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TITLE :

TESTIMONY/REPORT OF PROCEEDINGS WITH EXHIBITS

DATE: 08/12/75

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TESTIMONY OF HOUSTON,

LAWRENCE RE: CIA AND CASTRO

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NW 50955

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WARD & PAUL

410 First Street, S.E., Washington, D.C. 20003

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Niarchos' ship captains named Katopodes brought a libel action

I believe it was, against Onassis for some letter he had written

about some activities of Katapodes, I can't remember the

details now.

We didn't know where this was leading. So this was in

the Supreme Court of New York State, and so I went to a fellow

I knew in the U.S. Attorney's office and asked him if he

could keep track of how this suite was developing to see if

it was leading into some of the connections we had, par-

ticularly with Niarchos.

And he got some of the pleadings and some of the pre-

trial evidence --

Mr. Wides. But you don't recall any contacts between

the Agency and the Justice Department resulting in Mr. Yeagley

going up to try and halt some aspects of the grand jury

proceedings in New York growing out --

Mr. Houston. :It strikes no valve.

Mr. Wides. Let me ask just one more question in this

area and then we will move on to the document I asked you to

look at before we started.

Mr. Maxwell.

I have just one other question.

22

Mr. Wides.

Do you secall the intamous kilham case Lavolv

235

king. the alleged wrongsur death of a fosner car airline, agency

24%

employee in Thailand in which it was alleged that two other.

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agency employees* Mi.. Kitham. & believe. bad been a

CAT

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employee.

And at the time Mr. Joost and the other fellows

were CIA employees of the station at Thailand in 1951

they were

alleged to have been involved in disposing of Mr.

Kilham's

body, and there was a serious question as to whether one or

both of them had been involved in his death.

And then I believe

in 1955 this was brought to the attention

of the Agency through

the efforts, among others, of Mr. O Donnell, who was then the

station chief, Justin O'Donnell.

Who came back and raised it

with Mr. Wiesner, and then I

believe it was raised with

Mr. Kirkpatrick and with

yourself.

Do you recall that

/incident and the eventual denouement

of the affair?

Mr. Houstono

I cannot remember the exact chronology.

I had thought

they had gotten the report on the problem a

little earlier than you suggested. But i can't argue it.

Mr. Wides. Do youknow if any action was taken earlier

than theftime in 1955 when MI. O'Donnell fifat zalsed it with

Mr. Wiesner?

Mr. Houston. I didn't know that Justin o donnell was

the

one -- at least I don't recall it, so I don't know exactly

how it first came to my attention. But when it did, tol the

best of my recollection, Lyman Kirkpatrick and I, and I elink

Frank Wiener was probably involved, tried to assemble all

the facts to find out insofar as possible what had gone

on's

It was a confused picture. All sorts of interpersonal feelings.

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that I recall were going on out there. And Ithink one of the

Thai police might have been involved.

I. Wides.

I don't know if it refreshes your recol-

lection,

but I believe a Colonel Rack was

local official

who had some knowledge of it.

Mr.. Houston.

To the best of my recollection I put

this together

and talked to Allen Dulles

about it.

He said. I think we ought tokeport that to

was much concerned

Justice.

And I said, there is no particúlar problem, because

there is nothing we can do

about

it because there is no crime

against the U.S. that I canafind in this situation, it is a

crime against the Thai sovereignty.

And Allen said, that-well may be. But I still think

that I want to report this to Justice.

And he asked me to prepare a dètailed report on a

classified basis.

hve forgotten the nature of the classi-

fication. I suppose the relations with CAT at that time were

still basically

top secret.

So, I

did

prepare a report and delivered it to --I

can't remember-- probably to the Assistant Attorney General,

Criminal Division, who ever it was.

They said to the effect, thank you, that is

There

is nothing we can do.

Mr. Wides. Was there any discussion of the possibility

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giving information to the Thai authorities so that they

could decide whether to exert jurisdication?

MI. Houston. My recollection is that the indications

were that

the Thai authorities had as much information as we

did. I don

remember to the contrary, but a

lot

of the

information we

agot came from the Thais.

Mr. Wides.

Did MI. Kirkpatrick go over

to Thailand

to talk to some of the people there to find out what they

knew about the situation?

Mr. Houston. I don

it recall

Mr. Maxwell. Was

any

action taken against either

of the CAT employees?

Mr. Wides.

Dennis

Reming was the other one. And

he was recalled.

MI. Houston:

And Kilham?

Mr. Wides.

