The CIA: Banking on Intelligence

URL:		http://is.gd/97mkAe
SOURCE:		Covert Action Quarterly, no. 46
DATE:		Fall, 1993
TITLE:		The CIA: Banking on Intelligence
AUTHOR:		Anthony L. Kimery

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"The CIA has collected, and the intelligence community has collected, economic intelligence of one kind or another since its inception."
	‑ Director of Central Intelligence, R. James Woolsey

The CIA has never been above breaking the law as it battles communists, nationalists, terrorists, or the latest "national security threat": foreign‑directed economic and financial subterfuge. This growing economic focus comes at the bidding of many voices in the CIA, Pentagon, and corporate community who believe the U.S.'s primary intelligence mission should be to help industry compete in the global marketplace. There has been little public discussion, however, over just when corporate competition becomes a sufficient threat to the national security to unleash the corruptible talents of the intelligence community into the world of international finance.

"New" Intelligence Requirements: Old Practices

That line between "national security" and private financial interests has long been mutable and subject to the day‑to‑day needs of the CIA. For decades, the U.S. has used currency manipulations, embargoes, and other forms of economic pressure to undermine its foes. When the 1945 Bretton Woods agreement established the U.S. dollar as the international currency of the World Bank and International Monetary Fund, the U.S. secured enormous international financial leverage. It can direct intense fiscal pressure against foreign financial institutions, and even an entire national economy, by activating the global power of the Treasury Department and the Federal Reserve (along with the international financial institutions it controls). Witness the long‑standing embargo against Cuba, the economic sabotage of Nicaragua in the 1980s, the illegal withholding of Panama's canal revenues between 1987 and 1990, and the current international sanctions against Iraq. Economic motives have always driven U.S. covert operations. And bending banking regulations to the benefit of U.S. and foreign elites has been standard practice. Thus, it should be no surprise that, despite questionable legality, both the National Security Agency (NSA) and the CIA already engage in extensive economic intelligence activities wherever U.S. national security interests are perceived to be at risk.

The practice of using existing U.S. intelligence agencies to gather economic and financial data through traditional spy methods was given a boost by the Reagan administration. Incoming CIA Director William Casey's national security credentials were matched by his business background. Casey had been chair of the Securities and Exchange Commission, Undersecretary of State for economic affairs, and Import‑Export Bank President. He ordered the Agency's once modest National Collection Division (NCD) to recruit major corporate executives abroad to gather proprietary information on foreign businesses and the trade and economic policies of foreign governments. This move made the NCD the largest information gathering program within the Agency's operations directorate. By 1984, more than 150 corporations were providing cover for CIA people overseas.

Also on Casey's order, from 1982 through 1987, career CIA man Douglas P. Mulholland served at the Treasury Department as the chief liaison to the Agency. The person in this position typically ensures that, should some low‑level regulator stumble across banking law violations, CIA operations involving banks and other federally regulated financial institutions are not compromised. No operations, it seems, were compromised on Mulholland's watch. He retired from the CIA in 1987 to become a researcher for George Bush's presidential campaign, and later headed the State Department's Bureau of Intelligence and Research.

Treasury Joins the Inner Circle

While the Reagan and Bush administrations were able to maintain the CIA's budget in the name of anticommunism, the post‑Cold War CIA has had to be more diverse. It has switched its emphasis to counterterrorism and economic intelligence.

Bill Clinton wasted no time in elevating the "new" economic agenda to the highest level. For the first time, a treasury secretary, Lloyd Bentsen, became a member of the CIA's daily White House briefing. Previously, the briefing was reserved only for the president, the vice president, the national security adviser, and the secretaries of state and defense. This move formalized a trend put in motion by Reagan and Bush, who had already brought the Department of the Treasury's intelligence unit and the CIA closer together.

Reagan had created a new agency at Treasury, the Financial Crimes Enforcement Network (FinCEN), with liaisons to the NSA, CIA, and the Defense Intelligence Agency (DIA). FinCEN compiles and analyzes the computerized financial disclosure data that banks are required to report to regulators under the Bank Secrecy Act and related money laundering laws. Its capabilities are staggering. For instance, when federal agents wanted to analyze patterns of cash deposits in New York City as part of a drug investigation, FinCEN's computers quickly isolated a single cash‑rich neighborhood in Manhattan. Its current director, Brian M. Bruh, is a former deputy assistant commissioner of criminal investigations at the IRS and served as chief investigator for the Tower Commission, President Reagan's official Iran‑Contra probe. Under Bruh's leadership, FinCEN is expanding its capabilities. Los Alamos National Laboratory, on contract to FinCEN, is developing "artificial intelligence" capable of isolating specific financial activity within the millions of filings it has on computer. Though technically a law enforcement tool, this new software could easily be used to spy on virtually anybody's personal or business financial transfers.

