The Black Budget Report by BrianCharles

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									               by Michael E. Salla, PhD
    Center for Global Peace/School of International Service
             American University, Washington DC
                          11/23/2003



       Table of Contents
      Abstract
      Introduction
1.     Birth of the Black Budget
2.     Legal and Congressional Efforts to
       Disclose the CIA’s Black Budget
3.     HUD’s Missing Money, Catherine Fitts,
       Hamilton Securities and the CIA
4.     The Ultimate Beneficiary for the CIA
       ‘Black Budget’: The Intelligence Community
       and the Second Manhattan Project
5. Organized Crime, Drugs, and the CIA
6. Estimating the Size of the CIA’s
   ‘unofficial’ Black Budget
7. Table 2. Department of Defense (DoD)
   – Unsupported Accounting Entries
   1998-2003
8. Conventional Oversight System for the
   CIA’s and DoD’s Classified Programs
9. Oversight of the CIA’s ‘Unofficial’ Black
   Budget & Manhattan II
 Conclusion
 Endnotes
ABSTRACT
This report examines the existence of a CIA ‘black budget’ and an extensive network of ‘deep black
projects’ that it funds. The report identifies the legal framework established by the US Congress for the
creation of a CIA ‘black budget’ from the appropriations earmarked for other federal agencies that are
siphoned through the CIA as the sole conduit of black budget funds.

The report investigates the legal challenges to the constitutionality of the CIA’s black budget; how the
CIA uses its legal authority to extract appropriations from government agencies such as HUD; how the
CIA launders non-appropriated money through other federal agencies; and the efforts the CIA goes to
prevent these financial transfers from being exposed. Using as a case study the legal difficulties faced
by an innovative mortgage finance company, Hamilton Securities, the report will argue that the CIA’s
covert role in Hamilton’s demise is compelling evidence that the CIA was involved in funding
irregularities in HUD.

It will be finally argued that the size of black budget, the secrecy surrounding it, the extent senior officials
in Federal agencies go to targeting individuals and companies that threaten to reveal where
congressional appropriations are ultimately going, suggest a vast number of ‘deep black projects’ that
collectively form a highly classified second Manhattan Project whose existence, goals and budget are
kept secret.

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                             The Black Budget Report:
   An Independent Investigation of the CIA’s ‘Black Budget’ and the Second Manhattan Project

Introduction [1]
Each year the US Department of Defense (DoD) lists a number of single line items in its budget that
have a program number such as 0605236F, code names like CLASSIC WIZARD or vague description
such as “special evaluation program,” that don’t refer to any weapons system known to the general
public, Congressional officials or even defense analysts. These single line items are covers for the
creation of a ‘black budget’ - a top secret slush fund set up by the DoD, with the approval of the US
Congress, to apparently fund intelligence organizations such as the CIA as well as covert operations
and classified weapons programs by the DoD. The ‘black budget’ allows intelligence activities, covert
operations and classified weapons research to be conducted without Congressional oversight on the
grounds that oversight would compromise the secrecy essential for the success of such ‘black
programs’.

These ‘black programs’ are typically classified as ‘Special Access’ or ‘Controlled Access Programs’ that
have a security classification system more rigorous than the secret-top secret classifications for most
government agencies, making such programs known only to those with a ‘need to know’. This report
seeks to unmask the size of the black budget and the covert world of ‘deep black’ projects it funds by
investigating the mechanisms used to transfer money into the black budget’. Following the money trail
and official efforts to keep secret the size of the black budget and how it is generated, provides the key
pieces of a complex financial and national security jigsaw puzzle.

The ‘black budget’ funds a covert world of unaccountable intelligence activities, covert
military/intelligence operations and classified weapons programs. The conventional view is that this
covert world is funded by Congressional appropriations that authorize the DoD to use US Treasury
funds for classified projects and intelligence activities that appear as vague items on the DoD budget.
Subtracting the cost of known weapons systems and programs from the total DoD budget gives
Congressional analysts a means of estimating the size and scope of operations of the covert world of
‘black projects’, without knowing their precise budgets or activities.

There is however compelling evidence that the covert world of black programs is primarily funded by a
black budget created by the CIA rather than the DoD. Rather than being a beneficiary of a
Congressionally sanctioned DoD ‘black budget’, the CIA has its own ‘unofficial’ black budget that acts as
a conduit for funds to be secretly siphoned into the various military intelligence agencies associated with
both the CIA and the DoD for intelligence activities, covert operations and weapons research.

The CIA has the unique legal ability among all US government departments and agencies to generate
funds through appropriations of other federal government agencies and other sources “without regard to
any provisions of law” and without regard to the intent behind Congressional appropriations. [2]

Every year, billions of dollars of Congressional appropriations are diverted from their Congressionally
sanctioned purposes to the CIA and DoD based intelligence agencies without knowledge of the public
and with the collusion of Congressional leaders. The covert world of ‘black programs’ acts with virtual
impunity, overseen and regulated by itself, funding itself through secret slush funds, and is free of the
limitations that come from Congressional oversight, proper auditing procedures and public scrutiny.

This report examines the existence of a CIA ‘black budget’ and an extensive network of ‘black projects’
that it funds. The report identifies the legal framework established by the US Congress for the creation of
a CIA ‘black budget’ from the appropriations earmarked for other federal agencies that are siphoned
through the CIA as the sole conduit of black budget funds. The report investigates the legal challenges
to the constitutionality of,
      the CIA’s black budget;
      how the CIA uses its legal authority to extract appropriations from government agencies such as
          HUD;
      how the CIA even launders non-appropriated money through other federal agencies;
      and the efforts the CIA goes to prevent these financial transfers from being exposed.
Using as a case study the legal difficulties faced by an innovative mortgage finance company, Hamilton
Securities, the report will argue that the CIA’s covert role in Hamilton’s demise is compelling evidence
that the CIA was involved in funding irregularities in HUD.

The key to uncovering the true size of the black budget are the chronic accounting anomalies in the DoD
budget that reveal that as much as one trillion US dollars is annually being siphoned by the CIA into the
DoD for secret distribution to various military intelligence agencies and the ‘deep black’ programs they
respectively support. All of this, it will be argued, has dubious constitutional status but is made legal by
the various Congressional enactments, senior Congressional officials and the Executive Office.

It will be finally argued that the size of black budget, the secrecy surrounding it, the extent senior officials
in Federal agencies go to targeting individuals and companies that threaten to reveal where
Congressional appropriations are ultimately going, suggest a vast network of ‘deep black projects’ that
collectively form a highly classified second Manhattan Project whose existence, goals and budget are
kept secret.

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Birth of the Black Budget
In 1947, the National Security Act created the National Security Council, the Central Intelligence
Organization (CIA) and consolidated the US military into one entity, the Department of Defense (DoD).
One of the issues that remained unresolved from the creation and operation of the CIA was the extent to
which its budget and intelligence activities would remain a secret. According to Article 1, sec. 9, of the
US Constitution,
         “No money shall be drawn from the treasury, but in consequence of appropriations
         made by law; and a regular statement and account of receipts and expenditures of all
         public money shall be published from time to time.”
This constitutional requirement conflicted with the need for secrecy concerning Congressional
appropriations for the CIA. The solution was for Congress to pass legislation approving the secrecy over
the funding mechanisms used for the CIA and its intelligence related activities. The necessary bill was
passed with great haste and minimal debate causing considerable concern among those few
Congressmen brave enough to openly challenge the constitutionality of the Act. [3] Congressman
Emmanuel Celler of New York voted for the bill but protested:
        “If the members of the Armed Services Committee can hear the detailed information to
        support this bill, why cannot the entire membership? Are they the Brahmins and we the
        untouchables? Secrecy is the answer.” [4]
Celler, like the majority of Congressmen, passed the CIA Act very much like the wealthy father viewed
the birth of an illegitimate child, appropriate care would be taken to provide for the child, but there would
be no official admission of patrimony and the responsibility that entails.

The 1949 CIA Act comprised additions to those sections of the 1947 National Security Act that dealt with
the creation of CIA. The 1949 CIA Act gave a Congressional stamp of approval to the creation of a
‘black budget’ as the following sections make clear:
        … any other Government agency is authorized to transfer to or receive from the Agency
        such sums without regard to any provisions of law limiting or prohibiting transfers
        between appropriations [emphasis added]. Sums transferred to the Agency in
        accordance with this paragraph may be expended for the purposes and under the
        authority of sections 403a to 403s of this title without regard to limitations of
        appropriations from which transferred. [5]
This section meant that funds could be transferred from the appropriations of other government
departments earmarked for specific tasks, “without regard to any provisions of law”. For example, a
Congressional appropriation earmarked for housing subsidies to low-income workers by Housing and
Urban Development (HUD), could be legally transferred either to the CIA for covert intelligence activities
or through the CIA to a DoD associated intelligence agency for a classified program.

Thus HUD employees might find that their relevant housing programs were lacking the necessary funds
for relief efforts even though Congress had appropriated these funds for this purpose. Any HUD official
unfortunate enough as to enquire into the location of the missing funds would be deterred from pursuing
the issue, and if these officials persisted, they could be summarily dismissed, and then exposed to a
variety of CIA activities to silence them. [6]

Despite its legal authority to transfer funds from other federal agencies regardless of what their
Congressional appropriations were for, the conventional wisdom was that the major source of
appropriations for the CIA came through the DoD. This is apparently what President Truman had in mind
when he approved that the "operating funds for the organization [CIA] would be obtained from the
Departments of State, War, and Navy instead of directly from Congress." [7]

This funding arrangement ostensibly assured that the CIA would be subordinate to the Secretaries of
Defense and State who would be in a better position to influence its covert activities. Four years after
passage of the 1949 CIA Act, the following categories and sums in the relevant defense force
appropriations apparently provided the bulk of the black budget funding of the CIA.

                    Table 1. CIA – Location of Budget Funds Fiscal Year 1953 [8]

Appropriation & Service                                      Project                                    Total
Maintenance & Operations, Army          Project 1732 Classified project                                 33 million
                                        Project 2110 Commercial transportation                          163 million
Service-wide Operations, Navy           Activity 10 Contingencies of the Navy                           33 million
Ships and Facilities, Navy              Activity 1 Maintenance and operation of the active              70 million
                                        fleet
Ordinance and Facilities, Navy          Activity 1 Procurement of ordnance and ammunition                93 million
Contingencies, Air Force                Project 891                                                      33 million
Military Personnel Requirements,        Project 510 Pay of the Air Force                                 70 million
Air Force
Aircraft and Related Procurement,       Project 120 Aircraft component spares and spare                  92 million
Air Force                               parts
                              Total                                                                     587 million

     The Congressionally sanctioned method of CIA appropriations meant that the $587 million the CIA
     acknowledged receiving from DoD for its intelligence operations in 1953 would remain a secret both to
     rank and file members of Congress, and the general public. The alleged sum the CIA received from the
     DoD in 1953 ($3.4 billion in 2002 terms) was in likelihood already dwarfed, as will be argued later, by the
     funds the CIA was transferring through other government agencies into its black budget. [9]

     The constitutional validity of the CIA’s black budget and its size was something that did not unduly
     trouble most Congressmen during the early years of the Cold War who believed that national security
     considerations concerning the Soviet threat merited such an extraordinary practice. However, it did
     trouble one US citizen who in 1967 took the CIA to court over the secrecy surrounding the true size of its
     black budget.

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     Legal and Congressional Efforts to Disclose the CIA’s Black Budget
     William Richardson was an ‘ordinary’ citizen who realized the inconsistency between the Constitution’s
     requirement that all government appropriations would have “a regular statement and account of receipts
     and expenditures” published, and the CIA’s Act’s secrecy provision concerning the CIA budget. In 1967,
     Richardson made an effort to discover the true size of the CIA’s ‘black budget’ by writing a letter to the
     US Government Printing Office.

     He requested a copy of the CIA budget “published by the Government in compliance with Article I,
     section 9, clause 7 of the United States Constitution.” [10] Richardson received replies from the US
     Treasury that essentially rebuffed his efforts and he decided to start a Federal court action against the
     US government. He argued that the CIA Act was “repugnant to the Constitution” since it “operates to
     falsify the regular Statement and Account of all public Money.” [11]

     After three years of legal wrangling, Richardson’s case was dismissed by the Pittsburgh Federal Judge,
     Joseph P. Wilson, who decided that Richardson did not have ‘standing’ to sue the Federal government
     since he was not directly affected by issue at dispute. In short, the judge was taking the conservative
     legal position that a ‘generalized grievance’ is not a sufficient basis for a private citizen to take a US
     Federal Agency to court. Richardson appealed and in 1971, succeeded in having his case heard before
     a full bench of the United States Court of Appeals in Philadelphia (the penultimate legal court in the US).

     In his legal brief, Richardson claimed:
              Never in the history of this country has so much money been spent without the
              traditional safeguard of openness and in direct defiance of constitutional provisions….
        Billions are spent each year by unknown entities and this amount is spread throughout
        the Treasury’s reporting system to confuse the public and belittle the Constitution. [12]

The nine federal judges ruled in a 6-3 decision in 1972 that Richardson did have legal standing since the
Court reasoned that a
        … responsible and intelligent taxpayer and citizen, of course, wants to know how his tax
        money is spent. Without this information he cannot intelligently follow the actions of the
        Congress or the Executive. Nor can he properly fulfill his obligations as a member of the
        electorate. [13]
Richardson had won an extraordinary, though ultimately short lived, legal victory. He had succeeded in
arguing that the ‘black budget’ was inconsistent with his constitutional obligations and that the CIA Act
had doubtful constitutional standing. The 1971 decision of the Court of Appeals is the closest any US
court has come to ruling on the constitutionality of the CIA Act. The Court had effectively decided that
Congress had no right to deprive American citizens knowledge of the true size of the appropriated
money that was being channeled to the CIA through other government agencies.

The Federal Government immediately appealed to the Supreme Court and in July 1974, the nine
Supreme Court Justices ruled in a 5-4 decision, that Richardson did not have the legal standing to
challenge the Federal government. [14] Adopting a conservative legal position, the Court argued that
Richardson’s suit was nothing more than a generalized political grievance by a citizen that needed to be
dealt with through the political system, rather than the legal system.

The Supreme Court concluded that it did not need to examine the merits of Richardson’s case, since he
did not have legal standing to bring the suit to the Court. The Supreme Court thus overturned the earlier
ruling of the US Court of Appeals. The immediate consequence was that the black budget would remain
a secret for some years yet. Despite the setback, Richardson had demonstrated that the ‘black budget’
and the CIA Act that created it, had dubious constitutional standing, and only required a challenge from
a party with legal standing to most likely have it struck from the statute books. [15]

In the 1970’s the black budget and its true size became for the first time a subject of intense
congressional scrutiny. In the aftermath of the Vietnam war and the behavior of the intelligence
community in sponsoring private wars throughout Indochina and elsewhere, the Senate decided in 1976
to elect a committee to investigate the CIA’s covert activities and the black budget for the intelligence
community. In its final report, the Senate Select Committee on Intelligence (the Church Committee)
found the black budget to be unconstitutional and recommended public disclosure of its size:
         The budget procedures, which presently govern the Central Intelligence Agency and
         other agencies of the Intelligence Community, prevent most members of Congress from
         knowing how much money is spent by any of these agencies or even how much money
         is spent on intelligence as a whole. In addition, most members of the public are
         deceived about the appropriations and expenditures of other government agencies
         whose budgets are inflated to conceal funds for the intelligence community.

        The failure to provide this information to the public and to the Congress prevents either
        from effectively ordering priorities and violates Article I, Section 9, Clause 7 of the
        Constitution…. The Committee finds that publication of the aggregate figure for national
        intelligence would begin to satisfy the Constitutional requirement and would not damage
        the national security. [16]
Unfortunately, the Church Committee’s recommendation was never implemented as the CIA Director
(DCI), George Bush, successfully argued for the committee to hold off implementing its decision. The
Committee voted 6-5 to hold off and the recommendation was never brought to the whole Senate for a
decision. [17]

It would have to wait until the 1990’s before Congress would once again take up the issue of the black
budget. Ironically it was Congress that had provided the legislation that would be an effective
mechanism to end the secrecy surrounding the size of the black budget. The Freedom of Information
Act (FOIA) was passed in 1966 and made it possible for individuals to gain access to the records of any
federal government agency by making a written request. [18]

All agencies are required to disclose requested records except for information that falls under nine
exemptions and three exclusions of the FOIA. The most relevant of these exemptions for the CIA Act
was (b)(1) exemption 1 which says:
        “This exemption protects from disclosure national security information concerning the
        national defense or foreign policy, provided that it has been properly classified in
        accordance with the substantive and procedural requirements of an executive order.”
If an agency refused to release information, the requestor could ask for a Federal judge to adjudicate
whether the information did or didn’t qualify for the exemption claimed by the agency in withholding the
relevant information.

In 1967 when Richardson first took legal action, he did not use the newly passed FOIA in requesting
information about the CIA’s ‘black budget’ since he was challenging the constitutional basis of the black
budget and CIA Act, rather than arguing that release of the figures would not pose a national security
threat. Richardson rightly assumed that the CIA would not release information concerning the black
budget on the grounds of national security, and that it could persuasively argue this before a federal
judge qualifying for exemption from FOIA.

In 1996, President Clinton introduced a major change in the secrecy over the size of the black budget
when he argued that its disclosure would not threaten national security. The DCI under Clinton, John
Deutsch gave Congressional testimony that President Clinton was “persuaded that disclosure of the
annual amount appropriated for intelligence purposes would inform the public and not, in itself, harm
intelligence activities.” [19]

President Clinton had effectively undercut the main legal barrier to the CIA indefinitely withholding the
size of the black budget from an FOIA request. In 1997 the Federation of Atomic Scientists made a
FOIA request to the CIA, to disclose the secret combined appropriations for the Intelligence community
that comprises the CIA, National Security Agency (NSA), National Reconnaissance Office (NRO),
Defense Intelligence Agency (DIA), National Imagery and Mapping Agency (NIMA), and intelligence
branches of the Air force, Navy and Army. [20]

The DCI refused and the case eventually went before a Federal Court. In a last ditch effort to prevent
disclosure of the ‘black budget’ the DCI persuaded both the Senate [21] and the House of
Representatives [22] to vote against amendments that would have recommended its disclosure.

The CIA’s efforts were to no avail and in 1997 the Federal Judge decided in favor of the FAS that the
‘black budget’ could be disclosed without harming the national security of the US. In what was the first
major crack in the official secrecy surrounding the CIA’s budget and its intelligence activities, the CIA
subsequently decided to release for the first time the size of its ‘official’ black budget (appropriations
drawn from single line items on the DoD budget), but reserved the right to not disclose this figure in
future. For the fiscal year of 1997, the combined aggregate appropriations for the Intelligence
Community (black budget) was said to be 26.6 billion dollars. [23]

The ‘official’ black budget for the CIA can be estimated by using the percentage of the black budget for
the intelligence community that went to the CIA as opposed to other intelligence agencies from DoD
appropriations. According to Victor Marchetti and John Marks, the CIA portion of the intelligence black
budget was 750 million from 6.228 billion (approximately 12%) for 1973. [24] Victor Marchetti and John
Marks put the overall intelligence budget at $6.228 billion for 1973, of which the CIA disposed of $750
million. According to David Wise,
         In 1975 the entire CIA budget was hidden within a $2 billion appropriation for "Other
         Procurement, Air Force." The $12 billion total for all U.S. intelligence, much higher than
        previous estimates, was indicated in the report of the Senate intelligence committee.
        [25]
Wise’s estimate suggests that the proportion of the intelligence black budget that goes to the CIA is
closer to approximately 16.7% than the 12.0% estimated by Marchetti and Mark. At the other end, the
Federation of Atomic Scientists, using 1998 figures, estimated that the CIA’s portion of the black budget
was 11.5%. [26] If 12% is taken as the more accurate estimate of the CIA portion of the black budget,
then this suggests that of the 26.6 billion dollars Tenet disclosed went to the Intelligence Community
from DoD appropriations, approximately $3.2 billion (12%) was the official ‘black budget’ of the CIA.

The 1998 estimate converts to $3.5 billion in 2002 terms, and compares quite favorable with the 1953
figures that presumably made up DoD appropriations for the CIA black budget that can be converted to
approximately $3.4 billion in 2002 using CPI adjustments. [27] Consequently it appears that much of the
mystery surrounding the black budget of the CIA and the intelligence community had been ended once
official figures for the CIA were released through FOIA in 1997.

However, it will now be argued that the figures released by Tenet in 1997 for the ‘official black budget’
for the intelligence community, and earlier estimates dating from 1953 data, committee reports in the
1970’s, is disinformation intended to steer analysts, Congress and the general public away from the true
size of the CIA’s black budget.

It will be argued that the ‘unofficial’ CIA black budget, in terms of Congressional appropriations and other
funds the CIA transfers through other government departments and agencies far exceeds the ‘official’
black budget (DoD appropriations earmarked for the intelligence community), and has been well
disguised as a major purpose of the CIA ever since its creation.

The major purpose of the CIA is to act as a funnel for the combined black budgets of the intelligence
community and the Department of Defense. This is the reverse of the conventional wisdom behind the
‘official’ black budget that the DoD funds the CIA. In fact it is the CIA that funds secret projects run by
the various military and intelligence services in the DoD.

Using the testimony of whistleblowers of other federal government agencies and testimony of DoD
Inspector Generals, I will argue that billions of dollars are annually extracted from these agencies by the
CIA, topped up by revenue from other sources used by the CIA, and then siphoned to the military
intelligence agencies within the DoD for distribution to ‘deep black projects’ outside of the regular
appropriations and oversight process mandated by Congress for ‘black projects’.

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HUD’s Missing Money, Catherine Fitts, Hamilton Securities and the CIA
In 1989 Catherine Austin Fitts became Assistant Secretary for Housing in Department of Housing and
Urban Development (HUD). She began to notice money was not properly tracked as it moved between
different HUD departments and there was a lack of proper accounting mechanisms to deal with
discrepancies in revenue indicated fraud at an alarming level. [28]

She attempted to put in place some credible financial tracking mechanisms to identify where the money
was going and to identify the responsible individuals and HUD departments, but after 18 months on the
job she was suddenly fired by the Bush Administration. Fitts was told the day after she left that her
financial reforms through ‘place-based financial accounting and statements’ would also be terminated.
[29]
Fitts subsequently created her own investment company, Hamilton Securities Group that used specially
created computer software for tracking financial flows in the mortgage industry. In 1993, Hamilton
Securities Group won a contract with HUD to manage its $500 billion portfolio. As a result of its
innovative computer tracking of finances called ‘Community Wizard’, Hamilton Securities saved Federal
Taxpayers $2 billion and according to Fitts "took the world's breath away." [30] Carolyn Betts, a former
Hamilton Securities employee said:
         The HUD field office people went absolutely crazy when they saw it. You could go in
         with a pointer on a map and get to information on expenditures by each HUD program.
         It was a pretty beautiful program and would have become unbelievably powerful. [31]
Fitts’ innovative program was so successful that it was earning special attention from Congressmen with
one chairman of an oversight committee in October 1997 favorably commenting on the "eye-popping"
results. [32] Fitts’ program had the potential to revolutionize the way in which large multibillion dollar
portfolios were managed. Vice President Al Gore's Reinventing Government Initiative gave her firm the
Hammer Award for Excellence in Re-engineering Government. Fitts innovation also came to the
attention of powerful individuals who viewed it as a threat to existing way in which finances were tracked
in HUD and other federal government agencies that apparently allowed corporations to reap large profits
from government inefficiency.

Fitts’ pioneering work came crashing down around her in June, 1996 when a qui tam (whistleblower) suit
was brought against her firm by a rival HUD contractor John Ervin who alleged Fitts committed fraud
against HUD to the tune of $3.8 million. According to the Federal False Claims Act, a qui tam suit has 60
days to be investigated before a federal judge has to reach a conclusion on the substance of the suit
and unseal the qui tam so that the defendant can respond to the allegations. Instead, the HUD Inspector
General together with the federal judge in charge of the case took four years before another judge
decided the allegations lacked substance, unsealed the qui tam, and dismissed the suit in July 2000.
[33]

In the meantime, Fitts’ firm was subjected to 18 audits and investigations, multiple subpoenas for
thousands of documents, not paid money owed to it by HUD while the ‘investigation’ was underway,
subjected to media leaks and a smear campaign that frightened away potential investors, and ultimately
raided by Department of Justice agents in 1998. The raid effectively destroyed the Community Wizard
program and put an end to Hamilton Securities’ efforts to survive the legal onslaught that involved steep
legal costs.

At the end, Fitts company went bankrupt, Fitts was emotionally exhausted, but continued to fight for her
reputation, repayment from HUD, and exposure of wrong doing by the HUD Inspector General in
allowing the qui tam law suit to proceed for four years on a ‘fishing expedition’, while simultaneously
leaking false information. [34]

After her experiences in both working with HUD as an employee (1988-1989) and as a contractor (1993-
1997) and observing at first hand the chronic state of finances that could not be accounted for under
normal accounting rules, Fitts concluded that HUD was being run as a ‘criminal enterprise’:
        In the summer of 2000, a member of the staff for the Chairman of the Senate
        appropriation subcommittee (with jurisdiction over HUD …) confided to me that they
        believed that HUD was being run as "a criminal enterprise." I responded that I "did not
        disagree."
Reaching that conclusion was a long time coming. It took many years of experience implementing
practical and sound reforms to the FHA mortgage system, only to have the system reject any and all
efforts to have it become anything other than an integral part of a significant mortgage bubble and a pork
and slush fund operation. [35]

The fraudulent movement of finances through HUD were made possible by poor auditing standards that
enabled as much as tens of billions of dollars to go annually missing. [36] In a March 2000 report, the
HUD Inspector General, Susan Gaffney, reported a high number of ‘adjustments’ that had to be made to
account for $59 billion that could not be located in 1999:
       At the time we discontinued our audit work, a total of 42 adjustments totaling about
       $17.6 billion had been processed in this manner to adjust fiscal year 1998 ending
       balances. An additional 242 adjustments totaling about $59.6 billion, were made to
       adjust fiscal year 1999 activity. [37]
Gaffney argued that the ‘adjustments’ were caused by HUD’s difficulties in reconciling different computer
systems. An unnamed official within HUD dismissed the idea of the adjustments being solely problems
associated with different computers systems:
        Everything that has transpired at HUD is not an accident, and it sure isn't a computer
        glitch. When you take the different material violations of the most basic financial-
        management rules and compare them to the time and effort put in to have first-rate
        systems, it is impossible to explain it as anything other than significant financial fraud.
        [38]
Such fraud would not have been possible without collusion at the highest level, the Director of HUD,
Mario Cuomo. Confirmation that the missing $59 billion for 1999 was known to Cuomo was disclosed by
the unnamed source in HUD:
        The losses could be far greater than $59 billion, but they don't know for sure because
        the audit isn't completed. Secretary Cuomo is a very smart control freak, so it's
        ludicrous to think that he doesn't know what is going on. [39]
Confirmation that losses from HUD were an endemic problem rather than peculiar to 1998 and 1999
comes from the General Accounting Office of Congress that released a report in 2003 stating that in
January 2003, “for the 12th year in a row, the HUD OIG [Office of Inspector General] cited the lack of an
integrated financial-management system as a material weakness in its audit of the department's
financial statements.” [40] In short, billions of dollars were annually missing from HUD and no one knew
where the money was going.

Fitts analysis of the fraudulent movement of funds through HUD, her initial firing as an Assistant
Secretary, subsequent difficulties her company had with HUD [41] , indicated that she had stumbled on
to one of the strategies used by the CIA to generate its secret black budget. Fitts ultimately came to the
conclusion that HUD was being run as a money laundering operation to fund black projects. [42]

The sums for HUD alone, $59 billion for 1999, were far greater than the official $3.5 billion annual
estimated budget of the CIA that came from DoD appropriations. Missing funds from HUD, the
participation of the HUD Director in permitting the funds to go missing, and the difficulties suffered by
Fitts, point to the CIA being behind the missing HUD funds. The CIA is the only government agency that
has the legal authority to co-opt Federal Agency Directors in permitting billions of dollars to go missing
from or laundered through their budgets for transfer into a ‘black budget’. It is worth investigating the
destruction of Fitts company, Hamilton Securities Group to identify any CIA fingerprints in covering up
the secret transfer of HUD funds into what will be argued to be the CIA’s ‘unofficial’ black budget.

The individual who brought the lawsuit against Fitts, John Ervin, has been described as “notorious for
filing nuisance lawsuits and "bid protests’.” [43] His small mortgage investment firm apparently had,
according to one inside source, “up to 17 in-house personnel working full time on mountains of
paperwork regarding this and other cases.” [44]

Ervin may simply have been a small time contractor with a chip on his shoulder from losing the HUD
mortgage contract to Fitts’ company. However, the large number of legal cases his firm was involved in
suggests he may have been simply a front for more powerful actors threatened by Hamilton’s Securities
who wished to cripple it through a damaging court process. More revealing was the behavior of the
federal judge in charge of Fitts’ case that eventually presided over the case.
According to court transcripts, the initial judge had indicated in 1996 that it would be inappropriate to
extend the seal [on the qui tam] without evidence and that unless evidence was produced he would not
extend the seal again.

The case was then transferred to Judge Stanley Sporkin of the District of Columbia’s District Court.
According to Uri Dowbenky, Sporkin “managed to illegally keep a qui tam lawsuit sealed for almost 4
years. That could be a ‘judicial’ record.” [45] Sporkin had given multiple 60-day extensions to further
investigate the allegations that he claimed were not limited to the False Claims Act limit of 60 days that
applied to Department of Justice investigations, since the HUD Inspector General had independent
subpoena power and chose to continue the investigation. [46]

Extending the qui tam in this highly dubious manner meant that it was kept sealed thus preventing
Hamilton from responding to the allegations, and thus prolonged an elaborate ‘fishing expedition’ that
would financially exhaust Hamilton Securities.

A significant background fact about Judge Sporkin was that he was the General Counsel for the CIA
(1981-86) before being appointed as a federal judge to the District of Columbia District Court by Ronald
Reagan in 1985. [47] Sporkin’s CIA background and the continued extensions of the qui tam case that
had questionable legal standing and which was finally unsealed and dropped by a new Federal judge
appointed to the case after Sporkin’s retirement in 2000 point to a CIA covert program to destroy
Hamilton Securities.

One conclusion that emerges is that Fitts company was targeted since it threatened to undermine and
even expose the way the CIA secretly extracted congressional appropriations from or laundered funds
through HUD and other government agencies. [48] The CIA was using its unique legal status of being
able to lawfully transfer Congressional appropriations or ‘laundered money’ through other federal
government agencies, to fund projects administered by the intelligence community, and to destroy any
individual or company that threatened to reveal such a process.

The wide extent of chronic auditing irregularities for most government agencies suggested that it was
not just HUD that was used by the CIA as vehicle for siphoning money into its ‘unofficial’ black budget. A
Senate Committee on government reform investigated the auditing practices of federal government
agencies in 2001, and the Committee Chairman, Senator Fred Thompson, released a report that found
that ineffectual auditing practices were endemic and led to billions of dollars going annually missing from
most government agencies. [49]

Rather than restricting itself to the appropriations through the DoD (the ‘official’ black budget), something
Congress was aware of and tolerated, the accounting irregularities of many government agencies were
possible evidence that the CIA was accumulating a sizable portion of the ‘actual’ black budget from
other government agencies.

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The Ultimate Beneficiary of the CIA ‘Black Budget’:                           The Intelligence
Community and the Second Manhattan Project

The covert role of the CIA in destroying Hamilton Securities suggests that the $59 billion missing from
HUD in 1999 was some of the money transferred to the CIA’s ‘unofficial black budget’. The ‘legal’ status
of such a secret transaction on the basis of national security meant that the CIA could do this and be
sure that senior officials in HUD and the Department of Justice would cooperate in keeping these
transfers a secret.
The legal onslaught suffered by Hamilton Securities was indicative of a covert CIA operation that
involved cooperation by senior officials in HUD, the DOJ, a federal judge and a former HUD contractor,
in destroying a domestic US company that had developed technology that threatened to reveal where
the missing HUD money was really going.

Estimates of the CIA’s ‘official’ black budget have been shown earlier to be in the vicinity of $3.5 billion
and thought to be extracted from DoD appropriations. If the CIA was the recipient of the missing HUD
money, this meant that the CIA was in fact a conduit for appropriated federal funds and non-
appropriated funds being channeled through HUD and the CIA. Rather than the CIA being a recipient of
DoD funds, as commonly thought, the CIA was more likely secretly funding intelligence activities and
covert operations conducted through the intelligence community associated with the DoD.

It is worth exploring how the CIA could be siphoning money to those elements of the intelligence
community associated with the DoD, and how these funds could in turn be used by the DoD and the
intelligence community to fund a large number of ‘deep black projects’ that operate outside of the
oversight system that had been developed for regular classified projects funded by Congressional
appropriations.

These regular classified programs are ‘waived’ Special Access Programs in the DoD, and ‘waived’
Covert Access Programs in the CIA. [50] I turn now to examine events surrounding the inception of the
CIA and its relationship with the DoD in jointly running and funding the intelligence community
associated with the DoD.

The end of the Second World witnessed the dissolution of the CIA’s predecessor, Office of Strategic
Services (OSS) that had been established in June 1942, and headed by a former civilian, William
Donovan. [51] Donovan put together an assortment of adventurers, intellectuals, and military personnel
that carried out a number of intelligence activities and covert operations during the war that had limited
success.

The OSS, however, was not trusted with the most sensitive war intelligence by the two main US military
intelligence services - the Office of Naval Intelligence (ONI) and the Army’s G-2, nor by the Joint Chiefs
of Staff. The war’s end meant that foreign intelligence and covert operations were again dominated by
the different military services, the State Department and the FBI (the FBI had extensive operations in
Latin America) who would be very protective when it came to their most sensitive intelligence data.

The post-war structure of the national security system was debated, and the military services were on
the record for being opposed to the formation a civilian agency that would play a leading role in foreign
intelligence gathering or covert operations. [52] Indeed, the idea of the different military intelligence
services being headed by a civilian agency would have been quite a challenge for President Truman
and his advisors to argue due to the major role played by US military intelligence in successfully
conducting the war, and the peripheral role played by the OSS.

Despite the wartime experience and the conventional wisdom that the military were more than capable
of handling intelligence related activities, the passage of the National Security Act in 1947, led to the
formation of a unified defense bureaucracy, the Department of Defense, three main military services (US
Army, Navy and Air Force), and the creation of the National Security Council and the CIA. [53] The CIA
became the formal head of the US intelligence Community responsible for coordinating and providing
leadership on all intelligence related activities.

This meant that an organization based on the wartime model of a relatively small organization that
conducted covert operations (the OSS) would be formally responsible for all US intelligence activities
both military and civilian. This represented a major shift for the different military services yet they
acquiesced to Truman’s request, but did so in a way that meant the DoD through its various associated
intelligence services maintained considerable bureaucratic power in running the intelligence community
in association with the CIA.
The Director of the CIA (DCI) would be the formal head of the Intelligence Community comprising the
CIA, the National Security Agency, National Reconnaissance Office, the various military intelligence
agencies and intelligence services of civilian agencies such as the FBI and the State Department. [54]
Importantly, the DCI would play a key role in the budget allocations for agencies within the intelligence
community to be funded by the black budget. [55]

The DCI has statutory power to move funds in the intelligence community with the approval of the
Secretary of Defense as described in the following:
       No funds made available under the National Foreign Intelligence Program may be
       reprogrammed by any element
       of the intelligence community without the prior approval of the Director of Central
       Intelligence except in
       accordance with procedures issued by the Director. The Secretary of Defense shall
       consult with the Director
       of Central Intelligence before reprogramming funds made available under the Joint
       Military Intelligence Program.[56]
In theory, this meant that the DCI would have some leverage despite what was conventionally thought to
be the budgetary power of the DoD over the DCI since the ‘official’ black budget would comprise DoD
appropriations in one form or another. If the CIA, however, were able to get more significant sources of
funds than DoD appropriations, then the CIA would control the money flow that sustained the
intelligence community associated with the DoD, and their various intelligence activities, covert
programs and classified technologies associated with these.

Leadership of the Intelligence Community is not exercised solely by the Director of the CIA (DCI), but is
shared with the Secretary of Defense, who is responsibly for ensuring that budget needs are met for
DoD associated intelligence agencies, and who also appoints key personal in these agencies. This
power sharing and the extensive funding arrangement that involves the CIA in DoD operations, is
evidenced in terms of the relevant statutory provision for funding military intelligence agencies:
       The Secretary of Defense, in consultation with the Director of Central Intelligence, shall-
       -
       (1) ensure that the budgets of the elements of the intelligence community within the
       Department of Defense are
       adequate to satisfy the overall intelligence needs of the Department of Defense,
       including the needs of the
       chairman \1\ of the Joint Chiefs of Staff and the commanders of the unified and
       specified commands …[57]
One of clauses of this statute worth emphasizing is that the CIA has a ‘consultative role’ in satisfying the
funding needs of the ‘Joint Chiefs of Staff and the commanders of the unified and specified commands.”
Such a clause provides legal justification for the Secretary of Defense to transfer funds provided by the
CIA’s black budget to an extensive number of military services, commands and operations.

As far as appointments are concerned, the Secretary of Defense has the power to nominate the
Directors of military related intelligence agencies such as the NSA, NRO and National Imagery and
Mapping Agency, even in cases where the DCI does not approve of the Secretary’s choice. [58] Thus
the Secretary of Defense has considerable bureaucratic power over the main military intelligence
agencies in terms of senior appointments and how funds would be spent. [59] Consequently, leadership
of the intelligence community is shared between the Director of the CIA (DCI) and the Secretary of
Defense who share decisions concerning appointments, programs and budgetary allocations for the US
intelligence community.

While the CIA is the junior partner to the DoD when it comes to intelligence activities and covert
operations, it has one major bureaucratic advantage to the DoD. This concerns ‘black budget’
allocations for highly classified projects. It would be far easier for the Congress to accept the idea of an
‘official’ black budget sanctioned by law, if it was a civilian agency that was formally in charge of this
unusual budgetary mechanism that would require an extraordinary degree of trust by Congress that
such budgetary power was not being abused.

As far as the DoD was concerned, Congress was quite adamant that all appropriations to the DoD would
be spent in ways that were consistent with the law, i.e., Congressional resolutions and enactments. [60]
After all, this is what distinguished American style democracy from an authoritarian police state. This
meant that the DoD’s power to create a ‘black budget’ would be circumscribed by relevant
Congressional provisions governing the ‘unacknowledged’ Special Access Programs (‘black projects’)
this funded. [61]

The CIA provided the ideal cover for the creation of an ‘unofficial’ black budget that could legally transfer
the appropriations of, or launder funds through, non-DoD federal government agencies, not to the CIA
as Congress intended in the CIA Act, but directly to ‘deep black projects’ institutionally located within the
NSA, NRO, NIMA, DIA, the different military intelligence services of the Army, Navy, and Air Force; and
to the various special projects and commands overseen by the Joint Chiefs of Staff.

The CIA’s ‘official’ black budget is a cover for the large network of projects run by the different military
intelligence agencies, the CIA and Joint Chiefs of Staff, that used government appropriations from, and
money laundered through, different federal agencies. The CIA could provide for sufficient funding for an
extensive number of ‘deep black projects’ that would be entirely separate to regular DoD appropriations
and the oversight process developed for DoD classified projects, without Congressional budget analysts
and the general public being aware of how the different military intelligence services were secretly
housing projects funded by the CIA siphoned funds.

A secret funding arrangement between the CIA and the different military intelligence services in a
manner that bypassed budgetary restraints on DoD associated activities would offer considerable
mutual advantages to the CIA and the military intelligence services if they wanted to create deep black
projects outside of both the normal Congressional appropriation system and the regular DoD oversight
process. First, the CIA had the legal power to transfer appropriations from other government agencies,
keeping this secret and moving these funds to whatever operations it deemed necessary.

The 1949 CIA Act describes this power as follows:
       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. [62]
As the clause makes clear, the CIA Director may use funds from the black budget “without regard to the
provisions of law.” This means that the DCI has enormous power in funding ‘deep black programs’ and
disregarding any legal or budgetary restrictions where he deems a project to be of “extraordinary” or
“emergence nature”. Unlike other agencies, the Director of the CIA would be able to prevent the
Inspector General of the CIA - an independent official appointed by Congress - from conducting a
thorough audit of the CIA’s budget and exposing the actual size of the black budget. The relevant statute
from the CIA Act is worth quoting since it is unique restriction not found in the case of the power of
Inspector Generals of other federal agencies:

The Director may prohibit the Inspector General from initiating, carrying out, or completing any audit,
inspection,
or investigation, or from issuing any subpoena, after the Inspector General has decided to initiate, carry
out,
or complete such audit, inspection, or investigation or to issue such subpoena, if the Director determines
that
such prohibition is necessary to protect vital national security.[63]

The above clause directly contradicts the relevant federal statute that governs Inspector Generals in
other government departments and agencies: “Neither the head of the establishment nor the officer next
in rank below such head shall prevent or prohibit the Inspector General from initiating, carrying out, or
completing any audit or investigation, or from issuing any subpoena during the course of any audit or
investigation. [64]

A second advantage from having the CIA act as the unofficial funding source, was that the various
military intelligence agencies and Joint Chiefs of Staff would be able to provide the physical and
personnel infrastructure for deep black projects to be funded by the CIA’s black budget which comprised
some funds from the appropriations of other government departments and agencies.

This enabled the DoD associated intelligence services to circumvent the Congressional requirement that
no appropriations for DoD activities be expended “unless funds therefore have been specifically
authorized by law”. [65] In essence, the DoD and DCI were collaborating in circumventing Congressional
intent designed to prevent DoD ever using funding sources outside of the Congressional appropriation
process.

A third mutual advantage was that the CIA could play a significant consultative role in the various DoD
associated intelligence agencies in both intelligence activities and covert operations that would be
outside of the regular oversight process in Congress, the Executive Office and even the DoD. This
would enable security professionals within the military intelligence agencies, rather than political
appointees in Congress, the Executive Office and DoD to make key decisions in the oversight of the
‘deep black projects’ that could run on whatever ‘unofficial’ black budget funding the CIA could raise.

The only restraint was the willingness of directors of different government agencies to allow some of
portion of their budget allocations to go to the CIA and DoD agencies in the intelligence community, and
to cover up the movement of significant sums of money that the CIA had raised elsewhere and were
‘laundering’ through these agencies.

Most disturbingly, there is a growing body of evidence that a portion of the funds laundered through
government agencies such as HUD by the CIA comes from organized crime and the drug trade. [66]



Organized Crime, Drugs, and the CIA
Allegations of links between the CIA and the drug trade first came to public attention in the 1970’s when
a number of public officials came forward with evidence of such links. One of these was a former police
officer in the Los Angeles Police Department (LAPD), Michael Ruppert. In 1977, as a result of his
official investigation into the drug trade in Los Angeles, Rupert uncovered evidence that the CIA was
playing an active role in bringing drugs into New Orleans and Los Angeles. When Rupert disclosed this
information to his superiors in the LAPD, he became a target for surveillance, harassment and burglaries
that eventually led to his resignation. [67]

Another key official is a retired Drug Enforcement Agency agent, Celerino Castillo III, who was the lead
DEA agent in Guatemala and discovered that the CIA was involved in the drug trade to raise finances
for its covert operations. In a written statement to the House Permanent Select Committee on
Intelligence Castillo gave detailed information on a number of drug running operations that involved
cooperation between the CIA and organized crime cartels. [68] Celerino claimed:
          The key to understanding the "crack cocaine" epidemic, which exploded on our streets
          in 1984, lies in understanding the effect of congressional oversight on covert operations.
          In this case the Boland amendment(s) of the era, while intending to restrict covert
          operations as intended by the will of the People, only served to encourage C.I.A., the
          military and elements of the national intelligence community to completely bypass the
          Congress and the Constitution in an eager and often used covert policy of funding
          prohibited operations with drug money. [69]
Another prominent official was Marine Colonel James Sebow, the third in command of the El Toro
Airbase, California, who discovered evidence that C-130 cargo flights coming into the airbase from
Central America were filled with drugs. Sebow communicated his finding to the base commander, Col
Joseph Underwood, and then found himself along with Col Underwood, subject to investigations for
minor offenses, relieved of command and threatened with Court Martial if he did not cooperate with the
investigation. On January 22, 1991, Sebow was found dead, apparently by suicide, but an investigation
by family members and supporters revealed evidence that he in fact was murdered for what he had
discovered. [70]

On the day before his death, Sebow’s widow recalled a conversation Sebow had with Col Underwood
who had stopped by for a visit:
        Underwood stopped by and repeatedly tried to talk Jimmy into accepting an early
        retirement to avoid a court-martial. Jimmy objected strongly. At this, Underwood
        became quite angry. Sally stated, "I have never seen such a vicious face as Joe's when
        Jimmy said he would not retire and would take the entire matter to a court-martial if
        necessary. Underwood jumped up and said, "You'll never go to a court-martial, and I
        mean never!" [71]
The events surrounding Sebow’s death support allegations that he had uncovered a CIA supported drug
running operation into
the US, and was murdered to prevent this from being exposed.

In the July 12, 1985 personal notes of Oliver North, used by his legal defense during his various trials
and Congressional
hearings over his role in selling US weapons to Iran to fund the Nicaraguan Contras, North reported that
at a meeting involving a number of NSC and CIA officials, $14 million was mentioned as the funds the
Contra rebels would raise from the drug trade.[72]

North’s admission did not get serious press coverage despite the apparent confirmation that the CIA
was complicit in the use of drugs as revenue for covert operations.[73] It can be inferred that North’s
efforts were an amateurish
effort by an NSC ‘basement team’ to raise revenue for NSC covert operations that was modeled on a far
more successful
effort by the CIA to use revenue from the drug trade.

The best known case of an alleged link between the CIA and the drug trade emerged from the
pioneering investigative journalism of Gary Webb in 1996 who published the “Dark Alliance” series in the
San Jose Mercury during Summer 1996. [74]

Webb presented a compelling case that the CIA played a role in allowing drug money to be used to fund
the Contra rebels in Nicaragua. While Webb’s series was focused on the proceeds of drug activities
going to the Contras, his conclusion that the CIA colluded in this endeavor supported broader
allegations of the CIA using the drug trade to finance covert operations. Webb’s series of articles
generated intense national interest until the publication of ‘independent’ investigation by the Washington
Post on October 4, 1996, claimed there was insufficient evidence to support Webb’s allegations. [75]

The New York Times and Los Angeles Times followed up on October 20 with equally critical articles.
[76] Criticisms began to mount and eventually led to the editors of the San Jose Mercury apologizing for
‘errors’ in Webb’s Dark Alliance series, and had Webb transferred to a less prominent news bureau. [77]

Webb resigned in disgust in November, 1997, ending a nineteen year career as a journalist. It was
subsequently learned that one of the two writers of the Washington Post article, Walter Marcus was a
CIA asset, suggesting that the Post had been co-opted into a covert campaign to undermine Webb’s
work. The critical stories in the New York Times and Los Angeles Times relied on similar ‘unnamed
sources’ to the Post article indicating that Webb had become a victim of a covert CIA operation through
the ‘establishment’ newspapers to discredit his findings. [78] In January 1998, the Inspector General of
the CIA released a report exonerating the CIA of any role in the drug trade. [79]

Having so far determined the existence of a black budget created by the CIA that circumvents
Congressional intent on the use of appropriations of different federal departments and agencies, and/or
involves laundering of funds possibly gained from organized crime and the drug trade, it is worth
estimating the size of the CIA’s black budget and what it is used for.

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Estimating the Size of the CIA’s ‘unofficial’ Black Budget
Using Fitts estimates of money missing from HUD, and knowledge of the appropriations process, a more
accurate figure of the CIA’s ‘unofficial’ black budget that feeds the intelligence community associated
with DoD can be estimated. It should be emphasized that it is only the CIA that has Congressional
authority to draw appropriations through other government agencies without ‘without regard to any
provisions of law’ or ‘intended use of appropriations’.

This means that money missing from the Congressional appropriations of other agencies would be
initially being siphoned through the CIA and no other intelligence agency. Other agencies in the
intelligence community gather their appropriations through the DoD that generates the ‘official’ black
budget through fictitious line items on its annual budget.

Consequently, it can be concluded that appropriated money channeled through HUD and other agencies
is going into the CIA’s ‘unofficial’ black budget that in turn goes directly into deep black programs within
the DoD associated intelligence agencies and specialized programs of the Joint Chiefs of Staff.

The CIA’s ‘unofficial’ black budget would therefore not appear on the DoD budget as single line items
but would be annually moved through the DoD budgetary mechanisms in a way that cannot be
financially tracked. A description of the way this is done appears is described by Tim Weiner, author of
Blank Check: The Pentagon’s Black Budget:
         One way the form [Form 1080, Voucher for Transfer Between Appropriations and/or
         Funds] is used to allow money to flow from the Treasury to the Army, or from one Army
         account to another, is for an officer to fill out the 1080. The bursar then signs the form
         and issues a Treasury check. The 1080 vouches that the money has been used to pay
         for the costs of authorized programs. It creates an audit trail - a paper path showing
         money flowing. [80]
An estimate of the size of the CIA’s black budget, would therefore be unaccounted movement of funds
through the DoD. According to an investigative journalist, Kelly O’Meara, the use of a range of
accounting mechanisms such as "unsupported entries," "material-control weakness," "adjusted records,"
"unmatched disbursements," "abnormal balances" and "unreconciled differences" are evidence of large
sums of money that are moved through the DoD that cannot be accounted for. [81]

Since the Inspector General of DoD has a certain degree of independence, traces of the CIA black
budget would appear in auditing anomalies using some of the terms O’Meara describes. David K.
Steensma, Acting Assistant Inspector for auditing DoD wrote in a 2002 report that “DoD processed $1.1
trillion in unsupported accounting entries to DoD Component financial data used to prepare
departmental reports and DoD financial statements for FY 2000.” [82]

Elaborating on the significance of the DoD Inspector General reports, O’Meara has written:
        [T]he deputy IG [Inspector General] at the Pentagon read an eight-page summary of
        DoD fiduciary failures. He admitted that $4.4 trillion in adjustments to the Pentagon's
        books had to be cooked to compile the required financial statements and that $1.1
        trillion of that amount could not be supported by reliable information. In other words, at
        the end of the last full year on Bill Clinton's watch, more than $1 trillion was simply gone
        and no one can be sure of when, where or to whom the money went. [83]
According to the Office of the Inspector General, the accounting irregularities for fiscal year 1999 were
even larger and added up to 2.3 trillion dollars; and for fiscal year 1998, these irregularities were 1.7
trillion (see table 2 below).

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                                                 Table 2
             Department of Defense (DoD) – Unsupported Accounting Entries 1998-2003

      Fiscal     Unsupported            Source                      Highlighted Quotes
       Year       Entries USD
      2002       Not disclosed      Independent         “DoD financial management and feeder
                 due                Auditor Report      systems cannot currently provide adequate
                 accounting                             evidence to support various material
                 irregularities                         amounts on the financial statements.
                                                        Therefore we did not perform auditing
                                                        procures to support material amounts on
                                                        the financial statements." [84]
       2001      Not disclosed      Independent         “We did not obtain sufficient, competent
                 due                Auditor Report      evidentiary matter to support the material
                 accounting                             line items on the financial statements …
                 irregularities                         the scope of our work was not sufficient to
                                                        enable us to express, and we do not
                                                        express, an opinion on these financial
                                                        statements" [85]
       2000      1.1 trillion       Office of           “Of the $4.4 trillion in department-level
                                    Inspector           accounting entries, $2.8 trillion were
                                    General, Audit      supported with proper research,
                                                        reconciliation, and audit trails. However,
                                                        department-level accounting entries of $1.1
                                                        trillion were unsupported or improper." [86]
       1999      2.3 trillion       Office of           “… department-level accounting entries of
                                    Inspector           $2.3 trillion were made to force financial
                                    General, Audit      data to agree with various sources of
                                                        financial data without adequate research
                                                        and reconciliation, were made to force
                                                        buyer and seller data to agree in
                                                        preparation for eliminating entries, did not
                                                        contain adequate documentation and audit
                                                        trails, or did not follow accounting
                                                        principles." [87]
      1998       1.7 trillion       Inspector            “… final statements were more untimely
                                    General             than ever and a record $1.7 trillion of
                                    Statement           unsupported adjustments were made in
                                                        preparing the statements." [88]

The Inspector General reports are important evidence that trillions of dollars were siphoned through the
Department of Defense (DoD) for the fiscal years 1998-2002. [89] Using the Inspector General reports of
accounting anomalies, it can be estimated that Fitts and O’Meara’s estimates of missing money from the
DoD is a close approximation to the CIA’s ‘unofficial’ black budget.

Consequently, the CIA black budget is annually in the vicinity of 1.1 trillion dollars – a truly staggering
figure when one considers that the DoD budget for 2004 will be approximately 380 billion dollars. [90]
This suggests that the vast size of the DoD in terms of its personnel, weapons systems and research
into ‘conventional weapons systems’, is dwarfed by something that in funding terms is almost three
times larger than the entire conventional military system funded by the DoD budget.

The vast size of the estimated CIA ‘unofficial’ black budget is strong evidence of a collective effort by the
CIA and DoD associated military intelligence agencies and the Joint Chiefs of Staff, to fund a network of
highly classified projects so large in scope that they collectively dwarf the original Manhattan Project
conducted at Los Alamos National Laboratories during the Second World War. [91]

Since the original Manhattan Project aimed to develop an atomic bomb for use in the war against Nazi
Germany, it can be inferred that the network of projects funded by the CIA’s black budget aims to
develop a range of advanced weapons systems and intelligence capabilities for use against an
adversary whose existence and identity still remains classified. [92]

I will henceforth refer to this network of highly classified projects as the second Manhattan Project -
‘Manhattan II’ is the ultimate beneficiary of the CIA’s ‘unofficial’ black budget.

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Conventional Oversight System for the CIA’s and DoD’s Classified
Programs
Oversight of the Manhattan II would predictably have been a major concern for the Truman
Administration that was instrumental in the passage of the National Security Act of 1947 and the CIA Act
of 1949 that institutionalized the black budget that would fund Manhattan II. Major considerations of the
Truman administration would have been to create an oversight body dominated by professionals that
would not be affected by the partisan political process or by the new political appointees that came and
went with each Presidential administration.

Consequently, an oversight system would have evolved comprising individuals appointed either due to
the technical abilities (e.g., scientists), political skills (e.g., international diplomacy experts), or military
expertise (e.g., J-2 & J-3 directorates in the Joint Chiefs of Staff).

This oversight system would have most likely evolved in a manner that was independent of the
conventional oversight system for classified projects. Consequently, before considering how oversight of
the Black Budget and Manhattan II are conducted, it is worth exploring how the conventional oversight
system works for classified programs in the CIA and DoD.

This conventional oversight system for highly classified intelligence activities and/or covert projects
concerns Controlled Access Programs (CAPs) of the intelligence community or Special Access
Programs (SAP) of the DoD. CAPs/SAPs are programs that have additional security measures attached
to them over and above the normal classificatory system (confidential, secret, top-secret) attached to
most classified information and programs. [93]

CAPs/SAPs are divided into two classes ‘acknowledged’ and ‘unacknowledged’ as described in a 1997
Senate Commission Report:
        “Publicly acknowledged programs are considered distinct from unacknowledged
        programs, with the latter colloquially referred to as “black” programs because their very
        existence and purpose are classified.” [94]
A ‘waived’ CAP/SAP is so sensitive that only eight members of Congress (the chairs and ranking
members of the four intelligence [or defense] committees divided between the House of Representatives
and Senate) are notified of a waived CAP/SAP without being given any information about it. [95]

This would enable them to truthfully declare no knowledge of such a program if asked, thereby
maintaining secrecy of this CAP/SAP. If unacknowledged CAPs/SAPs are ‘black programs’, then
‘waived’ unacknowledged CAPs/SAPs are ‘deep black’. The most secret of the intelligence and covert
operations conducted by the CIA are ‘deep black’ CAPs.

CAPs are funded through the ‘official’ black budget and in theory are subject to both Executive and
Congressional oversight. [96] In practice though, Congressional oversight in the case of waived
acknowledged CAPs is nominal as revealed by the 1997 Senate Commission Report. President
Clinton’s Executive Order 12958 issued on April 17, 1995, reformed how CAPs/SAPs would in future be
created and oversight established.

The main component of the Executive Order was that only the Director of Central Intelligence or the
Secretaries of State, Defense and Energy (or their principal deputies) could create a CAP/SAP.
CAPs/SAPs would be kept to an “absolute minimum”; and would be created when “the vulnerability of,
or threat to, specific information is exceptional,” and their secrecy cannot be protected by the normal
classification system. [97]

As far as oversight was concerned, the key clause in Executive Order 12958 was an effort by the Clinton
Administration to coordinate oversight through a central executive office (Information Security Oversight
Office) that would be responsible to the National Security Council (NSC) and annually report to the
President. [98] The President’s effort to centralize and coordinate oversight features of CAPs/SAPs was
resisted by both the Defense and Intelligence communities.

While in theory, oversight coordination occurs in the Information Security Oversight Office set up in the
NSC that issues an annual report to the President; the power to approve or terminate a CAP/SAP lies
with the respective intelligence community and DoD committees and executive officers. In general,
Executive Office oversight of CAPs/SAPs has been described as “nothing more than a sop used to
placate anyone who questions the propriety of an administration’s covert action policy.” [99]

Oversight of CAPs/SAPs is performed by a committee comprising officials from the Intelligence
Community, the Controlled Access Program Oversight Committee (CAPOC); and a similar committee in
the DoD, the Special Access Program Oversight Committee (SAPOC). [100] CAPOC reviews CAPs and
Sensitive Compartmented Information (intelligence data) in the intelligence community annually and can
recommend their ‘compartmentation’ or termination. [101] It is however, only the Director or Deputy
Director of the CIA that has the authority to “create, modify, or terminate controlled access programs.”
[102]

While CAPOC provides more direct oversight and coordination of CAPs, it is not ultimately the body that
oversees the CIA’s most secret projects conducted in collaboration with the military intelligence
community. The exclusion of some CIA CAPs from CAPOC is indicated in the following Directive from
the Director of the CIA (DCI):
        “The DCI or DDCI may waive review by the CAPOC for programs covered by equivalent
        oversight mechanisms, or when review by the CAPOC is unnecessary to carry out the
        DCI's responsibilities.” [103]
Essentially, if the DCI deems it unnecessary for CAPOC to provide oversight information of a CAP, then
CAPOC plays no role in monitoring the program. While the DCI is legally obliged to verbally notify
Congress of the CIA’s most sensitive CAPs without providing specific budgetary or operational details,
there is no independent way of confirming if he indeed is doing so. Similarly, the DCI could similarly
withhold information of the CIA’s most sensitive CAPs to the National Security Council’s ‘Information
Security Oversight Office” (ISOO).

The extent to which authority is vested in the different security agencies is the way in which program
managers of CAPs/SAPs have the authority to come up with their own rules concerning access and
security. A 1994 Commission Report stated:
         The special access system gave the program manager the ability to decide who had a
         need-to-know and thus to strictly control access to the information. But elaborate, costly,
         and largely separate structures emerged. According to some, the system has grown out
         of control with each SAP [CAP] program manager able to set independent security
         rules. [104]
Program managers of CAPs/SAPs have the power to restrict access and information to the heads of
Congressional Intelligence Oversight Committees, and even to the NSC’s Information Security Oversight
Office. Consequently, operational control of CAPs and SAPs is firmly maintained by CAP/SAP program
managers who answer only to their immediate superiors despite the fact that they are funded by the
CIA’s unofficial black budget with the explicit support of the DCI.

Consequently there are two categories of waived CAPs/SAPs or ‘deep black programs’:
    those CAPs/SAPs where oversight is exercised by the relevant oversight committees in the CIA,
       DoD and the Executive Office;
    and those CAPs where the program managers answer to an entirely different oversight body. I
       now explore whom it is that does provide oversight of the CIA’s ‘unofficial’ Black Budget and
       Manhattan II.
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Oversight of the CIA’s ‘Unofficial’ Black Budget & Manhattan II
Considering the vast size and unconventional funding source for Manhattan II, it is worth exploring how
oversight of both the CIA’s ‘unofficial’ black budget and of Manhattan II has evolved, and whom program
managers for projects funded by the CIA’s unofficial black budget actually answer to.

The vastness and secrecy surrounding Manhattan II from its inception sometime during the Truman
Administration places it outside of the conventional political process where the appointment of key
civilian leaders is subject to partisan politics that could compromise the secrecy of Manhattan II and the
black budget that funds it. In contrast, the conventional political process has little direct influence on the
appointment of senior military personal who undergo a process of first being recommended to the
President by the relevant DoD promotions boards, then appointed by the President and finally confirmed
by the Senate.

While the military leadership of the DoD is outside the partisan political arena, this is not the case for the
appointment of the civilians who take on key positions as Secretaries, Deputy Secretaries, and
Undersecretaries of the different military services in the DoD with each new administration.

It is very likely that the senior military officials in key bodies such as the Joint Chiefs of Staff, are aware
of Manhattan II without having detailed knowledge of the black budget that funds it. It is likely that the
politically appointed leaders of the DoD have little substantive knowledge of Manhattan II, and have as
their chief task the goal of ensuring secrecy of Manhattan II and of the CIA generated ‘black budget’ that
feeds it.

Thus the Secretary of Defense would play no formal oversight of Manhattan II, far less of the black
budget that sustains it. The operational side of Manhattan II, in terms of product testing and application,
is most likely be controlled by the Joint Chiefs of Staff and the Directorates for Intelligence (J-2) and
Operations (J-3) that are responsible for intelligence and operational functions of the DoD.

It is unlikely that the Director of the CIA (DCI) is made fully aware of the extent of the ‘unofficial’ black
budget, the activities used to raise money for it, and the second Manhattan project it funds. The DCI like
all agency and department heads appointed by the President and confirmed by the Senate is subject to
the partisan political process. Up to the Carter Administration, the tradition was that the appointment DCI
would not be politicized.

However, President Gerald Ford effectively abandoned this with the appointment of George Bush as
DCI in 1975. [105] President Carter appointed Admiral Stansfield Turner as the new DCI in 1977, who in
turn was replaced by William Casey as the new DCI by President Reagan in 1981. Given the partisan
political nature of the DCI since Bush, it is likely much of the budgetary authority of the DCI was secretly
delegated by executive authority to a body that formally plays the key oversight role for the ‘unofficial’
black budget, and the covert projects it funds that make up Manhattan II. [106]

The delegated powers would most likely have derived from the Truman administration in the form of an
executive order and/or National Security Council directive not published in the US Federal Gazette that
is required for all executive orders, and thereby remains secret. [107] Such an executive order/NSC
directive would been reconfirmed and gradually expanded by subsequent administrations so that
ultimate oversight of the black budget and of Manhattan II remained firmly outside of the conventional
oversight process.

Consequently, effective oversight of Manhattan II, comes from an ‘executive committee’ especially
established in a way that would make it immune to the partisan political process thus ensuring strict
secrecy can be preserved, and politically motivated leaks prevented.

The power and resources delegated to this ‘executive oversight committee’ for Manhattan II by the
Executive Office, and its role in ensuring that ‘black budget’ funds are correctly used and kept secret
from the general public, justifies a description of it as a ‘shadow government’.

Back to Contents




Conclusion
The method used in guiding the analysis in this report is to simply follow the money trail created by the
CIA’s black budget that enables a number of important insights to be drawn by the institutions playing
key roles in generating, protecting and distributing black budget funds. Critical in this analysis has been
the experience of individuals and companies such as Catherine Fitts and Hamilton Securities that
experienced what evidence indicates was a CIA orchestrated covert campaign to discredit the financial
tracking reforms that threatened to make more transparent the financial flows of HUD and other
government agencies.

The systematic accounting problems experienced by HUD and other agencies points to the existence of
an unofficial black budget of up one trillion dollars annually. The size of the black budget and the CIA
activities used to generate funds for it, point to a vast secret network of projects that is funded outside of
the normal Congressional appropriation process. Consequently, what follows is a discussion of some of
the primary conclusions that can be drawn and arguments made concerning the CIA’s ‘unofficial’ black
budget and the Manhattan II project it has been argued to fund.

It is worth repeating that the CIA is legally authorized by Congress to transfer, “without regard to any
provisions of law”, funds from other government agencies for the generation of a black budget. There is
strong evidence that the CIA uses this power to disregard law to complement whatever funds it can
generate through Congressional appropriations, with funds gained through the drugs trade and
organized crime that is laundered through different government agencies.

The total annual sum of the black budget is best estimated in the form of accounting anomalies in the
main departmental recipient of all black budget funds, the DoD, and is in the vicinity of 1.1 trillion dollars
that funds a network of classified intelligence activities and covert operations that collectively form a
second Manhattan Project.

The oversight of Manhattan project occurs outside of the conventional oversight system that can be
easily compromised by partisan politics. The oversight system that has evolved has been very
successful in dividing different functions for Manhattan II in ways that balance institutional rivalries
between national security organizations without compromising secrecy.

Thus the CIA generates the black budget that in turns transfers these funds to projects that are
institutionally located in the military intelligence and special operations units of the DoD. The various
military intelligence agencies in turn hire private contractors and/or provide the necessary military
resources for these covert programs to be conducted in national laboratories, military bases, private
corporations or other classified locations.

The program managers of each of the classified projects associated with Manhattan II answer directly to
an ‘executive committee’ that is outside of the regular oversight process in DoD, CIA, Congress and the
Executive Office. The Joint Chiefs of Staff have control of the testing and applications of Manhattan II
products that are conducted in collaboration with the intelligence community. The respective intelligence,
defense and appropriations committees in the US Congress provide legitimacy for Manhattan II and the
black budget that funds it by not revoking the budgetary powers allocated to the CIA through the 1949
CIA Act.

Finally, the Executive Office through the National Security Council issues the necessary executive
orders/NSC directives to coordinate the functions and activities in all the branches of government in
order to secretly run Manhattan II. Thus each branch of the national security system plays an important
role in Manhattan II, without being fully in control of it, thereby insuring a division of powers according to
different functions required for Manhattan II. Effective oversight of Manhattan II, however, comes from
an ‘executive committee’ that is immune to the partisan political process and whose oversight power and
control of resources makes it virtually a ‘shadow government’.

It needs to be emphasized that the ‘unofficial’ black budget and Manhattan Project have legally evolved
in ways to respond to a national security contingency that is yet to be revealed to the American public.
The classified adversary that this elaborate secret system has been developed to respond to is arguably
a potential threat that warrants an extraordinary network of covert programs that dwarf the original
Manhattan Project and annually consume as much as 1.1 trillion dollars in a non-transparent manner.
More disturbingly, the importance of Manhattan II is such that the CIA has evidently used organized
criminal networks and the drug trade as sources to partially fund Manhattan II.

It is unclear when the full scope and impact of Manhattan II will be disclosed to the American public.
However, the consequences in terms of increased loss of trust in federal government agencies, loss of
morale among senior agency officials instructed to cover up black budget transactions, non-
transparency in the flow of government appropriations, targeting of policy makers and business leaders
who discover the fraudulent accounting and money laundering that occurs with the black budget, all
warrant a serious examination of the need for maintaining the secrecy of Manhattan II and the black
budget that funds it.

Finally, the classified adversary against whom Manhattan II is directed requires immediate
declassification due to the inherent dangers of dealing with what appears to be an undisclosed security
threat in a non-transparent and unaccountable manner, and totally outside of the moral/legal restrictions
that emerge from vigorous public debate in democratic societies.

Back to Contents




ENDNOTES
        [1] I wish to acknowledge H.M. for his hospitality, intellectual stimulation and research
        facilities for the completion of this paper. Many thanks to A.M. for his assistance in
        printing and distributing this report.
        [2] 50 United States Code (U.S.C.) 403j(b). For an online database of all federal
        statutes codified in the USC, go to: http://www.access.gpo.gov/uscode/index.html
        [3] See Tim Weiner, Blank Check: The Pentagon’s Black Budget (Warner Books, 1990)
        118
        [4] 95 Congressional Record 1945 (1949). Also quoted in Weiner, Blank Check, 119
        [5] 50 U.S.C. 403f(a)
        [6] This occurred to Catherine Austin Fitts whose work in detailing the black budget will
        be examined later.
        [7] Cited in Fletcher Prouty, The Secret Team,
        http://www.ratical.org/ratville/JFK/ST/STchp3ii.html
        [8] Data comes from a declassified CIA document detailing its projected budget for fiscal
        year 1953, “Location of Budgeted Funds for Fiscal Year 1953,” CIA, 15 February, 1952,
        available online at: http://www.fas.org/sgp/othergov/cia1953bud.pdf
        [9] Converting 1953 dollars into 2002 dollars, I used the conversion factor 0.175. For
        more details see, “Consumer Price Index (CPI) Conversion Factors to Convert into 2002
        dollars,” http://oregonstate.edu/Dept/pol_sci/fac/sahr/cv2002rs.pdf
        [10] Quoted in Weiner, Blank Check, 218.
        [11] Quoted in Weiner, Blank Check, 219.
        [12] Quoted in Weiner, Blank Check, 220-21.
        [13] Quoted in Weiner, Blank Check, 222. Richardson v. U.S. 465 F. 2d 844, 853,
        United States Court of Appeals for the Third Circuit, 1972.
        [14] For the courts ruling as well as dissenting opinions, see U.S. v. Richardson (418
        U.S. 166) 167-202.
        [15] For further discussion see “The CIA’s Secret Funding and the Constitution,” 84 Yale
        Law Journal 613 (1975).
        [16] See Senate Select Committee on Intelligence, Whether Disclosure of Funds for the
        Intelligence Activities of the United States Is in the Public Interest, Report No. 95-274,
        94th Congress, 2nd Session, June 16, 1977 (Government Printing Office, 1977). Also
        quoted in Weiner, Blank Check, 137-38
        [17] See Weiner, Blank Check, 138.
        [18] FOIA was enacted in 1966 as Title 5 of the United States Code, section 552. For
        online information, see http://www.usdoj.gov/04foia/referenceguidemay99.htm
[19] See “FAS Sues CIA for Intelligence Budget Disclosure,”
http://www.fas.org/sgp/foia/ciafoia.html
[20] For a copy of the lawsuit, see “FAS Sues CIA for Intelligence Budget Disclosure,”
http://www.fas.org/sgp/foia/ciafoia.html . For a website describing the Intelligence
Community, go to http://www.intelligence.gov/ .
[21] See Intelligence Authorization Act for Fiscal Year 1998, Amendment No.416
Congressional Record: June 19, 1997 (Senate) p. S5963-S5978]; Available online at:
http://www.fas.org/sgp/congress/s858.html
[22] “House Debate on Intelligence Budget Disclosure,” Intelligence Authorization Act
for Fiscal Year 1998, Congressional Record: July 9, 1997 (House)] p. H4948-H4985.
Available online at: http://www.fas.org/sgp/congress/hbudg.html
[23] See “Statement of the Director of Central Intelligence Regarding the Disclosure of
the Aggregate Intelligence Budget for Fiscal Year 1997,”
http://www.fas.org/sgp/foia/victory.html
[24] Marchetti and Marks, The CIA and the Cult of Intelligence (Alfred Knopf, 1974) 61,
81.
[25] Wise, The American Police State (Random House, 1976) 185.
[26] See Federation of Atomic Scientists, http://www.fas.org/irp/agency/budget1.htm
[27] The conversion ration is 0.908 to convert from 1998 to 2002, see “Consumer Price
Index (CPI) Conversion Factors to Convert into 2002 dollars,”
http://oregonstate.edu/Dept/pol_sci/fac/sahr/cv2002rs.pdf
[28] See Mari Kane, “On the Money Trail: The dangerous world of Catherine Austin
Fitts,” North Bay Bohemian, September 5-11, 2002:
http://www.metroactive.com/papers/sonoma/09.05.02/fitts-0236.html
[29] See Kane, “On the Money Trail,” North Bay Bohemian (September 5-11, 2002).
Available online at: http://www.metroactive.com/papers/sonoma/09.05.02/fitts-0236.html
[30] See Kane, “On the Money Trail,”
http://www.metroactive.com/papers/sonoma/09.05.02/fitts-0236.html
[31] See Kane, “On the Money Trail,”
http://www.metroactive.com/papers/sonoma/09.05.02/fitts-0236.html
[32] See Uri Dowbenky, “HUD Fraud, Spooks and the Slumlords of Harvard,”
Bushwacked: Inside Stories of True Conspiracies (National Liberty Press, 2003) 1-18.
Available online at: http://www.conspiracydigest.com/bushwhacked.html
[33] Paul M. Rodriquez, “Mortgage Scandal - HUD Gives Up With Fitts,” Insight On the
News, available online at:
http://www.insightmag.com/main.cfm?include=detail&storyid=161204
[34] See Fitts, “Summary of Events As of February, 2001:
http://www.solari.com/media/summary.html
[35] Catherine Austin Fitts, “Experience with FHA-HUD Background Information for
Unanswered Questions,” June 2003. Available online at:
http://solari.com/gideon/fhalist.htm
[36] See Kelly Patricia O’Meara, “Why Is $59 Billion Missing From HUD?” Insight on
News (Nov 6, 2000). Available online at:
http://www.insightmag.com/main.cfm?include=detail&storyid=246245
[37] Susan Gaffney , “Audit Results for the Department of Housing and Urban
Development," Testimony before a hearing of the Subcommittee on Government
Management, Information, and Technology (March 22, 2000 1999). Available online at:
http://www.whereisthemoney.org/59billion.htm and
http://www.hud.gov/offices/oig/data/reform.pdf
[38] Quoted in Kelly Patricia O’Meara, “Why Is $59 Billion Missing From HUD?” Insight
on News (Nov 6, 2000).
http://www.insightmag.com/main.cfm?include=detail&storyid=246245
[39] Quoted in Kelly Patricia O’Meara, “Why Is $59 Billion Missing From HUD?” Insight
on News (Nov 6, 2000).
http://www.insightmag.com/main.cfm?include=detail&storyid=246245
[40] “HUD’s Financial Woes Continue,” Insight On the News (April 18, 2003). Available
online at: http://www.insightmag.com/news/421370.html
[41] For discussion of the difficulties encountered by Fitts’ company, see Paul
Rodriquez, “Thankless Task,” Insight on the News (May 21, 2001). Available online at:
http://www.insightmag.com/main.cfm/include/detail/storyid/210955.html
[42] Catherine Fitts, “The Myth of the Rule of Law or How Money Works: The
Destruction of Hamilton Securities.” SRA Quarterly: Third Quarter Commentary
(London, 2001) 2. Available online at: http://www.solari.com/gideon/q301.pdf
[43] Dowbenky, Bushwacked, available online at:
http://www.conspiracydigest.com/bushwhacked.html
[44] Dowbenky, Bushwacked, available online at:
http://www.conspiracydigest.com/bushwhacked.html
[45] Dowbenky, Bushwacked, available online at:
http://www.conspiracydigest.com/bushwhacked.html
[46] See Fitts, “Summary of Events,” http://www.solari.com/media/summary.html
[47] For background information on Judge Sporkin, see “Stanley Sporkin, Bio &
Selected CIA Iran Contra Background,” http://www.solari.com/media/SporkinBio.html
[48] Fitts’ own conclusion was that the CIA was indeed involved in the destruction of
Hamilton, but her view was that HUD was being used to launder money from the illicit
drug trade. Catherine Fitts, “The Myth of the Rule of Law or How Money Works,” SRA
Quarterly, 5.
[49] Report of Senator Fred Thompson, Chairman, Committee on Governmental Affairs,
on Management Challenges Facing the New Administration (US Senate, 2002)
available online at: http://www.senate.gov/~gov_affairs/vol1.pdf
[50] Special Access and Covert Access programs will be described later in this report.
[51] For history of OSS, See Michael Warner, “Office of Strategic Services,”
http://www.cia.gov/cia/publications/oss/foreword.htm
[52] See State Department history of Intelligence Services,
http://www.state.gov/www/about_state/history/intel/intro.html
[53] See 50 U.S.C. 401
[54] The Intelligence Community website is: http://www.intelligence.gov/
[55] 50 U.S.C. 404(b).
[56] 50USC403-4(c)
[57] 50 U.S.C. 403-5(a)
[58] 50 U.S.C.403-6(a)
[59] Statistics on the estimated budgets and personnel of the different intelligence
agencies are available online at: http://www.fas.org/irp/commission/budget.htm
[60] 10 USC114. Available online at:
http://www4.law.cornell.edu/uscode/10/stApIch2.html
[61] The relevant Congressional statutes for SAPs is 10 U.S.C.119
[62] 50 U.S.C.403j (b)
[63] 50USC403q (b)(3)
[64] 5a U.S.C.3(a)
[65] 10 U.S.C.114. Available online at:
http://www4.law.cornell.edu/uscode/10/stApIch2.html
[66] See Gary Webb, The Dark Alliance (Seven Stories Press, 1998). For online
information on the connection between the CIA and the drug trade, see Michael
Rupert’s ‘From The Wilderness’ website: http://www.fromthewilderness.com/
[67] For a brief summary of Rupert’s background, see “Opening Remarkks of Michael C.
Rupert for the Senate Select Committee on Intelligence,” available online at
http://www.fromthewilderness.com/free/ciadrugs/ssci.html
[68] “Written Statement of Celerino Castillo III (D.E.A., Retired) to the House Permanent
Select Committee on Intelligence,” April 27, 1998. Celerino’s statement is available
online at: http://www.fromthewilderness.com/free/ciadrugs/contra1.html
[69] Castillo, “Written Statement,” available at:
http://www.fromthewilderness.com/free/ciadrugs/contra1.html
[70] See David Zucchino, The suicide files: Death in the military----last of a four part
series,” The Philadelphia Inquirer, December 22, 1993. Available online at:
http://www.whatreallyhappened.com/RANCHO/POLITICS/MENA/suicide4.html . See
also Gary Null, “The Strange Death of Col Sabow,” available online at:
http://www.garynull.com/documents/sabow.htm
[71] Gary Null, “The Strange Death of Col Sabow,”
http://www.garynull.com/documents/sabow.htm
[72] Lawrence E. Walsh, Final Report of the Independent Counsel for Iraq/Contra
Matters, Vol 1. (United States Court of Appeal for the District of Columbia Circuit, 1993)
ch. 21. Available on line at: http://www.fas.org/irp/offdocs/walsh/chap_21.htm
[73] See Michael Ruppert, “A CIA Confession: Oliver North Exposed,” From the
Wilderness, October 21, 1998. Available online at:
http://www.fromthewilderness.com/free/ciadrugs/volii.html
[74] Webb subsequently wrote the book, Dark Alliance (Seven Stories Press, 1998).
[75] See Robert Suro and Walter Pincus, “The CIA and Crack: Evidence is Lacking of
Alleged Plot,” Washington Post, October 4, 1996. See also Webb, Dark Alliance, 448-
50.
[76] See “Tale of CIA and Drugs Has Life of Its Own,” New York Times, October 20,
1996. The Los Angeles Times articles ran over three days beginning October 20. See
also Webb, Dark Alliance, 452-55.
[77] See Webb, Dark Alliance, 461-65.
[78] Webb, Dark Alliance, 450-52.
[79] Inspector General, CIA, “Report of Investigation: Allegations of Connections
Between CIA
and The Contras in Cocaine Trafficking to the United States (Office of Inspector General
Investigations Staff, CIA, January 29, 1998) Vols 1-2. Available online at:
http://www.cia.gov/cia/reports/cocaine/report/index.html
[80] Weiner, Blank Check, 178-79.
[81] Kelly Patricia O’Meara, “Government Fails Fiscal-Fitness Test,” Insight on the News
(April 29, 2002). Available online at: http://www.insightmag.com/news/246188.html
[82] David K. Steensma, “Agency Wide Financial Statements. The Department of
Defense Audit Opinion.” (February 26, 2002) The Report can be viewed online at:
http://www.dodig.osd.mil/Audit/reports/fy02/02-055.pdf
[83] Kelly Patricia O’Meara, “Rumsfeld Inherits Financial Mess,” Insight on the News
(Aug. 10, 2001). Available online at:
http://www.insightmag.com/main.cfm?include=detail&storyid=139530 . Another media
report on the 1.1 trillion missing dollars is Tom Abate, Military waste under fire $1 trillion
missing – Bush plan targets Pentagon accounting, San Francisco Chronicle (May 18,
2003. Available online at: http://www.ratical.org/ratville/CAH/DODtrillions.html#p6
[84] Independent Auditor's Report on the Department of Defense Fiscal Year 2002
Agency-Wide Principal Financial Statements (1/15/03) Project D2002FI-0104.000, part
III, p. 225, http://www.dodig.osd.mil/Audit/reports/
[85] Independent Auditor's Report on the Department of Defense Fiscal Year 2001
Agency-Wide Financial Statements (02/26/02), Report No. D-2002-055,
http://www.dodig.osd.mil/Audit/reports/
[86] Office of the Inspector General, Compilation of the FY 2000 DoD Agency-Wide
Financial Statements -- Report No. D-2001-181(PDF)-Project No. D2001FI-0018.003
http://www.dodig.osd.mil/Audit/reports/
[87] Department of Defense, Office of the Inspector General – Audit, “Department-Level
Accounting Entries for FY 1999” Report No. D-2000-179 (PDF)
http://www.dodig.osd.mil/Audit/reports/
[88] Testimony: Statement of Eleanor Hill, Inspector General, Department of Defense,
Before the Subcommittee on Readiness and Management Support Senate Armed
Services Committee, United States Senate on Defense Financial Management
(04/14/99) http://www.dodig.osd.mil/Audit/reports/
[89] See Fitts, “Real Deal, Saving Tennessee,” Scoop UQ Wire (July 4, 2002). Available
online at: http://www.scoop.co.nz/mason/stories/HL0207/S00031.htm#a
Fitts has a website with a number of resources describing how more than a trillion
dollars are annually unaccounted for in a number of government agencies. Go to
http://www.solari.com
[90] “Fiscal 2004 Department of Defense Budget Release,” Defense Link, February 03,
2003. Available online at: http://www.defenselink.mil/news/Feb2003/b02032003_bt044-
03.html
[91] See Leslie R. Groves, Now It Can Be Told: The Story of the Manhattan Project (Da
Capo Press, 1983).
[92] For an intriguing description of what the black budget funds and the ‘classified
adversary’, see Catherine Fitts, “The $64 Question: What's Up With the Black Budget?
– The Real Deal,” Scoop: UQ Wire (23 September, 2002). Available online at:
http://www.scoop.co.nz/mason/stories/HL0209/S00126.htm . For a more conventional
assessment of potential future adversaries, see Judy Chizek, “Military Transformation:
Intelligence, Surveillance and Reconnaissance” (Congressional Research Service,
Library of Congress, May 2002). Available online at:
http://www.fas.org/irp/crs/RL31425.pdf
[93] For an overview of the classification system, see Report of the Commission on
Protecting and Reducing Government Secrecy: 1997. Available online at:
http://www.access.gpo.gov/congress/commissions/secrecy/index.html
[94] Report of the Commission on Protecting and Reducing Government Secrecy: 1997.
Available online at:
http://www.access.gpo.gov/congress/commissions/secrecy/index.html
[95] Report of the Commission on Protecting and Reducing Government Secrecy, 26.
Available online at:
http://www.access.gpo.gov/congress/commissions/secrecy/index.html
[96] For a slightly though still excellent overview of oversight mechanisms for the CIA,
see “The Need to Know: The Report of the Twenthieth Century Fund Task Force on
Covert Action and American Democracy” (The Twentieth Century Fund Press, 1992).
[97] Office of the Press Secretary, “White House Press Release: Classified National
Security Information,” Executive Order #12958 (April 17, 1995) Section 4.4. Available
online at: http://foia.state.gov/eo12958/part4.asp#rtt
[98] Executive Order #12958 (April 17, 1995). Available online at:
http://foia.state.gov/eo12958/part4.asp#rtt
[99] “The Need to Know: The Report of the Twentieth Century Fund Task Force on
Covert Action and American Democracy,” 71.
[100] See, Director of Central Intelligence, “Controlled Access Program Oversight
Committee,” Directive 3: 29 (June 1995) http://www.fas.org/irp/offdocs/dcid3-29.html .
For the DoD oversight body, see Deputy Secretary of Defense, “Special Access
Program Oversight Committee,” Information Bulletin: November 1994. Available online
at: http://www.fas.org/sgp/othergov/sapoc.html .
[101] For description of the functions of CAPOC see Director of Central Intelligence,
“Controlled Access Program Oversight Committee,” Directive 3: 29 (June 1995) Article
3.3. Available online at: http://www.fas.org/irp/offdocs/dcid3-29.html .
[102] Director of Central Intelligence, “Controlled Access Program Oversight
Committee,” Directive 3: 29 (June 1995) Article 2.4. Available online at:
http://www.fas.org/irp/offdocs/dcid3-29.html .
[103] Director of Central Intelligence, “Controlled Access Program Oversight
Committee,” Directive 3: 29 (June 1995) Article 3.2. Available online at:
http://www.fas.org/irp/offdocs/dcid3-29.html
[104] Joint Security Commission Redefining Security: A Report to the Secretary of
Defense and the Director of Central Intelligence (Washington, D.C., February 28, 1994)
http://www.fas.org/sgp/library/jsc/chap2.html
[105] John Helgerson, CIA Briefings with Presidential Candidates (Central Intelligence
Agency, 1996,) ch. 5, available online at: http://www.cia.gov/csi/books/briefing/cia-8.htm
[106] See Harold Relyea, “Presidential Directives: Background and Overview,” available
online at: http://www.fas.org/irp/crs/98-611.pdf
        [107] For an overview of Presidential Directives and executive power to create new
        bodies and delegate authority without Congressional approval, see Harold Relyea,
        “Presidential Directives: Background and Overview” (Congressional Research Service,
        Library of Congress, February 2003) Available online at: http://www.fas.org/irp/crs/98-
        611.pdf.




