty-one (81); and

The information contained in this section has extreme sensitivity

as a grouped data package. It lists the entirety of CIA real property

holdings and personnel assets in the United States as of 13 January

1975; accordingly, release, unauthorized disclosure, or loss of this

information would have severe operational impact on the activities

of CIA.

N7 50955 DocId: 32423532 Page 245

---

## Page 246

d: Non-official properties (identified as private firms

which may be wholly or partially controlled by CIA and

housing CIA employees) of which there are forty-one (41).

Attachment 1 lists CIA domestic real property and provides

specific addresses for all overt and nominal CIA real property

holdings. Official cover properties, safehouses, and non-official

properties are listed by general location. Numbers of personnel

and utilization purpose are shown for each category of real property.

This report is developed as a real property summary; therefore,

personnel data supplied are predominantly based on CIA space utili-

zation reports, and slight variation may exist in some instances.

A limited number of CIA personnel are located in non-CIA-controlled

space -- for example, in the Pentagon, in private residences, or in

commercial companies -- and these properties are not listed in this.

real

property summary. Non-official properties not occupied by CIA

staff or contract employees are not listed. Attachment 2 is a sum-

mary sheet of all the previous figures.

AH 50955

DocId: 32423532

Page

246

---

## Page 247

03 1

MELA SIROLIROINERUE

0608600

SECRET

DOMESTIC REAL PROPERTY LISTING

Attachment 1

Location

Street Address

Washington, D. C. & Suburbs

A. Overt & Nominal Properties

Langley, Va

Washington, D. C

Washington,

D.

C. .

Washington, D. C.

Oxon Hill, Md

Washington, D. C.

Washington,

D. C.

Washington,

D. C.

Rosslyn, Va

Rosslyn, Va

Rosslyn, Va

Franconia, Va

McLean, Va

Arlington, Va

Alexandria, Va

Washington, D. C.

Arlington, Va

B.

Official Cover Properties

Route 123 (CIA)

Central Bldg.

2430 E St. N.W. (CIA)

East Bldg. 2430 E St. N.W. (CIA)

South Bldg. 2430 E St. N.W. (CIA)

10530 Riverview Rd.

• (FBIS)

Navy Yard, Bldg. 213, lst & M, S.E. (EOP)

Navy Yard, Bldg. 159E, Ist & M, S.E. (EOP)

Navy Yard, Bldg.

202, lst & M, S.E. (EOP)

Ames Bldg., 1820 N.

Ft. Myer Dr. (EOP)

Key Bldg.,

1200 Wilson Blvd. (EOP)

• Magazine Bldg., 1815 N. Lynn St. (EOP)

(EOP)

Tyler Bldg., 1759 O1d Meadows Rd. (EOP)

Chamber Commerce Bldg, 4600 N. Fairfax (EOP)

AJAY Bldg., 1901 Penna Ave., N.W. (EOP)

1000 Glebe Road (EOP)

3 Locations

4 Locations

1 Location

1 Location

1 Location

1 Location

1 Location

1 Location

Personnel Purpose

7,469

88

28

307

4

1,265

45

0

510

668

340

213

274

364

4

9

9

18

84

22

5

48

8

15

62

SECRET

Has. admin. offices & printing bldg

Technical labs & offices

Technical labs & offices

Technical labs & offices

Counter-audio training & FBIS

antenna field

Photo development & analysis

Map storage

Storage

Hqs. admin. offices

Hqs. admin. offices

Hqs. admin. offices

Supply depot & R&D shops

Elint & tech. admin. offices

Hqs. trng. offices

Technical training

area

U.S. resident contact

FBIS photo & printing

Research & operational support

Translation & operational support

Foreign intell. collection

Supply depot & ELINT training

Counter audio lab & office

Document research analysis

Training lab & office

Field

investigation office

E2 CL By 029557

178N

247

---

## Page 248

SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

C.

Safehouses

37 Locations

D.

Non-Official Properties

1 Location

1 Location

1 Location

2 Locations

1 Location

1 Location

I Location

1

Location

Location

1 Location

1 Location

1 location

1 Location

1 Location

1 Location

Arizona

California

1 Non-Official Installation.

A. Overt & Nominal Properties

Los Angeles, Ca

San Francisco, Ca

San Diego, Ca

Hawthorne, Ca

312 North Spring Street (EOP)

Customs Hse, 555 Battery St. (EOP)

Gross Ctr. Bldg, 3045 Rosecrans St.