Privacy and Computerized Tracking

While the development of computer programs to track financial transactions has opened a Pandora's box where civil liberties are concerned, barely a ripple of official protest has been logged. In 1991, Congress mandated an FDIC study of how to apply a computerized tracking system of insured and uninsured deposits to law enforcement. According to the latest draft of the FDIC's report to Congress, a tracking system could reveal "an individual's entire banking history." The FDIC cautions, however, that because the sweep of a tracking system would encompass all bank depositors ‑ those who are law‑abiding as well as those who are not ‑each increment by which the system would aid in the administration of justice could incrementally infringe on personal privacy by an equivalent amount.

While the FDIC opposes such a tracking system, it faces stiff opposition from the Departments of Justice and Treasury, the CIA, and other agencies that will lobby hard for access to private financial data.

BCCI: A Window on the Future

The CIA's largest banking fiasco ‑ with the Bank of Credit and Commerce International (BCCI) ‑ hints at how the intelligence agencies will handle their expanded economic mandate. It is no longer a secret that U.S. intelligence agencies used BCCI extensively for covert operations. BCCI's CIA ties have sparked speculation that the Agency was one of the bank's original sponsors.

The Senate Foreign Relations Committee's comprehensive report on the BCCI scandal leaves the impression that Casey's man in Treasury. Mulholland, in spite of his evasive answers to the committee's questions, knew when violations were made by BCCI and did am report them. This is especially evident in the case of BCCI's illegal 1980 takeover of First American Bank the largest holding company in the metropolitan Washington area. All ClA intelligence on BCCI and the takeover was routed through Mulholland who, predictably, took no action.

Once the bank scandal became public, the report reveals, BCCI was counseled by individuals well‑connected to the intelligence establishment, including Michael Pillsbury and Karna Small. Pillsbury is a long‑time Senate staffer with insider clout in the intelligence community. He served as an Assistant Secretary of Defense under President Ronald Reagan, and was a member of the 208 Committee, a top‑secret interagency group that oversaw CIA covert operations and met in Room 208 of the Old Executive Building adjacent to the White House. As a member of that group, Pillsbursy concedes, he helped provide military assistance to the CIA‑backed Afghan rebels, an operation for which BCCI was used extensively. Reagan fired him in 1986 for leaking word that the administration had decided to provide Stinger antiaircraft missiles to rebels in Afghanistan and Angola. During 1989 and 1990, as BCCI faced a federal indictment on money laundering charges, Pillsbury ‑ then an aide to Sen. Gordon Humphrey (R‑N.H.) ‑ offered BCCI's criminal defense team advice on handling the Senate Foreign Relations Committee's inquiries. In addition, Pillsbury assisted Karna Small of Hill and Knowlton ‑ the major public relations firm representing BCCI ‑ to counter the "unfair treatment" of BCCI by the committee. Small also has a background with the covert initiatives of the Reagan administration. During the mid‑1980s, she had been press spokesperson for the National Security Council and National Security Adviser Robert McFarlane.

The extent of the CIA's use of First American, an institution led by Democratic Party power brokers Robert Altman and Clark Clifford, was a particularly sensitive item during the congressional inquiry. The CIA's official use of the bank ‑independent of Agency ties to BCCI ‑ was described as "extensive" in the Senate report. When it came time to publicly disclose BCCI's illicit takeover of the bank, however, the intelligence agencies scrambled to cover it up. The CIA, NSC, and other intelligence agencies, when presented with requests from committee chair Sen. John Kerry (D‑Mass.) for records on Noriega, refused to comply. The agencies feared that, if the records were divulged, too many questions would be raised about the CIA's ties to First American.

Evidence Shredded by the Fed

The seriousness of government complicity with shady banks increases when agencies move, as they frequently do, to cover up such corruption. According to insider sources, Federal Reserve Board (Fed) files revealing BCCI's relationship to the CIA and NSC were shredded in 1988 and 1990.

While the Fed has consistently claimed that it received little intelligence about BCCI, the Senate's BCCI report reveals that intelligence reports ‑ some originating with the CIA ‑ were indeed shared with Fed officers. Investigators for the House Banking Committee posit that the Fed took no action against BCCI because the CIA and NSC were worried that covert operations would be exposed.

The Fed's records manager acknowledges that CIA files on BCCI "mysteriously" disappeared in September 1988 after Sen. Kerry's subcommittee heard Amjad Awan, ex‑manager of BCCI's branch in Panama, testify that bank officials laundered drug profits for Manuel Noriega. The same official also alleges that in 1990, someone at the Fed again destroyed and concealed documents on BCCI as the first stories about the bank's impending collapse hit the newsstands.