                                           Chapter 3
                              An Overview of the CIA

                      SECTION II: Origins of the Agency
                        and Seeds of Secret Operations


       By the end of world war II it was abundantly clear that the U.S. must have a central
intelligence authority. The mistakes which were made, more by omission than by commission,
by the intelligence community during the war were serious. This country could never again
afford the luxury of overlooking the need for reliable intelligence. The witch hunt that took place
right after the war in an attempt to fix the blame for the disaster at Pearl Harbor was indicative of
the depth of the problem. After the war, it became clear to many that we had seriously
overestimated the strength of the Japanese and that we had as a result seriously overrated the task
that confronted the Russians in moving their eastern armies across Manchuria against the
Japanese at the end of the war.

      In addition to these rather obvious criticisms, there was the fact of the atomic bomb. It had
been developed in great secrecy under the Manhattan Project; but once it had been demonstrated
at Hiroshima and Nagasaki, it was no longer a secret. Scientists all over the world would be
attempting to solve the bomb's problems, knowing now that it was entirely feasible and practical,
and their own intelligence and spy networks would be trying to steal the secrets of the bomb
from the United States. This put another serious burden upon the intelligence community.

       Not long after the cessation of hostilities, the first measures toward the establishment of a
central intelligence authority were announced. Less than six months after the end of the war the
President set up the Central Intelligence Group. The New York Times on January 23, 1946,
reported that President Truman established a National Intelligence Authority composed of the
Secretaries of State, War, and Navy. It was to be headed by a Director of Central Intelligence.
The DCI would have at his disposal the staffs and organizations of all government intelligence
units, including those overseas, and would undertake "such services of common concern as the
National Intelligence Authority determines can be more efficiently accomplished centrally". This
provision would enable the Director to operate his own staff for top secret and high priority
missions, while utilizing the production of all other Agency staff operations for general
intelligence production.

       The plan was devised by the Joint Chiefs of Staff as a modification of one submitted by
Major General William J. Donovan at the time of the dissolution of the OSS. It deviated from
Donovan's suggestion in several important particulars, however. First, it placed the Central
Intelligence Group and its Director under the jurisdiction of the Secretarial triumvirate. In the
accepted plan this triumvirate retained authority over the Central Intelligence Group instead of
placing the Group directly under the President. Second, it provided that operating funds for the
organization would be obtained from the Departments of State, War, and Navy rather than
directly from Congress as had been provided for by Donovan's plan. As a consequence, the
Group was responsible not to Congress but to the Cabinet members making up the top authority.
In his directive, the President ordered that "all Federal and foreign intelligence activities be
planned, developed, and coordinated so as to assure the most effective accomplishment of the
intelligence mission related to the National Security."

      Thus, less than six months after the end of World War II, the battle lines for a major
internal war had been drawn.

       Most of the problems and the failures of the past twenty-five years can be attributed
directly to inadequate and improper decisions made during these struggles within the
Government during this immediate postwar period and to the impact they have had upon the
welfare of this country since that time.

      On one side were the tradition experienced planners who believed in the power of this
great nation, all who felt that our future course lay in the increase of our own strength and of the
beneficent impact of this strength upon the rest of the world. These men believed in the
American way of life and in the ability of our economy to cope with world competition and of
American diplomacy to plan our course of action wisely and to carry out effective national
policy. They further believed in the capabilities of American military might to back up our
diplomats and businessmen. To put it bluntly, these men were not afraid of the Communist
bogeyman. They respected Communism for what it was, and they respected the power and
strength of the Russian people. At the same time, they were willing and ready to plan for a
common world future and an undivided world at peace.

       The other side, however, wished to create a sort of Maginot Line of intelligence people
around the world, separating the Communist world from the Free World. Then they would peer
out at the rest of the world through a veil of secrecy plugged in to data inputs of the intelligence
gathering sources wherever they were and supported by a military machine in a defense posture,
ready for "reaction" at all times. In essence, this latter point of view of foreign policy operations
is passive and reactive, implemented not by plan but only by response to the initiatives of others.

       This is well stated by Allen Dulles in his book, The Craft of Intelligence: "The military
threat in the nuclear missile age is well understood, and we are rightly spending billions to
counter it. We must similarly deal with all aspects of the invisible war, Krushchev's wars of
liberation, the subversive threats orchestrated by the Soviet Communist party with all its
ramifications and fronts, supported by espionage. The last thing we can afford to do today is to
put our Intelligence in chains. Its protective and information role is indispensable in an era of
unique and continuing danger." The key word, "counter", appears in the first sentence.

       This final and summary paragraph of the old master's book is the best sample of the
intelligence team's view of how to live in the modern nuclear age. They would have us establish
the most extensive and expensive intelligence network possible and then develop a feedback
capability that would automatically counter every threat they saw.

       Although Allen Dulles does not say it in his book, his concept of Intelligence is about 10
percent real Intelligence and 90 percent clandestine operations. In other words, he would have us
busy all around the world all of the time countering "all aspects of the invisible war". By this he
means intervening in the internal affairs of other nations with or without their knowledge and
permission. (This leads to a serious danger, which will be treated at some length later.) It is what
the United States has been doing in an increasing crescendo of events, beginning with such
actions as the involvement in Berlin and Iran in the 1940s and culminating in the terrible disaster
of Vietnam that began as a major intelligence operation, went on into the clandestine operations
stage, then got out of hand and had to become an overt activity during the Johnson era.

       Traditionally, the foreign policy of the nation has been planned, and to the extent possible,
has been openly arrived at. On those occasions when diplomacy has failed, the armed might of
this country has been exploited overtly to back up foreign policy, or in the last resort to
accomplish what diplomacy has been unable to do, by going to war. In the view of foreign policy
action and the role of Intelligence as stated by Allen Dulles, however, intelligence would be the
device used to set foreign policy actions in motion to "counter... all aspects of the invisible war."
If this is not clear, he emphasizes, "The military threat in the nuclear missile age is well
understood, and we are rightly spending billions to counter it." The idea is that intelligence is the
catalytic element that triggers response and that this response will be covert, operational, and
military as required.

       With the advent of a strong Intelligence community and with the ascendancy of that voice
in the higher echelons of the Government, the Government has slowly but positively moved from
an active course of following plans and policies to the easier and more expedient course of the
counterpuncher. The Government has become increasingly adept at reaction and response. A
simple review of what this Government really found itself doing in the Congo or in Laos or Tibet
during the sixties would be enough to clarify and support the argument that the Government
responded to action inputs and "did something", instead of turning to plans and national
objectives, which it did not have. Further support of this thesis that the Government has been
weaned away from plans and policy in favor of the easier response mechanism activated by
intelligence is apparent in even a cursory look at the degradation of the roles of the once
prestigious Departments of State and Defense. Lately, the Army has found new worlds to
conquer under the cloak of the Green Berets who operate with the CIA. Even the Air Force
welcomes the utilization of the once proud B-52 strategic bomber in a function that is totally
degrading -- the blind bombardment of Indochina's forests and wastelands on the assumption that
there are worthwhile targets on the Ho Chi Minh trail. The only reason State and Defense can
give for what they have permitted themselves to become engaged in is that "the intelligence
reports" say the "enemy" is there. No one asks, What is the national objective in Indochina? No
one has a national plan for Indochina. We have become counterpunchers without a game plan,
and we have become that because we take our cues from raw intelligence data.

       In our form of government this is a fairly recent approach. In 1929, when Secretary of
State Stimson said, "Gentlemen do not read other people's mail," he was voicing the conditions
of another era. We have come a long way since the days of 1929, and nations do read each
other's mail because it is easier to do now than it used to be and because the dangers that exist
today are much closer to home. We need to know as much as it is possible to learn about Russian
capabilities and Russian intent. Total destruction is only about forty-five minutes away.

       But there was another reason Stimson made that statement. In an open society we do not
develop the same wiles that are necessary in a world in which everyone reads everyone else's
mail. Therefore, if you are going to defend yourself by reading the other man's mail, you had
better know what he means by what he has written in his letters. He knows you are reading his
mail, and he will bluff you right out of the game. And what is more important, we must carry out
our own policies in such a way that he cannot keep us from our own goals.

       It is this point that looms larger when a government such as ours carries out its foreign and
military affairs on a response basis. Such action over a period of time denies us all initiative and
leadership and virtually precludes the possibility of bluff or skillful design. One cannot very well
bluff or use surprise when he has been set in the pattern of response for twenty-five years. In
military terms, the employment of proper tactics and strategy must be tempered by surprise when
needed. In the great contest that has been going on between the major powers today, one can see
that our course in response to such things as "Communist-inspired subversive insurgency" has
cost us hundreds of billions of dollars and tens of thousands of lives; it has cost the same
Communists we proclaim we are "countering" almost nothing. The response method of anything
is a trap. The most frustrating and debilitating thing about it is that we have no objectives, no
goals. We simply have an inertial drift into whatever direction the men in the Kremlin lure us. It
is important to realize that if the highest echelons in government become preoccupied and
preempted by intelligence inputs, voluminous reports, and other briefings, they do not have the
chance to get planning done to weigh alternatives and to see that policies are effective.

       General Donovan and Allen Dulles made a career of trying to have the Director of Central
Intelligence assigned to the immediate Office of the President for just the reason outlined above.
They wanted to be placed in the dominant position in this Government. They knew that with
modern techniques, with modern communications and effective controls, all supported by money
and equipment wherever needed, Intelligence was capable of running the Government and its
foreign affairs. The Kissinger example is a case in point. This was the danger that the legislators
saw in Donovan's early proposal. It is why the President, acting on his own authority, placed the
Director under the jurisdiction of the three Secretaries.

       To emphasize his intent and to make sure that it would work his way, President Truman
directed that "operating funds for the organization would be obtained from the Departments of
State, War, and Navy instead of directly from Congress." The Donovan plan had proposed the
opposite. If the DCI was required to get his money each year through these other departments, he
would be subservient to them and he would carry out their wishes.

       These were the surface reasons for this decision. The real reason for this relegation of the
DCI to a subordinate position was to prevent the Director and his organization from participating
in clandestine operations without the express direction and authority of the Secretaries and the
White House. As we have noted, President Truman planned for the CIA to be the "quiet
intelligence arm of the President". He and those of his Administration never intended that it
become an autonomous operational agency in the clandestine field.

       Because of the general secrecy that surrounds such things, this debate did not become
public. The establishment of a "National Intelligence Authority" by Truman was considered an
interim arrangement. The day after he set up the group, the President announced the appointment
of Rear Admiral Sidney Souers as the first Director of Central Intelligence. At the same time, the
President established a precedent that has continued to this day, by designating Admiral William
D. Leahy to represent him as a member of the National Intelligence Authority. Before his
appointment to his new job, Admiral Souers had been the deputy chief of the Office of Naval
Intelligence.

       It was learned concurrently that President Truman had ordered that "all federal and foreign
intelligence activities be planned, developed and coordinated so as to assure the most effective
accomplishment of the intelligence mission related to the national security."[1]

       The President's directive contained further instructions to the Director of Central
Intelligence. They were:

                   1. Accomplish the correlation and evaluation of intelligence relating to
                      national security and provide for appropriate dissemination within the
                      government of the resulting strategic and national intelligence.
                   2. Plan for the coordination of such of the activities of the intelligence
                      agencies of all departments as relate to the National Security and
                      recommend to the National Intelligence Authority the establishment of
                      such overall policies and objectives as will assure the most effective
                      accomplishment of the national intelligence mission.

       A few weeks later, The New York Times published an article by Hanson Baldwin, its
Military Affairs columnist, saying: "The establishment of a National intelligence Authority is a
very important move. It is more important than the proposed merger of the War and Navy
Departments. In all parts of the world today intelligence is most emphatically the first line of
defense." This is an interesting use of this term "first line of defense". It appears many times later
in the writings and speeches of such men as Allen Dulles and General Donovan. To them,
intelligence was not limited to information. It was very much an operational organization and
function.

      Baldwin went on to say that the new Intelligence Authority under Admiral Souers "will at
most just collate and analyze intelligence. Later on it may take over the job of collection of
intelligence, and later its agents will supplement the normal intelligence sources of the military
services." He added, "The State Department's new Intelligence service under Colonel Alfred
McCormick will continue but will probably be somewhat more restricted in scope than it has
been." Both of these statements were prophetic and indicate that Baldwin had obtained his
information from Donovan-Dulles sources. It was the "party line" that Intelligence would take
over the task of collection, whether Congress and the Administration had that function in the law
or not.

       In the heat of this major behind-the-scenes power play, there was bound to be an
explosion. It is quite possible that this development, which occurred during the first week of
March 1946, did not carry with it at that time the same significance that it does in retrospect. On
the first day of March 1946, General Donovan gave an impassioned and hard-hitting speech
before the Overseas Press Club in New York City. He stated that there had been numerous times
when faulty and inaccurate intelligence had done great damage to this country's prosecution of
the war. But the main burden of his speech concerned the new intelligence Authority. He said
that experience had shown that we could obtain tested knowledge only through a coordinated,
centralized, civilian directed intelligence service independent of other departments of the
Government. Here he was taking a direct slap at General MacArthur and the JCS as well as at the
Administration. He agreed that the new Central Intelligence Group established by the President
was an advance over anything we had previously had in peacetime, but it lacked civilian control
and independence.

       Donovan voiced displeasure over any intelligence setup that did not dominate the scene.
While Admiral Souers was setting up his new organization, Congress was working on the
National Defense Act. The public was interested in and aroused over the provisions of this Act as
it pertained to a new Department of Defense. The big word at that time was "unification".
Feeling had run strong during World War II that the military services should have been more
unified. It was claimed that they would have been more efficient, and there might have been less
confusion and waste. At the same time, there were a number of advocates of an independent Air
Force. Up to that time, the Air Force had always been a part of the Army. What was called
unification at that time seems more like separation today, because the new law, when it was
enacted, established a separate Army and Navy and a new Air Force. As we know them today
they are still far from unified. In the heat of all this discussion, there was little public airing of
the provision for the Central Intelligence Agency.

       Those were troubled and confused times. The war was less than one year past, and people
who looked back at it forgot all of the worldwide campaigns and remembered only the shock and
terror of the atomic explosions at Hiroshima and Nagasaki. With fear of the unknown always
more deadly than fear of a conventional shooting war, there was no chance to relax from the
tensions of world struggle, safe in the knowledge that another war could not start up at any time,
as we had believed after World War I. On the contrary, the threat of atomic warfare, even though
it might be sometime in the future, was so terrifying that many felt the potential danger of
nuclear weapons in the hands of the Soviet Union represented a graver peril than all the battles of
World War II. As a result, with the war only six months behind them, Congress and the
Administration turned to the serious problems of defense.
       Thus, on the same day that General Donovan had spoken to the Overseas Press Club,
Secretary of State James Byrnes also addressed that group. It is most revealing to look back at
the major differences between the two speeches. Addressing this group as the official spokesman
of the administration, he said that there was one thing that was very important: "The question is
what can we do to make certain that there will never be another war?" Then, citing problems of
the war, he went on, "Our relief and our gratitude for victory are mixed with uncertainty. Our
goal now is permanent peace, and certainly we seek it even more anxiously than we sought
victory. The difficulty is that the path to permanent peace is not so easy to see and to follow as
was the path to victory." He said that "because we know that no nation can make peace by itself,
we have pinned our hopes to the banner of the U.S." Byrnes added, "If we are going to do our
part to maintain peace in the world, we must maintain our power to do so. We must make it clear
that we will stand united with the other great states in defense of the charter of the UN. If we are
to be a great power, we must act as a great power, not only in order to insure our own security
but in order to preserve the peace of the world." Continuing, he said, "It is not in accord with our
traditions to maintain a large professional standing army, but we must be able and ready to
provide an armed contingent that may be required on short notice. We must have a trained
citizenry ready to supplement those of the armed contingents." After making these statements,
Byrnes added a very interesting comment that has special significance and applicability today.
He said, "Our tradition as a peaceloving, law-abiding democratic people should be an assurance
that our forces will not be used except as they may be called into action by the Security Council,
and cannot be employed in war without the consent of Congress. We need not fear their misuse
unless we distrust the representatives of the people."

       In view of what has transpired in the Vietnam war, Byrnes' last statement takes on special
meaning. As he continued his speech he made another most interesting remark: "So far as the
United States is concerned, we will gang up against no state. We will do nothing to break the
world into exclusive blocks or spheres of influence in this atomic age. We will not seek to divide
a world which is one and indivisible." This "oneworld" view, this idea that no nation should do
that which would destroy hopes for world unity and harmony, was the official policy of the
Administration at that time. It was the national policy of a people dedicated to the proposition
that this country was strong and able enough to stand upon its own feet and make its own way in
the world. It was a positive and active policy that would plan for the future; yet only five days
later another speech of another kind did more to turn the minds of the world, and especially of
the United States, and to blight our future than any other speech in the following quarter-century.

      It is startling and most significant to recall that the then leader of the Loyal Opposition in
the British House of Commons, Sir Winston Churchill, only five days after Secretary Byrnes'
speech made a speech that was just the opposite. He declared: "Beware... the time may be short...
from Staten in the Baltic to Truest in the Adriatic, an Iron Curtain has descended across the
continent."

      In this famous Iron Curtain speech Churchill, like many others, was driving the tip of the
wedge between the great powers of the world, while at almost the same time the Secretary of
State had said, "We will do nothing to break the world into exclusive blocks or spheres of
influence in the atomic age. We will not seek to divide a world which is one and indivisible."
Here again was the classic contest. The active overt planner, Byrnes, versus the passive covert
reactivist, Churchill.

      These were not simply the comments of one man. They were typical, and they were
indicative of the thinking and of the intentions of the official, elected leaders of the United States
right after the end of World War II, and of their deep-seated opposition. Great forces were
working to divide the world -- to set up one half as Communist, and the other half Free World
and anti-Communist. There was the inertial drift that was transferring the initiative to the
Kremlin.

       The source of most of our problems of the past twenty-five years and certainly of the grave
problems that beset our country today, lies in this schism between those who believed in the
traditional school of national planning and overt diplomacy and those who believed in a passive
role of reaction to a general enemy (Communism). This latter school would operate in response
to intelligence inputs, without plans and without national objectives, would hide everything it did
in secrecy, and would justify its actions in all instances as being anti-Communist. On the other
hand, there were those who believed that the United States was the new leader of the world and
that its responsibility to its own people and to those of the rest of the world lay in making a better
world for all mankind along the lines of the example of the United States' tradition. At its best,
this represented the dreams of free men for liberty and individual freedom under law and justice.

       The maintenance of such a world and the expansion of such conditions to other parts of the
world would require planning and great effort. The original concept of the Marshall Plan was an
example of the best that such endeavors can accomplish in the face of Communist threats and
opposition. Communism was met head on in Europe right after World War II and was defeated
in France and Italy without resort to war and without response mechanisms. Communism was
beaten by superior U.S. planning and policy. However, this kind of international effort requires
dedicated leadership and great effort. One of the most difficult things for any government to do
is develop and carry out long-range plans. That takes a certain inspired vision and rare leadership
that is not often available.

       On the other hand, it is easier and more typical to react and respond to outside pressures
than to act in accordance with approved plans. In a modern government vested with immense
capacity and advanced communications, it can be made to look more effective to set up and
operate from a feedback system that will respond almost automatically to inputs, most of which
are derived from a new style comprehensive intelligence information system fed by bits of data
from everything including agents to satellite photography and other sophisticated sensors. The
government in this case defines a threat, real or imagined, and responds to each data input from
the threat and the danger.

       This is what has been developed, and at this stage of the system this has become the
normal course. Therefore, since it was all but inevitable that there would be a power struggle of
some kind between the two great power centers on earth, even without declared hostility, the
intelligence community proponents said that it would be easier to begin our national defense
posture by delineating the source of all concern and danger, i.e. world communism, and then to
draw lines for a never-ending battle, sometimes called the Cold War. The line so constructed
was, in the beginning, the Iron Curtain. Although one might expect that the battles would be
waged by our forces on their side of the curtain, and the skirmishes by their forces would be on
our side, it has not turned out that way. The battles that have been fought since 1947 for the most
part have been fought on our side of the Iron Curtain. It had to happen this way because the
intelligence community has gained the initiative, and the response technique will not work on the
other side. This was the great contest and although the principals on both sides of the argument,
which was of such vital concern to the foreign policy and defense posture of this country, might
deny it, this was the basis for the contention that the Central Intelligence Group should be
assigned to a position subordinate to the Secretaries of State and Defense and under their
direction.

       These two pressure groups have vied for power repeatedly since 1946. It is entirely
possible that the leak of the "Anderson Papers" in December 1971, and January 1972, was
current evidence of an outbreak of this continuing struggle. Henry Kissinger is the titular head of
the intelligence community's clandestine operations reaction faction. His appearance as a one-
man power center is simply due to the fact that he fronts for the Secret Team and the secret
intelligence community. Thus, he vies with the Secretary of State, the Attorney General, and
certain others in the "traditionalist" group, who would like to see a return to national planning,
strong diplomacy, and moves toward peace through successful conferences between the United
States and other countries of the world.

      The traditionalists had finally found a long-awaited opportunity to exploit Kissinger's
weakened position in the India-Pakistani War, to expose him. Such events will occur repeatedly
with the ebb and flow of power between these two positions.

       As we continue with the development of the CIA and the ST in the following chapters, we
shall see many more examples of the "active" versus "passive" contest.




_______
   1.   Note that from the beginning the Agency was considered a coordination center, and that it was not
        empowered to be a collection agency. The original plan was that the agency simply coordinate all of the
        intelligence that was readily available from other government departments. As the agency grew during the
        following twenty-five years, it expanded its role bit by bit from this first limited charter, and it did so by its
        own zeal and initiative, not by law or direction.



          FAS Sues CIA for Intelligence Budget Disclosure
The Federation of American Scientists filed a Freedom of Information Act lawsuit today against
the Central Intelligence Agency to compel the disclosure of the total intelligence budget.
The lawsuit cited 1996 Congressional testimony by then-Director of Central Intelligence John
Deutch that "the President is persuaded that disclosure of the annual amount appropriated for
intelligence purposes will inform the public and not, in itself, harm intelligence activities."

In apparent defiance of the President's views, and in violation of the Freedom of Information
Act, the CIA has refused to disclose the budget total. Meanwhile, a Congressional amendment to
require publication of the budget total was rejected by the House last year by a vote of 176- 248.

"Budget secrecy today illustrates both the corruption of CIA information policy and the
inadequacy of Congressional oversight," said Steven Aftergood, director of the FAS Project on
Government Secrecy and the plaintiff in the FOIA lawsuit.

"Neither CIA nor Congress has been able to shake this budget number loose-- so we are going
to," Aftergood said.

FAS is represented in the FOIA lawsuit by Kate Martin, director of the Center for National
Security Studies (tel. 202-994-7060).

Rep. John Conyers (D-MI) has recently introduced a bill (HR 753) that would mandate
publication of the total intelligence budget request each year, as well as the amount appropriated.
(Contact: Carl LeVan, 202-225-5126).

A copy of the FAS FOIA complaint follows.


                      IN THE UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF COLUMBIA
STEVEN AFTERGOOD
on behalf of the
FEDERATION OF AMERICAN SCIENTISTS
307 Massachusetts Avenue, NE
Washington, DC 20002
Plaintiff

v.

CENTRAL INTELLIGENCE AGENCY
Washington, DC 20505
Defendant.

CASE NUMBER 1:97CV01096
JUDGE: Thomas F. Hogan
DECK TYPE: FOIA
DATE STAMP: 05/19/97
             COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
                     UNDER THE FREEDOM OF INFORMATION ACT
1. Plaintiff Steven Aftergood, on behalf of the Federation of American Scientists, seeks release
of the total budget appropriation for intelligence for fiscal year 1997 under the Freedom of
Information Act. The CIA has refused to release the total intelligence budget figure to plaintiff
on the grounds that the figure is properly classified and therefore exempt from release under the
Act. However, President Clinton has concluded that this information does not meet the standards
for classification. Thus, the CIA's refusal to release the total intelligence budget figure is in
violation of the law.

2. Information is exempt from disclosure under (b)(1) of the Freedom of Information Act only if
it is properly classified pursuant to executive order. President Clinton's Executive Order 12958
states that information may be classified only if its disclosure "reasonably could be expected to
result in damage to the national security," sec. 1.2(a)(4). The Executive Order also provides that
"if there is significant doubt about the need to classify information, it shall not be classified," sec.
1.2(b).

3. On April 23, 1996, President Clinton's press secretary wrote that the President was announcing
"several significant reforms for the Intelligence Community .... [that] build on the
recommendations made in the Brown Commission Report on the Roles and Capabilities of the
Intelligence Community." The Press Secretary stated that "reflecting the President's
determination to promote openness in the Intelligence Community, he has authorized Congress
to make public the total appropriation-- the bottom line figure -- for intelligence at the time the
appropriations conference report is approved by Congress."

4. The next day, April 24, 1996, then Director of Central Intelligence, John Deutch explained to
the Senate Select Committee on Intelligence that: "the President is persuaded that disclosure of
the annual amount appropriated for intelligence purposes will inform the public and will not, in
itself, harm intelligence activities."

5. The CIA's refusal to release this amount violates the Freedom of Information Act.

                                 JURISDICTION AND VENUE
6. This Court has jurisdiction over this action pursuant to the Freedom of Information Act, 5
U.S.C. sec. 552(a)(4)(B), the Administrative Procedure Act, 5 U.S.C. sec 701 et seq., and 28
U.S.C. sec. 1331 and 1361.

7. Venue lies in this district under 5 U.S.C. sec. 552(a)(4)(B).

                                             PARTIES
8. The Federation of American Scientists is a fifty-two year old research organization concerned
with national security policy. Plaintiff Steven Aftergood is director of the Federation's project on
Government Secrecy and writes the "Secrecy and Government Bulletin" published monthly by
the Federation. The Bulletin is published to challenge excessive government secrecy and to
promote public oversight and free exchange in science, technology, defense, and intelligence.
9. Defendant Central Intelligence Agency is an agency of the United States government which
has possession of the documents requested by plaintiff under the Freedom of Information Act.

                                 STATEMENT OF THE CASE
10. By letter dated November 12, 1996, plaintiff Aftergood, on behalf of the Federation of
American Scientists, pursuant to the Freedom of Information Act, requested a copy of documents
indicating the total budget appropriation for intelligence for fiscal year 1997 from the CIA.

11. By letter dated December 4, 1996, the CIA refused to release the requested information to the
plaintiff asserting that it was exempt from disclosure under section (b)(1) of the FOIA exempting
properly classified information from release and under section (b)(3) exempting intelligence
sources and methods from release.

12. By letter dated December 12, 1996, plaintiff appealed the withholding of the information,
pointing out that the requested information is not properly classified under Executive Order
12958 and that exemption (b)(3) also does not apply.

13. By letter dated January 17, 1997, the CIA acknowledged receipt of the plaintiff's appeal. It
corrected its earlier statement that the information was exempt from disclosure under (b)(3). The
ClA's letter stated: "The information was denied on the basis of Freedom of Information Act
exemption (b)(1) only. Freedom of Information Act exemption (b)(3) was inadvertently asserted
as a basis for denial in our response of 4 December 1996." Plaintiff has received no further
response to his appeal.

                                      CAUSES OF ACTION
14. Plaintiff incorporates each allegation of paragraphs 1-13 as if fully set forth herein.

15. Defendant CIA's failure to release the requested information violates the Freedom of
Information Act, 5 U.S.C. sec. 552.

                                     PRAYER FOR RELIEF

WHEREFORE, plaintiff requests that the Court:

a. expedite the proceedings in this action;

b. declare that the defendant's refusal to produce the information requested by Mr. Aftergood is
unlawful;

c. order defendant to release to plaintiff documents that indicate the total budget appropriation
for intelligence for fiscal year 1997;

d. award plaintiff his costs and attorneys fees in this action; and

e. grant such other and further relief as the Court may deem just and proper.
__________________
Kate Martin
D.C. Bar No. 949115
Center for National Security Studies
2130 H St reet , NW, Suite 701
Washington, DC 20037
(202) 994 7060

Counsel for plaintiff

May 19, 1997



[Congressional Record: June 19, 1997 (Senate)]
[Page S5963-S5978]

INTELLIGENCE AUTHORIZATION ACT FOR FISCAL YEAR 1998


 Mr. SHELBY. Mr. President, I ask unanimous consent that the Senate
now proceed to the consideration of Calendar No. 87, S. 858, the
intelligence authorization bill.
 The PRESIDING OFFICER. The clerk will report the bill.
 The assistant legislative clerk read as follows:

     A bill (S. 858) to authorize appropriations for fiscal year
    1998 for intelligence and intelligence-related activities of
    the United States Government, the Community Management
    Account and the Central Intelligence Agency Retirement and
    Disability System, and for other purposes.

 The PRESIDING OFFICER. Is there objection to the immediate
consideration of the bill?
 There being no objection, the Senate proceeded to consider the bill.
 Mr. SHELBY. Mr. President, I ask unanimous consent that the
privileges of the floor be granted to the following members of our
staff. We have a list of them: Alfred Cumming, Melvin Dubee, Peter
Flory, Lorenzo Goco, Joan Grimson, Andy Johnson, Taylor Lawrence,
Ken
Myers, Suzanne Spaulding, Christopher Straub, Christopher Williams,
Peter Dorn, Bill Duhnke, Emil Francona, Art Grant, Patricia Hanback,
Ken Johnson, Don Mitchell, Randy Schieber, Don Stone, Linda Taylor,
and
James Wolfe.
 The PRESIDING OFFICER. Without objection, it is so ordered.
 Mr. SHELBY. Mr. President, the intelligence authorization bill is
before the Senate at this time.
 This bill was unanimously voted out of the Intelligence Committee on
June 4. It was then referred to the Senate Armed Services Committee
and
was favorably reported without amendment yesterday.
 This bill will authorize appropriations for intelligence and
intelligence-related activities of the U.S. Government. I am pleased to
report to the Senate today that I have worked very closely with Senator
Kerrey, the vice chairman of the committee, in drafting this bill. We
have crafted, Mr. President, what we believe is a bipartisan bill that
received the full support of all Republican and all Democratic members
of the Intelligence Committee.
 I am proud that the actions we have taken with this legislation are
comprehensive and that we have taken some bold steps to implement
four
priorities to posture the intelligence community for the future.
 Mr. President, it is extremely fortuitous that we are bringing the
intelligence authorization bill to the floor this week when we have
seen a great intelligence success recently. It is not often that the
dedicated men and women of our intelligence agencies enjoy public
recognition for their work. They understand that. But yesterday, all
Americans were gratified to learn of the successful apprehension of Mir
Aimal Kansi and his transport to the United States to stand trial for
the brutal murder of two CIA employees and the wounding of three
others
outside the CIA headquarters several years back.
 I am extremely proud of our intelligence community in their work
here. The Kansi arrest was the result of over 4 years--4 years--of
painstaking and dedicated investigative and intelligence work by the
CIA, the FBI, and others.

 Together with my colleagues on the Intelligence Committee, I was
briefed on the details of this successful mission yesterday. While I
cannot comment on the operation itself, I can share with my colleagues,
as Senator Kerrey would, and the American people, that it was
conducted
with great professionalism and personal courage.

[[Page S5964]]

  The success of this operation should serve as a warning to others,
those who in the past have attacked Americans and those who might be
contemplating such actions, that America will take action to bring the
alleged perpetrators to justice wherever they are and whatever the
cost.
  To the families of those who died and to those who were wounded, we
know that this arrest cannot return your loved ones or heal your
wounds. We hope, however, that you derive consolation from seeing the
accused killer brought to this country for trial.
  The legislation before us today is made up of words and numbers on
paper. As yesterday's events remind us, the work of our intelligence
and law enforcement professionals takes place in the real world, in
flesh and blood.
  While the cold war is, indeed, over, there are still many forces in
the world today that threaten our national security and our citizens
and require the constant vigilance of our intelligence community. That
is why we have authorized a significant level of funding for the
continued operation of the intelligence community's activities.
  I believe it would be inappropriate, Mr. President, to reveal this
exact level of funding, not because we do not want the American people
to know how much is invested in intelligence activities for their
protection, but, rather, we want to protect the level of our
investments from foreign intelligence services and leaders of rogue
states who would analyze trends in these investments to help guide
their decisions about when to strike with terrorism or aggression
against their neighbors, perhaps our own citizens.
  I now would like to take a few minutes to summarize the major
priorities and the actions we have taken with this legislation.
  We have had to face some tough choices, as all of us have in the
Senate, in the allocation of resources to meet the critical priorities
that have been set for the intelligence community.
  In setting the authorization level for intelligence, we have looked
across the combined request for intelligence that is broken up into
three major categories, and they are the National Foreign Intelligence
Program of the Director of Central Intelligence, the Joint Military
Intelligence Program of the Secretary of Defense, and the Tactical
Intelligence and Related Activities Program of the military services.
  The Intelligence Authorization Act includes authorization for each of
these categories. With this legislation, Mr. President, we continue to
lay the groundwork for the intelligence community of the 21st century,
one that is retooled and I believe that is right-sized.
  In putting together this authorization, the committee identified nine
key areas that will contribute to this effort. We drafted an
authorization bill that will better focus, we believe, the intelligence
community's resources on these areas. I call the first five areas the
five C's: counterterrorism, counterproliferation, counternarcotics,
counterintelligence, and covert action. In each of these areas our bill
includes additional resources to aggressively tackle these difficult
missions in the world.
  We also examined four other areas with a view toward long-term
investments that would place our intelligence agencies on a stronger
footing as we enter the 21st century. These included: A stronger
commitment to advanced research and development to maintain our
technological edge; improvement in the tools and skills of our
clandestine service personnel; new approaches to infiltrating and
assessing hard-target countries; and enhancements to our analytical and
information warfare capabilities.
  We have put forward a balanced recommendation for the authorization
of a Joint Military Intelligence Program that, among other things,
includes sensor and engine upgrades for our airborne intelligence fleet
of RC-135's; it continues the modernization of our manned
reconnaissance capabilities; and pushes forward with the new
technology
of unmanned aerial vehicles.
  We have also taken some bold legislative initiatives in this bill.
One area on which the Intelligence Committee focused was the need to
ensure that classification of information is used effectively to
protect sensitive sources and methods or other vital national security
interests but does not prevent the flow of information to Congress or,
where appropriate, to the American people.
  The committee has concluded that a higher priority is needed for the
review and for the declassification of intelligence so that families
concerned about the murder of a loved one overseas receive vital
information consistent with national security concerns. The Committee
on Intelligence recently heard from the families of several marines who
were murdered in a terrorist attack in Zona Rosa, El Salvador, in 1985.
A common refrain in their testimony before the committee was concern
about how little information they received from their Government
regarding the attack and its perpetrators.
  It was from network television, for example, that at least one family
first learned of the attack and death of their brother or son. It was
also from television broadcasts that several families learned years
later that the likely mastermind of the attack had been brought into
this country through the U.S. official channels. The committee has
pressed the executive branch to provide these families with as much
information as possible, but 12 years is a long time to wait.
  The committee believes, however, that it is the national interests of
the United States to provide information regarding the murder or
kidnapping of Americans abroad to their families consistent with
intelligence operations.
  Moreover, given the difficulty inherent in identifying all relevant
information that might be held by different elements of the Government
and the likely resistance to providing information that is currently
classified, the committee believes this important responsibility must
ultimately be vested in a Cabinet-level official.
  Therefore, the committee has adopted a provision in this bill
requiring the Secretary of State to ensure that all appropriate actions
are taken within the Government to promptly identify relevant
information pertaining to incidents of violence against Americans
overseas.
  Mr. President, the Secretary is then required to make the information
available to families to the maximum extent possible without seriously
jeopardizing sensitive intelligence sources and methods or other
national security interests.
  This provision, along with others contained in this bill, will
enhance the intelligence community's working relationship with the
American public that it serves.
  I strongly urge my colleagues to vote in favor of the Intelligence
Authorization Act for fiscal year 1998.
  Mr. President, I also want to remind my colleagues that a lot, if not
most, of this bill is classified. But we have some security officers
from the Intelligence Committee that are available here today, off the
floor, to go into any aspect of the legislation that they think is
pertinent.
  The PRESIDING OFFICER. The Chair recognizes the Senator from
Nebraska.
  Mr. KERREY. Mr. President, I rise to join my chairman, the
distinguished Senator from Alabama, in offering this year's
intelligence authorization bill. It is designed to focus the national
intelligence agencies of the United States on today's and tomorrow's
threats. The bill is the product of the open, bipartisan process that
has long been the hallmark of the Select Committee on Intelligence. It
was voted unanimously out of the committee and in accordance with
Senate Resolution 400, the founding document of the Intelligence
Committee, the bill was reviewed by the Committee on Armed Services.
  Before I discuss the bill, I want to say a word about the bipartisan
process which created this legislation under Chairman Shelby's
leadership. Unlike many other topics which we consider here each day,
there is no Republican agenda or Democratic agenda with regard to
intelligence, or at least none apparent to me.
 Intelligence is simply the best informed estimate of the truth about
something. It knows no party. Every member of our committee seeks the
most effective and most efficient methods for the collection,
processing, analysis, production, and dissemination of

[[Page S5965]]

intelligence. Every member of our committee seeks intelligence
collection and operations to be conducted in accordance with American
law and American values. We certainly often disagree on which
approach
to take in a particular situation, but our disagreements are not based
on party agendas. We are simply seeking the best performance for the
intelligence community and the best outcome for our country. So the
chairman and I were united in purpose as we approached this
legislation, we came to closure on our disagreements, and we are united
in recommending it to the full Senate.
 Most of the intelligence authorization is contained in a classified
annex which we cannot discuss in open session but which is available to
Members in S-407. The schedule of authorizations in that annex
comprise
the National Foreign Intelligence Program of the United States,
together with the Intelligence Committee's markup of the Joint Military
Intelligence Program and recommendations to the Armed Services
Committee on Tactical Intelligence and Related Activities. The total
amount allocated for these programs is not something I can report in
open session, and I understand that fact will be the subject of an
amendment. But I can say while it is a good value, it is a substantial
amount of money.
 Before we discuss any amendment which may be introduced in that
regard, I want to respond to the concerns of Members who may doubt
the
need for significant investment in intelligence at this stage of our
history.
 The best intelligence is simply a necessity for the protection of our
people and for the leadership of a nation with America's power and
America's responsibilities. Intelligence illuminates policy. Much is
made of the strategic crossroads the Nation finds itself at, the need
to develop fresh strategies for the new century. You can't make good
strategy without good intelligence. Intelligence is also the essential
American advantage in war. Victory in battle comes, and will come in
the future, from the convergence of three things we saw in the gulf
war: American courage and precise American weapons linked to precise
American intelligence. The ability to avoid conflict, to gain victory
or attain our objectives without risking American lives, is also
founded on the inside knowledge gained from intelligence. I can assure
my colleagues: intelligence gives America a huge advantage in
policymaking, in defense, and in the international aspects of law
enforcement.
 This year's authorization bill addresses today's and tomorrow's
threats. We have focused on international terrorism, the proliferation
of weapons of mass destruction, and on narcotics trafficking from
foreign countries. We have also stressed counterintelligence and the
need for more advanced research and development. Good science is
essential to keeping and extending our edge in intelligence, and we do
not recommend standing pat in this key area. Our bill also reflects our
understanding that despite the good relations we now enjoy with Russia,
our intelligence agencies need to continue to pay attention to Russian
nuclear warheads which still pose the greatest threat, just in terms of
capability, to our national life and the lives of our citizens.
 The bill also has some important legislative provisions, which are
unclassified. The most important, in my view, is the requirement for
the executive branch to make crystal clear to every employee of the
national intelligence community that he or she has the right to
disclose classified information to the appropriate congressional
oversight committee, if the employee believes the information provided
gives evidence of wrongdoing. This provision, like the rest of this
bill, does not have a partisan basis. We simply intend it to preserve
the ability of Congress to perform oversight, which cannot be done
without information. In most circumstances, I hope an employee who
felt
the obligation to report something classified to Congress would first
approach his superiors and get their views on how the information
should be presented. But in some circumstances, such as when the
employee suspects his superiors of complicity in the alleged
wrongdoing, the employee should not fear to communicate with the
appropriate committee member or cleared staff. The administration does
not agree, and believes they have greater authority, by virtue of
Executive Order 12356, to control the release of executive branch
classified information to Congress. But, given the guarantees in the
bill for responsible handling of the received classified information by
Congress, I would hope every Member of the Senate would support
Congress' right to be informed.
 This legislation also provides subpoena powers for the CIA inspector
general to obtain documentary evidence in support of investigations.
The CIA IG is the only inspector general in any of the major national
security agencies who lacks this power, and its absence has adversely
affected investigations. We have made clear in the bill that subpoena
power will remain strictly in the service of the IG for investigative
purposes, and will not be used by or in behalf of any other element of
the CIA.
 The Intelligence Committee in 1989 originated the legislation
creating the CIA inspector general, and in the past year the Audit Team
of the Select Committee on Intelligence conducted a review of the
performance of the IG and his office. The confidence of the oversight
committees and ultimately the public is essential if the IG is to do
his job properly. If I may quote from the report accompanying the bill,
"the [IG] office has increased the level of trust and respect from
within the Agency, the Oversight Committees, and the Intelligence
Community."
  Mr. President, the distinguished chairman has described other
highlights of the bill, one of which we learned from the Khamisiya
nerve gas experience and is intended to ensure intelligence better
supports our deployed forces, and another which enables Americans
whose
family members are victims of murder or kidnapping overseas to be kept
better informed by their Government. These provisions, like others I
have already described, are the result of investigations or hearings by
the committee and represent, as does the entire bill, the committee's
reasoned view of what is necessary to keep the Nation safe and informed
in today's world.
  Finally, I would like to call the Senate's attention to the arrest
and return to the United States, this past Tuesday, of Mir Aimal Kansi
for the murder of two CIA employees and wounding of three others at
the
gate to CIA headquarters several years ago. The CIA and FBI pursued
this man to the ends of the Earth, just as former Director James
Woolsey promised at the time of the crime. Mr. President, this is a
great triumph for U.S. intelligence and law enforcement, working in a
harmony which could not have been imagined just a few years ago. All
involved in this mission have my deepest respect and congratulations.
  The Kansi case underlines the quality and dedication of the
remarkable people who work for the American people in our intelligence
organizations. They are selfless and patriotic, many of them risk their
safety for the sake of our country, and many more are denied the
gratification of the ego that comes from being able to talk freely
about their professional accomplishments. A lot of our talk here is
meaningless without the commitment of people like these to actually do
something or learn something for America's benefit. The annual
authorization bill debate is a chance to thank them, and I do.
  Mr. President, I look forward to the Senate's deliberations on this
bill and I yield the floor.
  Mr. LEVIN. Mr. President, I rise to support S. 858, the fiscal year
1998 intelligence authorization bill. The legislation comes to the
floor having been reported out of the Select Committee on Intelligence
earlier this month and approved, on referral, by the Armed Services
Committee. As a member of both committees, I believe S. 858 is a
responsible, bipartisan bill which reflects our mutual oversight
concerns and policy priorities. While there may be some areas in which
the two committees disagree, I want to praise Intelligence Committee
Chairman Richard Shelby and Vice Chairman Bob Kerrey for their
efforts
in seeking a consensus with the Armed Services Committee on the
funding
and legislative provisions contained in the bill.

[[Page S5966]]

 Most notably, S. 858 reflects our shared concern that intelligence
community activities must reflect the new, post-cold-war era threats
and challenges to U.S. security. Additionally, there is strong
agreement between the two committees and the administration that
continued emphasis must be given to improving the collection and
distribution of timely intelligence to the warfighter in the cockpit,
in the tank, aboard ship, and in the command post. One of the
overriding lessons learned from the Persian Gulf war was that high
quality tactical intelligence, if provided to the warfighter in a
prompt fashion can save American lives and carry the day on the field
of battle. Improving this qualitative advantage enjoyed by our Armed
Forces must remain a top priority in my view and I am pleased to see it
reflected in S. 858.
 Also included in the intelligence authorization bill is a provision I
sponsored asking that the Director of Central Intelligence examine the
full range of threats to the United States from weapons of mass
destruction, not just the threat from ballistic and cruise missile
weapons, which formed the basis of the last intelligence estimate of
this kind in 1995. The intelligence threat assessment required by S.
858 will be submitted to Congress annually beginning February 15 of
next year and provide us with our first comprehensive understanding of
the emerging "nontraditional" threat facing our Nation, including the
ability of terrorist groups and hostile governments to produce and
deliver nuclear, chemical, and biological weapons into the United
States, the probability that such an attack would come from ballistic
missile, cruise missile, or any other means of delivery, and the
vulnerability of the United States to such an attack. One month after
the completion of the intelligence community's threat estimate, the
President is required to submit a report to Congress identifying how
Federal funds are dedicated to defending against this full range of
threats. Linking the probability of a certain type of attack using a
weapon of mass destruction, such as a terrorist chemical attack versus
a Russian ballistic missile attack, with the level of funds being spent
to defend against such a threat will be extremely helpful, in my view,
as the Senate debates national defense spending priorities in the
upcoming years.
 In closing, I again want to commend the leadership of the Senate
Intelligence Committee for its willingness to work with the Armed
Services Committee on the numerous issues of mutual concern, and I
look
forward to continued cooperation between the two committees as we
move
into conference with the House of Representatives on our respective
bills.

[...]

 Mr. SHELBY addressed the Chair.
 The PRESIDING OFFICER. The Senator from Alabama.
 Mr. SHELBY. Mr. President, I ask unanimous consent that
immediately
following the disposition of the two amendments that we have been
talking about, that the bill be read a third time, and the Senate
proceed to a vote on passage of S. 858, as amended, if amended.
 The PRESIDING OFFICER. Without objection, it is so ordered.
 Mr. SHELBY. Also, for the information of all Senators, this now
means
that all Members can expect up to three consecutive rollcall votes
beginning around 2:45 this afternoon.
 Mr. President, the committee has received the Congressional Budget
Office cost estimate for S. 858. CBO found that the public bill would
not affect direct spending or receipts in 1998; thus, pay-as-you-go
procedures would not apply to it. In addition, the Unfunded Mandates
Reform act [UMRA] excludes from application of the act legislative
provisions that are necessary for the national security. CBO determined
that all of the provisions of this bill either fit within that
exclusion or do not contain intergovernmental mandates as defined by
UMRA.
 Mr. President, I ask unanimous consent that the Congressional Budget
Office cost estimate for Senate bill 858, the intelligence
authorization bill, be printed in the Record.
 There being no objection, the material was ordered to be printed in
the Record, as follows:

                                U.S. Congress,


                     Congressional Budget Office,

                       Washington, DC, June 16, 1997.
   Hon. Richard C. Shelby,
   Chairman, Select Committee on Intelligence,
   U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has
   prepared the enclosed cost estimate for S. 858, the
   Intelligence Authorization Act for Fiscal Year 1998.
    If you wish further details on this estimate, we will be
   pleased to provide them. The CBO staff contact is Dawn
   Sauter.
       Sincerely,
                                June E. O'Neill,
                                     Director.
    Enclosure.

        Congressional Budget Office Cost Estimate


   s. 858--intelligence authorization act for fiscal year 1998

   Summary: S. 858 would authorize appropriations for fiscal
  year 1998 for intelligence activities of the United States
  government, the Community Management Account, and the Central
  Intelligence Agency Retirement and Disability System
  (CIARDS).

[[Page S5970]]

   This estimate addresses only the unclassified portion of
  the bill. On that limited basis, CBO estimates that enacting
  S. 858 would result in additional spending of $91 million
  over the 1998-2002 period, assuming appropriation of the
  authorized amounts. The unclassified portion of the bill
  would not affect direct spending or receipts in 1998; thus
  pay-as-you-go procedures would not apply to it. The Unfunded
  Mandates Reform Act (UMRA) excludes from application of the
  act legislative provisions that are necessary for the
  national security. CBO has determined that all of the
  provisions of this bill either fit within that exclusion or
  do not contain intergovernmental mandates as defined by UMRA.
   Estimated cost to the Federal Government: The estimated
  budgetary effect of S. 858 is shown in the following table.
  CBO was unable to obtain the necessary information to
  estimate the costs for the entire bill because parts are
  classified at a level above clearances held by CBO employees.
  The estimated costs, therefore, reflect only the costs of the
  unclassified portion of the bill.
   The bill would authorize appropriations of $91 million for
  the Community Management Account and $197 million for
CIARDS.
  The funding for CIARDS would cover retirement costs
  attributable to military service and various unfunded
  liabilities. The payment to CIARDS is considered mandatory,
  and the authorization under this bill would be the same as
  assumed in the CBO baseline.
    For purposes of this estimate, CBO assumed that S. 858 will
  be enacted by October 1, 1997, and that the full amounts
  authorized will be appropriated for fiscal year 1998. Outlays
  are estimated according to historical spending patterns for
  intelligence programs.

            [By fiscal year, in millions of dollars]
------------------------------------------------------------------------
                         1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------
               SPENDING SUBJECT TO APPROPRIATION

Spending under current law:
   Estimated authorization
    level \1\................ 102 0 0             0     0 0
   Estimated outlays......... 95 46 22 5                      0     0
Proposed changes:
   Estimated authorization
    level.................... 0 91        0 0         0     0
   Estimated outlays.........       0 50 23 14                5     0
Spending under S. 858:
   Estimated authorization
    level \1\................ 102 91        0 0 0             0
   Estimated outlays......... 95 96 45 19 5 0
------------------------------------------------------------------------
\1\ The 1997 level is the amount appropriated for that year.

Note: The costs of this legislation would fall within budget function
 050 (national defense).

     Pay-as-you-go considerations: None.
     Intergovernmental and private-sector impact: The Unfunded
    Mandates Reform Act (UMRA) excludes from application of the
    act legislative provisions that are necessary for the
    national security. CBO has determined that all of the
    provisions of this bill either fit within that exclusion or
    do not contain intergovernmental mandates as defined by UMRA.
     Estimate prepared by: Federal Cost: Dawn Sauter; Impact on
    State, Local, and Tribal Governments: Pepper Santalucia;
    Impact on the Private Sector: Eric Labs.
     Estimate approved by: Paul N. Van de Water, Assistant
    Director for Budget Analysis.

[...]

 The PRESIDING OFFICER. Under the previous order, the Senator
from New
Jersey is recognized.


                 Amendment No. 416

(Purpose: To require an unclassified statement of the aggregate amount
       of appropriations for intelligence activities)

 Mr. TORRICELLI. Mr. President, I have an amendment filed at the
desk.
 The PRESIDING OFFICER. The clerk will report.
 The legislative clerk read as follows:

     The Senator from New Jersey [Mr. Torricelli], for himself,
    Mr. Specter, Mr. Kerrey, and Mr. Bumpers, proposes an
    amendment numbered 416.
 Mr. TORRICELLI. Mr. President, I ask unanimous consent that further
reading of the amendment be dispensed with.
 The PRESIDING OFFICER. Without objection, it is so ordered.
 The amendment is as follows:

    On page 14, between lines 19 and 20, insert the following:

  SEC. 309. REQUIREMENTS FOR SUBMITTAL OF BUDGET
INFORMATION ON
         INTELLIGENCE ACTIVITIES.

     (a) Submittal With Annual Budget.--Notwithstanding any
   other provision of law, the President shall include in each
   budget for a fiscal year submittal under section 1105 of
   title 31, United States Code, the following information:
     (1) The aggregate amount appropriated during the current
   fiscal year on all intelligence and intelligence-related
   activities of the United States Government.
     (2) The aggregate amount requested in such budget for the
   fiscal year covered by the budget for all intelligence and
   intelligence-related activities of the United States
   Government.
     (b) Form of Submittal.--The President shall submit the
   information required under subsection (a) in unclassified
   form.

 The PRESIDING OFFICER. The Senator from New Jersey.
 Mr. TORRICELLI. Mr. President, the Senate is faced with an issue as
old as the Republic itself. It is the continuing debate between the
public's right to know and the Government's need to retain information
only unto itself. It is an old argument, but it is one that has largely
been settled through time.
 We have decided as a country that the best source of good judgment in
this Nation remains with the people and that they should be trusted
with the public welfare in having a maximum exposure to the facts and
judgments that govern our society.
 Indeed, it was that wisdom which led to the first amendment to the
Constitution itself, and equally significantly as it led to article I,
section 9, clause 7 of the Constitution, which reads:

    * * * a regular Statement and Account of the Receipts and
   Expenditures of all public Money shall be published from time
   to time.

 For a long time, Mr. President, despite these national ambitions,
this consistency with our greatest national principles, we as a
Congress determined this was not possible because of the dangers of
world war and the continuing struggle in the cold war.
 It was the judgment of this Congress that even the total aggregate
amount of expenditures for our intelligence agencies, including the
Central Intelligence Agency, would remain private and not be published
and shared with the people.
 The end of the cold war has raised this question anew. Not only for
the intelligence community, but indeed for all of the U.S. Government.
And most of this Government has responded appropriately.
 The Defense Department began to share information about programs it
was developing, technologies that it possessed. Weapons hitherto
unknown were shared with the press and the public. And perhaps
predictably that is why since 1980, according to the bipartisan Brown
Commission, defense expenditures of the United States in real terms
have declined by 4 percent.
 Accountability by the people themselves led this Congress to adjust
our national priorities to deal with the new emerging security
situation internationally. No doubt, an equal reflection of the fact
the intelligence community retained privacy of its budget is that the
bipartisan Brown Commission found that since 1980 the intelligence
community's budget, in adjusted terms, increased by 80 percent.
 Mr. President, what we are facing today in honest debate can no
longer be concluded to be whether or not adversaries of the United
States will gain information about our intentions and abilities of our
intelligence community, because our adversaries have neither the means
to respond nor probably the ability in all cases to understand the
operations of our intelligence community. The only people being
shielded from this information are not adversaries, but the taxpayers
of the United States.
 Indeed, general accountings, in estimates, of American intelligence
expenditures appear in all of our major newspapers. Only the exact
aggregate numbers are denied, and not denied to adversaries; they are
denied to the people of this country who need to make informed
judgments as voters, as taxpayers about our national priorities.
 So I rise today with an amendment that this Senate has considered
before. It is simply this: To publish, not the details of the CIA
expenditures, not to reveal their programs, to share no numbers and no
estimates on any technology, any element of spending of the
intelligence community but one, the total aggregate amount of money
spent in the U.S. Government for the Central Intelligence Agency.
 This one number would allow the American people, as an informed
electorate, to make their judgments on a

[[Page S5971]]

comparative basis about whether or not, as compared to defense, social
programs, foreign assistance, and the intelligence community, this
Congress is making the right judgments.
 And yet, it will be argued that our adversaries would have this
information and use it for their own purposes. I understood that
argument when we were concerned that the Russians, the Soviet Union
with all of its capabilities, as our principal adversary would have
this information and could adjust their own intelligence programs to
respond.
 There is no Soviet Union; and the cold war has ended. The decline and
change of our national defense expenditures give the best testament to
the fact that this Senate has accepted that fact.
 Now we face new adversaries, terrorist organizations, a list of
pariah states from North Korea to Libya, to Iraq and Iran. And so the
question begs itself, what if these nations possessed this one
aggregate number, of what value would it be to them? By most press
estimates, total expenditures of the Central Intelligence Agency are
not only more than the intelligence expenditures of each of those
countries, it is more than all those countries combined.
 Indeed, the United States, by most published estimates, spends more
on its intelligence community than the gross national product of every
one of these potential adversaries of the United States. And so for
those who will argue that we cannot share this information with the
American people, I ask, what is it North Korea would do with this
information or Libya or Iran? What possible change would they have in
their own programs or their own expenditures? They have not the means
to respond or to change.
 I repeat in my argument, Mr. President, as I began. There is only one
people on this Earth that need this information to make important
judgments about their future who are being shielded from it, and it is
the people of the United States.
 Mr. President, if this argument seems familiar to Members of the
Senate, it is because it is not new. This Senate voted on this question
in 1991, a sense-of-the-Senate resolution in 1992, and again in 1993.
 Indeed, most Members of the Senate who in a matter of moments will
vote on this question have already voted in previous years to share
this information with the American people.
 Eighty members of the House of Representatives have cosponsored
legislation to do so.
 The Federation of American Scientists have gone to Federal court to
compel its release on constitutional principles.
 But perhaps most significantly, the President of the United States
himself, our Commander in Chief, who has the ultimate authority for the
security of the United States, suggested if the Congress would concur,
he would release this information.
 This Senate on previous occasions has confirmed for the directorship
for the Central Intelligence Agency Admiral Turner, Mr. Gates, Mr.
Deutch. Each of those CIA Directors themselves have argued that
concealing this information serves no purpose and it should be shared
with the people.
 This Congress has disagreed on this issue before. And so a bipartisan
commission, chaired by former Secretary of Defense Brown, and by our
former Senate colleague, Senator Rudman, addressed this question in
their own report. And they urged the public release of this
information.
 To my colleagues, when you have voted on this question previously,
when Directors of the Central Intelligence Agency, the President of the
United States, and a commission charged for this very purpose argues
that this single individual aggregate amount of spending should be
released, by what possible logic do we continue to shield the American
people from these facts?
 But if, Mr. President, in their individual judgment my colleagues are
still convinced that because of the danger of these new pariah states
and the rise of international terrorism, this expenditure must be
concealed from our people, I urge them to consider the fact that we are
also not the first of the allied nations to face this judgment.
 The British Parliament has had this debate. And Britain decided its
people should share with this information. The Canadian Parliament, the
Australian Parliament, and perhaps most significant, the Israeli
Knesset--no nation on Earth is faced with the threat of terrorism more
than Israel--but they have decided, in spite of the fact that their
program cannot conceivably have our capabilities nor the relative
advantage versus their adversaries as we face as opposed to our own,
they share this information with the people of Israel.
 We remain the exception.
 Fifty years since the Second World War when a judgment was made
that
for national security, a judgment appropriately made for national
security, that this information was best concealed, we retain this last
relic of the cold war.
 Mr. President, this is a national policy to conceal the gross
expenditures of the Central Intelligence Agency that has lost its
rationale. It is time for this Senate once again, as it has on three
previous occasions, to vote to allow the sharing of this information
with the American people. But we do so not because we believe it is a
compromise with national security that has become necessary, but
because indeed many of us believe it would enhance our national
security.
  Perhaps most significantly in the Brown report was a conclusion that,
in the commission's words, "Most intelligence agencies seem to lack a
resource strategy apart from what is reflected in the President's 6-
year budget projection. Indeed, until the intelligence community
reforms its budget process, it is poorly positioned to implement
strategies."
  Efficiency, accountability, proper judgments for national security,
like all other aspects of the governance of the United States, are best
made under the careful scrutiny of the people themselves. National
security is not only the exception, it may be the best rule. It is the
lives of the people of this country themselves--from terrorism and from
a new group of potential adversaries--that we are charged with
protecting. Allow the people of the United States to participate in
this judgment.
  I urge my colleagues, once again, as you have done on several
previous occasions, to join with the previous leadership of the Central
Intelligence Agency in concurrence with the commission report that you
commissioned to be done, and allow this single number, this one gross
expenditure of the Central Intelligence Agency's budget, to be released
to the American people.
  I yield the floor.
  Mr. SHELBY. Mr. President, I rise to oppose the Torricelli
amendment.
I oppose the public disclosure of the overall level of intelligence
funding as proposed by the amendment offered by the Senator from New
Jersey.
  Mr. President, it does not, I repeat, it does not take an act of
Congress to declassify the top line of the intelligence budget as this
amendment would do if adopted. The President of the United States has
always had and has today the authority to disclose this figure and has
always chosen to keep it classified.
 Determining classification is the responsibility and is the duty of
the Chief Executive of the United States, the President, who is also,
as we know, the Commander in Chief. Presidents Truman through
Clinton
have determined this figure is to remain classified, and I believe we
should not overrule that judgment.
 The purpose of maintaining a premier intelligence capability is to
save lives and to prevent and, if we get in them, win wars. The
foundation of an effective intelligence capability, as we all know, is
secrecy. Secrecy protects not only the information that we collect, but
also the brave people that put themselves at risk to do the collection
of it. We are an open and a free society that generally abhors secret
dealings by our Government. But in the case of intelligence collection
and analysis, secrecy, I believe, is absolutely necessary.
 Some of my colleagues argue that the American people have a right to
know how much of their money is being spent to defend their Nation's
security through intelligence-gathering operations. I assert today
that, through its elected officials, the public interests are being
effectively served.

[[Page S5972]]

As U.S. Senators, all of us we have been elected to represent the
interests of our constituents and to act on their behalf. Therefore,
the American people do know, in a sense, how much we spend on
national
security because their elected representatives know. As on many other
issues, Mr. President, our constituents have a voice, and it speaks
through the Senators and Representatives and the President of the
United States.
  Some of my colleagues will argue that disclosing the total budget
amount will instill public confidence and enable the American people to
know what portion of the Federal budget is dedicated to intelligence
activities. It appears there is general agreement that the details of
the intelligence budget should remain classified, however. I believe
that the total budget figure is of no use to anyone but to those who
wish to do us harm.
 For example, what do the numbers tell our adversaries or potential
adversaries in the world? In any given year, perhaps, not a great deal.
But while watching the changes in the budget over time, and using
information gathered by their own intelligence activities,
sophisticated analysts can indeed learn a great deal.
 Trend analysis, Mr. President, you are familiar with, is a technique
that our own analysts use to make predictions and to reach conclusions.
There are hostile foreign intelligence agencies all over the world that
are focused solely on gathering every bit of information that they can
about our own intelligence-gathering operations and our capabilities.
Their ultimate goal is to exploit weaknesses and to deny access and to
deceive our own intelligence collectors. Denial and deception is
already a serious concern for the intelligence community, and providing
our enemies or potential enemies with any insight as to what we spend
on intelligence will only make it worse, not better.
 Others will argue that the total budget figure is already in the
public domain, and we should just acknowledge it. Mr. President, we
never, never confirm or deny classified information that may have been
published somewhere or spoken by someone. Classified information, as
you well know, remains classified even if it wrongly makes it into the
public domain.
 We will also, Mr. President, hear from those who say disclosure is
required by the statement and account clause of the Constitution,
article 1, section 9, clause 7. Mr. President, I assert today that the
current practice is fully consistent with the Constitution, and it
carries forward a tradition of secret expenditures dating back more
than 200 years. As a matter of fact, the Supreme Court of the United
States observed in the U.S. versus Richardson case, "Historical
analysis of clause 7 suggests that it was intended to permit secrecy in
operations."
 Further, Mr. President, the figure is available to all Members of
Congress, the U.S. Senate and, the U.S. House to review.
  As I reviewed the debate on this topic, I found a statement by my
colleague from Rhode Island, Senator Chafee, in 1993, with which I
totally agree, and which is appropriate today. Senator Chafee, the
distinguished Senator from Rhode Island, said, disclosing the top line
budget figure would only "frustrate a curious public and politicize
the intelligence budget."
  He pointed out further, "What many proponents of disclosure want to
do is to put a bull's-eye on the intelligence budget and hold it up as
a target for public ridicule, recognizing full well that we cannot
engage in a meaningful public debate regarding intelligence programs."
  I assure you, Mr. President, once the overall number has been
released, there would be efforts to amend the overall funding for
intelligence in open session. I do not believe it would be good for the
Senate, the House, or the American people. Otherwise, I believe
President Clinton and Presidents before him would have already
declassified the number which they have the right to do.
  I yield the floor.
  Mr. TORRICELLI. Mr. President, I first thank my colleagues who
have
joined me in this effort today, most significantly, Senator Specter of
Pennsylvania, who has led this effort previously and makes this a
genuinely bipartisan effort to share this information with the American
people, Senator Bumpers of Arkansas, who has argued so passionately
on
this cause previously, and, of course, the ranking member of the
intelligence committee, Senator Kerrey of Nebraska.
  Mr. President, I know that many Government agencies would have
liked
the right to keep the information of their expenditures on a
proprietary basis. This logic must have occurred to the Defense
Department. Indeed, it was difficult for the Defense Department, at the
end of the cold war, to begin to share some of the programs, exhibit
some of the technology and the assets it possessed that previously had
remained secret.
  This Congress and the leadership of this Government made a judgment
that the people could not make the proper decisions about their elected
representatives and we could not make the proper judgments for them
without complete access to information. I want to remind my colleagues,
we have faced this issue previously in 3 different years since the end
of the cold war, and on each of those occasions this Senate has voted,
even if contained in other legislation, either by law or by a sense of
the Senate, to permit the publishing of this one single number. If we
fail to do so today, it will be a change in the position of this
Senate. It will be an inconsistency by a majority of Senators who
served in this institution in those previous years.
 By what logic would we now change our minds? Because it will
endanger
an employee of the Central Intelligence Agency? On what basis and by
what theory would anyone be endangered because they knew a total
amount
of money spent by the intelligence community? Because an adversary
will
change their plans, initiate a new program, compete with the
intelligence community of the United States--when I have demonstrated
that every and each potential adversary of the United States has a
gross national product that is, according to published reports, smaller
than the gross expenditures of the American intelligence communities?
 Mr. President, I conclude as I began: There is only one group of
people who have real need of this information upon which to make
decisions, and it is the taxpayers of the United States. This is the
last cloud of secrecy necessitated by war, cold war and struggle, that
should be removed by this Government. My colleagues have decided to
do
so before, but we have been frustrated in conference, and our will has
not been done. It can be done now.
 I urge an affirmative vote to allow the public release of the
aggregate expenditures of the United States intelligence community, a
single number, published each year. The people of our country can make
a good and accurate judgment.
 I want to thank again Senator Specter, Senator Bumpers, and Senator
Kerrey for joining me in this and each of my colleagues who have voted
previously on a majority basis to allow its release.
  I yield the floor.
  The PRESIDING OFFICER. The Chair recognizes the Senator from
Arizona.
  Mr. KYL. Mr. President, I rise in the strongest possible opposition
to the Torricelli amendment. My grandmother used to say there are some
things that are better not to know, and that is the case with certain
highly classified information that is important to the national
security of American citizens. One of those things is how much money
is
spent on our intelligence activities, information which is very useful
to our opponents, and not particularly useful to the average American
taxpayer.
  The public's right to know, as has been pointed out by the
distinguished chairman of the Intelligence Committee, is adequately
protected by our elected representatives. That is why we have special
provisions of law, Mr. President, that call for certain Members of
Congress only--not every Member of Congress, but only certain
Members
of Congress--to be apprised of certain operations and certain details
of our intelligence operations.
  For example, in an operation such as that which nabbed the terrorist
Mir Aimal Kansi just last Saturday, it was known to only a handful of
our elected representatives because that is what the law provides. The
American people did not need to know that, and, indeed,

[[Page S5973]]

it would have jeopardized American lives, the people who were involved
in this operation, had there been more widespread knowledge. There is a
reason why this information is not public.
  The irony is, Mr. President, that revealing the top-line number, the
aggregate amount we spend on intelligence, would be of very little use
to the average American debating whether or not it is the proper
number, but it means a great deal to clever potential adversaries who
do trend analysis and extrapolation from year to year to see whether or
not there are changes and who try to determine whether or not we have,
therefore, made certain commitments to our intelligence that would be
of interest to. So on the one hand it doesn't help the average American
much. On the other hand, it could easily help opponents a great deal.
Unfortunately, there is no way for us to defend that budget. If the top
line is $10 billion, or $100 billion, or $50 billion, just
hypothetically, whatever number, somebody might say, "I don't think
that is a good number." How do you defend that number without getting
into all of the sensitive, classified information that comprises the
budget? So it is not a good idea.

  No other friend or ally of the United States reveals the amount that
it spends on intelligence. It would set a terrible, terrible precedent,
Mr. President, because right after the aggregate budget was revealed,
everybody would realize that, to the average American, that doesn't say
much and so the calls would be very quick for more information. "You
gave us the top line; how about the categories on which it is spent?"
  This is a slippery slope, Mr. President. Reveal the first number and
it will be just a matter of minutes before there will be a call to
reveal more information. As a matter of fact, our colleague from New
Jersey, in effect, just did that by saying that "in the area of
defense spending we have determined that we need complete access to
information," to use his quotation. And the defense budget is known.
Yes, the defense budget is known, but there is still much about defense
that is highly classified. That is the way it needs to be.
  Another argument of our friend from New Jersey is that there have
been leaks and there is no reason to continue to withhold the
information. Of course, the proper policy when there are leaks is to
find them. They can be very damaging to our national security. The
answer is not to, therefore, let all the information out. The object is
to try to prevent those leaks from causing more harm.
  In conclusion, Mr. President, if this is such a good idea, one
wonders why previous Presidents haven't done it. They have the
authority and power to do it, and they have not done it because they
know full well that it is not the right thing to do. I just suggest
that it would be highly, highly dangerous to the national security
interests of the United States, to the lives of Americans who literally
put their lives on the line to work operations that are very dangerous
that the public never hears about, because, obviously, they can't, or
it would compromise the sources and methods by which we obtain
information. It would be very dangerous to these people if our
potential adversaries could soon begin to pick apart the budget and
learn what kind of capabilities we have to use against them.
  I urge, in the strongest possible terms, that we vote against the
Torricelli amendment and urge my colleagues, when we have that vote,
to
do so.
  Mr. SHELBY. Mr. President, I yield to my friend from Ohio as much
time as he might need.
  The PRESIDING OFFICER. The Senator from Ohio is recognized.
  Mr. DeWINE. Mr. President, I rise today in strong opposition to the
amendment proposed by my colleague and friend from New Jersey. It is
an
amendment that would disclose the total intelligence budget.
  Mr. President, intelligence budgets and programs are kept secret for
a good reason: to keep our enemies--and, yes, we still do have
enemies--from knowing how much we are spending on intelligence and,
of
course, on what programs. Mr. President, disclosure of the total budget
might well be the first step leading to a demand to disclose individual
agency budgets, as my colleague from Arizona has just stated, and
inevitably to disclose specific programs.
  Mr. President, the reality is that a single budget figure with no
additional detail or disclosure of capabilities does not, in my view,
provide a sufficient basis for a meaningful public debate. Therefore, I
think there would be pressure to disclose more. But such a disclosure
would only help our enemies. It would provide them with vital
information on our Nation's resource allocations. It would undermine
our commitment to early warning for our policymakers, as well as our
ability to provide our military the intelligence information that is
essential to making them the best in the world.
  President Clinton--as the chairman of the committee has already
pointed out--has the authority to disclose the total budget on his own.
However, he has not done so. President Clinton joins every President
since Harry Truman in making that same policy decision--that it is not
in the best interest of this country to disclose this dollar figure.
  Mr. President, the practice of keeping the budget secret is fully
consistent with the Constitution, and it carries forward a tradition of
secret expenditures dating back more than 200 years. The Supreme
Court
observed in U.S. versus Richardson that "historical analysis of clause
7 suggests that it was intended to permit secrecy in operations." It
is clear, Mr. President, the Constitution provides for this secrecy.
  This intelligence figure is available to all Senators, as is the
entire classified schedule of authorizations and classified annex to
the Intelligence Authorization Act. Members of the Intelligence
Committee, members of the Armed Services Committee, members of the
Appropriations Committees in both the House and the Senate do provide
vigorous oversight of the intelligence community and of its budget.
There is full scrutiny through the people's elected representatives,
while at the same time providing protection for intelligence
operations.
  Mr. President, to disclose the budget would break with tradition. I
believe it would help our enemies and it would not provide the public
with any meaningful information. For these reasons, Mr. President, I
urge my colleagues to vote "no" on this amendment.
  I believe that little can be gained, but much can be lost over time
by this type of disclosure.
  I thank the Chair and my colleague from Alabama.
  Mr. SPECTER addressed the Chair.
  The PRESIDING OFFICER. Who yields time?
  Mr. TORRICELLI. I yield the remainder of our time to Senator Specter
of Pennsylvania, and I thank him for his leadership.
 Mr. SPECTER. Mr. President, I support public disclosure of the
overall funding law and would start with the language of the
Constitution, which I believe supports that disclosure:

    No money shall be drawn from the Treasury, but in
   Consequence of Appropriations made by Law; and a regular
   Statement and Account of the Receipts and Expenditures of all
   public Money shall be published from time to time.

  On the base, that calls for public disclosure. I know some courts
have limited that interpretation to what Congress says. But I believe,
as a constitutional matter, disclosure ought to be made. And beyond
that, as a public policy matter for the Congress, disclosure ought to
be made.
  In the 8 years I served on the Senate Intelligence Committee--2 years
as chairman--it seemed to me that much too much is kept secret, and
disclosing the overall amount is not to disclose the programs. We have
seen terrorism as the instrumentally for political purposes, replacing
war. Intelligence is very important to fight terrorism, and I believe
if the American people knew how much money was being spent on
intelligence gathering, the people would want more spent and not less.
  Just yesterday, the chairman of the House Intelligence Committee took
issue with the way the Central Intelligence Agency is being run, saying
it is not being run effectively. Much too much is being kept secret,
Mr. President. We can protect important sources and methods and means
from being disclosed, but still have a great deal more candor for the
American people about what is going on in intelligence. When we look
at
the budget of the CIA or the

[[Page S5974]]

FBI for domestic intelligence, those are items which ought to be
subject to public debate. The public ought to be demanding more. The
public ought to be receiving more. As a very basic first step, it is my
sense--having some familiarity with the Intelligence Committee
operations and overall budget--that the funding level ought to be
disclosed.
 I thank the Chair and inquire how much of the 2\1/2\ minutes is left.
 The PRESIDING OFFICER. There are 19 seconds remaining.
 Mr. SPECTER. I leave that to the sponsor of the bill.
 The PRESIDING OFFICER. The Senator from New Jersey.
 Mr. TORRICELLI. I believe I have consumed all of my time.
 The PRESIDING OFFICER. The Senator has 10 seconds.
 Mr. TORRICELLI. The 10 seconds I have remaining I yield to the
Senator from Nebraska.
 Mr. KERREY. Mr. President, I support the amendment offered by
Senator
Torricelli to declassify the aggregate intelligence budget. This body
has been on record a number of times over the years as supporting
disclosure of the intelligence budget total. Last year the Intelligence
Authorization Act as reported by the SSCI and adopted by the Senate
required the President to disclose in his annual budget submission to
Congress each year the total amount appropriated for all intelligence
and intelligence-related activities, that is, the total of NFIP, JMIP,
and TIARA, in the current fiscal year and the total amount requested
for the next fiscal year. As has happened on each previous occasion
that the Senate has voted in favor of disclosure, the provision in last
year's bill ultimately was dropped in conference with the House.
 The Senate's support for this position dates back at least to the
Church committee, in 1976. The following year the Select Committee on
Intelligence was established and the members of that committee voted in
1977 for public disclosure of the aggregate intelligence budget. In the
years since, the Senate has regularly voted to disclose the aggregate
amount of intelligence spending.
 Senators will recall that in 1994 we chartered a commission to
conduct a comprehensive review of American intelligence. Part of the
statutory mandate of this commission was to study the issue of budget
disclosure and resolve it once and for all. The Aspin-Brown Commission
unanimously recommended that the total amounts appropriated and
requested be disclosed. Senators Warner and Rudman and other
traditional opponents agreed. In fact, Senator Rudman and former
Defense Secretary Brown would declassify the CIA budget as well in
order to show it is only a fraction of the overall budget.
  Public disclosure of total budget amount for intelligence is
symbolically important: it sends a message that intelligence is a
legitimate and open governmental function. It helps to instill public
confidence and enables the American people to know what proportion of
the entire Federal budget is spent on intelligence, as compared with
other functions. Moreover, there is an argument that disclosure is
constitutionally required by the statement and account clause of the
Constitution (Art. I, Sec. 9, clause 7), which provides that "A
regular Statement and Account of the Receipts and Expenditures of all
public money shall be published from time to time."
  Disclosure of the aggregate budget amount will not harm our national
security. Disclosure of the top-line number is not sufficient to alert
adversaries to deployment of new systems; spending on new systems
doesn't occur in 1 year, it's stretched out over a number of years.
There has been no history of conspicuous spikes in intelligence
spending. It is interesting to note that our major allies disclose
their intelligence budgets. The United Kingdom recently decided to
disclose the total budgets for MI-5 and MI-6.
  The reality is that this number is already in the public domain in
approximate terms. The intelligence budget is already widely reported
in the press. A congressional committee released the actual numbers for
all agencies a couple of years ago by mistake. Even efforts to talk
around the budget numbers, by using percentages, for example, instead
of actual numbers, have given industrious reporters and analysts
sufficient information to extrapolate the dollar figures. Knowledge of
the top-line does not give an adversary useful information about
intelligence targets, sources, or methods.
  Nor has the de facto disclosure of the budget total taken us down the
so-called slippery slope of more detailed disclosures. In fact, I
believe this disclosure will actually strengthen our ability to protect
vital national secrets by bolstering the credibility of our
classification decisions--officially revealing the budget total tells
the American public that we are using classification to protect vital
national secrets, not to conceal information that might be inconvenient
to defend. And I think it would not be difficult to defend the size of
the intelligence budget, given the complex world we live in today.
  For these reasons, Mr. President, I support this amendment and urge
my colleagues to do the same.
  Mr. SHELBY. Mr. President, how much time do I have remaining?
  The PRESIDING OFFICER. The Senator has 4\1/2\ minutes
remaining.
  Mr. SHELBY. I will try to be brief.
  Mr. President, as former Director Woolsey of the CIA once said, "It
is impossible to conduct a meaningful debate on the effects of such
amendments without explaining the component parts of the intelligence
budget."
  Think about that a minute. How much is spent for the CIA? How much
is
spent for signals intelligence? How much are we spending on satellites,
and so on?
  It is that discussion which creates the likelihood of disclosure of
sensitive intelligence information that would be of benefit to our
adversaries.
  Mr. President, there are many opportunities to debate and discuss the
details of the intelligence budget among the Intelligence, Armed
Services, and Appropriations Committees. We all do this. This is not a
topic that goes unexamined by the people's representatives in the
Senate or the House.
  Mr. President, the Senate Intelligence Committee was established to
ensure vigorous oversight of our intelligence activities. I believe
myself that the committee faithfully represents the American people.
Our goal is to maintain a robust intelligence capability while ensuring
that our intelligence activities are conducted in accordance with
American values and constitutional principles.
  The members of the committee take their responsibilities very
seriously, and I pledge to the American people that we will continue to
represent the best interests of this Nation.
 Mr. President, our intelligence capabilities are a critical national
asset and, as chairman of the committee, I will not support an effort
to disclose classified information when there is no compelling argument
to do so. Therefore, I strongly urge my colleagues to oppose the
Torricelli amendment.
 I yield the remainder of my time.
 Mr. KERREY. Mr. President, I ask for the yeas and nays.
 The PRESIDING OFFICER. Is there a sufficient second?
 There is a sufficient second.
 The yeas and nays were ordered.
 Mr. FORD. Mr. President, I suggest the absence of a quorum.
 The PRESIDING OFFICER. The clerk will call the roll.
 The legislative clerk proceeded to call the roll.
 Mr. KERREY. Mr. President, I ask unanimous consent that the order
for
the quorum call be rescinded.
 The PRESIDING OFFICER. Without objection, it is so ordered.

[...]

 The PRESIDING OFFICER (Mr. Kempthorne). The Senator from
Alabama.
 Mr. SHELBY. Mr. President, I ask unanimous consent that the next
two
votes be reduced to 10 minutes time limit.
 The PRESIDING OFFICER. Without objection, it is so ordered.
 Mr. LOTT. Mr. President, also, I would like to include in that
consent that there be 2 minutes of debate before each vote, equally
divided, so an explanation can be given of those.
 The PRESIDING OFFICER. Without objection, it is so ordered.
 The Senator from Minnesota.
 Mr. WELLSTONE. Mr. President, I ask unanimous consent that
members of
the Finance Committee be immediately informed of the result of this
vote.
  The PRESIDING OFFICER. Is there objection? Hearing no objection,
it
is so ordered.
  Mr. WELLSTONE. I thank the Chair.


                Amendment No. 416

  The PRESIDING OFFICER. The question now occurs on amendment
No. 416,
offered by the Senator from New Jersey. We have 2 minutes for debate.
The Senator from New Jersey is recognized.
  Mr. TORRICELLI. Mr. President, I thank Senator Specter and Senator
Kerrey for joining me in this effort. We asked the Senate to do that
which you have done three times before, that which three previous
Directors of the Central Intelligence Agency have endorsed, that which
the Brown Commission, in a bipartisan review of this issue, has
endorsed--that is to share with the American people and the Members of
this Congress the total aggregate amount spent on intelligence
activities by the U.S. Government. No details, no programs, no internal
facts--one aggregate number, so the people can make their own
judgments
whether the direction and the amount of intelligence spending is
appropriate and proper for the U.S. Government. I urge an affirmative
vote.
  The PRESIDING OFFICER. The Senator from Alabama.
  Mr. SHELBY. Mr. President, I oppose the public disclosure of the
overall level of intelligence funding as proposed by the Torricelli
amendment. It does not take an act of Congress to declassify the top
line of intelligence spending. The President of the United States has
always had the authority to disclose this figure, and has always chosen
to keep it classified. Determining the classification is the
responsibility and, I believe, the duty of the Chief Executive and
Commander in Chief. Presidents Truman through Clinton have
determined
that this figure is to remain classified and we should not overrule
that judgment.
  I yield the remainder of my time. I ask my colleagues to vote no on
the Torricelli amendment.
  Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. The question is on agreeing to the
amendment.
The yeas and nays have been ordered.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. FORD. I announce that the Senator from South Dakota [Mr.
Daschle]
is necessarily absent.
  I also announce that the Senator from South Dakota [Mr. Daschle] is
absent due to a death in the family.
  The result was announced--yeas 43, nays 56, as follows:

              [Rollcall Vote No. 108 Leg.]