(EOP)

Fed. Bldg., 15000 Creation Road (EOP)

Personnel Purpose

N.A. Covert meetings

13 Manages agent accounts & cover

backstop

1 Operational support (dormant)

1

Foreign intelligence collection

13

Human source assessment

Debriefing site

Mgt. services for proprietaries

Research & operational support

2

16

1

3

3

9

Public opinion analysis

Research admin. office

Travel support

Translation

Airline, foreign operational supp.

Airline, covert admin. travel

Covert procurement, general

Covert commercial audit

11

Aviation equip. RED and procure.

13

14

2

1

U.S. resident contact

U.S. resident contact

U.S. resident contact

Personnel & recruiting office

SECRET

EZ CL By 029557

3b n

23

2CP)

P19 m

50955

DocId: 32123532

Page

248

---

## Page 249

IME LA

COLCDCA

SECRET

DOMESTIC REAL PROPERTY LISTING

Location

California

B. Official Cover Properties

2 Locations

2 Locations

1 Location

1 Location

1 Location

1 Location

1 Location

1 Location

C. Safehouses

12 'Locations

D. Non-Official Cover

1 Location

4 Locations

1 Location

3 Locations

Street Address

Personnel Purpose

38

14

14

8

1

22

Field investigation office

Foreign intelligence collection

Paper plant

Field procurement office

Field supply office

Gen. admin. support to sensitive

projects

Air logistics support

Audit of covert operations

N.A. Covert meetings

9

4

19

Covert Commercial investigation

Foreign intelligence collection

Management & admin. of sensitive

projects

13 Contractor liaison, sensitive

projects

Colorado®

A.

Overt & Nominal Properties

Denver, Co

Denver, Co

Connecticut

A. Overt & Nominal Properties

Hartford, Ct

Bankers Bldg., 2401 E 2nd St. (EOP)

Bldg. 56 DFC, 6th & Kipling Sts. (EOP)

Fed. Bldg., 450 Main St. (EOP)

SECRET

7

1

U.S. resident contact

Field recuriting office

3 U.S: resident contact

E2 CL By 029557

---

## Page 250

SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

Florida

A. Overt & Nominal Properties

Key West, Fl

U.S. Naval Base (FBIS)

Coral Gables, Fl R&N Bldg., 299 Alambra Cir. (EOP)

B.

Official Cover Properties

2 Locations

1 Location

1 Location

C. Safehouses.

2 Locations

D. Non-Offical Cover

1 Location

2 Locations

1 Location

Georgia

A.

Overt & Nominal Properties

Atlanta, Ga.

3 Dunwoody Park (EOP)

B. Official Cover Properties

1 Location

Hawaii

Personnel Purpose

5

6

Foreign broadcast station

U.S. resident contact

25

33

• 16

Foreign intelligence station

Foreign commo.

center

Field investigation office

N.A. Covert meetings

3

7

Administers survivers' benefits

RED and procurement, aviation

equipment

Cuban propaganda operations

3 U.S. resident contact

6

Foreign intelligence collection

A. Overt & Nominal Properties

Honolulu, Hi

790

Dellingham Bldg., 735

Bishop St. (EOP)

SECRET

2,033

3

U.S. resident contact

E2 CL By 029557

50955

DocId: 32423532

Page

250

---

## Page 251

1 MAL AKLA

R DMI C0 1

SECRET

DOMESTIC REAL PROPERTY LISTING

CEB EF (

Location

Hawaii

B.

Street Address

Official Cover Properties

I Location

1' Installation

Personnel Purpose

Field liaison CINCPAC

Commo relay station

Illinois

A. Overt & Nominal Properties

Chicago, Il1

Chicago, Ill

B.

Official Cover Properties

L Location

I Location

Derksen Bldg., 219 S Dearborn St. (EOP)

Derksen Bldg., 219. S Dearborn St. (EOP)

C.