Gustave Newman, Robert Altman's attorney, offers additional allegations of a Fed coverup. He claims that on March 30, 1993, a week before the Justice Department dropped key charges against Altman and Clark Clifford, Fed officials shredded evidence concerning First American's sale to BCCI. Additional documents in the possession of a senior Fed official were either withheld, or "vanished into thin air."

A Pattern of Abuse

The BCCI‑First American scandal is only the best‑known case of the CIA's use of banks to finance secret operations. Four years before BCCI was exposed, a Baltimore banker, Robert Maxwell, blew the whistle on his employer. Maxwell claimed that in 1986, at the behest of the CIA, the First National Bank of Maryland (FNB) violated laws. The operation unraveled when Maxwell filed suit against FNB and the CIA in 1990. He charged that he was forced to quit as FNB's manager of international letters of credit when he questioned the legality of work he was asked to do for a bank account in the name of Associated Traders Corporation (ATC). ATC, he alleged, was actually a CIA front used to finance covert operations. When Maxwell's attorney sought to obtain the bank's records on the company, the CIA filed for a protective order, claiming disclosure would damage national security. In April 1992, a federal court granted the motion, allowing the CIA's role to remain secret.

On June 12, 1986, Maxwell spent four hours with four Treasury Department officials in the International Banking and Finance Division of the Office of the Comptroller of the Currency (OCC) in Washington. They discussed Maxwell's allegation that the bank transferred millions of dollars in CIA funds to foreign bank accounts. Maxwell also told the OCC that he believed the transfers were not properly reported and that some of the money was diverted to buy arms for the Nicaraguan Contra rebels. The balance, he says, ended up in Swiss and Panamanian bank accounts. This meeting occurred four months before the White House's secret support of the Contras became public.

The OCC agents who debriefed Maxwell subsequently met with Mulholland. No enforcement action was taken against the bank. The OCC did later open an investigation, still ongoing, into FNB's relationship with ATC.

While the Treasury Department ignored, even covered up, alleged violations involving the ATC account, it simultaneously fined FNB nearly $1 million for numerous other currency transaction reporting violations under the Bank Secrecy Act.

Is the CIA Exempt from Banking Regulations?

The U.S. government's demonstrated ability to use economic intelligence and currency manipulations to control its enemies, and to violate banking regulations with few, if any, consequences raises the question of legal regulation. Without oversight or enforcement, banking regulators can turn a blind eye to violations of banking laws when a transaction involves the CIA or some other intelligence agency and throw the fundamentals of regulation out the window. Moreover, if a bank is allowed to break laws in the name of national security, what will deter that same bank ‑now an intelligence asset ‑ from violating other regulations with the impunity offered by that shield?

The pattern is well‑established in cases such as BCCI and FNB: Intelligence agencies and their operatives will invoke national security claims to avoid public scrutiny and to dodge criminal prosecution. The Bank Secrecy Act required First American and FNB to file currency and suspicious transaction reports, and possible criminal activity forms in the matter of Noriega's money laundering as well as their handling of Iran‑Contra‑related transactions. If they did file these forms, the regulators ignored them.

The near immunity to prosecution enjoyed by the intelligence community is partly a matter of slipping through legal loopholes which discourage enforcement. A key loophole in the Bank Secrecy Act of 1970 ‑ amended in 1986 ‑ allows Treasury to grant exceptions to the identification, reporting, and record keeping requirements of the act based on the following presumption: "Federal officers frequently conduct large currency transactions to help fund certain undercover operations, and because Treasury understands these officers' need to protect their identity."

A Telling Legacy

The historical precedents for making economics the center piece of U.S. intelligence bode ill. The intelligence community has long maintained cozy relationships with both the banking and financial community and their federal regulators. They have cooperated not only to hide funds for intelligence operations, but to use banking institutions to collect private data on customers. Equally disturbing are the recurring    allegations ‑ some backed by substantive evidence - that the CIA and its contractors have looted U.S. and foreign‑based banks, and diverted some of the booty specifically for covert operations with neither congressional nor presidential authorization. This legacy has been built over many years on a culture of secrecy and bolstered by lax oversight and legal loopholes which remain in place. With the Clinton administration firmly in their camp, the intel ligence agencies and big business look forward to a future where they can dominate competitors and rivals, even whole governments, without firing a single bullet.
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Anthony L. Kimery is an associate editor at American Banker Newsletters, where he specializes in banking regulations and supervision. The past Washington Bureau Chief of Money Laundering Alert, his investigative work has appeared in many newspapers and magazines and has been cited widely.

[Editor's note: This article draws on classified U.S. government documents which the author made available to CAQ for verification.]