                    YEAS--43

   Akaka
   Baucus
   Biden
   Bingaman
   Boxer
   Breaux
   Bryan
   Bumpers
   Byrd
Cleland
Conrad
Dodd
Dorgan
Durbin
Feingold
Feinstein
Glenn
Graham
Harkin
Hollings
Inouye
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Mikulski
Moseley-Braun
Moynihan
Murray
Reed
Reid
Robb
Rockefeller
Sarbanes
Specter
Torricelli
Wellstone
Wyden
             NAYS--56

Abraham
Allard
Ashcroft
Bennett
Bond
Brownback
Burns
Campbell
Chafee
Coats
Cochran
Collins
Coverdell
Craig
D'Amato
DeWine
Domenici
Enzi
Faircloth
Ford
Frist
Gorton
Gramm
Grams
Grassley
Gregg
Hagel
Hatch
Helms
Hutchinson
Hutchison
Inhofe
Jeffords
  Kempthorne
  Kyl
  Lieberman
  Lott
  Lugar
  Mack
  McCain
  McConnell
  Murkowski
  Nickles
  Roberts
  Roth
  Santorum
  Sessions
  Shelby
  Smith (NH)
  Smith (OR)
  Snowe
  Stevens
  Thomas
  Thompson
  Thurmond
  Warner

                NOT VOTING--1


    Daschle

 The amendment (No. 416) was rejected.
 Mr. SHELBY. Mr. President, I move to reconsider the vote by which
the
amendment was rejected.
 Mr. THOMAS. I move to lay that motion on the table.
 The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The question is on engrossment and third
reading of the bill.
  The bill was ordered to be engrossed for a third and was read the
third time.
  Mr. SHELBY. I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. Under the agreement, there will now be 2
minutes for debate equally divided.
  Mr. SHELBY. Mr. President, I yield back the minute that was allotted
to us.
  The PRESIDING OFFICER. The Senator from Alabama has yielded
back his
time.
  Mr. FORD. Mr. President, I yield back whatever time is on this side.
  The PRESIDING OFFICER. All time having been yielded back, the
question is, Shall the bill, as amended, pass? The yeas and nays have
been ordered. The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. FORD. I announce that the Senator from South Dakota [Mr.
Daschle]
is necessarily absent.
  I also announce that the Senator from South Dakota [Mr. Daschle] is
absent due to a death in the family.
  The PRESIDING OFFICER (Mr. Sessions). Are there any other
Senators in
the Chamber desiring to vote?
  The result was announced--yeas 98, nays 1, as follows:

             [Rollcall Vote No. 109 Leg.]

                   YEAS--98

   Abraham
Akaka
Allard
Ashcroft
Baucus
Bennett
Biden
Bingaman
Bond
Boxer
Breaux
Brownback
Bryan
Bumpers
Burns
Byrd
Campbell
Chafee
Cleland
Coats
Cochran
Collins
Conrad
Coverdell
Craig
D'Amato
DeWine
Dodd
Domenici
Dorgan
Durbin
Enzi
Faircloth
Feingold
Feinstein
Ford
Frist
Glenn
Gorton
Graham
Gramm
Grams
Grassley
Gregg
Hagel
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Inouye
Jeffords
Johnson
Kempthorne
Kennedy
Kerrey
Kerry
Kohl
Kyl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Lott
Lugar
Mack
McCain
McConnell
Mikulski
  Moseley-Braun
  Moynihan
  Murkowski
  Murray
  Nickles
  Reed
  Reid
  Robb
  Roberts
  Rockefeller
  Roth
  Santorum
  Sarbanes
  Sessions
  Shelby
  Smith (NH)
  Smith (OR)
  Snowe
  Specter

[[Page S5976]]


  Stevens
  Thomas
  Thompson
  Thurmond
  Torricelli
  Warner
  Wellstone
  Wyden

                  NAYS--1
   Harkin


                   NOT VOTING--1


   Daschle

 The bill (S. 858), as amended, was passed, as follows:

                      S. 858

    Be it enacted by the Senate and House of Representatives of
   the United States of America in Congress assembled,

   SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

     (a) Short Title.--This Act may be cited as the
   "Intelligence Authorization Act for Fiscal Year 1998".
     (b) Table of Contents.--The table of contents for this Act
   is as follows:

Sec. 1. Short title; table of contents.

             TITLE I--INTELLIGENCE ACTIVITIES

Sec. 101. Authorization of appropriations.
Sec. 102. Classified schedule of authorizations.
Sec. 103. Personnel ceiling adjustments.
Sec. 104. Community Management Account.

TITLE II--CENTRAL INTELLIGENCE AGENCY RETIREMENT
AND DISABILITY SYSTEM

Sec. 201. Authorization of appropriations.
             TITLE III--GENERAL PROVISIONS

Sec. 301. Increase in employee compensation and benefits authorized by
        law.
Sec. 302. Restriction on conduct of intelligence activities.
Sec. 303. Detail of intelligence community personnel.
Sec. 304. Extension of application of sanctions laws to intelligence
        activities.
Sec. 305. Administrative location of the Office of the Director of
        Central Intelligence.
Sec. 306. Encouragement of disclosure of certain information to
        Congress.
Sec. 307. Provision of information on violent crimes against United
        States citizens abroad to victims and victims' families.
Sec. 308. Standards for spelling of foreign names and places and for
        use of geographic coordinates.
Sec. 309. Sense of the Senate.

          TITLE IV--CENTRAL INTELLIGENCE AGENCY

Sec. 401. Multiyear leasing authority.
Sec. 402. Subpoena authority for the Inspector General of the Central
        Intelligence Agency.

    TITLE V--DEPARTMENT OF DEFENSE INTELLIGENCE
ACTIVITIES

Sec. 501. Academic degrees in intelligence.
Sec. 502. Funding for infrastructure and quality of life improvements
        at Menwith Hill and Bad Aibling stations.
Sec. 503. Misuse of National Reconnaissance Office name, initials, or
        seal.
            TITLE I--INTELLIGENCE ACTIVITIES
SEC. 101. AUTHORIZATION OF APPROPRIATIONS.

 Funds are hereby authorized to be appropriated for fiscal
year 1998 for the conduct of the intelligence and
intelligence-related activities of the following elements of
the United States Government:
 (1) The Central Intelligence Agency.
 (2) The Department of Defense.
 (3) The Defense Intelligence Agency.
 (4) The National Security Agency.
 (5) The Department of the Army, the Department of the Navy,
and the Department of the Air Force.
 (6) The Department of State.
 (7) The Department of the Treasury.
 (8) The Department of Energy.
 (9) The Federal Bureau of Investigation.
 (10) The Drug Enforcement Administration.
 (11) The National Reconnaissance Office.
 (12) The National Imagery and Mapping Agency.

SEC. 102. CLASSIFIED SCHEDULE OF AUTHORIZATIONS.

 (a) Specifications of Amounts and Personnel Ceilings.--The
amounts authorized to be appropriated under section 101, and
the authorized personnel ceilings as of September 30, 1998,
for the conduct of the intelligence and intelligence-related
activities of the elements listed in such section, are those
specified in the classified Schedule of Authorizations
prepared to accompany the conference report on the bill ____
of the One Hundred Fifth Congress.
 (b) Availability of Classified Schedule of
Authorizations.--The Schedule of Authorizations shall be made
available to the Committees on Appropriations of the Senate
and House of Representatives and to the President. The
President shall provide for suitable distribution of the
Schedule, or of appropriate portions of the Schedule, within
the Executive Branch.

SEC. 103. PERSONNEL CEILING ADJUSTMENTS.

 (a) Authority for Adjustments.--With the approval of the
Director of the Office of Management and Budget, the Director
of Central Intelligence may authorize employment of civilian
personnel in excess of the number authorized for fiscal year
1998 under section 102 when the Director of Central
Intelligence determines that such action is necessary to the
performance of important intelligence functions, except that
the number of personnel employed in excess of the number
authorized under such section may not, for any element of the
intelligence community, exceed two percent of the number of
civilian personnel authorized under such section for such
element.
 (b) Notice to Intelligence Committees.--The Director of
Central Intelligence shall promptly notify the Permanent
Select Committee on Intelligence of the House of
Representatives and the Select Committee on Intelligence of
the Senate whenever the Director exercises the authority
granted by this section.

SEC. 104. COMMUNITY MANAGEMENT ACCOUNT.

 (a) Authorization of Appropriations.--
 (1) Authorization.--There is authorized to be appropriated
for the Community Management Account of the Director of
Central Intelligence for fiscal year 1998 the sum of
$90,580,000.
 (2) Availability of certain funds.--Within such amount,
funds identified in the classified Schedule of Authorizations
referred to in section 102(a) for the Advanced Research and
Development Committee and the Environmental Intelligence and
Applications Program shall remain available until September
30, 1999.
  (b) Authorized Personnel Levels.--The elements within the
Community Management Account of the Director of Central
Intelligence are authorized a total of 278 full-time
personnel as of September 30, 1998. Personnel serving in such
elements may be permanent employees of the Community
Management Account element or personnel detailed from other
elements of the United States Government.
  (c) Classified Authorizations.--
  (1) Authorization of appropriations.--In addition to
amounts authorized to be appropriated for the Community
Management Account by subsection (a), there is also
authorized to be appropriated for the Community Management
Account for fiscal year 1998 such additional amounts as are
specified in the classified Schedule of Authorizations
referred to in section 102(a).
  (2) Authorization of personnel.--In addition to the
personnel authorized by subsection (b) for elements of the
Community Management Account as of September 30, 1998, there
is hereby authorized such additional personnel for such
elements as of that date as is specified in the classified
Schedule of Authorizations.
  (3) Construction.--Authorizations in the classified
Schedule of Authorizations may not be construed to increase
authorizations of appropriations or personnel for the
Community Management Account except to the extent specified
in the applicable paragraph of this subsection.
  (d) Reimbursement.--During fiscal year 1998, any officer or
employee of the United States or member of the Armed Forces
who is detailed to the staff of an element within the
Community Management Account from another element of the
United States Government shall be detailed on a reimbursable
basis, except that any such officer, employee, or member may
be detailed on a non-reimbursable basis for a period of less
  than one year for the performance of temporary functions as
  required by the Director of Central Intelligence.
TITLE II--CENTRAL INTELLIGENCE AGENCY RETIREMENT
AND DISABILITY SYSTEM

  SEC. 201. AUTHORIZATION OF APPROPRIATIONS.

   There is authorized to be appropriated for the Central
  Intelligence Agency Retirement and Disability Fund for fiscal
  year 1998 the sum of $196,900,000.
            TITLE III--GENERAL PROVISIONS

  SEC. 301. INCREASE IN EMPLOYEE COMPENSATION AND
BENEFITS
         AUTHORIZED BY LAW.

   Appropriations authorized by this Act for salary, pay,
  retirement, and other benefits for Federal employees may be
  increased by such additional or supplemental amounts as may
  be necessary for increases in such compensation or benefits
  authorized by law.

  SEC. 302. RESTRICTION ON CONDUCT OF INTELLIGENCE
ACTIVITIES.

   The authorization of appropriations by this Act shall not
  be deemed to constitute authority for the conduct of any
  intelligence activity which is not otherwise authorized by
  the Constitution or the laws of the United States.

  SEC. 303. DETAIL OF INTELLIGENCE COMMUNITY
PERSONNEL.

   (a) Detail.--
   (1) In general.--Notwithstanding any other provision of
  law, the head of a department or agency having jurisdiction
  over an element in the intelligence community or the head of
  an element of the intelligence community may detail any
  employee of the department, agency, or element to serve in
  any position in the Intelligence Community Assignment
  Program.
    (2) Basis of detail.--
    (A) In general.--Personnel may be detailed under paragraph
  (1) on a reimbursable or nonreimbursable basis.
    (B) Period of nonreimbursable detail.--Personnel detailed
  on a nonreimbursable basis shall be detailed for such periods
  not to exceed three years as are agreed upon between the
  heads of the departments or agencies concerned. However, the
  heads of the departments or agencies may provide for the
  extension of a detail for not to exceed one year if the
  extension is in the public interest.
    (b) Benefits, Allowances, and Incentives.--The department,
  agency, or element

[[Page S5977]]

  detailing personnel to the Intelligence Community Assignment
  Program under subsection (a) on a non-reimbursable basis may
  provide such personnel any salary, pay, retirement, or other
  benefits, allowances (including travel allowances), or
  incentives as are provided to other personnel of the
  department, agency, or element.
   (c) Effective Date.--This section shall take effect on June
  1, 1997.

  SEC. 304. EXTENSION OF APPLICATION OF SANCTIONS
LAWS TO
         INTELLIGENCE ACTIVITIES.

    Section 905 of the National Security Act of 1947 (50 U.S.C.
  441d) is amended by striking out "January 6, 1998" and
  inserting in lieu thereof "January 6, 2001".

  SEC. 305. ADMINISTRATIVE LOCATION OF THE OFFICE OF
THE
         DIRECTOR OF CENTRAL INTELLIGENCE.

   Section 102(e) of the National Security Act of 1947 (50
  U.S.C. 403(e)) is amended by adding at the end the following:
   "(4) The Office of the Director of Central Intelligence
  shall, for administrative purposes, be within the Central
  Intelligence Agency.".

  SEC. 306. ENCOURAGEMENT OF DISCLOSURE OF CERTAIN
INFORMATION
         TO CONGRESS.

   (a) Encouragement.--
   (1) In general.--Not later than 30 days after the date of
  enactment of this Act, the President shall take appropriate
  actions to inform the employees of the executive branch, and
  employees of contractors carrying out activities under
  classified contracts, that the disclosure of information
  described in paragraph (2) to the committee of Congress
  having oversight responsibility for the department, agency,
  or element to which such information relates, or to the
  Members of Congress who represent such employees, is not
  prohibited by law, executive order, or regulation or
  otherwise contrary to public policy.
   (2) Covered information.--Paragraph (1) applies to
  information, including classified information, that an
  employee reasonably believes to evidence--
   (A) a violation of any law, rule, or regulation;
   (B) a false statement to Congress on an issue of material
  fact; or
   (C) gross mismanagement, a gross waste of funds, an abuse
  of authority, or a substantial and specific danger to public
  health or safety.
   (b) Report.--On the date that is 30 days after the date of
  enactment of this Act, the President shall submit to Congress
  a report on the actions taken under subsection (a).

  SEC. 307. PROVISION OF INFORMATION ON VIOLENT
CRIMES AGAINST
         UNITED STATES CITIZENS ABROAD TO VICTIMS
AND
         VICTIMS' FAMILIES.

   (a) Sense of Congress.--It is the sense of Congress that--
   (1) it is in the national interests of the United States to
  provide information regarding the murder or kidnapping of
  United States citizens abroad to the victims, or the families
  of victims, of such crimes; and
   (2) the provision of such information is sufficiently
  important that the discharge of the responsibility for
  identifying and disseminating such information should be
  vested in a cabinet-level officer of the United States
  Government.
   (b) Responsibility.--The Secretary of State shall take
  appropriate actions to ensure that the United States
  Government takes all appropriate actions to--
   (1) identify promptly information (including classified
  information) in the possession of the departments and
  agencies of the United States Government regarding the murder
  or kidnapping of United States citizens abroad; and
   (2) subject to subsection (c), make such information
  available to the victims or, where appropriate, the families
  of victims of such crimes.
   (c) Classified Information.--The Secretary shall work with
  the Director of Central Intelligence to ensure that
  classified information relevant to a crime covered by
  subsection (b) is promptly reviewed and, to the maximum
  extent practicable without jeopardizing sensitive sources and
  methods or other vital national security interests, made
  available under that subsection.

  SEC. 308. STANDARDS FOR SPELLING OF FOREIGN NAMES
AND PLACES
         AND FOR USE OF GEOGRAPHIC COORDINATES.

   (a) Survey of Current Standards.--
   (1) Survey.--The Director of Central Intelligence shall
  carry out a survey of current standards for the spelling of
  foreign names and places, and the use of geographic
  coordinates for such places, among the elements of the
  intelligence community.
   (2) Report.--Not later than 90 days after the date of
  enactment of this Act the Director shall submit to the
  congressional intelligence committees a report on the survey
  carried out under paragraph (1).
   (b) Guidelines.--
   (1) Issuance.--Not later than 180 days after the date of
  enactment of this Act, the Director shall issue guidelines to
  ensure the use of uniform spelling of foreign names and
  places and the uniform use of geographic coordinates for such
  places. The guidelines shall apply to all intelligence
  reports, intelligence products, and intelligence databases
  prepared and utilized by the elements of the intelligence
  community.
   (2) Basis.--The guidelines under paragraph (1) shall, to
  the maximum extent practicable, be based on current United
  States Government standards for the transliteration of
  foreign names, standards for foreign place names developed by
  the Board on Geographic Names, and a standard set of
  geographic coordinates.
 (3) Submittal to congress.--The Director shall submit a
copy of the guidelines to the congressional intelligence
committees.
 (c) Congressional Intelligence Committees Defined.--In this
section, the term "congressional intelligence committees"
means the following:
 (1) The Select Committee on Intelligence of the Senate.
 (2) The Permanent Select Committee on Intelligence of the
House of Representatives.

SEC. 309. SENSE OF THE SENATE.

 It is the sense of the Senate that any tax legislation
enacted by the Congress this year should meet a standard of
fairness in its distributional impact on upper, middle and
lower income taxpayers, and that any such legislation should
not disproportionately benefit the highest income taxpayers.
         TITLE IV--CENTRAL INTELLIGENCE AGENCY

SEC. 401. MULTIYEAR LEASING AUTHORITY.

  Section 5 of the Central Intelligence Agency Act of 1949
(50 U.S.C. 403f) is amended--
  (1) in paragraph (e), by striking out "without regard"
and all that follows through the end and inserting in lieu
thereof a semicolon;
  (2) by redesignating paragraph (f) as paragraph (g); and
  (3) by inserting after paragraph (e) the following new
paragraph (f):
  "(f) Notwithstanding section 1341(a)(1) of title 31,
United States Code, enter into multiyear leases for lease
terms of not to exceed 15 years, except that--
  "(1) any such lease shall be subject to the availability
of appropriations in an amount necessary to cover--
  "(A) rental payments over the entire term of the lease; or
    "(B) rental payments over the first 12 months of the term
  of the lease and the penalty, if any, payable in the event of
  the termination of the lease at the end of the first 12
  months of the term; and
    "(2) if the Agency enters into a lease using the authority
  in subparagraph (1)(B)--
    "(A) the lease shall include a clause that provides that
  the lease shall be terminated if specific appropriations
  available for the rental payments are not provided in advance
  of the obligation to make the rental payments;
    "(B) notwithstanding section 1552 of title 31, United
  States Code, amounts obligated for paying costs associated
  with terminating the lease shall remain available until such
  costs are paid;
    "(C) amounts obligated for payment of costs associated
  with terminating the lease may be used instead to make rental
  payments under the lease, but only to the extent that such
  amounts are not required to pay such costs; and
    "(D) amounts available in a fiscal year to make rental
  payments under the lease shall be available for that purpose
  for not more than 12 months commencing at any time during the
  fiscal year; and".

  SEC. 402. SUBPOENA AUTHORITY FOR THE INSPECTOR
GENERAL OF THE
         CENTRAL INTELLIGENCE AGENCY.

   (a) Authority.--Subsection (e) of section 17 of the Central
  Intelligence Agency Act of 1949 (50 U.S.C. 403q) is amended--
   (1) by redesignating paragraphs (5) through (7) as
  paragraphs (6) through (8), respectively; and
   (2) by inserting after paragraph (4) the following new
  paragraph (5):
   "(5)(A) Except as provided in subparagraph (B), the
  Inspector General is authorized to require by subpoena the
  production of all information, documents, reports, answers,
  records, accounts, papers, and other data and documentary
  evidence necessary in the performance of the duties and
  responsibilities of the Inspector General.
   "(B) In the case of Government agencies, the Inspector
  General shall obtain information, documents, reports,
  answers, records, accounts, papers, and other data and
  evidence for the purpose specified in subparagraph (A) using
  procedures other than subpoenas.
   "(C) The Inspector General may not issue a subpoena for or
  on behalf of any other element or component of the Agency.
   "(D) In the case of contumacy or refusal to obey a
  subpoena issued under this paragraph, the subpoena shall be
  enforceable by order of any appropriate district court of the
  United States.
   "(E) Not later than January 31 and July 31 of each year,
  the Inspector General shall submit to the Select Committee on
  Intelligence of the Senate and the Permanent Select Committee
  on Intelligence of the House of Representatives a report of
  the Inspector General's exercise of authority under this
  paragraph during the preceding six months.".
   (b) Limitation on Authority for Protection of National
  Security.--Subsection (b)(3) of that section is amended by
  inserting ", or from issuing any subpoena, after the
  Inspector General has decided to initiate, carry out, or
  complete such audit, inspection, or investigation or to issue
  such subpoena," after "or investigation".
     TITLE V--DEPARTMENT OF DEFENSE INTELLIGENCE
ACTIVITIES

  SEC. 501. ACADEMIC DEGREES IN INTELLIGENCE.

   (a) In General.--Section 2161 of title 10, United States
  Code, is amended to read as follows:
[[Page S5978]]

   "Sec. 2161. Joint Military Intelligence College: master of
    science in strategic intelligence; bachelor of science in
    intelligence

    "Under regulations prescribed by the Secretary of Defense,
   the President of the Joint Military Intelligence College may,
   upon recommendation by the faculty of the college, confer the
   degree of master of science in strategic intelligence and the
   degree of bachelor of science in intelligence upon the
   graduates of the college who have fulfilled the requirements
   for such degree.".
    (b) Conforming Amendment.--The item relating to section
   2161 in the table of sections at the beginning of chapter 108
   of such title is amended to read as follows:

"2161. Joint Military Intelligence College: master of science in
        strategic intelligence; bachelor of science in
        intelligence.".

  SEC. 502. FUNDING FOR INFRASTRUCTURE AND QUALITY
OF LIFE
         IMPROVEMENTS AT MENWITH HILL AND BAD
AIBLING
         STATIONS.

    Section 506(b) of the Intelligence Authorization Act for
   Fiscal Year 1996 (Public Law 104-93; 109 Stat. 974) is
   amended by striking out "for fiscal years 1996 and 1997"
   and inserting in lieu thereof "for fiscal years 1998 and
   1999".

  SEC. 503. MISUSE OF NATIONAL RECONNAISSANCE OFFICE
NAME,
        INITIALS, OR SEAL.

 (a) In General.--Subchapter I of chapter 21 of title 10,
United States Code, is amended by adding at the end the
following:

"Sec. 426. Unauthorized use of National Reconnaissance
 Office name, initials, or seal

  "(a) Prohibited Acts.--Except with the joint written
permission of the Secretary of Defense and the Director of
Central Intelligence, no person may knowingly use, in
connection with any merchandise, retail product,
impersonation, solicitation, or commercial activity, in a
manner reasonably calculated to convey the impression that
such use is approved, endorsed, or authorized by the
Secretary or the Director, any of the following:
  "(1) The words `National Reconnaissance Office' or the
initials `NRO'.
  "(2) The seal of the National Reconnaissance Office.
  "(3) Any colorable imitation of such words, initials, or
seal.
  "(b) Injunction.--(1) Whenever it appears to the Attorney
General that any person is engaged or is about to engage in
an act or practice which constitutes or will constitute
conduct prohibited by subsection (a), the Attorney General
may initiate a civil proceeding in a district court of the
United States to enjoin such act or practice.
  "(2) Such court shall proceed as soon as practicable to
the hearing and determination of such action and may, at any
time before final determination, enter such restraining
orders or prohibitions, or take such other action as is
warranted, to prevent injury to the United States or to any
person or class of persons for whose protection the action is
brought."
     (b) Clerical Amendment.--The table of sections at the
    beginning of that subchapter is amended by adding at the end
    the following:

"426. Unauthorized use of National Reconnaissance Office name,
        initials, or seal.".

 Mr. COCHRAN addressed the Chair.
 The PRESIDING OFFICER. The Senator from Mississippi.
 (The remarks of Mr. Cochran pertaining to the introduction of S. 939
are located in today's Record under "Statements on Introduced Bills
and Joint Resolutions.")
 Mr. LOTT addressed the Chair.
 The PRESIDING OFFICER. The majority leader.

                ____________________




        House Debate on Intelligence Budget Disclosure

[Congressional Record: July 9, 1997 (House)]
[Page H4948-H4985]


 INTELLIGENCE AUTHORIZATION ACT FOR FISCAL YEAR
1998

[...]

            Amendment No. 2 Offered by Mr. Conyers

 Mr. CONYERS. Mr. Chairman, I offer an amendment.
 The CHAIRMAN. Was the amendment printed in the Congressional
Record?
 Mr. CONYERS. Yes, Mr. Chairman, it was.
 The CHAIRMAN. The Clerk will report the amendment.
 The Clerk read as follows:

   Amendment offered by Mr. Conyers: Page 10, after line 15,
  insert the following new section:

  SEC. 306. ANNUAL STATEMENT OF THE TOTAL AMOUNT
OF
         INTELLIGENCE EXPENDITURES FOR THE CURRENT
AND
         SUCCEEDING FISCAL YEARS.

    At the time of submission of the budget of the United
  States Government submitted for fiscal year 1999 under
  section 1105(a) of title 31, United States Code, and for each
  fiscal year thereafter, the President shall submit to
  Congress a separate, unclassified statement of the
  appropriations and proposed appropriations for the current
  fiscal year, and the amount of appropriations requested for
  the fiscal year for which the budget is submitted, for
  national and tactical intelligence activities, including
  activities carried out under the budget of the Department of
  Defense to collect, analyze, produce, disseminate, or support
  the collection of intelligence.

 Mr. CONYERS (during the reading). Mr. Chairman, I ask unanimous
consent that the amendment be considered as read and printed in the
Record.
 The CHAIRMAN. Is there objection to the request of the gentleman
from
Michigan?
 There was no objection.
  Mr. GOSS. Mr. Chairman, in order to assist Members planning, which
we
are trying to do, I ask unanimous consent that debate on the Conyers
amendment and all amendments thereto be limited to 40 minutes,
equally
divided.
  The CHAIRMAN. Is there objection to the request of the gentleman
from
Florida?
  Mr. CONYERS. Mr. Chairman, reserving the right to object, I support
a
limitation for this reason: This is precisely the same amendment that
was offered a year ago, and it received 176 votes. Although we have a
lot of speakers, I think the lateness of the hour and the fact that
this bill has been brought under the 5-minute rule requires that we
accede to the chairman's request.
  Mr. Chairman, I withdraw my reservation of objection.
  The CHAIRMAN. Is there objection to the request of the gentleman
from
Florida?
  There was no objection.
  The CHAIRMAN. The gentleman from Michigan [Mr. Conyers] and
the
gentleman from Florida [Mr. Goss] each will control 20 minutes.
  The Chair recognizes the gentleman from Michigan [Mr. Conyers].
  Mr. CONYERS. Mr. Chairman, I yield myself such time as I may
consume.
  This amendment is precisely the same one that was voted on last year
that makes this modest proposal, that the aggregate amounts of all
intelligence agencies be revealed in the President's budget and in the
final appropriation for intelligence. It is a simple compilation, and I
know some people did know this, of 14 different intelligence agencies
in the military budget. It has been examined with great care by the
Commission on the Role and Capabilities in the Intelligence
Community,
chaired by the Secretary, former Secretary of Defense Harold Brown, by
Warren Rudman, and even the gentleman from Florida [Mr. Goss]
served
with some distinction on this committee. They recommend this.
  The Council on Foreign Relations recommends this. In last year's
Senate bill, this provision was included. I apologize, it is not
radical, it is not revolutionary, it is embarrassingly modest, the
aggregate figure of 14 intelligence agencies.
  The President of the United States has indicated that he would accede
to this request. The ranking member of the Committee on National
Security has supported us year after year, so we are only doing what
other allies of ours do on this subject. England reveals their
aggregate figure, Canada reveals their aggregate figure, Germany
reveals their aggregate figure, Australia reveals their aggregate
figure. We are moving in the same way that the Framers of the
Constitution moved in 1790 and 1793 when they made public disclosure
of
their aggregate sum even though British spying and counterespionage
was
at a very intense level.
  I urge that Members support the measure. I would like to point out
for those who will be spared this argument of why you do not go up to
the green room and look at the intelligence figures. First of all,
there are 14 of them. This is why only four Members have done this.
Second, you are then bound by the House rules of secrecy and who
knows
what you can or cannot say.
  What we are saying is that for two reasons, we need this amendment
very badly. One is that we must not undermine the legitimacy of the
need for secrecy where it does exist. Secondly, unless we reveal the
aggregate budget, we will not gain the support of the American people.
  For those reasons, I urge that we please support this amendment when
it comes to a vote.
  Mr. Chairman, I rise today to offer a modest but long overdue
proposal. My amendment would simply declassify the aggregate amount
of
the intelligence budget. Specifically, it would require the President
to provide an unclassified statement of the bottom-line number of the
current appropriated amount and the amount being requested. It would
not disclose any operations. It would not reveal any agency budgets. It
would simply provide the American

[[Page H4971]]

taxpayers with information they are clearly entitled to.
 The amendment is modeled after my bill, H.R. 753, the Intelligence
Budget Accountability Act, a bill with 83 Democratic and Republican
cosponsors. That bill, and the amendment I am offering today, seek to
implement a key recommendation of a congressionally-mandated
Commission
on Intelligence Reform.
 The Commission on the Roles and Capabilities of the United States
Intelligence Community was chaired by former Secretary of Defense
Harold Brown and former Republican Senator Warren Rudman. Dr.
Brown,
who is now at the Center for Strategic and International Studies, and
Senator Rudman, who served on the Intelligence Committee, both
endorsed
the Intelligence Budget Accountability Act in a letter. Even a former
Director of Central Intelligence, Stansfield Turner, wrote me a letter
supporting my bill. I am submitting all these materials for the Record.
 I would also like to point out that the gentleman from Florida who is
the current chairman of the House Intelligence Committee sat on the
Brown-Rudman Commission when it recommended disclosure of the
intelligence budget. When the Commission's report came out, the White
House publicly declared that ``The President is persuaded that
disclosure of the annual budget for intelligence should be made public,
and that this can be done without any harm to intelligence
activities.'' So my amendment is really a mainstream proposal, with the
support of Republicans and Democrats in and out of government.
  During my service as chairman of the Government Operations
Committee,
I became intimately familiar with mounds of classified information and
with secrecy policy. I became convinced that too much secrecy is not
only counterproductive to our democracy, but it also undermines the
credibility of our legitimate secrets.
  Another congressionally-mandated study, the Commission on
Protecting
and Reducing Government Secrecy made some of the same
observations.
This Commission was chaired by Senator Daniel Patrick Moynihan, and
the
gentleman from Texas who served as the chair of the House Intelligence
Committee last year. It observed in its report that ``Secrecy exists to
protect national security, not government officials and not agencies.''
It also noted that the expansion of the national security bureaucracy
has far outpaced oversight by the public and the Congress.
  It's time to stop blurring legitimate secrecy that serves our
national defense with arbitrary secrecy that is used to avoid the
debate on the balanced budget.
  You will likely hear some of my colleagues today say that once we
disclose the aggregate figure on the intelligence budget, we'll be
starting down a slippery slope. This is absurd. The Defense
Appropriations Committee in 1994 accidentally disclosed not only the
total figure, but even an agency by agency breakdown. Three years later
we're still waiting to hear how that harmed our national security.
  You will also likely hear some say today that it is currently within
the President's power to disclose the intelligence budget, and if he
wants to he can. Talk about debating the chicken and the egg. That is
precisely what this amendment would do anyway: require the President
to
submit an unclassified statement of the current appropriated amount and
the current requested amount.
  Finally, as a member of the Judiciary Committee, I would like to
mention that the Constitution wanted all arms of the government to be
fiscally accountable. Article I, section 9, clause 7 states that ``No
Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law; and a regular Statement and Account of
the
Receipts and Expenditures of all public Money shall be published from
time to time.''
  I think if the Framers could disclose the aggregate figure of their
secret expenditures after the Revolutionary War, then we sure can
disclose such a sum after the cold war. I urge a ``yes'' vote on the
amendment.
  Mr. Chairman, I include the following:
      Be it enacted by the Senate and House of Representatives of
     the United States of America in Congress assembled,

   SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Intelligence Budget
   Accountability Act of 1997''.

   SEC. 2. PURPOSE.

    It is the purpose of this Act to require the publication of
   the aggregate intelligence budget figure to provide a more
   thorough accounting of Government expenditures as required by
   article I, section 9, clause 7 of the Constitution.

   SEC. 3. FINDINGS.

    The Congress finds that--
    (1) article I, section 9, clause 7 of the Constitution
   states that ``No Money shall be drawn from the Treasury, but
   in Consequence of Appropriations made by Law; and a regular
   Statement and Account of the Receipts and Expenditures of all
   public Money shall be published from time to time.'';
    (2) during the Cold War the United States did not provide
  to the American people a ``regular Statement and Account of
  the . . . Expenditures'' for intelligence activities;
    (3) the failure to provide to the American people a
  statement of the total amount of expenditures on intelligence
  activities prevents them from participating in an informed,
  democratic decision concerning the appropriate level for such
  expenditures; and
    (4) the Report of the Commission on the Roles and
  Capabilities of the United States Intelligence Community
  recommended the disclosure of ``the total amount of money
  appropriated for intelligence activities during the current
  fiscal year and the total amount being requested for the next
  fiscal year''.

  SEC. 4. ANNUAL STATEMENT OF THE TOTAL AMOUNT OF
INTELLIGENCE
          EXPENDITURES FOR THE PRECEDING FISCAL
YEAR.

    Section 1105(a) of title 31, United States Code, is amended
  by adding at the end thereof the following new paragraph:
    ``(31) a separate, unclassified statement of the
  appropriations and proposed appropriations for the current
  fiscal year, and the amount of appropriations requested for
  the fiscal year for which the budget is submitted, for
  national and tactical intelligence activities, including
  activities carried out under the budget of the Department of
  Defense to collect, analyze, produce, disseminate, or support
  the collection of intelligence.''.
                                            ____


               Original Cosponsors
  Pete Stark, Lynn Rivers, Luis Gutierrez, Maurice Hinchey,
 Sam Farr, David Bonior, Earl Blumenauer, George Miller (CA),
 Bob Filner, Peter DeFazio, Louise Slaughter, Ron Dellums,
 Nancy Pelosi, Jerrold Nadler, Jim Oberstar, Cynthia McKinney,
 Mel Watt (NC), Sidney Yates, Nita Lowey, John Olver, Anna
 Eshoo, Ed Pastor, Nydia Velazquez.

             Additional Cosponsors

  Norm Dicks, Barney Frank (MA), Bennie Thompson, Eleanor-
 Holmes Norton, Earl Pomeroy, Sheila Jackson-Lee, Bernie
 Sanders, Bobby Rush, Jim McGovern, Sander Levin, Lee
 Hamilton, Bill Luther, John Lewis (GA), Adam Smith (WA),
 Martin Meehan, Danny Davis (IL), Floyd Flake, Lane Evans,
 Elizabeth Furse, David Minge, Xavier Becerra, John Tierney,
 George Brown (CA), Neil Abercrombie, Chaka Fattah, Ron Kind,
 Debbie Stabenow, Maxine Waters, Diana DeGette, Carolyn
 Maloney (NY), Tom Allen, Vic Fazio, Ron Paul, Henry Gonzalez,
 Lucille Roybal-Allard, Tom Barrett (WI), Major Owens, Ted
 Strickland, William Delahunt, Rod Blagojevich, Carrie Meek,
 Jim Clyburn, Lynn Woolsey, Dennis Kucinich, William Coyne,
 Eddie Bernice Johnson, Ellen Tauscher, Chris Shays, Darlene
 Hooley, Esteban Torres, James Traficant, Charles Rangel,
 Robert Underwood, John Spratt, David Skaggs, James Maloney
 (CT), Donna Christian-Green, Joe Kennedy (MA), Alcee Hastings
 (FL), Julian Dixon (CA), Sam Gejdenson (CT).
                                      ____



                     House of Representatives,

                   Washington, DC, March 31, 1997.

Support Fiscal Accountability: Cosponsor H.R. 753--The Intelligence
          Budget Accountability Act

  Dear Colleague: I recently re-introduced the Intelligence
Budget Accountability Act. This bill will make public the
total appropriations for the current fiscal year and the
total amount being requested for the new fiscal year. The
intelligence budget includes funding for the CIA, the
National Security Agency and other intelligence services. It
also includes funding for the intelligence function of
agencies such as the DEA and the FBI. If Congress is going to
honestly deal with balancing the budget, it only makes sense
that it at least acknowledge the tens of billions of dollars
it spends on intelligence every year.
  Keeping the intelligence budget secret is unnecessary after
the demise of the cold war, unfair to American taxpayers, and
inconsistent with the accountability requirements of the
Constitution. The Constitution clearly states that ``No Money
shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law; and a regular Statement and
Account of the Receipts and Expenditures of all public Money
shall be published from time to time.'' Half a century and
hundreds of billions of dollars later, it is time that we
begin meeting our obligation to inform the public how their
tax dollars are spent.
  Official public disclosure of the intelligence budget is
long overdue. Last year's Congressionally mandated report to
President Clinton by the Brown-Aspin Commission entitled
``Preparing for the 21st Century: An Appraisal of U.S.
Intelligence'' recommended opening up the spy budget. It
proposed that ``at the beginning of each congressional budget
cycle, the President or a designee disclose the total amount
of money appropriated for intelligence activities for the
current fiscal year . . . and the total amount being
requested for the next fiscal year.'' The Senate Intelligence
Committee unsuccessfully sought to implement this
  recommendation during last year's intelligence authorization
  process.
   A copy of the bill is on the reverse. If you would like to
  co-sponsor or if you need more information please do not
  hesitate to contact Mr. Carl LeVan of my staff at 5-5126.
      Sincerely,
                              John Conyers, Jr.,
                              Member of Congress.

[[Page H4972]]


                                         ____
                   Congress of the United States,

                     Washington, DC, April 30, 1997.

 Former Director of Central Intelligence Stansfield Turner Supports
       Making the Intelligence Budget Total Public

    Dear Colleague: We are writing to bring a letter (on the
  reverse) to your attention from Admiral Stansfield Turner,
  the former Director of Central Intelligence, and to urge your
  support for the Intelligence Budget Accountability Act of
  1997. This legislation would declassify the aggregate
  figure--just the bottom line number--of the intelligence
  budget for the current fiscal year and the amount requested
  for the next fiscal year.
    The intelligence budget includes spending for the CIA and a
  dozen other agencies with an intelligence function. This
  figure has been classified by the executive branch since the
  birth of the modern national security establishment in 1947.
  We believe, like Admiral Turner, that this multibillion
  dollar budget can be made public without harm to the national
  security of the United States.
 We hope you will join the growing bipartisan list of
members who have decided to co-sponsor H.R. 753. If you have
any questions, or would like to co-sponsor, please do not
hesitate to call Mr. Carl LeVan in the office of Rep. Conyers
at 5-5126.
    Sincerely,
John Conyers, Jr.
Lee Hamilton.
Bill Luther.
 Members of Congress.
                                        ____



                        Stansfield Turner,

                           February 7, 1997.
Hon. John Conyers, Jr.,
House of Representatives, Russell House Office Building,
    Washington, DC.
  Dear Representative Conyers: I am pleased that you are
again introducing legislation to require the open publication
of the aggregate intelligence budget figure.
  It has been my opinion since shortly after becoming the
Director of Central Intelligence in 1977 that there would be
no harm to the country's security in releasing such a figure.
I agree fully with the emphasis in the legislation on the
importance of all government agencies being accountable to
the public. While total accountability may not be feasible in
the case of intelligence budget, just one aggregate figure
certainly is.
  I wish you every success.
     Yours,
                         Adm. Stansfield Turner,
U.S. Navy (retired).
                                       ____



                     House of Representatives,

                             April 8, 1997.

Common Sense Budget Accountability--H.R. 753, the Intelligence
Budget
             Accountability Act

    Dear Colleague: I am writing to urge your support of H.R.
  753, the Intelligence Budget Accountability Act and to bring
  a letter (on the reverse) from Taxpayers for Common $ense to
  your attention. This important legislation, introduced by
  Representative Conyers and twenty other Members of Congress,
  would simply declassify the aggregate figure of the
  intelligence budget.
    The intelligence budget, which is widely believed to be
  over $30 billion a year, has been classified for fifty years.
  Now that the Cold War is over and the war on the deficit has
  begun, it is time for a fair accounting of our expenses. As
  Taxpayers for Common $ense point out in their letter, ``the
  intelligence agencies, just like all other federal agencies,
  should be accountable to those who pay their bills--the
  taxpayers.''
    Unaccountable spending has been a demonstrated problem in
  the past with the intelligence agencies. For example, we
  learned in 1994 that the National Reconnaissance Office
  (NRO), which handles spy satellites, was building a luxurious
  $300 million complex with an extra fourteen acres. Then the
  public found out that the NRO had accumulated $4 billion in
  unspent funds, half of which it had simply lost track of. An
  unclassified bottom line number of the intelligence spending
would help end the excessive secrecy that makes this kind of
budget banditry possible.
 Certainly if we are serious about balancing the budget, we
should know at least in a general way where billions of
dollars are spent. Our nation needs to be secure from foreign
threats, but our budget process also must maintain a sense of
integrity. An official acknowledgment of how much we spend on
intelligence would help provide that integrity. H.R. 753
meets this criteria by requiring the current requested and
appropriated amounts be unclassified.
 If you have any questions or would like to cosponsor,
please contact Tim Bromelkamp in the office of Representative
Minge at 5-2331 or Carl LeVan in the office of Representative
Conyers at 5-5126.
    Sincerely,
                                David Minge,
Member of Congress.
                                         ____



                  Taxpayers for Common $ense,

                  Washington, DC, March 17, 1997.

Taxpayers ``Need to Know'' Where the Intelligence Budget Goes--
            Cosponsor Conyers Bill

 Dear Representative: Taxpayers for Common $ense urge you to
cosponsor H.R. 753, the Intelligence Budget Accountability
Act. Sponsored by Rep. John Conyers, this bill would require
that the aggregate intelligence budget figure be disclosed to
the public. The intelligence agencies, just like all other
federal agencies, should be accountable to those who pay
their bills--the taxpayers.
  Disclosing the intelligence agencies' aggregate budget
figure does not threaten national security. In 1996, the
Congressionally-mandated Brown-Aspin Commission declared that
classifying the aggregate budget figure is not a matter of
national security and the figure should be disclosed to the
public. Both President Clinton and the Senate Intelligence
Committee supported the Commission's conclusion. The Conyers
bill would simply require that the total amounts requested
and currently appropriated for intelligence activities should
be unclassified.
  The intelligence agencies should not be allowed to keep
their multi-billion-dollar budget a secret. At a time when
all federal programs are under increased scrutiny and must
meticulously account for their spending, it is only fair that
the overall level of spending on intelligence be available to
the taxpayers. Taxpayers should know the amount spent on
intelligence in order to make informed choices regarding the
allocation of government funds.
  In the military, secrets are shared only with those who
``need to know.'' Taxpayers for Common $ense urges that this
same standard be applied to the intelligence budget.
Taxpayers pay the intelligence budget, and their support and
trust is ultimately the strength of the intelligence
services. We urge you to defend the taxpayers' ``need to
know'' where their money goes by supporting the Conyers bill.
     Sincerely,
                                Jill Lancelot,
Legislative Director.
                                           ____



               Congress of the United States,

                  Washington, DC, May 22, 1997.
Hon. Harold Brown,
Counselor, Center for Strategic and International Studies,
   Washington, DC
Hon. Warren Rudman,
Paul Weiss Rifkind Wharton & Garrison, Washington, DC
 Dear Dr. Brown and Senator Rudman: Last year the Commission
on the Rules and Capabilities of the U.S. Intelligence
Community, which you cochaired, submitted its report to the
President and the Congress as mandated by the Fiscal Year
1995 Intelligence Authorization Act. One of the Commission's
recommendations was the disclosure of the aggregate figure of
the intelligence budget. The Intelligence Budget
Accountability Act, which we all strongly support, would
implement this key recommendation.
 The intelligence budget has been classified by the
Executive branch since 1947. The Church Committee, the Pike
Committee and the Rockefeller Commission in the 1970's all
suggested some level of disclosure. Your Commission
specifically proposed that ``at the beginning of each
congressional budget cycle, the President or a designee
disclose the total amount of money appropriated for
intelligence activities for the current fiscal year and the
total amount being requested for the next fiscal year.'' H.R.
753, a bipartisan bill with 80 cosponsors, is modeled after
this recommendation and seeks to implement it precisely as
proposed in the Report.
 We believe that secrecy is important to effective
intelligence, but it needs to be compatible with a democratic
form of government. As the Commission pointed out,
intelligence agencies need to be responsible ``not only to
the President, but to the elected representatives of the
people, and, ultimately to the people themselves. They are
funded by the American taxpayers.'' We agree with this
observation and would like to hear your opinion of the
proposed legislation which is enclosed.
    Sincerely,
 John Conyers, Jr.
 Ronald V. Dellums.
 Lee Hamilton.
 Christopher Shays.
  Members of Congress.
                                        ____

                         Center for Strategic &


                      International Studies,

                       Washington, DC, June 2, 1997
 Hon. John Conyers, Jr.,
 Hon. Ronald V. Dellums,
 Hon. Lee Hamilton,
 Hon. Christopher Shays,
 House of Representatives,
 Washington, DC.
  Gentlemen: In response to your letter of May 22, I continue
 to subscribe to the statement that you quote from the report
 of the Commission on the Roles and Capabilities of the U.S.
 Intelligence Community, recommending disclosure of the total
 amount of money appropriated for intelligence activities
 during the current fiscal year and the total amount being
 requested for the next fiscal year. H.R. 753 appears to meet
 this criterion and therefore I believe it would accomplish
 the purpose of the Commission's recommendations. It is
 important, in my judgment, that no breakdown of the total
 into its components be made public. Senator Rudman joins me
 in this response.
     Sincerely,
                                 Harold Brown.
Mr. Chairman, I reserve the balance of my time.
 Mr. GOSS. Mr. Chairman, I yield such time as he may consume to the
gentleman from Illinois [Mr. Hyde],

[[Page H4973]]

the distinguished chairman of the Committee on the Judiciary, a
gentleman who is well versed on this issue.
  (Mr. HYDE asked and was given permission to revise and extend his
remarks.)
  Mr. HYDE. Mr. Chairman, with some but not a great deal of
reluctance,
I rise to oppose the amendment of my good friend from Michigan.
Traditionally, the aggregate amount of funds spent to support our
intelligence agencies has not been disseminated publicly. It is a
classified amount. However, it is not unavailable to this House. There
are six committees in Congress that have access to that number, three
in the House, three in the other body: The Permanent Select Committee
on Intelligence, the Committee on Appropriations, and the Committee
on
National Security. Those committees are set up to receive this
information, they are cleared for top secret, and they have the ability
to absorb it and to do with it whatever is necessary in our democratic
process.
  The classified records are available to be looked at. The gentleman
from Michigan [Mr. Conyers] objects to that because you are then bound
by an oath of secrecy. Well, then do not go look at it, but you have
got six committees in this Congress to get that information.
  Why do we keep it secret? It is a mistake to think that the
intelligence budgets of these agencies is a static thing. There are
bumps. Sometimes it goes up, sometimes it goes down. What does that
signify? It means we may be working on an expensive new weapons
system,
and that information ought not to be made available to those who wish
us harm. There is no urgency, there is no need for this to be made
public other than to tell the rest of the world or give them a hint as
to what we are doing and perhaps even why we are doing it. The amount
of money is overseen by six congressional committees bipartisanly. It
is available to anybody who has a burning need to know by going and
reviewing the classified annex. And so there is no need to violate what
has traditionally been the case; that is, keep the aggregate amount
confidential, keep it classified so that our adversaries, and believe
me there are some out there, do not have an idea or a clue as to what
we are working on.
  With good wishes to my friend from Michigan, I just think his
amendment is wrong and I hope it is defeated.
  Mr. CONYERS. Mr. Chairman, I yield myself 30 seconds, because the
amicable nature of the ranking member and the chairman of the
Committee
on the Judiciary is very close, and I respect his learned judgment. But
this time he is up against the Secretary of Defense, the former
Secretary of the CIA. The gentleman from Florida [Mr. Goss] was on
this
committee as well, the Committee on Foreign Relations in the other
body, the framers of the Constitution and 176 of his colleagues.
  Mr. Chairman, I yield 3 minutes to the gentleman from Washington
[Mr.
Dicks], the distinguished ranking member of the Permanent Select
Committee on Intelligence.
  Mr. DICKS. Mr. Chairman, absent a clear national security interest,
information should not be classified. In fact, Executive Order 12,958,
which governs classification, prohibits classifying information unless
to do so is required to protect national security.
  I do not think anybody can stand up here tonight and say that
disclosing the number, disclosing this number, is going to do anything
to harm national security. I do not believe a case can be made that the
aggregate budget figure for intelligence meets that standard. The
arguments that are made in favor of keeping the budget secret have
little to do with the number in question and more to do with the
potential damage that could occur if more information were released.
                  {time} 1745

 Some people are afraid that public release of the intelligence budget
will lead to drastic cuts in intelligence spending. Not only is that an
improper reason for classification, but I firmly believe we can defend
the overall amount, as we just did, we spent on intelligence as well as
we will defend the overall amount we spend on defense. Releasing the
aggregate budget total changes business as usual, and some people are
understandably uncomfortable with changing the practices of 50 years.
But this is not a radical proposition. It is an idea that has been
endorsed by two panels of experienced and knowledgeable experts
serving
on the Aspen Brown Commission and the Council on Foreign Relations.
 The overall intelligence budget figure is a significant piece of
information by which the American people can judge the operations of
their Government. I believe we should tell the American people about
how we are spending their hard-earned money. We tell them what the
overall number for defense is; I do not see how we can then argue that
we cannot tell them what the overall number for intelligence is, and
frankly I think it would do a lot to clear up much of the confusion
that we have heard today on the floor about what this number is
because, as I said earlier, the number that we have heard is
inaccurate, significantly inaccurate.
 So I rise in strong support of the Conyers amendment. I remember our
colleague, Congressman Glickman, who was chairman when we were in
the
majority, was the first chairman of this committee to strongly endorse
this. I think it is time to do it, and I hope we can do it today on a
bipartisan basis.
 Mr. GOSS. Mr. Chairman, I yield such time as he may consume to the
distinguished gentleman from California [Mr. Lewis], subcommittee
chairman.
 Mr. HYDE. Mr. Chairman, will the gentleman yield?
 Mr. LEWIS of California. I yield to the gentleman from Illinois.
 Mr. HYDE. Mr. Chairman, I will be brief.
  I just want to say to my friend, the gentleman from Washington [Mr.
Dicks], who surprises me that he is for disclosing this amount of
money, the truth is, of course, the aggregate figures do not tell us
anything. They give us a rough idea, but the next step is who is
getting what? If we want to know the aggregate, we want to know who
is
spending it and for what purpose. What is the National Reconnaissance
Office spending? What is the CIA spending? What is the DIA spending?
And we want to break it down so it means something. That is the next
step. The aggregate figure does not really inform us.
  But the gentleman and I know it is the opening wedge in a total lay
it on the table strategy, what agency is spending how much money, for
what systems, and for what covert activity and for what satellites, and
what are we spending overseas? And it never ends.
  And so that is why it ought to remain secret, in my opinion.
  Mr. LEWIS of California. Mr. Chairman, I must say following the
remarks of both the gentleman from Washington [Mr. Dicks] and the
gentleman from Illinois [Mr. Hyde] I cannot help but be a bit
disconcerted by that disconnect, for I am quite surprised at the
position of the gentleman from Washington [Mr. Dicks] as well. In the
short time, 4 years, that it has been my privilege to serve on this
committee, I have become very, very impressed by the fact that America
is pretty good at what they do. A combination of my service on the
defense subcommittee of Appropriations and this committee tells me
that
America is more than just leading the world, we are the strength for
the future of peace in the world, in no small part because of the work
done by many of these agencies. But there is little doubt that those
who suggest that the gross number means almost nothing, there is
absolutely no doubt in my mind that underlying that is the balance. And
it is not the people here in this room who necessarily want to know
what may be all of the spending of some of our subagencies involved. It
is the people who would be our enemies who would like to have that
information.
  Excellent work being done by the FBI as well as other agencies
relative to controlling the impact of drugs in our society, a
tremendous war developing there that will be very important to the
future of our youth. Absolutely no question that the impact that we are
beginning to have upon potential terrorists is very important as
related to this work.
  There are those who love to see what our satellites are all about,
exactly what they mean and what we are spending. Indeed it is very
important that we recognize that it is the people who largely wish
America ill who like to have those kinds of details, and because of
that I am supporting the

[[Page H4974]]

chairman's position. I certainly would urge the ranking member to
reconsider his position, for America's future is involved in the work
that we are about in the Permanent Select Committee on Intelligence.
 Mr. CONYERS. Mr. Chairman, I yield 30 seconds to the gentleman
from
Washington [Mr. Dicks], the frequently talked about ranking member.
 Mr. DICKS. Mr. Chairman, I want to say to my friend from California,
Mr. Lewis, and my friend, the gentleman from Illinois, Mr. Hyde, who
has served on this committee with great distinction, I still go back to
Executive Order 12958 which governs classification. It prohibits
classifying information unless to do so is required to protect national
security.
 Now I do not see how anybody can make a case that this number has
anything to do with national security. It is the amount of money we
spend on intelligence, but by disclosing it I do not see how we in any
way endanger national security, and therefore we cannot classify it.
 It is almost an open and shut case, and that is why I think the
gentleman from Michigan [Mr. Conyers] is correct in calling for this to
be disclosed.
 Mr. CONYERS. Mr. Chairman, I yield myself 15 seconds because
some may
be surprised at the gentleman from Washington [Mr. Dicks] but I am not
surprised at the gentleman from Illinois (Mr. Hyde). Mr. Hyde said it
makes hardly any difference what the aggregate amount would be. He is
worried about what comes after that. Well, we are not legislating about
after that, and he is quite right. It does not make any difference.
 Mr. GOSS. Mr. Chairman, I yield myself such time as I may consume.
 I think this is, as the gentleman from Michigan has said, a debate we
have had many times, and I tend to believe that not much has changed
and the previous wisdom we have had that it is correct, that the matter
should remain classified. I realize that the gentleman has quoted the
Aspen Brown report, and in fact I did dissent from the vote on that.
That was a consensus report. I argued for the position of keeping the
matter classified. In that particular group of people, it was not seen
that way. Not all of those people have had the same experience that
those of us on the Senate committee have had, and there is a legitimate
disagreement about this.
 The other point I think is very important is that no good deed seems
to go unpunished, no matter what we do around here. I would point out,
and I am reading from the committee report, the committee has
authorized additional resources in the fiscal year 1998 budget for CIA
classification management, including declassification activities in
support of Executive Order 12958.
 Now I know that the gentleman from Massachusetts [Mr. Frank] has a
cutting amendment we are going to hear, and I know the gentleman from
Vermont [Mr. Sanders] had a cutting amendment. Well yes, we did put
more money in this bill to get to the declassification question, and I
certainly believe as part of the declassification question we ought to
be examining the issue that the gentleman from Michigan [Mr. Conyers]
has raised. I think it is a very fair debate to ask and we should do it
in a comprehensive way.
 So I am totally prepared to say that as part of the initiative of the
gentleman from Colorado [Mr. Skaggs] a very valued member on our
committee, to deal with declassification, that this should be part of
that study. I just do not want at this point to create an initiative to
go forward and say, well, we suddenly made a decision that really is of
interest in the Beltway, but not for the American people to suddenly
declassify this matter. It will be of interest to those who have
interests that are inimicable to the United States of America. They
would dearly love to have this information. The gentleman from Illinois
[Mr. Hyde] is right, it is a slippery slope.
  Now I realize that there are some Members who serve on other
committees who would love to know what a percentage of the NRO
budget
is so they can get their hand on a number and say, surely the interests
of my committee match this and surely, therefore, we could take a
little bit here and put a little bit there. But as the gentleman from
Washington [Mr. Dicks] has said, under 602(b) we are still in line, and
I think that is extremely important. So my colleagues can rest assured
that there is not really any opportunity here, there is no pork here,
this is all proper.
  The other thing I have got to point out on this besides the slippery
slope and the fact that there is not a clamor across this country to
have this information, I hardly ever at a town meeting get asked, gee,
exactly how much money is being spent on intelligence? Sometimes I
get
asked exactly what is intelligence doing, and there is this perception
that it is all CIA, and as the gentleman from Washington [Mr. Dicks]
has properly said earlier in this debate today, it is much, much more.
The CIA is indeed a very minor part of it. I am very happy to say it is
a minor part of it. I do not think I ought to say specifically what
that minor part is though.
  The other thing I have got to point out here, the President of the
United States in fact can go ahead and release information. He has that
ability. The President does not do that. The President has made the
choice to keep the matter classified.
  Before we go off and do something like this, I think it should be
properly studied and have the proper input from our folks in the other
part of Government, our sister branch of Government. After all, he is
charged with the national security. It is a matter of the Constitution,
it is a matter of his specific charge, and he can declassify when he
chooses with a stroke of his pen. Every President since Harry Truman
has decided to send us the bill with the number classified. I suspect
there is a reason for that, and I suspect that we probably ought to
take the President and his people into consideration before we go off
in a new direction.
  Mr. Chairman, I reserve the balance of my time.
  Mr. CONYERS. Mr. Chairman, I yield 2 minutes to the gentleman
from
Colorado [Mr. Skaggs].
  Mr. SKAGGS. Mr. Chairman, I thank the gentleman for the time.
  Our distinguished friend from Illinois has really conceded the point.
This proposal will not hurt national security. What will it do? It will
enhance our responsibility to the American public for them to have as
much information as possible about their government. And I think it is
irrelevant whether we get asked at town meetings about this. I happen
to, actually. And what does the American public learn? They have a
sense of proportion: How much of our resources are we putting to this
purpose? They have, I would concede, no particular need to know the
details of particular sub-agencies. But it is a legitimate matter for
them to have a sense in this large sense what their government is about
in the intelligence field relative to other things that they spend
their tax money for.
  Really all that we have by way of argument against this proposal is
the slippery slope argument. What does that really mean? It means that
we do not trust future Congresses to exercise judgment about what will
and what will not protect the national security of this country.
  I think that is a highly rude position to take relative to our
successors in these jobs. They will be able to figure this out. They
will know whether or not further disclosures make any sense. I do not
think that they will err in that judgment, and we can trust them to do
so.
  On the other hand, the default position always ought to be if this
information is not going to damage national security, let us make it
available to the public. The real national security issue here is the
strength of the democracy and the willingness of the American people to
trust a government that is leveling with them whenever it possibly can.
 Mr. GOSS. Mr. Chairman, will the gentleman yield for a brief
question?
 The CHAIRMAN. The time of the gentleman from Colorado has
expired.
 Mr. GOSS. Mr. Chairman, I yield 1 minute to the gentleman from
Colorado if the gentleman will yield.
 Mr. SKAGGS. I yield to the gentleman from Florida.
 Mr. GOSS. Mr. Chairman, I believe that the gentleman is exactly on
the point that if it does no damage then there is no reason to keep it
hidden. That is a very valid point. But it is a

[[Page H4975]]

point that applies to several other pieces of information, which is
exactly why the committee has provided at the gentleman's request,
which I totally agree with, conceded to, applauded in committee, that
we provide for a study on declassification.
 Does the gentleman believe that this should be outside of the study
of the declassification that we have provided for, committed funds for
and I hope we will have the funds when we get through with this process
to proceed with the study.
 Mr. SKAGGS. If I can reclaim enough time to respond, I believe, as
the gentleman knows, that funding is for looking at past classified
information, things that have been sitting in the archives that need
additional staffing in order to be able to be reviewed for
declassification purposes. That is the real thrust of the funding that
we put in the bill for declassification.

                  {time} 1800

 Mr. GOSS. Again, if the gentleman will continue to yield, I believe
that the question of declassification includes the question of
classification, because I think there is great abuse there, as the
gentleman has heard me say. I believe this is comprehensive and should
be treated as such.
  Mr. CONYERS. Mr. Chairman, I am pleased to yield 2 minutes to the
gentleman from Massachusetts [Mr. John Tierney].
  Mr. TIERNEY. Mr. Chairman, I appreciate the efforts of my colleague,
the gentleman from Michigan [Mr. Conyers], and I voice my support for
this amendment.
  Let me just say that I do not think any of us are not mindful of the
comments that are made by our colleagues on the other side of this
issue, but the fact of the matter is that the American public are the
people that have a burning need to know at least what the aggregate
number is in this situation.
  The time has come and it is long overdue for us to be able to have a
debate with real numbers down here about real issues. We are in the
midst of a debate right now in this country and in this House about the
amount of money that we are going to be spending on programs, and in
fact, with spending constraints on a number of programs, we are told
the money just is not there.
  The budget these days is a zero sum game. The fact of the matter is
that if this is the case, we should have a disclosure so the American
public can see what proportion of our budget we are spending on so-
called intelligence matters. It ought to be known how many millions or
billions of dollars in relation to the rest of our budget is being
spent in this area at a time when we have schools that are in need of
repair, when we have cities and communities that are in need of
development, when we have infrastructure needs that are going unmet,
roads, bridges, and airports left unbuilt, the restraint of growth and
missing opportunities for job creation, when we have a debate over
insuring half of our children and not insuring the other half, and when
we continue to fail to debate the idea of having insurance available
for all Americans.
  The Constitution requires that we have a statement and account of
receipts and expenditures for all the money. I think it is an absolute
disgrace that we hide here behind secrecy and say that we cannot even
tell the American public what the aggregate number is on so-called
intelligence matters.
  In fact, my colleague from across the aisle indicated that the
President may well have authority to release these numbers. In fact, I
would agree with the gentleman that he does; that in 1996 he said he
favored doing just that. Now we see him waiting for us to move, and
they are over there with others saying we are going to wait for him to
move.
  The American public wants somebody to move off the dime and tell us
what those numbers are. He ought to do it, and if he is not going to do
it we ought to do it, because simply there is no reason in the world to
say that security is involved.
  Mr. Chairman, we need to move on this matter. The public has a
burning need to know.
  Mr. CONYERS. Mr. Chairman, I yield myself 15 seconds.
  Mr. Chairman, the argument that the President can do it and has not
done it but he approves of it is not a reason for us not to go ahead
and do it. If the gentleman does not object if the President
declassifies, then why do not we do it? We were only 30 votes away last
year from doing it.
  Mr. Chairman, I yield 2 minutes to the gentlewoman from California,
Mrs. Ellen Tauscher.
  Mrs. TAUSCHER. Mr. Chairman, I thank the gentleman from
Michigan for
yielding time to me.
  Mr. Chairman, I rise in strong support of the Conyers amendment. In
this post-cold-war era it is as important as ever that our Nation
maintain an efficient, effective, and trustworthy intelligence
apparatus. With national and economic security threats around the
world, we must collect accurate information about the activities of
countries and organizations that jeopardize our stability.
  At the same time, at the end of the cold war we are now provided with
the opportunity to be more forthcoming about the money and the
resources we spend on intelligence gathering. The Director of the
Central Intelligence Agency has already taken steps to make more public
the activities of our intelligence agencies. The fact that the general
level of intelligence spending is a poorly kept secret only strengthens
the argument that it should be publicly disclosed.
  As we attempt to balance the Federal budget, we are forced to make
decisions about spending priorities. It is important that the American
people know how much of their money proportionally is being spent to
support the intelligence community, just as they need to know about
how
much money is spent on Medicare, transportation, and the arts.
  I intend to vote for the Intelligence Authorization Act for 1998. I
believe it properly funds the important intelligence-related activities
of the United States. But I also believe that the American public
deserves to know the aggregate amount we are authorizing for these
activities. The Conyers amendment is a commonsense proposal that
places
no threat to our national security. I encourage my colleagues to
support this amendment.
  Mr. GOSS. Mr. Chairman, I yield such time as he may consume to my
colleague, the gentleman from Florida [Mr. McCollum].
  Mr. McCOLLUM. Mr. Chairman, I thank the gentleman for yielding
time
to me.
  Mr. Chairman, I oppose the Conyers amendment, which is intended to
force the disclosure of the aggregate total of the intelligence
community's budget. I think primarily I oppose it for basic reasons of
common sense, that it does not make any sense to disclose this number
and let people who would be our enemies know what it is.
  But as Chairman Goss has noted, there are several reasons to oppose
it. For example, one could argue that disclosure of the aggregate
number is the first step on a slippery slope toward total disclosure of
very highly sensitive security information. Chairman Goss has also
made
a very persuasive argument that the President already possesses the
necessary legal authority, we have heard that discussed, to
unilaterally disclose this information without seeking any approval of
Congress.
  But I would like to particularly address the assertion by some that
disclosure is required by the statement and account clause of the
Constitution; that is, article I, section 9, clause 7.
 Professor Robert F. Turner of the University of Virginia School of
Law testified before the Permanent Select Committee on Intelligence on
the issue of, and this is his quote, ``Secret funding and the
`statement and account' clause'' in February 1994.
 Professor Turner made a number of legal and historical observations
on the statement and account clause which are quite pertinent to
today's debate. He said, ``The Founding Fathers did not view `secrecy'
as being incompatible with democratic government. One of the first
measures adopted by the Constitutional Convention of 1787 was a
secrecy
rule--without which James Madison said there would have been no
Constitution.
 ``Perhaps the first `covert action' in which the United States was
involved was a 1776 decision by France to secretly transfer 200,000
pounds worth of

[[Page H4976]]

arms and ammunitions to the colonies for use in their struggle against
King George. The offer was reported by secret messenger to Benjamin
Franklin, chairman of the Committee of Secret Correspondence of the
Continental Congress, and Robert Morris, the only members of the 5-
man
committee then in town. Given the sensitivity of the matter, they
concluded--and here I quote--that `it is our indispensable duty to keep
it secret even from Congress.'

 ``They set forth several reasons for this decision, including this
one--and again I quote--`We find by fatal experience that Congress
consists of too many members to keep secrets.'
 ``It should not come as a surprise to learn that the first Congress
in 1790 appropriated a substantial contingent account for the President
to use in making foreign affairs and intelligence expenditures, and
that Congress expressly exempted the President from any requirement to
inform either Congress or the public how those funds were expended.
This was the start of a long tradition of 'secret' expenditures.''
  I believe that Professor Turner has demonstrated in his work that the
Founding Fathers did endorse the use of certain secret funds to support
the new Nation's intelligence and foreign policy activities. I think
Benjamin Franklin would agree that the disclosure of the aggregate
funding amount for the intelligence community would indeed be penny-
wise and pound-foolish.
  I am going to ask at the appropriate time, though I realize it is not
now since we are in the time for the amendments, to put Professor
Turner's prepared statement on secret funding into the Record and when
that time comes in the full House I will do so.
  I again urge the defeat of the Conyers amendment. I ask that the
Members of this body vote down the Conyers amendment. It is a
dangerous
precedent. We should not adopt it. We do have times and places for
secrecy, and the intelligence community is one of those places where it
is absolutely imperative.
  Mr. CONYERS. Mr. Chairman, I yield 2 minutes to the distinguished
gentlewoman from California [Ms. Pelosi].
  (Ms. PELOSI asked and was given permission to revise and extend her
remarks.)
  Ms. PELOSI. Mr. Chairman, I thank the gentleman for yielding time to
me.
  As a member of the Committee on Intelligence, I rise in support of
the Conyers amendment. This amendment at heart is about
accountability
and the public's right to know. The amendment supports the underlying
belief that the government of this country is and should be accountable
to the people of the country.
  In today's world there is no rational reason why the American public
should be denied information about how much the United States
Government is spending on intelligence activities. President Clinton
recognized this fact when in April of 1996 he said that the bottom line
for intelligence spending should be published. John Deutch, then
Director of the Central Intelligence Agency, said that same month,
``Disclosure of the annual amount appropriated for intelligence
purposes will inform the public and will not in itself harm
intelligence activities.''
  The continued classification of the total amount spent annually on
intelligence activity is not only unnecessary, but it is also
ridiculous. U.S. intelligence spending is considered by many to be one
of Washington's worst-kept secrets. Estimates of intelligence spending
appear with some regularity in the press. By continuing to refuse to
release the amount publicly, Congress is only serving to fuel
suspicions that the government is hiding something.
  Those who support openness and accountability in government should
support this effort to make our government accountable in one of the
last bastions of secrecy, a secrecy that in today's world is
unwarranted. In a democratic society citizens have a right to know what
their tax dollars support.
  In fact, inside the Beltway an estimate of intelligence spending is
widely reported, but ordinary citizens are oddly denied this
information. I urge my colleagues to support openness and to support
the Conyers amendment.
  Mr. CONYERS. Mr. Chairman, I yield myself 45 seconds.
  Mr. Chairman, this just in: The reason maybe Chairman Goss' people
do
not ever ask him about it, about this financing of the intelligence, is
that they do not know that we are not being told. They may not even
know that he is being told.
  For my dear friend, the gentleman from Florida [Mr. McCollum],
again,
with whom we have had great discussions about American history, in
1770
and 1773, in those 2 years the intelligence budgets were in the
aggregate disclosed. If Members need a more recent time, check in
1994,
when the Subcommittee on National Security of the Committee on
Appropriations inadvertently released the whole blooming thing and
nothing happened.
  Mr. Chairman, I yield 1 minute to the gentleman from Washington
[Mr.
Adam Smith].
  Mr. ADAM SMITH of Washington. Mr. Chairman, I, too, rise in
support
of the Conyers amendment to disclose the aggregate budget of the
Committee on Intelligence to the full public. I think the important
thing to remember is the presumption should always be in favor of
disclosure.
  As I listened to the arguments against, I do not hear anything to
rebut that presumption. I think the American public wants to know as
much as possible about what we do back here. Part of the reason why
this institution has the confidence problem it has with this country is
they figure we are keeping stuff from them, that we do not trust them
to know what is going on back here, and they feel left out of the
process. There should be a strong presumption in letting them into as
much of the process as is humanly possible.
  If there is some special reason here why that cannot be done, fine.
We can explain it and keep it secret. But no special reason has been
offered during the course of this debate not to release the aggregate
figure that we spend on intelligence in this country.
  There have been some camel's nose under the tent arguments about
how
in the future we might authorize the release of something that would
cause a problem, but that is not good enough. That does not rebut the
presumption that this body should have to disclose whatever possible to
the public. I urge support of the amendment.
  Mr. CONYERS. Mr. Chairman, I am privileged to yield 30 seconds to
the
gentleman from California [Mr. Sherman].
  Mr. SHERMAN. Mr. Chairman, we have an extraordinary event in the
world. The entire world has virtually acquiesced to having one
superpower. That has never happened in history. It has occurred because
the world knows that for the most part our decisions are based on
values and on respect for democracy.
  Democracy begins at home. A revelation of the amount that we are
spending on security is one of the building blocks of the consensus
that our power relies upon. Otherwise, it will only be a matter of
time, if we do not respect our values, before the rest of the world
questions whether there should be one superpower.
  Mr. CONYERS. Mr. Chairman, I yield such time as he may consume
to the
gentleman from California [Mr. Farr].
  (Mr. FARR of California asked and was given permission to revise and
extend his remarks.)
  Mr. FARR of California. Mr. Chairman, I rise in support of the
amendment.
  Mr. Chairman, I rise in support of the Conyers amendment to
declassify the size of the Intelligence Budget
  There is simply no reason to keep the size of the Intelligence budget
hidden.
  Former CIA Directors, including John Deutch and Bob Gates, say that
it would not harm National Security.
  This amendment would not reveal what we spend on individual
programs,
only on intelligence as a whole.
  Other countries, like Israel and Britain, already disclose their
spending on intelligence.
  It simply serves no purpose to keep the size of the intelligence
budget a secret.
  At a time when the rest of the Federal Budget is being cut, slashed,
and squeezed, the American people ought to know how much of their
tax
dollars are going to intelligence programs.
  By maintaining needless secrecy, we do nothing for American
intelligence while keeping secrets from the American people.
  Let's bring some sunshine to Government and some honesty to the
American people support the Conyers amendment.
[[Page H4977]]

  Mr. Chairman, It is unnecessary after the end of the cold war to keep
the budget secret. Keeping general information like the budget
classified undermines the credibility of other information which really
needs to be secret.
  If we really are serious about balancing the budget, how can we sign
a secret, multi-billion dollar blank check every year, with such a
minimal public discussion?
  Since almost all intelligence spending is hidden in the defense
budget, the American people are not only kept in the dark about
intelligence spending, they are misled about the real amount of defense
spending through false line-items in the defense budget. We need budget
integrity.
  Porter Goss, the current Chairman of the House Intelligence Committee
was a member of the Brown-Aspin (later the Brown-Rudman)
Commission
that recommended disclosure of the aggregate figure of the intelligence
budget. Why should his position change?
  The intelligence budget is the worst-kept secret in Washington
anyway. Each year it is disclosed dozens of times in the press with no
harm done to ``national security.''
  Keeping this budget officially secret while watching it discussed
openly in the press adds to a cynicism that the American public has
about its government. No-one wants to foster a pessimism that
discourages participation in our democracy.
  ``The President is persuaded that disclosure of the annual total
budget for intelligence activities should be made public and that this
can be done without any harm to intelligence activities.''
  With an open intelligence budget, the Director of Central
Intelligence and others would be able to better justify the funding it
receives from Congress. (A counter-argument might be, for example,
that
the CIA will not be able to publicly defend its budget because may of
its successes are secret.)
  Only a handful of Members of Congress actually go look at the
intelligence budget (as they are permitted to do). Declassifying the
new budget request and the current fiscal year's appropriated amount
for purposes of comparison would contribute to a more informed debate.
  Releasing the intelligence budget would help make it conform to the
ideals for the framers of the Constitution. The Constitution states:
``No Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law; and a regular Statement and Account of
the
Receipts and Expenditures of all public Money shall be published from
time to time.''
  In 1994, Defense Appropriations Subcommittee hearings disclosed
almost a complete breakdown of the categories of intelligence spending,
which added up to $28 billion. Three years later, we're still waiting
to hear how this disclosure harmed ``national security.
  Similarly, the Brown-Aspin Commission Report recommended
disclosure
only of the aggregate intelligence budget and no further detail, then
inadvertently specified the CIA's budget at $3.1 billion in a graph.
(See attached article.)
  The Washington Post reported that the National Reconnaissance
Office,
the intelligence agency which manages spy satellites reported a surplus
of $3.8 billion that has accumulated over the years from unspent money
and bad accounting practices! This is partly the result of a lack of
open discussion about intelligence spending. (See attached article.)
  While HUD, the Department of Commerce and [insert your favorite
agency] are fighting for their life, isn't it only fair that the
American people at least know how many of their tax dollars are going
to intelligence?.
  Taxpayers for Common Sense writes: ``At a time when all federal
programs are under increased scrutiny and must meticulously account
for
their spending, it is only fair that the overall level of spending on
intelligence be available of the taxpayers. Taxpayers should know the
amount spend on intelligence in order to make informed choices
regarding the allocation of government funds.''
 Other democracies such as Israel, Britain, Australia and Canada
disclose their intelligence budgets. (FYI: Israel spends less than a
billion shekels on the Mossad and the Shin Bet combined.)
 Larry Combest, the former Chairman of the Hose Intelligence
Committee
and last year's lone opponent of budget disclosure, was the vice-chair
(with Senator Moynihan) of the Commission on Protecting and
Reducing
Government Secrecy. While Commission's report, released in March of
this year, did not deal directly with the intelligence budget, it
noted:
 ``Secrecy exists to protect national security, not government
officials and agencies'' (page xxiii).
 ``[E]xpansion of the Government's national security bureaucracy since
the end of World War II and the closed environment in which it has
operated have outpaced attempts by Congress and the public to oversee
that bureaucracy's activities'' (page 49).
 There are twelve ranking members who are so-sponsors of H.R. 753,
ranging the ideological spectrum, including: Representatives John
Conyers, Norm Dicks, John Spratt, Lee Hamilton, George Brown, Ron
Dellums, Lane Evans, Sam Gejdenson, Henry Gonzalez, George Miller,
Jim
Oberstar, and Charles Rangel.

                  {time} 1815

 Mr. CONYERS. Mr. Chairman, I yield myself the balance of my time.
 May I point out that the arguments, the more we go over them each
year, the more it becomes clear that there is very little objection to
revealing the aggregate budget for the 14 intelligence agencies in our
system. It is a practice that is followed by at least four of our
allies that I know with no harm. It is like trying to get us to agree
to a secret that is already open.
  Mr. DICKS. Mr. Chairman, will the gentleman yield?
  Mr. CONYERS. I yield to the gentleman from Washington.
  Mr. DICKS. Mr. Chairman, I want to commend the gentleman for his
initiative. To my friend who says this is a slippery slope, we can say
what the number is and say, out of that we fund the CIA, the DIA, the
NSA, NIMA, right down the line. We do not have to tell them what that
second amount is. I think it would do a lot to help the American people
understand how many different entities are funded by this budget and
how much of it is in the Department of Defense. We have heard all kinds
of misstatements here today on the floor. I think we look kind of
foolish. Numbers are in the New York Times. They are not that far off.
They are wrong but they are not that far off. In my judgment, it is
time for us to let the American people know. I think the gentleman
deserves to be commended for his initiative.
  Mr. CONYERS. Mr. Chairman, I thank the gentleman.
  The fact of the matter is that for us to say to the American people
that they really do not need to know this or that nobody is asking me
about it so we will keep it from them is the shallowest kind of
presentation to make. We need to know the aggregate amount. I am
confident for one that this body will not proceed down a slippery
slope. I do not think this body, no matter what we do on this measure
today, will further want to break this thing down.
  I am not certain that I would support any further disclosure than the
revelation of the aggregate amount.
  Mr. DICKS. Mr. Chairman, if the gentleman will continue to yield, I
certainly agree with the gentleman. I would oppose going to the
individual amounts, but I think the aggregate will help us with the
American people.
  Mr. GOSS. Mr. Chairman, I yield myself the balance of my time.
  Mr. McCOLLUM. Mr. Chairman, will the gentleman yield?
  Mr. GOSS. I yield to the gentleman from Florida.
  Mr. McCOLLUM. Mr. Chairman, I just wanted to make a point that in
the time for general leave, I am going to ask to have the Turner
statement with regard to constitutionality inserted right after my
remarks during this debate. I know this is not the formal place, but we
seem to need to put a place marker in there. I thank the gentleman for
yielding to me.
 Mr. Chairman, I include the following for the Record:

Secret Funding and the ``Statement and Account'' Clause: Constitutional
and Policy Implications of Public Disclosure of an Aggregate Budget for
       Intelligence and Intelligence-Related Activities

         (Prepared statement of Prof. Robert F. Turner)

                      Introduction

    Mr. Chairman, it is a pleasure to be here this afternoon to
   provide testimony on the constitutional implications of
   authorizing and appropriating funds for intelligence
   operations without making the aggregate amount of those funds
   public. It is a particular pleasure to see you again, Mr.
   Chairman, whom I have not seen since our work together nearly
   a decade ago in getting the U.S. Institute of Peace off the
   ground. I am also pleased to join my old friend Dr. Lou
   Fisher--who has done landmark scholarship in these areas--and
   to have a chance to listen to Dr. George Carver, whose work
   has influenced my own thinking for more than two decades.
    I understand that the Committee is considering a proposal
   that has been around in one form or other for many years to
   make public the aggregate sum of money appropriated for

[[Page H4978]]

    the various agencies of the Intelligence Community--money
    which has for nearly half a century been concealed, if public
    accounts are to be believed,\1\ largely within the budget of
    the Department of Defense.
---------------------------------------------------------------------------
    \1\ Footnotes at the end of article.
---------------------------------------------------------------------------
      This practice was authorized by Public Law 81-110, the
    Central Intelligence Agency Act of 1949, section 5 of which
    authorizes the Agency to ``receive from other Government
    agencies such sums as may be approved by the Bureau of the
    Budget [now OMB]'' for the performance of authorized
    functions, and also authorizes ``any other Government agency
    . . . to transfer to . . . the Agency such sums without
    regard to any provisions of law limiting or prohibiting
    transfers between appropriations.''\2\ It is perhaps worth
    noting that this process was agreed to in 1949 by voice vote
    in the Senate and by a vote of 348 to 4 in the House--with
    only a single Member of either House speaking in
    opposition.\3\
      Members of this Committee will know the current mechanics
    of this process far better than I do, but it is my
    understanding that the precise amounts authorized and
    appropriated for the Intelligence Community are normally
    known only to the two intelligence committees and select
    members of the appropriations committees. I am working from
    the understanding that all fund provided to the Intelligence
    Community from the federal treasury have, in fact, been
    appropriated by law and that the process itself is not
    contrary to any statute. Thus, the issue I am prepared to
    address is not whether Congress has agreed to the current
    funding process; but rather, whether that congressionally
    established process complies with the requirements of the
    Constitution.
      I do not have a sense that the large majority of Americans
    are upset at the realization that our government keeps many
    facts concerning intelligence agencies and their work
    secret--indeed, I suspect a scientific poll would reveal that
    most Americans would share my own personal preference that
    such matters ought not to be made public if there is any
    reasonable likelihood their disclosure will compromise
sensitive sources or methods or in any other manner undermine
our security or benefit our nation's enemies.\4\
 This expectation is predicated upon the assumption that the
current practice is consistent with the Constitution; for, if
the question were worded ``should the Constitution be
obeyed,'' the answer would presumably also be a strong
affirmative. So it seems to me that, in deciding whether to
change the status quo, the Committee has a two-stage process
to undertake:
 First, you need to ascertain whether the Constitution
requires the publication of the aggregate annual budget for
intelligence and intelligence-related activities (or perhaps
even a more detailed accounting of those appropriations);
and, if the answer is yes, you need to make those figures
public.
 If the answer to the constitutional question is no, it
would seem wise to undertake a thorough policy review to
decide whether such figures should nevertheless be made
public--and, if so under what constraints or guidelines.
 While I understand that my role here this afternoon is to
help you answer the first question, with your permission I
will also comment briefly upon the broader policy issues.
The Constitutional Issues
 Article 1, Section 9, clause 7 of the Constitution
provides:
 No Money shall be drawn from the Treasury, but in
Consequence of Appropriations made by Law; and a regular
Statement and Account of the Receipts and Expenditures of all
public Money shall be published from time to time.
 Many respected individuals and groups have concluded on the
basis of this language that it is unconstitutional for the
Congress not to publish at least the aggregate sum of
appropriations for the Intelligence Community.\5\ I shall
address that issue, but with your permission I would propose
to first place the issue in the context of the Founding
Fathers' attitude toward secrecy in the areas of foreign
intercourse and intelligence. I believe there is a great deal
of misunderstanding on this point that may confuse this
important debate.


  Secrecy, Democracy, and the Early American Experience

  There seems to be a common assumption that the Founding
Fathers viewed secrecy in government as a terrible evil, a
practice quite incompatible with democratic theory. While it
is true that they believed that an informed public was
essential to democratic government,\6\ they were practical
men who recognized that intelligence and national security
matters often had to be kept secret--not only from the
American people, but even from their elected representatives
in Congress.


