“6 negotiation, had it not been subject to the exemption. "So the question was what to do about it. And.finally, we made a volun tary repayment against part of the profit on that contract to the Air Force." As noted previously, the commercial airline aspect of the operation ”
“The struggle within the Agency ranged all the way from sort of quiet management discussions as to what was good management, to sometimes rather vociferous auguments of whose in charge here. And the operators always said, 'well, we need to call the shots because it's our opera”
“- 11 - proper conduct by entities. Each Agency component involved is responsible for compliance, and the Chief of the Cover and Commercial Staff, the Director of Finance, and the Comptroller are particularly watchful in their areas of concern. B. Project Reviews and Control”
“8’9 - cCRET O5,1110 QKOPERA/DTGODOWN (Cont’d) income producing securities. At the time the Agency withdrew its support, the assets of the entity were given to its witting Board of Directors with the understanding that approximately 60% of the portfolio of investments wou”
“- 83 - CEPBPT' TAB D Disposition of Entities, Sold or Otherwise Disposed Ofj JBARGON This air support proprietary (maintenance facility) was sold in January 1975 to a bona fide aviation concern which was made witting of the Agency's ownership of the firm for purposes of ”
“the Agency in the Far East. At the time the Agency withdrew. its support for the activity in 1967, the assets of the organization with a substantial termination ' payment were turned over to the witting Board of Directors of the entity. The entity has. continued its work wi”
“is detailed later. (See Section VIII). A. Operating Proprietaries As discussed in greater detail later, operating proprietaries conduct business in the commercial sphere, but they are not in direct competititon with privately owned corporations to such a degree as to depriv”
“broadcasting activity which was turned over to the Department of State for support and subsequently placed under the control of the Board of International Broadcasters for continued operation with Congressional support. ZRCANNY This U.S. foundation type proprietary served as”
“ethical standards. What slippages have occurred were in the field and generally in the area of air opera tors, not management. Moreover, their use and past expansion was a direct result of the demands placed upon the Agency by Presidents, Secretaries of State and the policy ”
“- 6 - attributable to the U.S. Government. This function was broadened to include self-insurance for many risks involved in covert operations , including property risks incurred by operational activities of Agency- owned air and marine companies. From an early date, the comp”
“So I think for the last, oh, fifteen, eighteen years, the proprietary management system was on the whole pretty effective fromthe Agency point of view. I think we knew what was going on. I think we were able to get things up for decisions, and if we couldn't resolve them at ”
“- 45 - LPBYZAS/3 A European company with no employees which holds the Agency’s interest in another European company which was used in the past to provide cover for one Agency employee. This company is being retained solely for the purpose of holding an Agency investment. Un”
“•LU I, 84 - DEINHAUL (Cont’d) in concert with the original objectives of the pro ject.. In 1967 under the terms of the Katzenbach Report, it was necessary for the Agency to discon tinue its support to the bona fide U.S. foundation (ostensible former owner of the bank as m”
“support Agency activities. The Agency is in the process of disposing of its assets and terminating this activity.. As of 1 July 1974 there were 71 operating proprietary companies, of which 21 are part of the Agency’ s proprietary insurance complex. The combined het worth (as”
“support. As of March 31, 1972, that proprietary had invested $50,000 in time deposits. LPMANTLE is part of the WUTACTIC complex managed by the Cover and Commercial Staff to provide operational support mechanisms for DDO foreign operations. It is a Delaware corporation which ”
“- 82 - e! TAB D Page 7 LADYCHAPEL This proprietary was established to purchase an apartment building in Europe for Agency office GMenT and residential use. In 1968, then the build ing was of no further use to the Agency, the entity with the apartment building was ostensi”
“-4- have been used as partial offsets to operating costs. Aggregate profits over the years have been relatively small. Only two proprie taries have shown significant profits: the Air America complex in fulfilling mostly Government contracts in Southeast Asia, and the insur”
“new missions, as noted, would require CIA to amend the MUTUAL Administrative Plan. But this could be done quickly; the existence of the shells avoids the leadtime of creating new corporate entities, with all the complications of local laws and risk of exposure.. While CIA pr”
“SECK - 86 - . QRMASTER (Cont’d) to its manager with full expectation of continued operation with heavy Agency subsidy. At the time of sale, substantial funds were removed, from the entity leaving it without sufficient working capital. Consequently, the Agency arranged for ”
“- 12 - for the proprietary are compatible and consistent with normal practices and requirements for the type of instrumentality being established. The Director of Finance representative is the Chief of the Commercial Systems and Audit Division, a position normally occupied b”
“- - 36 - Operational Support WUTACTIC Complex The below 27 companies are managed by the Cover and Commercial Staff to provide operational support mechan isms for DDO foreign operations. Some companies are in active and held for future use. 68. LPCEMENT A Liechtenstein”
“- 94 - for cover reasons, cannot be refused. Over the past few years, this has involved badging operations for private companies, i.e. airlines, schools, etc. The company has never made a true profit. To maintain its image among its competitors, however, its books reflect a”
“Southeast Asia. This support has been under cover of a commercial flying service in fulfillment of U.S. Government contracts. Corporate Headquarters has been in Washington, D. C., with field Headquarters in Taipei, Taiwan. The insurance complex provides a mechanism for the pa”
“credibility and relations with the jurisdiction in which the entity is located are not easy things to do according to Houston. This creates the ’'tendency, once you've got something that looks good, to hang on to it." He would recommend in this regard that the Agency be const”
“dissolved or sold as a going enterprise or otherwise disposed of by the Agency? Mr. Nelson closed his recent testimony with a caveat: I can visualize, however, depending on what happens to the Agency in the future, the possibility that we might want to use more proprietarie”