Joost and Fleming were

te two persons

against whom the charges of allegations were faised.

Kilham was

the victim.

Mr.

Houston.

I remember Joost being a problem, but I

can't

remember what the outcome was.

And Dennis

Fleming

just

strikes a very faint bell. I can't remember at thi

ла-бой! примаʼіа л..

MI. Wides. Did you have another question in this area?

Mr. Maxwell. I just wanted to say, if you wanted to

continue, you said there were three cases that eliminated the

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kind of cases which CIA had with Justice, and the referrals,

and you had gone through one. And I wondered if you wanted

to go through the other two.

Mr. Houston. All right.

The second one was quite an interesting one. If I give

it in too much detail, excuse me.

Mr. Maxwell. Off the record.

(Discussion off the record.)

MI. Maxwell. Back on therecord.

Mr. Houston. The staff officer in Italy all of a

sudden disappeared from his post, and there was indication

that he had with him a considerable sum of money, something

in the nature of $30,000, I can't remember the exact amount.

This was promptly reported, and he disappeared into the blue.

The station started looking into it. And I believe we

sent people over to try and look into it, and found that

there had been a serious family problem between himself and his

wife.

Finally, through some sort of source in Mexico we got

word that this fellow was near Mexico City, and he passed word

to the station through a lawyer that he had written all the

operational details of what he had been engaged in in Italy,

which again were very sensitive, sealed them, and put them

in a vault which only thelawyers could get at, with instruc-

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tions to his lawyers that if anything happened to him, no

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1

The SEC, as a result has raised some questions with Justice

2....

between our justice and our statutory problems. This is

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before Justice now.

MI. Wides. Is there a file in the OGC office generally

regarding, not necessarily every one, but many of your --

which would contain many or most of OGC contacts with

Administrative agencies over the years?

Mr. Houston. No, because they weren't - there probably

is a substantial file on relations with Internal Revenue.

But those were to a large part either working out our own

tax equations on our own personnel with cover problems which

you probably know about, or the CAT situation, or Southern

Air Transport, and not interferring with IRS prosecutions,

although several times we were involved - here is the type of

case I guess you are talking about.

What is the fellow out in the Philippines -- I think his

name is Stenchill - who had one of the biggest tax assess-

ments made against an individual made against him, I think.

$2 million?

And Btorekill, very definitely tried to involve

us in his defense. There was some connection with Stonehin

in the Philippines, you couldn't be in the Philippines without

some connection with them. And yet gave IRS the full in-

formation, and said, don't bother with us, we are not

concerned.

Mr. Wides. What about such things as the contacts with

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MI. Houston.

It was a memo of DITEL's that I saw.

I think it was dated after I left. I saw it in draft after-

ward. It had to do, I recall, with operations in the Trust

Territories.

Mr. Wides. In other words, the first category of issue

that I mentioned?

Mr. Houston. Yes.

that

MI. Wides. With regard to MH MUTUAL, which is a topic.

obviously don't have time to discuss fully today

and

we have

not yet seen the files, I wonder -- and Mr.

Maxwell

was going to

pursue this, and I may be back - if you could -

give me a rough

idea during the period when

itewas under your

stewardship of the organizational chart,

as

it were, for the

policy committee, the investment committee, and so forth, how

were the questions of what investments could be made with the

pension fund and the insurance

and the like, how was that

policy developed, and whowas involveda and so forth?

Mr. Houston.

The lawyer running

the actual operation

reported directly to me.

Mr. Wides.

WAs he in the OGC office?

Ois

part of

Mr. Houston.

He was ANVIL, a staff official but

under

unofficial

cover.

r. Wides.

Meaning that he was in a law firm that

essentially a proprietary.

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Mr. Houston. Not entirely a proprietary. We supported

part os

2t, and part of it was a legitimate

law firm,

they

worked together and shared the firm.

Mr. Wides.

Is it possible for you to indicate

is that someone whom you would

not like to

who that is,

disclose.

Mr. Houston

I can't do that.

Mr. Wides.

How would we refer to

him

in terms of his

position if we were trying to ascertain His identity, or

if we were negotiating with the Agendy, as it were? What

was his title vis-a-vis the mutual management? Was he the

project officer?

Mr. Houston. He

was

certainly - let's call him the

project officer for MM ANVIL

Mr. Wides. And that

was for a good many years, one

particular person?

Mr. Houston.

des. He was there from,

pretty near the

start until he retired by, about two years ago, three years

ago. So, he was there all through the sixtfes, I would say,

.or the seventles.