       The Committee of Secret Correspondence

 The obvious inability of legislative bodies to manage the
details of foreign intercourse led the Continental Congress
to establish a ``Committee of Secret Correspondence'' on 29
November 1775.\7\ Two weeks later, the Committee dispatched
Thomas Story as a secret messenger to France, Holland, and
England, with instructions to make contact with a network of
unofficial ``secret agents'' serving the United States in
foreign capitals--people like Silas Deane in France and
Arthur Lee in England.
 After meeting with Lee, Story returned to America and gave
this report to the Committee, as recorded in a memorandum
dated 1 October 1776 found among the Committee's official
papers:
 ``On my leaving London, Arthur Lee, Esq., requested me to
inform the Committee of [Secret] Correspondence that he had
had several conferences with the French Ambassador, who had
communicated the same to the French court; that in
consequence thereof the Duke de Vergennes had sent a
gentleman to Mr. Lee, who informed him that the French Court
could not think of entering into a war with England, but that
they would assist America by sending from Holland this fall
two hundred thousand pounds sterling worth of arms and
ammunition to St. Eustatius, Martinico, or Cape Francois.
That application was to be made to the Governours or
Commandants of those places by inquiring for Monsieur
Hortalez, and that on persons properly authorized applying,
the above articles would be delivered to them.'' \8\
 This may arguably have been the very first ``covert
operation'' to which the United States was a party, and the
secret offer of K200,000 worth of arms was welcome news in
America. But it was also recognized as highly sensitive news,
and for that reason Benjamin Franklin and the members of the
small committee he chaired agreed without dissent that it
could not be shared with their colleagues in the Congress.
Their memorandum explains:
 ``The above intelligence was communicated to the
subscribers [Franklin and Robert Morris], being the only two
members of the Committee of Secret Correspondence now in the
city, and our considering the nature and importance of it, we
agree in opinion that it is our indispensable duty to keep it
secret even from Congress, for the following reasons:
 ``First, Should it get to the ears of our enemies at New-
York, they would undoubtedly take measures to intercept the
supplies, and thereby deprive us not only of those succours,
but of others expected by the same route.
 ``Second, as the Court of France have taken measures to
negotiate this loan of succour in the most cautious and
secret manner, should we divulge it immediately, we may not
only lose the present benefit, but also render that Court
cautious of any further connection with such unguarded
people, and prevent their granting other loans and assistance
that we stand in need of, and have directed Mr. Deane to ask
of them. For it appears from our intelligence they are not
disposed to enter into an immediate war with Britain,
although disposed to support us in our contest with them. We
therefore think it our duty to cultivate their favourable
disposition towards us, draw from them all the support we
can, and in the end their private aid must assist to
establish peace, or inevitably draw them in as parties to the
war.
  ``Third, We find by fatal experience that Congress consists
of too many members to keep secrets. . . . [Emphasis
added.]'' \9\
  The memorandum contained the written endorsements of
Richard Henry Lee and William Hooper, to whom it had been
shown some days later, with the notation that Lee
``concur[red] heartily'' and Hooper ``sincerely approve[d]''
of its contents.\10\


         john jay and federalist no. 64

  One of the criticisms of American government under the
Articles of Confederation was that all functions of
government were entrusted to the Congress, which tended to
micromanage military and diplomatic affairs and could not
keep secrets. Robert R. Livingston agreed to serve as
``Secretary of the United States of America for the
Department of Foreign Affairs'' in February 1782, but by the
end of the year he had submitted his resignation in
frustration. Nearly two years passed before John Jay was
chosen his successor as the ``agent'' of Congress in
diplomatic intercourse; and he, too, was quickly frustrated
by such things as the demand of Congress to receive every
  proposal submitted by the Spanish Charge during treaty
  negotiations.\11\
   Jay was particularly frustrated by the demands by
  Congress--which, in the absence of any ``executive'' organ of
  government, had exclusive control over war, treaties, and
  other aspects of the nation's foreign intercourse--for access
  to confidential information and diplomatic letter. Professor
  Henry Wriston, in his classic 1929 study, Executive Agents
  in American Foreign Relations, explains:
   It is interesting, in connection with the submission of
  Lafayette's letters to Congress, to observe that Jay regarded
  this as a serious limitation upon the value of the
  correspondence. Congress never could keep any matter strictly
  confidential; someone always babbled. ``The circumstances
  must undoubtedly be of a great restraint on those public and
  private characters from whom you would otherwise obtain
  useful hints and information. I for my part have long
  experienced the inconvenience of it, and in some instances
  very sensibly.'' [Emphasis added.] \12\
   These frustrations were widely shared, and Jay went on to
  play a key role both in explaining the Constitution as a co-
  author of the Federalist Papers and in interpreting it as the
  nation's first Chief Justice. He took on the issues of
  secrecy and intelligence squarely in Federalist essay number
  64, explaining the benefits of entrusting matters requiring
  secrecy to the Executive while requiring the approval of two-
  thirds of the Senate before the President could ratify a
  completed treaty:

[[Page H4979]]

   There are cases where the most useful intelligence may be
  obtained, if the persons possessing it can be relieved from
  apprehensions of discovery. Those apprehensions will operate
  on those persons whether they are actuated by mercenary or
friendly motives, and there doubtless are many of both
descriptions, who would rely on the secrecy of the president,
but who would not confide in that of the senate, and still
less in that of a large popular assembly. The convention have
done well therefore in so disposing of the power of making
treaties, that although the president must in forming them
act by the advice and consent of the senate, yet he will be
able to manage the business of intelligence in such manner as
prudence may suggest.\13\
  Jay added, with an allusion to the shortcomings of the
Articles of Confederation: ``So often and so essentially have
we heretofore suffered from the want of secrecy and dispatch,
that the Constitution would have been inexcusably defective
if no attention had been paid to those objects.'' \14\


    washington, the senate, and congressional leaks

  Further contemporary insight into the Founding Fathers'
perception that Congress could not keep secrets is found in
an informal note made by our first Secretary of State, Thomas
Jefferson. Beginning during his service in this capacity,
Jefferson made various ``notes''--what he called ``passing
transactions''--to assist his memory. These he later combined
into three volumes which we today know as The Anas. The
following entry is instructive:
  April 9th, 1792. The President had wished to redeem our
captives at Algiers, and to make peace with them on paying an
annual tribute. The Senate were willing to approve this, but
unwilling to have the lower House applied to previously to
furnish the money; they wished the President to take the
money from the treasury, or open a loan for it. . . . They
said . . . that if the particular sum was voted by the
Representatives, it would not be a secret. The President had
no confidence in the secresy of the Senate, and did not
choose to take money from the treasury or to borrow. But he
agreed he would enter into provisional treaties with the
Algerines, not to be binding on us till ratified here.
[Emphasis added.] \15\
 Mr. Chairman, this is an important, if largely forgotten,
part of our history. However, in the interest of time, I will
mention but one further example of the Founding Fathers'
recognition of the value of secrecy: and what example could
be more fitting than the Constitutional Convention itself.


          the federal convention of 1787

 On 29 May 1787, the fourth day of deliberation,\16\ the
Constitutional Convention adopted a series of rules as part
of the Standing Orders of the House. Rules three through five
provided:
 That no copy be taken of any entry on the journal during
the sitting of the House without the leave of the House.
 That members only be permitted to inspect the journal.
 That nothing spoken in the House be printed, or otherwise
published, or communicated without leave.\17\
 The great constitutional historian Clinton Rossiter has
described this ``so-called secrecy rule'' as ``the most
critical decision of a procedural nature the Convention was
ever to make,'' and notes that ``in later years, Madison
insisted that `no Constitution would ever have been adopted
by the convention if the debates had been public.' '' \18\
Indeed, at his insistence, Madison's own important Notes on
the convention were not published until 1840, four years
after his death and more than half a century after the
convention had ended.\19\
 Because the debates of the convention were held in secret,
and Madison's Notes were thus not available to the people
when they ratified the Constitution, such influential
contemporary records as the Federalist Papers and state
ratification convention debates probably deserve greater
weight in interpreting the document as it was understood by
the sovereign American people when it was ratified.
Nevertheless, Madison's Notes do provide important details
about the give-and-take that produced the constitutional
text, and they are certainly worthy of study. The entire
debate on this issue occupies approximately one page of the
hundreds of pages devoted by Madison to the convention
proceedings. It occurred only three days before the end of
the debate, seemingly as an afterthought, on Friday, 14
September 1787:
  Col. [George] Mason moved a clause requiring ``that an
Account of the public expenditures should be annually
published'' Mr. Gerry 2<SUP>ded</SUP> the motion.
  Mr. Gov<SUP>r</SUP>. Morris urged that this w<SUP>d</SUP>.
be impossible in many cases.
  Mr. King remarked, that the term expenditures went to every
minute shilling. This would be impracticable.
Cong<SUP>s</SUP>. might indeed make a monthly publication,
but it would be in such general statements as wou<SUP>d</SUP>
afford no satisfactory information.
  Mr. Madison proposed to strike out ``annually'' from the
motion & insert ``from time to time,'' which would enjoin the
duty of frequent publications and leave enough to the
discretion of the Legislature. Require too much and the
difficulty will beget a habit of doing nothing. The articles
of Confederation require halfyearly publications on this
subject. A punctual compliance being often impossible, the
practice has ceased altogether.
  Mr. Wilson 2<SUP>ded</SUP> & supported the motion. Many
operations of finance cannot be properly published at certain
times.
  Mr. Pinkney was in favor of the motion.
  Mr. Fitzimmons. It is absolutely impossible to publish
expenditures in the full extent of the term.
  Mr. Sherman thought ``from time to time'' the best rule to
be given.
  ``Annual'' was struck out--& those words--inserted nem:
con:
  The motion of Col: Mason so amended was then agreed to nem:
con: and added after--``appropriations by law'' as follows--
``And a regular statement and account of the receipts &
expenditures of all public money shall be published from time
to time.'' \20\
  It is perhaps worth noting that the issue of ``secrecy''
had arisen earlier that same day with respect to publishing
the journal of each House of Congress,\21\ and the statements
by Gouverneur Morris (annual publication would be
``impossible in many cases''), Madison (on the need for
legislative discretion), James Wilson (``Many operations of
finance cannot be properly published at certain times'')--and
others who supported Madison's amendment--may have been made
with this concern in mind.
  That the need to protect certain secret expenditures was,
in fact, a primary underlying rationale for the decision to
give Congress discretion as to what expenditures could be
made public, and when, becomes clearer from a reading of the
debates in the state ratification conventions--especially in
the Virginia Convention, where both Mason and Madison were
present to revisit the original debate. Colonel Mason took a
second bite at the apple during the Virginia Convention,
arguing on 17 June 1788 that ``the loose expression of
`publication from time to time,' was applicable to any time.
It was equally applicable to monthly and septennial
periods.'' \22\ He then explained:
  The reason urged in favor of this ambiguous expression,
was, that there might be some mattes which might require
secrecy.
  In matters relative to military operations, and foreign
negotiations, secrecy was necessary sometimes. But he did not
conceive that the receipts and expenditures of the public
money ought ever to be concealed. The people, he affirmed,
had a right to know the expenditures of their money. But that
this expression was so loose, it might be concealed forever
from them, and might afford opportunities of misapplying the
public money, and sheltering those who did it. He concluded
it to be as exceptionable as any clause in so few words could
be. [Emphasis added.] \23\
  As had been the case in Philadelphia, Mason lost this
debate. But, by raising the issue again, this time in public
debate, he made a useful contribution to our understanding of
the ``original intent'' behind this clause. We now know that
the reason Congress was given this discretion was to protect
``matters which might require secrecy,'' that Mason
acknowledged that secrecy was sometimes necessary in military
and diplomatic matters, and that--even after he warned that
this ``ambiguous'' language might allow Congress to keep some
secret expenditures ``concealed forever''--Mason's colleagues
at the Virginia convention were not persuaded to strengthen
the clause and deny Congress this discretion.


    the early practice of confidential expenditures

 Of particular value in trying to understand the original
constitutional scheme are the acts of the First Congress,
elected in early 1789. Two-thirds of its twenty-two senators
and fifty-nine representatives had either been members of the
Philadelphia Convention of 1787 or of state ratifying
conventions, and only seven of them had opposed ratification.
Therefore, their actions are entitled to special weight. As
Chief Justice Marshall observed in 1821, in trying to
determine the intent of the Founding Fathers ``[g]reat weight
has always been attached, and very rightly attached, to
  contemporaneous exposition.'' \24\
    It is therefore noteworthy that the First Congress
  appropriated a ``contingent fund'' of $40,000--a considerable
  sum at the time \25\--for the President to use for special
  diplomatic agents and other sensitive foreign affairs needs.
  The statute expressly provided:
    ``The President shall account specifically for all such
  expenditures of the said money as in his judgment may be made
  public, and also for the amount of such expenditures as he
  may think it advisable not to specify.'' \26\
    Note the language here--the President was not required to
  account to Congress ``under injunction of secrecy'' for
  sensitive expenditures, he was required simply to inform
  Congress of the sums expended so that the fund could be
  replenished as necessary. Congress was not to be told the
  details, as the Founding Fathers had learned first hand the
  harm that could be done by ``leaks.''
    It is perhaps worth noting that the contingent account was
  not only replenished, within three years it was increased to
  the level of one million dollars--much of it reportedly was
  used for such expenditures as bribing foreign officials and
  ransoming hostages.\27\
    In this era of Boland Amendments and massive appropriations
  bills packed with ``conditions'' it may be difficult to
  realize that the Founding Fathers envisioned something quite
  different; but it is important, from time to time, to remind
  ourselves of the original plan. In an 1804 letter to
  Secretary of the Treasury Albert Gallatin, President Thomas
  Jefferson summarized the practice during the nation's first
  fifteen years:

[[Page H4980]]

   ``The Constitution has made the Executive the organ for
  managing our intercourse with foreign nations. . . . The
Executive being thus charged with the foreign intercourse, no
law has undertaken to prescribe its specific duties. . . .
[I]t has been the uniform opinion and practice that the whole
foreign fund was placed by the Legislature on the footing of
a contingent fund, in which they undertake no specifications,
but leave the whole to the discretion of the president.''
\28\
  When Jefferson used his contingent account to fund a
paramilitary army of Greek and Arab mercenaries to invade
Tripoli and pressure its Bey to surrender American hostages,
no one seems to have complained that Congress was not
informed in advance of the operation.\29\ Jefferson's
successor, James Madison--a man of some familiarity with the
meaning of the Constitution and its ``Statement and Account''
clause--found that he needed additional funds to underwrite a
covert action to gain control over disputed territory between
Georgia and Spanish Florida in 1811, so he asked Congress to
enact a ``secret appropriation'' of $100,000 for that
purpose. The need for secrecy having passed, the secret
appropriation was discretely made public years later, in
1818.\30\
  The modern practice arguably dates back to 1941,\31\ but
official congressional sanction was provided by the Central
Intelligence Act of 1949.\32\ Over the years a variety of
efforts have been made to change the practice, without
success.\33\ The political forces behind the current effort
are considerable--but so much of the rhetoric is premised
upon the need to ``obey the Constitution'' that it is
difficult to gave the sentiment on policy grounds alone.
  In reality, these constitutional concerns are ill founded.
The record behind Article 1, Section 9, clause 7 of the
Constitution--whether viewed on the basis of ``original
intent'' or with the gloss of historic practice--clearly
establishes that Congress is not required to publish either
an aggregate figure of the money it makes available to the
Intelligence Community or a more detailed accounting at this
time. All of these sums, I gather, have been taken from the
Treasury ``in consequence of appropriations made by law''--
and most apparently have been identified already in broad
terms to the public as appropriations for purposes of
national security or national defense.
  James Mason, to be sure, objected to the argument that the
need for ``secrecy'' required that Congress be left with
discretion in this area; but in both the federal and state
conventions he made his case and failed to carry the day. The
First Congress appropriated a contingent fund for which the
President did not even have to disclose his expenditures to
Congress; and Madison himself--the ``father'' of our
Constitution and the author of the successful amendment to
the ``Statement and Account'' clause--sought and received a
``secret appropriation'' that was not revealed to the public
for many years.


        the view from the federal judiciary

  Any remaining doubts which might exist should be put to
rest by a review of the handling of this issue by federal
courts. The issue came before the Supreme Court in United
States v. Richardson,\34\ but the Court found it unnecessary
to reach the merits because the Complainant lacked standing.
However, in the course of his majority opinion, Chief Justice
Burger reasoned in a footnote:
  ``Although we need not reach or decide precisely what is
meant by `a regular Statement and Account,' it is clear that
Congress has plenary power to exact any reporting and
accounting it considers appropriate in the public interest. .
. . While the available evidence is neither qualitatively nor
quantitatively conclusive, historical analysis of the genesis
of cl. 7 suggests that it was intended to permit some degree
of secrecy of governmental operations. . . .
  ``Not controlling, but surely not unimportant, are nearly
two centuries of acceptance of a reading of cl. 7 as vesting
in Congress plenary power to spell out the details of
precisely when and with what specificity Executive agencies
must report the expenditures of appropriated funds and to
exempt certain secret activities from comprehensive public
reporting.'' [Emphasis added.] \35\
  Even more significant is the District of Columbia Circuit
Court of Appeal's 1980 decision in Halperin v. Central
Intelligence Agency,\36\ a very useful case for which we are
indebted to Mr. Stern's predecessor at the ACLU, my litigious
friend Morton Halperin. Following the Supreme Court's holding
in Richardson, the D.C. Circuit affirmed the District Court's
summary judgment in favor of the CIA. But it went further,
addressing the case on the merits, and holding in the
alternative that ``Congress and the President have
discretion, not reviewable by the courts, to require secrecy
for expenditures of the type involved in this case.'' \37\
  The Halperin court engaged in a detailed review of
Madison's Notes and the state convention debates, concluding
that: ``Madison's language strongly indicates that he
believed that the Statement and Account Clause, following his
amendment, would allow government authorities ample
discretion to withhold some expenditure items which
require secrecy.'' \38\ While noting George Mason's
argument that ``he did not conceive that the receipts and
expenditures of the public money ought ever to be
concealed,'' \39\ the court concluded:
  ``But the Statement and Account Clause, as adopted and
ratified, incorporates the view not of Mason, but rather of
his opponents, who desired discretionary secrecy for the
expenditures as well as the related operations. . . .
  ``Viewed as a whole, the debates in the Constitutional
Convention and the Virginia ratifying convention convey a
very strong impression that the Framers of the Statement and
Account Clause intended it to allow discretion to Congress
and the President to preserve secrecy for expenditures
related to military operations and foreign negotiations.
Opponents of the `from time to time' provision, it is clear,
spoke of precisely this effect from its enactment. We have no
record of any statements from supporters of the Statement and
Account Clause indicating an intent to require disclosure of
such expenditures.''\40\
 Since the Supreme Court elected not to address the issue on
the merits in Richardson, the Halperin case remains the
authoritative judicial interpretation on this subject.


         opinion of the attorney general

 Finally, Mr. Chairman, although I have not seen it, I
understand that Attorney General Griffin Bell was asked by
President Carter to consider this issue in depth and to
prepare an opinion for the President. He concluding that the
current Intelligence Community funding practices are not in
conflict with the Constitution.\41\


              issue of policy

 Mr. Chairman, I believe that the text of the Constitution,
the clear intentions of the Founding Fathers, and more than
two centuries of consistent practice, support the conclusion
that the current practice of concealing appropriations for
intelligence activities in the budgets of other agencies is
constitutional. As I have indicated, that conclusion has the
support of the D.C. Circuit Court of Appeals, and, I am
informed, of the Office of the Attorney General. I believe
you may rest comfortably on this point, and the only reasons
for departing from traditional disclosure practice would be
of a policy nature. At this time I would like to turn briefly
to some of those considerations.


           a presumption of disclosure

  Perhaps first of all, in a free society there ought to be a
presumption in favor of openness and the diffusion of
knowledge and information. This may reflect my parochial
prejudices as a product of Mr. Jefferson's University, but I
am reminded both of his caution against trying to remain
``ignorant and free,'' \42\ and more directly his statement
that the University of Virginia would be ``based on the
illimitable freedom of the human mind,'' and would not be
``afraid to follow truth wherever it may lead, nor to
tolerate any error so long as reason is left free to combat
it.'' \43\


           overcoming the presumption

  Having said that, I would argue that the most compelling
arguments to overcome that presumption of openness are those
legitimately based upon the security of the nation. As John
Jay noted in Federalist No. 3, ``Among the many objects to
which a wise and free people find it necessary to direct
their attention, that of providing for their safety seems
to be the first.'' \44\ Similarly, the Supreme Court noted
in Haig v. Agee that ``it is `obvious and unarguable' that
no governmental interest is more compelling than the
security of the Nation.'' \45\


       comity and deference to the president
 In addition, I urge you to recognize that the management of
intelligence matters was recognized by the Founding Fathers
to be at the core of the President's responsibilities; and,
toward this end, I would urge you not to decide to disclose
these figures if the President asks that they be kept
confidential. To do otherwise would depart from two centuries
of precedent. I don't know the preferences of the current
Administration on this issue, but I urge you to give them the
weight that comity among the branches would warrant.


           balancing the interests

 Ultimately, if the President does not object, I would
suggest that you apply a balancing test in reaching your
decision. You are entertaining a motion to depart from a
practice dating back in some respects to the earliest days of
our country, and in others to the creation of the agencies
you are charged with overseeing. The proponents of change
ought to be expected to justify a departure from these well-
established practices--and their constitutional arguments are
unpersuasive.
 Ask yourselves first, what real benefit to the American
people or our system of government will likely result from
disclosing the aggregate intelligence budget. How meaningful
will this one figure be to our citizens? Presumably the sums
are already disclosed under the broad ``National Defense''
budgetary category. Will any identifiable good be served by
publicly identifying a portion of that larger sum as being
earmarked for ``intelligence and intelligence-related
activities?'' Would the result of these efforts not be, to
borrow from the argument Rufus King made in objecting to a
mandatory annual statements, ``such general statements as
would afford no satisfactory information.'' \46\
      an aggregate figure will not satisfy the critics

    You can be certain that releasing a single, aggregate
  figure will not satisfy those who are demanding meaningful
  information

[[Page H4981]]

  about the Intelligence Community. In 1974 a student note in
  the New York University Journal of International Law and
  Politics, for example, concluded that ``Not only may the
  Constitution mandate the reporting of CIA expenditures to
  Congress as a whole, but it may even require publication of
  the CIA budget.'' \47\ Similarly, a 1975 note in the Yale Law
  Journal argued that ``Even a lump-sum appropriation and
  disclosure would prevent both Congress and the public from
  fixing or analyzing internal priorities within the CIA; it
  would also be impossible to determine if there has been
  waste, corruption, or spending prohibited by statute or by
  the Constitution.'' \48\ The observation would seem sound,
  and once you start releasing details it will probably become
  more difficult to draw any bright lines. Ultimately, the very
  existence of a separate intelligence committee may be called
  into doubt as your colleagues and the critics demand more and
  more details and become frustrated with your inexplicably
  selective cooperation.


        exposing your budget to ``shark'' attacks

   It strikes me that the most likely result of such a
  disclosure from the standpoint of the American taxpayer is
  that this large chunk of money will become highly vulnerable
 to attack as the budgetary belt is tightened. While Americans
 may overwhelmingly favor having an effective intelligence
 service and a strong defense establishment, when it comes
 down to your being pressured to cut jobs and benefits
 programs in your districts or taking a few million here and
 there from this gross ``intelligence'' account--money which
 will have little clearly identifiable short-term benefits to
 constituent groups--the intelligence budget is going to be
 placed at risk.
   And then, I suspect, you are going to be asked to
 ``justify'' such a large budget--and you are either going to
 have to start ``telling secrets'' or you will face amendments
 to cut your aggregate budget by 2% here and 3% there so the
 money can go for health care, education, and other special
 interests that have far more extensive and effective PR
 operations than do the agencies you are charged with
 overseeing. I don't think any of us want to have the CIA or
 NSA ``propagandizing'' the American voters to pressure
 Congress for adequate funding; and because of that handicap I
 suggest that you have a special responsibility to the
 American people not to allow their intelligence services to
 be compromised in order to appease more politically powerful
 special interest groups.
  Candidly, I don't see much in the way of identifiable
 benefits from disclosing the current aggregate Intelligence
 Community budget. Perhaps they are there--but the burden of
 proof ought to be placed upon those who are advocating the
 change.


intelligence community budget figures ought eventually to be made
                 public

  This is not to say, however, that these figures ought to
 remain perpetual secrets. On the contrary, I can think of no
reason why the sums made available to the Central
Intelligence Agency and other components of the Intelligence
Community in the 1940s, 1950, and 1960s ought not be made
public at this time (if that has not already been done). I
don't know whether the delay ought to be three decades, two
decades, or even less--but I would be inclined to defer to
the judgment of the President and the DCI in making such a
policy decision.


         lives and freedom are at stake

  Finally, if you can identify genuine benefits to the
American people of disclosing this information, you need to
ask what harm might reasonably be foreseen to result from
such a change--and to weight any such harm against the
perceived benefits. Perhaps I am in the minority today, but I
believe that when the security of the nation may be at stake
we ought to act with a presumption of caution and secrecy.
The fact that the rest of the world follows that practice is
not proof of its wisdom--but it should give us justification
to pause, at least briefly, before moving off in a radically
new direction.
  Some experts have argued what has been called the
``conspicuous bump theory''--suggesting that a foreign
intelligence service might be able to confirm the existence
of an expensive new program or technology by spotting a
change in the CIA or Intelligence Community budget. Former
DCI William Colby--a man of great wisdom and integrity, who
has decades of relevant experience on which to judge--has
suggested that the introduction of the U-2 program produced
just such a ``bump'' in our budget.\49\
  I am not privy to the future plans of the Intelligence
Community or the current details of its budget, and I can
certainly not identify any particular development that might
be compromised by publishing an aggregate figure--but I can
certainly conceive of such a development. Indeed, I can
conceive of a decision of such a development. Indeed, I can
conceive of a decision by the United States to curtail
intelligence spending dramatically--requiring the termination
of programs in many Third World countries--and I can project
that public release of figures showing a dramatic drop in
funding might well lead a potentially hostile foreign leader
to conclude that he no longer needed to abide by his NPT
commitments because the Americans no longer had adequate
resources to keep good track of his activities.


       the intelligence ``jig-saw puzzle''

  The business of intelligence gathering is in many respects
much like putting together a jig-saw puzzle. If you are
looking at the United States, you certainly want to subscribe
to the Congressional Record and Aviation Week & Space
Technology, and also to attend scientific conferences and
carefully review the latest Statistical Abstract and some of
the thousands of other government publications that might
reveal some of the many pieces to the puzzle. When you see
areas where you are missing key pieces, perhaps you pay off a
secretary, seduce a file clerk, break in to a hotel room
while an international conference is in session to rifle a
briefcase or two, and perhaps eavesdrop on a few million
telephone calls. Much of your efforts are fruitless, but more
and more of the puzzle falls into place as each week goes by.
The ones that remain ``critically important'' are the ones
you do not have.
  That makes the counter-intelligence function a difficult
one; because, without knowing what pieces of the puzzle one's
adversaries have already acquired, it is virtually impossible
to identify any size piece as being ``vital'' to U.S.
security interests. And yet, quite possibly, almost any
single piece of the puzzle could be the critical part that
allows our enemies to break an important code and do us harm.
Thus, the tradition has developed that the intelligence
business ought, even in a democracy, be cloaked in a web of
secrecy.
 Over the years, this Committee and your Senate counterpart
have taken testimony from a number of former DCIs and other
experts asking what specific harm they could identify that
would result from disclosing the aggregate intelligence
budget. Many, if not most, of them, I gather, have said they
could not point to clearly identifiable harm. Others have
urged you not to make the figures public.
 I wonder if it might have been useful to ask them another
question. Ask them how much they would pay to have the annual
aggregate intelligence budget figures for countries like the
former Soviet Union, Cuba, Libya, Iran, Iraq, or North Korea.
Would these figures be of interest to them? Might the trends
in these figures over a decade or more be helpful to them? If
they say ``no,'' then I would be less concerned.


               Conclusion

  Mr. Chairman, let me close with the observation that this
is an important issue. Other than making us feel good--a
byproduct, perhaps, of the strange but all too prevalent
belief that keeping secrets from our nation's enemies is
somehow ``un-American,'' ``dirty,'' or even ``evil''--I don't
believe that publishing the aggregate intelligence budget is
going to benefit very many Americans. It may make a few super
hawks feel relieved that we are throwing enough money at the
problem,\50\ I suspect Oliver Stone and others who believe
that the United States is an evil force in the world may buy
a few extra cases of Malox, and some of your constituents may
even accept the allegation that you will have somehow ``saved
the Constitution'' \51\ by passing such a disclosure
requirement. But most Americans simply don't know enough
about the Intelligence business, about how this money is
actually being spent, to be able to evaluate a figure
presumably in the tens of billions of dollars.
  The most likely consequence of publishing an unsupported
aggregate figure is that it will become a sitting duck for
colleagues seeking accounts to cut in order to satisfy the
demands of special interest constituent groups without
further adding to the deficit. You will then be forced to
choose between further breaking down the intelligence
budget--and then being asked, at minimum, to provide public
justification for any future increases--or watching the very
important sum of money you are charged with overseeing ripped
apart as some of your colleagues go on a feeding frenzy.
Members of Congress who do not understand the important
business of intelligence--and, equally importantly, who know
that this large account can't be publicly defended without
disclosing details that its champions will not wish to reveal
to our nation's enemies--are likely to argue that their pet
``pork'' project can easily be funded by just taking a few
hundred thousand dollars from this vast ``intelligence''
account--charging the DCI with finding a little more ``fat''
to trim from his presumably bloated bureaucracy. It could
give a whole new meaning to the term ``graymail''--defend
your budget on the merits in public by compromising secrets,
or watch large chunks of it vanish before your eyes.
  The Intelligence Community could easily suffer the fate of
the prized sausage the fabled German butcher is said to have
left displayed unguarded on his counter while he swept out
one afternoon. He returned to find that a tiny slice had been
taken while he was away; but, noting its small size, he
concluded it really didn't matter all that much. An hours
later, when he returned from his storeroom, he found another
  piece was gone. This continued for several days. Each missing
  slice, after all, was quite modest in size and could hardly
  be said to have destroyed the value of the whole. Little by
  little, the prized sausage vanished. Pretty soon, only a
  small piece of string was left--and that wasn't worth
  fighting for either.
    In a very real sense, the Intelligence Community budget is
  as defenseless as the sausage in the fable. We don't want the
  CIA ``propagandizing'' the public to pressure Congress for
  additional funds, and we know they can't discuss the
  important details of their work without harming their
  effectiveness even if they wanted to do so. They provide

[[Page H4982]]

  ``services'' to Americans of incalculable value, by helping
  to keep the world peaceful and identifying threats to our
  security sufficiently early that we can address them without
  having to expend the lives of our young men and women in
  uniform.
    Thanks to our Intelligence Community, we learned about the
  existence of Soviet missiles in Cuba in 1962, and about
  dangerous nuclear weapons and ballistic missile threats from
  North Korea three decades later. Each of you could probably
  add numerous other examples, because you have been entrusted
  with special access to information that must be denied to the
  rest of us. But, when the sharks come, you will be precluded
  by your promise of secrecy from mentioning those examples in
  public debate. How can you possibly expect to convince your
  colleagues not to earmark a couple of hundred thousand
  dollars for a new public building to honor the beloved Tip
  O'Neil, a few million dollars for a powerful committee
  chairman's favorite hospital--perhaps to fund some promising
  AIDS research--or perhaps to pay for the unanticipated
  earthquake relief needs in Los Angeles?
 It would not surprise me if some of your constituents would
vote to shut down the entire Intelligence Community if the
money saved could rescue one small child trapped in a well,
to ease the suffering on a pediatric cancer ward, or to take
a real ``bite'' out of crime. After all, the Cold War is
over--and many Americans couldn't find North Korea on a map
without great effort. One of the nice things about being
outside the policy process is that most Americans don't have
to worry about long-term strategic solvency or the risks
that lurk around the corner in an increasingly complex and
not yet safe world. They elected you to represent them in
deciding how to allocate the nation's limited resources,
and in this regard I would remind you of the famous 1774
speech to the Electors of Bristol, in which Edmund Burke
observed: ``Your representative owes you, not his industry
only, but his judgment; and he betrays instead of serving
you if he sacrifices it to your opinion.''
 Because of your membership on this important Committee, you
have a special duty--not only to the constituents in your
individual districts, but to all of the American people--to
oversee and pass judgment upon the work of the Intelligence
Community. This system has worked well, in general, by having
your colleagues rely upon you to make recommendations based
upon the special information to which you are given access.
Most of your colleagues hesitate to second-guess your
judgments, because they know they lack your expertise. Simply
gratuitously tossing out an aggregate budget sum--a figure
presumably in the tens of billions of dollars--may well break
some of the mystique that has helped guard these critically
important funds from the sharks in the past.
 As I have said, the potential consequences are great.
Imagine the lives that might have been saved had we been able
to prevent the Pearl Harbor surprise attack. Consider what
might have happened had we not learned of the Soviet nuclear
missiles in Cuba. How many more Americans might have died in
the gulf during Operation Desert Storm had it not been for
the information we were able to gain from our overhead
platforms?
  Information provided by the American Intelligence Community
reportedly helped to convince the International Atomic Energy
Agency that North Korea was violating its treaty commitments
under the NPT--and that may allow us to avoid a nuclear
confrontation in East Asia that could either engulf U.S.
forces in South Korea or, in the alternative, provoke Japan
to become a nuclear weapons State and undermine the Nuclear
Non-Proliferation Treaty. As we meet here today, American
intelligence assets are presumably monitoring the efforts by
Libya to build new poison gas facilities that could fuel
further terrorism and undermine our interests and the cause
of peace in the coming years.
  Mr. Chairman, the job which you and your colleagues on this
Committee have accepted is not an easy one. Today, the
American people are still rejoicing at the end of the Cold
War. They are turning inward, looking for ``peace
dividends.'' But you have a greater responsibility than
simply pandering to their short-term desires. You must decide
what national resources ought to be allocated to the
intelligence functions, and then you must try to protect
those funds in a very competitive budget process.
  If you err, and the nation is left unprotected, American
soldiers may well pay with their lives for your frugality.
The stakes in this game are high: they are measured in human
lives and individual freedom. In this regard, you may wish to
keep in mind that the American people are not very forgiving
when their elected representatives fail in their duty to
protect the nation's security--even when their actions are
initially fully in accord with the public opinion polls. Few
of the isolationists who tied President Roosevelt's hands in
the 1930s in the name of ``peace'' and ``neutrality''
survived the elections following Pearl Harbor, an event which
itself might have been prevented by a serious national
intelligence collection effort.\52\
  In the backlash to Watergate and Vietnam two decades ago,
the American public turned against the Intelligence
Community--egged on, I would add, by irresponsible charges
from the Hill that the CIA had become a ``rogue elephant.''
\53\ Our elected representatives responded by cutting back on
funding and reducing intelligence assets in several areas--in
particular we reduced money for HUMINT in such
``unimportant'' areas as El Salvador. I need not emphasize
that by 1981 that cutback had proven to be a costly
mistake--both in terms of undermining our efforts to
assist a neighbor resist an externally-supported Leninist
insurgency and our campaign for important human rights
objectives.
  When Iranian militants seized American hostages in Tehran
in 1979, the American people wanted quick action. Support for
the CIA shot up dramatically in the polls. Some of the
reductions that had been made in the mid-seventies seemed
hard to explain, and the voters turned out an administration
in Washington that had, for the most part, been very much in
tune with the neo-isolationist sentiments of the Nation prior
to the ``wake up call'' from the Ayatollah Khomeini
  The Cold War is now over, but, if anything, the world is a
far more complex reality than was the case when Moscow held
the strings to many of its problem children. The existence of
radical regimes like those in North Korea, Iraq, Iran, Libya,
the Sudan--to name a few--combined with the growth of ultra
nationalism in Eastern Europe, the growing threat of
proliferation of weapons of mass destruction, and our own
obvious vulnerability to international terrorism, make it
more important than ever for us to have a strong and
effective Intelligence Community. Human lives are at stake in
the decisions you make--not only those of our soldiers, but
also those of secretaries and office workers who may find
themselves in situations like the World Trade Center bombing.
  You invited me here to address the rather technical
question of whether the Constitution requires the publication
of an aggregate budget figure for the Intelligence Community.
My answer is that it clearly does not--a view consistent with
more than two centuries of established practice, and one
shared by the federal judiciary and at least the Carter
Administration's Justice Department. In contrast, it is worth
noting that in 1977, when your colleagues in the Senate
studied this issue and concluded that the aggregate budget
should be released, they relied upon three law review
articles (all written in the wake of Watergate and the
emotions of the Church and Pike Committee investigations) in
concluding that ``the legal commentators outside the
government who have studied this clause and publicly
commented have concluded that it requires disclosure of at
least an aggregate figure for intelligence activities.'' \54\
What they did not disclose--and what most of the Senators
quite probably did not realize--is that each of the three law
review articles were nothing more than ``Notes'' written by
law students.\55\
  The Constitution clearly does not require you to release
current aggregate appropriation figures for the intelligence
community at this time. Whether to do so is entirely within
the discretion of the Congress. That leaves you with the
policy question of whether to publish such a figure for other
reasons. For the reasons already stated, I urge you to
consider the pros and cons of that issue very carefully
before making a decision. I honestly believe it would prove
to be a tragic mistake.
  Thank you, Mr. Chairman. That concludes my statement.

footnotes
\1\ Perhaps the most detailed public account I have seen to
   date is TIM WEINER, BLANK CHECK: THE PENTAGON'S
BLACK BUDGET
   (1990).
   \2\ 50 U.S.C.A. Sec. 403 f (a).
   \3\ Douglas P. Elliott, Cloak and Ledger: Is CIA Funding
   Constitutional?, 2 HAST. CONST. L. Q. 717, 731-32 (1975).
   \4\ I have not had time to search to see if such polls have
   been taken, but I recall that during the height of the Gulf
   War the polls showed overwhelming support for the
   restrictions placed by the military upon the press.
   \5\ The ``Church Committee' concluded ``that publication of
   the aggregate figure for national intelligence would begin to
   satisfy the Constitutional requirement and would not damage
   the national security.'' Quoted in, SENATE SELECT COMMITTEE
   ON INTELLIGENCE, REPORT ON WHETHER DISCLOSURE OF
FUNDS FOR
   THE INTELLIGENCE ACTIVITIES OF THE UNITED STATES IS
IN THE
   PUBLIC INTEREST 2 (95th Cong., 1st sess., Sen. Rep't 95-274
   (1977). The ``Rockefeller Commission'' identified this as an
   issue warranting congressional consideration. COMMISSION ON
   CIA ACTIVITIES WITHIN THE UNITED STATES, REPORT TO
THE
   PRESIDENT 81 (1975). There have also been several ``Notes,''
   written by law students, reaching this conclusion. See, e.g.,
   Fiscal Oversight of the Central Intelligence Agency: Can
   Accountability and Confidentiality Coexist?, 7 N.Y.U.J. INT'L
   L. & POLITICS 493 (1974); The CIA's Secret Funding and the
   Constitution, 84 YALE L. J. 608 (1975); and Douglas P.
   Elliott, Cloak and Ledger: Is CIA Funding Constitutional?, 2
   HAST. CONST. L. Q. 717 (1975).
   \6\ Presumably every school child is familiar with
   Jefferson's famous maxim that, ``If a nation expects to be
   ignorant and free, in a state of civilization, it expects
   what never was and never will be.'' 14 WRITINGS OF THOMAS
   JEFFERSON 384 (Mem ed. 1903). Only slightly less popular is
   Madison's warning that ``A popular Government, without
   popular information, or the means of acquiring it, is but a
   Prologue to a Farce or a tragedy; or, perhaps both. Knowledge
   will forever govern ignorance. And a people who mean to be
   their own Governors, must arm themselves with the power which
   knowledge gives.'' 9 THE WRITINGS OF JAMES MADISON 103
   (Gaillard Hunt, ed. 1910).
   \7\ 3 JOURNALS OF THE CONTINENTAL CONGRESS 392
(1904-14).
   \8\ ``Verbal statement of Thomas Story to the Committee,'' 2
   P. FORCE, AMERICAN ARCHIVES: A DOCUMENTARY
HISTORY OF THE
   NORTH AMERICAN COLONIES, Fifth Series, 818-19 (1837-53).
For
   reasons of readability, I have departed from the practice of
   italicizing most of the proper nouns followed in the
   original.
   \9\ Id. at 819.

[[Page H4983]]

  \10\ Id.
  \11\ An excellent discussion of this period is contained in
  HENRY MERRITT WRISTON, EXECUTIVE AGENTS IN
AMERICAN FOREIGN
  RELATIONS 18-22 (1929).
  \12\ Id. at 23. The internal quotation is cited to a letter
  from Jay to Thomas Jefferson (then Minister to Paris) dated
  24 April 1787.
  \13\ The FEDERALIST, No. 64 at 434-35 (Jacob E. Cooke, ed.
  1961) (J. Jay) (emphasis added). Jay's contribution to
  understanding the Constitution in this essay can not be
  understated. Discussing Jay's subsequent role in explaining
  the meaning of the Constitution--and, specifically, this
essay--University of Washington Professor Arthur Bestor
(hardly a champion of strong executive power) has observed:
``In this contribution to the Federalist Jay was of course
examining the completed Constitution, not offering
suggestions to those about to frame it. As an interpretation
of the original intent of the document. Jay's essay is of the
highest importance. His diplomatic experience commencing with
his appointment as minister to Spain in 1779; followed by his
participation, as one of the commissioners, in the
negotiation of peace with Great Britain; and continuing, from
1784 on, with his service as Secretary of the United States
for the department of Foreign Affairs--fitted him better than
anyone else to judge the intended effect of the new
Constitution both on the actual process of negotiation and on
the character of the relationship that would have to be
maintained between executive and legislative authorities.''
Bestor, Separation of Powers in the Domain of Foreign
Affairs, 4 SEATON HALL L. REV. 527, 532-33 (1974). Professor
Gordon Baldwin concludes: ``John Jay, an experienced attorney
and diplomat, suggested that intelligence gathering
arrangements are within the sole power of the President. In
his view, they are a purely executive function linked to the
treaty negotiation process, and the information so gained
need not be reported to Congress.'' Gordon Baldwin,
Congressional Power to Demand Disclosure of Foreign
Intelligence Agreements, 3 BROOKLYN J. INT'L L. 1, 17 (1976).
\14\ Federalist No. 64.
\15\ The Complete Anas of Thomas Jefferson 72-73 (Franklin B.
Sawvel, ed. 1903). This document also appears in 1 The
Writings of Thomas Jefferson 191 (Paul Ford, ed., 1892).
\16\ The Convention was to begin on the second Monday in May
(14 May), but a quorum did not arrive until the 25th.
\17\ 1 Max Farrand, The Records of the Federal Convention of
1787 at 15 (1966).
\18\ Clinton Rossiter, 1787: The Grand Convention 167 (1966).
      \19\ Farrand, The Records of the Federal Convention, supra
      note 17, at xv.
      \20\ James Madison, 2 ``The Journal of the Constitutional
      Convention,'' in 4 The Writings of James Madison 456-57
      (Gaillard Hunt, ed. 1903). With only minor changes in
      punctuation and typography, this same debate appears in 2 Max
      Farrand, The Records of the Federal Convention of 1787 at
      618-19 (1966).
      \21\ 4 Writings of James Madison 449-50; 2 Farrand, Records
      of the Federal Convention 613.
      \22\ 3 Farrand, Records of the Federal Convention 326.
      \23\ Id.
      \24\ Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 418 (1821).
      \25\ Not being privy to the budgetary figures for the Central
      Intelligence Agency I can not say with certainty, but I
      suspect this 1790 appropriation provided the President with a
      larger portion of the federal budget than is today allocated
      to the CIA.
      \26\ Act of 1 July 1790, 1 Stat. 129 (1790).
      \27\ Ed Sayle, The Historical Underpinnings of the U.S.
      Intelligence Community, 1 International Journal of
      Intelligence and Counterintelligence 9 (1986).
      \28\ 11 THE WRITINGS OF THOMAS JEFFERSON 5, 9, 10 (Mem.
ed.
  1904). For a discussion of Jefferson's theory that the
  ``executive power'' clause of Article II, section 1, had
  vested in the President the entire business of external
  intercourse save for the expressed grants to Congress and the
  Senate (such as the power of the Senate to approve
  nominations and treaties, and the veto given Congress over a
  decision to initiate an offensive ``war'')--a view shared by
  Washington, Hamilton, Jay, Marshall, and others--see ROBERT
  F. TURNER, REPEALING THE WAR POWERS RESOLUTION:
RESTORING THE
  RULE OF LAW IN U.S. FOREIGN POLICY 47-107 (1991).
  \29\ I discuss this incident in some detail in a forthcoming
  book.
  \30\ 3 Stat. 471 (1818).
  \31\ President Roosevelt appointed ``Wild Bill'' Donovan as
  ``Coordinator of Information''--which led directly to the OSS
  and CIA--on 18 June of that year, and funding for the
  Manhattan Project apparently began around 9 October. See TIM
  WEINER, BLANK CHECK: THE PENTAGON'S BLACK
BUDGET 19, 113
  (1990).
  \32\ 63 Stat 208, Pub. L. 81-110, codified at 50 U.S.C.A.
  Sec. 403 et seq.
  \33\ The most noteworthy of these, perhaps, was the effort by
  the Senate Select Committee on Intelligence to change the
  practice in 1977. While a majority of the committee voted for
  that end, the dispute was apparently so heated that no one
  brought the measure to the floor.
  \34\ 418 U.S. 166 (1974).
  \35\ 418 U.S. at 178 n.11.
  \36\ 629 F.2d 144 (D.C. Cir. 1980). Another useful case from
  the same circuit is Harrington v. Bush, 553 F.2d. 190 (D.C.
  Cir. 1977), in which the court rejected on standing grounds a
  similar challenge brought by a Member of Congress, and in the
  process concluded with respect to the ``regular Statement and
  Account'' clause: ``This clause is not self-defining and
  Congress has plenary power to give meaning to the provision.
  . . . Since Congressional power is plenary with respect to
  the definition of the appropriations process and reporting
  requirements, the legislature is free to establish exceptions
  to this general framework, as has been done with respect to
  the CIA.'' Id. at 194-95.
  \37\ 629 F.2d at 162.
  \38\ Id. at 155.
  \39\ Id.
  \40\ Id. at 156.
   \41\ Letter from President Carter to the Senate Select
   Committee on Intelligence, quoted in SENATE SELECT
COMMITTEE
   ON INTELLIGENCE, REPORT ON WHETHER DISCLOSURE OF
FUNDS FOR
   THE INTELLIGENCE ACTIVITIES OF THE UNITED STATES IS
IN THE
   PUBLIC INTEREST at 6.
   \42\ Quoted supra, note 6.
   \43\ 15 The Writings of Thomas Jefferson 303 (Mem. ed. 1903).
   \44\ Federalist No. 3 at 13-14 (Jacob E. Cooke, ed. 1961)
   (emphasis in original).
   \45\ 453 U.S. 280 (1981).
   \46\ See supra, text accompanying note 20.
   \47\ Fiscal Oversight of the Central Intelligence Agency: Can
   Accountability and Confidentiality Coexist?, 7 N.Y.U. J.
   Int'l L. & Politics 493, 521 (1974).
   \48\ The CIA's Secret Funding and the Constitution, 84 YALE
   L. J. 608, 633 n.137 (1975). Keep in mind that the Church
   Committee said ``publication of the aggregate figure . . .
   would begin to satisfy the Constitutional requirement . . .
   [emphasis added].'' See supra, note 5.
   \49\ Senate Select Committee on Intelligence, Report on
   Whether Disclosure of Funds for the Intelligence Activities
   of the United States is In the Public Interest 8.
   \50\ Without further details, no one will be able to make an
   intelligent judgment about the wisdom of the expenditures
   contained in the aggregate figure; and I predict that if you
   do release such a figure you will be forced to break it down
   further (at least by agency or category) within a few years.
   \51\ If your primary interest is in upholding the
   Constitution, I can suggest any of a number of measures
   Congress might take toward that end--such as repealing the
   1973 War Powers Resolution, which even Senator George
   Mitchell admits is unconstitutional, or repealing some of the
   hundreds of new ``legislative vetoes'' that have been enacted
   after the 1983 Supreme Court decision (INS. v. Chadha)
   declaring such measures to be unconstitutional. See, e.g.,
   Robert F. Turner, Repealing the War Powers Resolution:
   Restoring the Rule of Law in U.S. Foreign Policy (1991).
   \52\ See, e.g., 95 Cong. Rec. 1948 (1949) (remarks by Sen.
   Tydings), cited in Douglas P. Elliott, Cloak and Ledger: Is
   CIA Funding Constitutional?, 2 Hast. Const. L.Q. 717, 729
   (1975).
   \53\ To be sure, the Intelligence Community engaged in
   activities that most of us today would consider improper--but
   even Senator Church ultimately acknowledged that the ``rogue
   elephant'' metaphor he coined was inaccurate and the
   Community has been following instructions from the nation's
   elected political leaders.
   \54\ Senate Select Committee on Intelligence, Report on
   Whether Disclosure of Funds for the Intelligence Activities
   of the United States Is in the Public Interest at 4 n.6.
   \55\ The student Notes in question are cited supra, note 5.

  Mr. GOSS. Mr. Chairman, this is one of the situations where there is
a lot of misinformation, a lot of perception, a lot of misperception
frankly. There clearly is a slippery slope here, because the gentleman
from Michigan's amendment talks about the annual statement of the total
amount for intelligence expenditures. The problem with that is that if
we give a number and we say these are intelligence expenditures, then
we have to start defining what is intelligence. It is not exactly what
other people think it is going to be. We will have to start paring out
different programs and different functions to determine what we mean.
  Are you talking about the amount we spend on national security? That
should surely be a big number. It is required in the Constitution. That
is something the Federal Government does. Are we talking about the
intelligence function in national security? And if so, what does that
number mean and what specifically does it include and what does it
leave out? What is intelligence? Is the State Department gathering of
information or reading Le Figaro, is that part of intelligence? Is that
open source intelligence or not? You have to start making further
descriptions and definitions. That is the slippery slope.
 Mr. DICKS. Mr. Chairman, will the gentleman yield?
 Mr. GOSS. I yield to the gentleman from Washington.
 Mr. DICKS. Mr. Chairman, I think this bill is intelligence. We are
the ones that just authorized it. So that is pretty much what it is.
 Mr. GOSS. Mr. Chairman, I quite agree. The gentlewoman from
California said one of the worst kept secrets in Washington is the
intelligence budget. One of the worst kept secrets in Washington is,
what is the intelligence part of the intelligence budget? What is the
intelligence part of the defense budget?
 Some have said that we are hiding something from Americans. We are
not trying to hide anything from Americans. We are trying to keep some
secrets from our enemies. That is true. We are trying to do that. But I
would point out to those who say we are trying to hide something from
Americans, we have a representative form of government. This is
democracy at its finest in the world. Those of us here represent those
of us abroad in our land.
 Those of us on the committee are charged with the responsibility of
oversight. It was not always such good oversight. It is very good
oversight now, and we are accountable. I would say we are hiding
nothing from the Americans because there is no American that I would
look at right in the eye and say, we are spending the money as wisely
and as well as we can and as appropriately as we can. Fifteen men and
women, good and true, making that decision about what our intelligence
needs are at this time, I have no problem with that. I think that is
entirely reasonable.
 When I go beyond that and start talking about specifics, I start
removing some of the confusion the enemy seize out there. I think
confusion to

[[Page H4984]]

our enemies is not a bad thing. It is somewhat Biblical, in fact. I
think it has worked very well over in the past. I do not see the game.
If it is accountability, the accountability is there. We already have
it.
  The final point of the gentlewoman from California, the President is
somehow waiting for the signal; whoever made that statement, perhaps it
was not the gentlewoman from California, let me tell my colleagues that
it was President Clinton himself who classified the number when he sent
his budget submission to Congress in March. It was not the Congress.
We
do not have the authority to classify anything. It is the executive
branch that classifies things.
  We are putting money in our bill to examine the question of
declassification because we are properly concerned about it. That also
in my view means abuse of classification. I know that takes place. So I
would suggest the right way to deal with this is to go to the
comprehensive study we have called for in our bill, that we have
provided for in our bill, authorized funds for and I hope we will get
those funds from the appropriators, and I believe we are and that we
proceed in an orderly way. That way we protect national security. We
provide for accountability. And we give the President and his people
the opportunity to chime in on the debate.
  Mr. Chairman, I urge a ``no'' vote on the Conyers amendment.
  Mr. STARK. Mr. Chairman, I rise in support of the Conyers
amendment
to H.R. 1775, the Intelligence Authorization Act of 1997.
  There is no reason for the intelligence budget to be classified
information. How can we justify a multibillion--or is it more--blank
check every year without adequate oversight and minimum public
discussion?
  If this Congress is serious about balancing the budget, we should not
throw money into an unaccountable hole. Since almost all of the
intelligence spending is hidden within the defense budget, we are
misled about the real amount of intelligence spending through false
line items in the defense budget. We must have budget integrity.
  The intelligence budget is routinely reported by the media without
compromising national security. When the Government keeps this open
secret clandestinely hidden, the American public grows increasingly
cynical about their Government.
 I believe that our intelligence community could better justify the
funding they receive from Congress with a disclosed budget. In the same
vein, the intelligence community could help to balance the budget by
submitting their funding to the same scrutiny faced by domestic
priorities.
 This amendment is about accountability and the public's right to
know. There is no reason to keep this information from a full and open
debate.
 I urge my colleagues to support the Conyers amendment.
 Mr. FARR of California. Mr. Chairman, I rise today in support of the
Conyers amendment to declassify the size of our Nation's intelligence
budget.
 It makes no sense to keep the size of our intelligence budget a
secret. It would not threaten our national security. Several former
Directors of the Central Intelligence Agency and the bipartisan Brown-
Aspin Commission have agreed that disclosure of the aggregate
intelligence budget would not reduce our Nation's security. In fact,
many other countries disclose the amount they spend on intelligence,
with no impact on their own nation's security.
 But what such secrecy does do is keep our own citizens in the dark.
At a time when so many programs are being drastically reduced in the
name of deficit reduction, the American taxpayer isn't even told how
much is being spent on intelligence programs.
 I am a proud cosponsor of H.R. 753, the Intelligence Budget
Accountability Act, which would declassify the aggregate intelligence
budget. This is long overdue, and I urge adoption of the Conyers
amendment to the Intelligence Authorization Act to accomplish this
important goal.
 The CHAIRMAN. The question is on the amendment offered by the
gentleman from Michigan [Mr. Conyers].
 The question was taken; and the Chairman announced that the noes
appeared to have it.
                  Recorded Vote

 Mr. CONYERS. Mr. Chairman, I demand a recorded vote.
 A recorded vote was ordered.
 The vote was taken by electronic device, and there were--ayes 192,
noes 237, not voting 5, as follows:

                  [Roll No. 254]

                   AYES--192

   Abercrombie
   Ackerman
   Allen
   Andrews
   Baesler
   Baldacci
   Barcia
   Barrett (WI)
   Becerra
   Bentsen
   Berman
   Berry
   Blagojevich
   Blumenauer
   Bonior
   Borski
   Boswell
   Boucher
   Boyd
   Brown (CA)
   Brown (FL)
   Brown (OH)
Capps
Carson
Chabot
Chenoweth
Christensen
Clay
Clayton
Clement
Clyburn
Condit
Conyers
Costello
Coyne
Crapo
Cummings
Danner
Davis (FL)
Davis (IL)
DeFazio
DeGette
Delahunt
DeLauro
Dellums
Deutsch
Dicks
Dingell
Dixon
Doggett
Dooley
Duncan
Ensign
Eshoo
Evans
Farr
Fattah
Fazio
Filner
Flake
Foglietta
Ford
Fox
Frank (MA)
Frost
Furse
Gejdenson
Gephardt
Gonzalez
Goode
Goodlatte
Gordon
Green
Gutierrez
Hall (TX)
Hamilton
Harman
Hastings (FL)
Hefner
Hilliard
Hinchey
Hinojosa
Hooley
Horn
Istook
Jackson (IL)
Jackson-Lee (TX)
Johnson (WI)
Johnson, E. B.
Kanjorski
Kennedy (MA)
Kennedy (RI)
Kennelly
Kildee
Kilpatrick
Kind (WI)
Kleczka
Kucinich
LaFalce
Lampson
Lantos
Leach
Levin
Lewis (GA)
Lofgren
Lowey
Luther
Maloney (CT)
Maloney (NY)
Manton
Markey
Martinez
Matsui
McCarthy (MO)
McCarthy (NY)
McDermott
McGovern
McHale
McKinney
McNulty
Meehan
Meek
Menendez
Metcalf
Millender-McDonald
Miller (CA)
Minge
Mink
Moakley
Moran (VA)
Morella
Nadler
Neal
Oberstar
Obey
Olver
Owens
Pallone
Pascrell
Pastor
Paul
Payne
Pelosi
Peterson (MN)
Petri
Pomeroy
Poshard
Price (NC)
Rangel
Reyes
Riggs
Rivers
Roemer
Rohrabacher
Rothman
Roybal-Allard
Rush
Sabo
Sanchez
Sanders
Sawyer
Schumer
Scott
Serrano
Shays
Sherman
Skaggs
Slaughter
Smith, Adam
Snyder
Spratt
Stabenow
Stark
Stenholm
Stokes
Strickland
Stupak
Tauscher
Thompson
Thurman
Tierney
Torres
Traficant
Turner
Velazquez
Vento
Waters
Watt (NC)
Waxman
Wexler
Weygand
Woolsey

              NOES--237

Aderholt
Archer
Armey
Bachus
Baker
Ballenger
Barr
Barrett (NE)
Bartlett
Barton
Bateman
Bereuter
Bilbray
Bilirakis
Bishop
Bliley
Blunt
Boehlert
Boehner
Bonilla
Bono
Brady
Bryant
Bunning
Burr
Burton
Buyer
Callahan
Calvert
Camp
Campbell
Canady
Cannon
Cardin
Castle
Chambliss
Coble
Coburn
Collins
Combest
Cook
Cooksey
Cox
Cramer
Crane
Cubin
Cunningham
Davis (VA)
Deal
DeLay
Diaz-Balart
Dickey
Doolittle
Doyle
Dreier
Dunn
Ehlers
Ehrlich
Emerson
Engel
English
Etheridge
Everett
Ewing
Fawell
Foley
Forbes
Fowler
Franks (NJ)
Frelinghuysen
Gallegly
Ganske
Gekas
Gibbons
Gilchrest
Gillmor
Gilman
Goodling
Goss
Graham
Granger
Greenwood
Gutknecht
Hall (OH)
Hansen
Hastert
Hastings (WA)
Hayworth
Hefley
Herger
Hill
Hilleary
Hobson
Hoekstra
Holden
Hostettler
Houghton
Hoyer
Hulshof
Hunter
Hutchinson
Hyde
Inglis
Jefferson
Jenkins
John
Johnson (CT)
Johnson, Sam
Jones
Kaptur
Kasich
Kelly
Kim
King (NY)
Kingston
Klink
Klug
Knollenberg
Kolbe
LaHood
Largent
Latham
LaTourette
Lazio
Lewis (CA)
Lewis (KY)
Linder
Lipinski
Livingston
LoBiondo
Lucas
Manzullo
Mascara
McCollum
McCrery
McDade
McHugh
McInnis
McIntosh
McIntyre
McKeon
Mica
Miller (FL)
Molinari
Mollohan
Moran (KS)
Murtha
Myrick
Nethercutt
Neumann
Ney
Northup
Norwood
Nussle
Ortiz
Oxley
Packard
Pappas
Parker
Paxon
Pease
Peterson (PA)
Pickering
Pickett
Pitts
Pombo
Porter
Portman
Pryce (OH)
Quinn
Radanovich
Rahall
Ramstad
Redmond
Regula
Riley
Rodriguez
Rogan
Rogers
Ros-Lehtinen
Roukema
Royce
Ryun
Salmon
Sandlin
Sanford
Saxton
Scarborough
Schaefer, Dan
Schaffer, Bob
Sensenbrenner
Sessions
Shadegg
Shaw
Shimkus
Shuster
Sisisky
Skeen
Skelton
Smith (MI)
Smith (NJ)
Smith (OR)
Smith (TX)
Smith, Linda
Snowbarger
Solomon
Souder
Spence
Stearns
Stump
Sununu
Talent
  Tanner
  Tauzin
  Taylor (MS)
  Taylor (NC)
  Thomas
  Thornberry
  Thune
  Tiahrt
  Upton
  Visclosky
  Walsh
  Wamp
  Watkins
  Watts (OK)
  Weldon (FL)
  Weldon (PA)
  Weller
  White
  Whitfield
  Wicker
  Wise
  Wolf
  Wynn
  Young (AK)
  Young (FL)

[[Page H4985]]



                 NOT VOTING--5

  Bass
  Edwards
  Schiff
    Towns
    Yates

                         {time} 1851

 Mr. BOB SMITH of Oregon, Mr. BOB SCHAFFER of Colorado, and
Mr. GILMAN
changed their vote from ``aye'' to ``no.''
 Mr. MANTON and Ms. EDDIE BERNICE JOHNSON of Texas
changed their vote
from ``no'' to ``aye.''
 So the amendment was rejected.
 The result of the vote was announced as above recorded.




for contact:
Steven Aftergood
(202)454-4691

The CIA has yielded to a Freedom of Information Act lawsuit filed by the Federation of
American Scientists for disclosure of the total intelligence budget. This marks the first time since
World War II that the U.S. government has acknowledged the size of its intelligence spending. It
is also one of the few notable intelligence reforms achieved since the end of the Cold War.
Significantly, this move was opposed both by the House and the Senate, and could only be
accomplished through a lawsuit. FAS was represented in the lawsuit by Kate Martin of the
Center for National Security Studies.

On October 15, 1997, the CIA issued the following statement:


             STATEMENT OF THE DIRECTOR OF CENTRAL INTELLIGENCE

         REGARDING THE DISCLOSURE OF THE AGGREGATE INTELLIGENCE

                              BUDGET FOR FISCAL YEAR 1997
A lawsuit filed several months ago under the Freedom of Information Act (FOIA) sought the
release of the aggregate budget appropriated for intelligence for fiscal year 1997. Following
consultations with the President and appropriate agencies, I am announcing today the
declassification and release of this figure.

While the President had previously indicated his preference to take such action in concert with
the Congress, the present circumstances related to this lawsuit do not allow for joint action.

Our decision today is premised upon two important points--

First, disclosure of future aggregate figures will be considered only after determining whether
such disclosures could cause harm to the national security by showing trends over time.

Second, we will continue to protect from disclosure any and all subsidiary information
concerning the intelligence budget: whether the information concerns particular intelligence
agencies or particular intelligence programs. In other words, the Administration intends to draw
a firm line at the top-line, aggregate figure. Beyond this figure, there will be no other disclosures
of currently classified budget information because such disclosure could harm national security.

We believe this action is appropriate because it does not jeopardize the ability of our intelligence
agencies to carry out their missions and serves to inform the American people. Accordingly, the
President has authorized me to release the information at issue.

The aggregate amount appropriated for intelligence and intelligence-related activities for fiscal
year 1997 is $26.6 billion.




                              Intelligence Budget Data
Military Intelligence Program Budget Justifications

      Military Intelligence Program - FY 2009 Congressional Justification Book, vol. I (redacted)
      Military Intelligence Program - FY 2008 Congressional Justification Book, vol. I (redacted)
      Military Intelligence Program - FY 2007 Congressional Justification Book, vol. I (redacted)

National Reconnaissance Office Budget Justifications

      FY 2011 Congressional Budget Justification (Redacted Version) (released May 2011)
      FY 2010 Congressional Budget Justification (Redacted Version) (released June 2010)
      FY 2009 Congressional Budget Justification (Redacted Version) (released July 2009)
      FY 2007 Congressional Budget Justification (Redacted Version) (released July 2009)
      FY 2006 Congressional Budget Justification (Redacted Version)
Department of Energy Budget Justifications

       FY 1999 - FY 2005 Intelligence Budget Requests




         Tracing the Rise and Fall of Intelligence Spending
                         As Portrayed in Official Government Publications
U.S. intelligence agencies long argued that public disclosure of intelligence budget appropriations would
"damage national security" and jeopardize "intelligence sources and methods." [1] This proposition has
been disputed for decades by critics in Congress and elsewhere, and a growing number of other nations
now routinely publish their intelligence spending levels as an act of democratic accountability. [2]

In any case, even under the prevailing secrecy policy, a good deal of information about
intelligence spending could be discerned from official government sources.

The changes in the total annual budget for the former National Foreign Intelligence Program
(which encompassed the budgets of all national-level intelligence agencies such as CIA, NRO,
NSA, DIA, NGA, etc.) from the mid-1960s to the mid-1990s are evident from this bar chart
published by Congress in 1993 [3]:
Remarkably, total intelligence funding grew by 125 percent in real (constant dollar) terms from
1980 to 1989, as noted by the Aspin-Brown Commission on intelligence. [4] It declined
thereafter, but by the mid-1990s it still remained at a level 80 percent higher than the 1980
figure:
In response to Freedom of Information Act litigation [5], the Director of Central Intelligence
declassified the total intelligence budget for fiscal year 1997: $26.6 billion.

The DCI again declassified the total intelligence budget for fiscal year 1998: $26.7 billion [6].

No identifiable damage to national security or intelligence methods ensued as a result of these
official disclosures. Yet officials refused, with congressional acquiescence, to formally release
subsequent or prior intelligence budget totals until the FY 2007 budget for the National
Intelligence Program -- $43.5 billion -- was disclosed in October 2007.

The upward trend in intelligence spending since 9/11 is clear from this chart produced by the
House Permanent Select Committee on Intelligence and published by the Congressional Joint
Inquiry into September 11 [7]:
In 2007, the Director of National Intelligence declassified and disclosed the FY 2007 budget for
the National Intelligence Program: $43.5 billion [8].

The FY 2008 budget total for the NIP was officially disclosed in 2008: $47.5 billion [9]. The FY
2009 budget total for the NIP was disclosed in 2009: $49.8 billion [10].

For the first time in FY 2010, the budget totals for the NIP -- $53.1 billion -- and for the Military
Intelligence Program (MIP) -- $27 billion -- were both disclosed [11]. Budget totals for the MIP
for FY 2007-2009 were also subsequently disclosed [12].

For the first time in 2011, the NIP budget request for the following fiscal year -- $55 billion --
was published [13].
Notes
        1. See, for example, the April 2003 statement of Director of Central Intelligence George J. Tenet,
        in which he declared that disclosure of a single aggregate number for all intelligence spending
        for Fiscal Year 2002 posed an unacceptable risk to national security.

        2. See, for example, official information on intelligence spending in the United Kingdom
        here. Several other countries disclose intelligence spending levels including Canada, the
        Netherlands, and others.

        3. Based on unclassified data (in constant dollars) provided by the DCI and published in
        House Report 103-254, report of the House Appropriations Committee on Department of
        Defense Appropriations Bill, 1994, at page 14.

        4. Preparing for the 21st Century: An Appraisal of U.S. Intelligence, report of the
        Commission on the Roles and Capabilities of the United States Intelligence Community,
        March 1, 1996, chapter 13 (available here).

        5. The FOIA lawsuit was brought by the Federation of American Scientists with the
        assistance of Kate Martin of the Center for National Security Studies. For more
        information, see here.

        6. A copy of the CIA statement announcing the disclosure is here.

        7. Report of the Joint Inquiry into the Terrorist Attacks of September 11, 2001 by the
        House Permanent Select Committee on Intelligence and the Senate Select Committee on
        Intelligence, December 2002, at page 256.

        8. DNI Releases Budget Figure for National Intelligence Program, news release, October
        30, 2007.

        9. DNI Releases Budget Figure for 2008 National Intelligence Program, news release,
        October 28, 2008.

        10. DNI Releases Budget Figure for 2009 National Intelligence Program, news release,
        October 30, 2009.

        11. A New Milestone in Intelligence Budget Disclosure, Secrecy News, November 1,
        2010.

        12. Total Intelligence Budget for 2007-2009 Disclosed, Secrecy News, March 16, 2011.

        13. A New Milestone in Intelligence Budget Disclosure, Secrecy News, February 15,
        2011.
Related Resources
 FY1995 Intelligence Budget Figures Inadvertently Disclosed, House Appropriations Committee, 1994,
with budget totals for TIARA and NFIP.

 CIA Budget Documents for FY 1955, correspondence between CIA and the Senate Appropriations
Committee, from the papers of Sen. Styles Bridges (courtesy of Prof. David Barrett, Villanova University)

 CIA: Location of Budgeted Funds, Fiscal Year 1953, from the papers of Rep. George Mahon (courtesy
of Prof. David Barrett, Villanova University)

 DIA and NSA Appropriations, Fiscal Year 1972, from the papers of Rep. George Mahon (courtesy of
Prof. David Barrett, Villanova University)



http://www.fas.org/irp/budget/
Maintained by Steven Aftergood




Photograph by Preston Peets


Power to the People: Catherine Austin Fitts has spent her career trying to bring economic independence to
individuals.


On the Money Trail
The dangerous world of Catherine Austin Fitts
By Mari Kane
Enron. Arthur Anderson. WorldCom. Global Crossing. Some of the biggest players in
corporate America, and what do they have in common? They are all perpetrators of
reporting fuzzy numbers as revenue to pump their stock prices. But in the realm of
creative accounting run amok, one institution stands apart as the mother of all
financial fraud--the Department of Housing and Urban Development.

Although HUD's mission involves "spurring economic growth in distressed
neighborhoods," the reality is that HUD is an agency run and managed by the
departments of Treasury and Justice, Lockheed Martin, JPMorgan Chase, Dyncorp,
Harvard, AMS, Arthur Anderson, and others that use the agency for their own for-
profit interests.

All this according to Catherine Austin Fitts, the self-described "cleaning lady" whose
job it was to clean up financial messes such as the savings and loan scandal at HUD.
Few people know more than Fitts about how the money works in Washington--and
now that Enronitis is spreading, Fitts has found a willing audience for her insight on
how complicated financial schemes get cracked and implemented at the highest
corporate and governmental level. The software she has developed, if implemented, is
poised to revolutionize the way communities and individuals use their money.

When Fitts left the Wall Street firm of Dillon Read and joined HUD in 1989 as
Assistant Secretary of Housing, what she found was an agency awash in conflicts of
interest and fraud that was subservient to the big-money people in the financial
community.

Moreover, she discovered that HUD had never tracked its financial results on a
location-specific basis, so each field office had no idea how the money worked in its
jurisdiction. By putting together a crude place-based cash-flow map, she found that
HUD's business had been substantially distorted by the way the data had been
presented. Her numbers proved that S&L and HUD fraud were perpetrated by the
same networks, in the same places, and involved the same use of federal credit.

"In Washington, everyone was talking about the S&L and HUD scandals as if they
were separate, but it was clear that place-based financial data would have told us what
had happened, who had profited, and how to prevent it from happening again," Fitts
recalls. "It also became apparent that our investments in communities conflicted with
the other federal, state, and local investments in that place."

Fitts was fired by the Bush administration in 1990 after only 18 months on the job.
She was told the day after she left that the preparation of place-based financial
accounting and statements had also been terminated.
Out of work, Fitts decided to dedicate herself to the concept of helping communities
finance themselves. Fitts founded a new company, Hamilton Securities Group, which
in 1993 won a contract with HUD to manage its $500 billion portfolio.

After her discouraging experience in the employment of HUD, the things that gave
Fitts the most hope were digital technology and the advent of the Internet, which were
both becoming more and more accessible to the public. Hamilton's contract with HUD
provided an invaluable opportunity to draw from what Fitts describes as "the richest
database in the world on how the money works in neighborhoods."

When HUD decided to auction off a portfolio of defaulted mortgage loans, Hamilton
introduced a proprietary place-based bidding software and an online database of
information so that the portfolio could be bid upon in an open, competitive auction.
With it, little guys were able to compete with big, publicly traded players for the first
time.

The problem, she found, was that the model was too effective. In 1995, Fitts' team
auctioned $950 million worth of multifamily mortgages in the Southeast. It was
estimated that by selling them the old-fashioned way the sale would bring $350
million, but thanks to the innovations implemented at Hamilton's recommendations,
the loans sold for $710 million and, according to Fitts, "took the world's breath away."

Although the sale hurt some big players, it helped taxpayers save $2 billion in
defaulted loan sales. That accomplishment raised eyebrows and sent a loud message
to HUD that all this time they had been dealing with low bidders.

One of the reasons Hamilton was called in to help with the sale is because HUD
needed to raise its loan recovery rates in order to issue more mortgage insurance
without congressional appropriations. Hamilton came in with its optimization
software, blew away the market with wildly successful loan sales, brought HUD's
recovery rates up from 35 percent to 70 percent and 90 percent, and HUD was able to
generate $2.2 billion in new revenue and new credit.

But the story didn't end happily ever after. In 1997, HUD canceled Hamilton's
contract and the loan sales program while continuing to use the new recovery rate
assumptions in order to get new credit originations. That is a clear case of, in Fitts'
words, "cooked books."

And, Fitts notes, HUD is currently out of compliance with its own accounting rules. In
1999, under the direction of HUD Secretary Andrew Cuomo, HUD's Inspector
General refused to certify its own financial statements as required by law, while
admitting that $59 billion somehow disappeared. The explanation given was
accounting systems failure, and the matter was dropped without investigation.

"In 2000 I visited with a senior staff assistant to [Senator] Kit Bond, the chairman of
one of the appropriations committees for HUD," remembers Fitts. "I asked her what
she thought was going on at HUD, and she said, 'HUD is being run as a criminal
enterprise.' Then Bond, the committee, and my congressional delegation, all
Republicans, all voted a $1.7 billion increase in HUD's appropriation."

Starting in 1994, Hamilton Securities Group began building an easy-to-operate
computer software system to track the money flows in any given region. The program,
Community Wizard, provided the kind of transparency needed to expose cooked
books. Former Hamilton employee Carolyn Betts remembers the power of
Community Wizard, even in its infancy.

"It was in the beta stage, so it was not complete, but with each piece of information it
became more and more powerful," recalls Betts. "The HUD field office people went
absolutely crazy when they saw it. You could go in with a pointer on a map and get to
information on expenditures by each HUD program. It was a pretty beautiful program
and would have become unbelievably powerful."

To imagine the Wizard at work, Betts says, picture a place-based website with
modules. For each place, you could pull up a map, like on Mapquest, and see
information such as the socioeconomic characteristics of the residents or the amounts
of revenue generated by private companies.

The developers at Hamilton got geocoded information from every government agency
and private contractor they could, including information on all payments made by the
federal government to contractors. Depending on which side of the law you sit,
Community Wizard could be either a godsend or a threat.

In the fall of 1996, Hamilton became the target of nightmarish covert operations,
smear campaigns, harassment, and criminal investigations. The Community Wizard
technology was ultimately destroyed in 1998 when Department of Justice agents
stormed in and wrecked Hamilton's office. Fitts suspects that Wizard held secrets
which may have revealed that some U.S.-guaranteed mortgage securities were
fraudulently issued and were illegally draining HUD's reserves.

Thanks to Hamilton's innovations, HUD was able to save taxpayers over $2 billion
through the defaulted loan sales. In spite of that, the agency refuses to pay Hamilton
over $2.5 million worth of outstanding invoices. To top it off, John Ervin, a HUD
contract servicer, brought a qui tam (whistleblower) suit against Fitts that accused her
of committing fraud against HUD to the tune of $3.8 million.

So the cleaning lady of fraud is now being sued for allegedly committing fraud against
the most fraud-ridden agency in the U.S. government. Is this a great country or what?

Fitts has continued to develop groundbreaking technologies to separate the U.S.
government from the tentacles of corporate America and give economic control back
to the people. Her latest is called a Solari.

"A Solari is an investment advisor and databank for a neighborhood of 10,000 people
or less that promotes transparency and literacy about how the time and money works,
while raising and reengineering capital within that place," Fitts explains.

The Solari Action Network is an investment advisory company founded by Fitts in
1998, and its launch date is set three months after the feds pay Fitts the monies owed
under Hamilton contracts. Once launched, the first thing needed is a Community
Wizard-like technology to give average people the confidence to approach complex
financial situations.

The second part of a Solari is the creation of a trust structure for shareholders, an
investment pool, if you will. This plan includes nonvalue, voting "A" shares owned by
a self-perpetuating group of entrepreneurial neighbors. The nonvoting "B" shares have
monetary value and are sold to whomever "A" shareholders determine. First they are
sold to the community, but ultimately they can be traded on the stock market. The "A"
shareholders only make money on "B" shares, which encourages all neighbors to
optimize total equity in the place.

Here is a theoretical example. If the town of Forestville had a Solari Network, its "A"
shareholders could, by using Community Wizard, determine that residents send $2
million to HUD, which takes $1 million for "overhead" and plans to use the other $1
million to renovate four housing units in Mirabel Heights. If the shareholders estimate
the actual cost of construction to be $200,000 if financed locally, they can tell
Washington to cancel the HUD expenditure and save residents $1.8 million in taxes.
This would be a sophisticated way of telling Washington to shove it. Moreover, it's a
method for residents to distance themselves from a "criminal enterprise."

"If HUD is spending money outside of the Constitution and failing to comply with the
law, it would be improper to give them money because by doing so, we would be
encouraging criminal activity," says Fitts.
Fitts envisions Community Wizard being reinvented on a decentralized basis, one for
each neighborhood. She has already agreed to help one community in California build
its own version through a website.

"I will reinvest the proceeds from litigation judgments or settlements, and/or
capitalizing Solari as part of a global settlement, into venture capital that will fund as
many locally developed Community Wizards as possible," Fitts promises. "My hope
is that online collaboration will lead to a much more dynamic network of databases
and tools to take control of the money flow."



Catherine Austin Fitts can be reached at catherine@solari.com. Fitts' writings can be read at
www.solari.com.



   BUSHWHACKED: HUD Fraud, Spooks and the Slumlords of Harvard

                                           by Uri Dowbenko

   Catherine Austin Fitts is still trying to figure out what happened.

    Her company, Hamilton Securities, Inc., was the lead financial advisor to the US Department
of Housing and Urban Development (HUD).

   Hamilton was hired to manage the sales of $10 billion worth of mortgages on houses,
apartment buildings and nursing homes.

    By all accounts, Hamilton's new program was a resounding success.

    In fact, the HUD loan sales program team was even given a Hammer Award for Excellence
in Re-engineering Government by Vice President Al Gore's Reinventing Government Initiative.
By cutting red tape and improving the resale value of HUD owned mortgages, Hamilton
Securities was a case study of a public-private partnership that saved US taxpayers lots of
money.

    Until...

    The firm was ambushed by a series of lawsuits, audits and unsubstantiated rumors which
destroyed the business.
Catherine Austin Fitts -- Maverick Banker


   In the arcane but stodgy world of investment banking, Catherine Austin Fitts is a
revolutionary.

   Before founding her own firm, Fitts, a Wharton graduate, was the first woman to be
promoted to managing director of Dillon, Read and Co, Inc., the prototypical elitist men's club
Wall Street investment bank.

    To her credit, Fitts was instrumental in building a new market for Dillon Read. She began
underwriting previously unrated municipal bonds, in essence, financing large government
projects which other Wall Street firms said couldn't be done.

   These novel bond sales helped revive New York City's crumbling subway system, and they
provided funding for the City University of New York and other major projects.

  The market in unrated and low-rated muni bonds took off, earning Fitts the title of "Wonder
Woman of Muni Bonds," in a glowing Business Week article (February 23, 1987).

   In 1989, she was asked to become the Federal Housing Administrator under HUD Secretary
Jack Kemp. Fitts moved to Washington to undertake the monumental task of reforming the
scandal-ridden, fraud-plagued agency.

   After her stint in government, she was invited to be a Governor of the Federal Reserve
Board. She declined.

    Instead she founded Hamilton Securities Group, an employee-owned investment banking
firm, which created an innovative system for saving taxpayers billions of dollars in the sale of
government-guaranteed mortgage-loan sales from HUD.

   By promoting open disclosure in the HUD financial transactions, Fitts undoubtedly, and
unknowingly, must have stepped on a lot of toes.

    The Crony Capitalists (or Old Boys' Network -- or the Octopus) must have seen Hamilton's
program of financial transparency as a major threat to their system of bid rigging and insider
trading.

HUD Cost Savings Lead to Hamilton's Demise


   In this extremely complex case, newly disclosed evidence indicates that powerful forces
conspired to destroy the financial equity of employee-owned Hamilton Securities, as well as the
personal life savings of the firm's president, Catherine Austin Fitts.

    Why? Because Hamilton Securities had opened up the market for defaulted HUD mortgages.
In simple terms, the established network of insiders would be susceptible to -- horrors! -- open
competition, not to mention an entire universe of new bidders.

    In fact, Hamilton's plan for optimization of sales of defaulted mortgages resulted in a savings
of over $2.2 billion for US taxpayers.

    The numbers are staggering. Every year HUD issues about $70 billion of mortgage insurance
which guarantees the mortgages used to finance homes, apartment buildings, nursing homes,
assisted living facilities and hospitals. HUD then pays out about $6 billion on claims for
defaulted mortgages, which the agency has to then manage at great cost to taxpayers.

   Prior to Hamilton's involvement, HUD was recovering about 35 cents on the dollar of
mortgage insurance payments made on defaulted mortgages.

    When Hamilton instituted their new program, HUD's recovery rate soared to about 70 to 90
cents on the dollar. How? Hamilton introduced a proprietary optimization bidding software and
an on-line database of information, accessible to all investors, so that the defaulted portfolio
could be bid upon in an open auction.

  In October 1997, the Chairman of one Congressional oversight committee referred to the
Hamilton-based loan sales at HUD as generating "eye-popping" yields.

    In fact from 1994-97, HUD saved about $2.2 billion in HUD's $12 billion mortgage
portfolio. These savings then allowed HUD to issue far more new mortgage insurance at a lower
cost.

    When Hamilton's successful loan sales-auction program was suspended due to the
investigation, the old levels of government inefficiency and fraud were resumed. Call it
"Business As Usual."

   That means HUD is now losing about $4 billion per year on its $6 billion of defaulted
mortgages -- instead of just $2 billion. That's the equivalent of 20,000 taxpayers working their
whole lives to pay for this boondoggle for just one year.

Anatomy of a Corporate Murder


   Targeted by criminal elements in the Department of Justice (DoJ), Housing and Urban
Development (HUD), as well as a cartel of private investment companies, Hamilton Securities
has undergone an onslaught of unimaginable harassment and intimidation.

    There had been a SWAT-like attack on Hamilton's office in Washington, 19 audits, countless
subpoenas as well as ongoing litigation against HUD to force them to pay monies owed on their
contract. It's been a 4-year long financially and emotionally draining "investigation." To date,
there has been no evidence of any wrongdoing -- just rumors, innuendo, and lots of character
assassination.

   First, in June 1996, a sealed qui tam lawsuit, a phoney whistle-blower suit, as well as a
Bivens action was filed by John Ervin of Ervin & Associates, Inc., a HUD subcontractor,
notorious for filing nuisance lawsuits and "bid protests" -- 37 of them in the recent past. In the
Bivens suit, he sued HUD itself, as well as several former HUD officials personally.

     In fact, Ervin's lawsuits have cost a good-sized fortune in legal fees and overhead, estimated -
- from 1995 to date -- to be as high as $40 to $50 million. An insider claims that during that time
Ervin had up to 17 in-house personnel working full time on mountains of paperwork regarding
this and other cases.

   So who's bankrolling Ervin? Nobody has offered any explanations, but for a small time HUD
sub-contractor like Ervin, this has turned out to be a serious investment.

    Under the False Claims Act, a private party like Ervin, who files suit on behalf of the
government, can receive 15-30% of any recovery, if the government's claim is successful. That
percentage (15-30%) would have covered asset seizures of up to $4.7 billion of loan sales won
by Goldman Sachs and its partners.

   Is somebody just playing the odds? In this version of government "greenmail", or state-
sponsored extortion, any asset seizures could be part of this 15 to 30% bounty.

The Spooky Life of Stanley Sporkin


   Then, it just so happened that the judge presiding over the Hamilton case was the former CIA
Counsel -- Federal Judge Stanley Sporkin (recently retired).

   According to Rodney Stich, author of "Defrauding America," "Sporkin was involved with the
1980 October Surprise scheme and his judicial appointment was probably his reward by the
Reagan-Bush administration for helping carry it out, and to block any judicial exposure or
prosecution action."

    (The October Surprise was the Reagan-Bush black-ops/covert action to delay the release of
the hostages in Iran, resulting in the electoral victory of Reagan as US President.)
    Sporkin was appointed to the bench by Ronald Reagan in 1985. His spooky roots, however,
go back to the days when he was a director of the SEC's Division of Enforcement, while the
infamous Bill Casey was practicing his Wall Street shakedown techniques as Chairman of the
Securities and Exchange Commission.

   Sporkin's other claim to fame was to encourage Casey to go after the infamous scamster
Robert Vesco. Was Vesco more competition -- or just another freelancer?

    Casey, who like George H. W. Bush, neglected or "forgot" to put his assets in a blind trust
later also became director of CIA. His shares -- controlling stock in Capitol Cities
Communications -- were eventually used to take over ABC in a $3.5 billion merger deal.

   In the words of Joseph Persico, author of "Casey", "the director of the Central Intelligence
Agency was soon to be a substantial shareholder in one of the country's major forums of free
expression, with wondrous opportunity for managing the news."

    Also according to Persico, Casey further employed Sporkin's specious reasoning by claiming
that killing "suspected terrorists" was not murder.

    Reagan's infamous Executive Order 12333 which privatized US National Security State dirty
tricks was ostensibly the reason.

    "Striking at terrorists planning to strike at you was not assassination," wrote Persico referring
to Sporkin's logic, "it was 'preemptive self-defense.'"

    Then Sporkin became the general counsel for the CIA (1981-86) and his mastery of coverup
skills increased dramatically. For instance, in keeping the Oliver North Cocaine Trafficking
Operation under wraps, it was Sporkin who invented another ingenious method of lying by
omission.

    Persico writes that "North's insistence that the oversight committees be cut out troubled the
CIA people. But the adroit Sporkin found a loophole. The President was required to inform the
oversight committees of a covert action presumably in advance of the action, except when the
urgency of the situation required that notification be delayed." Result? Everybody was notified
48 hours after the operation.