Safehouses

2 Locations

Indiana

A. Overt & Nominal Properties

Indianapolis, In

Fed. Bldg•, 46 E. Ohio St. (EOP)

Louisiana

A. Overt & Nominal Properties

New Orleans, La

Masonic Bldg., 333 St. Charles St. (EOP)

1

10

Field recruiting office

U.S. resident contact

22. Field Investigation office

11 Foreign intelligence collection

N.A. Covert meetings

2 U.S. resident contact

Page

251

2 U.S. resident contact

SECRET

E2 CL By 029557

---

## Page 252

"SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

Massachusetts

A.

Overt & Nominal Properties

Cambridge, Ma

Boston, Ma

Beta Bldg., 545 Technology (EOP)

Fed. Bldg., Government Center (EOP)

B. Official Cover Properties

1 Location

1 Location

C.

Safehouses

2 Locations

Maryland

A. Overt & Nominal Properties

Highland Pk, Md

Baltimore, Md

14048 Woodward St.

(EOP)

103 S. Gay Street (EOP)

B. Official Cover Properties

1 Location

1 Location

1 Location

C.

Safehouses

1 Location

Personnel Purpose

12

1

U.S. resident contact

Field recruiting office

Field investigation office

Foreign intelligence collection

N.A.

Covert meetings

7

2

U.S, resident contact

U.S. resident contact

11

1

6

Maritime research & training

Security liaison

Training facility

N.A.. Covert meetings

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CARE Cou

07

SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

Minnesota

A.

Overt & Nominal Properties

Minneapolis, Mn

St. Paul, Mn

Fed. Bldg.,

Fed.

Bldg.,

Ft.

Snelling

(EOP)

316 Robert St. (EOP)

Missouri

A. Overt & Nominal Properties

St. Louis, Mo

Overland,

Mo

Kansas City, Mo

Fed. Bldg., 1520 Market St. (EOP)

MPRC Bldg:,

9700 Page Blvd. (EOP)

Fed. Bldg., 601 Eäst 12th St. (EOP)

Nevada

A. Overt & Nominal Properties

None

B. Official Cover Properties

1 Location

New York

A. Overt & Nominal Properties

New York, NY

575 Lexington Avenue (EOP)

New York, NY

Fed. Bldg., 26 Federal Plaza (EOP)

Niagara,

NY

United Office Bldg.,

220-222 First St. (EOP)

Schenectady, NY

650 Franklin St. (EOP)

Syracuse, NY

Loew Bldg., 108 W. Jefferson St. (EOP)

Personnel Purpose

1

U.S. resident contact

Field recruiting office

6

2

1

U.S. resident contact

Field investigation office

Field recruiting office

35 Training & R&D installation

28. U.S. resident contact

1

2

3

5

Field recruiting office

U.S. resident contact

U.S. resident contact

U.S. resident contact

SE

CRET

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SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

New York

B. Official Cover Properties

1 Location

1 Location

1 Location

C. Safehouses

23 Locations

D. Non-Official Properties

1 Location

2 Locations

2 Locations

3 Locations

1 Location

North Carolina

1 Offical Cover Installation

Personnel Purpose

30

22

. 2

Foreign intelligence collection

Field investigation office

Photo procurement, foreign persons

N.A. Covert meetings

9 Foreign newspaper service

11

Foreign intelligence collection

7

28

Proprietary management services

Overseas book distribution

2

Contractor's Liaison

24 Field training facility

Ohio

• A. Overt & Nominal Properties

Cleveland, Oh

Fed. Bldg.,

Cincinnati, Oh Fed. Bldg.,

1240 E 9th St. (EOP)

553 Main St. (EOP)

B. Official Cover Properties

1 Location

U.S. resident contact

U.S. resident

contact

5 Foreign intelligence collection

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1M I

1...

1 C

10910

SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

Oklahoma

A. Overt & Nominal Properties

Tulsa, Ok

Center Office Bldg., 630 W. .7th (EOP)

Oregon

A. Overt & Nominal Properties

Portland, Or

Courthouse, Broadway & Main Sts. (EOP)

Pennsylvania

A. Overt & Nominal Properties.

Philadelphia, Pa

Fed. Bldg., 600 Arch Street (EOP)

Philadelphia, Pa

Fed. Bldg., 600 Arch Street (EOP)

Pittsburgh, Pa

Fed.