MI.

Wides. This is not John Keaney, is it,

Mra Houston. No.

ME o

Wides. Was John Keaney's role more in terns of

setting up proprietaries and incorporating them?

Mr. Houston. John Keaney?

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Mr. Wides.

Yes, a Washington attorney -- or Kenney.

• Houston. Kenney. He must have been one of

the

cen

tral cover projects. He was not an OGC project that

recalled.

Mr. Wades. He was not prominently involved

in

establish-

ing proprietaries or their incorporation?

Mr. Houston. He might have worked in sometof the central

cover situations, but I don't recall him being involved in any

of the proprietarie?

I worked on.

Mr. Wides.

with regard to MH MUHUAL, as you can read-

ily understand, we are

interested in exploring its dimensions

in nature, and are really beginning

to get access to materials

on it. Without taking you chrough all of its multi-faceted

aspects, which would take some

time, let me ask you one

or two questions with regaisa

to Concerns that have been raised

by the committee.

Do you recall at

any time quest

ons arising about the

conflict of interest or any questionable aspects of the invest-

ment decisions

01

the MH MUTUAL program oftany part of it?

And by that I do not mean an individual who obtained intelligence

information and was trading on his own, or an

lovestment club

within the

agency, or that kind of thing, but questions in-

volving either the Agency using insider informationa if you

will

obtained through its intelligence activities of

otherwise in making investment decisions or buying stock or

debentures, or making other investments to assist the person

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OI

corporation or country whose securities were being

invested

in?

Mrs

Houston. There were about two of maybe three recom-

mendations from the Investment Counsel we had at the time we

were

turned down

Mr. Wides

Excuse me. Was the Investment Counsel the

person you were referring

to?

Mr. Houston.

No, this was an

outside investment

counsel we retained for advice for a geriod of time.

Mr. Wides. Was it a

firm or

individual?

Mr. Houston. It is a

well-known firm. And they made at

least two or three recommendations to invest in stock of

companies which we questioned rather extensive contractual

arrangements, and in view of

those contractual arrangements,

I recommended that we reject the recommendationg.

And we did.

Mr. Wides. Do y

you recall any instapces where invest-

ments were made and it was then learned or there was

adversion to the

fact that there were contractual relation-

. ships, or whether they were known in advance and it was weighed

and the decision was made to go ahead with the

investment?

down.

Mra

Houston. No. The only ones I recall were

turned

Since there was ample room to investigate, there was

no

need

to get in a position of possible implication of

conflict of interest. So, we erred on the side of turning down

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rather than going

ahead.

And incidentally, the outside investment counsel would

not know why we turned it down.

Mr. WideSo

Were all of the investment decisions

for

the assets of MH

MOTUAL - and you use that in

the

broad

sense, I don't fully understand the relationships among all

the aspects of the complex -- but were all

the investment

decisions, the Eurodollars and the small

amount of stock and

the like made by outside counsel or were

there some invest-

ment initiatives which originated within the Agency?

Mr. Houston. For a while almostall of them were made

by this outside counsel. It was not

too happy a relationship,

not because of his fault. I

think he was doing his honest

best. But we took too long processing his recommendations and

often lost a market by taking too long through our own in-

ternal controls.

So, finally,

weydecided that while we had gone to him

for a good reason,

that is, so we could show thatifye had

relied on outside

counsel of known stature, that it as

• not fair either

to him or to us to be in circumstances where

we were really secondguessing him through our own internàl

procedures

and our own invetment sort of Board of Directors.

So we

left, I hope, on friendly terms.

MI. Wides. About when was that?

Mr. Houston. Let me guess at around 1969, something

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like

that.

Mra

Wides.

Up until then as far as you know there

was

no investment of Agency funds that were made as

Result

of any decisions or implications within the CIA which might

then have been

run by him for his independent advice

but might

have originated

Mr. Houston.

on prompted within the Agency?

There may have been those

You see,

on our Board of Directors to which we referred

all basic in-

vestment decisions we had three of our toppeconomists, and

at least one of them was a member of a

couple of college

investment boards, so that they had the

benefit of the advice

to those university investment counsel.

Mr. Wides. Was he a consultieg economist or a member--

Mr. Houston. A member of

the

staff.

Mr. Maxwell. Mrs. Thunberg?

Mr. Houston. Yes.

Mr. Wides.

And her relationship with

the university

board was what, as an

alumni?

Mr. Houston.

As an alumni. She was called as a

consultant on

their investment program.