    According to Persico, Sporkin also perfected the techniques of writing retroactive "findings"
for Congress, so that CIA criminality could always be disguised or covered up -- after the fact.
    Stich concludes that "to protect the incoming Reagan-Bush teams and many of the federal
officials and others who took part in October Surprise, the Reagan-Bush team placed people,
including those implicated in the activities, in control of key federal agencies and the federal
courts. Some, like attorneys Stanley Sporkin, Lawrence Silberman, and Lowell Jensen were
appointed to the federal bench defusing any litigation arising from the October Surprise or its
many tentacles... Organized crime never had it so good."

   Ironic Postscript Dept.: In Feb. 2000, retired spooky judge Stanley Sporkin (Yale Law
School, 1957) joined the global powerhouse law firm Weil, Gotshal & Manges LLP. The
company, which boasts 750 attorneys in 12 offices worldwide, is considered one of the leading
law firms in the country on bankruptcy.



   BUSHWHACKED: HUD Fraud, Spooks and the Slumlords of Harvard

                                        by Uri Dowbenko

                                              Part 2

The Hamilton Bushwhack


    In the Hamilton Securities case, Sporkin's claim to fame is that he managed to illegally keep
a qui tam lawsuit sealed for almost 4 years. That could be a "judicial" record.

   In August 1996, an investigation against Hamilton was initiated by HUD Inspector General
Susan Gaffney, serving two subpoenas on the company -- and incidentally failing to tell
Hamilton about the existence of the qui tam as required by law. The subpoenas demanded
hundreds of thousands of documents, mostly HUD documents that HUD already had, or that had
been supplied to them as part of the ongoing work -- a clear case of burying Hamilton in
paperwork as more ongoing harassment.

   At the same time, a HUD audit team from Denver had completed a favorable audit of
Hamilton's program. When Fitts asked HUD IG Gaffney whether she intended to "bury the
Denver audit," Gaffney huffed back, "How dare you suggest that I would do any such thing?
That would be unethical."

   In fact, she did exactly that. Susan Gaffney never allowed the publication of the Denver
Audit team's report which exonerated all of Hamilton's methodology and results.

  Then, at the same time, a smear campaign against Hamilton was being waged through a "US
News and World Report" hatchet-job article about HUD Secretary Henry Cisneros and the loan
sales program.

    According to Fitts, the lead reporter had been assured "at the highest levels" of the HUD
Inspector General's office that Hamilton Securities and Fitts were the subject of a criminal
investigation and were guilty of criminal violations.

    There was no evidence, however, either offered by HUD or published by the magazine, and
these false allegation also died with the passage of time.

    In a bizarre double-bind mentality, HUD and DoJ -- in a separate court and with a different
judge -- had taken the position that the Ervin lawsuit was without merit -- even while Hamilton's
legal costs climbed into the millions of dollars.

The Dirty Fingerprints of Lee Radek


    In December 1997, Hamilton wrote a letter to the President's Council on Integrity &
Efficiency (PCIE), a committee in the Office of Management and Budget (OMB), to investigate
HUD IG Susan Gaffney's conduct.

    Hamilton's four-page highly detailed letter to Neil J. Gallagher, Acting Assistant Director of
the FBI's Criminal Investigative Division and Chairperson of PCIE was blunt.

    "The HUD IG has crossed the line in its investigation of Hamilton, which was begun in
response to complaints from Ervin & Associates, a disgruntled HUD contractor," wrote Fitts.
"The IG's wide-ranging and unfocused "fishing expedition" against Hamilton has failed to
produce findings of wrongdoing and threatens the survival of the firm. The repeated leaking to
the press of proprietary and confidential information that only the HUD IG could know and the
intervention of other Federal Agencies [IRS, FDIC] into Hamilton's affairs constitute a campaign
of smear, slander and intimidation that should be investigated and stopped."

    Fitts wrote about many incidents of intimidation and harassment which "demonstrate or
suggest that the HUD IG is deliberately leaking information to the press about its investigation of
Hamilton. These leaks represent serious and persistent breaches of confidentiality, unethical and
unlawful behavior and violations of Hamilton's constitutional rights."

    PCIE declined to investigate. In her next letter to Gallagher in February 1998, Fitts wrote that
"since the filing of our complaint, the Hamilton Securities Group Inc. and all of its subsidiaries
have been rendered insolvent... In the face of eighteen months of Inspector General 'lynch
mobbing' we have exhausted our reserves and have no means to continue an investigation that
has no end..."
   After another refusal by PCIE to investigate, Hamilton filed a Freedom of Information
Action (FOIA) for the files.

   The files revealed a heavily redacted letter signed by the Lead Coverup Meister himself --
Lee Radek, head of the Department of Justice's ironically named "Office of Public Integrity."

    In a letter dated April 3, 1998 addressed to Thomas J. Piccard, Chairman of the Integrity
Committee of the PCIE, Radek wrote "C. Austin Fitts, President of the Hamilton Securities
Group, Inc. sent the IC a copy of a civil complaint filed by Hamilton Securities against HUD
Secretary Andrew Cuomo, Assistant Secretary Nicolas Retsinas and Inspector General Susan
Gaffney. The complaint alleged that HUD's OIG investigation of Hamilton and improper media
leaks by the OIG about the investigation was causing Hamilton to go out of business... After
reviewing the letter and the attachments, the Public Integrity Section concludes that the
allegations in the complaint do not provide sufficient information to warrant a criminal
investigation."

   The rest of the page -- seven inches of what used to be text -- is blacked out.

    For the record, US Department of Justice apparatchik Lee Radek has held a virtual
stranglehold on DoJ "investigations," consistently covering up the criminal activities of the
Clinton Administration. As a linchpin in the corrupt DoJ, he has had many opportunities to
coverup crimes and block inquiries -- and he has taken full advantage of his position as a
Federal-Mob "enforcer."

    It's an ironic twist of fate, then, that Neil Gallagher -- the FBI staff member of PCIE, whose
job it was to investigate allegations against Susan Gaffney -- and Lee Radek appeared together in
May 2000 before a Congressional hearing -- as antagonists.

    Gallagher affirmed in public testimony that Radek was indeed under pressure from US
Attorney General Janet Reno to stall any investigation into the Clinton-Gore campaign fund
raising scandals.

Unsealing the Lawsuit


   Finally in May 2000, US District Judge Louis F. Oberdorfer unsealed the qui tam lawsuit
against Hamilton -- and surprise! -- the DoJ decided not to pursue the groundless claims.

    The suit was filed in June 1996, and DoJ's decision not to intervene in this case came after a
1,400 day so-called "investigation" -- or 1,340 days longer than the 60 days mandated by the
Federal False Claims Act.
   Hamilton Securities maintained that the allegations in the complaint were not true, and there
was no evidence to support the false allegations.

    In fact, HUD security procedures and overlapping levels of review associated with the open
bidding process made the alleged bid rigging and insider trading impossible. This was
corroborated by HUD's own audits.

    The sources for the alleged bid rigging in Ervin's complaint, kept under court seal for almost
four years, included Jeff Parker of the Cargill Group, Terry R. Dewitt of J-Hawk (First City
Financial Corporation of Waco, Texas, and a Cargill investment and joint venture partner), and
Michael Nathans of Penn Capital Corporation.

The Waco-Cargill Connection


   In retrospect, Hamilton must have been a major threat to the nation-wide money laundering
and financial fraud network which uses government-guaranteed mortgages and other programs to
scam US taxpayers. The formerly secret sources of the false allegations against Hamilton have
some interesting connections.

   SEC documents state that First City Financial Corporation (FCFC) of Waco, Texas started
business in 1986 "purchasing distressed assets from FDIC and RTC."

    Another subsidiary, First City Commercial Corp. was used to "acquire portfolios of
distressed loans" -- another hallmark of the standard money laundry operation.

    According to the Houston Business Journal (Sept. 24, 1999), "First City Bancorporation,
once one of Houston's largest bank holding companies, was acquired out of bankruptcy in 1995
by J-Hawk Corp of Waco and renamed First City Financial Corp."

    "FCFC began its relationship with Cargill Financial Services Corp. in 1991," according to the
company's SEC filings. "Since that time, the Company and Cargill Financial have formed a
series of Acquisition Partnerships through which they have jointly acquired over $3.2 billion in
Face Value of distressed assets. By the end of 1994, the Company had grown to nine offices with
over 180 professionals and had acquired portfolios with assets in virtually every state."

   But then -- and now comes the sad part --- the mortgage banking subsidiary of First City
Financial Corporation, Harbor Financial Group Inc., filed for bankruptcy (Oct., 1999), just as the
notorious Denver-based money laundry, M&L Business Machines, had done years before.

    The corporate shell game of mergers, acquisitions and liquidation is obviously in full play in
this scenario.
    The other false accuser listed -- Cargill Financial Services Corp., -- on the other hand, is a
subsidiary of Cargill, the Minneapolis-based global agribusiness cartel and the world's largest
privately-held company.

   Cargill is a mega-corporate international merchant of agricultural, industrial and financial
commodities, and it operates in 59 countries, has 82,000 employees, and about $50 billion in
annual sales.

    The financial subsidiary, Access Financial Holdings Corp., was formed to "manage the
housing finance business" and "provide residential real estate mortgages," an unregulated arena
in which money laundering is often the real business.

   And here's the punch line in this revolving-door-syndrome joke of the Criminal Big
Government-Big Business Syndicate.

     The lead law firm listed on First City Financial's 1998 registration statement is Weil Gotshal
-- former spooky judge Stanley Sporkin's new employer.

Whistle-Blower Stew Webb's Perspective


    Federal whistle-blower Stewart Webb thinks he knows why Catherine Austin Fitts and her
company, Hamilton Securities, were bushwhacked. In fact, he believes that her operation was a
direct threat to the "Denver Boys" -- the Bush Crime Family's money laundering operation based
in Denver.

   Why was she targeted? "Because she had set up a company which was showing the
government how to save money through competitive loan sales programs," explains Webb. "It
was a threat to [Leonard] Millman in Denver. Because they were in control of the mortgage
program."

    Webb is referring to the many HUD low-income housing-based frauds and scandals in
Denver. He claims that one of their proxies was John Ervin himself. "He had his own office in
Denver," says Webb. "One of the biggest supplies of money to these boys is the money they're
stealing from HUD. They are still robbing HUD like nobody's business."

    "That's a massive covert revenue stream for them," continues Webb. "As of last year, they
became the largest apartment owner in the United States. AIMCO. That's Millman and Company
in Denver."

   Apartment Investment and Management Co. (AIMCO) is one of the largest real estate
investment trusts, or REITs, in the the US with headquarters in Denver, Colorado and 36
regional offices. AIMCO operates about 1,834 properties, including about 385,000 apartment
units nationwide in every state except Vermont.

     AIMCO is the successor to the Considine Co,. founded in 1975, by Terry Considine. It was
then re-organized as a real estate investment trust and became a public company through an
initial stock offering in July 1994.

    In an article called "HUD, AIMCO Clash Over Housing" (Denver Business Journal, May 8,
1998), AIMCO was excoriated by affordable-housing advocates for taking 90,000 low-income
("affordable housing") apartments -- bought from HUD at below market rates -- and converting
them into higher end properties, thereby displacing poor renters.

   According to the article, "the revamping also involves upgrading bare-bones properties built
with federal funds two decades ago which will allow AIMCO to boost rents."

   AIMCO has also gobbled up Washington DC-based apartment manager NHP, Inc.,
Ambassador Apartments, a Chicago-based REIT, and the apartment portion of Insignia Financial
Group.

   Since AIMCO is the nation's largest owner of affordable housing and the sole provider of
such homes in many markets, the implications are ominous.

   More homeless people on the streets are a sure bet.



   BUSHWHACKED: HUD Fraud, Spooks and the Slumlords of Harvard

                                       by Uri Dowbenko

                                             Part 3

The Harvard-Bush Connection


    Since historically the Chinese Opium Trade and the African Slave Trade have provided the
financial foundation for the Boston "Bluebloods," it should come as no surprise that the Harvard
Endowment Fund and the Harvard Management Corporation are involved in what can be
characterized as shady enterprise at best -- or criminal activity at worst.

   In 1989, the Harvard Endowment Fund, became the 50% owner of HUD subsidy (Section 8)
and non-subsidy apartment buildings through its purchase of NHP, an apartment management
firm, headed by Roderick Heller III.

    Since their plan was to do an Initial Public Offering (IPO) or a merger for NHP, they tried to
run up the value by aggressive acquisition of more apartments, preferably with HUD issued
mortgage insurance which could be defaulted on -- with little or no consequence.

    Unfortunately for Harvard, HUD had initiated its new open-disclosure and performance-
based auction under the direction of Hamilton Securities. When the private market firms battled
it out, Harvard was outbid by GE, Goldman Sachs and Black Rock and its sour grapes apparently
turned to vengeance.

    In 1996, according to Fitts, Rod Heller told her that the government had a "moral obligation"
to him and his investors (Harvard Endowment) to renew or roll over the subsidies with them to
maintain their profits.

    In other words, an open auction-free marketplace was not acceptable to the Harvard Boys,
since they were operating their business of HUD-backed corporate welfare-subsidies under what
Heller claimed was "an understood handshake."

    The HUD portfolio of distressed properties had traditionally been managed to derive profits
for private business -- like Harvard Endowment Fund -- and not the US taxpayers. Since Harvard
was used to rigging profits through politics, not fair business practices, it started losing income
because there were less management fees and the value of its stock started going down.

    In 1991, Harvard and Heller asked Fitts to do an investment bank with them. At the last
minute, Harvard Management Company honcho Michael R. Eisenson told her he wanted 20% of
her new company's stock, and the deal was shattered.

    On the first large HUD loan sale, Eisenson complained to Fitts, "I don't like this" --referring
to Hamilton's use of optimization software to auction HUD mortgages -- "because the only way
we can win is by paying more than our competitors. We prefer a bid process where we can win
by 'gaming it' because we are 'smarter.'"

    For those unfamiliar with Soviet (or is it Harvard-Mob?) terminology, "smarter" is code
language for saying "we can rig it." And "gaming it" means finding a way of manipulating the
players to get control of them, rather than using the competitive process of free market
capitalism.

   Eisenson was obviously quite at home with the proverbial "fix."
    And who is Mike Eisenson? He was the lead investor who eventually sold Harvard's share of
NHP to the Denver-based AIMCO. His other claim to fame is that he was on the board of
directors of the infamous Harken Energy which rigged an insider stock deal on behalf of George
W. Bush -- not coincidentally a Harvard grad.

    In 1986, a small company called Spectrum 7 (George W. Bush, Chairman and CEO) was
acquired by Harken Energy Corp. After Bush joined Harken, the largest stock position and seat
on its board was acquired by Harvard Management Co. The oil and gas, real estate and private
equity portion of Harvard Endowment also acquired. Warren Buffet's position in NHP, one of
the largest owners of HUD Section 8 subsidized properties in 1989.

    Then the Hamilton Securities initiated HUD loan sales were slowed down and cancelled,
and, of course, Harvard's capital gains were ensured through an IPO of NHP and through a sale
to AIMCO.

    The Harken Board gave the Junior Bush $600,000 worth of company stock, plus a seat on the
board, plus a consultancy worth $120,000 a year -- despite suffering losses of more than $12
million dollars against revenues of $1 billion in 1989.

    In 1987 when creditors were threatening to foreclose, the Junior Bush himself made a trip to
Arkansas to meet criminal-banking kingpin Jackson Stephens, whose Stephens Inc. arranged
financing for the faltering Harken Energy from a subsidiary of the Unon Bank of Switzerland
(UBS). Stephens Inc, of course, had ties to the notorious CIA money laundry bank, the Bank of
Credit and Commerce International (BCCI), where drug trafficking and arms-smuggling profits
mingled freely with looted S&L and fraud-scam proceeds.

    Then 1990 Bahrain awarded an exclusive drilling rights contract to Harken and the Bass
brothers added more equity to the deal. Six months later George Bush Jr. sold off 212,140 shares
grossing him $848,560.

    When Saddam Hussein invaded Kuwait the Harken stock dropped suddenly. The SEC was
not notified, and no action for insider trading was taken against the Junior Bush. Why? SEC
chairman Richard Breeden was a faithful Bush loyalist.

    Today Eisenson, formerly one of the lead investors in NHP and Harken and one of the
primary portfolio managers of Harvard Management, runs a private equity portfolio called
Charlesbank Capital Partners LLC, Boston which manages $1.4 billion in real estate investments
for the Harvard Endowment.

   One of the partners of a company doing business with NHP, Scott Nordheimer actually
admitted to Fitts in June 1996 -- "We tried to get you fired through the White House and that
didn't work. So now the Big Boys got together, and you're going to jail." Shortly thereafter the
qui tam lawsuit with the bogus whistle-blower charges was filed against Hamilton.

    In this complicated story, there's another part of the puzzle which needs exposure. The
Hamilton Bushwhack involved Cargill personnel falsely accusing the following companies of
financial improprieties: Hamilton Securities, as well as investment bankers Goldman Sachs and
Black Rock Financial, a subsidiary of PNC.

  Goldman Sachs has been touted as one of the largest contributors to the Democratic National
Committee and the Clinton-Gore Presidential Campaign.

     Was the Hamilton Bushwhack just another outward sign of a covert power struggle? Because
of its implications, it had the potential to lead to Clinton's impeachment on serious fund raising
violations -- a much more significant charge than the Monica Lewinsky Sexcapades used in the
Ken Starr Coverup.

More Spooky Harvard Connections


    The key to the mystery of the Hamilton Bushwhack may ultimately be found in the
relationship between 1) government guaranteed/insured mortgages, 2) asset seizure/forfeitures,
and 3) the private companies whose profits derive from an inside track with both government
programs.

   More lucrative than mere corporate subsidies, there are entire segments of mega-business
which depend on these government insider deals.

  For example, besides Harvard, the other primary investor in apartment management company
NHP was Capricorn Investments and Herbert S. "Pug" Winokur, Jr.

    Winokur, former Executive Vice President and Director of Penn Central Corp, CEO of
Capricorn Holdings Inc. and managing partner of three Capricorn Investors Limited
Partnerships, is one of those insiders who may have benefited from the outrageous assault on
Hamilton's open bid auction for defaulted HUD mortgages.

    Not incidentally, from 1988 to 1997, because of his large investments, Winokur was also the
Chairman and CEO of DynCorp, a US government contractor whose customers include
Department of Defense, NASA, Department of State, EPA, Center for Disease Control, National
Institute of Health, the US Postal Service and other US Government agencies.

   Most importantly, according to SEC registration documents (S-1), DynCorp is the prime
servicer on the Department of Justice Asset Forfeiture Fund, having procured a five year contract
with the Department of Justice worth $217 million from 1993 to 1998. This 1000 person contract
required staffing at over 300 locations in the US and involved support of DoJ's drug-related asset
seizure program. According to SEC documents, DynCorp's personnel supports "US Attorney
Offices that are responsible for administering the federal asset forfeiture laws."

    In other words, DynCorp could have profited first from a successful seizure of HUD loan
sales. Then, DynCorp could have also profited from HUD "Operation Safe Home" seizures,
which target low-income tenants, mortgage holders and apartment owners. And, since the
company has the expertise and personnel, DynCorp could also have targeted these communities
with private surveillance teams and non-lethal weapons to effect asset seizures using the phoney
War on Drugs as a rationale.

   By all accounts, there is at least a major conflict of interest in Winokur's investments in HUD
low income housing and his role in Department of Justice seizures.

   Imagine -- if you're Winokur, you can make money on defaulted HUD mortgages,
guaranteed by US taxpayers, as well as by kicking out low-income housing tenants because of
drug-related "asset seizures." The criminal-corporate-government scams don't get any better.

    In the case of Hamilton's open-bid auction process on defaulted HUD mortgages, the
potential $4.7 billion seizure of HUD loan sales would have been a major plum for DynCorp as
the prime servicer of the DoJ Asset Forfeiture Fund.

   By the way, Winokur also had the "foresight" not to board the ill-fated flight to war-torn
Yugoslavia, which took Secretary of Commerce Ron Brown's life.

   There are other spooky connections. According to Newsweek (Feb. 15, 1999), Reston,
Virginia based DynCorp is a $1.3 billion firm, which also trains police in Haiti and works on
coca eradication in Colombia, where three of its American pilots have died since 1997.

    Reliable sources allege this shadowy outfit may be a CIA-military proprietary, in other
words, a privatized entity useful for "plausible deniability." At any rate, it also provides "Yankee
Mercenaries" for the Colombian campaign against drug trafficking. Employing about 30 US
Vietnam War veterans, DynCorp has a $600 million contract to run and maintain the planes and
helicopters used in "anti-drug" efforts in Peru, Bolivia and Colombia, according to the World
Press Review (Nov. 1, 1998).

   Postscript: Who says (corporate) crime doesn't pay? According to the Harvard University
Gazette, in June 2000, Herbert S. Winokur Jr. was named to join the seven-member Harvard
Corporation, the University's executive governing board.

Doing Business with the Feds


   Imagine having to wait more than 4 years to get paid on an invoice.

   For more than $2 million.

   From the US Government.

   That, in short, is what happened to Hamilton Securities.

   Doing business with the US Federal Government should come with a warning label.

WARNING: Saving money for the taxpayers can be hazardous to your health.

   "HUD is withholding about $2 million of funds owed to Hamilton for services performed for
HUD," says Hamilton's President Catherine Austin Fitts. "We also understand that this with-
holding is at the request of the Justice Department and the HUD Investigator General."

    "As the lead investment banker on $10 billion of loan sales, we have been able to preserve
the integrity of these transactions. We intend to take whatever steps necessary to recover our
shareholders" and employees value as we have done for the US taxpayers. The unsealing of the
qui tam lawsuit should free HUD to meet its outstanding contractual obligations to Hamilton as
quickly as possible."

Toward a Positive Future


   And what is Catherine Austin Fitts doing now?

    Besides trying to recover her life, she's moving ahead with her new company called Solari
Inc., and her vision, the Solari Investment Model, community-based programs for local equity
building and investment.

    "Solari is an investment advisory service, which plans to re engineer investment and financial
structures at a local level, so that new technology can be integrated into communities to increase
jobs and ownership," says Fitts.

   "Over the last ten years, we have prototyped a substantial number of transactions, venture
capital and portfolio strategy to determine the ideal way to refinance communities in the stock
market," she continues. "Our intention is to create a fund which can finance local development --
and maintain local control -- through an investment model geared for breakthrough
transformations with individual, organizational and community change."

    Her far-reaching vision is an inspiration. "By creating one or two Solari Stock Corporations
(one for real estate and one for venture capital) through a community offering, and swapping
non-voting stock for outstanding debt," says Fitts, "the community can lower short term debt
service and realign interests between numerous constituents who can be positioned in a win-win
financial model."

    The problem, in one sense, is simple. The old model -- the Soviet-inspired centralized
command & control system which rules Washington, its agencies and the beltway bandits
feeding at the trough of corporate subsidies -- must give way to the new paradigm of the
neighborhood investment model. It's a foregone conclusion: the corrupt system which guarantees
profits to insiders will be swept into the ashcan of history, just as the Soviet Union and its
proxies' brand of communism has been discredited forever. It's just a matter of time.

    In the end -- by building an alignment between spirituality and the material world --
Catherine Austin Fitts believes that "everyone can prosper through actions which integrate our
spiritual principles in the material world in which we live and work."

    For more information of the Solari Model of Investment and community-based profitability,
click on http://www.solari.com.

Copyright 2000 Uri Dowbenko.
All Rights Reserved.

Uri Dowbenko can be reached by e-mail at u.dowbenko@mailcity.com

This aricle is included in the new book
by Uri Dowbenko
"Bushwhacked: Inside Stories of True Conspiracy"
Available Now (Click here for more information)




             Summary of Events
                            As of February 2001

Home -> Campaign
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My name is Catherine Austin Fitts.

I was born and raised in Philadelphia. I graduated from the University of
Pennsylvania in 1974 and from The Wharton School in 1978. After graduation, I
joined Dillon Read & Co., Inc, a Wall Street investment bank, becoming a managing
director and member of the Board of Directors until I resigned in 1989 to join the
Bush Administration. From April 1989 to August 1990, I served as Assistant
Secretary of Housing-Federal Housing Commissioner at the Department of
Housing and Urban Development.

In 1991, I started Hamilton Securities Group, a Washington, DC based investment
bank focusing on using financial software and relational databases to understand and
reengineer public and private investment within a place. Essentially, all government
and corporate financial disclosure organizes its reporting by function. For example,
the federal budget is divided and reported by functions such as military, housing,
health care, etc. Rarely is the information shown by place. For example, citizens in a
particularly congressional district very rarely if ever see a clear picture of all the
sources and uses of government monies, credit and regulation for their area. Such
literacy is essential for understanding performance and holding government
accountable. The absence of such financial literacy by citizens is one of the causes of
cooked books by government and budgets and resources controlled by special
interests and manipulated in illegal ways. I was asked by Secretary of Treasury
Nicholas Brady and Chief of Staff John Sununu to serve as a member of the Federal
Reserve Board of Governors and declined as I had just started Hamilton.

Hamilton Securities was financed by me through reduced pay, my 401K plan,
other savings and the sale of my house. Other employees invested a small
amount of money or took reduced pay to help capitalize the firm. (See "How the
Money Works at Hamilton")

In September 1993, Hamilton was awarded a competitively bid contract to serve
HUD/Federal Housing Administration as a financial advisor. (See "HUD Loan
Sales Performance Report")

Hamilton’s first assignment was to help determine the Department's options in
the overwhelming task of servicing a large and growing portfolio of defaulted
mortgages. The build-up of defaulted mortgages had created a workload problem
and was identified by HUD's auditors as its #1 material weakness. (See "HUD
Loan Sales Performance Report" and GAO Report)

After a serious analysis, Hamilton recommended and HUD decided to implement a
loan sale program similar to the one that had been successfully used by the
Resolution Trust Corporation to dispose of mortgages from failed savings and
loans. (See "HUD Loan Sales Performance Report")

Virtually no one within government or capital markets community knowledgeable of
HUD's management, contracting and political weakness thought that a HUD loan
sales program would be successful. (See Articles on Loan Sales)

But it was a resounding success. Between 1994 and 1997, HUD sold
approximately $10 billion of mortgages, raising HUD's recovery rates on
defaulted loans from 35 cents to 70-90 cents on the dollar, generating $2.2 billion
of profits (i.e., budgetary savings), as determined by OMB and confirmed by
GAO audit. (See July,1999 GAO report) The savings were used to lower the
deficit and to fund HUD programs. The higher recovery rates enabled HUD to
lower the cost of issuing new insurance and to lower required loan loss reserves
on outstanding insurance.

HUD’s $2.2 billion savings were widely attributed to Hamilton's software
innovations. Prices were substantially higher than for RTC sales of similar
mortgages and substantially higher than HUD and market expectations.
According to an OMB analysis reported by OMB to HUD loan sale staff, fees
paid to contractors to do the loan sales were well below fees RTC paid for
comparable loan sales services. This was also attributed to Hamilton's software
tool and related process and disclosure innovations. (See HUD Loan Sales
Performance Report for description of on line disclosure, optimization model,
GAO Audit; HUD Loan Sale Design Book, and HUD loan sales table) (See On
the Money Trail, The Story of Edgewood Technology Services, the Place Based
Survey & Former Bush Assistant Secretary for additional information on our
software tool, Community Wizard, and efforts to make government spending and
activities in neighborhood transparent with place based financial information
accessible to citizens)

In June 1996, Ervin and Associates, Inc., a HUD loan servicing contractor, filed a
lawsuit action against HUD, the Small Business Administration[1] and the HUD
Deputy Assistant Secretary in charge of the loan sales in DC federal district court
claiming that high level department employees and contractors had engaged in a
fraudulent scheme to deny Ervin contracting opportunities in connection with the
loan sales and to rig the sales in favor of certain bidders.[2]

The next day, Ervin also filed a Federal False Claims Act "whistleblower" or
“Qui Tam” lawsuit under seal alleging that Hamilton and HUD had engaged in
bid rigging and insider trading to favor certain investors, including Goldman
Sachs and BlackRock/PNC. (See summary of False Claims Act) Because the
Qui Tam case was under seal, Hamilton had no knowledge of the existence of the
case, that Hamilton had been named, or the nature of the allegations. As a debt
collector for a large portion of HUD's portfolio of defaulted mortgages, Ervin had
lost a substantial amount of its business as a result of the success of the HUD
loan sales. (See copies of Qui Tam and Bivens suits) Ervin’s efforts to interest
Wall Street in hiring it to help with bids, and to bid, had also been unsuccessful.
(See Penn Capital memorandum)

Under the Federal False Claims Act, there is a 60-day investigation period for the
DOJ to determine whether or not it will adopt the case. The purpose of the seal is
to protect the accuser and accused. In addition, the act provides that any “civil
investigative demands” issued by the DOJ to obtain documents in the course of a
qui tam investigation must inform the recipient if it is the target of a qui tam
complaint and the general nature of the allegations. (See False Claims Act)

In August 1996, Hamilton received two subpoenas from the HUD Office of
Inspector General. The DOJ later took the position that because it had delegated
the investigation to the HUD Office of Inspector General, which has independent
subpoena authority, DOJ was not required to comply with the False Claims Act
notice provisions that require DOJ to tell the target of the Qui Tam case that it
has been named in a qui tam and the general nature of the allegations against it.

From August 1996 through October 1997, Hamilton spent substantial time and
money responding to subpoenas. During that period, Secretary Cisneros was
asked to resign due to an unrelated investigation. Andrew Cuomo, who had been
Assistant Secretary of Community Planning and Development at HUD from
1993-96, replaced him in December 1996.

In October 1997, Secretary Cuomo terminated Hamilton's contract "for
convenience of the government" as permitted under the contract.[3] In addition,
he made a "common law" claim for set-off of $3.8MM against Hamilton, and
froze approximately $2MM that HUD owed Hamilton for work already
performed by Hamilton. Hamilton was the subject of very negative press at this
time. Most of what Hamilton learned about the allegations at that time, in fact,
came from press accounts. For example, Hamilton first learned in the morning
paper that a subpoena had been issued that it had not yet received.

Secretary Cuomo subsequently cancelled the HUD loan sales program and pending
place based trust sales, despite having other contractors available to lead and manage
the program. Hamilton had created design books for the loan sales that were non-
proprietary. This helped to ensure proper government oversight and ease of hiring
and training contractors. As a result of the loan sale cancellation, HUD, with the
approval and support of OMB and Congressional appropriation committees,
returned to resolution methods on its defaulted portfolio that had below market
recovery rates (traditionally approximately 35% compared to the 70-90% achieved
by the loan sales) while “cooking its books” by assuming high recovery rates for
pricing the appropriations to support new originations of FHA mortgage insurance.
The losses to the FHA fund of operating and below market recovery rates on
defaulted mortgages has been in the billions as has the losses to FHA borrowers and
nearby homeowners in neighborhoods harmed as a result of higher foreclosure rates
and longer resolution periods on foreclosures.

In almost five years, no evidence has been produced to support any allegation of
wrongdoing by Hamilton. The subpoenas sought all of Hamilton's HUD related
documents and computer records, as well as all of its corporate financial
information and additional information regarding proprietary, non-HUD business
activities and software development. Subpoena requests have been redundant
and highly duplicative. Hamilton's costs to date for subpoena compliance and
related costs exceed $2 million dollars.

On March 6, 1998, Assistant US Attorney David Gottesman of the Civil Division
of the Commercial Litigation Branch of DOJ faxed a letter to Hamilton’s
attorney claiming a prior interest in Hamilton auction proceeds and warning of
personal liability of company representatives under the federal priority statute for
any amounts paid to third parties ahead of HUD. In addition to the impact this
letter had on trying to get people to assist in satisfying government requests, I
was concerned that this would lay the groundwork for seizure of any items at my
home, Fraser Court. To protect me and the people helping me, I began research
on asset forfeiture which eventually lead to retaining asset forfeiture attorney,
David Smith, to help protect the proceeds of my house sale in 1999 to pay for
legal and administrative expenses.

On March 8 1998, HUD seized Hamilton's office under a court order issued by
Judge Stanley Sporkin of the DC US District Court, based on government
assurances that Hamilton's complete copies of electronic records stored with
Hamilton's attorneys (then Jenner & Block) were not sufficient to comply with
the subpoenas. With misleading government representations to the court that
Hamilton's massive document production had been incomplete, Judge Sporkin
required redundant back-up of all of Hamilton's computer systems by the
government and that all of Hamilton's paper and electronic files be moved under
the exclusive control of a Special Discovery Master, a law firm appointed by the
court. The resulting process destroyed Hamilton's software and tool
infrastructure and its ability to preserve or resurrect its promising software
development and related advisory, trading and principal business. The following
week, a government investigator complained to one of Hamilton’s staff that Fitts
should not have been able to preserve the main server as “we have orders that
you may not retain any of the knowledge” but declined to provide a legal basis as
to why a corporation was not allowed to attempt to maintain some copy of the
digital records that the courts now had under lock and key.

While Hamilton personnel were not allowed in it’s building, an attempt was
made by HUD IG’s General Counsel, Judith Hetherton, a former DOJ/DC US
Attorney’s Office attorney to argue that Hamilton was throwing away responsive
documents. According to an eyewitness, however, Ms. Hetherton’s investigators
had taken trash and emptied it into empty bins and then Ms. Hetherton took
pictures of the now full bin. At this time, Ms. Hetherton sent a letter to
Hamilton’s attorneys alleging that Hamilton was throwing out financial records
subject to subpoena. (See Legal Summary, Petition to Enforce Subpoena
complaint, related correspondence and affidavit of the third party building
eyewitness refuting the OIG’s allegations)

Ervin's 1996 Qui Tam allegations included charges of "bid rigging" and "insider
trading." These were a re-packing of allegations that already had been made and
investigated and dismissed twice by the HUD IG’s office. (See HUD IG Auditor
Affidavit; 1995 Press Coverage in Housing Affairs Letter.)

On October 9th and 13th, 1998, Ginnie Mae, a part of HUD, awarded two Small
Business Set Aside contracts to Ervin and Associates, Inc. These awards were made
despite prior HUD contracts with Ervin and Associates having been cancelled for
default and despite the cost and burden of Ervin litigation and bid protests. The first
contract was executed on October 9 1998 and had a 40% minority and women
business owned requirement. The second contract was executed on October 13,
1998 and had a 50% minority and women owned business requirement and was
awarded to Ervin teamed with Asset Strategies Group, a woman owned
subcontractor who had been fired by Hamilton. As of November 2000, Ginnie Mae
reported payments of $825,000 to Ervin and Associates under these contracts. This
means that Ginnie Mae paid Ervin approximately $33,000 a month during the
period.

In September 1999, Ervin amended the Qui Tam complaint (with, according to
recently unsealed court transcripts, the assistance and collaboration of the DC US
Attorney’s Office -- see transcripts of Qui Tam case) to add a long laundry list of
allegations, including additional bid rigging, insider trading and contracting fraud.
(See qui tam amended complaint)

In the spring of 1999, Hamilton provided to the DOJ, through a court filing, an
affidavit from a lead HUD OIG auditor who had completed an audit of the loan
sales program in the summer of 1996 and had concluded that there was no
substance to any bid rigging or insider trading charges made in connection with
the loan sales program. The affidavit described pressure by the HUD IG’s
Counsel, a former DOJ/DC US Attorney’s Office attorney, to substantiate the bid
rigging and insider trading allegations notwithstanding the audit teams’
conviction that no such evidence existed. (See Affidavit of HUD IG auditor)

In May 1999, the Department of Justice Criminal Division informed Hamilton's
attorneys that they had not received any evidence from the investigation to warrant
criminal charges and were informing the HUD OIG that they were declining
prosecution. Some time before August 1999, DOJ’s Antitrust Division also reached
the conclusion that the evidence did not support any charges against Hamilton.

At that time, Hamilton's attorneys filed a motion in Federal District Court to have
the Qui Tam case unsealed. The Department of Justice had been able to extend
the initial 60-day investigatory period in which a qui tam is under seal many
times -- to approximately 1,200 days for the complaint and approximately 1,500
days for court transcripts.[4] (See Correspondence of Drinker Biddle & Reath
with PCIE and Congressional oversight committees and Hamilton motion to
unseal). The court would not hear arguments on Hamilton’s motion until seven
months later (January 2000), after Judge Sporkin resigned and was replaced on
the file, and the government finally announced that it would not intervene in the
case.

At this time, I sold my home in Washington to help fund continued legal and
administrative expenses and began living in four places on an unpredictable
schedule in the hopes that it would enable me to escape the physical harassment
and surveillance that I had been experiencing in Washington for several years.
(See list of Audits, Investigations, Inquiries, Leaks, Conflicts of Interest,
Harassment and Surveillance)

In August 1999, the FBI issued a report (a copy of which was received by Hamilton
in 2000 pursuant to a FOIA request filed with the FBI) stating that in numerous
interviews and investigations, there was no evidence of any wrongdoing on the loan
sales, nor did any of the people interviewed, including losing bidders, voice any
concerns or suspicions of wrongdoing. (See FBI Report received in response to
FOIA request)

Despite the FBI report, the DOJ Civil Division and the HUD OIG continued on
with the investigation and continued to seek extensions of the 60-day qui tam
investigation period from the DC Federal District Court.

In June of 1999, Hamilton had filed a civil suit against Ervin & Associates in the
Superior Court for the District of Columbia Hamilton v. Ervin alleging tortious
interference with potential business advantage, tortious interference with
contractual relations, and abuse of process. Subsequently, Ervin & Associates
removed the case to the District Court for the District of Columbia. When
Hamilton challenged the removal to federal court, Judge Stanley Sporkin ruled
that Hamilton's attempt to remand the case to state court would have to wait until
the unsealing of the qui tam, although this ruling is directly contradictory to
controlling case law.

In March 2000, the HUD OIG, Susan Gaffney, testified before Rep. Stephen
Horn’s Committee on Government Reform, Subcommittee on Government
Management, Information and Technology on the Status of Financial
Management at HUD regarding her refusal to certify HUD’s financial statements
for 1999 as required by law. She described missing money in FY 1998 and FY
1999 of $17 billion and $59 billion, respectively, along with failure in the
installation of new computer systems (HUDCAPS) and unsupervised access to
accounting systems and information by HUD contractors. No mention was made
of the impact of Ervin and Associates lawsuits and the consequent investigations
had on forcing out and firing honest officials and contractors or frightening
others that remained. No payment adjustments or firings of the contractors
operating HUD systems or related resulted. Systems contractors included
Lockheed Martin, DynCorp, and AMS. DynCorp was the lead contractor for the
HUD Office of Inspector General computer systems. AMS was paid $206 million
to date to install HUDCAPS. The audit has never been finalized and none of the
missing money has been identified and returned.
In April 2000, approximately a month after all available legal documents on the
case were posted on the Solari website, the Qui Tam case finally was unsealed
when DOJ notified the court that it declined to adopt the case. Hamilton received
a copy of the initial complaint and then filed a request for and received the 1999
amended complaint by the end of May 2000. Hamilton then requested the
presiding judge[5] to order the clerk to release the Qui Tam hearing transcripts.
Hamilton eventually received transcripts for most, though not all, of the hearings
in December 2000. (See transcripts of some qui tam hearings) This was not the
first time that court hearing transcripts were unavailable.

In the summer of 2000, my family assisted me by asking our Congressional
representatives to help me get Hamilton paid monies owed or, at a minimum,
require the government to disclose the truth about its own assessments that we
should be paid. Congressional representatives included Barney Frank in
Massachusetts, John E. Sununu in New Hampshire and my representatives in
Tennessee, Senator Fred Thompson, Senator Bill Frist, and Congressman Ed
Bryant. One of our creditors in Missouri wrote on our behalf to Senator Kit
Bond, then Chairman of the HUD Senate appropriations subcommittee, and
Senator John Ashcroft, now Attorney General. (See Family Letter)

I met with Senator Bond’s chief of staff who expressed to me their concern that
HUD was being run as a “criminal enterprise.” Subsequent to many letters and
meetings, all the Congressional representatives involved, including Congressman
Frank, Senator Frist and Senator Ashcroft, voted large billion plus increases in
HUD appropriations in the summer (House) and fall (Senate). They took no
actions to find where the $59 billion missing from HUD had gone, to get it back
or to require that HUD comply with the laws requiring audited financial
statements. They also took no actions to require HUD to resolve their defaulted
mortgages at market recovery rates instead of below market recovery rates or to
require that HUD and OMB reflect actual recovery rates in its appropriation
assumptions for new mortgage insurance. Finally, they declined to take the
necessary steps to ensure that the government paid monies owed to Hamilton or
that the targeting of me ceased.

In August of 2000, Ervin served the Qui Tam complaint upon Hamilton for the
first time. Just before it served the complaint, Ervin voluntarily dismissed
Goldman Sachs and BlackRock/PNC and other bidders as defendants,
notwithstanding the fact that they were the bidders who, according to Ervin’s
imaginative and baseless allegations, had made away with billions of dollars
worth of mortgage notes for hundreds of millions less than fair market value.[6]
(See Hamilton's motion to dismiss Qui Tam case)

The 1996 Qui Tam complaint and the 1999 amendment confirmed that Ervin had
no credible evidence to support his claims. (See Parker/Cargill Affidavit and excerpt
from Richbourg deposition)
What we found out from the Qui Tam hearing transcripts was that the DOJ
attorneys and Ervin's attorneys were not truthful in many representations made to
Judge Stanley Sporkin that served as the basis for their requests to extend the 60-
day investigation period over and over again. Sporkin extended the 60-day
period despite the statements of a prior judge in 1996 that there was no basis to
extend it beyond 1996. Sporkin is reminded by the DOJ attorneys that they do not
want to consolidate it with the Bivens action so they can take opposite positions –
one under seal and a different one in open court. At one point Sporkin even
coaches the attorneys from the bench. According to the transcripts, the initial
judge had indicated in 1996 that it would be inappropriate to extend the seal
without evidence and that unless evidence was produced he would not extend the
seal again. The case was then transferred to Judge Sporkin.

Judge Sporkin is the former general counsel of the CIA and former head of the
Securities and Exchange Enforcement Division, both under William Casey. Judge
Sporkin was the CIA general counsel during the Iran Contra period, including at the
time that the CIA entered into the now infamous Memorandum of Understanding
with the Department of Justice that permitted it to not report narcotics trafficking
by CIA assets.

We also discovered from the Qui Tam hearing transcripts that DOJ took credit
for helping Ervin to fashion the original Qui Tam and Bivens suit and the
amendment of the Qui Tam suit in September 1999, and referred to Ervin on the
record as their "bounty hunter". The transcripts also showed that DOJ confirmed
to Judge Sporkin that Ervin could expect to receive 15-30% of any monies
generated from the Qui Tam.[7]

In October 2000, Ervin and HUD/DOJ settled the Bivens lawsuit.[8] Our
understanding is that HUD/DOJ paid Ervin $2,000,000 to settle the case despite
the fact that allegations had proved baseless. Ervin and his attorneys, at a hearing
on Hamilton’s motion to dismiss the Qui Tam case held on January 31 in DC
Federal District Court and Ervin’s motion to dismiss Hamilton’s lawsuit against
Ervin, expressed how pleased they were with the settlement. Ervin’s attorneys
made several statements implying DOJ’s continuing support. Rudy Contreras
from the DC US Attorney’s Office attended the hearing, even though the
government was no longer a party. Ervin’s attorneys referred to DOJ support on
several occasions during the hearing in Mr. Contreras’s presence and sought his
counsel during the recess.

In the last almost five years, Hamilton and Catherine Austin Fitts have been
forced to spend an estimated $6MM to defend against baseless accusations as
well as deal with 18 audits, investigations and inquiries from numerous federal
agencies, including the IRS, as well as DC tax collection and other agencies. All
of Hamilton's assets, its software and tools and its equity value have been
destroyed. All of Catherine Austin Fitts’ assets have been expended.
To date, Ervin, the HUD IG Audit, HUD IG Investigation, the DOJ Criminal
Division, the DOJ Civil Division, the DOJ Antitrust Division and the FBI have
all failed to produce any evidence to show any wrongdoing on the part of
Hamilton. All allegations are rumor, speculation and imagination -- a meritless
excuse to conduct a very expensive fishing expedition and to terminate a program
that benefited the FHA Fund and homeowners, but not certain well-connected
property managers and property owners. Given significant institutional reviews,
approval and management and internal controls enforced by HUD’s own
attorneys and audited and participated in by the HUD IG audit staff on HUD loan
sales, Ervin’s allegations are not credible and never were. For such allegations to
be true, countless HUD staff, attorneys and Inspector General staff would have
had to be part of engineering such things.

An official at HUD who had been responsible for Ervin's contracts provided
Catherine Austin Fitts with an estimate that Ervin's workload on this litigation and
related discovery and lobbying activities was the equivalent of tens of millions of
work under a HUD contract of the type Ervin had.

I estimate that all components of the government have expended in excess of $40
million to date on pursuing this investigation and litigation. Government and
homeowner losses from HUD returning to methods of resolution with historically
low recovery rates and a growing defaulted portfolio for more than two years
have been substantial --- in the billions.

Despite what appears to be egregious behavior on the part of the federal
investigators, none of the oversight committees in Congress has acted to shut
down the investigation and litigation. The President's Council on Integrity and
Efficiency, the organization responsible for overseeing Inspector Generals'
conduct, declined on two separate occasions to take action in response to
complaints filed by Hamilton. The "investigations" it conducted consisted almost
solely of permitting the Inspector General herself to make a written response to
charges made by Hamilton. Based upon Hamilton's detailed charges and the
Inspector General's denials, this body concluded that it had "insufficient
evidence" of wrongdoing by the Inspector General to proceed. (See PCIE
documents and Drinker Biddle & Reath letter to Government Affairs and
Government Reform Committees) PCIE files received under FOIA by Hamilton
in 2000 document a letter from Lee Radek, head of the DOJ Public Integrity
Unit, in support of the position that no investigation into Hamilton’s
documentation of wrongdoing was warranted.

Today, the HUD OIG investigation continues, with Hamilton attorneys spending
hours reviewing for production many many gigabytes of electronic records
consisting of back up tapes of digital tapes, much of which is redundant of paper
records that already had been produced to the OIG as long as four years ago. The
vast majority of these records are e-mails and documents sent to HUD on-line
that HUD should have on its own ccmail server. Between subpoenas, contract
compliance, and contract closeout, many of these documents have been produced
for HUD many times. Logs at the Special Master's offices show that HUD and
DOJ have rarely accessed Hamilton's documents since they were seized in March
1998. (See Petition to Enforce and various correspondence)

In addition, HUD refuses to pay Hamilton $2.5 million (plus interest and
expenses) owed to it, including some $600,000 of contract close-out expenses
and amounts withheld subject to final audit under unrelated contracts for which
HUD received required back-up as long as four years ago. Hamilton continues
litigation in the Court of Claims for Hamilton to get paid.[9] (See Court of
Claims filings.)

Hamilton's understanding is that in 2000 then Assistant Secretary of Housing- FHA
Commissioner Bill Apgar stated that when he was Assistant Secretary in charge of
HUD's Policy, Development and Research Office, HUD had contracted for an
analysis of the so-called "3.8 million error" that is HUD's basis for not paying
Hamilton. Based on that analysis, he concluded that the error did not provide
justification for HUD to withhold money owed Hamilton. In subsequent FOIA
requests by Hamilton and Congressional requests, HUD has stated that HUD never
did such an analysis nor reached such conclusions.

Finally, Ervin continues with meritless litigation against Hamilton, having served the
Qui Tam complaint on Hamilton in August 2000, despite the fact that Hamilton has
no money and substantial creditors and notwithstanding the fact that key alleged
sources had refuted the information that Ervin relied on to justify the bid rigging
and insider allegations (See Qui Tam Motion to Dismiss and Ervin filings in
Response; Parker/Cargill affidavit)

Is it possible that Ervin and DOJ are hoping that Hamilton will run out of money
so Hamilton's attorneys will resign because Hamilton and Fitts, unlike the
government, do not have limitless resources?

Catherine Austin Fitts
P.O. Box 157
Hickory Valley, Tennessee 38042

communicate@solari.com

Note: In the summer of 2001, subsequent to an article by Paul Rodriguez of Insight
Magazine about Catherine Austin Fitts and articles by Kelly O’Meara of Insight
Magazine about the $59 billion missing from HUD, the HUD Inspector General
leading the investigation resigned unexpectedly and the investigation of Hamilton
was concluded. However, the government declined to move to dismiss the qui tam
or to pay Hamilton monies owed.

In the spring of 2003, Susan Gaffney, retired HUD Inspector General, testified in
deposition for the qui tam case that she did not know what the recovery rates were
on the HUD defaulted portfolio before, during or after the loan sales.

She appeared to think the information was not relevant or something of which she
should be aware.


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Footnotes:

 [1] Through which Section 8(a) minority contracting is conducted.

 [2] This suit is referred to as the "Bivens" action because a named defendant who
 was a HUD Deputy Assistant Secretary was sued personally, and the Bivens case
 established that a government employee can be sued in his or her individual
 capacity for acts committed as a government employee. Other government
 employees added to the suit at a later time.

 [3] The Federal Acquisition Regulation requires that all government contracts by
 their terms be terminable without cause by the government at its convenience.

 [4] The tapes for at least two hearings have not been made available by court
 reporting firms responsible for safekeeping and, as a result, no transcripts are
 available for these dates. Hamilton has not been able to determine whether
 these tapes were "lost."

 [5] Judge Sporkin, without advance notice, announced in early January 2000
 that he would retire several days hence. Judge Louis Oberdorfer was
 appointed to succeed Judge Sporkin.

               July 1996 complaint named Hamilton, Goldman Sachs and
 [6] The initial
 BlackRock Capital as defendants. In the subsequent amendment in 1999,
 Ocwen Capital (formerly known as Berkeley), a loan sales bidder, and
 Williams Adley, a minority contracting firm that provided due diligence
 services for most of the loan sales, were added as defendants. When the
 government elects not to adopt a qui tam case, the “relator” [Ervin, in this
 case] must decide whether to go forward with the case without the
 government. Although the government is no longer a party, it is permitted
 under the False Claims Act to reenter the case. Its permission was required
 (and given) for Ervin to drop all of the loan sale bidders as defendants.

 [7] From reading the transcripts and reviewing court filings to date it appears
 that most of DOJ’s involvement through this period was under the leadership
 of Frank Hunger, Assistant Attorney General over the Civil Division of the
 Department of Justice until Spring 1999. Frank Hunger is Al Gore's brother-
in-law and was described by the Washington Post in November 2000 as Al
Gore’s closest confidant.

Playing a lead role for the DOJ Civil Division was the District of Columbia’s
US Attorney’s Office-Civil Division, led by Mark Nagel. When the Qui
Tam complaint was filed, the District of Columbia US Attorney was Eric
Holder. When Holder became Deputy Attorney General in April 1997,
Wilma A. Lewis replaced him as DC US Attorney. Day-to-day lead on the
Qui Tam have been Barbara Van Gelder (now at Wiley, Rein & Fielding),
Anthony Alexis and, currently, Rudy Contreras.

Representing the HUD Inspector General from the DC US Attorney’s Office
in connection with its Petition to Enforce Subpoena is Daniel Van Horne.
Lead for the HUD IG until she retired in September 1999 was the HUD OIG
Counsel, Judith Hetherton. Ms. Hetherton had served in the DC US
Attorney’s Office under Charles Ruff, who was at the time of the Qui Tam
filing Corporation Counsel for the District of Columbia, replacing Jack
Quinn as White House Counsel in 1997. Ms. Heatherton is now a staff
attorney to the DC Bar Ethics Committee.

Ervin and Associates in 1996 was represented by Daniel Hawke and Wayne
Travell of Tucker Flyer & Lewis. Mr. Hawke as the son of Jerry Hawke, then
Undersecretary of Domestic Finance at the US Treasury, the person in charge
of ensuring the integrity of the federal credit and federal accounts. In 1998,
Jerry Hawke became the Comptroller of the Currency, the leading US bank
regulator at the US Treasury. Tucker Flyer disbanded in 1999, with Mr. Travell
joining Venable Baetjer, Howard and Civiletti, lead by Benjamin Civiletti,
former US Attorney General, and Mr. Hawke withdrawing from the case and
later joining the Securities and Exchange Enforcement Division.

Subsequent to the unsealing of the Qui Tam, Mr. Travell was joined by Neil
Getnick, Getnick & Getnick of New York, as co-counsel in April of 2000
who subsequently withdrew in July of 2000, Subsequently, Mark Polston, a sole
practioner specializing in qui tam litigation became co-counsel. Mr. Polston had
served in the Civil Fraud Section of the U.S. Department of Justice, the office
that enforces the False Claims Act and investigates qui tam lawsuits. Along with
Mr. Travell of Venable, Aaron Handleman, Craig Brodsky and Michael P. Freije
of Eccleston & Wolf also represent Ervin and Associates on the Hamilton
action against Ervin.

       In the spring of 2003, Joseph Hornyak of Sonnenschein Nath &
Rosenthal entered his appearance

        as co-counsel for Ervin in the Hamilton v. Ervin case. Along with
the entrance of new co-counsel,
         Ervin filed a motion for leave to file a third-party complaint against the
         United States. In the proposed
         complaint, Ervin asserts that if Hamilton prevails in its claim against Ervin,
         then Ervin is entitled to contribution from HUD, DOJ or "possibly others"
         because the destruction of Hamilton's business was their fault, not Ervin's.

         [8] As well as a similar, second "Bivens #2" lawsuit that was filed against additional
         HUD employees.

         [9] As of February 1, 2001, Hamilton was awaiting a ruling from Judge Bush
         on legal briefs filed by the parties in the Court of Claims in September 2000.
         This case essentially started over in the summer of 2000 after the recusal of
         the original judge, Marian Blank Horn. As part of her recusal, Judge Horn
         vacated the orders she had issued in this case, which was originally filed in
         March 1998.




              MY EXPERIENCE WITH FHA-HUD
  BACKGROUND INFORMATION FOR UNDERSTANDING TAPEWORM
                      ECONOMICS

                                       By Catherine Austin Fitts
                                              June 2003



In the summer of 2000, a member of the staff for the Chairman of the Senate appropriation
subcommittee (with jurisdiction over HUD and its FHA mortgage insurance and Ginnie Mae
mortgage securities programs) confided to me that they believed that HUD was being run as "a
criminal enterprise." I responded that I "did not disagree."

Reaching that conclusion was a long time coming. It took many years of experience implementing
practical and sound reforms to the FHA mortgage system, only to have the system reject any and all
efforts to have it become anything other than an integral part of a significant mortgage bubble and a
pork and slush fund operation. Because FHA and its securitizing agency, Ginnie Mae, as a practical
matter are run by the US Treasury, the Department of Justice, the NY Fed (as depository for the
federal government and manager of the Exchange Stabilization Fund) and a group of defense
contractors and JP Morgan-Chase, the implications regarding the integrity of the US financial system
are profound.

The following list describes some of my representative experiences working with FHA, the lead US
mortgage insurance agency and regulator, as Assistant Secretary-FHA Commissioner in the first
Bush Administration, as the President of Hamilton Securities Group, the lead financial advisor FHA
during the Clinton Administration, and then as a litigant with the US Department of Housing &
Urban Development and their informant, Ervin & Associates, during the Clinton Administration
and the second Bush Administration.

These experiences illuminate the extraordinary efforts that I and many fine, hardworking
government officials, congressional staff, private contractors, members of the press and constituents
expended trying to ensure that HUD and its significant securities operations were managed
according to the law and traditional principles of fiduciary obligation. They document the manner in
which we were frustrated time and time again. In combination, it is clear that the inability of the
government to work efficiently or lawfully is not the a result of inefficient government employees,
misunderstandings or incompetence. Very powerful forces are at work to ensure that government
does not work and appears incompetent.

These experiences informed the development of the solari investment model which can emerge a
healthy financial system out of our current mess. My desire to develop the solari investment model is
what attracted me to working with the rich pricing data and prototyping flow at FHA.

As described in more detail at http://www.solari.com, the goal of the solari investment model is to
turn our current negative return on investment economy to a positive return on investment
economy (that is, what some call a sustainable economy).

My experience describes the resistance of our current financial system -- one vested in fiat currency,
the absence of place based transparency and government disclosure and a debt based financial
system where access and management of equity is much more centralized that is commonly
understood.

My experience raises questions about the integrity of the currently outstanding mortgage debt issued
by Ginnie Mae (HUD) and the mortgage GSEs, Freddie Mac, Fannie Mae and the Office of Finance
at the Federal Home Loan Bank Board. These questions include whether a meaningful principal
amount of US mortgage securities which are collateralized by FHA or other federal credit insured
mortgages (VA, Farmers Home, etc) have been issued fraudulently, either with intentionally inflated
appraisals, churning of contrived defaults, or with falsified collateral. Such fraud would have
occurred with the direct or indirect complicity of the US Treasury and the NY Fed, as depository for
the federal government and manager of the Exchange Stabilization Fund.

In the past, HUD has often taken the position that contracts fraudulently issued by HUD officials
and employees are not valid and binding. In fact, HUD has a consistent pattern of abrogating
contracts for political convenience on the ruse that HUD is not accountable when HUD does
something that HUD later determines is "wrong." Given that FHA single family mortgage insurance
is a self supporting fund -- the Mutual Mortgage Insurance Fund -- without the benefit of the full
faith of the federal government, the financial soundness of the MMI Fund and the rights of the
existing premium holders could in fact dictate potential failure to perform or the possibility of
abrogation on existing mortgage insurance contracts. Whether or not, or how, such failures or
abrogation might impact Ginnie Mae's full faith and credit is an additional question.

In addition, there is a significant possibility that the combined policies of US banking, corporate and
governmental leadership to reduce citizens income and assets (See "Dillon, Read & Co. Inc. and the
Aristocracy of Stock Profits" and "The Story of Edgewood Technology Services") and to increase
consumer, government and mortgage debt, have resulted in a growing volume of foreclosures,
deficiency judgments and debt actions by the federal government that have profound implications
for the personal freedoms of the American people. That is, the cost of the current mortgage bubble
may be far greater than is commonly realized.



       Federal Housing Administration (FHA) at HUD

           o   MMI Fund: Single Family Mortgage Insurance
           o   General Fund: Multifamily, Nursing Home
               & Hospital Mortgage Insurance
           o   Defaulted Mortgages & Foreclosed Properties
           o   Regulatory Responsibilities
           o   Securitization, including through Ginnie Mae at HUD


       For More Information see: http://www.hud.gov



                         Growing Up, West Philadelphia, 1950-67

                                              FHA:

               Affordable Housing                         Soprano Family Fraud
     The war on poverty was sold as helping        Fitts' parents after WWII buy a small row
     low and moderate-income people.               house at 48th and Larchwood in West
                                                   Philadelphia, using VA mortgage
                                                   insurance.

                                                   In the late 50's/early 60's, four
                                                   homebuilder rehabs at 48th & Osage
                                                   default immediately after rehab and
                                                   remain boarded up for many years. Along
                                                   with the advent of significant narcotics
                                                   trafficking in the area, the value of Fitts'
                                                   parents and neighbors homes and
                                                   businesses are significantly harmed,
                                                   wiping out and capping many families'
                                                   savings.

                                                   Despite the presence of families in the
                                                   neighborhood who would like to buy a
                                              home and could service the mortgage and
                                              maintenance, the four homes stay boarded
                                              up for years. The neighborhood is
                                              harvested by organized crime/HUD fraud,
                                              systematic car theft, narcotics trafficking,
                                              a house of prostitution that operates with
                                              police protection, etc. This inspires Fitts
                                              to conclude that the people destroying the
                                              neighborhood are making much less on
                                              HUD fraud than the people in the
                                              neighborhood are losing. As a result she
                                              determines to find a way to reverse the
                                              process and try to find the solari model.

                                              In retrospect, the war on poverty, like the
                                              war on drugs, had nothing to do with
                                              helping anyone in need and everything to
                                              do with organized crime harvesting places
                                              and building centralized control,
                                              including consolidating local small
                                              business and banking into large
                                              corporations and banks.

                                              For more on West Philadelphia, see "The
                                              Myth of the Rule of Law" & "Narco
                                              Dollars for Beginners"




             Assistant Secretary of Housing-FHA Commissioner

                               Bush I Administration
                                    1989 - 1990

                    FHA = $320 Billion Mortgage Insurance

              Disclosure                                   Absence of
            & Transparency                         Disclosure & Transparency
Fitts has accountants moved to FHA after      After Fitts fired, effort does not result in
being told they report to another Assistant   strong financial operation and
Secretary of HUD and that she is not          transparency despite the authority and
allowed to speak with them. She               resources provided.
discovers that FHA is losing $11MM a
day in the MMI single-family fund. As a        Indication is that increased involvement
result, with the help of GAO, she              of accounting and systems contractors has
persuades OMB to allow accrual                 increased potential for financial fraud,
accounting for FHA insurance programs,         including through the computer systems.
including legal requirement for annual
actuarial analysis and audited financial
statements. She significantly increases
budget and staff resources to support
transparency and sound financial
management including LAN network
with e-mail and computers to all
employees

OMB becomes so enthusiastic about the
reforms they implement them government
wide.

Fitts institutes internal place based cash     Fitts told that the place based cash flow
flow reports: over 100% of losses in single-   reports were cancelled the day after she was
family fund turn out to be Iran Contra         fired.
areas: Texas and Colorado Regions. Total
losses for Texas region (includes Arkansas,    Fitts later learned that Texas Regional
Oklahoma & Louisiana) for the prior year       Deputy Administrator had suspended the
were over $2 billion, with both single-        Arkansas Development Finance Agency
family fraud and multifamily coinsurance       during the Iran Contra period and was
fraud contributing.                            targeted by the Clinton Administration as
                                               result. ADFA was alleged to have been
                                               involved in over issuance of mortgage
                                               securities, questionable offshore insurance
                                               investments such as Coral Reinsurance, and
                                               money laundering of the state portion of
                                               profits from Mena, Arkansas. The ADFA
                                               allegations inform the same patterns alleged
                                               in the state and local housing finance
                                               agencies that are key players in the HUD
                                               system.

Fitts promotes transparency and                Iran Contra cover up done by Kemp,
competition throughout FHA programs            Keating, Delli Bovi etc. promoting scandal
                                               and clean up targeting at the little guys or
                                               occasional scapegoating, such as the
                                               "Robin HUD" scandal in the single family
                                               foreclosure portfolio or contriving the
                                               default of almost the entire coinsurance
                                               portfolio despite estimates that it would
                                               significantly increase FHA Fund losses.
                         New Mortgage Insurance:
   Actuarially Sound & Good for                   Actuarially Unsound & Harmful to
   Existing Homeowner Values,                       Existing Homeowner Values
             1989 - 1990
Actuarial analysis and requirement for            After Fitts is fired, final revised credit terms
audited financial statements and reporting        on FHA driven by budget gimmicks to
instituted by Fitts in single family leads to     generate budget surplus to fund
MMI Fund premium and terms and                    government wide programs.
conditions recommendations that result in
more financially responsible lending
practices much more supportive of
homeowners equity in a place.                     The team forgets that assumptions and
                                                  books can be cooked. Credit reform fails to
OMB leads effort to institute "credit             prevent the mortgage bubble in the 1990's.
reform" that requires federal credit such as
FHA to appropriate loan loss reserves for
new mortgage insurance originated. This is
based on the theory that this will stop Iran
Contra type abuses in the future. Fitts is
extremely supportive of OMB efforts.

Fitts tries steadily to build support for place   Efforts for regional (place based)
based underwriting in single-family               underwriting are regularly rejected. Given
mortgage programs.                                that more than 100% of Fund losses are in
                                                  two regions marked by significant fraud,
                                                  raising national premiums and holding to
                                                  national underwriting standards ensures
                                                  that fraud can continue while budget
                                                  gimmicks generate "surplus" to fund other
                                                  programs.

Restricted, then shut down multifamily            Political interference in coinsurance
coinsurance program. Started during the           portfolio particularly corrupt both in
Reagan Administration, coinsurance has            individual cases (DRG, Puller) and
generated $9 billion portfolio of                 program; Fitts later learns this portfolio
multifamily insurance originated by private       alleged to involve much Oliver
mortgage brokers authorized to act in the         North/NSC fraud.
place of FHA.
                                                  Ervin & Associates, who later brings
                                                  litigation to drive numerous government
                                                  officials and Fitts company out of HUD,
                                                  hired to service the defaulted Coinsurance
                                                  Portfolio. Ervin is brought into FHA by
                                                  Ronnie Rosenfeld, the Deputy Assistant
                                               Secretary of Single Family, now President
                                               of Ginnie Mae.

Effort to include low income housing tax       Subsequent experience indicates that low-
credits in mortgage underwriting and           income housing tax credits (managed by
allocation issues                              US Treasury) are bad policy when viewed
                                               in terms of optimizing government
                                               investment by place and filled with pork
                                               and waste.

During the first meeting to organize the       Fitts is fired shortly thereafter. One
actuarial analysis for the FHA General         question is whether conforming the
Fund, Fitts discovers that there is no         outstanding multifamily mortgage
record or database of all outstanding          insurance and making it transparent and
General Fund insurance, including no           subject to proper disclosure is not
reliable records of the amount of FHA          politically feasible - including for reasons of
insurance outstanding. Her insistence that     criminal legal liabilities.
this will be created is met with significant
resistance without a logical explanation.      Price Waterhouse, chosen to be the first
                                               FHA auditor and to do the actuarial
                                               studies, is resistant to the idea of a
                                               complete and reliable multifamily database
                                               and reporting, later turns out to be
                                               particularly good at "cooking the books."




      Lowering Inventory of                          Growing Inventory of
Defaulted Mortgages & Foreclosed               Defaulted Mortgages & Foreclosed
      Properties/Increasing                      Properties/Unnecessarily High
  Recovery Rates & Mitigating                   Recovery Rates & Harm to Local
  Harm to Local Homeowners,                               Homeowners
           1989 - 1990
Aggressive actions to lower the foreclosed     After Fitts fired, inventory still much higher
REO single family portfolio from 50,000        than need be. RTC begins loan sales.
properties to significantly less               Although RTC loan sales begin to generate
                                               higher recovery rates than foreclosure
                                               methods, HUD makes no effort to look at
                                               loan sales until office of multifamily issues
                                               an RFP for both single family and
                                               multifamily in 1992/3.
Efforts to understand churning of single      Efforts are frustrated by lack of data and
family FHA mortgages in Philadelphia,         reticent of field staff and leadership to
Chicago, Los Angeles, New Orleans,            discuss what is happening and why.
Washington, Baltimore, Texas, Denver, etc.
                                              This pattern is later described in Soprano
                                              TV show and in Community Wizard maps.

Recommended multiple actions to reduce        Significant amount of coinsurance portfolio
losses from defaulted coinsurance portfolio   is defaulted into HUD under highly
                                              political circumstances. (See Kemp Tapes.)
                                              Ervin hired to manage resulting large
                                              defaulted coinsurance multifamily mortgage
                                              portfolio.

     Regulation & Management                   Poor Regulation & Management
             1989 - 1990
Fitts refuses order by Kemp to award          Much more direct political control and deal
project based subsidy illegally to NY         action in FHA alleged after Fitts is fired.
project later identified as sponsored by
Andrew Cuomo, son of the governor of
NY and later Secretary of HUD.

Fitts lobbies for place based waivers that    No White House or HUD interest in
will allow far more optimization of federal   expanding this prior Administration effort
government money and regulation within a
place

Numerous actions to decentralize decision     Push is for centralization and pro-
making to field offices and local             centralization policies accelerate after Fitts
government                                    is fired. When Jim Rouse asks Secretary and
                                              his staff why they are pushing greater
                                              centralization as he thought that the
                                              Republican philosophy is decentralization,
                                              Tom Humbert answers, "because we're
                                              here now."

Fitts supports optimization of HUD            Little interest. HUD continues to finance
money in a neighborhood - moving Hope         public housing rehab and new construction
VI money from public housing to FHA           at an all in cost of $150,000-250,000 per
single family defaulted portfolio             unit when single family foreclosed
                                              properties are churned by speculators
                                              nearby and could make for housing at a
                                              cost of $25,000-100,000 per unit. This
                                              raises the question why such a significant
                                              portion of the single-family portfolio in
                                              certain neighborhoods is reserved for
                                              churning and speculation.

Fitts reports full personal financials and    The behavior of the leadership is not
goes through full FBI check and Senate        appropriate for the professional
confirmation - HUD officials leak financial   management of a significant portfolio of
to press.                                     financial assets and liabilities. Kemp and his
                                              key staff regularly smear Fitts, including
                                              Kemp telling Fitts that he would never
                                              come to her house because her house was
                                              bigger than his house and he would find it
                                              castrating; and later ordering her to
                                              lengthen her skirts. Harry Clark, who has
                                              worked for Kemp on his campaign, calls
                                              Fitts saying that the White House wants to
                                              know if Kemp has been behaving in
                                              strange or irrational ways (Fitts interprets
                                              Clarks question to mean whether or not
                                              Kemp is manic and the White House is
                                              trying to determine whether or not he
                                              needs to hospitalized). In a later manic-type
                                              episode at a regional directors meeting at
                                              HUD, Kemp states that he does not have
                                              to obey the law that he answers to a
                                              "higher moral authority."

                                              Ultimately, this leads Fitts to conclude that
                                              highly political and financially
                                              inexperienced leadership leaves the US
                                              Treasury, DOJ and the lead contractors
                                              such as Lockheed Martin and JP Morgan-
                                              Chase to run the real operations
                                              unencumbered by HUD.

Fitts is assigned to help with HUD            The fact patterns indicate that these
responsibilities on RTC Oversight Board to    portfolios involve significant fraud and the
coordinate HUD disposition with               resolution and disposition strategies are
government liquidation of S&L and bank        quite supportive of destroying the histories
portfolio or mortgages, securities and        and files that might illuminate fraud or
properties.                                   result in seizing back stolen monies or
                                              successful prosecutions.

                                              For a near complete version of Fitts'
                                              experience in the Bush I Administration,
                                              audio chronological description
                                              (approximately 6-8 hours) recorded in
                                              1998/99 is available in the Black Ops
                                                Radio archives at
                                                http://www.blackopradio.com/


                    Lead Financial Advisor to FHA
                  Clinton Administration: 1993-1997
 Litigation with HUD, Clinton and Bush II: 1995-2003
                     FHA = Est. $400-500+ Billion

     Disclosure & Transparency                               Absence of
                                                     Disclosure & Transparency
1994 - 1997

Fitts promotes maximum disclosure of            HUD contractors are extremely difficult to
HUD portfolio and HUD defaulted                 deal with on effort to find and make data
portfolios in HUD loan sales and use of         accessible, including Lockheed, EDS and
internet and the web to make data               contractors on single-family portfolio.
accessible.                                     Lockheed and the HUD staff are
                                                particularly sensitive about TRACS, the
Fitts assigns significant staff to collecting   tenant database system. E&Y does the
HUD data. These groups experience high          place based data warehouse, which
turnover, resulting in data collection being    becomes quite controversial.
lead by very senior people and requiring
Fitts to write complaints to HUD regarding
double bind --- HUD is stopping the data
collection that HUD is ordering and paying
Hamilton to do.

Fitts promotes design books for all large       HUD resists doing design books, and then
transactions and successfully lobbies for       resists putting them on line. After loan
them to be made internet accessible             sales are cancelled, they are moved offline.
                                                Solari later reposts one on line.

1991 1997

Fitts develops the "dream machine" at           Hamilton discovers that HMDA data is
Hamilton Securities - many tools and            purposefully being made obtuse in
databases that increasingly make the HUD        presentation and granular place based data
portfolios and operations accessible to the     is inaccessible.
HUD officials and marketplace. A new
suite of tools based on HUD loan sales        Publishing single-family data is highly
pricing information prepares for launch in    controversial but no one can say exactly
combination with potential trading and        why.
principal operations.
                                              HUD orders all HUD data cleansed from
                                              Hamilton computers and returned to HUD
                                              in 1997, in connecting with firing
                                              Hamilton.

                                              Combination of Ervin and HUD
                                              supporting actions cause all development
                                              to stop and tools to be made practically
                                              inaccessible for development.

1995 -1997

Fitts develops Community Wizard and           After AIG mysteriously declines to provide
prepares to make it web accessible. In        defense per E&O policy, Former General
combination with a suite of portfolio         Counsel of CIA, Judge Stanley Sporkin
strategy tools, the Hamilton databases and    orders Hamilton files and backup tapes
tools are designed to conform mortgage        under court control; Hamilton's offices
securities to property-by-property and        seized and HUD investigator tries to take
homeowner-by-homeowner data that is           the position that Fitts is not allowed to
publicly available, or to HUD for FHA         have a copy of digital memory of the
portfolio strategy on HUD data that is not    company, including databases and tools.
publicly available.                           Government investigators insist on
                                              supervising the scrubbing of data from
The combination of tools is designed to       computers and laptops sold at auction.
identify reengineering opportunities to
create equity value.                          Burke is later reported to Fitts by HUD
                                              financial staff as the contract manager for
A beta version of Community Wizard is         Lockheed's contract with HUD.
distributed gratis to HUD HQ & field          Allegations grow regarding kickbacks on
offices. The response is significant -        the Lockheed contract. Retired field staff
accolades from Congressional staff as well.   later describes Burke as a "company man."

HUD Secretary Cuomo sends staff over to       HUD's place based software CD for public
Hamilton to explore HUD's purchase of         sales, HUD 2020, leaves critical data out.
Community Wizard. The team from HUD           Allegations grow that the data effort is
includes Dick Burke.                          being used to help with redistricting along
                                              with the census efforts that grow
                                              increasingly controversial. DynCorp is
                                              involved with Voting Act issues through
                                              the J-Con contract at DOJ also rumored to
                                              be part of DynCorp's PROMIS
                                              responsibilities at DOJ.
1994 - 1997

Fitts supports officials helping to publish      Private NY mortgage banker meets with
first audited financial statements and to        Fitts after first audited financial statements
improve the financial reporting and              are published. He insists that his business
operations                                       has been tracking total outstanding FHA
                                                 mortgage insurance and that it is many
                                                 multiples of what FHA/HUD is saying in
                                                 their Price Waterhouse audited financials.

                                                 After honest FHA Comptrollers are
                                                 pushed out and Hamilton/Fitts fired, HUD
                                                 is missing $17 billion in fiscal 1998, $59
                                                 billion in fiscal 1999 and refuses to publish
                                                 audited financial statements and declines to
                                                 publish undocumentable adjustments in
                                                 fiscal 2000.

1996 - 1997

Fitts promotes budget tool that documents        Chief of Staff to Senator Kit Bond, then
budget assumptions; declines to provide          Chairman of the Senate subcommittee in
Hamilton support and name to budgets             charge of HUD appropriations tells Fitts in
done that ignore the impact of welfare           2000 that HUD is being run as a "criminal
reform on HUD section 8 and other FHA            enterprise". One of Fitts Senator's
and HUD programs; Community Wizard               Thompson reports on government
indicates that the HHS population in key         accounting systems and financial reporting.
urban areas in HUD buildings is quite high.      The 11 agencies not in compliance with
This means that HUD and HHS are                  laws include HUD and represent
making contradictory policies and budget         approximately 85% of the federal budget-
decisions for people who are one and the         HUD and DOD are missing $3.3 trillion in
same - living in the same building. For          recent audits. HUD is has $59 billion in
example, while HHS is canceling welfare,         undocumentable adjustments in fiscal 1999
HUD buildings have rules that tenants are        and refuses to produce audited financial
not allowed to have home businesses. HHS         statements for FY 1999. In fiscal 2000,
tells HUD they estimate that they have $6        HUD declines to disclose undocumentable
billion of data servicing needs as a result of   adjustments. Over the period, the
welfare reform yet the Administration is         appropriations committees and Fitts'
not comfortable with the ETS model of            congressional delegation support significant
creating data servicing businesses in            appropriation increases for HUD.
neighborhoods that are expected to reduce
subsidy flows.                                   AMS is the company that installs, owns and
                                                 operates HUDCAPS, the system credited
                                                 with missing $59 billion at HUD in fiscal
                                                 1999. As of the time that HUD reports
                                                 undocumentable adjustments of $59
                                              billion, they have paid AMS $206MM. As
                                              opposed to their treatment of Hamilton
                                              (who a year prior to having its contract
                                              terminated for convenience, had reported a
                                              potential opportunity cost of $3.8 MM on a
                                              two sales that had successfully generated
                                              hundreds of millions in savings in a
                                              performance that had been considered
                                              quite excellent for government savings),
                                              HUD does not fire AMS and does not
                                              seize any payments owed to AMS or ask
                                              for AMS to take responsibility for any
                                              missing money. The Acting CFO charged
                                              with cleaning up the undocumentable
                                              adjustments is targeted by the HUD IG.

                                              The AMS Chairman, Charles Rossotti
                                              becomes the IRS Commissioner and is
                                              provided a waiver to permit him to
                                              continue to retain ownership of a sizeable
                                              amount of AMS stock. Hence, the value of
                                              his stock is increased as AMS is not fired
                                              by HUD or continues its IRS contracts.
                                              IRS manages manages many of the most
                                              critical financial databases in government,
                                              including those used for money laundering
                                              enforcement.

1995 - 1997

Fitts promotes honest internal reporting of   Harvard Endowment interests (NHP, Rod
facts regarding contract renewals for         Heller) lead switch in policies from those
Section 8 HUD subsidy and the impact on       that resolve issues in a manner that
the multifamily portfolio                     optimize positive return on investment for
                                              governments, communities and pension
                                              funds to more special interest pork. Heller
                                              takes position that government has
                                              promised business and profits and that
                                              impact on taxpayers and communities is
                                              not relevant. The current FHA
                                              Commissioner, the current head of LISC
                                              and numerous members of the
                                              Administration get and return to jobs at
                                              Harvard; Harvard Endowment rises from
                                              $4 billion to $19 billion during the
                                              Administration. Despite extraordinary costs
                                               to taxpayers and citizens of Harvard
                                               behavior as investor, advisor and/or
                                               government contractor in HUD, Russia,
                                               Enron, Harvard Endowment profits are
                                               fully tax exempt as an "educational
                                               institute."

                                               Rod Heller is adamant with Fitts that the
                                               government owes him and other private
                                               companies like his a guaranteed return
                                               irregardless of performance or financial
                                               merits, but can not articulate why this is so.

1995 - 1997

Fitts promotes policies related to             Administration supports policies that
government info sovereignty re: federal        support the consolidating of software into
credit program software and data.              the private companies and government
                                               contractors involved with PROMIS; Alltel
                                               reports that it is software is used to service
                                               a majority of the outstanding US
                                               mortgages; allegations of use of PROMIS
                                               to compromise HUD systems and
                                               centralize mortgage data and other
                                               consumer financial data grow; great
                                               controversy develops around FHA/HUD's
                                               involvement in software scoring systems
                                               for underwriting new originations.

1996 - 1997

Hamilton hires lobbyist and lobbies            Effort is put on hold when Hamilton fired
Congress to pass legislation requiring place   in 1997 and physical harassment and
based financial disclosure by federal          surveillance and smear campaign of Fitts
agencies.                                      worsens.

                        New Mortgage Insurance:
             Actuarially                                   Actuarially
           Sound & Good                               Unsound & Harmful
  for Existing Homeowner Values                  to Existing Homeowner Values
1994 - 1997

Increased recovery rate from HUD loan          Cooked books: OMB and appropriations
sales lowers cost of new mortgage              committees use recovery rates assuming
insurance origination under credit reform     loan sales after canceling loan sales
and generates new budget authority to fund
government programs and reduce deficit

1995 - 1997

Fitts promotes new place based                HUD moves forward with a place-based
underwriting for multifamily that will        effort to include neighborhood networks
integrate equity model promoting things       and other economic development efforts,
like neighborhood networks and efforts        which lower risk, increase collateral values
that are successful in moving people to       and help communities. The head of
employment.                                   multifamily originations, however, is forced
                                              out of HUD by the risks created by HUD
                                              IG investigation targeting and the Ervin-
                                              type environment.

1994 - 1997

Fitts tries to persuade the FHA               FHA leads a significant federal credit
comptrollers and business planning teams      bubble in coordination with US Treasury
to avoid policies that support debt bubbles   and Freddie Mac, Fannie Mae & Federal
- they are in violation of the laws on FHA    Home Loan Bank Board; bubble begins
financial management, decrease                after honest FHA comptroller retires as a
homeowners equity and will increase debt      result of significant doubts as to the
burdens of average Americans and poor         intention of the Administration and again
neighborhoods when information                after Hamilton is fired and second FHA
technology and NAFTA etc are highly           comptroller leaves.
deflationary for these groups.
                                              In 1995, business planning effort, Fitts
                                              points out to FHA comptroller and
                                              commissioner office staff that the new
                                              origination projections for FHA combined
                                              with the low income targets issued by FHA
                                              for Freddie and Fannie are significantly
                                              greater than the demand for target
                                              populations. A review of the FHA
                                              origination projects inspires one working
                                              group comment that to meet the targets,
                                              the exploding prison population would
                                              have to refinance several times a year from
                                              prison to meet the targets. Hamilton is told
                                              to have nothing to do with single-family
                                              origination or single-family foreclosure and
                                              disposition policies.

                                              Portfolio strategy efforts for the FHA
Comptrollers office in 1995 indicate that
the Price Waterhouse actuarial studies are
based on assumptions that Hamilton
believes are not appropriate. The question
arises where the actuarial study is using
questionable assumptions to help cook
reserve calculations and the books.

Significant increased volume is made
possible by "cooked books" at OMB and
appropriation committees after cancellation
of loan sales-- by assuming high recovery
rates generated by loan sales for purposes
of new loan loss reserves appropriated
under credit reform law, when in fact HUD
has reverted entirely to traditional methods
of resolution after cancellation of sales in
fall of 1997.

Significant increased volume is made
possible by Secretary Cuomo's
reengineering initiatives. Consolidation of
origination into a few offices with
significant turnover of field and staff
personnel along with significant increasing
in contracting destroys significant
institutional memory. A review of HQ and
field personnel in charge of budgets and
financial operations in FY 2001 can identify
no FHA government employees who
understand the financial operations.

In a 2003 deposition for Ervin &
Associates, Susan Gaffney, HUD IG
through 2002 concurs that the loan sales
were initiated in part in response to her and
Price Waterhouse's listing of the large
defaulted mortgage portfolio as the #1
material weakness. She also states that she
does not know what the recovery rates on
the portfolio were before, during or after
the loan sales. Her tone implies that she
does not understand why anyone would
expect her to know the recovery rates or
that they are relevant. This means that
HUD is losing billions each year and the
                                             HUD IG did not notice or care.

      Lowering Inventory of                        Growing Inventory of
Defaulted Mortgages & Foreclosed             Defaulted Mortgages & Foreclosed
 Properties/Increasing Recovery                Properties/Unnecessarily High
Rates & Mitigating Harm to Local              Recovery Rates & Harm to Local
          Homeowners                                    Homeowners
1993 - 1997

Fitts leads Hamilton design effort that      Most members of industry assume that
results in highly successful loan sales      HUD cannot do loan sales - then are
programs. Recovery rates go from 35% to      shocked by the pricing and results after the
70-90%; generates $2.2 billion savings       SE sale.
documented by HUD & OMB and audited
by GAO. Audits indicate homeowners and       Ervin & Associates lobbies aggressively to
communities are better off with more         be assigned due diligence duties, when that
timely resolutions.                          fails then teams up with Merrill, Cargill as
                                             well as Mellon Mortgage as a bidder, due
HUD IG staff predicts a winning bid of       diligence provider, or contractor all of
$350MM on the first large multifamily loan   which prove unsuccessful and lobbies other
sale which is valued at $296MM in the        Wall Street firms to market proprietary
hands of the government. They are stunned    HUD data.
by the $710MM combination of winning
bids.                                        The strongest resistance to increasing
                                             recovery rates is in single family. Deputy
                                             Coonts says that it is more important to
                                             have a large inventory of foreclosed single-
                                             family properties so that HUD can be a
                                             "full service real estate operations." HUD
                                             issues

                                             $900 MM in contracts to single family
                                             servicers to manage the growing portfolio
                                             of single family foreclosures in 1998. The
                                             HUD IG and Ervin are silent on the higher
                                             transaction costs and lower recovery rates
                                             of these single-family operations.