Bldg., 1000 Liberty Ave. (EOP)

Pittsburgh, Pa

Fed. Bldg., 1000 Liberty Ave. (EOP)

Tennessee

• 1 Non-Official Installation

Texas

A. Overt & Nominal Properties

Austin, Tx

Fed. Bldg., 300 E. 8th St. (EOP)

Austin, Tx

Fed. Bldg.,

300 E. 8th St. (EOP)

Dallas, Tx

Courthouse,

1100 Conmerce St. (EOP)

Houston, Ix

. Courthouse,

515 Rusk Ave. (EOP)

B.

Official Cover Properties

1 Installation

SECRET

EMER DEC

Personnel

Purpose

2 U.S. resident contact

1 Field recruiting office

7

1

8

U.S. resident contact

Field recruiting office

U.S. resident contact

1 Field recruiting office

(47 Company) Aviation equipment procurement &

1

4

Field recruiting office

U.S. resident contact

U.S. resident contact

U.S. resident contact

2 Ordnance depot

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SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Street Address

Texas

C. Safehouses

1 Location

Utah

A. Uvert & Nominal Properties

Salt Lake, Ut

Fed. Bldg., 125 S. State St. (EOP)

Virginia

A. Overt & Nominal Properties

Richmond, Va

Fed. Bldg., 400 N. 8th St. (EUP)

B. Official Cover Properties

1 Installation (4 Stations)

1 Installation

1 Location

1 Installation

1 Location

Washington

A. Overt & Nominal Properties

Seattle, Wa

Courthouse, 1010 Fifth Ave. (EOP)

B. Official Cover Properties

1 Location

Personnel Purpose

•N.A. Covert meetings

2

U.S. resident contact

3

286

76

72

0

U.S. resident contact

Records Center, Training,

REU,

Commo Facilities

Field Training Site

Technical RGD

RED project

Minor ordnance

storage

5

U.S. resident contact

24

SECRET

Foreign equipment analysis

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and an

SLISE TRIE

SECRET

DOMESTIC REAL PROPERTY LISTING

Location

Washington

C.

Safehouses

1 Location

D. Non-Official Properties

1 Location

Wisconsin

A. Overt & Nominal Properties

Milwaukee, Wi

Street Address

Personnel Purpose

N.A. Covert meetings

3 Contractor liaison

Courthouse, 517 E. Wisconsin Ave. (EOP)

2

U.S. resident contact

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## Page 258

Attachment 2

SECRET

CIA Domestic Real Property Summary Sheet

Location

Overt &

Nominal

Official

Safehouses

'Non-Official

TOTAL

Washington, D. C. and

Suburbs

Arizona

California

Colorado

Connecticut

Florida

Georgia

Hawaii

Illinois

Indiana

Louisiana

Maryland

Massachusetts

Minnesota

issouri

Nevada

New York

North Carolina

Ohio.

Oklahoma

Oregon

Pennsylvania

Tennessee

Texas

Utah

Virginia

Washington

Wisconsin

TOTALS

17

4

2

13

10

UNHA

NW

37

12

16

1

9

83

1

2

2

2

2.

3

1

1

4

4

1

1

1

62

23

1

53

DONOMANHWHÖNWNGONHOWNNUNG

237

SECRET

Page

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## Page 259

29 AUG 1973

MEMORANDUM FOR:

INFO

SUBJECT

Deputy Director for Science and Technology

Deputy Director for Intelligence

Deputy Director. for Management and Services

Deputy Director for Operations

Inspector General

Questionable Activities

1. As an aspect of the allegations of improper CIA activity

in connection with the Watergate and associated matters, the

Inspector General was directed to assemble all information avail-

able in the Agency on any such activities. Certain specific matters

were provided to him, and the Director by memorandum of 9 May 1973

directed all employees to report any activities, current or past,

"which might be construed to be outside the legislative charter of

this Agency."

This information was assembled and consolidated by

the Inspector General in a memorandum of 21 May 1973 and certain

Individual memoranda thereafter supplementing it.

This material

vas used in a detailed, page-by-page review of all such information

with Senator Symington and Congressman Nedzi, as Chairmen of the

Senate and the House Armed Services Intelligence Subcormittees,

respectively.

In addition, I undertook very specific comitments

In my confirmation hearings to ensure that the Agency will remain

vithin its legislative charter.