We also had the advice of a couple of friendly banks,

and at

least a couple of insurance companies would freely

give us

the benefit of their investment policies.

Mr. Wides.

What was the relationship between yourself

and the banks and the ingurance companies, the CIA?

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(Discussion off the record.)

Mr.

Houston.

To go back to the start -- it may have

already been

the OGC office

told -- back in the last fifties we found in

that the hardest thing to cope with

were bene-

fits for death

disability insured under covert

circumstan-

ces, particularly

when, as so often happened, no

prior planning

had been made for this.

Even the prior planning is diffi-

cult, because if you are going to put an agent into certain

circumstances, and say you will get him

insurance through

Mutual of Omaha, if the circumstances

ox the Department are

later known to Mutual of Omaha,

they might say, well, that

is not a risky cover, and continually you wouldn't have

your insurance.

So, we came to the conclusion that we needed our own in-

surance business, and we started by buying two very small

off-shore insurance companies, and started writing death and

health policies. Now,

the business grew quitel capialy to

cover all sorts of covert operations. And we went to two

large outside insurence companies and asked if they would

• cooperate and take

some of the policies either on a

fully

pro-

tected basis

from us, or if they saw fit, for their own account.

And both of

them did both. They would take some risks for

their own account, and the only thing we would ask is that

they

protect the investigation in case it got into sensitive

fields.

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others they would ostensibly take the risk and

WA

would stand

behind them.

Mr.

es.

So that was indemnification?

MI. Houston.

Complete indemnification. And

and

large this arrangement worked extremely well.

Mr. Wikes.

So those were the kinds of

nsurance companies

were were talking about that would give us

benefit of

their investment?

MI. Houston. Both of

them had large investment portfolios

of their own, and feel I gave

u's

access

to their investment

manager, who were most cooperative

what they were invest-

ing.

Mr. Wikes. And what was

the point of contact in the

Agency during that period for

the insurance

companies?

Mr. Houston. I wen

in both cases to set up the ori-

ginal contact, and then

this project officer

wais

the

primary.

Mr. Wikes.

And he would have been the point

of contact

for receiving

their investment views?

Mr. Houston.

He or his office.

Mr.

Wides.

And you mentioned also a bank as an out-

side source.

Mr. Houston. There were a couple of banks, but one

particularly. We kept some of the money on deposit with this

bạnk.

And we had some offshore assets that were ostensibly

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63

hela

by an offshore subsidiary of the bank. The bank at

OUr

request

gave us a flat guarantee of repayment no matter

on these

'assets.

So, we felt well protected on this.

what

And

also.

when we deposited with them the certificates of deposit we

got the normal prime rate on our deposits.

And

here again

they particularly

in the field of Eurobonds had

Some good

advice, and we also

went to another brokerage

House in

New York who had investment advisory staff that specialized in

Eurobonds.

So far as I

now, they did not know the Agency

was involved, but they gave

advice on

the best interest rates

in Eurobonds and certificates.

It

was a highly specialized

field.

Mr. Maxwell. Who was going

the investment house, the

project officer?

Mr. Houston. The project officer

Mr. Wides. Do you

ecall any dealings with Suydam and Com-

pany?

Mr. Houston. No

I have been asked time and time again

about Suydam Company, and the only thing I knew was from

personal knowledge going back to a trust my sister has an

interest in in

the Guaranty Trust. They had one off these hold-

ing companies

which I think was called Suydam and Company. But

you never heard - who was it? I know. One of our directors

of Southern Air Transport told me that he was continually

being asked by contact with Suydam and Company. And he sai

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64

that

the only one he knows, was the Guaranty Trust.

was someone else, I don't know about it.

There

Mr.

Wides.

GEtting back to the question I alluded

to while we

wehe

off the record, did any questions

arise about

whether the people

on the board, the investment board, or manag-

ing board of Mutual

who were from within the

Agency, would

have access to economie

intelligence or political intelli-

gence relevant to their own thinking on investments, and

where there was any question of a proprietary involved?

Mr. Houston. The membess of the board were always free

to bring up their ideas for investments, particularly in the

stock field, until more recent years. But mainly we were

consulting the economic experts

for

their general economic knowl-

edge on trends and any input

they could

give on basic invest-

ment policies.

Mr. Wides. That would include, I asgume, economic in-

telligence regarding

for example, the trend of whether there

was likely to be a

copper shortage, or the tread of

whether there was

Mikely to be more nationalization of rubber

plantations

oil?