                                             From 1995-97, HUD consistently refuses
                                             to allow individual bids on single-family
                                             loan sales, a suggestion made by Jim
                                             McTague of Barons in 1995. McTague
                                             indicates that allowing individual
                                             homeowners and other nearby to bid for
                                             one mortgage will engender tremendous
press interest and he will write about it.
Fitts, eager to build a competitive retail
market for the single-family sales, persists
in trying to persuade HUD to not
individual bids to $1MM or more. The
Deputy Comptroller, Chris Peterson, is
adamant that HUD cannot bring in
servicers to close this and the logistics are
too much trouble. This opposition never
makes sense given the political and
financial advantages of allowing one on one
bids from individuals and homeowners.

HUD General Counsel and HUD IG
enforcement teams complain to HUD loan
sales team that they can get more money in
their offices from civil money penalties if
loans are not sold and argue for holding
loans out of sale even though the cost to
the FHA fund and to nearby homeowners
and real estate is much greater; When
Hamilton contract cancelled, the HUD IG
gets a special appropriation from Senate
Appropriations in the same amount as the
remaining contract authority for Hamilton
contract for Operation Safe Home -
bringing the War on Drugs and increased
civil money penalties deeply into HUD.
Neighborhoods not working are better for
DOJ and HUD enforcement business -
particularly when it dovetails with private
gentrification and the housing and
mortgage bubble.

Optimization model significantly shifts
yields in the marketplace in a manner that is
less than popular with big bidders as well,
inspiring Michael Eisenson at Harvard
Endowment to tell Catherine Austin Fitts

"F'k you" when expressing his opinion
about the optimization technology. (See
Edgewood Technology Services)

HUD cancels loan sales on a pretext in
1997 that they cannot do loan sales without
                                                Hamilton who has been fired for
                                                convenience. This is not true. In 1995,
                                                Hamilton enlisted help of HUD IG office
                                                to ensure that multiple contractors were
HUD insists that Hamilton help with             hired by FHA. Subsequently, Hamilton
analysis and policy development for             helped HUD bring in a series of qualified
"M2M" - initiative to deal with significant     contractors and had turned over all design
expiring Section 8 subsidy contracts on         books and relevant tools and databases to
multifamily properties, approximately 80%       HUD so that HUD as self sufficient
of which are also carrying multifamily          without Hamilton. HUD then returns to
mortgage insurance                              using low recovery methods of resolution
                                                throughout the defaulted mortgage
(1995).                                         portfolio.

The pricing on the partially assisted trust,    M2M policies through the appropriation
closed in 1996, indicates that HUD and          committees in the summer of 1996 result in
communities can do much better than it is       significant traditional resolutions. AEW
doing currently and starts development of       (with multiple relationships with Harvard
the place based trust concept. The initial      and a lead equity manager investor in
negotiated state housing finance agency         AIMCO, now owner of NHP) is hired to
transactions in 1996-7 also indicate the        process workouts. The lead customer for
opportunities to move to place based            workouts is AIMCO. Former NHP staff
resolutions. Such transactions would            working inside of HUD feed significant
illuminate the opportunities of ending the      inside information throughout the process
single family churning in low-income areas      to NHP and their consultants. Chairman of
as well as the expensive multifamily assisted   NHP is alleged to brag that he had the
and public housing and welfare subsidies.       DAS for multifamily fired. One of his
                                                partners explains to Fitts that their efforts
The initial high volume of expiring             to have Hamilton fired have failed and as a
contracts are in New York and LA and            result "the big boys have gotten together
bring up significant tax shelter issues in      and you are going to jail." The implication
those areas.                                    is that government officials at HUD must
                                                do whatever those who make money on
                                                their programs tell them or else they will be
                                                fired, framed or killed.

                                                Portfolio strategy analysis of the single-
                                                family portfolio by Hamilton immediately
                                                prior to being fired showed some unusual
                                                "hot spots." This included a $2 billion
                                                defaulted mortgage and property inventory
                                                in San Bernardino. This is the district of
                                                Congressman Lewis, the Chairman of the
                                                House Appropriation subcommittee with
                                                jurisdiction over HUD. Lewis and his lead
                                                staff, Valerie Baldwin, have been reported
as very supportive of Ervin. Lewis is
subsequently promoted to chair of the
Defense appropriation subcommittee. In
1997, a special assistant to the Chairman of
Freddie Mac reports to Fitts that they have
an unusually large defaulted portfolio in
San Bernardino.

HUD IG efforts to assess Bruce Rozet's
multifamily portfolio civil money penalties
inspires one Washington investigative
reporter to comment that the system in the
HUD IG office was that Hamilton made
money for the taxpayer and lost money for
the HUD IG, hence the IG shut them
down and targeted them for a criminal
investigation; Rozet lost money for the
taxpayer, hence they were left to operate
and were targeted for a civil investigation
that made money for the IG; Ervin lost
money for the taxpayer and helped the IG
make money, hence Ervin was rewarded.
The implications were that the HUD IG
running programs (Operation Safe Home)
and competing with the program area for
revenues indicated significant internal
control failures.

HUD IG on multiple occasions tries hard
to persuade Congressional staff and
reporters that the $2.2 billion savings is
phony. HUD IG buries their own audit,
which is extremely positive on loan sale
program and runs lead auditor out of
government; then tries to frame Hamilton
by falsifying evidence during office seizure.
Property manager provides affidavit re
efforts to falsify evidence, which is
dismissed by court trustee as "standard
operating procedure." Dick Ravitch, close
friend and colleague of Bob Rubin,
Secretary of the Treasury, and Michael
Steinhardt, funder of the DLC, shows up at
E2 board meeting in 1997 claiming that the
$2.2 billion of savings is phony - and
Catherine Austin Fitts takes personal
responsibility for the accuracy of the
numbers in the face of Ravitch efforts to
sabotage.

The cost of these policies to HUD/FHA
and homeowners both is in the billions
annually. The opportunities for "Tony
Soprano" type fraud are significant. The
need for far more HUD contracts to
handle the portfolio is also large.

Reports from DOJ and HUD indicate that
enforcement cash flows are much higher as
a result of large defaulted mortgage and
foreclosure portfolios This includes debt
collection, civil money penalties and asset
forfeiture revenues to US attorneys offices,
local sheriffs and their informants, court
system. DynCorp who runs major IT
systems for DOJ and HUD and is said to
help manage the PROMIS system for DOJ
is the lead DOJ asset forfeiture fund
contractor on a $60MM a year contract
DynCorp's lead investor and Chairman is
Harvard backed Pug Winokur, who is also
an investor and board member on
Harvard's HUD companies NHP/WMF
lead by Rod Heller.

DynCorp, with Pug as investor and now
Chairman of the Compensation
Committee, experiences litigation regarding
sex slavery by DynCorp personnel in
partnership with the mafia in Easter
Europe which does not interfere with
DynCorp's operation of key enforcement
IT systems at HUD, DOJ, SEC and for
State Department worldwide. DynCorp is
not fired or asked for money back as a
result of this performance. Apparently, sex
slave trafficking and pedophilia by
government contractors are not as
egregious as Hamilton's supposed $3.8MM
error.

A comparison of asset forfeiture fund
                                                contracting economics and loan sales
                                                contracting economics are instructive.
                                                DynCorp is paid $60MM a year to do the
                                                knowledge management for a disposition
                                                operation that generates $450MM in 1996.
                                                Hamilton is paid $10MM a year to do the
                                                knowledge management for a disposition
                                                operation that generates $3 BB a year plus
                                                portfolio strategy on $500 BB.

1995 - 1997

Fitts persuades FHA to migrate to place         Loan sales cancelled in 1997, including all
based mortgage and asset disposition; first     place based trusts - all place based trust
place based surveys, then small place based     contractors specifically targeted by Ervin
bid pieces on the regular auctions; finally     and/or HUD IG.
place based trusts are scheduled with
contractor teams in 1997, after the partially
assisted trust in 1996 proves that HUD can
achieve superior results with a competively
bid trust structure and that structure can
manage

1995 - 1997

Successful application of optimization          Concern over the widening spread between
technology and open competition to HUD          the government and traditional players
loan sales results in dramatic illumination     performance with large financial
of the impact of competition on HUD             institutions, including Goldman, BlackRock
performance. Traditional HUD players            and GE raises numerous questions about
such as Ervin and NHP (Harvard) lose on         why such an extraordinary difference in
the bids by a lot to a variety of new small     cost of capital. Numerous possibilities,
and large bidders.                              such as pension fund management and
                                                large financial institution access to equity
                                                markets capital and "hot money", include
                                                covert methods. Based on research
                                                subsequent to the cancellation of the
                                                program - including the extraordinary
                                                efforts of the Gold-Anti-Trust Action
                                                Committee -- this includes whether or not
                                                NY Fed members are bidding with large
                                                volumes of funds being laundered in from
                                                the NSC governed privatization in Russia,
                                                other IMF & Ex-Im activities or are
                                                bidding with the support of the NY Fed
                                                and US Treasury as part of an Exchange
                                                Stabilization slush fund operation. Rumors
                                                abound that some bidders were using
                                                PROMIS software to access deposit
                                                information in the FHLB board of Atlanta
                                                or by hacking loan sale team computers.

                                                The extraordinary pricing performance of
                                                the Wall Street players does raise questions.
                                                This includes whether or not the winning
                                                teams were bidding to control mortgage
                                                files on fraudulently issued mortgages in
                                                neighborhoods with patterns of high
                                                defaults.

                                                Meantime, there are numerous complaints
                                                from Wall Street regarding the optimization
                                                model and the fierceness of the
                                                competition that it engenders. It is reported
                                                to Fitts by FHA staff that Oscar Wyatt,
                                                Chairman of Coastal Energy, who claims to
                                                be the owner of a Texas mortgage
                                                company, complains to the White House
                                                that Hamilton should be fired because Fitts
                                                is a woman. Wyatt's son is working as a
                                                consultant for NHP, Harvard's HUD
                                                company.

1994 - 1997

Given the growing success of Fitts' effort      Administration and Congress lower the
to help HUD improve recovery rates on           cost of new mortgage insurance by cooking
defaulted mortgages, Fitts tries to generate    assumptions and books, thus removing
interest in understanding what can lower        incentives to lower real default rates. This
default rates (default rates being a key        permits "bubble economics" which results
assumption other than recovery rates and        in large increases in cheap mortgage credit
premium price in the cost of mortgage           with little or no real attention to job
insurance originations) and for HUD to          training, jobs and small business growth.
take those actions that will lower defaults -   Rather, it subsidizes corporations grabbing
particularly steps to ensure that people        market share away from small business as
have the skills they need to be economically    NAFTA permits the corporations to move
and financially productive and secure. Fitts    the jobs abroad. As a result, the debt
promotes the same message to Farmers            bubble helps liquefy citizen assets to
Home, Congress, and OMB and                     subsidize their every day expenses. Welfare
throughout the HUD and community                reform leads to much more gentrification,
development constituencies.                     homelessness, and economic dislocation
                                                than necessary. Critical to the "debt up,
                                                   income down" policy, the Administration
                                                   promotes significant growth in prison
                                                   construction, privatization and growth.
                                                   Significant flow of stock market and tax
                                                   shelter capital into prison investment is
                                                   supported by new laws to ensure significant
                                                   growth of prison population from non-
                                                   violent crimes, including War on Drugs.
                                                   This includes large increases in the female
                                                   prison population that are supportive of a
                                                   self-supporting business model with
                                                   corporate outsourcing for work such as
                                                   data servicing.

                                                   A large predatory lender imitative is
                                                   launched by Comptroller of the Currency
                                                   Jerry Hawke, Secretary Cuomo and Fed
                                                   Chair Alan Greenspan that fails to mention
                                                   or address the fact that the Administrations
                                                   "income down, debt up" mortgage bubble
                                                   policies constitute the most significant
                                                   predatory lending effort in the history of
                                                   the US.

                                                   Midnight special transfer of single family
                                                   foreclosed portfolio in NY right before
                                                   Cuomo leaves office to run for Democratic
                                                   nomination for NY governor causes
                                                   significant rumors about transfer of
                                                   properties at below market from the FHA
                                                   single family foreclosed inventory.


Audio:

Navigate the Housing Bubble

http://votesolari.com/solari/home.php?cat=11

America's Black Budget and the Manipulation of Mortgage and Financial Markets

http://www.financialsense.com/Experts/2004/AustinFitts.html

Selected Articles:

Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits
http://www.dunwalke.com

The Story of Edgewood Technology Services - or How I Lost $100Million
Discovering Who Makes Money Making Sure the Solari Index Does Not Go Up - Part One, Two &
Three, 1999
http://www.scoop.co.nz/mason/stories/HL0207/S00101.htm

The Myth of the Rule of Law: The Destruction of Hamilton Securities,
November 2001
http://www.solari.com/gideon/articles/q301.pdf

Links re: Missing Money

Missing Money - Articles and Documents

http://www.solari.com/learn/articles_missingmoney.htm

Real Deal: Saving Tennessee, June 2002
There is $3.3 Trillion Missing From HUD & DOD in FY 1998-FY2001
http://www.scoop.co.nz/mason/stories/HL0207/S00031.htm#a




For Information and Articles on the Solari Investment Model
& Catherine Austin Fitts:
Solari
http://www.solari.com



                             STATEMENT OF
                   SUSAN GAFFNEY, INSPECTOR GENERAL
             DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                   BEFORE THE HOUSE OF REPRESENTATIVES
                    COMMITTEE ON GOVERNMENT REFORM
                SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION AND TECHNOLOGY
                              MARCH 22, 2000

           [ NOTE: This webpage contains pages 1-4 of the HUD IG's testimony, up to and
             including her statement regarding the missing $59 billion. This testimony can
                be read in its entirety at http://www.hud.gov/offices/oig/data/reform.pdf ]
    Chairman Horn, Ranking Member Turner, and Members of the
Subcommittee, I appreciate the opportunity to appear before you today to
give you my perspectives on the status of financial management at the
Department of Housing and Urban Development (HUD). I am accompanied
by Kathryn Kuhl-Inclan, Assistant Inspector General for Audit; James Heist,
Director of the Financial Audits Division; and Benjamin Hsiao, Director of
the Information Systems Audit Division. As the subcommittee is aware, the
Office of Inspector General (OIG) reported on March 1, 2000 on our efforts
to audit HUD’s fiscal year 1999 consolidated financial statements and issued
a disclaimer of opinion. OIG also issued reports on audits of the Government
National Mortgage Association (GNMA) and the Federal Housing
Administration (FHA), on February 24 and 29, 2000, respectively. Those
audits were performed by the independent accounting firm of KPMG LLP,
under contract with the OIG. KPMG LLP’s reports included unqualified
opinions on GNMA’s and FHA’s fiscal year 1999 financial statements.

   Before I address issues at HUD, I’d first like to take a moment to discuss
the broad purposes of the Chief Financial Officers (CFO) Act and our
perspectives on the emphasis being placed on agencies’ success in having
auditors express unqualified opinions on their financial statements. In passing
the CFO Act nearly 10 years ago, the Congress laid out three broad purposes:

   1. Bring more effective general and financial management practices to
      the Federal Government through statutory provisions which would
      establish in the Office of Management and Budget a Deputy Director
      for Management, establish an Office of Federal Financial
      Management headed by a Controller, and designate a Chief Financial
      Officer in each executive department and in each major executive
      agency in the Federal Government.

   2. Provide for improvement, in each agency of the Federal Government,
      of systems of accounting, financial management, and internal controls
      to assure the issuance of reliable financial information and to deter
      fraud, waste, and abuse of Government resources.

   3. Provide for the production of complete, reliable, timely, and
      consistent financial information for use by the executive branch of the
      Government and the Congress in the financing, management, and
      evaluation of Federal programs.

   Nowhere in these broad purposes does the CFO Act list obtaining an
unqualified opinion, yet this has become the one measure that is pointed to
frequently as a measure of success in improving agencies’ financial
management. Indeed, the President’s fiscal year 2001 budget put forth a
performance goal for 18 of the 24 CFO Act agencies to receive unqualified
opinions on their fiscal year 1999 financial statements. While we understand
that goals are important, what is missing here is a set of goals that speak more
directly to the purposes of the CFO Act.

   We believe that HUD’s success in addressing the material weaknesses and
reportable conditions in our Report on Internal Controls, which is an integral
part of the financial statement audit, would be a more meaningful CFO Act
performance measure than receipt of an unqualified opinion. As we pointed
out in our March 1,2000 report, HUD’s ability to obtain an opinion for fiscal
year 1998, while noteworthy,required extensive contractor support along with
ad hoc analyses and special projects to develop account balances and
necessary disclosures. This was due to continued weaknesses in HUD’s
internal controls and financial management systems. For fiscal year 1999, we
reported a total of 17 reportable conditions, 5 of which we also classified as
material weaknesses. We describe in our fiscal year 1999 report the
deterioration of the internal controls relating to HUD’s core financial
management systems that resulted from the implementation of a new
Departmental general ledger and ultimately led to our decision to disclaim an
opinion on the fiscal year 1999 financial statements.

   HUD continues to rely on extensive contractor support to overcome
limitations in the preparation of financial statements that are brought about by
poor internal controls. These efforts are in large part directed at obtaining
unqualified opinions, and not correcting the systems that continue to
adversely impact our ability to audit HUD’s financial statements in a timely
and efficient manner.

   In the following paragraphs, we (i) explain the reasons for our disclaimer
of opinion,(ii) summarize the Report on Internal Controls, and (iii)
summarize the Report on Compliance with Laws and Regulations. The latter
two reports are integral parts of the financial statement audit.

DISCLAIMER OF OPINION:

    We were unable to issue an opinion on HUD’s financial statements for
fiscal year 1999, and as a result, we issued a disclaimer of opinion. Our
decision to issue a disclaimer considered the CFO Act statutory date of
March 1 to complete the audit. Both the Congress and OMB had emphasized
the importance of meeting the March 1 date this year. Indeed, we understand
that only four OIGs missed the deadline compared to ten last year. We
considered this in reaching our decision to stop the audit. That decision also
considered the prospects of our being able to complete the audit in a
reasonable period of time after the deadline. We assessed the amount of work
that, first of all, needed to be completed by the Department to reconcile their
"fund Balance with Treasury" accounts (analogous to cash in a bank account)
and finish the financial statement preparation process. Secondly, we
considered the effort required for us to finish our audit work. It was clear to
us that, optimistically, the best we could hope for would be to complete the
audit sometime in April 2000 and this was not acceptable. We were one of
the agencies that missed the deadline last year. However, last year the audit
process had not been as significantly delayed by the systems conversion
effort as was the case this year. Moreover, at March 1 last year, we could
reasonably anticipate being able to complete the audit and issue our opinion
before the end of the month and, indeed, we were able to so.

    HUD criticized our decision to stop the fiscal year 1999 audit and has
alleged that we did not follow professional standards by not notifying them of
our decision to disclaim an opinion in time for them to take corrective action.
We disagree that we violated any standards relating to timely communication.
We made it clear throughout the audit process that we intended to issue our
report in time to meet the March 1, 2000 statutory due date and that our
inability to complete the audit could affect the opinion. We would also point
out that the conclusions with respect to HUD’s internal control weaknesses,
which led to the restriction of our audit scope, were formally communicated
to the Department on February 9, 2000. It was only after we informed HUD
officials on February 23, 2000 that those same issues were causing us to
disclaim an opinion, that HUD initiated a concerted effort to accelerate the
completion of the fund balance with Treasury reconciliations. This effort
included contractor support to perform a basic accounting function that
should have been completed by HUD staff months earlier. We can only
conclude that HUD was motivated to take this action primarily because of a
desire to obtain an opinion, rather than acting immediately to address the
material weakness with HUD’s corefinancial management system that was
included in our draft report on internal controls. We began the fiscal year
1999 consolidated audit in June 1999 and spent nearly 20 staff years
performing the audit.

   For the fiscal year 1999 audit, the limitation in our audit scope was caused
by the following factors:

      the undetermined effects of the conversion problems during the fiscal
       year of the general ledger from the Program Accounting System
       (PAS) to HUD’s Central Accounting and Program System
       (HUDCAPS),

      the inadequate state of HUD’s reconciliation efforts and their
       documentation for the general ledger accounts for the fund balance
       with Treasury, and

      the late manual posting of numerous and significant adjustments
       (some as late as February 25, 2000) directly to the financial
       statements, for which we lacked sufficient time to test their
       legitimacy.
    HUD implemented a major change to its accounting system in fiscal year
1999, including a new Department-wide general ledger system using
HUDCAPS. The attached "FY 1999" chart illustrates the major accounting
systems used to account for the vast majority of HUD funds, and how those
systems relate to one another and ultimately provide information needed to
prepare the financial statements. The "FY 1998" chart illustrates the system
relationships before the conversion of the general ledger to HUDCAPS. Prior
to that conversion, PAS, one of HUD’s "legacy" mainframe systems, served
as HUD’s general ledger for HUD’s grant, subsidy and loan programs.
Systems maintained for the Federal Housing Administration (FHA) and the
Government National Mortgage Association (GNMA) were separate and
those entities maintained and continue to maintain separate general ledgers.

   As illustrated in the "FY 1999" chart, the Department decided to
implement HUDCAPS as its Department-wide general ledger. While we
agree that the Department needs to integrate its general ledger systems, the
implementation was problematic in three areas.

      HUD had to develop an interface and needed to convert existing data
       from PAS. The general ledger system was migrated from PAS to
       HUDCAPS during fiscal year 1999; however, as we note in our
       report, the transition was a significant undertaking and is still not
       complete. The interface filter and the general ledger posting models
       resulted in numerous rejected or incorrectly posted transactions that
       had to be manually researched and corrected. In addition, the
       migration was done without development of an automated program to
       help reconcile the general ledger cash accounts to Treasury’s figures.

      Summary level data from the separate FHA and GNMA general
       ledger systems were to be periodically transferred to HUDCAPS. This
       should occur at least monthly. However, as we note in our report, the
       transfer of fiscal year 1999 FHA data was done once after year end
       and required inefficient manual processes.

      HUD used a financial statement report consolidation software called
       Hyperion Enterprise to prepare the financial statements.
       Reconciliation processes to identify discrepancies with Treasury fell
       behind schedule, and HUD had to make numerous adjustments to the
       general ledger fund balance with Treasury balances to make them
       agree with Treasury records. These adjustments were not made via the
       normal general ledger posting process. Rather, they were made
       directly to Hyperion Enterprise.

       At the time we discontinued our audit work, a total of 42 adjustments
       totaling about $17.6 billion had been processed in this manner to
       adjust fiscal year 1998 ending balances. An additional 242
       adjustments totaling about $59.6 billion, were made to adjust fiscal
                 year 1999 activity.


         REPORT ON INTERNAL CONTROLS:

            In reporting our findings on HUD's systems of internal controls, our report
         distinguishes between material weaknesses and reportable conditions.
         Reportable conditions are matters coming to our attention relating to
         significant deficiencies in the design or operation of internal control that, in
         our judgment, could adversely affect HUD's ability to record, process,
         summarize, and report financial data consistent with the assertions by
         management in the financial statements. Certain of the reportable conditions
         were also considered to be material weaknesses. Material weaknesses are
         reportable conditions in which the design or operation of one or more of the
         internal control components does not reduce to a relatively low level the risk
         that misstatements in amounts that would be material in relation to the
         financial statements being audited may occur and not be detected within a
         timely period by employees in the normal course of performing their assigned
         functions. The following paragraphs summarize the material weaknesses in
         our report on our attempt to audit HUD's fiscal year 1999

                                          [end of page 4]


          Source: http://www.hud.gov/offices/oig/data/reform.pdf (pg 1-4)




                                    The Missing Money:
                     Why the Citizens of Tennessee Are Working Harder
                                              &
                                         Getting Less

                                                by
                                       Catherine Austin Fitts
                                       Catherine@solari.com



In June 2001 the Senate Governmental Affairs Committee, under the leadership of Senator Fred
Thompson (R- Tenn.), published its study, "Government at the Brink.” [1] The study describes
the failure of federal government agencies to maintain reliable financial systems and/or to
publish required independent annual audited financial statements. The President’s initial 2002
budget (before increases for 9-11) proposed that approximately 85% of all federal appropriations
be awarded to the very same agencies the Thompson study states either (a) fail to maintain
reliable financial systems, (b) fail to publish trustworthy or, in some cases, any, independent
certified financial statements (as required by law), or both. [2]

What this means is that the citizens of Tennessee are paying an average of $5, 175 per person in
federal taxes[3] of which $4, 472 is appropriated by our Congressional representatives to
agencies and their outside contractors who fail to account for use of our money[4]. In other
words, most federal agencies and their contractors are not held accountable for performance,
raising the question what the people of Tennessee are getting for their significant investment in
taxes paid to the U. S. Treasury and collected by the Internal Revenue Service (IRS). While
government agencies thumb their noses at laws requiring accountability, we spend enormous
amounts of time and energy providing the IRS with accurate and complete annual financial
reports on ourselves. Is our Federal government not to be held accountable to the same
standards or rigorous financial reporting requirements as we the taxpayers?

Every year, Congressman Steve Horn (R-Calif.), Chairman of the House Government Reform
subcommittee on Government Efficiency, Financial Management and Intergovernmental
Relations [5] issues a report card regarding attempts by federal agencies to produce reliable
annual audited financial statements.

Congressman Horn's Financial Management Report Card

Agencies Rated D or F, Fiscal Year 2001 (Ended 9/30)

D+
=============================
Environmental Protection Agency
Small Business Administration

D
=============================
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Veterans Affairs

D-
=============================
Department of Commerce
Department of Education
Department of the Treasury
Nuclear Regulatory Commission
Department of Justice
Department of State
Department of Transportation
Agency for International Development
F
=============================
Department of Agriculture
Department of Defense
Federal Emergency Management Administration
National Aeronautics and Space Administration

Other reports from sources like agency inspectors general and government whistleblowers
charge that the problems are much deeper than mere accounting: they allege stolen and missing
inventory (planes, tanks, etc.) and in some cases actually admit that they rely on black budget
funding (i.e., funding that is "off balance sheet” and not subject to Congressional oversight). The
existence of such reports requires that we ask whether the very government officials and
contractors who are paid handsomely to protect and manage our resources in accordance with
the law are looting the federal government.

Total undocumented accounting adjustments for reported periods for the Department of Defense
(fall of 1997 to date) amount to a whopping $3.3 trillion, or $11,700 for every American.
(Many American families don’t even have $11,700 in savings in their bank accounts.) The
Department of Defense has failed to produce independent audited financial statements since the
requirement went into effect in 1995. HUD’s Inspector General refused to certify HUD’s fiscal
1999 financial statements. Since both agencies have refused to explain the undocumented
adjustments in adequate detail for some years and declined to report or make public
undocumented adjustments, we have no evidence to document that large amounts of assets or
money are not being stolen. [6]

In the summer of 2000, as the former Assistant Secretary of Housing – Federal Housing
Commissioner and former contractor to HUD, I visited offices of the Senate Appropriations
subcommittee for HUD. [7] While there, a senior staff member of the Chairman of the
subcommittee asked me what was going on at HUD. When I deferred, this staffer said, "HUD is
being run as a criminal enterprise.”[8] The US Treasury, the Department of Justice, the New
York Federal Reserve as depository and some or all of the major HUD contractors would have to
be complicit if this charge is true. If they know what is going on at HUD and do nothing to stop
it, then they are complicit! (Do we have a case of racketeering under the RICO criminal
statutes?)

I subsequently communicated this situation to the Tennessee staff for my Congressional
delegation. In response, one staff member advised me to "stop trying to save the world.” Later
that year, all three members of my delegation, Senator Fred Thompson, Senator Bill Frist, and
Congressman Ed Bryant, voted "yes” to a $1.7 billion increase in HUD’s budget. Letters from
my attorney to Senator Thompson regarding HUD and from me to all Congressional
representatives regarding growing criminal influence in government went unanswered. (Their
inaction and their lack of response, suggest guilt and complicity. It’s much the same as a
person involved in an auto accident when a pedestrian is run down and they flee the scene.
They are usually suspected of being involved in a "hit and run.”)
In response to an invitation from the Hardeman County Republican Party, I had the opportunity
to attend a presentation with friends and neighbors given by Congressman Van Hilleary (R-
Tenn.) at the offices of the First South Bank in Bolivar. Congressman Hilleary presented his
qualifications to serve as our next Governor of Tennessee, stressing his qualifications to bring
financial responsibility and accountability to Tennessee state government. During questions and
answers, Congressman Hilleary confirmed that he was aware that there was $3.3 trillion
missing at the DOD and HUD. I asked him what he had done to figure out what money is gone
and how we can get it back. I explained that getting our money back is the only way to make
sure more money doesn’t disappear in the future. His response was that he was only one of more
than 400 members of the House of Representatives and that there was really nothing he could
do. When I returned home, a visit to Congressman Hilleary’s website confirmed that he is in fact
one of a much smaller group who serves on the House Armed Services and Budget Committees
and he strongly supported the $48 billion increase in our military budget without so much as a
contingency placed on such spending to require compliance with the laws that regulate agency
financial management.

Why is this situation relevant to my family, friends and neighbors in Hardeman County,
Tennessee during this election season? (And indeed relevant to the other 49 states and 3,066
counties in this great country.) Recent Bureau of Economic Analysis statistics indicate that the
average American citizen has revenues of approximately $31, 817, expenses of $37, 118 and is
financing day-to-day living expenses by liquidating assets and borrowing approximately $5,301.
Meantime, corporate assets continue to rise as citizens’ assets decline. This trend has remained
unchanged for the last few years.

What that means is that the amount of assets we have to sell or borrow to make ends meet
is about the same as the amount we are paying to the federal government, most of which is
disappearing down a federal "black hole.” Meanwhile, Washington confers even more
contracts and special benefits upon private companies like those managing the accounting and
information systems at HUD and DOD and supports inside deals for companies like Enron.
Indeed, many of the companies that run HUD were intimately involved with Enron. Yard sales,
car sales, small business bankruptcies and mortgage and consumer debt defaults increase as
ordinary men and women throughout Tennessee try to foot the bill.

I believe that Tennessee’s pro rata share of the "missing money” is more than enough to fund any
increased budget needs here in Tennessee. Rather than imposing a state income tax or increasing
individual state taxes, why not simply fund any state deficits with our portion of recaptured
resources that were lost or stolen by the federal government? Indeed, why not lower state and
federal taxes. Based on many years of managing and reengineering private and government
funds and cleaning up billions of Iran Contra, S&L and HUD financial fraud, it is possible to
reengineer federal budgets on a local level in a manner that could lead to a much lower tax and
debt burden.

The campaigns and elections this year offer a unique opportunity for the citizens of Tennessee ---
as well as the other 49 states of the U.S. --- to ensure that we only pay taxes that are used for
lawful and economic purposes. We can demand a return of amounts paid to defaulting
government contractors and the profits of fraud and crime -- whether by corporations or in
government -- to fund current budgets.

It is time to get our money back to fund state and local needs rather than consider tax increases
and to ensure local control and accountability for our resources. Our federal representatives are
paid to serve us. If they fail to observe their legal mandates, we need to vote them out and vote in
people who can. It is also time to ask our local representatives to take the steps that they can to
get our missing federal tax dollars back.. But let’s not stop there. It is time to ask our local tax
attorneys, judges and accountants what legal steps can be taken to establish judgments and set
asides, escrow tax payments or to ask the courts to condition appropriations on compliance with
the law. It is time to insist that all government contract budgets and contracts be fully disclosed
and web accessible so that we can see whether the same corporations and banks that have
devastated private savings are also responsible for raiding our public assets and savings and
failing to perform on their contracts.

Long ago, when Americans tossed bales of British team into Boston Harbor, the slogan was, "No
Taxation without Representation!” Now the new slogan should be: "No Taxation without
Transparency and Accountability!”


May 22, 2002
Hickory Valley, Tennessee

NOTES:


1. http://www.senate.gov/~gov_affairs/issues.htm

2. Wasted Riches, by Kelly Patricia O’Meara, Insight Magazine, October 22, 2001,
http://www.insightmag.com/main.cfm/include/detail/storyid/108588.html

3. Based on IRS 1999 collections of individual taxes.

4. Wasted Riches, by Kelly Patricia O’Meara, Insight Magazine, October 22, 2001,
http://www.insightmag.com/main.cfm/include/detail/storyid/108588.html

5. http://www.house.gov/reform/gefmir/index.htm

6. The War on Waste, CBS News, (January 29, 2002)
http://www.cbsnews.com/stories/2002/01/29/eveningnews/main325985.shtml ; Rumsfeld Inherits Financial Mess by
Kelly Patricia O’Meara, Insight Magazine, September 3, 2001.
http://www.insightmag.com/main.cfm?include=detail&storyid=139530

7. Bio, see http://www.solari.com/about/ca_fitts.html

8. In support of the Senate staffer’s position, see The Myth of the Rule of Law, by Catherine Austin Fitts, SRA
Quarterly, London, November 2001, http://www.solari.com/gideon/q301.pdf HUD’s outside contractors include
Lockheed Martin, DynCorp, AMS, JP Morgan-Chase, Arthur Andersen and Harvard.
BACK TO PAGE CONTENTS



                                       ***********



                                       ***********

B.

How Missing Money is Costing You and Your Family




                             Click On Image For Larger Version…

                                          ******

HOW MUCH OF OUR MONEY GOES TO BOOKS
"COOKED” BY
FEDERAL AGENCIES & GOVERNMENT CONTRACTORS
& US TREASURY BANK DEPOSITORIES?
STATE BY STATE

by

Catherine Austin Fitts
www.solari.com


To learn more about cooked books and the missing
money see:
Background for Tennessee Citizens on Our Missing Money
(CLICK HERE)
                                          ******

USA AVERAGE

Residents (April 2000 census): 281,421,906
1999 IRS Individual Taxes: $1.6 trillion
Taxes per Resident: $5,688
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,835

IF YOU LIVE IN ALABAMA

Residents (April 2000 census): 4,447,100
1999 IRS Individual Taxes: $15.9 billion
Taxes per Resident: $ 3,572
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,078

IF YOU LIVE IN ALASKA

Residents (April 2000 census): 626,932
1999 IRS Individual Taxes: $2.7 billion
Taxes per Resident: $4,290
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,750

IF YOU LIVE IN ARIZONA

Residents (April 2000 census): 5,130,632
1999 IRS Individual Taxes: $19.2 billion
Taxes per Resident: $3,749
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,234

IF YOU LIVE IN ARKANSAS

Residents (April 2000 census): 2,673,400
1999 IRS Individual Taxes: $12. 3 billion
Taxes per Resident: $ 4,598
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,983

IF YOU LIVE IN CALIFORNIA
Residents (April 2000 census): 33,871,648
1999 IRS Individual Taxes: $185.2 billion
Taxes per Resident: $5,467
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,724

IF YOU LIVE IN COLORADO

Residents (April 2000 census): 4,301,261
1999 IRS Individual Taxes: $29.4 billion
Taxes per Resident: $6,833
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$5,916

IF YOU LIVE IN CONNECTICUT

Residents (April 2000 census): 3,405,565
1999 IRS Individual Taxes: $31.4 billion
Taxes per Resident: $9,232
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$7,959

IF YOU LIVE IN DELAWARE

Residents (April 2000 census):783,600
1999 IRS Individual Taxes: $6.1 billion
Taxes per Resident: $7,810
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$6,706

IF YOU LIVE IN FLORIDA

Residents (April 2000 census): 15,982,378
1999 IRS Individual Taxes: $ 76.5 billion
Taxes per Resident: $4,787
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,136

IF YOU LIVE IN GEORGIA

Residents (April 2000 census): 8,186,453
1999 IRS Individual Taxes: $43,590,023
Taxes per Resident: $5,324
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,595
IF YOU LIVE IN HAWAII

Residents (April 2000 census): 1,211,537
1999 IRS Individual Taxes: $4.8 billion
Taxes per Resident: $3,947
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,424

IF YOU LIVE IN IDAHO

Residents (April 2000 census): 1,293,953
1999 IRS Individual Taxes: $5.4 billion
Taxes per Resident: $ 4,197
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,633

IF YOU LIVE IN ILLINOIS

Residents (April 2000 census): 12,419,293
1999 IRS Individual Taxes: $90.7 billion
Taxes per Resident: $7,304
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$6,314

IF YOU LIVE IN INDIANA

Residents (April 2000 census): 6,080,485
1999 IRS Individual Taxes: $29.7 billion
Taxes per Resident: $4,880
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,207

IF YOU LIVE IN IOWA

Residents (April 2000 census): 2,926,324
1999 IRS Individual Taxes: $12.1 billion
Taxes per Resident: $4,145
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,591

IF YOU LIVE IN KANSAS

Residents (April 2000 census): 2,688,418
1999 IRS Individual Taxes: $13.7 billion
Taxes per Resident: $5,086
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,372

IF YOU LIVE IN KENTUCKY

Residents (April 2000 census): 4,041,769
1999 IRS Individual Taxes: $ 14.8 billion
Taxes per Resident: $ 3,671
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,182

IF YOU LIVE IN LOUISIANA

Residents (April 2000 census): 4,468,976
1999 IRS Individual Taxes: $ 13.6 billion
Taxes per Resident: $3,034
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$2,630

IF YOU LIVE IN MAINE

Residents (April 2000 census): 1,274,923
1999 IRS Individual Taxes: $4.5 billion
Taxes per Resident: $3,531
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,037

IF YOU LIVE IN MARYLAND & DC

Residents (April 2000 census): 5,868,545
1999 IRS Individual Taxes: $ 44.9 billion
Taxes per Resident: $7,658
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$6,622

IF YOU LIVE IN MASSACHUSETTS

Residents (April 2000 census): 6,349,097
1999 IRS Individual Taxes: $ 50.9 billion
Taxes per Resident: $8,022
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$6,926

IF YOU LIVE IN MICHIGAN
Residents (April 2000 census): 9,938,444
1999 IRS Individual Taxes: $ 63.7 billion
Taxes per Resident: $6,406
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$5,538

IF YOU LIVE IN MINNESOTA

Residents (April 2000 census): 4,919,479
1999 IRS Individual Taxes: $ 42.8 billion
Taxes per Resident: $ 8,694
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$ 7,506

IF YOU LIVE IN MISSISSIPPI

Residents (April 2000 census): 2,844.658
1999 IRS Individual Taxes: $ 8.0 billion
Taxes per Resident: $ 2,824
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$2,430

IF YOU LIVE IN MISSOURI

Residents (April 2000 census): 5,595,211
1999 IRS Individual Taxes: $33.2 billion
Taxes per Resident: $ 5,926
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$5,116

IF YOU LIVE IN MONTANA

Residents (April 2000 census): 902,195
1999 IRS Individual Taxes: $2.7 billion
Taxes per Resident: $2,984
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$2,605

IF YOU LIVE IN NEBRASKA

Residents (April 2000 census): 1,711,263
1999 IRS Individual Taxes: $9.8 billion
Taxes per Resident: $5,701
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,929
IF YOU LIVE IN NEVADA

Residents (April 2000 census): 1,998,257
1999 IRS Individual Taxes: $9.6 billion
Taxes per Resident: $4,811
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,152

IF YOU LIVE IN NEW HAMPSHIRE

Residents (April 2000 census): 1,235,786
1999 IRS Individual Taxes: $6.3 billion
Taxes per Resident: $5,047
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,364

IF YOU LIVE IN NEW JERSEY

Residents (April 2000 census): 8,414,350
1999 IRS Individual Taxes: $69.4 billion
Taxes per Resident: $8,250
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$7,133

F YOU LIVE IN NEW MEXICO

Residents (April 2000 census): 1,819,046
1999 IRS Individual Taxes: $5.5 billion
Taxes per Resident: $ 3,007
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$2,584

IF YOU LIVE IN NEW YORK

Residents (April 2000 census): 18,976,457
1999 IRS Individual Taxes: $ 145.8 billion
Taxes per Resident: $7,681
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$6,639

IF YOU LIVE IN NORTH CAROLINA

Residents (April 2000 census): 8,049,313
1999 IRS Individual Taxes: $35.4 billion
Taxes per Resident: $4,394
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,797

IF YOU LIVE IN NORTH DAKOTA

Residents (April 2000 census): 642,200
1999 IRS Individual Taxes: $2.4 billion
Taxes per Resident: $3,690
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,230

IF YOU LIVE IN OHIO

Residents (April 2000 census): 11,353,140
1999 IRS Individual Taxes: $ 66.7 billion
Taxes per Resident: $5,876
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$5,079

IF YOU LIVE IN OREGON

Residents (April 2000 census): 3,421,399
1999 IRS Individual Taxes: $ 16.1 billion
Taxes per Resident: $ 4,687
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,042

IF YOU LIVE IN PENNSYLVANIA

Residents (April 2000 census): 12,281,054
1999 IRS Individual Taxes: $70.6 billion
Taxes per Resident: $5,751
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,966

IF YOU LIVE IN RHODE ISLAND

Residents (April 2000 census): 1,048,319
1999 IRS Individual Taxes: $5.5 billion
Taxes per Resident: $5,288
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,617

IF YOU LIVE IN SOUTH CAROLINA
Residents (April 2000 census): 4,012,012
1999 IRS Individual Taxes: $15.8 billion
Taxes per Resident: $3,943
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,412

IF YOU LIVE IN SOUTH DAKOTA

Residents (April 2000 census): 754,844
1999 IRS Individual Taxes: $3.0 billion
Taxes per Resident: $3,999
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,481

IF YOU LIVE IN TENNESSEE

Residents (April 2000 census): 5,689,283
1999 IRS Individual Taxes: $ 29.4 billion
Taxes per Resident: $5,175
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,472

IF YOU LIVE IN TEXAS

Texas Residents (April 2000 census): 20,851,820
1999 IRS Individual Taxes: $104.4 billion
Taxes per Resident: $5,007
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,324

IF YOU LIVE IN UTAH

Residents (April 2000 census): 2,233,169
1999 IRS Individual Taxes: $ 8.8 billion
Taxes per Resident: $ 3,934
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$ 3,406

IF YOU LIVE IN VERMONT

Residents (April 2000 census): 608,827
1999 IRS Individual Taxes: $2.5 billion
Taxes per Resident: $4,109
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,634
IF YOU LIVE IN VIRGINIA

Residents (April 2000 census): 7,078,515
1999 IRS Individual Taxes: $ 40.1 billion
Taxes per Resident: $5,667
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4904

IF YOU LIVE IN WASHINGTON

Residents (April 2000 census): 5,894,121
1999 IRS Individual Taxes: $ 38.4 billion
Taxes per Resident: $6,521
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$5,631

IF YOU LIVE IN WEST VIRGINIA

Residents (April 2000 census): 1,808,344
1999 IRS Individual Taxes: $4.4 billion
Taxes per Resident: $2,434
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$2,064

IF YOU LIVE IN WISCONSIN

Residents (April 2000 census): 5,363,675
1999 IRS Individual Taxes: $28.6 billion
Taxes per Resident: $5,340
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$4,615

IF YOU LIVE IN WYOMING

Residents (April 2000 census): 493,782
1999 IRS Individual Taxes: $1.9 billion
Taxes per Resident: $3,976
2002 Proposed Appropriations to Federal Agencies Without Reliable
Financial Systems and/or Audits per Resident...$3,360

BASED ON

Audit reports and testimony by federal agency inspectors general and the
General Accounting Office for federal fiscal 1998-2000, "report cards" from
Congressman Horn's subcommittee of the House Government Reform Committee and Chairman
Thompson's report on Senate Governmental Affairs Committee, "Government on the Brink."
AND TO MAKE MATTERS WORSE, YOU HAVE ALREADY LOST.....

Two of the agencies that cannot produce working financial systems,
DOD and HUD, have reported $3.3 trillion missing for fiscal 1998, 1999
and 2000. That works out to about $11, 700 per US resident, based on
April 2000 census of 281,421,906 Americans.

                                        ************

Send corrections and suggestions to:

catherine@solari.com

May 22, 2002
Hickory Valley, Tennessee

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C.

Letter To Congressman Van Hilleary (R-Tenn.)




                               Click On Image For Larger Version…


May 22, 2002
Congressman Van Hilleary (R-Tenn.)
114 Cannon House Office Building
Washington, DC 20515

Van Hilleary for Governor
P.O. Box 680127
Franklin, TN 37068-0127

Re: Failure of Federal Agencies to Produce Independent Annual Certified Financial Statements
and Reliable Financial Systems; $3.3 Trillion of Undocumented Adjustments at the Department
of Housing and Urban Development (HUD) and Department of Defense (DOD) for fiscal 1998-
2000 (the "missing money”).


Dear Congressman Hilleary:

I had the opportunity to attend your presentation in early March at the offices of First South
Bank in Bolivar. You reviewed your qualifications to serve as our next Governor of Tennessee.
Your focus was on the importance of your qualifications and ability to bring financial
responsibility and accountability to Tennessee state government. During questions and answers,
you confirmed that you were aware that there was over $3.3 trillion of missing money at DOD
and HUD for fiscal 1998-2000. When asked what you had done to figure out what money is gone
and how we get it back and make sure that this does not happen again, your response was that
you were only one of more than 400 members of the House of Representatives and that there was
really nothing you could do.

As a follow up, I have prepared the following questions with the help of the members of the
Hickory Valley Baptist Church Women’s Bible Class. Your responses to more specific questions
are necessary for us to assess your qualifications to manage complex government budgets and
financial problems. They will also help us to understand what actions we can take to ensure that
our tax dollars are managed according to the law and lost or stolen money is recovered and
returned to the US Treasury.

We appreciate your sending a written response to our questions to:

The Hickory Valley Baptist Church – Women’s Bible Class
PO Box 157
Hickory Valley, Tennessee 38042

We anticipate asking these or similar questions to the other candidates running in Tennessee this
year.

If you have any questions, please do not hesitate to contact me at catherine@solari.com. Thank
you for your attention to this matter.

Sincerely yours,
Catherine Austin Fitts
Solari, Inc.

Attachment: Questions

Cc:

Members, Hickory Valley Baptist Church, Women’s Bible Class
Tennessee Media

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                                Click On Image For Larger Version…


D. Questions: Actions You Have Taken to Identify and Return Our Missing Money


I. Committee Positions and Appropriation Votes

What have your committee responsibilities been since the fall of 1997? Please explain briefly
how they relate to oversight of the agencies that have reported large undocumented adjustments
and missing money from fiscal 1998 on, including DOD, HUD, Education and the Department
of Interior – Bureau of Indian Affairs, and provide your voting record on appropriations for these
agencies for the federal budget years 1999-2003.

II. Education
What steps have you taken to inform yourself about the missing money and the failure of federal
agencies to manage their resources properly from the fall of 1997 to date?

III. Staff Assignments

What steps have you taken to assign your staff resources to investigating or trying to illuminate
or recapture the missing money from fiscal 1998 to date? Please describe briefly.

IV. Letters and Meetings

What correspondence have you initiated and what meetings have you requested with the
following agencies to stop any losses and fraud and to get any missing money back?

- Department of Treasury
- DOD
- HUD
- Department of Education
- Office of Management and Budget
- Department of Interior – Bureau of Indian Affairs


What steps have you taken to have the above agencies illuminate cash bonus payments to
personnel involved in accounting and financial management or agency leadership? In this
respect, what correspondence and meetings have you initiated with:

- Office of Personnel Management

V. Requests for Investigations

Please list all requests for investigations that you have made of the agencies and offices with
responsibility to investigate federal financial and contracting fraud and related personnel and
contractor management issues, including:

General Accounting Office
Inspector General – DOD
Inspector General – HUD
Inspector General -- Education
Inspector General -- Department of Treasury
Inspector General – Interior (Bureau of Indian Affairs)
Department of Justice
President’s Council on Integrity and Efficiency
Office of Personnel Management

Please list all requests that you have made for analysis of the impact of the missing money on the
federal credit and the feasibility and cost of financing the federal deficit and government
operations as well as the impact on the competitive value of the US dollar in world markets,
including from:

Congressional Budget Office
Congressional Research Office
Department of Treasury

VI. Disclosure and Oversight of Contractors

Please list all efforts you have made with any agencies to:

- publicly identify contractors responsible for management of agency computer and information systems
as well as accounting, depository
and payment software and systems;
- hold contractors accountable for performance;
- recapture payments where contractors fail to perform.

Have you asked for recommendations for reform regarding contractor choice, compensation and
accountability from?

General Services Administration
DOD Audit
Department of Justice

Will you commit to provide the public during this election cycle with a contracting budget for
each agency that is missing money? If not, why not?

VII. Hearings

What hearings have you held or intend to hold regarding the missing money?

VIII. Floor Speeches by Special Order

How many floor speeches have you given or do you intend to give about the missing money?

IX. Education and Enlistment of other Congressional Representatives

What efforts have you made to educate or enlist your other Congressional representatives and
leadership?

X. Education of Constituents

The missing money is the equivalent of $11,700 per American citizen. What is your annual
budget funded by taxpayers to communicate with your constituents? Please list the efforts you
have made to communicate about the missing money with your constituents and engage their
support in protecting our resources?
XI. Legislation

What legislation have you introduced or co-sponsored to enforce financial accountability in the
federal government, including recapturing monies lost or stolen?
What legislation have you introduced or co-sponsored to ensure transparency or support
enforcement efforts with concrete consequences for failure to perform:
- Accessible public disclosure of all federal contracts and contracting budgets by agency and by
geographic location;
- Accessible public disclosure of all federal appropriations, assets and credit originations and
portfolios by place;
- Firing and debarment of contractors who fail to perform their responsibilities to build and
manage reliable and trustworthy financial systems;
- Conditioning of budget authorizations and appropriations on maintenance of financial
standards;
- Conditioning of agency cash bonuses on agency financial performance;
- Recapturing of missing money.

XII. Campaign Donations

Please list the campaign donations you have received from federal government contractors at
DOD, HUD, the Department of Treasury and Interior, as well as their law firms, lobbyists,
employees and investors.

XIII. Your Actions Prior to November

Please list the actions that you will commit to take between now and the elections to find our
missing money and get it back.



C.I.A. IG REPORT - VOL. II
OLIVER NORTH IS TOAST!

NOTE: At the time this story was written it looked like the House Intelligence
Committee was going to get away with closing out the CIA drug investigations. But
thanks to the efforts of From The Wilderness that resulted in class action suits
being filed against the CIA in Los Angeles and Oakland and other publicity we have
generated Volume II has not been closed out. They can't because too many people
are watching. On October 12, 1999, investigators from House Intelligence came to
Los Angeles and copied 6,000 pages of our records for review. Going into 2000,
Volume II is still very much an open investigation and FTW is proof that something
can be done. - MCR
Volume Two of CIA Inspector General's Drug Report Released


A CIA Confession - Oliver North Exposed
by
Michael C. Ruppert
© COPYRIGHT 1998, 1999, 2000, Michael C. Ruppert - From The Wilderness @ www.copvcia.com.
ALL RIGHTS RESERVED. Permission to reprint only if the preceding appears.


October 21, 1998
In a move apparently deliberately timed to muzzle Congressional
response, the Central Intelligence Agency, on October 8, released the
long awaited declassified version of Volume II of Inspector General
Frederick Hitz's investigation into allegations of Contra drug trafficking.
The report, which had been in the hands of the Intelligence Committees
of both Houses since Spring is a virtual confession by CIA that it
engaged in a conspiracy to protect known narcotics traffickers
throughout the Contra war years. Release of the declassified version of
the report came just one hour after the House of Representatives voted to
conduct an impeachment inquiry on President Clinton and just before
House members were compelled to cease all other activity to resolve the
budget crisis. Mike Schmitz, aide to Congresswoman Maxine Waters
who sits on the Judiciary Committee, which debated the impeachment
measure, told From The Wilderness, "She was unable to read it. She
couldn't respond. And then she had to go right into budget talks.
"But," Schmitz added, "You can bet the farm that she is not going to keep quiet about this." This
writer has prepared a 44-page extract of relevant passages from the report, which shows that the
Agency participated in an apparent conspiracy to protect traffickers throughout the Contra war. It also
demonstrates that now departed CIA Inspector General Fred Hitz opted for a course which pointed
accusing fingers directly at retired Marine Lt. Col. Oliver North, the National Security Council (NSC)
and indirectly at then Vice President George Bush. A copy of that extract was sent to Waters' office
last week.

The House Permanent Select Committee on Intelligence (HPSCI) has not yet announced a date for
hearings to review the report but it will have to do so in the near future. Many are still smarting from
HPSCI's last set of hearings on Volume I which were begun March 15, without notice, on orders of
Committee Chair Porter Goss, (R) Fla, who is himself a retired CIA case officer. Calls and letters to
HPSCI and the White House accusing Goss of a conflict of interest and demanding adequate public
notice have already started going out. It is not likely that hearings will be held until after the
November elections when Republicans hope to increase their majority in the House.

Mainstream media coverage of the report, though underplayed, gave indications of how damning the
report really is. None of the stories I reviewed mentioned the fact that the Inspector General's report
also goes a long way toward corroborating allegations made by retired DEA Agent Celerino Castillo and
author Gary Webb.

As reported by Associated Press, the report, "portrays the spy agency as reluctant to inform Congress
or law enforcement of suspected drug activity by Nicaraguan Contra forces." The AP story continued to
say that, "In classified briefings on Capitol Hill, CIA officials typically acknowledged only one major
case of narcotics involvement by an anti-Sandinista group - the so called ADREN [sic] 15th of
September group, which was disbanded in 1982. But the newly declassified report links to drug
allegations 58 other individuals belonging to various Contra groups."

A telling passage of the CIA report itself states that "In six cases CIA knowledge of allegations or
information indicating that organizations or individuals had been involved in drug trafficking did not
deter their use by CIA. In at least two of those cases, CIA did not act to verify drug trafficking
allegations or information even when it had the opportunity to do so."

In an apparent confirmation of Gary Webb's Dark Alliance series The New York Times, in a brief story,
picked out a paragraph from the report which acknowledged that Contra leaders in California and the
Bay area specifically planned to deal drugs to raise money for the Contras.

The Los Angeles Times has not printed a word about the report.

The report itself is a thousand times more damaging to CIA than even these limited stories indicated.
It begins by going through a detailed and convoluted process of describing how, beginning in 1981,
the CIA entered into a conspiratorial set of negotiations with the Justice Department which
accomplished two things. First, the negotiations took literally thousands of people described as agents,
assets and contractors and removed them from their previous as classification of "employees" and
made them instantly "non-employees." This set the stage for the second part of the conspiracy, which
was to remove a previously stated responsibility to report drug trafficking by non-employees
connected to Agency operations.

Later on the report describes how, in 1987, then acting DCI Robert Gates, wrote a strident and noble
sounding memorandum to then Deputy Director of Operations, Clair George, setting down no-
nonsense policies against dealing with traffickers. The problem is that the memorandum was not
officially distributed for 15 years.

In a move apparently intended to show that the Agency had some sense of right and wrong it
describes in detail the drug trafficking activities of Jorge Morales as connected to ARDE Southern Front
Contra leader Eden Pastora. Pastora was, almost from the outset, in disfavor with the Agency. A
credible case has been made, in fact, that the Agency intended several times to assassinate Pastora
and one failed attempt, a bombing at La Penca in Nicaragua, led to the serious injury of American
journalist Tony Avirgan. Much later in the report the Agency links the infamous John Hull to the
bombing through its own cable traffic and information developed by the government of Costa Rica
where Hull operated.

As the report continues, CIA's excuses and denials for continued dealings with other traffickers begin
to sound strangely like Bill Clinton's evolving definitions of sex. When absolutely cornered they lay out
someone else, namely Ollie North and the NSC.
In a sections on SETCO, an air freight company owned by Class Iviolator Juan
Ramon Matta Ballesteros, which was documented shipping tons of cocaine,
CIA says SETCO was chosen by NHAO [The Nicaraguan Humanitarian
Assistance Office of the State Department which reported to Oliver North] to
transport goods on behalf of the Contras from late 1985 through mid-1986.
According to testimony by FDN leader Adolfo Calero before the Iran-Contra
committees, SETCO received funds for Contra supply operations from the
"bank accounts that were established by Oliver North." Oliver North's ally at
State was Elliot Abrams, a frequently named co-conspirator in the Iran Contra
affair, and a man known to have worked with CIA bagman Albert Vincent
Carone who dealt withorganized crime figures for the purpose of moving
cocaine and laundering money in the era. Carone has been covered in
previous issues of From The Wilderness.

In another section on major trafficker Moises Nunez, who was being investigated for shipment of
hundreds of kilos of cocaine through firms named Frigorificos de Puntarenas and Ocean Hunter (also
NHAO contractors), the CIA lays out North yet again. They describe how cocaine was reportedly
received at air strips owned by John Hull in Costa Rica and taken to ships owned by these two firms.
The CIA report then states, "On March 25, 1987, CIA questioned Nunez about narcotics trafficking
allegations against him.

"Nunez revealed that since 1985, he had engaged in a clandestine relationship with the
National Security Council (NSC). Nunez refused to elaborate on the nature of these actions,
but indicated it was difficult to answer questions relating to his involvement in narcotics
trafficking because of the specific tasks he had performed at the direction of the NSC
(emphasis mine). Nunez refused to identify the NSC officials with whom he had been involved."

Oliver North was the point man at NSC for all Contra support activities.

The IG report continues, "Headquarters cabled in April 1987 that a decision had been made to
"debrief" Nunez regarding the revelations he had made. The next day however, a Headquarters cable
stated that 'Headquarters had decided againstÉ debriefing Nunez.' The cable offered no explanation
for the decision."

As to allegations of trafficking at Ilopango Air Base in El Salvador the report, over approximately five
pages, appears to corroborate many of the allegations made by former DEA Agent Celerino Castillo in
his book Powderburns. The Agency draws a distinction between two separate hangars at Ilopnago, one
of which was operated by the Agency, the other of which was operated by the NSC [Oliver North]. In
making those distinctions the Inspector General's report also tends to state that CIA personnel
somehow evaporated from the airfield during the time period when Castillo documented many drug
flights. The CIA report also, referring to him as an unnamed "American citizen", utterly trashes and
disavows the spook Wally Grasheim who Castillo arrested on drug trafficking and weapons charges.
Grasheim had recently filed suit against the U.S. government and is currently represented by former
Kerry Committee lawyer, John Mattes.

John Hull, one of the biggest covert operators in the region, who was indicted along with Oliver North
on drug and weapons charges by the Costa Rican government, is similarly left on twisting in the
breeze. In spite of allegations from a number of pilots and major traffickers including Jorge Morales,
eyewitness testimony and the fact that the Costa Rican government indicted Hull and North on drug
trafficking and weapons charges. Hull denied any such activity. He did admit to fleeing the country in
1989.

What is unusual is that CIA devotes approximately four pages to Hull demonstrating that his drug
trafficking connections, murders and even a planned bombing of the U.S. Embassy in Costa Rica were
the subject of intense and frequent communications between CIA and the Congress. Whereas in other
places the CIA report goes to great lengths to state that suspected drug traffickers were not employed
by the Agency, in Hull's case it neither confirms or denies any such relationship.
Additional operations and individuals discussed in the CIA report include Arnoldo Arana, Frank Castro,
Vortex, Michael Palmer, Hondu Carib, Alan Hyde, Manuel Noriega, Felix Rodriguez, Eden Pastora,
Ramon Milian Rodriguez, Jorge Morales, Jorge Ochoa and an elusive CIA contractor/employee who
worked under the pseudonym of Ivan Gomez.

Celerino Castillo, in an interview with From The Wilderness stated that he believed the mysterious
Ivan Gomez to be a Venezuelan trafficker named Victor Rivera who Cele had met and had dealings
with during the course of his DEA investigations. He described Rivera, in his book and the interview as
a goon who fired shots within inches of torture victims ears as a means of intimidation. The CIA says
of Gomez, that virtually his entire family was in the drug business at the same time that Gomez was
married to a CIA employee.

From the damaging nature of the report it is apparent that what happens now will be up to the Congress and the people. There is
no longer any room for CIA to hide and Oliver North should start packing his bags - either to go to jail or to flee the country.


[ All of the revelations made in the CIA report are too numerous and too damning
to list here. They read like a really good (dumb) spy novel. A 44 page extract with
additional exhibits and commentary by this writer is available for $12.95 plus $2.00
shipping and handling. It is strongly suggested for anyone who would like to have
44 pages of CIA's own self-condemning words and who would like to begin the hunt
for Oliver North, NSC and George Bush.]
---------------------------------------
TO OBTAIN YOUR COPY OF THE From The Wilderness EXTRACTS AND
COMMENTARY ON VOLUME TWO OF THE CIA's INSPECTOR GENERAL REPORT WITH
COMMENTS AND NOTES BY MIKE RUPPERTÉ
Please visit the store.
----------------------------------------------
RELEVANT EXCERPTS - VOLUME TWO of the CIA INSPECTOR GENERAL'S REPORT
OF INVESTIGATION INTO CONTRA DRUG TRAFFICKING
(released Oct. 8, 1998)
Edited with Notes by Michael C. Ruppert
© COPYRIGHT 1998, 1999, 2000, Michael C. Ruppert - From The Wilderness www.copvcia.com
P.O. Box 6061-350, Sherman Oaks, CA 91413

[All Paragraph numbers herein listed are taken directly from the CIA Inspector General's report. My
notes and emphases are followed by the initials MCR. All other highlights, underlines, etc. are exactly
as they appear in the original 410 page report. The complete report with appendices is available at no
charge and located at www.cia.gov. - MCR]


                              Executive Summary and Conclusions
                                         Key Findings
                                                        Introduction


14. "CIA received allegations or information regarding drug trafficking
by Contra-related individuals in the Southern Front that operated from
Costa Rica. In 1984, CIA received allegations that five individuals
associated with the Democratic Revolutionary Alliance
(ARDE)/Sandino Revolutionary Front (FRS) were engaged in a drug
trafficking conspiracy with a known narcotics trafficker, Jorge Morales.
CIA broke off contact with ARDE in October, 1984, but continued to
have contact with four of the individuals involved with Morales"
16. In addition to the five individuals associated with ARDE, CIA received drug trafficking allegations
or information concerning 16 other individuals who supported Southern Front Contra operations based
in Costa Rica."

17. Contra Related Individuals - Northern Front. CIA also received allegations or information
concerning drug trafficking by nine Contra-related individuals in the Northern Front based in
Honduras.

18. Other Individuals Involved in the Contra Program. CIA received drug trafficking allegations
or information concerning five individuals who were used to support the Contra program.

19. Companies, Pilots and Other Individuals Working for Companies Used in Support of the
Contra Program. CIA received drug trafficking allegations or information concerning 14 pilots and
two other individuals who were associated with companies that provided support for the Contra
program. CIA also learned of drug trafficking allegations or information concerning three companies
that were used to support Contra activities from 1984 until at least 1988.

20. CIA received drug trafficking allegations or information concerning an individual who flew Contra
support missions from Ilopango Air Base in El Salvador in 1985 and 1986.




                                  Celerino "Cele" Castillo III




                   Author: "POWDERBURNS" Cocaine, Contras & The Drug War
                             2709 N. 28 1/2 St., McAllen,Texas 78501
                           Tele/Fax: 956-631-3818 Pager: 956-318-4913
                              E-Mail: powderburns@prodigy.net
   "Powderburns" is available for sale at our store. Click here to Buy It Now!
                  50% OF EACH SALE GOES DIRECTLY TO THE AUTHOR.

WRITTEN STATEMENT OF CELERINO CASTILLO III, (D.E.A., RETIRED) FOR THE
HOUSE PERMANENT SELECT COMMITTEE ON INTELLIGENCE

April 27, 1998
For several years, I fought in the trenches of the front lines of Reagan's "Drug War", trying to
stamp out what I considered American's greatest foreign threat. But, when I was posted, in
Central and South America from 1984 through 1990, I knew we were playing the "Drug War
Follies." While our government shouted "Just Say No !", entire Central and South American
nations fell into what are now known as, "Cocaine democracies."

While with the DEA, I was able to keep journals of my assignments in Central and South
America. These journals include names, case file numbers and DEA NADDIS (DEA Master
Computer) information to back up my allegations. I have pictures and original passports of the
victims that were murdered by CIA assets. These atrocities were done with the approval of the
agencies.

We, ordinary Americans, cannot trust the C.I.A. Inspector General to conduct a full investigation
into the CIA or the DEA. Let me tell you why. When President Clinton (June, 1996) ordered The
Intelligence Oversight Board to conduct an investigation into allegations that US Agents were
involved in atrocities in Guatemala, it failed to investigate several DEA and CIA operations in
which U.S. agents knew before hand that individuals (some Americans) were going to be
murdered.

I became so frustrated that I forced myself to respond to the I.O.B report citing case file
numbers, dates, and names of people who were murdered. In one case (DEA file # TG-86-0005)
several Colombians and Mexicans were raped, tortured and murdered by CIA and DEA assets,
with the approval of the CIA. Among those victims identified was Jose Ramon Parra-Iniguez,
Mexican passport A-GUC-043 and his two daughters Maria Leticia Olivier-Dominguez,
Mexican passport A-GM-8381. Also included among the dead were several Colombian
nationals: Adolfo Leon Morales-Arcilia "a.k.a." Adolfo Morales-Orestes, Carlos Alberto
Ramirez, and Jiro Gilardo-Ocampo. Both a DEA and a CIA agent were present, when these
individuals were being interrogated (tortured). The main target of that case was a Guatemalan
Congressman, (Carlos Ramiro Garcia de Paz) who took delivery of 2,404 kilos of cocaine in
Guatemala just before the interrogation. This case directly implicated the Guatemalan
Government in drug trafficking (The Guatemalan Congressman still has his US visa and
continues to travel at his pleasure into the US). To add salt to the wound, in 1989 these murders
were investigated by the U.S Department of Justice, Office of Professional Responsibility. DEA
S/I Tony Recevuto determined that the Guatemalan Military Intelligence, G-2 (the worst human
rights violators in the Western Hemisphere) was responsible for these murders. Yet, the U.S.
government continued to order U.S. agents to work hand-in-hand with the Guatemalan Military.
This information was never turned over to the I.O.B. investigation. (See attached response)
I have obtained a letter, dated May 28, 1996, from the DEA administrator, to U.S. Congressman
Lloyd Doggett (D), Texas. In this letter, the administrator flatly lies, stating that DEA agents
"have never engaged in any joint narcotics programs with the Guatemalan Military".

I was there. I was the leading Agent in Guatemala. 99.9% of DEA operations were conducted
with the Guatemalan military. In 1990, the DEA invited a Guatemalan military G-2 officer, Cpt.
Fuentez, to attend a DEA narcotic school, which is against DEA policy. I know this for a fact
because I worked with this officer for several years and was in Guatemala when he was getting
ready to travel to the States.

Facts of my investigation on CIA-Contras drug trafficking in El Salvador:

The key to understanding the "crack cocaine" epidemic, which exploded on our streets in 1984,
lies in understanding the effect of congressional oversight on covert operations. In this case the
Boland amendment(s) of the era, while intending to restrict covert operations as intended by the
will of the People, only served to encourage C.I.A., the military and elements of the national
intelligence community to completely bypass the Congress and the Constitution in an eager and
often used covert policy of funding prohibited operations with drug money.

As my friend and colleague Michael Ruppert has pointed out through his own experience in the
1970s, CIA has often bypassed congressional intent by resorting to the drug trade (Vietnam,
Laos, Iran, Afghanistan, Pakistan, etc).

When the Boland Amendment(s) cut the Contras off from a continued U.S. government subsidy,
George Bush, his national security adviser Don Gregg, and Ollie North, turned to certain foreign
governments, and to private contributions, to replace government dollars. Criminal sources of
contributions were not excluded. By the end of 1981, through a series of Executive Orders and
National Security Decision Directives, many of which have been declassified, Vice President
Bush was placed in charge of all Reagan administration intelligence operations. All of the covert
operations carried out by officers of the CIA, the Pentagon, and every other federal agency,
along with a rogue army of former intelligence operatives and foreign agents, were commanded
by George Bush. Gary Webb (San Jose Mercury News) acknowledged, that he simply had not
traced the command structure over the Contras up into the White House, although he had gotten
some indications that the operation was not just CIA.

On Dec. 01, 1981, President Ronald Reagan signed a secret order authorizing the CIA to spend
$19.9 million for covert military aid to the recently formed Contras--- hardly enough money to
launch a serious military operation against the Cuban and Soviet-backed Sandinista regime.

In August 1982, George Bush hired Donald P. Gregg as his principal adviser for national
security affairs. In late 1984, Gregg introduced Oliver North to Felix Rodriguez, (a retired CIA
agent) who had already been working in Central America for over a year under Bush's direction.
Gregg personally introduced Rodriguez to Bush on Jan. 22, 1985. Two days after his January
1985 meeting, Rodriguez went to El Salvador and made arrangements to set up his base of
operations at Ilopango air base. On Nov. 01, 1984, the FBI arrested Rodriguez's partner, Gerard
Latchinian and convicted him of smuggling $10.3 million in cocaine into the U.S.
On Jan. 18, 1985, Rodriguez allegedly met with money-launderer Ramon Milan-Rodriguez, who
had moved $1.5 billion for the Medellin cartel. Milan testified before a Senate Investigation on
the Contras' drug smuggling, that before this 1985 meeting, he had granted Felix Rodriguez's
request and given $10 million from the cocaine for the Contras.

On September 10, 1985, North wrote in his Notebook:

"Introduced by Wally Grasheim/Litton, Calero/Bermudez visit to Ilopango to estab. log
support./maint. (...)"

In October of 1985, Upon my arrival in Guatemala, I was forewarned by Guatemala DEA,
County AttachŽ, Robert J. Stia, that the DEA had received intelligence that the Contras out of
Salvador, were involved in drug trafficking. For the first time, I had come face to face with the
contradictions of my assignment. The reason that I had been forewarned was because I would be
the Lead Agent in El Salvador.

DEA Guatemalan informant, Ramiro Guerra (STG-81-0013) was in place in Guatemala and El
Salvador on "Contra" intelligence. At the time (early 80's), he was a DEA fugitive on "Rico"
(Racketeering Influence and Corrupt Organizations) and "CCE" (Continuing Criminal
Enterprise) charges out of San Francisco. In 1986, he became an official advisor for the DEA
trained El Salvador Narcotics Task Force. In 1989, all federal charges were dropped because of
his cooperation with the DEA in Central America. Guerra is still a DEA informant in Guatemala.

December 1985, CNN reporter Brian Barger broke the story of the Contra's involved in drug
trafficking.

Notes from my Journals & Intelligence Gathering

January 13, 1986, I wrote a report on El Salvador under DEA file (GFTG-86-9145).

January 16, 1986---HK-1217W--Carlos Siva and Tulio Pedras Contra pilots.

January 23, 1986, GFTG-86-9999, Air

Intelligence in "El Salvador" TG-86-0003, Samana and Raul.

In 1986, I placed an informant (Mario Murga) at the Ilopango airport in El Salvador. He was
initiated and wrote the flight plans for most Contra pilots. After their names were submitted into
NADDIS, it was revealed that most pilots had already been document in DEA files as traffickers.
(See DEA memo by me date 2-14-89.)

Feb. 05, 1986, I had seized $800,000.00 in cash, 35 kilos of cocaine, and an airplane at Ilopango.
DEA # TG-86-0001; Gaitan-Gaitan, Leonel

March 24, 1986, I wrote a DEA report on the Contra operation. (GFTG-86-4003, Frigorificos de
Puntarenas, S.A), US registration aircraft N-68435 (Cessna 402).

April 17, 86, I wrote a Contra report on Arturo Renick; Johnny Ramirez (Costa Rica). Air craft
TI-AQU & BE-60.. GFTG-86-9999; Air Intelligence.

April 25,26 1986--I met with CIA Felix Vargas in El Salvador (GFTG-86-9145).

April of 1986, The Consul General of the U.S Embassy in El Salvador (Robert J. Chavez),
warned me that CIA agent George Witters was requesting a U.S visa for a Nicaraguan drug
trafficker and Contra pilot by the name of Carlos Alberto Amador. (mentioned in 6 DEA files)

May 14, 1986, I spoke to Jack O'Conner DEA HQS Re: Matta-Ballesteros. (NOTE: Juan Ramon
Matta-Ballesteros was perhaps the single largest drug trafficker in the region. Operating from
Honduras he owned several companies which were openly sponsored and subsidized by C.I.A.)

May 26, 1986, Mario Rodolfo Martinez-Murga became an official DEA informant (STG-86-
0006). Before that, he had been a sub-source for Ramiro Guerra and Robert Chavez. Under
Chavez, Murga's intelligence resulted in the seizure of several hundred kilos of cocaine, (from
Ilopango to Florida) making Murga a reliable source of information.

May 27, 1986, I Met U.S. Army Lt. Col. Alberto Adame in El Salvador. Has knowledge of the
Contra Operation at Ilopango. He was in El Salvador from 1984 thru 1987.

On June 06, 1986, I send a DEA report/telex cable to Washington DEA in regards to Contra
pilots, Carlos Amador and Carlos Armando Llamos (Honorary Ambassador from El Salvador to
Panama) (N-308P). Llamos had delivered 4 1/2 million dollars to Panama from Ilopango for the
Contras. Information was gathered by informant Mario Murga. Leon Portilla-TIANO = Navojo
31 & YS-265-American Pilot: Francisco Viaud. Roberto Gutierrez (N-82161) Mexican (X-AB)

June 10, 1998, I spoke to CIA agent Manny Brand Re: Sofi Amoury (Cuban Contra operator and
Guatemalan Galvis-Pena in Guatemala.

June 16, 1986-GFTG-86-9999, Air Intel (DEA-6) El Salvador

Early part of 1986, I received a telex/cable from DEA Costa Rica. SA Sandy Gonzales requested
for me to investigate hangers 4 and 5 at Ilopango. DEA Costa Rica had received reliable
intelligence that the Contras were flying cocaine into the hangars. Both hangers were owned and
operated by the CIA and the National Security Agency. Operators of those two hangars were, Lt.
Col. Oliver North and CIA contract agent, Felix Rodriguez, "a.k.a." Max Gomez. (See attached
letter by Bryan Blaney (O.I.C.), dated March 28, 1991).

June 18, 1986, Salvadoran Contra pilot, Francisco "Chico" Guirrola-Beeche (DEA NADDIS #
1585334 and 1744448) had been documented as a drug trafficker. On this date, at 7:30a.m, he
departed Ilopango to the Bahamas to air drop monies. On his return trip (June 21) Guirrola
arrived with his passengers Alejandro Urbizu & Patricia Bernal. In 1988 Urbizu was arrested in
the US in a Cocaine conspiracy case. In 1985 Guirrola was arrested in South Texas (Kleberg
County) with 5 and 1/2 million dollars cash, which he had picked up in Los Angeles, California.
(U.S. Customs in Dallas/ Ft. Worth had case on him.)

June 18, 1986, DEA 6 on Air Intelligence, GFTG- 86-9999; El Salvador.
June 27 & 28, 1986, US Lt. Col. Albert Adame spoke with US Ambassador Edwin Corr re:
Narcotics.

In a July 26, 1986 report to the Congress, on contra-related narcotics allegation, The State
Department described the Frogman CASE as follows, "This case gets it's nickname from
swimmers who brought cocaine ashore in San Francisco on a Colombian vessel." It focused on a
major Colombian cocaine smuggler, ALVARO CARVAJAL-MINOTA, who supplied a number
of west coast smugglers. It was further alleged that Nicaraguan Contra, Horacio Pererita, was
subsequently convicted on drug charges in Costa Rica and sentenced to 12 years imprisonment.
Two other members of the organization were identified as Nicaraguans Carlos Cabezas & Julio
Zavala. They were among the jailed West Coast traffickers and convicted of receiving drugs
from Carvajal. They claimed long after their convictions, that they had delivered sums of monies
to Contra resistance groups in Costa Rica.

July 28, 1986, I Met with CIA agents Don Richardson, Janice Elmore and Lt. Col. Adame in El
Salvador.

July 29, 1986, I Met with Don Richardson and Robert Chavez at the US Embassy in El Salvador.

August 03,1986, Ramiro Guerra, Lt. Col. A. Adame, Dr. Hector Regalado (Dr. Death, who
claimed to have shot Archbishop Romero) and myself went out on patrol in El Salvador.

In Aug. 1986, The Kerry Committee requested information on the Contra pilots from the DEA.
The Department Of Justice flatly refused to give up any information.

Aug. 15, 1986, I spoke to CIA (Chief of Station) Jack McCavett and Don Richardson; El
Salvador; Re: Fernando Canelas Sanez from Florida.

Aug. 18, 1986, I received $45,000.00 in cash from CIA Chief of Station (CIA), Jack McKavett
for the purchase of vehicles for the DEA El Salvador Narcotic Task Force.

Aug. 28, 1986, I had a meeting with El Salvador US Ambassador, Edwin Corr, in regards to
Wally Grasheim, Pete's Place and Carlos Amador (3:00 p.m.)

Oscar Alvarado-Lara "a.k.a." El Negro Alvarado (CIA asset and Contra pilot) was mentioned in
3 DEA files. On June 11, 1986, Alvarado transported 27 illegal Cubans to El Salvador Ilopango,
where they were then smuggled into Guatemala. On Sept. 28, 1987, Alvarado picked up CIA
officer Randy Capister in Puerto Barrios Guatemala after a joint DEA, CIA and Guatemala
Military (G-2) operation. Several Mexicans and Colombians were murdered and raped. This was
supported by the CIA. DEA File TG-86-0005.

1986, DEA El Salvador, initiated a file on Walter L. Grasheim (TG-87-0003). He is mentioned
in several DEA, FBI and U.S Customs files. This DEA file is at The National Archives in The
Iran-Contra file in Washington D.C (bulky # 2316). Also see attached Top Secret/Declassified
Record of Interview on Mr. Grasheim, by the Office of Independent Counsel, dated Jan. 03,
1991.

Sept. 01, 1986, at approximately 5:00pm, I received a phone call in Guatemala from (C.I)
Ramiro Guerra, Re: Raid at Wally's house in El Salvador Wally's plane (N-246-J).

On September 01, 1986, Walter Grasheim (a civilian) residence in El Salvador was searched by
the DEA Task Force. Found at the residence was an arsenal of US military munitions, (allegedly
for a Contra military shipment). Found were cases of C-4 explosives, grenades, ammunition,
sniper rifles, M-16's, helicopter helmets and knives. Also found were files of payment to
Salvadoran Military Officials (trips to New York City). Found at his residence were radios and
license plates belonging to the US Embassy. We also found an M16 weapon belonging to the US
Mil-Group Commander, Col. Steel. Prior to the search, I went to every department of the U.S.
Embassy and asked if this individual worked in any way shape or form with the embassy. Every
head of the departments denied that he worked for them. A pound of marijuana and marijuana
plants growing in the back yard, were also found.

Sept. 02, 1986, I departed Guatemala on Taca Airlines @ 7:30a.m to El Salvador.

Sept. 26, 1986, Meeting with Col. Steel Re: Mr. Grasheim (Col. Steel admitted that he had given
an M-16 to Grasheim) and CIA George W. Also talked to Don Richardson (CIA) re: Ramiro
Guerra. Talked to Col. Adame Re: CIA George.

October 03, 1986, Spoke to DEA Panama re: Mr. Grasheim. Was advised to be careful.

October 15, 1986, Asst. Atty. Gen. Mark Richard testified before the Kerry Committee, that he
had attended a meeting with 20 to 25 officials and that the DEA did not want to provide any of
the information the committee had requested on the Contra involvement in drug trafficking.

October 21, 1986, I send a Telex/cable to Washington D.C on the Contras.

October 22, 1986 talked to El Salvador Re: Grasheim.

October 23, 1986, HK-1960P Honduras. 1,000 kilos of cocaine. DEA- 6 was written on this case.

October 29, 1986 Talked to DEA HQS (John Martch) re Contras & Grasheim.

October 30, 1986, Talked to Salvadoran Gen. Blandon re: to Mr. Grasheim.

Nov. 07, 1986, Talked to John Martch 202-786-4356 and Azzam-633-1049; Home: 301-262-
1007. (Contras).

Nov. 13, 1986, I Met with Ambassador Corr @2:00pm re: Mr. Grasheim. (He stated, "let the
chips fall where they may." Met w/ Lt. Col. Adame.

November 14, 1986, Met with Salvadoran Col. Villa Marona re: Mr. Grasheim. He advised that
the U.S Embassy had approved for Grasheim to work at Ilopango.

On January 20, 1987, Joel Brinkley (special to the New York Times) reported. "Contra Arms
Crew said To Smuggle Drugs" The 3rd secret had surfaced. Brinkley wrote: "Fed. Drug
investigators uncovered evidence last fall that the American flight crews which covertly carried
arms to the Nicaraguan rebels were smuggling cocaine and other drugs on their return trips back
to the US. Administration Officials said today that when the crew members, based in El
Salvador, learned that DEA agents were investigating their activities, one of them warned that
they had White House protection. The Times then quoted an anonymous US official who said the
crew member's warnings which came after DEA searched his San Salvador house for drugs,
caused 'quite a stir' at Ilopango."

Feb. 09, 1987, I had meeting with Lt. Col. Adame and Elmore re: major argument with DEA
HQS I.A. Lourdez Border. They had just arrived in Guatemala for a two-day fact finding tour of
El Salvador.

Feb.10, 1987, I met with U.S. Ambassador Corr (Salvador) re DEA HQS Intel. Analyst Lourdez
Border and Doug (last name unknown) - both were rookies. In two days in El Salvador, they
determined that there was no contra involvement in drug trafficking.

February 27. 1987, I spoke to Mike Alston, DEA Miami, RE: Contra pilots John Hall; Bruce
Jones' airstrip in Costa Rica, Colombian Luis Rodriguez; Mr. Shrimp-Ocean Hunter Costa Rica
> to Miami. Contra Operation from Central American to U.S.

March 03, 1987, met with Janis Elmore (CIA) from 9:00pm till 12:00

March 30, 1987, I invited U.S. Customs Agent Richard Rivera to El Salvador in an attempt to
trace ammunitions and weapons found in Mr.Grasheim's residence. It's alleged that The
Pentagon put a stop on his trace. (They were never able to trace the items).

April 01, 1987, Bob Stia, Walter (pilot) Morales and myself flew to El Salvador. Met with two
CIA agents who advised us that we could no longer utilize Murga because he was now working
with them).

April 07,08,09, 1987, I met with John Martch in Guatemala Re: Contras and OPR.

Sept. 27, 1987, Central American CIA agent, Randy Capister, the Guatemala military (G-2) and
myself, seized over 2,404 kilos of cocaine from a Guatemalan Congressman, Carlos Ramiro
Garcia de Paz and the Medellin cartel (biggest cocaine seizure in Central America and top five
ever). However, several individuals were murdered and raped on said operation. CIA agent and
myself saw the individuals being interrogated. The Congressman was never arrested or charged.

October 22, 1987, I received a call from DEA HQS Everett Johnson, not to close Contra files
because some committee was requesting file. If you have an open file, you do not have access to
the files under Freedom of Information Act.

Aug. 30, 1988, Received intelligence from (Guido Del Prado) at the U.S. Embassy, El Salvador
re: Carlos Armando Llemus-Herrera (Contra pilot).

Oct. 27, 1988, Received letter from "Bill," Regional Security Officer at the Embassy in El
Salvador re: Corruption on US ambassador Corr and del Prado.

Dec. 03, 1988, DEA seized 356 kilos of cocaine in Tiquisate, Guatemala (DEA # TG-89-0002;
Hector Sanchez). Several Colombians were murdered on said operation and condoned by the
DEA and CIA. I have pictures of individuals that were murdered in said case. The target was on
Gregorio Valdez (CIA asset) of The Guatemala Piper Co. At that time, all air operations for the
CIA and DEA flew out of Piper.

Aug. 24, 1989, Because of my information, the U.S. Embassy canceled Guatemalan Military, Lt.
Col. Hugo Francisco Moran-Carranza, (Head of Interpol and Corruption) U.S. visa. He was
documented as a drug trafficker and as a corrupt Guatemalan Official. He was on his way to a
U.S. War College for one year, invited by the CIA.

Feb. 21, 1990, I send a telex-cable to DEA HQS Re: Moran's plan to assassinate me.

Between Aug. 1989 and March 06, 1990, Col. Moran had initiated the plan to assassinate me in
El Salvador and blame it on the guerrillas. On March 06, 1990, I traveled to Houston to deliver
an undercover audio tape on my assassination. The Houston DEA S.A Mark Murtha (DEA File
M3-90-0053) had an informant into Lt. Col. Moran.

Feb. 24, 1990, I moved my family back home because DEA could not make a decision.

March 15, 1990, After 6 months knowing about the assassination plan, DEA transferred me out
to San Diego, California for 6months.