I am arranging for the published

transcripts of those hearings to be circulated throughout the

Agency for compliance, and at that time will reaffirm the specific

direction made by_Dr. Schlesinger in his memorandum of 9 May 1973.

This will also be incorporated into appropriate regulations.

2.: With respect to the specific questionable activities which

vere reported as a result of the search made throughout the Agency,

however, I believe it essential to take specific action in order

that these not seem to be condoned or overlooked. I have therefore

developed specific instructions on each reported activity.. These

are included in the attachments to this memorandum, and have the

force of specific direction to you to pass on to appropriate

subordinates the instructions outlined.

Separate packages of such

Instructions are being developed for each Directorate in order to

respect the sensitivity of sore of the activities discussed, include FROM

Ing those which are deemed quite appropriate within CIA's charter.

JUN 25 1975

CoL IMpET CC or d56iti

SECRET-EYES ONLY

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220

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## Page 260

Similarly, each activity is placed on a separate page so that the

Deputy Director concerned may most

easily forward it to the office

or offices directly concerned without distributing it nore broadly.

3.. In the event that these instructions raise substantial

difficulties of implementation or compliance, I would appreciate

your raising such cases with me directly, with whatever recommenda-

tions you may have for modification to carry out the spirit of the

action undertaken here but to avoid undue disruption oi legitinate

activities. In the absence of such notice, I will expect full

compliance with the instructions outlined herein.

4. Each addressee Deputy. Director is instructed to recommend

to the DDM&S modification or addition to Agency regulations of

appropriate language to reflect the direction included in this

memorandum and attachments addressed to him. DM&S will be

responsible for consolidating such recormendations and making an

overall report to the Director through the IG, coordinating with

General Counsel.

итс0

Colby

Attachments

BC: yde (27 August 1973)

atribution:

Original - IG

1 - Mr. Colby

DDS&T

1

DDI

DDM&S

1

DDO

OCC - w/o atts

1 - OLC - w/o atts

1 ER (w/o atts - being held in IG file)

JUN 25 1975

2 .

SECRET-EYES ONLY

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## Page 261

MEMORAN DUM

SUBJECT: Domestic Proprietary Companies

Corporate cover, as managed by the Cover and Commercial Staff,

Is an appropriate support for pur overseas operations. To the

degree that domestic proprietary or cover companies are required,

a clear justification will be developed as to the relationship of

their support of our overscas operations.

RECCROD AROM

JUN 25 1375

ClA

WW 50055

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Page

261

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## Page 262

MEMORAN DUM

SUBJECT: Project MIMUTUAL

Project MIMUTUAL will be operated in conformance with appro-

priate legal restrictions. Arrungements are being made for the

briefing of the appropriate Congressional comittees.

Particular

attention will be given to avoiding any possible conflict of in-

terest situations with firns with which the Agency has contracts.

Particular concern will also be exhibited over possible improper

Influence on the stock market or stock dealings through the in

vestments involved in MHMUTUAL.

PEP

IED FROM

JUN 25 1975.

CIA

WW. 50955

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262

SECRET-EYES CHLY

3

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## Page 263

ERS CRY

MEMORANDUM

SUBJECT:

. Domestic Proprietary Companies

Corporate cover, as managed by the Cover and Commercial

Staff, is an appropriate support for our overseas operations. To the

degree that domestic proprietary or cover companies are required.

a clear justification will be developed as to the relationship of their

support of our overseas operations.

Suggested addition:

Corporate cover, including notional companies, as managed

by the Cover and Commercial Staff, is an appropriate support for

our overseas operations. To the degree that domestic proprietary

or cover companies are required, a clear justification will be

developed as to the relationship of their support of our overseas

operations.

RECEN

SUN 25.1975

CHA

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## Page 264

SECRET

EVES GALY

MEMORANDUM

SUBJECT: Project MHMUTUAL

Project MHMUTUAL will be operated in conformance with

appropriate legal restrictions.

Arrangements are being made for

he briefing of the appropriate Congressional committees.

Particular attention will be given to avoiding any possible conflict of

Interest situations with firms with which the Agency has contracts.

Particular concern will also be exhibited over possible improper

Influence on the stock market of stock dealings through the invest-

ments involved in MHMUTUAL.

The DDO has no problem with this as written.

REu:

JUN/ 25 1915

CIN

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1112

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