“-7- B. Nonoperating Proprietaries Nonoperating proprietaries vary in complexity according to their Agency task, are, for the most part, either corporate shells or less that facilitate foreign operations, and clearly pose no competitive threat to bona fide businesses. The mo”
“- 17 - Speas Company) was engaged to estimate a fair market value for the complex. Although an intensive search for competitive bidders was made, the Agency was unable to find buyers for any of the affiliated companies except the Taipei maintenance facility. The sale of this”
“appropriations is considered a legitimate practice and does not constitute an illegal augmentation of appropriations. With rare exception, principally the large air and insurance proprietaries, operating proprietaries have not been self-sustaining from bona fide income. Such ”
“-147- the current written policy of the Agency that "to the degree that domestic proprietary or cover companies are required, a clear justification will be developed as to the relationship of their support of our overseas operations. re In the one area of continuing large-s”
“submitted covering recoupments or net profits and the Agency negotiated a settlement which pro vided that LPBERRY/A and the distribution company would render no further claims against each other. Relations eased at that point. AMHIM This media proprietary compiled, published”
“- 88 CERTYT QKFEARFUL This foundation type proprietary provided support - to a bona fide international organization interested in international legal matters. At the time the Agency withdrew its support for the activity in 1969 the assets of the proprietary plus terminatio”
“procedures at Headquarters. Five instrumentalities administered by Agency-owned management firms are located abroad and will be audited later. Audit of the other six instru mentalities administered abroad by foreign accounting companies was limited to examination of financi”
“- -81 ,- . TAB D Page 6 POVARSITY This proprietary publishing firm in the Far East provided cover support for one Agency employee who introduced foreign books and articles to Far Eastern media sources. In 1975 the firm was de-registered and certain assets were sold to a ”
“frozen seafood importing company which operates in the Far East and provides cover for an Agency employee engaged in intelligence activities. The Agency provided $25,000 in capital to purchase and activate a dormant but long-established privately-owned United States seafood ”
“the executive committee of the Board, and permitted the viewpoints of management, Agency and the operators to meet in this executive committee to consider policies and make actual deter minations and give guidance to the company. Houston indicated that this mechanism was ext”
“these companies that we had in 21 this insurance complex appeared to have the substance any 22 insraance company would be expected to have. Actually, the 23 t : whole fund for all of them was managed as a central fund under 24 410 First thissone project officer. On t”
“alternatives were discussed: (1) dissolve the company and sell the assets; (2) sell the assets to the current operators of the company; (3) sell SAT to, or merge SAT into, one of the other supplemental carriers. * The Director determined that’we no longer should retain air p”
“particular and necessary objectives. Current policy calls for limited use of operating proprietary mechanisms. The capa bility to use the mechanism is to be retained (this the Agency terms its "capability in being"), and smaller entities used. A review of Agency, files shows”
“first step in what became the MUTUAL project. Simultaneously, the decision was made that if the Agency was going to maintain such a capability, they had to have enough body and backstopping so that if a suspicious foreign intelligence outfit tried to investigate, they would ”
“- 90 - VI. Project MHBOUND In 1958, at the time construction of the new CIA headquarters building in Langley was begun. a small counterintelligence opera- tion was established to maintain surveillance of activities to prevent hostile penetration and sabotage. It was succes”
“settlement of all liabilities were transferred overseas to other parts of the operation and were used to meet a approved operational expenses. Some of the remaining stock of foreign language books was given to a .cleared and witting contact who had served without compensat”
“5 that individuals out in the field are not particularly astute at costing their contracts. Doole gave excellent advice in this area. Moreover, Doole was quick to advise when an operation is bordering on not being responsive to the demands of good/management. Houston, cited o”
“stringent in the extreme. ’ The disposal of proprietaries has also generally proceeded along legal and ethical lines with more than due concern for con flicts of interest. Most notable in this spectrum of actions was the degree to which the Agency tried and did in fact avoid”
“-25 5 - 1 JBGREED Complex The below five companies comprised an air support capabil ity in the Far East. All entities are in process of being liquidated or sold. 5. JBCRYING A Delaware corporation with corporate offices in Washington, D.C., which acts as the holding ”
“for the purpose of purchasing an apartment overseas which was used for operational purposes. When the apartment was no longer of operational use in 1970, the company (and the apartment) was sold to a non-Agency connected party. No agreement for the continued use of the corp”
“-135- not but the matter is not resolved as discussion below indi- cates. Ultimately the program question is whether there will be future U.S. involvement in covert wars and whether, if so, some substitute for CIA-owned air support can meet the operational requirements of s”
“-5- A foreign travel service company which operates in a Southeast Asia country and provides cover for an agent targeted, against the local Communist Party. The company was established in 1973 with an initial investment of $5,900. Operating proprietaries whose commercial pu”
“€7 - 79 - TAB 0 Page 4 MHIRONY This proprietary was established for the use of the insurance complex, but it was never activated. The corporate shell was sold in 1974 to the un witting attornies who served as resident agents. No agreement was made with the purchaser for”
“- 97 - to collect the proceeds from the sale of Agency proprietary entities and to refund such proceeds to the Agency. At December 31, 1973, its total assets were $650,220 and its total liabilities were $633,897. Total stockholders equity was $16,323. It has no employees. As”
“- 96 - of deposit. * LPDICTUM/LPSPICE was an investment company which was dissolved. As of March 31, 1973, it had invested $100,080 in Petrolcos Mexicanos, S.A. Mexico. . HBSANDSTRAP is a Delaware corporation located at Washington National Airport which has provided secur”