April 05, 1990, an illegal search was conducted at my residence in Guatemala by Guatemala
DEA agents Tuffy Von Briensen, Larry Hollifield and Guatemalan Foreign Service National,
Marco Gonzales in Guatemala (No search warrant). DEA HQS agreed that it had been an illegal
search requested by OPR S/I Tony Recevuto. (OPR file PR-TG-90-0068) On Sept. 16, 1991, a
questionnaire was faxed to me in regards to the illegal search. (see attached)

April 11, 1991, in an undercover capacity, Carlos Cabezas's wife sold me 5 kilos of cocaine in
San Francisco. (DEA # R3-91-0036; Milagro Rodriguez)

On April 16, 1991, I met with Carlos Cabezas at the DEA Office in San Francisco. He stated to
me that Zavala and himself were informants for the FBI in San Francisco at the time his wife
delivered the cocaine. Alvaro Carbajal had supplied the 5 kilos of cocaine. (There is an
undercover audio tape available as evidence) Mr. Cabezas gave me his undercover business card.
It was identified as "The California Company" at 3519-Mission St., San Francisco, CA 94110
REAL ESTATE & INVESTMENTS Carlos A. Cabezas, Sales Associate Pager: 371-7108 Fax:
(415) 647-0918; Res: (415 991-3104; Bus: (415) 647-8014.

May 10, 1990, DEA HQS OPR S/I Tony Recevuto returned to Guatemala and requested the U.S.
Ambassador, to please grant Lt. Col. Hugo Moran-Carranza a US Visa, so that he could testify
before the BCCI investigation in Miami. The ambassador could not understand why anyone, for
any reason would request a US Visa for an individual who had planned the assassination of a US
drug agent.

May 27, 1990, I was ordered to return back to Guatemala to pack my household goods. The
threat was still very real for me. On June 01, 1990, I departed Guatemala for the last time. On
June 05, 1990, another American was killed by the Guatemalan Military. Before the Kerry
Committee
The CIA acknowledged drugs in a statement by Central American Task Force Chief Alan Fiers
who testified: "with respect to (drug trafficking) by the Resistance Forces...It is not a couple of
people. It is a lot of people."

The DEA has always stated that my reports were unfounded, but they later recanted. DEA
Assistant Administrator, David Westrate stated of the Nicaraguan War: "It is true that people on
both sides of the equation (in the Nicaraguan War) were drug traffickers, and a couple of them
were pretty significant."

In a Sept. 20-26, 1989, series of debriefings and in subsequent debriefing on Feb. 13, 1990, by
DEA agents in Los Angeles, Lawrence Victor Harrison, an American-born electronics specialist
who had worked in Mexico and had been involved with the leading figures in the Mexican drug
cartel, was interviewed. He testified that he had been present when two of the partners of Matta-
Ballesteros and Rafael Caro-Quintero, met with American pilots working out of Ilopango air
base in El Salvador, providing arms to the Contras. The purpose of the meeting was to work out
drug deals.

Several days earlier, on Feb. 09, 1990, Harrison had told DEA interrogators that Nicaraguan
Contras were being trained at a ranch in Vera Cruz, owned by Rafael Caro Quintero. It was at
Quintero's Guadalajara ranch that DEA Agent Kiki Camarena, and his pilot were interrogated,
tortured and buried alive.

January 23, 1991, letter to Mr. William M. Baker, Asst. Director of Criminal Investigative
Division, FBI; from Lawrence E. Walsh and Mike Foster, requesting several FBI files on Walter
L. Grasheim. (see attached)

January 30, 1991, letter to DEA Ronald Caffrey, Deputy Asst. Administrator for Operations at
DEA from Craig A. Guillen, Associate Counsel of the Office of Independent Counsel; requesting
Walter L. Grasheim reports. (see attached)

In 1991, a DEA General File was opened on an Oliver North in Washington D.C. (GFGD-91-
9139) "smuggling weapons into the Philippines with known drug traffickers."

In 1991, before I departed the DEA, I met with FBI agent Mike Foster, investigator for The
Office of Independent Counsel on Iran-Contra, where I gave him detailed information of the
Contras' involvement in drugs.

October, 1994, The Washington Post reported that former Government Officials, including the
DEA, CIA, State Department, US Customs and White House officials were quoted as saying that
Lt. Col. Oliver North did not advise them of his knowledge that the Contras were involved in
drug trafficking.

In 1997, I joined DEA SA Richard Horn in a federal class action suit against the CIA. The suit is
against the CIA and other federal agencies for spying on several DEA agents and other unnamed
DEA employees and their families. United States District Court for The District of Columbia;
Richard Horn vs. Warren Christopher, Civil Action No. 1:96CV02120 (HHG) January 30, 1994.
This is a list of DEA case file and names of individuals that may help support my allegations.

      GFTG-86-9145, GFTG-87-9145 El Salvador

     GFTG-86-9999, GFTG-87-9999, Air Intelligence

     TG-87-0003, Walter L. Grasheim (Salvador case)

     TG-86-0001, Leonel Guitan-Guitan

     DEA Informants STG-86-0006 and STG-81-0013

     US Ambassador Edwin Corr

     Janis Elmore (CIA 1986 through 1989). I reported to her when in El Salvador.

     Don Richardson ( CIA & Political Officer in El Salvador 1986,87). I reported to him in El
Salvador.

     Felix Vargas (CIA El Salvador 1986, 87)

     Col. James Steel ( Mil-Group Commander El Salvador).

     U.S. Lt. Col. Alberto Adame (Under Steel)

     Lupita Vega (the only Salvadoran which was cleared for "Top Secret")
     worked in the Milgroup in El Salvador.

     Felix Rodriguez (CIA at Ilopango hanger 4 & 5)

     Jack McCavett (CIA Chief of Station in El Salvador).

   CIA George Witter in El Salvador. He asked for US visa on drug trafficker Carlos Alberto
Amador.

     CIA Randy Capister (covert operation in Central America 1985 t090). Involved in several
atrocities.

     CIA Manuel Brand (retired Cuban-American) Guatemala

     State Department (De Luoie) El Salvador

     State Department RSO Bill Rouche El Salvador

     State Dept. Official Del Prado (El Salvador)

     DEA John Martsh (DEA HQS)

     DEA Jack O'Conner (DEA HQS)
     DEA HQS Agents AZZAM & Frank Torello (retired) involved in Contra ops in Europe

     Salvadoran General Bustillo (retired in Florida)

     US Custom Richard Rivera and Philip Newton

     DEA Sandy Gonzales (Costa Rica)

     Lincoln Benedicto-Honduras US Embassy-Consul General April 30, 1986. Re: Matta-
Ballesteros

Some people have asked, "Why I am doing this? I reply, "That a long time ago I took an oath to
protect The Constitution of the United States and its citizens". In reality, it has cost me so much
to become a complete human being, that I've lost my family. In 1995, I made a pilgrimage to the
Vietnam Wall, where I renounced my Bronze Star in protest of the atrocities my government had
committed in Central America. I have now become a veteran of my third, and perhaps most
dangerous war --- a war against the criminals within my own Government. Heads have to roll for
those who are responsible and still employed by the government. They will be the first targets in
an effective drug strategy. If not, we will continue to have groups of individuals who will be
beyond any investigation, who will manipulate the press, judges and members of our Congress,
and still be known in our government as those who are above the law.

© COPYRIGHT 1998, 1999, 2000, CELERINO CASTILLO & MICHAEL C. RUPPERT. ALL
RIGHTS RESERVED. PERMISSION TO REPRINT IN WHOLE OR IN PART IS
EXPRESSLY GRANTED ONLY IF THE FOLLOWING APPEARS: "Permission to reprint
from Celerino Castillo & Michael C. Ruppert, From The Wilderness @ www.copvica.com"




                        OPENING REMARKS OF
                        MICHAEL C. RUPPERT
                                              for the
     Senate Select Committee on Intelligence
                              (WRITTEN STATEMENT WITH EXHIBITS)

       WEB NOTE: This document appears exactly as I submitted it to the Select
       Intelligence Committees of both Houses. To date, it remains only a document
       submitted in advance of testimony and it has not been placed in the Congressional
       Record. Although I and Cele Castillo remain on potential witness lists, we have not
       ben allowed to testify. The sheer volume of my exhibits and the disk space required
       to scan them makes it impossible to include these important documents here. To
       obtain my full statement, with all 32 pages of exhibits and photographs - CLICK
       HERE.

Mr. Chairman:

On November 15, 1996, I stood at a town hall meeting at Locke High School in Los Angeles
and said to Director of Central Intelligence John Deutch, "I am a former Los Angeles Police
narcotics detective. I worked South Central Los Angeles and I can tell you, Director Deutch,
emphatically and without equivocation, that the Agency has dealt drugs in this country for a
long time." I then referred Director Deutch to three specific Agency operations known as
Amadeus, Pegasus and Watchtower.

Most Americans have been lead to believe that the purpose of these hearings is to ascertain
whether or not there is any evidence that the Central Intelligence Agency dealt drugs during
the Iran-Contra era. If these hearings were about evidence, then the most patriotic duty I
could perform would be to quote Jack Blum who served as chief investigator for the Kerry
Subcommittee on narcotics and terrorism ten years ago. He testified before this committee
last year and said, "We don't have to investigate. We already know." We could save a lot of
taxpayer money by just rereading the records of the Kerry hearings. There is more evidence
in there than any court in the world would ever need to hand down indictments.

At best, I could just quote you one entry from Oliver North's diary dated July 5, 1985, which
said that $14 million to buy weapons for the Contras, "came from drugs." I wouldn't need to
mention the two hundred and fifty other such entries in his diary, which refer to narcotics.
Or I could quote Dennis Dayle a senior DEA supervisory agent who said, "In my thirty year
history in DEA, the major targets of my investigations almost invariably turned out to be
working for the C.I.A."

But these hearings are not about evidence. They are about corruption and cover-up. The
CIA did not just deal drugs during the Iran-Contra era; it has done so for the full fifty years
of its history. Today I will give you evidence which will show that the CIA, and many figures
who became known during Iran-Contra such as Richard Secord, Ted Shackley, Tom Clines,
Felix Rodriguez and George Herbert Walker Bush, who was DCI when I first became
exposed to Agency drug dealing, have been selling drugs to Americans since the Vietnam
era. I have been very careful to make sure that what I tell you today is admissible evidence
in criminal proceedings.

In a court of law the testimony of an eyewitness is one of the most prized possessions of a
prosecutor. It is direct evidence of a crime. I am an eyewitness. Another form of frequently
used evidence is an exception to the hearsay rule in which admissions against the interest
of a criminal participant or a material witness are admitted into evidence if given under oath
by the person to whom the statements were made. I am under oath and I will provide you
today with utterly damning admissions against interest made by people with direct
knowledge of these events. There is also documentary and circumstantial evidence and I
will present you with that as well.

My evidence will show conclusively that, as a matter of national policy, set at the National
Security Council - the White House - elements of the C.I.A., in concert with elements of the
military, and other federal agencies, have dealt drugs to Americans for at least three
decades. Major defense contractors like E-Systems have also engaged in such traffic. I will
not cover the outstanding work of scholars such as Alfred McCoy of the University of
Wisconsin and Peter Dale Scott of the University of California at Berkeley who document this
activity back to the forties. Nor will I attempt to deliver the material which should be given
to you directly by a great many other heroic witnesses including Celerino Castillo, Mike
Levine, Dee Ferdinand, David Sabow, Brad Ayers, Tosh Plumley, Bo Abbott, Danny
Sheehan, Gene Wheaton, John Mattes, Jack Terrell, Winfred Richardson (formerly of E-
Systems), Michelle Cooper (formerly of E-Systems), Bill Tyree and Dois G. "Chip" Tatum.
Also this committee should interview two former CIA employees on the subject. Their
names are David MacMichael and Ralph McGehee.

The evidence will also show that the CIA has infiltrated and established illegal relationships
with a number of police departments around the country. One of the purposes of this has
been to protect CIA drug operations from law enforcement. I have personal knowledge of
this activity in Los Angeles and New Orleans and have documented such a case in New York
City.

All of the exhibits I will present today are among the two hundred and fifty plus pages of
documents I provided to your investigators when they visited me in Los Angeles last year.

This is my testimony:

My name is Michael Craig Ruppert. I was born in Washington, D.C. My father was an Air
Force officer and later an aerospace executive who worked on projects which included the
Titan IIIC which was then the primary booster for the CIA's Keyhole spy satellites. My
father's cousin, Barbara Burges and her husband Sam, are both retired from the Central
Intelligence Agency. My mother was a cryptographer for Army Intelligence at Fort Meyer
during the Second World War.

I was raised Republican into a culture steeped in the best traditions of honor and national
defense. From 1969 to 1973 I was one of two "living" Republicans on the UCLA campus. The
other was Craig L. Fuller who was chosen to intern for Governor Ronald Reagan at the same
time that I was chosen, as an honors student in Political Science, to intern for Chief Edward
M. Davis of the Los Angeles Police Department.

I interned for LAPD for three years and during that time was exposed to many LAPD officers
of varying ranks who had connections to the intelligence community. I was told that I held a
"Q" Clearance at age twenty. Just before my graduation from UCLA, on a plane ticket paid
for by family, I flew to Washington and, in a meeting arranged by the Burgesses, was
interviewed by a CIA officer regarding employment with the Agency. At that interview the
recruitment officer told me he wanted me to join the Agency and then return to Los Angeles
where I would attend the Los Angeles Police Academy and use my position as a police
officer as a cover.

The CIA officer provided me with a stack of documents which he said were necessary for me
to complete for a background check. The interview ended.

Because I knew that CIA domestic operations were illegal and because I felt extremely
uncomfortable with that proposition, I never completed the forms or had any further official
contact with the Agency until seven years later.

After my graduation from UCLA in June 1973 I joined the LAPD and was the Valedictorian
for the last three classes of 1973. I was assigned to Wilshire Division patrol. I excelled at
patrol work and was subsequently loaned into Detective assignments including burglary and
homicide. I had two extended loans into Wilshire Division Narcotics and was recommended
by the narcotics Officer-In-Charge to attend a two-week DEA training school held in Las
Vegas. Narcotics was my chosen specialty. I have given expert court testimony on the
subject twenty-seven times.

Most of the details of what I am about to tell you are contained in an FBI report and
investigation made pursuant to a complaint I filed with Special Agent Stan Curry of the L.A.
Field Office on December 4, 1978. This was after I was forced out of LAPD on November 30,
1978. I trust your staff has located and reviewed the report.

In December 1975 I met and quickly fell in love with a CIA agent named Nordica Theodora
D'Orsay - Teddy. Teddy and I moved in together in March of 1976. As a childhood friend of
a niece of the Shah of Iran, Teddy had many unusual acquaintances which, as she revealed
them to me, turned out to include senior members of LAPD's Organized Crime Intelligence
Division like Lee Goforth and Norm Bonneau, narcotics investigators like Carl Thompson
from Wilshire Division and organized crime figures like Carlos Marcello, Hank Friedman and
Dan Horowitz. She also had relationships with members of the Carlo Gambino crime family.

Around this time she indicated to me that she knew Sergeant Carl Thompson of Wilshire
Division narcotics. Thompson had just been my supervisor on an extended loan into the
unit. Thompson was a designated supervisor with access to the Narcotics Intelligence
Network, a secure system allowing detectives to track narcotics investigations conducted by
other units or Agencies including DEA. Months later Teddy told me that N.I.N. was very
important to "her people". They could tell when investigations got too close to their
operations.

Then she started revealing information to me from my confidential LAPD personnel package.
She also had accurate inside knowledge of operations inside the Los Angeles Police
Department. In May, 1976 she revealed to me that she worked for the federal government
in a capacity that had to do with terrorism and narcotics. It was extremely classified, she
said. She convinced me of these connections by accurately predicting changes of command
in LAPD's intelligence divisions. She refused to name the Agency she worked for but
categorically denied that it was the FBI or any Bureau of Justice or the Treasury.

As time passed, she indicated that "her people" were interested in having me work for
them. I was promoting rapidly and had an extremely bright future with LAPD. I could be of
great use. This excited me until Teddy started revealing that, on various trips, including
Hawaii, the Bahamas, New Orleans, Texas and Baja California - where she said she had
once seen narcotics offloaded from a submarine - she had seen large quantities of firearms
and narcotics - specifically cocaine and heroin. Always, the guns were leaving the country
and the narcotics were coming in.

When I asked her what happened to the narcotics her response was, "My people are not
interested in narcotics. We just let it go."

After returning from a trip to Hawaii in early 1976 she told me of having been in a room
with close to a thousand M16s and fifty kilos of cocaine.

Repeatedly, I said to her that I would not overlook narcotics. I said, "If I'm ever in a room
with fifty kilos of cocaine somebody's going to jail and it's not going to be me." On this
position I have never compromised.
The strains my position produced on our relationship were unbearable. Teddy left suddenly
in January, 1977 and almost immediately a group of organized crime figures entered a real
estate office in Orange County where my mother worked as an agent selling single family
homes. My mother was suddenly immersed in a $45 million deal involving thousands of
acres of prime land and circumstances which caused her great fear. She asked me for help
and, as a loyal police officer and son, I gathered all the available information and presented
it to the Organized Crime Intelligence Division of LAPD. I quickly found myself "unofficially"
working with Detectives Lee Goforth and Norm Bonneau. Goforth was the same Lee Goforth
Teddy had earlier mentioned knowing. Lee was also a Brigadier General in the California
National Guard. I will tell you that I believe that Lee Goforth and Norm Bonneau were both
long term CIA assets, possibly deep cover officers within LAPD.

At the time I was on staff at the Los Angeles Police Academy. Goforth and Bonneau visited
my Captain, Jesse Brewer, who later rose to become Assistant Chief and Police
Commissioner in Los Angeles. I was to be freed from basic duties and allowed to come and
go as I pleased. A car was to be made available for me whenever I needed one. The
instructions I received were to visit my mother as often as needed and to gather all
available information on the real estate deal. I had frequent meetings with Goforth and
Bonneau at the OCID offices. Always, they seemed just a little more interested in my
relationship with Teddy than with my mother's dilemma.

Present at many of these meetings was another detective named John Xavier Vach whom I
had known from my internship years as having heavy intelligence connections. Vach later
served for several years as driver/bodyguard to Chief Daryl Gates and was convicted in
1985 of moonlighting for the CIA on city time and with providing Agency sources with
illegally obtained documents and records. His conviction and the connections to CIA are a
matter of public record in Los Angeles.

While working this "unofficial" loan to Organized Crime Intelligence I experienced five
months of surveillance, harassing phone calls and ultimately "black bag" burglaries of my
home and car in which photographs of Teddy and my off duty weapon were taken.

In July of 1977, having heard from Teddy, I forced my way to New Orleans where she was
then living with her younger sister. What I saw and heard there over the course of eight
days changed my life forever.

Teddy was living in an apartment in Gretna, a New Orleans suburb. One of the first things I
saw in her apartment was an unusual telephone. It was of the new "touch-tone" variety and
it was very heavy. An AC power adaptor hung from a cord in the phone. When Teddy took
sensitive calls she would plug the adaptor into a wall socket and push a series of buttons.
This phone was a scrambler, years later, revealed to me as bearing the U.S. Air Force
designation KY3 which required a clearance to possess.

I also saw a plastic shopping bag which contained a black monocular night vision device.
Then I saw Teddy receive sealed communiques from Naval and Air Force NCOs stationed at
Belle Chase Naval Air station. I heard her speak on the phone and in person to a U.S. Army
Special Forces veteran named Freddy about meetings with a Carlos Marcello associate
named Adrian. I was introduced to a number of employees of the Brown & Root corporation,
long identified in public source material as a CIA contractor, who were shipping out for Iran.
Teddy told me that she was especially concerned with making sure that certain important
shipments - weapons - were safely loaded onto Brown and Root ships destined for Iran.
On one occasion we went to a bar and sat with several employees from "the company",
Brown & Root and members of the New Orleans Police Department.

Outside a bar in Terrytown, shots were fired as Teddy and I walked to my car. The shots
struck the pavement a few feet from us. This was the first time I was shot at.

In other conversations, sometimes behind partially closed doors and upon which I
admittedly eavesdropped, I heard Teddy use the scrambler phone to make arrangements
for service boats operated by firms connected to Carlos Marcello to pick up "packages" from
oil rigs in the Gulf. She later admitted that these packages contained heroin.

On several evenings she left with Freddy to make sure that deliveries were proceeding as
scheduled. Finally, on my last two days there, Teddy and an Air Force NCO named Johnny
admitted CIA involvement. Teddy even showed me a cover letter of transmittal stamped
with various routing and clearance boxes which was addressed to Agent 2T6.

I should point out here that the Director of Central Intelligence when I met Teddy and when
the New Orleans operations began was George Herbert Walker Bush. The Deputy Director of
Plans, or covert operations, was Ted Shackley. Both men are central to the drug trafficking
by CIA and NSC which became epidemic in the Iran-Contra era. The New Orleans operation
continued unabated under the Directorship of Admiral Stansfield Turner and the Presidency
of Jimmy Carter.

What I saw broke my heart and terrified me. I severed all relations with Teddy. I returned
home to Los Angeles and reported everything I had seen to detectives Goforth and
Bonneau. Both had denied any knowledge of her both before and after my trip. The one
physical piece of material I have remaining directly from Teddy is a code key in Teddy's own
handwriting which she used to decipher messages received via U.S. Mail. I gave a copy of it
to the F.B.I. I refer you to EXHIBIT 1.

I took a leave for stress and returned to full duty. For one year I earned the highest rating
evaluations possible in the LAPD. I was locked-in for promotion to detective. Then came the
revolution in Iran and I wondered if perhaps the weapons I had seen Teddy arranging to
leave New Orleans were somehow connected. I began studying CIA and Iran. I reported my
activities to my superiors.

The second round of burglaries, harassments and surveillance culminated in a death threat
which I tape recorded and still possess to this day. I played it for investigators from the
House Permanent Select Intelligence Committee last winter. I have it here with me if you
wish to hear it.

When I sent a message to LAPD's new Chief Daryl F. Gates that my life was in danger and
that his driver, John Vach, was a CIA man I received word back, "The Chief is busy. He can
give you five or ten minutes in a week to ten days. Would you care to make an
appointment?"

Having prepared for this contingency I resigned in the dead of night and fled Los Angeles. I
returned with an attorney, Tim Callahan, and went directly to the Los Angeles Field Office of
the F.B.I. and reported everything I have just told you. I also sent packages to Senators
Hayakawa and Cranston as well as representatives Dornan and Bielenson. I refer you here
to EXHIBIT 2, dated December 6, 1978.
Nothing happened. I was labeled crazy by both LAPD and the FBI. After pressure from my
attorney and Senator Hayakawa an extensive investigation was conducted by LAPD's
Internal Affairs Division. Although I was made aware by friends and intelligence officers
within LAPD that I had struck a raw and exposed nerve, the official position of LAPD as
reported to me by Sgt. Martin Pomeroy, who is now a Deputy Chief, was that no action was
to be taken.

The general consensus was that Teddy had been fabricating a wild story to lead me on while
she conducted affairs behind my back. She even said so herself in a newspaper interview
with the L.A. Herald Examiner in 1981. But bear in mind that I had detailed guns for drugs
operations involving Carlos Marcello and the Gambino crime family at locations which
included Mexico, New Orleans, the Bahamas and Texas. I had even related her description
of the use of submarines for such activity.

I refer you now to EXHIBIT 3. On November 15, 1979, almost exactly a year after my
complaint to the FBI, The Los Angeles Times ran a story reprinted from Newsday. Written
by veteran reporter Tom Renner, the story described a burgeoning guns-for-drugs trade
which centered around the crime families of Dons Carlo Gambino and Carlos Marcello. The
story specifically described DEA investigations into exchanges of firearms for drugs with
known Latin American and Middle Eastern terrorist groups in such locations as the Bahamas,
New Orleans and Mexico. The story even described the use of submarines to transport the
drugs off the Mexican coast. The story also described efforts to "sanitize" DEA reports on
the subject and interfere with law enforcement efforts. Both Renner and a Senate
investigator, Bill Christensen of the Subcommittee on Improvements in Judicial Machinery
later confirmed that these efforts originated with the C.I.A.

If Teddy made it all up then she ranks right up there with Nostradamus as a prophet since
most of her statements were made to me three years before the Renner story broke. Those
events were the backbone of my complaint to my government and then, after I was told
they were nonsensical, they turned up almost verbatim in U.S. Senate records a year later
from official U.S. Government sources.

I called Tom Renner and I said, "I think the CIA is dealing drugs to fund covert operations."
Renner replied, "I think you're absolutely right." He referred me to Bill Christensen. Not only
did Christensen confirm my conclusions, he expanded on them by adding that his offices
were being burglarized, his phones were tapped and he was being routinely surveilled. I
refer you now to EXHIBIT 4, which was my first letter to him.

Christensen later assured me that I would be called to testify. It never happened. Instead,
as I was looking for employment I found that unmarked LAPD vehicles would routinely turn
up at places where I was having job interviews. Even though I had no disciplinary actions at
LAPD and an exemplary record job offers and interviews were terminated without
explanation. Desperate for money I took a job as a 7-11 store clerk. Two hours into my
second shift I was arrested for selling liquor to a minor in what I am sure, to this day, was a
set-up.

Under enormous stress I got drunk one night and collapsed on my front lawn. A shot barked
in the distance and stuck the grass inches from my head. This was the second time I was
shot at.

On April 18, 1980 two FBI agents confirmed to me that CIA had been dealing drugs to fund
covert operations during an interview at the FBI field office in Westwood, California.
My car was repossessed shortly thereafter. I filed bankruptcy in December, 1980.

In 1981, with the new Reagan administration I discovered that my old friend Craig Fuller
was now Assistant to the President for Cabinet Affairs. I was grateful when L.A. Herald
Examiner columnist Randall Sullivan wrote two front-page stories on me in October which
also referred to our friendship. I refer you to EXHIBIT 5. Having just made contact with
Fuller, and having been warmly received, I flew to Washington where I waited for a follow-
up on his invitation to visit him. I refer you now to EXHIBIT 6, which is the first of
approximately six letters I was to receive from him over the next six years.

On October 26, 1981 I sat in Craig Fuller's office in the West Wing of the White House. We
talked of personal matters and then our conversation turned to the stories by Randall
Sullivan. I looked at Craig and I said, "The CIA is complicit in bringing drugs into this
country and it is wrong." Craig made no response whatsoever. He became motionless and
expressionless. He did not come back to life again until I changed the subject. But I knew
he heard me. Craig served as Chief of Staff to Vice President Bush in the second Reagan
term.

I should point out here that original letters to me from Craig Fuller - including the one I just
exhibited, were stolen from my residence while I slept just three days after I confronted DCI
Deutch. The burglary occurred the same day that an investigator from this committee called
me and asked if I possessed such letters and if I could fax them immediately. LAPD Foothill
Division has obtained fingerprints other than my own from the place where the documents
were stored. I should mention that another original exists, on White House stationery, which
I can produce should the Committee wish to see it.

After my visit to Craig Fuller I became increasingly frustrated with the lack of progress.
Several days later I picked up the phone and called the Managing Editor of The Washington
Star. I got right through. I said, "The CIA is dealing drugs in this country to finance covert
operations." His response was, "Mike, that's the worst kept secret in Washington."... The
worst kept secret in Washington!

Now to a specific case of admissions against interest which constitute admissible evidence.

Back in los Angeles and still not clear on the causes of what I had seen I sought out a
middle east expert at UCLA. I was placed in touch with Professor Paul Jabber of the Political
Science Department. Paul was impressed by my conclusions that the weapons leaving New
Orleans had been destined for one of several indigenous rebel groups in the region. He then
disclosed to me that he had been a CIA and State Department consultant at the NSC level
during the Carter Administration. Having signed secrecy oaths he could not disclose to me
the information I needed. He could, however, direct me to open source material which
might fill in the blanks.

I followed his direction, which was to read certain stories by William Safire and C. L.
Sulzberger, and returned with an explanation for what I had seen. Paul Jabber unilaterally
confirmed my conclusions. Sulzberger himself, the scion of The New York Times, knew that
CIA had been dealing drugs for a long time. I refer you to EXHIBIT 7.

What my directed research revealed was that on March 3, 1975 the Shah of Iran and
Saddam Hussein had signed the Treaty of Algiers. In that treaty the Shah received control
of the Shaat-al-Arab waterway so that he could increase his oil exports. In exchange, he
immediately cut off all U.S. covert military assistance to Kurdish rebels operating in the
Turkish/Iraqi/Iranian trans-border region. The U.S. had been arming the Kurds to wage
guerilla warfare against the Iraqi army to divide it sufficiently so that it could not attack
Israel. Within days of the treaty's signing thousands of Kurds were massacred by Saddam in
a foreshadowing of what was to come in Desert Storm.

Alarmed at the potential loss of a long term asset the CIA decided to aid the Kurds in the
only way possible - by smuggling weapons into Kurdestan along opium smuggling routes
and to sell the opium grown there to Americans to pay for the weapons. I should point out
that Kurdestan is in the second largest opium growing region in the world.

Not only did Paul Jabber confirm my analysis, he added that in March, 1975, just weeks
before the fall of Saigon, "Congress was not about to appropriate a nickel for a covert
operation anywhere." The decision, he said, "was made at the National Security Council."

I refer you now to EXHIBIT 8 which is a letter of recommendation written for me by Paul
Jabber in which he praises my analytical thinking after discussing matters related to the
international drug trade. At the time he wrote it Paul had left UCLA to become Vice
president of Banker's Trust. I believe he is still there.

It is critical to note that as this operation went into effect Richard Secord was transferred to
Iran as Senior Air Advisor, Richard Helms became Ambassador and other key Iran-Contra
figures such as Richard Armitage, Ted Shackley, Tom Clines and, I believe, Felix Rodriguez
assumed duties in the region. These are the same men who funded an entire secret war in
Laos for the Agency on the profits of heroin produced in the Golden Triangle of Burma, Laos
and Thailand. These men all resurfaced in the heroin explosion from Pakistan in 1980 and
then in Iran-Contra. They are still extremely active today. In fact, sources tell me that Felix
Rodriguez has just been placed in charge of a program to deliver helicopters to Mexico to
"assist" the Mexican government with eradication efforts and suppression. I am extremely
suspicious.

Then, in January, 1987, a story broke in The Boston Globe about how Ross Perot had
confronted Richard Armitage and George Bush over CIA involvement in drug trafficking and
the related abandonment of POWs after Vietnam. It said everything I had been saying for
ten years. I reasoned that if a man like Ross Perot knew, and if he had made it known
inside the White House, with his influence, then surely something would happen. Nothing
happened.

Then came the Kerry hearings. Twice I was assured by Kerry staff members that I would be
called to testify. It never happened. I conclude that this was because what I had seen in
New Orleans occurred during the Carter Administration not the Reagan Administration. It
proved to me that a shadow government had seized control of our country. That shadow
government stood, and stands today, isolated and immune from the operating principles of
democracy. It is autonomous and it operates through self-funding via narcotics and
weapons trafficking. To quote William Casey it is "a completely self-funding, off-the-shelf
operation." It, in fact, dictates a substantial portion of this country's foreign, economic and
military policy from a place not accessible to the will of a free people properly armed with
facts.

For three years I forgot about all of this. In 1990 as the Kurds were once again being
massacred and Brown & Root subsidiaries increased their operations in Turkish Kurdestan I
wrote to Ross Perot who had opposed Desert Storm and he called me. I shall never forget
what he said.
"Mike, I must know forty or fifty former military officers and law enforcement personnel who
have discovered what you have. They have all had their lives ruined, been called crazy and
forced into poverty. You'd think they'd do something different once in a while but they don't
because it works."

Then he said something which has haunted me ever since. He said, "Even with all of my
resources I don't know why I pursue it. I can't seem to get anything done. And they do the
same thing with me and it works."

I had two phone conversations with Ross Perot. When he ran for President in 1992 I was the
press spokesman for the Perot Presidential Movement in Los Angeles County. That led to a
brief story in PEOPLE Magazine about my efforts to expose CIA drug dealing. That
Presidential campaign and the PEOPLE story opened the doors for me into the inner world of
the shadow government. Since then I have met more than a dozen former U.S. Army
Special Forces troops, Navy Seals, a half dozen former CIA officers and many DEA agents
and former federal law enforcement officers who have confirmed that CIA deals drugs.

When I made my statement to Director Deutch I spoke of three specific Agency operations
called Amadeus, Pegasus and Watchtower. I would like to speak of them briefly.

The Watchtower missions surfaced around 1990 when an affidavit allegedly written by Col.
Ed Cutolo of the 10th Special Forces Group, Airborne surfaced through retired Lt. Col Bo
Gritz whom I have met twice. Although not actually written by Cutolo the affidavit has since
been corroborated by a number of supporting affidavits, military records, Freedom of
Information Act inquiries and dedicated research - some of which has been contributed by
me.

Cutolo was killed in an accident in England in 1980 after expressing his concerns about
illegal operations. His death has been linked to the murder of four other Special Forces
Colonels including the legendary Bo Baker and Nick Rowe. Among the murders and
mysterious deaths listed in the affidavit are those of Archbishop Romero and Congressman
Larkin Smith.

That affidavit details how Special Forces personnel were ordered by CIA personnel including
Ed Wilson to penetrate Colombia in 1975 and 76 to plant radar beacons so that cocaine
flights could successfully fly below radar and land undetected at Albrook field in Panama. It
also details how a former Special Forces troop named William Tyree, who was on these
missions, was framed, in spite of overwhelming evidence of his innocence, for the murder of
his own wife. This was in 1979 after he had expressed misgivings about being ordered to
participate in massive domestic surveillance, harassment and blackmail operations. It was
also exactly the same time that I was forced out of LAPD. Bill has been serving a life
sentence in Walpole State Prison in Massachusetts for eighteen years.

I have spoken to and corresponded with Bill Tyree many times and I consider him to be as
innocent as Geronimo Pratt, the Black Panther who was recently released from a California
prison. Indeed, there is evidence that Tyree was not at the murder scene and that there
were witnesses who saw the actual killer emerge from Tyree's bedroom window the day his
wife was murdered. He was framed to ensure his silence and the threat of harm still hangs
over his family as I speak to you this day if he ever reveals all of what he knows.

The Agency even admitted the existence of the Watchtower missions in correspondence to
Bill Tyree several years ago. I refer you to EXHIBIT 9.
The Pegasus operations are listed in a variety of sources and published books including
works by the Christic Institute and Rodney Stich. They have been most dramatically
confirmed recently by Dois G. "Chip" Tatum, a former high-ranking CIA officer, who has
placed his documentation on his web page at www.wild_life.com. The missions are Iran-
Contra era operations and directly link to admitted Agency operations at Mena, Arkansas
where tons of cocaine were smuggled by Agency personnel into this country. That
smuggling took place under direct orders from the highest levels of this government.

The investigative material, contrary to denials, is overwhelming, irrefutable and shows a
direct link between then Governor Bill Clinton and CIA operations. It is further corroborated
by investigative material, court records and the testimony provided by Terry Reed in his
book Compromised. I have unclassified reports from CIA in which the Agency admits to
running covert operations at Mena during the period.

Finally the Amadeus missions are the single most important piece of investigative work,
other than my own experience, which I have to add to this investigation. My investigations
into Amadeus have detailed the life of Albert V. Carone, a retired New York Police detective
who, at his death from "chemical toxicity of unknown etiology", held the rank of full Colonel
in the U.S. Army Reserves. I refer you to EXHIBIT 10. I have held this man's personal
phone book in my hands. In it I found the home addresses and phone numbers of DCI
William Casey, Paul Helliwell, a long establish CIA covert operative connected to drugs,
General Richard Stillwell and many other CIA figures.

I also found the home addresses and phone numbers of a number of Mafia figures including
Pauly Castellano, head of the Gambino crime family and many other known Mafia figures.
This is hard documentary evidence which is available to this Committee.

In the years before his death Carone made open statements - admissions against interest -
to family members not only about the hands-on drug dealing roles of such figures as Oliver
North, Richard Secord, Elliot Abrams, George Bush, John Poindexter, Felix Rodriguez and
Chi Chi Quintero but about murder and torture. Carone frequently referred to Amadeus as
the CIA umbrella governing his laundering of drug money through a host of banks
worldwide. Some bank records and account numbers connected to the Bahamas and the
Jersey islands still remain. He also described the operations of such Iran-Contra era drug
kingpins Rafael Caro Quintero and Miguel Angel Felix Gallardo. When he died in 1990 he left
behind records, a passport and a great many leads which totally substantiate these
allegations.

Carone and an associate, James Robert Strauss, went on many covert missions to Mexico
and Central America. After one such mission to Mexico in the Spring of 1985 Carone
returned home, disheartened, and told of how CIA operations had directly resulted in the
murder of a DEA agent and his pilot. He was referring, of course, to Agent Kiki Camarena.

We have since obtained tape recorded statements from James Robert Strauss that Amadeus
was none other than George Herbert Walker Bush. That tape is safely stored, awaiting an
opportunity to be presented to the American people directly for their judgement by Carone's
daughter, Dee Ferdinand.

Travel records of Strauss' insurance firm show that Strauss, a small time insurance broker
and manager, routinely made frequent trips, sometimes just days apart to such cities as
Paris, London, Johannesburg, Dharan, Kuala Lumpur, Singapore, Hong Kong, Jedda, Lisbon,
Madrid, New York and the Bahamas. In his own words he did it under orders. I have
provided copies of those travel records to your committee. A former FBI agent who once
served as my lawyer reviewed the records and stated that such travel expenditure could
only occur on a GTR government account. I refer you to EXHIBIT 11.

Insurance executives, in statements made to me, have confirmed that Strauss was
terminated in 1987 as an agency manager for his involvement with drugs. I have those
statements with me now if you want them.

When Al Carone died in 1990 a funny thing happened. His NYPD pension disappeared. His
military records disappeared. His life insurance policies disappeared. His joint bank
accounts, held with his daughter, disappeared. Even his New Mexico driver's license and car
registration disappeared. His family and his daughter were left on the brink of bankruptcy -
wiped out. Carone was buried in a New Mexico cemetery with the rank of Staff Sergeant,
the highest rank he attained during the Second World War. The Army said he had never
served a day since. Everybody said they had never heard of him. Nonetheless, his official
military record in St. Louis is now the copyrighted report I wrote on his life in 1994 and
which I have provided to this Committee.

Now for some circumstantial evidence which serves as utter damnation. Bill Tyree and the
daughter of Colonel Ed Cutolo, when shown a photograph of Albert Carone, both identified
him and provided Carone's daughter, Dee Ferdinand of Corrales New Mexico, with
information about him which had previously been unpublished and unknown to any outside
his family. Tyree confirms a direct link between Carone and the Watchtower missions in
Panama as well as illegal domestic operations run from Fort Devens.

I visited Dee in 1993. At the time I told her that there was only one man who could help
her. That man was a retired, but still very active, Deputy Director of CIA, Ted Shackley.
Within approximately ten days of Dee's first contact with Shackley Carone's headstone was
changed from Staff Sergeant to full Colonel. She possess a copy of the order so directing.
She has had a number of conversations with Shackley in which Shackley has admitted to
having known and worked with her father. She is only too eager to testify about them.

I have been burglarized twice since I confronted John Deutch yet I have not been
interviewed by the CIA when the only stipulation I asked for was that a lawyer or witness be
present and that I be allowed to tape record. This was after the Agency advised me that
nothing in its investigation would be redacted or withheld from the American people. The
Agency's response was that we would be discussing classified material and they would not
allow me to tape. Does not their admission that my story reaches classified material
constitute an admission of its accuracy?

The material I would have given the Agency is the exact same material I give you today. It
is the exact same material I have used for lectures at UCLA, San Jose State, Cal Poly
Pomona, Ventura College and at approximately fifteen private venues. It is the exact same
material which the History department of UCLA accepted into its archives when Professor
James Wilkie took a three hour oral history of my life on April 9, 1997. If this material is
classified then what does the government have to hide? And doesn't, "The cat's out of the
bag" even remotely apply here? This cat's been out of the bag for a long, long time. And it
has left quite a few signs of its passing.

Since my confrontation with DCI Deutch mail sent to me, intended to be passed along to the
Honorable Maxine Waters, has been intercepted at the post office, opened, documents
replaced with classified ads and the envelope returned to the sender.
When I weaken and grow tired of the sacrifice this struggle has demanded from me I think
of Bill Tyree in prison or the family of Marine Colonel Jim Sabow who was murdered for
trying to expose this treachery when he was Chief of Air Operations at El Toro Marine Air
Station. I think of the families who attended a conference I sponsored in Indiana in the
winter of 1993 where we gathered to investigate the inexplicable suicides of what was to
become more than one hundred active duty personnel in the U.S. military. Many of these
men had complained of drugs or covert operations in the weeks prior to their deaths. I think
of the families of the POW/MIAs left behind in Southeast Asia and I think of the black men
tortured with syphilis at Tuskegee or the thousands of crack babies born in inner city
ghettos. I think of the white middle class Americans in Kansas City, Portland and Boston
who lost lives and families to drug addiction at the same time that I think of the Americans
who lost their savings and pensions during the saving & loan crisis - which is directly related
to these events. I think of the lies and death of principle at Ruby Ridge and the
disproportionate sentencing which makes black men serve one hundred times longer for
using the same drug which whites use in a different form. I think of scandals like Wedtech,
Kennametal, the Gander Crash and the horrible crimes behind INSLAW including the death
of Danny Casolero. I think of Agent Orange and the Gulf War syndrome and I stand firm
with the growing constituency of Americans who no longer have faith of any kind in their
government.

Someday we will be the majority.

And I thank God that Maxine Waters and angry African-Americans have flexed their political
muscle along with a few concerned whites to compel these hearings. For they and they
alone hold the soul of this nation in their hands until such time as we are joined in unity by
all justice loving Americans. Never have the words of Ben Franklin rung so true, "We must
all hang together or else we shall all surely hang separately."

This is not about race. This is not about left and right. This is about right and wrong.

Some three hundred and fifty years ago Galileo Galilei was persecuted for teaching that the
earth was a round planet which revolved around an obscure star at the edge of an
unremarkable galaxy. The Catholic church and much of the citizenry of the time shunned
and persecuted him for telling the truth. They were afraid he might upset the social order.
But they could not kill him because the Church knew that his science was the key to
successful navigation and exploration of the planet. Those who followed Galileo's discoveries
could be counted on to gain wealth and power and the resulting economic growth would
benefit all mankind. I live, Senator, for the day and the hour in which the people of this
country and this world will recognize that honor, integrity and trust are as indispensable to
the growth and perhaps the survival of this race as Galileo's discoveries were.

Senator, if you truly represent the best interests of the people, I want you and your
colleagues to pass a law which grants absolute immunity from prosecution or punishment to
anyone covered under the National Security Act, the CIA Act, the Espionage Act or any
applicable military regulations so that they can come forward and speak first-hand of the
crimes which are destroying the fabric of this nation. If you truly represent the people you
will see to it that Nuremburg style trials are held in full view of the world and the guilty are
brought to justice. And you will see that intelligence agencies of this government are either
abolished or so drastically restructured that crimes of this nature can never happen again.

Abraham Lincoln once said, "If slavery is not evil, then nothing is evil." I say that if CIA
dealing drugs to Americans is not wrong - then nothing is wrong.
Thank you for finally allowing me to speak my peace. My duty is now discharged. I welcome
your questions.

10/1/97

[As of March 1997 these remarks are in the possession of the Intelligence Committees of
both houses and five additional members of Congress. I have received no reply.]

[© COPYRIGHT 1997, MICHAEL C. RUPPERT. ALL RIGHTS RESERVED UNTIL SUCH TIME AS
THESE REMARKS ARE ACCEPTED INTO THE RECORD IN AN OPEN HEARING AND I HAVE
GIVEN OPEN TESTIMONY BEFORE THE UNITED STATES SENATE OR THE HOUSE OR
REPRESENTATIVES.]



The Crimes of Mena: Military "Suicides"



               The Philadelphia Inquirer

               Wednesday, December 22, 1993

   The suicide files: Death in the military----last of a four part
                     series.

                     [INLINE]

 TANGLED INVESTIGATIONS LEAVE A TRAIL OF QUESTIONS
  _________________________________________________________________

 THE BROTHER OF COL. JAMES SABOW HIRED HIS OWN EXPERTS AND CONCLUDED
 THAT A KILLER IS ON THE LOOSE. HE SEES MILITARY BUNGLING ---- AND A
 BLATANT COVER--UP. OTHER FAMILIES WONDER, TOO, IF JUSTICE WILL BE
 SERVED.

 By David Zucchino

 Inquirer staff writer

 THE LAST TIME SALLY SABOW SAW HER HUSBAND ALIVE, HE WAS DEEP INTO HIS
 USUAL MORNING ROUTINE. COL. JAMES SABOW HAD RISEN EARLY, SHOWERED,
 SHAVED, HAD COFFEE AND SETTLED IN TO WATCH CNN COVERAGE OF THE GULF
 WAR.

 IT WAS JAN 22, 1991.

 ABOUT 8:30 A.M., SALLY SABOW RECALLS SHE DROVE OFF TO MORNING MASS,
 LEAVING HER HUSBAND SITTING CONTENTEDLY IN FRONT OF THE TV INSIDE
THEIR MILITARY QUARTERS ON F STREET AT MARINE CORPS NAVAL AIR STATION
IN EL TORO, CALIFORNIA.

AN HOUR LATER , SABOW SAYS , SHE RETURNED HOME TO DISCOVER HER HUSBAND
LYING DEAD IN THE BACK YARD. PART OF HIS HEAD BLOWN AWAY BY A BLAST
FROM A 12 GUAGE SHOTGUN. TWO WEEKS LATER, STILL NUMB WITH GREIF AND
SHOCK, SABOW WAS STUNNED YET AGAIN BY A DEVELOPMENT THAT HAS SINCE
DOMINATED HER LIFE: THE NAVY CONCLUDED THAT COL. SABOW , 51,
DESPONDENT OVER AN ALLEGATION THAT HE HAD TRANSPORTED PERSONEL ITEMS
ON MILITARY AIRCRAFT, HAD COMMITTED SUICIDE.

IT DIDN'T MAKE SENSE TO HER. JIM WAS DETERMINED TO PROVE HIS
INNOCENCE. SABOW SAYS. THE NIGHT BEFORE HE DIED, SHE RECALLS , SHE HAD
WATCHED HER HUSBAND VOW TO A FELLOW OFFICER TO FIGHT THE CHARGES IN
MILITARY COURT. SHE HEARD HIM THREATEN TO EXPOSE ALLEGED DRUG
TRAFFICKING ON THE BASE.

BEYOND THAT, SALLY SABOW SAYS, THE EVIDENCE SHE HAD SEEN SUGGESTED
MURDER , NOT SUICIDE. SHE HAD SEEN A LUMP HALF THE SIZE OF A BASEBALL
BEHIND HER HUSBANDS RIGHT EAR, AS IF HE HAD BEEN BLUDGEONED.THE
TELEVISION WAS ON" MUTE." SHE KNEW JIM USED THE MUTE BUTTON ONLY WHEN
HE HAD TO STEP AWAY TO ANSWER THE DOOR. AND THE TWO FAMILY DOGS WERE
LOCKED IN THE GARAGE. HER HUSBAND NEVER LOCKED UP THE DOGS. SABOW
SAYS, UNLESS SOMEONE CAME TO THE BACK DOOR.

NOW, ALMOST THREE YEARS LATER, JIM SABOW'S WIDOW AND HIS BROTHER SAY
THEIR EXPERTS HAVE FOUND EVIDENCE PROVING THE COLONEL WAS MURDERED.
THEY ACCUSE THE MILITARY OF COVERING UP A HOMICIDE, MISHANDLING
EVIDENCE, REARRANGING THE DEATH SCENE, AND PLOTTING TO DISCREDIT THE
FAMILY. THEY MAINTAIN THAT SABOW WAS KILLED BECAUSE HE PLANNED TO
EXPOSE THE ALLEGED USE OF MILITARY AIRCRAFT TO SMUGGLE DRUGS.

"MY BROTHER WAS MURDERED --- AND I CAN PROVE IT," SAID JOHN DAVID
SABOW, A SOUTH DAKOTA NEUROSURGEON. "I KNOW WHO KILLED HIM. AND THEY
KNOW I KNOW. IT WILL ALL COME OUT."

FOR OTHER FAMILIES OF DEAD SERVICEMEN, THERE ARE NAGGING FEARS THAT
THE TRUTH NEVER WILL COME OUT. BECAUSE THE MILITARY HAS SO MISHANDLED
INVESTIGATIONS INTO THE DEATHS OF THEIR LOVED ONES, THEY SAY, THEY MAY
NEVER KNOW HOW THE MEN DIED.

WORSE YET, THE SABOWS AND A FEW OTHER FAMILIES SAY, KILLERS HAVE
GOTTEN AWAY WHEN MURDERS WERE WRONGLY RULED SUICIDE.

FORTY FAMILIES HAVE TOLD THE INQUIRER THAT THE MILITARY DECEIVED THEM
AND IMPROPERLY INVESTIGATED THE CASES OF SERVICEMEN WHOSE DEATHS WERE
RULED SUICIDES OR ACCIDENTALLY SELF-INFLICTED. THE NEWSPAPER'S REVIEW
OF THE CASES FOUND A PATTERN OF PERFUNCTORY AND INCOMPLETE
INVESTIGATIONS IN WHICH EVIDENCE WAS MISHANDLED OR DESTROYED.

IN SOME CASES, LAB TESTS WERE NOT PERFORMED. BLOOD AND TISSUE SAMPLES
WERE NOT ANALYZED. FINGERPRINTS WERE NOT TAKEN. EVIDENCE WAS THROWN
AWAY. LEADS WERE NOT PURSUED. PEOPLE WERE NOT QUESTIONED.

WITH EACH PASSING DAY, TRAILS GROW COLDER AND WITNESSES' MEMORIES GROW
MORE FAINT. AS THE 40 CASES LIE CLOSED IN MILITARY FILES, FAMILIES'
DEMANDS FOR NEW INVESTIGATIONS GROW MORE URGENT.

"I REFUSE TO LIVE THE REST OF MY LIFE WITH THESE LIES ABOUT MY
BROTHER," SAID JULIA HARRISON, WHOSE FAMILY DISPUTES A RULING BY THE
NAVY THAT ELECTRICIAN'S MATE WILLIAM T. HARRISON COMMITTED SUICIDE IN
TEXAS IN JANUARY. "WHOEVER KILLED HIM IS STILL OUT THERE --- AND I
WONDER HOW THEY SLEEP AT NIGHT."

LAST MONTH, CONGRESS PASSED A BILL REQUIRING THE PENTAGON TO REVIEW
ITS PROCEDURES FOR INVESTIGATING DEATHS RULED SELF-INFLICTED, AND
REPORT BACK TO CONGRESS BY NEXT JULY. THE MEASURE ALSO CREATES A
MECHANISM FOR FAMILIES TO PRESENT TO THE PENTAGON'S INSPECTOR-GENERAL
EVIDENCE OF A "MATERIAL DEFICIENCY" IN A DEATH INVESTIGATION.

MOST FAMILIES SAY THEY WANT MORE: NEW INVESTIGATIONS BY AN AGENCY
UNCONNECTED TO THE MILITARY. SOME HAVE FORMED A SUPPORT GROUP CALLED
"UNTIL WE HAVE ANSWERS."

"AT THIS POINT, I PROBABLY DON'T HAVE A PRAYER OF FINDING OUT HOW MY
SON DIED," SAID A FOUNDER OF THE GROUP, ROBYN HALL, WHO HAS DISPUTED
THE NAVY'S SUICIDE RULING IN THE 1991 DEATH OF HER SON MICHAEL J.
LESLIE. "BUT IT'S GRATIFYING TO KNOW CONGRESS HAS QUESTIONED THE
MILITARY'S METHODS-- AND RECOGNIZED WE HAVE LEGITIMATE COMPLAINTS."

SPOKESMEN FOR THE MILITARY'S THREE INVESTIGATIVE AGENCIES DEFENDED
THEIR INVESTIGATIONS AS THOROUGH AND PROFESSIONAL. THEY SAID THE
AGENCIES WERE AWARE OF NO NEW EVIDENCE TO WARRANT REINVESTIGATING THE
CASES.

FOR CATHERINE JAKOVIC, THE MORE QUEATIONS SHE ASKS ABOUT HER SON'S
DEATH, THE MORE CONTRADICTORY THE ANSWERS SHE GETS.

THE NAVY FIRST SAID MARINE LANCE CPL. SCOTT JAKOVIC WAS ALONE WHEN HE
SHOT HIMSELF IN THE HEAD WHILE ON GUARD DUTY IN 1991. THEN, IT CHARED
A FELLOW MARINE IN CONNECTION WITH THE SHOOTING. WHEN THAT MARINE WAS
ACQUITTED, THE NAVY AGAIN SAID JAKOVIC HAD SHOT HIMSELF-- WHILE
PLAYING RUSSIAN ROULETTE.

MORE THAN TWO YEARS AFTER SCOTT'S DEATH, JAKOVIC STILL DOES NOT KNOW
HOW HE DIED.

"THE MILITARY TRIES TO INTIMIDATE YOU AND KEEP YOU IN THE DARK." SHE
SAID. "THEY DON'T WANT THE TRUTH TO COME OUT."

THE DEATH OF COL. SABOW WAS RULED SUICIDE TWO WEEKS AFTER SALLY SABOW
FOUND HIS BODY. IT WAS TOO QUICK, SABOW'S BROTHER SAYS. THE
 FINGERPRINT, BLOOD AND GUNSHOT RESIDUE TESTS WEREN'T BACK FROM THE LAB
 YET. IT SEEMED TO DAVID SABOW THAT THE NAVY WAS EAGER TO CLOSE OUT HIS
 BROTHER'S CASE. HE SUSPECTED THE MILITARY WAS HIDING SOMETHING.

 SABOW DECIDED TO HAVE THE ENTIRE CASE INVESTIGATED. HE HIRED GENE
 WHEATON, A FORMER ARMY AND AIR FORCE INVESTIGATOR WHO HAD SUPERVISED
 HUNDREDS OF INVESTIGATIONS, AND TED . GUNDERSON, THE FORMER CHIEF OF
 THE FBI OFFICE IN LOS ANGELES. HE ALSO HIRED FORENSIC SPECIALISTS TO
 STUDY THE AUTOPSY AND CRIME SCENE PHOTOS.

 WHAT THEY FOUND CONVINCED SABOW THAT HIS BROTHER HAD BEEN MURDERED
BY
 SOMEONE IN THE MILITARY WHO FEARED THE COLONEL WOULD REVEAL DRUG
 TRAFFICKING VIA MILITARY AIRCRAFT.

 SABOW SAID HIS FORENSIC EXPERTS HAVE CONCLUDED THAT THE SHOTGUN BLAST
 BLEW AWAY HIS BROTHER'S BRAIN STEM, INSTANTLY CEASING ALL BREATHING.
 YET THE EXPERTS FOUND EVIDENCE THAT SABOW BREATHED BLOOD INTO HIS
 LUNGS FOR FOUR TO FIVE MINUTES BEFORE HE WAS SHOT.

 THAT EVIDENCE, COMBINED WITH THE LARGE BUMP ON SABOW'S HEAD, LED THE
 EXPERTS TO A CONCLUSION: THE COLONEL WAS BLUDGEONED FROM BEHIND BY A
 RIGHT-HANDED PERSON, KNOCKED UNCONSCIOUS, AND THEN WAS SHOT IN THE
 HEAD MINUTES LATER.

 THAT CONCLUSION IS SUPPORTED, DAVID SABOW SAID, BY THE POSITION OF HIS
 BROTHER'S HANDS. IF THE COLONEL HAD SHOT HIMSELF, HE SAID, HIS ARMS
 WOULD HAVE FLOWN OUT AND AWAY FROM HIS BODY. BUT THE ARMS WERE FOLDED
 IN PRAYER POSITION IN FRONT OF SABOW'S FACE, SABOW SAID.

 BEYOND THAT, INVESTIGATOR WHEATON CONTENDS, THE CRIME SCENE WAS
 REARRANGED TO FIT A SUICIDE SCENARIO. WHEATON SAID THE FIRST
 INVESTIGATORS ON THE SCENE TOLD HIM COL. SABOW WAS FOUND LYING A FEW
 FEET AWAY FROM A LAWN CHAIR. CRIME SCENE PHOTOS SHOW THE CHAIR LYING
 ON TOP OF SABOW, ACCORDING TO WHEATON.

 THE PHOTOS ALSO SHOW OPEN SHOTGUN AMMUNITION BOXES LYING ON THE
GARAGE
 FLOOR. WHEATON SAYS INVESTIGATORS TOLD HIM THAT THE BOXES WERE FOUND
 CLOSED AND STORED INSIDE A CABINET.

 "THEY ARRANGED THE SCENE SO THEIR REPORTS WOULD "FLOW PROPERLY",
 WHEATON SAID. "THEY DUMMIED IT UP. THEY THOUGHT THE SUICIDE MADE MORE
 SENSE THAT WAY."

 ALTHOUGH THE COLONEL WAS NOT WEARING GLOVES, THE NAVAL CRIMINAL
 INVESTIGATIVE SERVICE (NCIS) REPORT SAID NO FINGERPRINTS WERE FOUND ON
 THE GUN OR THE TWO SHELLS LOADED INTO IT. MOREOVER, WHEATON SAID, AN
 AGENT TOLD HIM THAT TWO INVESTIGATORS HANDLED THE GUN WITH THEIR BARE
 HANDS, TAINTING THE EVIDENCE.
 SALLY SABOW NOTICED THAT HER HUSBAND WASN'T WEARING HIS GLASSES WHEN
 HE DIED. HE WAS EXTREMELY FAR-SIGHTED, SHE SAID , AND COULD NOT SEE UP
 CLOSE WITHOUT THEM.

 SO HOW, SHE WONDERED, DID HE SELECT 12 GAUGE SHELLS FROM A JUMBLE OF
 BOXES, BURIED IN THE GARAGE CABINET. THAT ALSO CONTAINED 16-GAUGE AND
 20-GAUGE SHELLS?

 THE NCIS SAID NO FINGERPRINTS WERE FOUND ON THE AMMUNITION BOX, YET
 WHEATON SAID AN INVESTIGATOR TOLD HIM THAT ANOTHER INVESTIGATOR
 HANDLED THE BOX WITH HIS BARE HANDS.

 AND, ACCORDING TO DAVID SABOW, THE BREECH OF THE SHOTGUN WAS WAS
 DEVOID OF BLOOD. IF SABOW HAD PUT THE BARRELL TO HIS MOUTH AND FIRED,
 AS THE NCIS REPORT SAID, THE BREECH SHOULD HAVE BEEN SPATTERED WITH
 "BLOWBACK" BLOOD AND BRAIN TISSUE.

 IN OCTOBER, THE SABOW'S FILED A CIVIL COMPLAINT IN FEDERAL COURT
 AGAINST THE GOVERNMENT AND MILITARY, SEEKING DAMAGES FOR EMOTIONAL
 DISTRESS AND ALLEGING A CONSPIRACY TO CONCEAL CIRCUMSTANCES OF SABOW'S
 DEATH.

 THE GOVERNMENT, WHICH HAS UNTIL MID-JANUARY TO FORMALLY RESPOND, HAS
 NOT YET DONE SO, ACCORDING TO SABOW'S ATTORNEY. A SPOKESWOMAN FOR THE
 U.S. ATTORNEY'S OFFICE IN LOS ANGELES DID NOT RETURN CALLS SEEKING
 COMMENT.

 THE SUIT ALLEGES THAT THE MILITARY CONSPIRED TO "OPPRESS , THREATEN,
 HARASS, COERCE, INTIMIDATE AND INFLICT EMOTIONAL DISTRESS" ON THE
 SABOWS. IT CHARGES THAT EL TORO COMMANDERS PLOTTED TO PORTRAY COL.
 SABOW AS A "CROOK" AND "FELON," AND PREPARED A LETTER TO THE SOUTH
 DAKOTA BOARD OF MEDICAL EXAMINERS ACCUSING DAVID SABOW OF MISCONDUCT.

 ACCORDING TO THE SUIT:

 INVESTIGATORS FAILED TO CORDON OFF THE DEATH SCENE AND LEFT SABOW'S
 BODY EXPOSED AND UNCOVERED FOR ABOUT SEVEN HOURS ON A WARM
AFTERNOON.

 THEY FAILED TO PROPERLY "BAG" SABOW'S HANDS TO PRESERVE EVIDENCE THAT
 HE FIRED THE SHOTGUN.

 THEY STUCK THE SHOTGUN INTO THREE PAPER BAGS INSTEAD OF PROPER
 EVIDENCE BAGS, POSSIBLY TAINTING THE EVIDENCE.

 THEY FAILED TO CHECK BENEATH SABOW'S FINGERNAILS FOR POSSIBLE EVIDENCE
 THAT HE STRUGGLED WITH AN ATTACKER.

 THEY FAILED TO PRESERVE SABOW'S ORGANS AND TISSUE SAMPLES.

 THEY MISQUOTED WITNESSES. "YOU'D DO A BETTER JOB AS A CRIMINAL
INVESTIGATOR IF YOU WATCHED OLD PERRY MASON RERUNS," AND SABOW'S
LAWYER PAUL COPENBARGER.

ACCORDING TO THE SUIT, COL. SABOW'S MILITARY ATTORNEY WAS QUOTED BY
THE NCIS AS SAYING THE COLONEL WAS "DESPERATE" WHEN THE TWO MEN SPOKE
THE MORNING SABOW DIED. THE LAWYER LATER SAID HE ACTUALLY TOLD THE
NCIS THAT SABOW "EXHIBITED THE NORMAL ANXIETY ASSOCIATED WITH BEING
UNDER INVESTIGATION, BUT DID NOT APPEAR IRRATIONAL OR DESPERATE," THE
SUIT SAID.

THE NCIS QUOTED SALLY SABOW AS SAYING SHE SAW "A LOOK OF TERROR" IN
SABOW'S EYES THE MORNING HE DIED. SHE DENIES SAYING THAT.

"IF I HAD THE SLIGHTEST HINT THAT HE WAS DESPONDENT, I WOULD NEVER
HAVE LEFT HIM ALONE," SHE SAID. "HE WAS ANXIOUS ABOUT THE ALLEGATIONS,
OF COURSE, BUT HE WAS PERFECTLY FUNCTIONAL AND NORMAL."

COL. SABOW'S COMMANDER EXPRESSED DOUBT THAT SABOW WOULD KILL HIMSELF
OVER MINOR ALLEGATIONS THAT A MILITARY PLANE IN WHICH HE RODE
DELIVERED STEREO SPEAKERS AND POSTERS TO HIS SON AT AN AIR FORCE BASE.
SIMILAR CHARGES WERE SUCCESSFULLY BROUGHT AGAINST THE TOP TWO
COMMANDERS AT EL TORO, WHERE SABOW WAS THIRD-IN-COMMAND UNTIL HE WAS
SUSPENDED 10 DAYS BEFORE HIS DEATH.

ONE OF THOSE COMMANDERS TOLD THE NCIS:"IT IS ILLOGICAL THAT COLONEL
SABOW WOULD TAKE HIS LIFE SOLELY ON THE BASIS OF EVENTS IN THE VERY
EARLY STAGES OF AN INVESTIGATION."

THE SABOWS SAY THEY HAVE SPENT MORE THAN $100,000 TRYING TO PROVE THAT
JIM SABOW DID NOT KILL HIMSELF. THEY SAY HE WAS A STRAIGHT-ARROW
MARINE, A PROUD OFFICER AND VIETNAM WAR HERO WHO EXEMPLIFIED THE BEST
OF THE CORPS.

IT PAINS THEM, THEY SAY, TO BE DECEIVED AND BULLIED BY THE VERY MARINE
CORPS THAT JIM SABOW LOVED SO DEEPLY.

"THE DISGUST I NOW FEEL TOWARDS THE MILITARY IS OVERWHELMING," DAVID
SABOW SAID. "WHAT THEY'VE DONE TO THIS FAMILY IS SICKENING."

SALLY SABOW SAYS SHE FEELS BETRAYED.

"I USED TO BE ONE OF THE MOST PATRIOTIC PEOPLE IN THE WORLD," SHE
SAID. "NOW I WON'T PLEDGE THE FLAG. I WON'T SING THE NATIONAL ANTHEM.
MY FAITH IN MY COUNTRY IS DESTROYED."

ON THE DAY HE DIED IN MISSISSIPPI, AIRMAN ALLEN SHULTS HAD HIS CAR
SERVICED. THEN HE DID HIS LAUNDRY. LATER ON, HE CALLED A FRIEND BACK
HOME IN KANSAS TO PLAN A PARTY.

A FEW HOURS LATER, ACCORDING TO THE AIR FORCE, 6-FOOT-3 ALLEN SHULTS
TIED A SHEET TO A DOOR'S BROKEN HYDRAULIC CLOSURE, LOOTED IT AROUND
HIS NECK, AND HANGED HIMSELF. HE WAS DEAD AT AGE 20, ASPHYXIATED IN
HIS DORMITORY ROOM AT KEESLER AIR FORCE BASE NEAR BILOXI, MISSISSIPPI,
IN JULY 1992.

AT FIRST, ROYAL AND LINDA SHULTS ACCEPTED THE MILITARY'S SUICIDE
RULING, ALTHOUGH THEY SAY THEIR SON SEEMED HAPPY WHEN THEY SPOKE TO
HIM DAYS BEFORE HE DIED. BUT WHEN THE AIR FORCE REFUSED TO PROVIDE
DETAILS --- INCLUDING A DEATH DATE FOR ALLEN'S TOMBSTONE---THEY BEGAN
TO WONDER HOW HE DIED.

AT THEIR HOME IN ATCHISON KANSAS THE SHULTS DECIDED TO HIRE A PRIVATE
DETECTIVE TO INVESTIGATE ALLENS DEATH. WHAT HE FOUND THEY SAID,
CONVINCED THEM HE WAS MURDERED.

CHRIS RUSH, A PRIVATE INVESTIGATOR FROM NEW YORK SAYS HE WAS SUPRISED
BY THE PAUCITY OF EFFORT AND EVIDENCE THE AIR FORCE PUT INTO THE
SHULTS CASE.

" THEY DIDN'T EVEN FOLLOW THEIR OWN INVESTIGATIVE PROCEDURES," RUSH
SAID THIS MONTH.

"THEIR INVESTIGATION EFFECTIVELY ENDED AT 8:PM THE DAY ALLEN DIED."

ACCORDING TO RUSH THE AIR FORCE:

*DID NOT PERFORM SALIVA TESTS TO DETERMINE WHO SMOKED TWO CIGARETTE
BUTS FOUND IN SHULTS ROOM. NEITHER WAS OF BRANDS HE SMOKED.
INVESTIGATORS SAID HE WAS ALONE WHEN HE DIED.

*DID NOT CHECK UNDER SHULTS FINGERNAILS FOR POSSIBLE EVIDENCE THAT HE
HAD STRUGGLED WITH SOME ONE.

*DID NOT TAKE FINGERPRINTS FROM THE ROOM.

* DID NOT CHECK TELEPHONE RECORDS OF CALLS TO AND FROM SHULTS ROOM ON
THE DAY HE DIED.

* MISSED "V" SHAPED CONTUSIONS ON SHULTS NECK THAT WERE NOT CONSISTENT
WITH MARKS LEFT BY BED SHEET HANGING.

*DESTROYED THE SHEET USED IN THE HANGING .

RUSH SAID 13 OF 15 PEOPLE HE INTERVIEWED AT THE KEESLER BASE TOLD HIM
THAT STATEMENTS ATTRIBUTED TO THEM BY THE AIR FORCE WERE EITHER
ENTIRELY FALSE OR TAKEN OUT OF CONTEXT.

AFTER INTERVIEWING THEM AND THEN SHOWING THEM THEIR STATEMENTS IN AN
AIR FORCE INVESTIGATIVE REPORT. RUSH SAID, " THEY WERE DUMFOUNDED.
THEY SAID: "THATS NOT WHAT I SAID,".

RUSH SAID HIS INVESTIGATION FOUND CIRCUMSTANTIAL EVIDENCE THAT SHULTS
DEATH WAS CONNECTED TO HIS RELATIONSHIP WITH THE WIFE OF ANOTHER
SERVICEMAN.

THE HEAVILY CENSORED AIR FORCE REPORT SAYS SHULTS AND THE WOMAN HAD
ARRANGED A RENDEZVOUS FOR JULY 5 ---- THREE DAY AFTER SHULTS DEATH.
RUSH SAID SHULTS TOLD A FRIEND THE NIGHT HE DIED THAT THE WOMAN WAS
GOING TO DISCUSS A DIVORCE WITH HER HUSBAND.

THE AIR FORCE CONCLUDED THAT SHULTS, AFTER AN EVENING OF DRINKING,
KILLED HIMSELF BECAUSE THE WOMAN WAS SPENDING THE WEEKEND WITH HER
HUSBAND. IT QUOTED THREE CO--WORKERS WHO SAID SHULTS HAD SEEMED
DEPRESSED.

RUSH ALSO SAID SHULTS' SUITEMATE TOLD HIM HE THOUGHT SHULTS WAS HIDING
A WOMAN IN HIS ROOM WHEN HE SAW SHULTS THERE ABOUT 9:30 P.M. THE
MILITARY ESTIMATED THAT SHULTS DIED AROUND MIDNIGHT.

ACCORDING TO RUSH, THE SUITEMATE SAID THE AIR FORCE NEVER ASKED FOR
DETAILS ABOUT HIS VISIT TO SHULTS' ROOM.

RUSH ALSO SAID HE WAS TOLD THAT A DIFFERENT WOMAN --- WAS IN THE ROOM
WITH SHULTS THAT NIGHT.

THE AIR FORCE REPORT SAID A NOTE WAS FOUND IN SHULTS ROOM THAT READ: "
I LOVED YOU BUT I COULDN'T TAKE THE PRESSURE."

THE REPORT SAID A HAND WRITING ANALYSIS WAS INCONCLUSIVE , FINDING
INDICATIONS THAT HE WROTE THE SIGNATURE ALLEN WENDELL SHULTS ON THE
NOTE BUT " LIMITED INDICATIONS" THAT SHULTS WROTE THE PRINTED MESSAGE.

THE SHULTSES SAY THE HANDWRITING IS NOT THEIR SON'S, AND HE SO
DETESTED HIS MIDDLE NAME HE NEVER USED IT.

RONALD F. DECKER, A FORMER AIR FORCE OFFICER OF SPECIAL INVESTIGATIONS
(OSI) INVESTIGATOR WHO REVIEWED THE OSI REPORT, SAID: "THERE ARE MANY
ITEMS THAT OSI APPARENTLY CHOSE NOT TO INVESTIGATE. THIS INVESTIGATION
IS NOWHERE NEAR AS COMPLETE AS IT 'APPEARS'."

U.S. REP. JIM SLATTERY (D. KAN.) SAID THE SHULTSES DESERVE A BETTER
INVESTIGATION.

"LINDA AND ROYAL SHULTS HAVE CONVINCED ME THAT THE AIR FORCE'S
INVESTIGATION NAY HAVE BEEN DESIGNED TO FIT A PREDETERMINED
CONCLUSION," SLATTERY SAID THIS MONTH. "THERE ARE LEGITIMATE QUESTIONS
ABOUT WHETHER ALLEN COMMITTED SUICIDE."

THE OSI REPORT DESCRIBES SHULTS' ROOM AS NEAT. RUSH SAID THE
DEATH-SCENE PHOTOS SHOW GARBAGE, CLOTHING AND OTHER ITEMS STREWN
ABOUT, SUGGESTING A STRUGGLE. SHULTS WAS FOUND WEARING A T-SHIRT
TURNED INSIDE OUT.
RUSH SPECULATED THAT THE MARKS ON SHULTS' NECK COULD HAVE BEEN LEFT BY
THE WATCHBAND OF SOMEONE CHOKING HIM FROM BEHIND. HE SAID SHULTS MAY
HAVE BEEN STRANGLED AND THEN HANGED WITH THE SHEET.

BONITA J. PETERSON, THE FORMER MEDICAL EXAMINER IN JACKSON COUNTY,
MISSOURI, EXAMINED THE AUTOPSY REPORT, DEATH SCENE AND AUTOPSY
PHOTOS,AND THE MILITARY REPORT. SHE SAID THE NECK MARKS WERE NOT MADE
BY THE SHEET.

"I MUST CONCLUDE THAT THE POSSIBILITY OF HOMICIDE HAS NOT BEEN
EXCLUDED." PETERSON SAID IN A REPORT PREPARED FOR THE FAMILY.

RUSH SAID THE AIR FORCE DID NOT PURSUE EVIDENCE--- A VIDEOTAPE AND
COMPUTER MESSAGES---THAT SHULTS' DEATH COULD HAVE BEEN RELATED TO
HAZING BY AN ILLEGAL BASE FRATERNITY CALLED "GODFATHERS OF KEELSER."

"THEY RULED SUICIDE FROM THE START," RUSH SAID. "THEY NEVER CONSIDERED
THE POSSIBILITY OF HOMICIDE.......PROVING A HOMICIDE TAKES WORK.
SUICIDE IS EASIER."

LINDA SHULTS, A SCHOOLTEACHER, SAID SHE AND HER HUSBAND, A PRINCIPAL,
HAVE SPENT $50,000 ON THE CASE SO FAR. EVEN AS THEY PREPARE FOR THEIR
SECOND CHRISTMAS WITHOUT ALLEN, SHE SAID, THEY CLING TO THE HOPE THAT
IT IS NOT TOO LATE TO FIND OUT HOW HE DIED.

"IF THIS THING COSTS US OUR SAVINGS AND HOME, IT'LL BE WORTH IT IF WE
FIND OUT WHAT HAPPENED TO OUR SON," SHULTS SAID. "WE OWE ALLEN THAT
MUCH."

THE DAY BEFORE HE DIED, ELECTRICIAN'S MATE WILLIAM TIMOTHY HARRISON
WAS INTERROGATED BY NCIS AGENTS. THEY ACCUSED HIM OF STEALING A PISTOL
FROM THE ARMORY OF HIS SHIP, THE U.S..S. DEVASTATOR, DOCKED IN
INGLESIDE, TEXAS.

ACCORDING TO AN NCIS REPORT, HARRISON WAS KEPT UNDER NCIS SURVEILLANCE
IN THE HOPE THAT HE WOULD LEAD AGENTS TO THE GUN AND OTHER ITEMS HE
WAS ACCUSED OF STEALING.

EVEN SO, THE NCIS SAYS HARRISON MANAGED TO DRIVE FROM HIS APARTMENT TO
A LOCAL PAWN SHOP AND BUY A .45-CALIBER PISTOL FOR $300 JAN. 7. FROM
THERE, THE NCIS SAYS, HE WENT TO A WAL-MART AND BOUGHT AMMUNITION.

THEN, ACCORDING TO THE NCIS, HARRISON DROVE BACK HOME AND SHOT HIMSELF
IN THE HEAD WITH HIS NEW GUN. THE AGENCY RULED THAT HARRISON COMMITTED
SUICIDE BECAUSE HE WAS DISTRAUGHT OVER THE THEFT INVESTIGATION. THE
STOLEN GUN NEVER WAS FOUND.

THE REPORT SAYS AN NCIS AGENT CONTACTED HARRISON'S SHIP ON JAN. 7
BECAUSE THERE HAD BEEN "NO MOVEMENT AROUND HIS APARTMENT." IT SAYS THE
AGENTS STAYED IN A CAR AND LET HARRISON'S LANDLADY OPEN HIS APARTMENT
TO LOOK FOR HIM WITHOUT TELLING HER WAS SUSPECTED OF STEALING A GUN.
HARRISON'S FAMILY SAYS THE EVIDENCE ASSEMBLED BY THE NCIS DOES NOT
PROVE SUICIDE .

"THE SUICIDE RULING WAS CUT AND DRIED BEFORE HIS BODY WAS IN THE
GROUND," SAID HARRISON'S MOTHER, KATHLEEN HOLLER.

THERE ARE MANY QUESTIONS HARRISON'S FAMILY SAYS THE NAVY HAS FAILED TO
ANSWER SINCE TIM HARRISON DIED. WHAT THEY HAVE TOLD, THEY MAINTAIN, IS
FALSE.

"THEY LIE TO YOU, TRYING TO MAKE THE FACTS FIT THEIR VERSION OF WHAT
HAPPENED," SAID HARRY HOLLER, HARRISON'S STEP-FATHER. "EVERY THING
THEY TOLD ME, SITS RIGHT IN MY LIVINGROOM, A LIE."

HARRISON LEFT MO SUICIDE NOTE. ALTHOUGH SOME FELLOW SAILORS TOLD
INVESTIGATORS THAT HARRISON WAS "MOODY" AND HAD "A VIOLENT TEMPER,"
THEY SAID HIS BEHAVIOR WAS NORMAL IN THE DAYS BEFORE HIS DEATH.

THE NCIS REPORT NOTES NO "OVERT INDICATIONS OF DISTRESS" IN HARRISON.

KATHLEEN HOLLER SAID HER SON WAS HAPPY WHEN SHE SPOKE WITH HIM ON THE
PHONE NOT MORE THAN 24 HOURS BEFORE HE DIED. SHE SAID HE DESCRIBED A
RECENT VOLUNTEER TRIP WITH A LOCAL EMERGENCY RESCUE SQUAD, AND MADE
PLANS TO COME HOME ON LEAVE THE NEXT MONTH.

HE DID NOT MENTION THE NCIS INTERROGATION, SHE SAID.

A REVIEW OF THE NCIS REPORT SUGGESTS THAT THE SUICIDE RULING WAS
PREMATURE.

HARRISON WAS RIGHT-HANDED, BUT A MEDICAL EXAMINER'S REPORT SAID
INDENTATIONS ON HIS LEFT THUMB AND FINGERS INDICATED THEY HAD BEEN IN
CONTACT WITH THE GUN.

HARRISON'S HANDS WERE SWABBED FOR EVIDENCE THAT HE HAD FIRED A GUN BUT
THE NCIS REPORT GIVES NO INDICATION THAT THE WERE TESTED OR THAT
ATTEMPTS WERE MADE TO TEST FINGERPRINTS FROM THE GUN.

NO FULL AUTOPSY WAS PERFORMED. THE MEDICAL EXAMINER'S REPORT SAID HE
PERFORMED "EXTERNAL EXAMINATION" BUT DID NOT CUT INTO HARRISON'S BODY
OR HEAD, AS IS CUSTOMARY.

"THE WOUND APPEARED TO BE CONSISTENT TO SUICIDE," THE ONE-PAGE REPORT
SAID.

KATHLEEN HOLLER SAID SHE NOTICED BRUISES ON HER SON'S NECK AND EARS AT
HIS FUNERAL . NO SUCH MARKS WERE NOTED IN THE MEDICAL EXAMINER'S
REPORT.

THE NCIS SAID THE .45-CALIBER PISTOL THAT KILLED HARRISON WAS FOUND
 LYING ON HIS CHEST.

 GENE WHEATON, NOW A PRIVATE INVESTIGATOR, SAID THE PISTOL'S POWERFUL
 RECOIL SHOULD HAVE SENT IT FLYING ACROSS THE ROOM. WHEATON REVIEWED
 THE NCIS FILES FOR THE INQUIRER.

 THE DEATH CERTIFICATE LISTS THE TIME OF DEATH AS "UNKNOWN," BUT PLACES
 IT SOMETIME DURING THE "A.M." ON JAN.7 . THREE NEIGHBORS SAID THEY
 HEARD A LOUD "BANG" SOMETIME DURING THE EARLY EVENING; ONE ALSO SAID
 SHE HEARD SOMEONE "MOVING SOMETHING AROUND"HARRISON'S APARTMENT
ABOUT
 10 P.M.

 THE NCIS REPORT SAID "IT IS REASONABLE TO CONCLUDE "SUICIDE BECAUSE
 HARRISON WAS "DISTRAUGHT OVER THE AMOUNT OF EVIDENCE COMING TO LIGHT
 IN THE INVESTIGATION AGAINST HIM."

 THE SHIP'S COMMANDER DISAGREED WITH A FINDING THAT HARRISON HAD
 "DISPLAYED PREVIOUS SUICIDAL TENDENCIED." HE OTHERWISE ENDORSED THE
 SUICIDE RULING.

 THE NCIS REPORT NOTED THAT "CERTAIN MINOR CONFLICTS APPEAR IN THE
 EVIDENCE." BUT NONE TO "WARRANT COMMENT."

 IN AUGUST, A COMMENT IN A LETTER SENT BY THE NCIS TO THE FAMILY
 INDICATED THAT ANY POTENTIAL REINVESTIGATION OF HARRISON'S DEATH WOULD
 RUN INTO SERIOUS PROBLEMS.

 BECAUSE THE INVESTIGATION "DID NOT UNCOVER ANY EVIDENCE OF FOUL PLAY,"
 THE LETTER SAID, ALL REMAINING EVIDENCE WAS "DISPOSED OF OR
 DESTROYED."

 FIRST . THE NAVY MARENICOLA WHITTLES THAT HER SON DIED WHILE PLAYING
 RUSSIAN ROULETTE . NEXT, SHE SAID, SHE WAS TOLD THAT HE HAD DIED
 ACCIDENTIALY WHILE CLEANING HIS GUN. THEN, THEY TOLD HER THE FATAL
 SHOT WAS FIRED WHILE HE WAS PLAYING WITH HIS GUN.

 " THEY DID HALF AN INVESTIGATION AND STOPPED," SHE SAID. " AND THEN
 THEY TELL ME: BELIEVE WHAT WE TELL YOU. CASE CLOSED. THATS IT.

 WHITTLES DISPUTES A NAVY RULING THAT HER SON, MARINE CPL. CORNELIUS
 WHITTLES, ACCIDENTALLY SHOT HIMSELF IN THE HEAD WHILE TOYING WITH HIS
 GUN IN 1991 DURING GUARD AT THE EARLE NAVAL WEAPONS STATION IN COLTS
 NECK, N.J.

 A BASE SPOKESWOMAN DECLINED TO DISCUSS THE DEATH OF WHITTLES OR THE
 DEATHS TWO OTHER GUARDS AT THE BASE UNDER SIMILAR CIRCUMSTANCES. ONE
 OF THE DEATHS ALSO INVOLVED A MARINE CORPORAL -SCOTT JAKOVIC-WHILE THE
 OTHER WAS OF A CIVILIAN GUARD. A GUARD PLEADED GUILTY OF SHOOTING THE
 CIVILIAN WHILE "GOOFING AROUND" WITH HIS GUN.
"THERE SEEMS TO BE A TOTAL BREAKDOWN IN DISCIPLINE," WHITTLES SAID.
"IF THESE YOUNG MEN WERE PLAYING WITH THEIR GUNS, WHY WASN'T SOMETHING
DONE ABOUT IT?

THE NAVY'S EXPLANATION FOR THE DEATHS-RUSSIAN ROULETTE OR OTHERWISE
TOYING WITH GUNS-HAS BEEN OFFERED TO THE SURVIVORS OF SEVERAL DEAD
SERVICEMEN. THE FAMILIES DISPUTE THE MILITARY'S ACCOUNTS.

IN THE NCIS REPORT, WHITTLES' DEATH WAS LISTED AS ACCIDENTALLY
"SELF-INFLICTED." THE REPORT SAID HIS 9MM BERETTA PISTOL DISCHARGED AS
HE HELD IT TO HIS HEAD. SECONDS EARLIER, THE REPORT SAID, WHITTLES HAD
COMPARED THE SAFETY FEATURES OF THE BERETTA WITH THOSE OF A WEAPON
HELD BY ANOTHER GUARD.

WHITTLES SAYS SHE SUSPECTS THE MILITARY COVERS UP DRINKING AND
HORSEPLAY WITH GUNS.

CPL. WHITTLES FIANCEE, TRACY SANDBURG, SAID SHE SPOKE WITH HIM ON THE
PHONE LESS THAN AN HOUR BEFORE HE DIED. SHE SAID WHITTLES TOLD HER
THAT SECURITY OFFICERS IN THE CONTROL ROOM WITH HIM AT EARLE THAT
NIGHT WERE DRINKING AND CLOWNING AROUND.

"SOMEONE WALKED IN, AND OVERHEARD HIM ASK IF HE COULD STASH BEER
THERE, " SANDBURG SAID. "AND HE /WHITTLES/ SAID, "NO. GET IT OUT OF
HERE, THIS IS A RESTRICTED AREA."