20

How would

you differentiate that from economic

intelli-

21

gence except that it would be --

22

Houston.

Because our investments, except

for the

23

Eurobonds, were almost entirely in U.S. investments. And

24

while these were trained economists, their main professional

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interest was in the foreign field. And I don't remember them

staying

for instance, let's get into copper, it is going

to

be in very short supply in Peru or whatever. I don't

remember

any discussion of that sort.

MI. Wides.

Do you recall any policy papers/or reviews

generally as to the use of Agency knowledge in

the broadest

sense of its intelligence fund in regard to

the investment

decisions as distinct from decisions that were generated wholly

by outside?

Mr. Houston.

There were various basic general policy

papers --

usually I would prepare

them and put them before

the board -- in which this may have

been touched on. I don't

recall it specifically.

MI. Maxwell. The source of funds invested under the

auspices of the board were what?

Mr. Houston.

The

itial source of

Funds was usually

reprogrammed at the year's end available for Operational use.

And this was regarded

as

an operational use necessary to

support operations because of the need for the basic insurance

. function.

In other words, all these companies that we had in

this insurance complex appeared to have the substance an

insraance company would be expected to have. Actually,

the

whole

fund

for all of them was managed as a central fund under

this one project officer. On the design and organizational

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chart

looked very complicated. In operation it was quite

simple.

was handled really as one entity with various

faces

appearing.

And the complications of those whereby

maintaining

your directors

who took no part in the operation,

your companies

directors, and

things, and keeping your letterhead straight

for your writing

the different companies.

Mr. Maxwell.

Were there other sources

of

funds,

profits made by proprietaries in stock or bond transactions that

went back into the investment fund?

MI. Houston.

They would all go into the central in-

vestment fund, and in the initial stages, particularly where

there was income from funds and

dividends -- until the stock

market broke there were some capital

gains registered. Then

the investment policy went more and

more, particularly as

the interest rate went up,

the Eurobonds and certificates

of deposit, where for a while you were gesting -- I think we

got a weighted average of over ll percent.

And then those

would go back into the

fund against the insurance loss account-

ability.

The mos

difficult thing we had was trying to

decide what was enough, because there was no actuarial exper-

ience such as

in a nominal insurance company.

MI.

Wides.

You mean the capitalization of particular

companies against insurance?

Houston. Exactly.

Mr. Wides.

What about proprietary profit, was that

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one

source

of funds that went into the total capital fund?

Houston.

No. If you reorgnized a proprietary

OL

disposed

it, the proceeds identified as the proceeds

of

that might go into this fund until their eventual

despos i-

tion back into

the Treasury, or whatever was decided.

Mr. Wides. What about prior to dissolution, just the

annual operating probat, were any not left

but taken out in part and put into the funde

the proprietary

Mr. Houston. In the first place

this wasn't a frequent

occurence in propriataries.

In fact MH MUTUAL and Air America

were the only substantially profitable operations. There were

minor profits in others, but byland large as far as I know

they were left in the companies until they were dissolved.

And toward the end of Air America I believe we let off some

of the profits before the

Final dissolution and then took the

rest of them over, and they eventually tugned them into the

Treasury.

Mr. Wides.

With regard to the investment, in the case

of certificates of deposit abroad I take it that is what you

• are referring to as the weighted average, when you weighted

EurodollarSa

d/Eurobonds and certificates of deposit.

Whatever

the form

were some of the investments in foreign countries made

in any day in consultation with the operating divisions on

regard to the non-investment aspects of the loan, if you

WAlL,

the possible use of them for covert assistance in the broadest

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sense

that term?

Mr®

Houston. No.

Let

us

*get one thing straight. The certificate of depo-

sit were domestic.

MI. Wides.

Were there any foreign loans?

Mr. Houston.

There were no foreign

loans that I recall.

The Eurodollar bonds

tere in the case those which were guaranteed

by a U.S. company.

MI. Wides.

You don't recall

any investment in obliga-

tions of a foreign country

Mr. Houston. Not of

av

foreign country as such. I

believe there were a couple

foreign companies.

I can't even be sure of that,

but my recollection is by and

large of subsidiaries of us. compantes which do not guarantee

their subsidiary bondso

Mr. Wides.

Thank you.

Mr. Maxwell., I wouldlike to go through some of the

material in the Olsen case. And I have marked as Houston

Exhibit 5 the excerpts from the IG's diary which I showed you

before.

& PAUL

WARD

E., Washington, D.C. 20003

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(The document referred to was

marked Houston Exhibit No.

for identification.)

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