SANDBURG SAID WHITTLES PUT HER ON HOLD FOR A MOMENT, THEN CAME BACK ON
THE LINE AND SAID HE HAD TO HANG UP BECAUSE A REPORT HAD COME IN ABOUT
PRANKSTERS OVERTURNING A CAR.

"WE SAID GOODBYE, AND THAT WAS THE LAST TIME I SPOKE TO HIM," SHE
SAID.

ALTHOUGH THE NAVY REPORT SAYS WHITTLES FIRED HIS GUN WITH HIS RIGHT
HAND FOR RESIDUE THAT WOULD INDICATE HE HAD FIRED A WEAPON.

A CIVILIAN AUTOPSY REPORT NOTED: "THERE IS NO IMPRESSION OF THE
TRIGGER NOTED ON FINGERS AND THERE IS NO GUNPOWDER NOTED ON THE RIGHT
OR LEFT HAND."

OTHER SECURITY GUARDS IN THE ROOM WITH WHITTLES WHEN HE WAS SHOT WERE
NOT TESTED FOR GUNSHOT RESIDUE, ACCORDING TO THE NAVY REPORT. THE
REPORT ALSO SAYS INVESTIGATORS WERE UNABLE TO FIND LATENT FINGERPRINTS
ON WHITTLES' GUN.

"HOW DO THEY GET AWAY WITH THESE HALF INVESTIGATIONS?" WHITTLES ASKED,
"PEOPLE SHOULDN'T HAVE TO PUT UP WITH THIS....MY SON GAVE THE MARINE
CORPS EVERYTHING HE HAD. HE DESERVES BETTER."

QUESTIONS STILL HAUNT STANLEY AND DELORES WOLF EIGHT YEARS AFTER THE
ARMY TOLD THEM THEIR SON SHOT HIMSELF IN THE HEAD WHILE ON GUARD DUTY
 AT SCHOFIELD BARRACKS IN HAWAII.

 STAN WOLF, AN FBI ELECTRONICS SPECIALIST IN NEVADA, IS PUZZLED BY WHAT
 HE READ IN ARMY CRIMINAL INVESTIGATION COMMAND (CID) REPORT. THE
 REPORT SAID SEC. 4 RICHARD S. WOLF GRABBED A .38-CALIBER RUGER
 REVOLVER AND AMMUNITION FROM A FELLOW GUARD DURING A SHIFT CHANGE IN
 OCTOBER 1985, THEN PUT THE WEAPON TO HIS HEAD AND FIRED.

 A MILITARY MEDICAL EXAMINER CONCLUDED THAT WOLF, 20, KILLED HIMSELF
 "WHILE PLAYING RUSSIAN ROULETTE."

 BUT AN ATOMIC ABSORPTION TEST REVEALED NO TRACES OF GUNPOWDER ON
 WOLF'S HANDS, WHICH SHOULD HAVE BEEN COVERED WITH POWDER RESIDUE FROM
 FIREING THE GUN. THE ARMY REPORT SAYS MEDICAL PERSONNEL WASHED WOLF'S
 HANDS BEFORE SWABBINGS COULD BE TAKEN FROM THEM.

 THE AUTOPSY FOUND NO EVIDENCE OF POWDER BURNS IN WOLF'S HEAD WOUND.
 SUCH BURNS ARE NORMALLY LEFT IN SELF-INFLICTED WOUNDS.

 THE WOLFS SAY DEATH SCENE PHOTOS SHOW BLOOD SPATTERS ON A WALL BEHIND
 WOLF NO HIGHER THAN 25 INCHES. BUT THE ARMY REPORT SAID WOLF, WHO WAS
 5-FOOT-10, WAS STANDING WHEN HE SHOT HIMSELF WITH A ROUND THAT
 TRAVELED UPWARDS THROUGH HIS HEAD. WHY THEN, STAN WOLF WONDERS, WERE
 THE BLOOD SPATTERS SO FAR BELOW HIS SON'S HEAD?

 THE AUTOPSY REPORT MAKES NO MENTION OF "BLOWBACK"-BLOOD AND
 TISSUE-THAT SHOULD HAVE COVERED WOLF'S HAND.

 AND A KEY WITNESS, WOLF'S SECURITY PARTNER, GAVE CONFLICTING VERSIONS
 OF WOLF'S DEATH.

 SPEC. 4 LYDIA MCCORKLE FIRST SAID WOLF GRABBED HER GUN AND A SINGLE
 ROUND, THEN LOADED THE ROUND AND SPUN THE HUN'S CYLINDER.

 MCCORKLE LATER AMENDED HER STATEMENT AND SAID SHE DID NOT SEE WOLF
 EITHER LOAD THE ROUND OR SPIN THE CYLINDER.

 BECAUSE OF DISCREPANCIES BY MCCORKLE AND OTHER WITNESSES, THE ARMY
 REOPENED THE CASE IN SEPTEMBER 1986, BUT REACHED THE SAME CONCLUSION:
 WOLF SHOT HIMSELF.

 MCCORKLE SAID WOLF TOLD HER JUST BEFORE HE PULLED THE TRIGGER.
 "RUSSIAN ROULETTE? I HAVE A ONE-IN FIVE CHANCE."

 ASKED BY INVESTIGATORS WHY SHE THOUGHT WOLF HAD SHOT HIMSELF,
MCCORKLE
 SAID: "I DON' T BELIEVE HE WAS SUICIDAL.....I BELIEVE HE WAS JUST
 SHOWING OFF."

 TO STAN WOLF, THE FORENSIC EVIDENCE SUGGESTS THAT SOMEONE OTHER THAN
 HIS SON FIRED THE GUN. UNTIL THE ARMY RECONCILES THE CONFLICT BETWEEN
 THAT EVIDENCE AND WITNESSES' STATEMENTS, HE SAID, HE WILL NOT BELIEVE
 HIS SON SHOT HIMSELF.

 "I KNOW ONE THING," HE SAID. "IT DIDN'T HAPPEN THE WAY THEY SAID IT
 DID,"

 ______________________________________________________________________
 ____________

 MORE THAN TWO YEARS HAVE PASSED SINCE CATHERINE JAKOVICS ELDEST SON
 PHONED HER WITH DEVASTATING NEWS: HER YOUNGEST SON, SCOTT, WAS LYING
 NEAR DEATH IN A HOSPITAL. HE HAD BEEN SHOT IN THE HEAD.

 BY THE NEXT NIGHT, OCT. 13,1991, LANCE CPL. JAKOVIC WAS DEAD, FIVE
 MONTHS SHORT OF HIS 21ST BIRTHDAY.

 NUMB WITH GRIEF, JAKOVIC LISTENED AS NAVY OFFICIALS TOLD HER THAT
 SCOTT ACCIDENTALLY HAD SHOT HIMSELF WITH HIS OWN WEAPON WHILE ALONE ON
 GUARD DUTY AT EARLE.

 IT WAS ALL THERE IN BLACK AND WHITE, ON A SINGLE TYPED SHEET CALLED
 REPORT OF CASUALTY FORM DD-1300, FILLED OUT JUST NINE DAYS AFTER SCOTT
 DIED: "SELF-INFLICTED GUNSHOT WOUND TO THE HEAD."

 THE QUICK RULING ATE AWAY AT JAKOVIC. IT WAS SO UNLIKE SCOTT TO DO
 SOMETHING SO IRRESPONSIBLE, SHE THOUGHT: HE WAS SO CAREFUL WITH GUNS.
 AND SHE KNEW FROM HIS VISITS HOME THAT HE WANTED OUT OF EARLE, WHERE
 HE TOLD HER THAT COMMANDERS OVERLOOKED SECURITY VIOLATIONS AND DRUG
 USE BY SERVICEMEN.

 THE MORE JAKOVIC PRESSED THE NCIS FOR INFORMATION, THE MORE
 IMPLAUSIBLE THE OFFICIAL VERSION OF EVENTS SEEMED TO HER: A WEAPONS
 EXPERT WITH NO HISTORY OF PSYCHOLOGICAL OR DISCIPLINE PROBLEMS
 SUDDENLY SHOT HIMSELF AT A BUSY GUARD STATION IN THE MIDDLE OF THE
 AFTERNOON-AND NOBODY SAW IT.

 WHAT JAKOVIC DIDN'T KNOW WAS THAT , JUST 10 HOURS AFTER HER SON'S
 DEATH, A MARINE GUARD HAD TOLD AN NCIS AGENT THAT HE HAD SEEN MARINE
 PVT. EDWARD MARKOVITCH PUT A HUN TO JAKOVIC'S HEAD MINUTES BEFORE THE
 SHOOTING. THE NAVY DID NOT REVEAL THAT INFORMATION FOR FOUR MONTHS.

 FINALLY, IN FEBRUARY 1992, THE NCIS SAID THERE HAD BEEN A WITNESS TO
 JAKOVIC'S DEATH AFTER ALL: PVT. MARKOVITCH. THE NAVY CHARGED
 MARKOVITCH WITH INVOLUNTARY MANSLAUGHTER IN CONNECTION WITH
JAKOVIC'S
 DEATH.

 THERE WAS ANOTHER, UNRELATED CHARGE AGAINST MARKOVITCH: COCAINE USE.

 AFTER MILITARY TRIAL LAST YEAR, MARKOVITCH WAS CONVICTED OF THE DRUG
 CHARGE. BUT HE WAS ACQUITTED OF MANSLAUGHTER, IN PART BECAUSE NAVY
 AGENTS FAILED TO PROPERLY READ HIM HIS RIGHTS AND LOST CRUCIAL
 PAPERWORK.

 THE NCIS THEN LET STAND THE ORIGINAL RULING THAT JAKOVIC HAD SHOT
 HIMSELF-WHILE PLAYING RUSSIAN ROULETTE WITH A 9MM AUTOMATIC.

 "APPARENTLY, THERE ARE NO FACTS-JUST THE NIS VERSION OF FACTS,"
 JAKOVIC SAID RECENTLY, STILL NOT CERTAIN EXACTLY HOW HER SON DIED.

 DURING TWO MILITARY HEARING FOR MAKOVITCH, HELD IN PHILADELPHIA IN
 1992, JAKOVIC LEARNED THE FULL SCOPE OF THE NAVY'S BUNGLED
 INVESTIGATION. ACCORDING TO TESTIMONY.

 NCIS AGENTS ALLOWED MARKOVITCH TO DRINK A SODA AND GO TO THE BATHROOM
 BEFORE SWABBING HIS HANDS FOR POSSIBLE EVIDENCE THAT HE HAD FIRED A
 WEAPON. A GUNSHOT RESIDUE TEST WAS INCONCLUSIVE.

 AN NCIS AGENT ALLOWED A MARINE TO HANDLE THE GUN THAT KILLED JAKOVIC,
 THUS TAINTING A CRUCIAL PIECE OF EVIDENCE.

 NCIS AGENTS BASED THEIR INITIAL RILING THAT JAKOVIC HAD KILLED HIMSELF
 LARGELY ON A PANICKED PHONE CALL BY MARKOVITCH MOMENTS AFTER THE
 SHOOTING, IN WHICH HE TOLD A SUPERIOR THAT JAKOVIC HAD "SHOT HIMSELF".

 MARKOVITCH ADMITTED TO A SUPERVISOR MINUTES AFTER THE SHOOTING THAT HE
 AND JAKOVIC HAD BEEN "MESSING AROUND" WITH THEIR WEAPONS AND THAT HE
 HAD DRAWN HIS OWN GUN, THE SUPERVISOR SAID. JAKOVIC WAS 'VERY CARELESS
 WITH HIS PISTOL," WARRANT OFFICER HAROLD EVAN SAID.

 LANCE CPL. JEROME BARRY HAD TOLD THE NCIS THE DAY JAKOVIC DIED THAT HE
 HAD SEEN MARKOVITCH HOLD A GUN TO JAKOVIC'S HEAD MINUTES BEFORE THE
 SHOOTING. "I KNOW JAKOVIC PRETTY GOOD, AND I CAN SAY THAT IT WAS
 UNUSUAL TO HEAR THAT HE WAS PLAYING AROUND WITH HIS GUN, BARRY SAID.

 IN AUGUST 1992, MARKOVITCH'S ROOMMATE TOLD THE NCIS THAT MARKOVITCH
 HAD TOLD HIM HE HAD ACCIDENTALLY SHOT JAKOVIC AFTER THE TWO DISCUSSED
 RUSSIAN ROULETTE SCENE FROM THE FILM DEERHUNTER.

 LANCE CPL. TODD HARRIS SAD MARKOVITCH TOLD HIM THAT MARKOVITCH AND
 JAKOVIC WERE "MESSING AROUND" WITH THEIR WEAPONS WHEN MARKOVITCH
ASKED
 WHETHER JAKOVIC THOUGHT THE GUN ON A TABLE HAD A BULLET IN THE
 CHAMBER.

 "HE (MARKOVITCH) TOLD ME HE THEN RACKED THE SLIDE BACK AND FORWARD.
 THEN ASKED JAKOVIC AGAIN, IF THERE WAS A ROUND IN THE CHAMBER....,
 HARRIS SAID IN A STATEMENT, "MARKOVITCH THEN POINTED THE WEAPON AT
 JAKOVIC AND SAID "LETS FIND OUT." HE TOLD ME HE THEN PULLED THE
 TRIGGER." SHOOTING JAKOVIC IN THE HEAD.

 MARKOVITCH'S CIVILIAN ATTORNEY, GARY ROGERS, SAID LAST WEEK THAT
 HARRIS' WAS FULL OF HOLES" THAT THE NAVY DECIDED NOT TO CALL HIM AS A
 WITNESS. MYERS SAID PROSECUTORS COULD NOT PROVE THAT JAKOVIC'S HANDS
 OR THAT THE TWO GUARDS HAD PLAYED RUSSIAN ROULETTE.

 MARKOVITCH WAS CONVICTED OF NEGLIGENT DERELICTION OF DUTY, FINED
 $1,500, AND REDUCED IN RANK.

 MYERS ACCUSED THE NAVY OF MAKING MARKOVITCH AS SCAPEGOAT TO COVER UP
 WEAPONS VIOLATIONS AT EARLE.

 "THEY HAVE CONDONED DERELICTION AT EVERY LEVEL OF THAT COMMAND," HE
 SAID IN COURT. SEVERAL MARINES TESTIFIED THAT SUPERIORS TOLERATED GUN
 HORSEPLAY AND SECURITY BREACHES.

 ASKED FOR COMMENT, THE SPOKESWOMAN AT EARLE SAID IT WAS BASE POLICY
 NOT TO DISCUSS SECURITY PROCEDURES.

 "THIS IS HORRENDOUS," JAMES W. KEEFE. I SPENT 21 YEARS AS AN ARMY
 CRIMINAL INVESTIGATOR, SAID OF THE NCIS INVESTIGATION AFTER VIEWING
 THE CASE. "THERE IS NO WAY THIS IS SELF-INFLICTED DEATH.

 KEEFE SAID THE NAVY BOTCHED THE CASE BADLY THAT PROVING WHAT REALLY
 HAPPENED BE DIFFICULT. "THE HANDLING OF EVIDENCE IS ATROCIOUS," HE
 SAID.

 TODAY, CATHERINE JAKOVIC SAYS SHE IS MORE ANGRY AT THE MILITARY THAN
 AT MARKOVITCH WHO SHE SAID "PUT HIS HEAD IN MY LAP AND BAWLED LIKE A
 BABY" AT SCOTT'S FUNERAL.

 "MY SON IS DEAD AND GONE AS FAR AS THEY ARE CONCERNED," SHE SAID OF
 THE NAVY. "THEY WON'T CHANGE THAT SELF-INFLICTED RULING SO THEY CAN
 CLOSE THEIR CASE."

 IN HER MIND, SHE SAID , HER SON'S CASE WILL NEVER BE CLOSED. THE
 INDIGNITIES NEVER SEE NO END.

 IN APRIL, SHE SAID, THE MILITARY DENIED THE FAMILY'S CLAIM FOR SCOTT
 JOKOVIC'S 51,200 DEATH BENEFIT. IN A TERSE LETTER, THE DEPARTMENT OF
 VETERANS AFFAIRS GAVE A REASON:

 "THE VETERANS DEATH WAS DUE TO HIS OWN WILLFUL MISCONDUCT."




Chapter 21
CIA Subject #1
CIA Subject #1 was a senior CIA field officer in Central America from 1984 through 1987. His
identity as a CIA officer is classified. Independent Counsel learned in early 1987 that CIA
personnel under Subject #1's supervision had illegally resupplied the contras. While Independent
Counsel determined that Subject #1 was unaware of this activity,1 other evidence raised
questions about his contacts with persons working on behalf of the contra-resupply operation run
by Lt. Col. Oliver L. North and retired U.S. Air Force Maj. Gen. Richard V. Secord, and Subject
#1's knowledge of these activities.

1 See Adkins chapter and Adkins Classified Appendix. Subject #1 may have conveniently
forgotten witnessing, however, a confrontation between James L. Adkins and another CIA
officer, during which Adkins admitted that he had authorized CIA pilots to ship lethal materials
to the Contras. Subject #1 admitted witnessing part of the argument, but never testified that
Adkins confessed his wrongdoing.

Subject #1's responses to this evidence were unconvincing. Nevertheless, for the reasons set forth
below, Independent Counsel chose in the summer of 1991 not to prosecute Subject #1. This
unclassified chapter describes some of the highlights of Subject #1's contacts with the North-
Secord Enterprise, his false statements to congressional investigators and Independent Counsel,
and Independent Counsel's reasons why he declined to seek an indictment. A more complete
version of this chapter is found in the Classified Appendix.

Subject #1 and the North/Secord Enterprise

The Honduran Arms Competition

The genesis of the North-Secord effort to help the contras purchase weapons is described
elsewhere in this report.2 The halt to U.S. aid to the contras opened the door to a host of arms
dealers.3 These dealers realized that, since the bulk of the contra forces was in Honduras, an
essential element to providing them with weapons was good relations with the government of
Honduras. One way the North/Secord Enterprise hoped to obtain Honduran government approval
for its services to the contras was through CIA Subject #1.

2 See Secord and North chapters.

3 See the Flow of Funds section.

Secord and his associate Thomas G. Clines, a former CIA agent, knew Subject #1 from their
service together in Southeast Asia during the Vietnam War. Clines knew Subject #1 particularly
well, as Subject #1 had been Clines's deputy for four years. Clines and Subject #1 remained in
contact. They met socially as late as December 1984, when Clines and another former CIA
operative, Rafael Quintero, were on a business trip in Mexico City. Subject #1's contacts with
Secord and Clines ``from the old . . . days'' were well known to North, who talked to Secord
frequently about Subject #1.4

4 Secord, Grand Jury, 1/25/91, pp. 3-4; Clines, Grand Jury, 4/19/91, p. 26; Secord, OIC
Interview, 5/13/87, pp. 105, 113. According to Quintero, the Mexico City meeting occurred
because he and Clines had bumped into Subject #1's wife. The men met later with Subject #1.
(Quintero, FBI 302, 4/9/91, p. 10; Quintero, Grand Jury, 1/6/88, p. 55.) Subject #1 did not tell
Independent Counsel about the Mexico City meeting until well after Quintero first disclosed it.
Subject #1 never mentioned that Quintero was with Clines. (CIA Subject #1, FBI 302, 6/24/88,
p. 2.)

Subject #1 was aware of the post-Boland competition among international arms dealers. Chief
among these competitors was Ron Martin, a Miami-based arms dealer who had been the focus of
investigation by the Bureau of Alcohol, Tobacco and Firearms for many years, and who at one
time had been charged with providing arms illegally to narcotics traffickers. Martin had been
approached about selling arms to the contras in late 1984 by a former U.S. military attache to
Nicaragua, Col. James McCoy. McCoy assured Martin that such sales would have U.S.
Government approval.5

5 Martin, FBI 302, 4/13/92, p. 2. Martin told Independent Counsel that he learned later from
Calero and a Honduran military officer that the U.S. Government sanctioned private weapons
sales to the contras. Calero told Martin, however, that some U.S. officials disliked Martin. (Ibid.,
p. 8.)

Over time McCoy and a Honduran-based U.S. national who was working for McCoy, Mario
Dellamico,6 convinced Martin to get into the contra arms market. Martin and McCoy developed
a plan to ship a storehouse of weapons into Honduras, where the Honduran government would
take possession of them. The contras then could purchase weapons from this supply as they
needed. Martin obtained financing for this proposal from Enrique DeValle, the brother of a
former Panamanian president. Martin was responsible for purchasing and shipping the weapons;
Dellamico's job was to intercede with the Honduran government (that is, the Honduran military)
and contra military commander Enrique Bermudez.

6 According to Dellamico, but contrary to many of the transcripts and documents cited in this
chapter, this is the correct spelling of his name.

Subject #1 became aware of Martin's ``Arms Supermarket'' by mid-February 1985. CIA officers
learned from Calero and others that the Honduran government had agreed to permit an
``international arms supplier to establish a stock of ammunition and weapons parts in Honduras
upon which the FDN [contras] could draw as needed [on] a cash-and-carry basis.'' CIA officers
further reported that the Honduran government had issued end-user certificates for weapons
transactions to the supplier.7

7 Field Intelligence Report, 2/11/85, DO 94825. This report was disseminated throughout the
intelligence community, including the NSC, by Classified Intelligence Report, 2/19/85, DO
181966-64.

A Meeting in Honduras

By May 1985 the supermarket was worrying the North-Secord Enterprise. A large shipment of
arms purchased by the Enterprise in Europe was on board the Danish freighter Erria and on its
way to Honduras in May 1985 when North noted during a meeting with Secord: ```Martin'
setting up munitions `supermarket' in Tegu[cigalpa].'' Intelligence reports a week later stated that
the contras were entertaining an offer by ``an international arms dealer'' to store a stock of
munitions in Honduras, from which contras could make purchases as required. North noted that
he had to raise the matter with the contra leadership when they next spoke.8

8 North Note, 5/1/85, AMX 000638; Classified Intelligence Report, 5/8/85, DO 175558; North
Notebook, 5/9/85, AMX 000658.

North and Calero met on May 13, 1985. North starred as ``to do'' items ``Check w/ Ron Martin
`Supermarket' being set-up by Aplicano'' (a colonel in the Honduran army) and
``Secord/Aplicano meeting.'' 9 North spoke with Secord four days later, noting:

9 Ibid., 5/13/85, AMX 000668.

Ron Martin & Mario del Amico (Cuban American) wanted in Guatemala for criminal activity
Dealing w/ AUTOMEX in Lisbon & CRADDOCK in U.K.

***

-- Promised to sell weapons thru ``supermarket''

-- Probably levered by HOAF personnel

-- DEFEX people [Secord's suppliers] will not work w/

-- g008MARTIN letter of credit floating all over Lisbon

-- Prices from Secord based on adequate lead time.

North further noted this report from Secord, whose ``on scene'' man in Honduras was Quintero:

View from on scene:

-- Mario more & more in picture

***

-- serious logistics problems

-- Possible Martin interference w/ Puerto Cortez delivery

-- Ship arrives 1 June 85 -- Danish vessel 10

10 North Note, 5/17/85, AMX 000679-80.

After talking with Secord, North phoned Calero. Calero said that a representative of the arms
supermarket had quoted him prices on AK-47 and M-16 ammunition. The Honduran military
was said to guarantee that the arms supermarket would not ``run short.'' 11 On May 20, 1985,
North noted Calero's assessment that ``Supermarket is proceeding.'' 12

11 Ibid.

12 Ibid., 5/20/85, AMX 000687.

As Secord and North had discussed, the Erria was due at the Honduran port of Puerto Cortes in
early June. Clines and Quintero departed for Honduras on May 31, 1985, to meet the vessel.
Clines and Quintero were not the only ones, however, who were interested in what was arriving.
Ron Martin had heard of the Erria from his own sources in Portugal, who said that the Enterprise
was selling the contras old equipment at outrageous prices. Sensing an opportunity to shame his
rivals, Martin ordered Dellamico to arrange with Col. Aplicano to secure as much paperwork as
possible about the Erria's cargo.13

13 Quintero Passport; Martin, FBI 302, 4/13/92, p. 11.

With the help of the Honduran military, Dellamico boarded the Erria shortly after it arrived in
Puerto Cortes. Dellamico convinced the Erria's captain that he was a representative of the
purchasers and obtained a cargo manifest. Dellamico received the papers shortly before Clines
and Quintero reached the ship. Clines confronted the captain, who explained that he thought
Dellamico worked for Clines. Clines angrily threw Dellamico off the ship.14

14 Martin, FBI 302, 4/13/92, p. 11; Clines, Grand Jury, 4/19/91, pp. 27-28; Quintero, FBI 302,
11/13/87, p. 7. Quintero told Independent Counsel that he had first met Dellamico in late April
1985, somewhere near the Guatemalan/Honduran border. Quintero was in Guatemala
supervising the first Secord arms shipment to the contras. According to Quintero, Dellamico
arrived at the border with a Honduran military officer, who was to take possession of the arms
shipment prior to its delivery to the contras. (Quintero, FBI 302, 11/13/87, p. 5.) Dellamico has
denied ever meeting Clines or Quintero. (Dellamico, FBI 302, 2/4/92, p. 7.) Martin claims,
however, to have learned all that he knows about the Erria incident from Dellamico. Martin told
Independent Counsel that he used the manifest and other documents that Dellamico took from
the Erria to try to convince Calero that Secord was ``ripping off'' the contras. (Martin, FBI 302,
4/13/92, p. 11.)

That same day -- witnesses are not sure if it was before or after the fight with Dellamico -- Clines
and Quintero met with CIA Subject #1. Accounts of the meeting, which Subject #1 denies,
differ.

-- Quintero testified that as he and Clines were awaiting the arrival of the Erria, they heard
rumors that a ship carrying weapons had been sunk in the Caribbean. Clines tried to telephone
Subject #1 to confirm the story.15 The Erria arrived safely, and afterwards Subject #1 picked up
Quintero and Clines at the Maya Hotel in Tegucigalpa. Subject #1 took them to his residence for
lunch. Quintero and Clines asked Subject #1 how they could contact the leaders of the anti-
Sandinista Miskito Indians. Subject #1 reportedly advised them not to go to a Miskito
encampment at Rus-Rus, but instead contact the leadership in Tegucigalpa.16 They then
discussed the Erria shipment, particularly Clines, Quintero, and North's role in it.17 Quintero
recalled asking Subject #1 if the CIA had been reporting on Quintero's many trips to Honduras.
Subject #1 replied no, to which Quintero responded, ``Fine, that's great, because Oliver North is
going to be very happy about knowing that I'm coming here and there are no reports going
around that I am doing any work here.'' Quintero asked Subject #1 for his telephone numbers,
which Quintero wrote down in his address book.18 They then discussed Martin, Dellamico, and
Dellamico's relationship with Col. Aplicano.19

15 In the Grand Jury, Quintero testified that Clines's call to Subject #1 came after their lunch
meeting with Subject #1, and that Clines actually spoke with him. (Quintero, Grand Jury, 1/6/88,
p. 61.)

16 According to Quintero, he and Clines contacted the Tegucigalpa office, only to learn that
Indian leader Wycliffe Diego was in Miami. (Ibid., pp. 62-63.)

17 In a 1991 interview with Independent Counsel, however, Quintero said that he and Clines did
not discuss contra resupply with Subject #1, although Quintero ``assumed'' Subject #1 knew
about it. (Quintero, FBI 302, 4/9/91, p. 9.)

18 In 1991, however, Quintero said that Clines gave him Subject #1's telephone number. (Ibid.,
p. 11.)

19 Quintero, FBI 302, 11/13/87, pp. 6-7; Ibid., 12/28/87, pp. 4-5; Ibid., 4/9/91, pp. 9-10;
Quintero, Grand Jury, 1/6/88, pp. 54-63; Quintero, North Trial Testimony, 3/2/89, pp. 2982-86.

-- Clines corroborated only a few aspects of Quintero's story. According to Clines, Quintero said
that he had been advised previously that they should contact Subject #1. Quintero already had
Subject #1's phone number.20 Clines agreed that the three met with Subject #1 at his residence
for forty minutes, around noon. Subject #1 acted as if he had met Quintero before. According to
Clines, however, the only topic of discussion was where he and Quintero could meet the
leadership of the Miskito Indians.21 Clines testified that they did not discuss contra resupply
with Subject #1, as Clines wanted to ``keep [Subject #1] out of trouble'' with the Boland
Amendment.22

20 Quintero's telephone records reveal several calls to Subject #1. Quintero could not recall why
he made the telephone calls, or if he reached Subject #1. (Quintero, FBI 302, 12/28/87, p. 5.)

21 According to Clines, Subject #1 said that the Miskito leaders were not in Honduras, but rather
were in Miami. Compare with n.16 above.

22 Clines, Grand Jury, 4/19/91, pp. 28-33.

On June 5, 1985, CIA field officers reported that the Honduran military backed the arms
supermarket. This report, which was placed into an intelligence memorandum sent to North the
next day, valued the arms destined for the supermarket at $17 million. CIA field officers said that
a Honduran military official had discussed the proposal with Calero, and that Calero had
provided a list of weapons that the Supermarket should carry. CIA field officers concluded that
the arrangement ``should help solve the problem [the contras] are now having with the time lag
between the ordering and subsequent delivery of munitions.'' 23

23 CIA Cable, 6/5/85, DO 94828-26; Memorandum from George, 6/6/85, AKW 22961-64. CIA
officers further noted that the Honduran military was expecting a cut of the supermarket's profits
or ``a good deal'' on its own munitions purchases in return for granting Martin his ``franchise. . .
.'' (CIA Cable, 6/5/85, DO 94828-26.)

A Meeting in Virginia

The North-Secord Enterprise's frustration with how the contras spent their money prompted
North to call a meeting of Secord, Clines, Quintero, Calero and Enrique Bermudez in Miami in
late June 1985. During the meeting, North noted:

-- Supermarket

-- Honduran E.U.C.'s

-- L & M Equipment

-- g008del Amico

-- g008Martin 24

24 North Note, 6/28/85, AMX 000820.

After the meeting, which Secord described as a ``watershed'' for him, North asked Secord to set
up his own private airlift operation to benefit the contras. Starting this operation occupied Secord
throughout the summer and early fall of 1985.25

25 Secord, OIC Interview, 4/29/87, pp. 31-38; Secord, Select Committees Testimony, 5/5/87, pp.
164-69; Secord, Grand Jury, 1/16/91, pp. 7-9; Quintero, Grand Jury, 1/6/88, pp. 66-75.

In setting up his private airlift service for the contras, Secord met with CIA Subject #1. On July
11, 1985, North was told by Alan D. Fiers, Jr., Subject #1's superior as chief of the CIA's Central
American Task Force (CATF), that Subject #1 was in town and that he would call North that
evening. New intelligence reports revealed that a shipment of 1,300 tons of arms from Poland
had arrived in Honduras for the supermarket. These reports indicated that another shipment was
due in August, and that while contra commander Enrique Bermudez was ``dubious'' about the
supermarket concept, the supermarket's terms and prices sounded to Bermudez ``almost too good
to be true.'' 26

26 Secord, OIC Interview, 4/29/87, pp. 37-38; Secord, Select Committees Testimony, 5/5/87, pp.
168-69; Secord, Grand Jury, 1/16/91, p. 9; Quintero, Grand Jury, 1/6/88, pp. 73-75; CIA Subject
#1 Travel Records; CIA Cable, 7/9/85, DO 178759; CIA Cable, 7/9/85, DO 107993, DO
108034; CIA Field Intelligence Report, 7/10/85, DO 181999-98; CIA Information Report,
Subject: Scheduled Arrival in Honduras of Arms Shipment from Poland for the Nicaraguan
Democratic Force, 7/22/85, DO 175398-96; CIA Field Intelligence Report, 7/10/85, DO 107991-
90. CIA headquarters directed its officers in Central America to find out more about the
Supermarket shipments. (DIRECTOR 447814, 7/11/85, DO 178758; DIRECTOR 448583,
7/11/85, DO 178757.)

As Fiers promised, Subject #1 called North on the evening of July 11. North wrote down Subject
#1's local telephone number, then noted:

-- passed # to Dick

Subject #1 met with Secord, Clines, and Quintero at Secord's home the next day. While Secord is
unsure whether Clines or North told him that Subject #1 was in town, Secord was certain that
North set up the meeting.27

27 North Note, 7/11/85, AMX 001222; CIA Subject #1, FBI 302, 5/16/91, p. 5; Secord, FBI 302,
2/26/88, pp. 2-3; Secord, Grand Jury, 1/25/91, pp. 8-11. Quintero says that Secord told him at the
time that North had set up the meeting. (Quintero, Grand Jury, 1/6/88, pp. 83-87; Quintero,
North Trial Testimony, 3/2/89, pp. 2986-87.) North's secretary wrote ``Secord [CIA Subject #1]''
in the 7:00 am to 10:00 am slot on North's appointment calendar for July 12, 1985. (North
Calendar, 7/12/85, AKW 003872.)

The witnesses to the July 12, 1985, meeting at Secord's home gave different accounts of what
was discussed.

-- Clines described the meeting as very brief, lasting no more than a few minutes. Clines said he
was not privy to the entire conversation and did not recall hearing about the contras. Clines could
not recall even if Quintero was there.28

28 Clines, Grand Jury, 4/19/91, pp. 34-35.

-- Secord recalled the meeting more vividly, saying he told Subject #1 that he ``wanted to get a
handle'' on what was happening in Honduras. They discussed the general tactical situation of the
contra war, the extent of Honduran government support for the contras, and how best to ensure
effective private deliveries to the contras (``a common theme,'' according to Secord, since the
June 1985 Miami meeting).29

29 Secord, FBI 302, 2/26/88, pp. 2-3; Secord, Grand Jury, 1/25/91, pp. 8-10.

-- Quintero corroborated Secord. Quintero said that Secord had called him in Miami and told him
to come to Washington. Quintero and Clines went with Secord to meet with Subject #1. The
meeting was short but friendly, revolving around the contras and events in Honduras. One topic
was how Martin and Dellamico were working with the Honduran government to block Secord
from selling and airlifting weapons to the contras.30 Subject #1 said that he had spoken with
North about Martin and the Honduran problem, but that he did not want to assist Secord in
solving it.31

30 Secord told Independent Counsel that at this time, Calero had been saying that Martin was
pressuring him to buy arms from the supermarket. ``I believe that starting about August of `85 a
number of desperate groups started focusing on me and my men as great threats, one was Ron
Martin and his group. They saw me and my group as a threat to their business which we weren't
even aware of.'' Mario Dellamico ``was seen by all of us -- that means Clines, Secord, Quintero -
- as hostile to our interests. . . .'' (Secord, OIC Interview, 4/29/87, pp. 55-56; Secord, Grand Jury,
1/16/91, pp. 40, 54-56, 70; Secord, Grand Jury, 1/25/91, pp. 52-53.)

31 Quintero, FBI 302, 12/28/87, p. 6; Quintero, FBI 302, 4/9/91, pp. 9-10; Quintero, Grand Jury,
1/6/88, pp. 83-87; Quintero, North Trial Testimony, 3/2/89, pp. 2986-87. Quintero provided
other details that are presented in the Classified Appendix.

Secord reported the meeting to North later the same day. North's notes corroborate Secord and
Quintero's version of the meeting:

-- mtg. tonight w/Dick/Rafael/Tom w/ Romero FDN Log Chief

-- [CIA Subject #1] discussions re Supermarket

-- HO Army plans to seize all mat'l when supermarket comes to a bad end

-- $14M to finance came from drugs

-- [Subject #1] expects HOAF to seize the supermarket's assets when the supermarket folds.

-- [Subject #1] likes light A/C [aircraft] ASAP

oesn't like goons [slang term for C-47]

Should get CASA 212's 32

32 North Note, 7/12/85, AMX 001225.

Watching the Arms Supermarket

Subject #1's actions subsequent to the July 12, 1985 meeting are consistent with Quintero's
characterization of him as an intelligence officer who was unwilling to side either with the
Enterprise or the Supermarket in their rivalry. Subject #1 returned to Central America and
secretly recounted to Fiers later that he would begin collecting more intelligence about the
supermarket. Subject #1 further passed on his understanding that the contras were about to make
their first purchases from Martin:
My concern is the source of the funds for the Supermarket (10 to 14 million USD). We cannot
conceive that the backers of this program are doing it for patriotic or altruistic reasons and we
hope UNO/FDN leader[s]hip will exercise prudence and conduct an in-de[p]th check of sources
of the financial backing before becoming involved.33

33 CIA Cable, 8/29/85, DO 94841. By late August 1985, North's interest in Martin and McCoy
had flared once again. He may have prompted CATF to run traces on the men. (North Note,
8/28/85, AMX 001341; DIRECTOR 511129, 8/28/85, DO 94835; CIA Cable, 8/29/85, DO
94837.) On August 30, 1985, North noted information similar to what had been reported by DO
94837. (North Note, 8/30/85, AMX 001343.) See also CIA Cable, 8/30/85, DO 94843
(confirming DO 94837 and reporting on ATF investigation of Martin's operations).

Subject #1's subsequent reports reflected the CIA's concerns that Martin and McCoy had an
``unsavory past,'' but Subject #1 did not attempt to exploit this anxiety to the Enterprise's
advantage.34

34 All of the examples of this conduct are classified and are thus set forth in the Classified
Appendix.

Cables from the Fall of 1985 support the view that Subject #1 was honestly monitoring, rather
than choosing sides in, the supermarket/Enterprise competition. Fiers cabled Subject #1 on
September 17, 1985, that Calero urgently needed to know more about the supermarket, as Calero
was ``under increasingly intense pressure'' from Bermudez and others ``to avail himself of . . .
the warehouse.'' Subject #1 suggested that Calero question the supermarket's backers himself.
Calero did just that, prompting Martin and McCoy to offer to fly a CIA representative to Panama
City to meet ``the banker financing the supermarket transaction and to examine the paperwork.''
35

35 DIRECTOR 534371, 9/17/85, DO 94859; CIA Cable, 9/18/85, DO 94860; CIA Cable,
9/27/85, DO 94864. Calero called North a few days after meeting Martin with a full report.
North noted:

-- Martin said that Calero has created probs w/ weaps

-- ``Damned ship is not mine''

-- preoccupied -- believes that [Calero] has screwed up the supermarket.

-- says he has someone who has invested heavily + bank support.

-- Says he wants to see [CIA Subject #1]. Take him to Panama to show him paperwork.

-- Says he has a valid contract w/ Honduran Govt.

(North Note, 9/24/85, AMX 001773.)
Calero reported his discussions with Martin and McCoy to Subject #1 on September 27, 1985.
Subject #1 relayed Calero's information via special channels to Fiers. Subject #1 argued against
accepting Martin's invitation to examine the supermarket's records: ``There is no advantage for
[CIA] to get involved in anything like this nor do we wish to be seen as the approval mechanism
on whether or not [Calero] buys from Martin.'' Subject #1 recognized, however, that Calero
wanted to buy from Martin. Subject #1 wrote that Martin's

prices are good, the credit terms excellent and the material newer and in better condition than
that UNO/FDN [contras] has received from other sources. [Calero] wants to be told if [U.S.
Government] has any information that would make his involvement with the Supermarket an
unwise decision. [Calero] will hold back on purchases until he hears . . . but he has to make some
move soon.

The CIA ended up making no recommendation to Calero about the supermarket, and Calero
purchased weapons from it.36

36 CIA Cable, 9/27/85, DO 94864; Calero, FBI 302, 6/10/91, pp. 5-6. Subject #1 shared his
views about the Supermarket with U.S. Government personnel in Honduras. (See, for example,
Comee, FBI 302, 5/17/91, pp. 10-12.)

Subject #1 and 1986 Resupply Activities

Subject #1's agnosticism towards the arms supermarket and the North-Secord Enterprise
manifested itself in an incident that occurred in February 1986 -- an episode that made Subject
#1 aware of a link between the two resupply operations in the persons of Dellamico and Felix
Rodriguez. Subject #1 had met Rodriguez in the early 1980s. Subject #1 later claimed that he and
Rodriguez had a falling-out in 1984, shortly before Rodriguez headed to El Salvador, and never
spoke again. Evidence from as early as January 1985 suggests, however, that Subject #1 kept
aware of Rodriguez's activities.37

37 CIA Subject #1, FBI 302, 5/16/91, pp. 1-2. North noted, for example, during a trip to
Honduras in late January 1985 (emphasis in original):

Discussion w/ [Subject #1]

La Quinta, Las Vegas,

-- FDN Air Arm

-- Felix too involved w/ Alvarez

-- Not enough money to do what's needed

-- Parachutes.

(North Note, 1/30/85, AMX 000409.)
Subject #1 and NHAO #4 Transshipment

In September 1985, Subject #1 and other CIA field personnel began assisting a new U.S.
Government humanitarian assistance program for the contra rebels. Sponsored by the State
Department's Nicaraguan Humanitarian Assistance Office (NHAO), the new aid was to travel
from the United States directly to Honduras, to be shipped overland to contra bases.
Unfortunately, excessive press coverage of the first NHAO mission to Honduras soured the
Honduran Government on the program and resulted in a temporary ban on NHAO flights into
Honduras.38

38 CIA Cable, 10/10/85, DO 22975; CIA Cable, 10/16/85; CIA Cable, 10/16/85, ER 33056-57;
DIRECTOR 584237, 10/23/85; CIA Cable; CIA Cable, 10/24/85, DO 22976; CIA Cable,
10/25/85, DO 2298; CIA Subject #1, FBI 302, 5/16/91, pp. 4-5.

The halt to NHAO flights began in mid-October 1985. After a series of official visits from
persons including North, National Security Adviser John M. Poindexter, U.S. Ambassador to
Honduras John Ferch, and Subject #1,39 the Honduran government eventually agreed to allow
NHAO-sponsored flights to resume over Honduran airspace -- provided that the flights
originated from El Salvador.40

39 CIA Subject #1 Travel cables; CIA Subject #1, Select Committees Deposition, 4/25/87, pp.
94-105; CIA Subject #1, FBI 302, 5/16/91, p. 11; CIA Cable, 11/9/85; CIA Cable, 11/11/85, DO
22983; CIA Cable, 11/13/85, DO 7409; CIA Cable, 11/15/85; CIA Cable, 11/16/85; CIA Cable,
11/18/85, DO 22984; CIA Cable, 11/20/85, DO 7443; CIA Cable, 11/21/85, DO 7451; CIA
Cable, 11/27/85, DO 7475; CIA Cable, 12/2/85; DIRECTOR 637248, 12/2/85, DO 7488; North
Notebook, 12/13/85, AMX 001933-34; CIA Cable, 12/13/85, DO 8527; CIA Cable, 12/17/85,
DO 8544; CIA Cable, 12/17/85, DO 8545.

40 CIA Cable, 12/20/85, DO 8556; AMEMB TEGUCIGALPA 17411, 12/20/85, ALW 30596-
602; DIRECTOR 665928, 12/21/85, DO 8572; DIRECTOR 667352, 12/24/85. Subject #1
grudgingly provided testimony on this subject to Congress in 1987. (CIA Subject #1, Select
Committees Deposition, 4/25/87, pp. 32-36.)

NHAO worked to mount the first in the new series of flights -- embarking from the United States
to Ilopango air base in El Salvador, and then crossing to contra bases in Honduras -- in January
1986. CIA officers in Central America were charged with obtaining clearances for these flights
from the Honduran military. As a result, CIA officers in Central America began learning about
the contractors who were making NHAO's deliveries -- some of whom were delivering lethal
supplies for the North-Secord operation. In seeking clearances for the first drop, proposed for the
contra base at Yamales, field officers reported their concern that a ``possible conflict in aircraft
use'' could jeopardize it. Officers said that another Honduran project was using ``an L-100 . . . ,
operated by Dick ((Gadd)), who in turn gets his aircraft from Southern Air in Miami.'' Gadd, an
associate of Secord, was known by CIA field personnel to be a NHAO contractor. CIA field
personnel feared that if Gadd used the NHAO mission as a way to lessen his expenses on the
other project, the Hondurans would get angry. The drop to Yamales was eventually cancelled, at
the Hondurans' insistence.41
41 CIA Subject #1, FBI 302, 4/9/87; DIRECTOR 683461, 1/9/86; DIRECTOR 685439, 1/10/86;
CIA Cable, 1/10/86; CIA Cable, 1/10/86, DO 84692; DIRECTOR 687081, 1/10/86; CIA Cable,
1/13/86, DO 20034. See also DIRECTOR 691558, 1/15/86, DO 39668 (advising that Gadd will
move supplies for NHAO from cancelled Yamales drop, and has arranged for construction of
Butler buildings at Ilopango).

Subject #1 denied knowing the background of the cables discussing Gadd when questioned about
them in 1987. (CIA Subject #1, OIC Interview, 8/28/87, pp. 102-3.) Other cables suggest that
personnel other than Subject #1 may have been close to the situation. (See, for example, CIA
Cable, 1/15/86, DO 83565; CIA Cable, 1/18/86, DO 83567-66.) Subject #1's deputy believed he
may have been the first senior official in the region to learn of Gadd's activities, although the
deputy told Independent Counsel that DIRECTOR 687081 should have been sufficiently
important to CIA Subject #1 for him to know what Gadd was doing in Honduras. (Field Deputy,
FBI 302, 6/7/91, pp. 7-8.)

For other cables about Gadd's activities in Honduras, see DIRECTOR 760645, 3/3/86; and CIA
Cable, 3/3/86, DO 103566 (proposal to use Gadd to erect warehouses at Aguacate); CIA Cable,
3/10/86; CIA Cable, 3/11/86, DO 103566; CIA Cable, 3/12/86, DO 85474; DIRECTOR 778444,
3/14/86, DO 177472 (squabble among CIA field personnel over the unannounced appearance of
``NHAO communications specialist'' described as a Gadd employee); DIRECTOR 780844,
3/15/86, DO 11534; CIA Cable, 3/17/86; DIRECTOR 803080, 3/29/86; CIA Cable, 4/1/86, DO
85492; DIRECTOR 807942, 4/2/86, DO 85493; CIA Cable, 4/3/86, DO 85494 (CIA field
activities in arranging contra-sponsored drops of lethal and non-lethal supplies to contra forces
on the Nicaraguan ``Southern Front;'' Gadd mentioned as NHAO and private benefactor
contractor).

Rodriguez and Dellamico

By late January 1986 CIA personnel in Central America, including those closest to Subject #1,
recognized a second American citizen, Felix Rodriguez, in NHAO and private lethal resupply
efforts. CIA field personnel had been asked in late January to facilitate the movement of contra
logistics officers to Ilopango air base and to set up a contra communications network linking
Honduras and El Salvador. CIA headquarters complained that CIA officers closest to Subject #1
were responding slowly. CIA officers closest to Subject #1 tried to put the blame elsewhere:

[Officers] believe additional confusion being introduced into San Salvador scenario by Felix
((Rodriguez)), who has somehow become involved in the San Salvador end of the NHAO
system. He reportedly was the person who receipted for the NHAO shipment to Ilopango, and he
has become involved in conflict with both UNO/FDN [contra] air force commander Col Juan
((Gomez)) and UNO/FDN San Salvador logistics chief Lopez by insisting that all matters
relating to the Ilopango logistics system be channelled through him. According to Col Gomez,
Rodriguez implied that he was employed by [CIA] without actually saying so. . . .

Other field personnel warned that, in fact, logistics officer Lopez was being ``dominated'' by
Rodriguez and the Chief of the U.S. Military Group in El Salvador, U.S. Army Col. James
Steele.42
42 CIA Cable, 1/18/86, DO 83567-66; CIA Cable, 1/23/86, DO 84696; CIA Cable, 1/24/86, DO
10534; CIA Cable, 1/24/86, DO 10545; DIRECTOR 706924, 1/25/86, DO 10548; CIA Cable,
1/25/86, DO 39672; CIA Cable, 1/27/86, DO 39675. See also CIA Cable, 1/27/86, DO 39676
(reporting from Col. James Steele that a January 26 NHAO flight was arranged by a contact of
Rodriguez).

Ten days later, CIA officers closest to Subject #1 reported that the Hondurans finally had granted
permission for resumption of contra resupply flights. CIA officers expected the flights would
begin promptly, and were stumped when they learned that Lopez had been told to stop work on
the first load. CIA officers closest to Subject #1 suspected Rodriguez. Fiers soon announced that
he would travel to Honduras and El Salvador to consult with officers about NHAO transshipment
operations.43

43 CIA Cable, 2/7/86, DO 84703; CIA Cable, 2/8/86, DO 178737.

Fiers went first to Honduras to cement an agreement on obtaining clearances of NHAO flights.
He then traveled to Ilopango air base, where he witnessed the loading of a Southern Air
Transport C-130 with supplies for the contras. Concerned that the flight would upset the new
American-Honduran rapprochement, Fiers went to Rodriguez's quarters at Ilopango and
persuaded North to have him cancel the flight.44

44 For a more complete account of Fiers's confrontation with Rodriguez, see Fiers chapter.

Or so Fiers thought. Two days later, CIA officers closest to Subject #1 reported that Rodriguez
attempted to make a second end-run around the official clearance system -- this time, with the
help of Mario Dellamico:

It appears that the private citizen in San Salvador 45 who was sowing confusion on the question
of a C-130 flight to Honduras did not give up easily. While we have not established the time of
day of the request, during the day on 9 Feb he did contact his counterpart in Tegucigalpa, [Mario
Dellamico], and requested that clearance for the L-100 be obtained. [Dellamico] met with
Honduran Army Commander Col Thumann morning of 10 Feb, without having discussed the
subject with any other interested party in Honduras, and subsequently appeared at UNO/FDN
Directorate house saying he had obtained clearance for the aircraft and needed to travel to San
Salvador immediately to coordinate the flight from that end. Per Col Thumann's office, no such
approval was granted, and Hondurans had merely agreed to consider the subject, somewhat
reluctantly and based on appeals by [Dellamico] that were not necessarily true. This situation has
been corrected.46

45 According to Fiers, he instructed CIA personnel in Central America during his February 1986
trip to keep Rodriguez's name out of CIA cables. (See Fiers chapter.) CIA field personnel thus
began using phrases like ``private citizen in San Salvador'' as euphemisms for Rodriguez. For an
example of an exchange among CIA field personnel (not including Subject #1, who was in
Miami) that reflects an understanding of the meaning of this euphemism, see CIA Cable,
2/28/86, DO 85445; CIA Cable, 3/1/86, DO 85451; CIA Cable, 3/2/86, DO 103559.
46 CIA Cable, 2/11/86, DO 10987. This cable raised Fiers' temperature. (See DIRECTOR
731090, 2/11/86 (report ``disturbing'').) See also CIA Cable, 2/15/86, DO 11038; CIA Cable,
2/15/86 (reporting angry reaction of a contra leader).

By February 14, 1986, contra shipments from Ilopango to Aguacate had resumed. CIA personnel
reported to the Central American Task Force that ``[t]he role of the now infamous local `private
American citizen' has been reduced to that of an `on-looker' at the NHAO/UNO/FDN warehouse
at Ilopango.'' 47

47 CIA Cable, 2/14/86, DO 101121.

CIA Subject #1 denied hearing anything about Rodriguez's private resupply activities until
October 1986. In a May 1991 interview, Subject #1 explained his ignorance of repeated mentions
of Rodriguez in field cable traffic by insisting that other field personnel wrote the cables and
were more knowledgeable of the resupply operation.48 Subject #1's excuse is unconvincing.
First, as is clear from the events of 1985, Subject #1 was the CIA officer in the area most
knowledgeable of Dellamico's activities in Honduras.49 Subject #1 also knew that Dellamico
had high contacts in the Honduran military -- specifically, with Col. Thumann -- and that he was
a friend of Rodriguez.50 Second, Subject #1 was heavily involved in trying to persuade the
Honduran government to allow resumption of NHAO resupply operations -- a critical U.S.
objective in early 1986.

48 Some CIA cables do suggest that Subject #1's deputy was heavily involved in discussions
with the Honduran government about clearances. (See, for example, CIA Cable, 2/19/86, DO
11062; CIA Cable, 2/27/86, DO 85443-42.)

49 See Classified Appendix.

50 CIA Subject #1, FBI 302, 5/16/91, p. 6.

The most telling evidence of Subject #1's contemporaneous knowledge of the
Rodriguez/Dellamico clearance incident is, however, a contemporaneous KL-43 message from
North to Secord. The message states in part:

Regarding the El Salvador problem, we may have created one of our own with Maximo [Felix
Rodriguez's alias]. While our L-100 was on the ground in El Sal he apparently called to Mario
Del Amico . . . and asked Del Amico to go to the general staff to get flight clearance from
Ilopango to Aguacate. Thumann, the Honduran Chief of Staff -- who had just cleared the FDN
C-47 flight clearances[ -- ]told Del Amico that he would quote consider the request unquote.
Thumann then called [CIA Subject #1] and asked him what the hell was going on since he --
Thumann -- was reluctant to give any clearances at all but that [Subject #1] had brought enough
pressure to bear with [Subject #1] that he -- Thumann -- had no choice and now Del Amico was
asking for more before the first flight of the C-47 had even taken place. [Subject #1] told
Thumann -- without checking with Fiers -- to stand down on the Del Amico request and that Del
Amico might well be a close friend of Calero but he was no friend of ours. . . . The bottom line is
that Felix has once again exceeded his mandate and has dissembled with us -- or at least allowed
himself to hear from Del Amico that the L-100 was cleared. I have no reason to disbelieve
[Subject #1] and find the story about Del Amico to be plausible.51

51 Secord, OIC Interview, 5/13/87, pp. 118-19; KL-43 Message from North to Secord, AQT
000002. The KL-43 message refers to upcoming talks between Fiers and Gadd. Independent
Counsel's evidence is that these meetings occurred on February 12, 1986. See Fiers chapter.

North's account of the Dellamico/Rodriguez ``end run,'' which describes Subject #1 as a
knowledgeable witness, is corroborated by the former U.S. military adviser to Honduras, Col.
William C. Comee. Colonel Comee told Independent Counsel in May 1991 that he was in
frequent contact with Subject #1 during February 1986. According to Comee, Subject #1 was
very upset by the ``end run'' around the CIA's clearance system -- not because a private resupply
flight was involved, but rather because it ruffled the delicate Honduran relationship.52

52 Comee, FBI 302, 5/17/91, pp. 2-3. See also CIA Cable, 4/24/86, DO 177531, DO 83790; CIA
Cable, 4/26/86, DO 3792 (attributing resupply confusion to ``local contractors'' identified as
Rodriguez and Quintero).

Independent Counsel was unable to prove another Boland violation attributed to Subject #1 in a
later North KL-43 message. In early April 1986, the North-Secord Enterprise arranged for
another L-100 cargo plane to drop lethal supplies to contra forces operating on the Nicaraguan
``southern front.'' Preparations for this drop were at their peak on April 10-12, 1986. Prior to the
drop, North sent a KL-43 message to Secord that stated that Subject #1 would be assembling
supplies at the contra base at Aguacate and moving them to Ilopango Air Base in time for the L-
100's mission. (KL-43 Message, from North to Secord, 4/86.) To the best of Secord's knowledge,
however, Subject #1 played no part in the L-100 mission and did not assemble materials at
Aguacate. Subject #1's travel records confirm that he was out of Central America at the time.
Secord admitted, however, that Subject #1's subordinates occasionally interceded with contra
leaders in the north to free up supplies for the Southern Front -- an apt description of what the
Enterprise accomplished with its April L-100 flight. (Secord, Grand Jury, 1/25/91, pp. 17-18;
Secord, Select Committees Testimony, 5/6/87, p. 147; CIA Subject #1, OIC Interview, 8/28/87,
pp. 107-11; CIA Subject #1 Travel Cables.)

Subject #1's False Statements

Meetings With Quintero, Secord, and Clines

Subject #1 first testified that he had no contact with Quintero, Secord and Clines between 1984
and 1987. The FBI Form 302 of an interview Subject #1 gave on April 9, 1987, to agents
assigned to Independent Counsel states: ``[CIA Subject #1] advised that during his assignment in
[Central America] he had no contact with the following people: Richard Secord . . . and Thomas
Clines.'' Subject #1 did indicate that one source of supplies for the contras was the supermarket
managed by Martin. Subject #1 stated that he never met Martin, however, ``and the CIA was told
to stay away from him.'' 53 But on April 25, 1987, in a deposition for the Select Committees,
Subject #1 admitted that he had met Secord and Clines:
53 CIA Subject #1, FBI 302, 4/9/87, pp. 1-2. The special agents' handwritten notes are consistent
with the Form 302 prepared following their interview with Subject #1. One agent noted
specifically: ``Tom Clines -- never in Hond [Honduras].''

Q: Richard Secord. What knowledge do you have of this individual?

A: Oh, I knew Richard Secord for a number of years.

Q: Let's say after 1984, the beginning of 1984. Have you seen Secord?

A: Yes.

***

Q: What was the nature of that contact?

A: Well, I ran into him. I'm not sure how it occurred. But he invited me to stop by his place for a
cup of coffee. I'm not sure if it was '84 or '85. And I did.

Q: That was his home?

A: Yes.

***

Q: Did he have any specific reason to see you at that time?

A: It was more just shooting the breeze, as I recall.

Q: Did he make any statements, to your recollection, that would indicate that he was involved in
private support to the contras?

A: No.

Q: Did he give you any reason to believe that he sought something or sought some assistance
from you with respect to that?

A: No. No, sir.

***

Q: When is the last time you saw Mr. Clines?

A: It was at Secord's house.

Q: At that same function?
A: Yes.

Q: Did Secord or Clines explain why they were together at that time?

A: No, they did not.

Q: Was this a family function?

A: It was just in the morning.

Q: Just the three of you?

A: And Secord's wife.

Q: Did Clines give you any reasons to believe that he was involved in Central American-related
things?

A: No.

***

Q: Do you recall the nature of the discussion you did have at that time?

A: No, I don't. It was just a general how are you doing type of thing. Have a cup of coffee.

Q: How long did that last?

A: Forty-five minutes, an hour at the most.

Subject #1 continued to deny having met Quintero.54

54 CIA Subject #1, Select Committees Deposition, 4/25/87, pp. 76-79, 81 (emphasis added).
Subject #1 was questioned by counsel for the minority of the Senate Select Committee.
Statements by counsel during the deposition indicate that Subject #1 had advance notice of some
of the questions.

Subject #1 was called before a federal Grand Jury on June 5, 1987. Subject #1 once again denied
knowing Quintero. He acknowledged meeting Secord and Clines once in 1985, but he claimed
not to recall how the meeting came about.

Q: What went on at the meeting, do you know?

A: He just asked how I was doing, how things were going -- basically that's it -- what's the
situation we're fighting in Nicaragua? Nothing memorable, actually.

Q: Were they asking you or you asking them?
A: They're asking me. It was more just a chat -- how ya' been? Haven't seen you in a long time.

Q: When did you first become aware, if ever, that [C]lines had a business relationship with
Secord.

A: I didn't know he had a business relationship with Secord. I just thought they were personal
friends from back in those days in the late sixties.

Q: Did you ever become aware that they had a relationship?

A: Not until this most recent stuff that's come out.

Q: What about General Secord. When did you become aware that he had an involvement in
Central America and supplying the Contras?

A: I don't know. I guess when it came out in the press, frankly.

Q: In other words, in '87?

A: Whenever that was, yes.

***

Q: Did you know of the relationship, or did Colonel North ever advise you of the relationship
between North and Secord?

A: Negative.

***

Q: Did you have any knowledge of Oliver North's involvement in fund raising or in providing
materials [for the contras]?

A: No, I did not.

***

Q: When Secord had you over to his house . . . was he having you over because you are old
friends, or was he having you over to, essentially, probe for information?

A: I assumed he was having me over because we are old friends. Or I knew him from the old
days. That may have not been the case, of course, now. That's what I assumed.55

55 CIA Subject #1, Grand Jury, 6/5/87, pp. 65, 58-62, 72, 86-87 (emphasis added). In a
deposition taken in August 1987, CIA Subject #1 repeated many of these points. (CIA Subject
#1, OIC Interview, 8/28/87, pp. 106-9.)
Independent Counsel interviewed Subject #1 again in June 1988 about his contacts with the
North-Secord Enterprise. During that interview, Subject #1 admitted for the first time that he and
his wife had met Clines (but not Quintero) in Mexico City sometime in 1984. As for the July
1985 meeting, Subject #1 said that either Secord had telephoned him or they had run into each
other. Subject #1 admitted that he was close to North, but denied ever giving Clines or Quintero
his telephone numbers. The FBI agent who attended the interview noted:

[CIA Subject #1] did not recall discussing Contra resupply in Honduras with Secord, Clines, or
North. He did not recall meeting with Secord or Clines to discuss setting up a Contra resupply
operation or obtaining Honduran flight clearances for such an effort. . . . As far as [Subject #1]
knew, Clines was not involved in purchasing weapons for the Contras.56

56 CIA Subject #1, FBI 302, 6/24/88, pp. 3, 5.

Subject #1 was interviewed one last time by Independent Counsel in May 1991. Subject #1
continued to deny (1) knowing as early as 1985 that Clines was involved in weapons shipments
to the contras, (2) ever meeting Quintero, or meeting Quintero and Clines in Honduras (although
he confirmed that the Miskito Indians had an office in Tegucigalpa), or (3) ever giving Quintero,
Clines, or Secord his telephone number. He asserted that his first memories of the meeting at
Secord's house may not have been good because the primary purpose for his extended leave in
Washington in the summer of 1985 was to resolve certain upsetting family matters. He did not
recall discussing the arms supermarket with North, but he admitted that such a discussion would
not have been unusual. Subject #1 denied discussing the supermarket with Secord during their
meeting.

Knowledge of Rodriguez and Other Private Benefactors

CIA Subject #1 claimed not to know much about the NHAO transhipment operation when
questioned about it less than eighteen months after it began: 57

57 The classified text of this exchange makes Subject #1's denials more unbelievable than they
are rendered here.

Q: So you don't recall a specific period in which humanitarian assistance was coming only from
Ilopango and not from the United States directly?

A: No, but it could very well have happened.

Q: So at some point, at any rate, supplies were coming in, humanitarian supplies were being
received at Aguacate and they could have come from one of two sources, either from the
mainland United States directly or from El Salvador, from Ilopango?

A: Yes.

Q: What was the role of [CIA field personnel] with respect to making arrangements to assist
NHAO in providing the assistance in this matter?
A: Well, we were requested, I believe after the flights resumed, to obtain flight clearances from
the Hondurans to allow those aircraft to come.

Q: Did [field personnel] obtain clearances for flights from Ilopango?

A: I don't know. I had the feeling flights from Ilopango were sort of -- the FDN may have done
those themselves and it was sort of catch as catch can when a bird was coming. And there was
traffic that went back and forth, but my recollection would have been from the States.

Q: So you can confirm that [field personnel were] making flight clearance arrangements for
deliveries from the United States?

A: I have been told that and read that, but I did not remember that.

Q: But you cannot recall, at any rate, [ ] assistance in making similar arrangements for the flights
from Ilopango?

A: I can't recall that, no.

Subject #1 was more categorical in denying knowing about Rodriguez:

Q: When did you become aware that Max Gomez or Felix Rodriguez was located at Ilopango?

A: Oh, I had heard Max Gomez was going to Salvador and Ilopango when I was still in
[Classified Location], so that must have been '83 or early '84.

Q: Did you at some point link Gomez with the humanitarian assistance program?

A: No.

Q: When did you become aware that Gomez was performing some function with respect to
deliveries to the FDN at Aguacate from Ilopango?

A: I don't recall. Perhaps the newspapers.

Q: Did you become aware at some point that private air crews had been retained by someone to
shuttle supplies between Ilopango and Aguacate?

A: What time period are we talking about -- during the NHAO period?

Q: Yes. Let's say in the period of November of '85 to March of '86.

A: No, I did not.

Q: So it's your belief that the private air crews did not appear on the scene prior to the winding
down of the NHAO program?
A: As far as I know.

***

Q: At the point that the humanitarian program was winding down were you generally aware that
the contras were the beneficiaries of a private supply network that was operating out of
Ilopango?

A: I'd say yes.

Q: Did you associate that network with Max Gomez' presence at Ilopango?

A: No.

Q: So it was your understanding that Gomez was at Ilopango solely to assist the Salvadoran
government's counter-insurgency effort?

A: I may have heard that he was involved in, you know, some of these other things, but Max
Gomez was involved in that for quite some time. That was his reason for being there, the
insurgency effort, whatever he did with the insurgents or counter-insurgency, yes.58

58 CIA Subject #1, Select Committees Deposition, 4/25/87, pp. 35-36, 37-38, 46-47 (emphasis
added).

Subject #1's testimony on these subjects was slightly more straightforward in his August 1987
deposition for Independent Counsel. He admitted that officers under his command -- most likely
those closest to James Adkins -- were responsible for clearing NHAO flights into Honduras. He
denied learning, however, of a link between NHAO and the private benefactors:

Q: Were you involved in [clearances for NHAO flights]?

A: We would also get the cable; sure.

Q: You personally though?

A: The cable would go to both locations.

Q: Would the air ops officer under Adkins command check with you before he talked to the
Honduran government to get the clearance?

A: Probably with someone [close to Subject #1] or [Adkins] would talk to him probably, yes.

Q: Do you remember someone talking to you about some of the clearances, any clearances?

A: No, not really. Since I first discussed these I had forgotten that we did the clearances to tell
you the truth.
***

Q: Did you ever make a connection between the NHAO flights and the private lethal flights?

A: The private lethal flights?

Q: Yes.

A: You mean the two?

Q: Yes.

A: No.59

59 CIA Subject #1, OIC Interview, 8/28/87, pp. 97-98, 102 (emphasis added).

The Decision Not to Prosecute

Independent Counsel uncovered very little evidence that CIA Subject #1 participated in or
facilitated the affairs of the North-Secord Enterprise. Subject #1 also appears not to have
knowingly violated any of the statutory restrictions on assistance to the contras that were in
effect from 1984 to 1986 -- particularly the Boland Amendment. This left the possibility of
charging Subject #1 with false statements, obstruction, or perjury. Independent Counsel's
decision whether to prosecute Subject #1 rested on (1) the strength of the case against him, (2)
the significance of his obstruction of the Iran/contra investigations, and (3) the prospects for
furthering Independent Counsel's investigation.

The strongest evidence against Subject #1 concerned his meetings with Secord, Clines, and
Quintero in 1985. Independent Counsel believed that the circumstantial and direct evidence
about these meetings was overwhelming. Nevertheless, the three principal witnesses to the 1985
meetings were carrying significant baggage by 1991. Secord had pleaded guilty to providing
false testimony; Clines had been convicted of tax evasion; and Quintero had testified only under
immunity. Moreover, while the witnesses agreed that the meetings had occurred, they disagreed
as to what had been discussed. Could their testimony convince a jury that Subject #1's motive for
covering up the 1985 meetings was to distance himself from the Enterprise when Quintero,
Secord, and Clines could not agree whether Subject #1 had been told about it? 60

60 With respect to the meeting at Secord's house, Independent Counsel also would have had to
overcome an emotional preoccupation defense.

The evidence of Subject #1's contemporaneous knowledge of Rodriguez and the NHAO
transshipment operation was likewise powerful. Much of the Rodriguez/NHAO case relied on
CIA cables, many of which were written or released by Subject #1. Nevertheless, in many
significant instances, proving Subject #1 released a cable would have been impossible, as the
original cables had been destroyed by the CIA in the ordinary course of its business.
The strengths of a Subject #1 case were overshadowed by the relative insignificance of his false
statements, the slim prospects for obtaining important information from him, and the resources
that would have been required to obtain a conviction. Subject #1 sought only to distance himself
from the Enterprise. No evidence suggested that he was covering for anyone else, or that he had
particularly valuable information concerning the matters about which he lied. There was no
evidence of a special relationship between Subject #1 and North; he did not appear to be a
confidant of Alan D. Fiers, Jr., or other senior officials at CIA; and Independent Counsel had
scant evidence that Subject #1 was involved in situations that could have incriminated other
senior CIA officials.



accordance with 17 U.S.C. Section 107, the following material is distributed without profit to those who have expressed a prior interest in
receiving the included information for research and educational purposes.


Military waste under fire
$1 trillion missing -- Bush plan targets Pentagon accounting
by Tom Abate, Chronicle Staff Writer, Page A-1
May 18, 2003
San Francisco Chronicle

The Department of Defense, already infamous for spending $640 for a toilet seat, once again finds itself
under intense scrutiny, only this time because it couldn't account for more than a trillion dollars in financial
transactions, not to mention dozens of tanks, missiles and planes.

The Pentagon's unenviable reputation for waste will top the congressional agenda this week, when the
House and Senate are expected to begin floor debate on a Bush administration proposal to make
sweeping changes in how the Pentagon spends money, manages contracts and treats civilian
employees.

The Bush proposal, called the Defense Transformation for the 21st Century Act, arrives at a time when
the nonpartisan General Accounting Office has raised the volume of its perennial complaints about the
financial woes at Defense, which recently failed its seventh audit in as many years.

"Overhauling DOD's financial management operations represent a challenge that goes far beyond
financial accounting to the very fiber of (its) . . . business operations and culture," GAO chief David
Walker told lawmakers in March.




What Happened To $1 Trillion?

Though Defense has long been notorious for waste, recent government reports suggest the Pentagon's
money management woes have reached astronomical proportions. A study by the Defense Department's
inspector general found that the Pentagon couldn't properly account for more than a trillion dollars in
monies spent. A GAO report found Defense inventory systems so lax that the U.S. Army lost track of 56
airplanes, 32 tanks, and 36 Javelin missile command launch-units.

And before the Iraq war, when military leaders were scrambling to find enough chemical and biological
warfare suits to protect U.S. troops, the department was caught selling these suits as surplus on the
Internet "for pennies on the dollar," a GAO official said.
Given these glaring gaps in the management of a Pentagon budget that is approaching $400 billion, the
coming debate is shaping up as a bid to gain the high ground in the battle against waste, fraud and
abuse.

"We are overhauling our financial management system precisely because people like David Walker are
rightly critical of it," said Dov Zakheim, the Pentagon's chief financial officer and prime architect of the
Defense Department's self-styled fiscal transformation.

Among the provisions in the 207-page plan, the department is asking Congress to allow Secretary of
Defense Donald Rumsfeld to replace the civil service system governing 700,000 nonmilitary employees
with a new system to be detailed later.

The plan would also eliminate or phase out more than a hundred reports that now tell Congress, for
instance, which Defense contractors support the Arab boycott of Israel and when U.S. special forces train
foreign soldiers, as well as many studies of program costs.

The administration's proposal, which would also give Rumsfeld greater authority to move money between
accounts and exempt Defense from certain environmental statutes, prompted influential House
Democrats to write Speaker Dennis Hastert last week complaining that the proposals would "increase the
level of waste, fraud, and abuse . . . by vastly reducing (Defense) accountability."

"The Congress has increased defense spending from $300 billion to $400 billion over three years at the
same time that the Pentagon has failed to address financial problems that dwarf those of Enron," said
Rep. Henry Waxman, D-Los Angeles, one of the letter's signatories.

Saying critics of the bill "were arguing for more paperwork," Hastert spokesman John Feehery said his
boss would support the Bush reforms on the House floor. "The purpose is to streamline the Pentagon to
become a less bureaucratic and more efficient organization . . . while also making it more accountable,"
Feehery said.




Process Will Take Months

The debate will center around the defense authorization bill, the policy-setting prelude to the defense
appropriations measure that comes up later in the session. With the House and Senate considering
different versions of the transformation proposals, it will be months before each passes its own bill and
reconciles any differences.

But few on Capitol Hill would deny that, when it comes to fiscal management, Defense is long overdue for
"transformation."

In congressional testimony Rumsfeld himself has said "the financial reporting systems of the Pentagon
are in disarray . . . they're not capable of providing the kinds of financial management information that any
large organization would have."

GAO reports detail not only the woeful state of Defense fiscal controls, but the cost of failed attempts to
fix them.

For instance, in June 2002 the GAO reviewed the history of a proposed Corporate Information
Management system, or CIM. The initiative began in 1989 as an attempt to unify more than 2,000
overlapping systems then being used for billing, inventory, personnel and similar functions. But after
"spending about $20 billion, the CIM initiative was eventually abandoned," the GAO said.
Gregory Kutz, director of GAO's financial management division and co-author of that report, likened
Defense to a dysfunctional corporation, with the Pentagon cast as a holding company exercising only
weak fiscal control over its subsidiaries -- the Army, Navy, Air Force and Marines. Today, DOD has about
2,200 overlapping financial systems, Kutz said, and just running them costs taxpayers $18 billion a year.

"The (Pentagon's) inability to even complete an audit shows just how far they have to go," he said.

Kutz contrasted the department's loose inventory controls to state-of-the-art systems at private
corporations.

"I've been to Wal-Mart," Kutz said. "They were able to tell me how many tubes of toothpaste were in
Fairfax, Va., at that given moment. And DOD can't find its chem-bio suits."




Critics Called Unpatriotic

Danielle Brian, director of the Project on Governmental Oversight, a nonprofit group in Washington, D.C.,
said waste has become ingrained in the Defense budget because opposition to defense spending is
portrayed as unpatriotic, and legislators are often more concerned about winning Pentagon pork than
controlling defense waste.

"You have a black hole at the Pentagon for money and a blind Congress," Brian said.

But things may be changing.

GAO's Kutz said Rumsfeld has "showed a commitment" to cutting waste and asked Pentagon officials to
save 5 percent of the defense budget, which would mean a $20 billion savings.

Legislators are also calling attention to Defense waste. "Balancing the military's books is not as exciting
as designing or purchasing the next generation of airplanes, tanks, or ships, but it is just as important,"
Sen. Robert Byrd, D-W.V., said last week. In a hearing last month about cost overruns, Rep. John
Duncan, R-Tenn., of the House Committee on Government Reform said: "I've always considered myself
to be a pro-military type person, but that doesn't mean I just want to sit back and watch the Pentagon
waste billions and billions of dollars."

But while Capitol Hill sees the need, and possibly has the will to reform the Pentagon, the devil remains in
the details, and the administration aroused Democratic suspicions when it dropped its 207-page
transformation bill on lawmakers on April 10 -- leaving scant time to scrutinize proposals that touch many
aspects of the biggest department in government.

"We have as much problem with the process as with the substance," said said Rep. John Spratt, D-S.C.,
who co-signed Waxman's letter calling the transformation bill "an effort by the Department to substantially
reduce congressional oversight and public accountability."

Defense's Zakheim counters that the reform proposals would "remove the barnacles of past practices
(and provide) DOD with modern day management while preserving congressional oversight and
prerogatives."

But Waxman, a critic of the administration's handling of Iraqi reconstruction contracts, called the
proposals "a military wish list" to take advantage of "the wartime feeling."

"Secretary Rumsfeld is hoping to march through Congress like he marched through Iraq," Waxman said.
Original version: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2003/05/18/MN251738.DTL&type=printable




UQ Wire: What's Up With the Black Budget?
Monday, 23 September 2002, 3:02 pm
Column: www.UnansweredQuestions.org

                                  Unanswered Questions: Thinking For Ourselves
                               Presented by… http://www.unansweredquestions.org/

                            The $64 Question: What's Up With the Black Budget?

                                        The Real Deal with Catherine Austin Fitts

"Engrave this upon my heart: ~ There isn't anyone you couldn't love once you've heard their story."
--- Mary Lou Kownacki

"What is relevant is what solves the problem. If we had thought through real relevancies, we
would be on Sirius by now."
---- Peter Medewar

                                              *************************

It is time to deal with the 64 dollar question --- the biggest crazy aunt in the living room.

The questions that need to be raised in any effort to find the truth about a significant event
related to power and money in the US --- and answered if we are to ever find the truth of how
our world works --- are:

1. WHAT HAS BEEN THE SIZE OF THE U. S. BLACK BUDGET OVER THE LAST 50
YEARS?

2. WHAT ARE THE SOURCES AND USES OF FUNDS IN THE BLACK BUDGET?

3. WHO GOVERNS AND MANAGES THE BLACK BUDGET AND OPERATIONS?

4. WHY HAVE SO MANY DECENT PEOPLE SUPPORTED AN ILLEGAL BLACK
BUDGET OPERATION OF SUCH MAGNITUDE FOR SO LONG?

5. IS THE WAR ON TERRORISM MOVING THE BLACK BUDGET ON BUDGET?

I do not know the answer to these questions. What I do know is that asking these questions
brings up a whole pile of challenging uncertainty. (For background on my experience dealing
with black budget/slush fund operations at FHA and Ginnie Mae at the Department of Housing
and Urban Development (HUD), Justice, Treasury and the New York Federal Reserve Bank, see
my article, "The Myth of the Rule of Law,"
http://www.scoop.co.nz/mason/stories/HL0208/S00055.htm)

When dealing with challenging uncertainty, I find that many researchers simply delete the
existence of such uncertainty from their reality. That is a big mistake --- again pretending that we
do not have a very big crazy aunt sitting in the living room. George Orwell once said that
"Omission is the greatest lie." Hence, our crazy aunt has to be dealt with.

If you listen to the Ferdinand video/audio depositions in the Carone/Tyree lawsuit (
http://www.blackopradio.com/inc_archives2002.html), what you will hear is something I have
heard many times. Carone gives his family the sense of all of the organized crime operations by
CIA, Army and Mafia through the 1970's as legitimate for national security purposes that then
got out of hand and turned bad in the 1980's. That is, what started out as justifiable got out of
hand. This begs the question ---- Why Were Such Activities Considered Justifiable?

The way to deal with uncertainty is with scenario design and probability -- ie to create a
framework of the possible explanations with your best estimate of the plausible scenarios and the
probability (all adding up to 100%) of each one being true based on intuition. Maintaining such a
framework allows data collection on key variables and assumptions and an evolution to occur
that can enlighten --- even determine --- concrete questions and answers over time.

So, let me tell a story, give you my framework that I use to handle the fact that I do not have the
answers and invite your framework. I am not looking to hear only what is wrong with my
framework. I am looking to improve mine or find a better one. Or better inform my estimate of
the probabilities that this one or that one is true. Hence, I invite you to put forward your
framework for managing this uncertainty. If we had the truth of the issue I am going to
introduce, I dare say we could get to the bottom of 9-11 faster.

In 1998, I was approached by John Peterson, head of the Arlington Institute, a small high quality
military think tank in Washington, DC. I had gotten to know John through Global Business
Network and had been impressed by his intelligence, effectiveness and compassion. John asked
me to help him with a high level strategic plan Arlington was planning to undertake for the
Undersecretary of the Navy.

At the time I was the target of an intense smear campaign that would lead the normal person to
assume that I would be in jail shortly or worse. John explained that the Navy understood that it
was all politics ---- they did not care.

I met with a group of high level people in the military in the process --- including the
Undersecretary. According to John, the purpose of the plan --- discussed in front of several
military or retired military officers and former government officials--- was to help the Navy
adjust their operations for a world in which it was commonly known that aliens exist and live
among us.
When John explained this purpose to me, I explained that I did not know that aliens existed and
lived among us. John asked me if I would like to meet some aliens. For the only time in my life, I
declined an opportunity to learn about something important. I was concerned that my efforts with
Arlington could boomerang and be connected with the smear campaign and the effects that I was
managing. I regret that decision. At John's suggestion I started to read books on the topic and
read about 25 books over the next year on the alien question, the black budget, and alien
technology.

I had to drop from the project due to the need to attend to litigation and the physical harassment
and surveillance of me and some of the people helping me. This process ---which turned out to
be incredibly time consuming --- I now believe was connected with the black budget/slush fund
activities connected with FHA and Ginnie Mae at HUD. (See, "The Myth of the Rule of Law")
John then asked me if I would join the board of the Arlington Institute.

When I attended one of my first meetings, I joined in discussion with about 10 people which
included James Woolsey, former head of the CIA in the Clinton Administration, Napier Collyns,
founder of Global Business Network and former senior Shell executive, Joe Firmage, John, and
other members of the Arlington board. The main topic of discussion was whether or not the
major project for the coming year should be a white paper on how to help the American people
adjust to aliens existing and living among us. I said nothing -- just listened. Not that long after, I
dropped from the board due to the continued demands related to litigation with the Department
of Justice and their informant.

To cut a series of additional long stories short, when I talk with my few sources from the military
and intelligence community, I hear the same themes:

1. Aliens exist and live among us;

2. In part for this reason as well the accumulated investment over the last 50 years, the
technology we have access to through the black budget is far more advanced than is commonly
understood;

3. The black budget/slush fund construct was created to deal with this issue, which is why
reasonable people thought selling drugs to the children who were US citizens was the better of
several options --- including the option of telling the American public the truth and funding the
expenses on budget.

As a result of these experiences, here is my framework for dealing with this very large pile of
uncertainty.

ONE OF THE THREE FOLLOWING POSSIBLE SCENARIOS MUST BE TRUE

SCENARIO #1. ENTRE NOUS: The alien question is the single largest and most expensive
disinformation campaign in the history of our race. A portion of the human race has advanced
technologically so far beyond the rest of us --- and is attributing various things to aliens as a way
of managing their resulting risk---that we have become as aliens to each other. To fully
understand this scenario, we need to try to understand the use of individual mind control such as
criminal hypnosis to effect financial and government fraud and corruption and the truth,
whatever it is, of wider subliminal programming and brainwashing. These are slippery subjects
for most people to deal with unless they have the training and ability to do so.

% PROBABILITY SCENARIO #1 IS TRUE ______ (You fill in)

SCENARIO #2 --- HOLY COW!: Aliens exist and live among us. Planet earth is subject to the
politics, economics and laws and/or lawlessness of a larger system or systems. The transfer of
advanced technology into a society that has not evolved governance and legal systems to manage
a world with the presence of such technology and the influence of such other system(s) helps to
explain current events. To fully understand this scenario, we must also try to understand the use
of individual mind control such as criminal hypnosis to effect financial and government fraud
and corruption and the truth, whatever it is, of wide subliminal programming and brainwashing.
Again, these are slippery subjects for most people to deal with unless they have the training and
ability to do so.

% PROBABILITY SCENARIO #2 IS TRUE ______ (You fill in)

3. SCENARIO #3 --- MUDDLED: Some combination of (1) and (2) above.

% PROBABILITY SCENARIO #3 IS TRUE ______ (You fill in)

TOTAL % PROBABILITY OF SCENARIOS #1,2 & 3 BEING TRUE 100%

Could my experiences with Arlington and the Navy or any subsequent contacts fit with a
disinformation scenario? Absolutely. I have no evidence to support any scenario. The only
evidence I believe I have is my experience dealing with tremendous amounts of money siphoned
off over the years, whether through Iran-Contra S&L, HUD and BCCI fraud, or the latest round
of money missing from the federal government in the last five years. This is all documented in
the articles below. This cash flow and the operations and syndicates it appears to fund are
important to what drives the governance and allocation of resources in this country and around
the globe. There is a reason that power and money are centralizing and the rich are getting richer.
I want to know what it is.

Whichever scenario is true ---and I do not know which one is ---- if we had the truth it will help
us grapple with 9-11 and the War on Terrorism. It would also help us better understand all the
efforts to press for centralization of economic and political power that have grown as the black
budget has grown since WWII. The reality is the possibilities of why 9-11 occurred and how it
was operationalized are impacted by the facts of the US black budget and the advanced
technology it has developed. Why would sane and even decent people think it was the best
option for the good of the whole?

We must sit in the shoes of the person or people who gave the order ---whoever they may be and
wherever they may be ---- and understand how their power and money worked. Why would a
group with the operational and financial capacity to effect a 9-11 operation give the green light to
plan 9-11, finance 9-11, do 9-11, stand down so 9-11 could happen, take advantage of 9-11 or to
make sure the truth was not illuminated?

My experience in Washington and Wall Street would indicate that there is a reasonable chance
that all these various people and many in the food chain Are Not Bad Or Irrational People.
That is, we have a better chance of finding the truth if for purposes of our explorations we
assume that the people involved in all these roles were people like you and me --- just with a
different map of certain parts of the world and dealing with a variety of stress and pressures
trying to build cooperation or achieve goals that we do not understand.

Watching the federal government contract announcements and without benefit of seeing the full
budget and assuming The Disclosure Project allegations regarding the estimates of the black
budget size, if I had to guess today my guess would be that 9-11 has been highly successful in
permitting the black budget to be moved on budget, partly in the normal budget and partly in the
budget that is only disclosed to the Congressional intelligence committees.

The solution to continued growth and funding of the black budget may have been to steal as
much money and assets as possible from the federal budget an