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THE CIA IS WALL STREET, AND DRUG MONEY IS KING -- CHAPTER 3 FROM "CROSSING THE RUBICON"

by Michael C. Ruppert

How is it that the economy could prevent finding solutions to Peak Oil? Answering that question not only corroborates motive and intent, it also allows us to examine the mindset of the suspects. It is a critical part of the foundation that must be laid in presenting my case for what happened on September  11, 2001. One of the biggest secrets of 9/11 is the connection between drug money and Wall Street. 

Oil companies, banks, auto manufacturers, and computer companies all trade their stocks on Wall Street, whether on the New York Stock Exchange (NYSE), on the NASDAQ, or on the American Stock Exchange. They also trade bonds there.  Shares of stock are fractions of ownership in companies, and. they represent equity. Bonds are loans made to companies, and they represent debt. Companies raise capital to do such things as build refineries or drill for oil, either from their own profits or by selling shares of stock or issuing bonds. As we shall see, there are other  ways that companies generate capital that aren't talked about in public.

The higher a company's stock price, the more capital it has available to buy raw materials, to build factories or refineries, to give to its  investors in the form of dividends, or to split among the top executives and, in some cases, even the employees.

Another key component of trading in financial markers is the Chicago Board Options Exchange (CBOE). That's where futures derivatives like "put" and "call"  options are traded. Derivatives are financial instruments that have no direct value in and of themselves bur derive their value from other things that do. Puts and calls are basically bets that a stock price will either fall or rise at some future date.  Members of the NYSE and rhe CBOE are in regular contact and watch each other's trading closely. The same applies for the American Stock Exchange and the relative newcomer, the NASDAQ, which is a privately owned trading exchange.

In a rapidly globalizing world economy, competitive edge is everything. In business, edge comes in several forms. First, there is intelligence. What does the market want? What is the competition doing? Can someone outbid us in our attempt to buyout XYZ Company? Is someone trying to make a run at our stock price? Does someone have a better or more efficient product or process? How close is the competition to getting its product to market? Can we invest $250 million  in a refinery if Lukoil or Sibneft is going to get the rights to the oil field we're looking at? Who is going to build the pipeline to the refinery? How much will they have to charge to make it profitable? Does the competition have any weaknesses that we can exploit to give us an edge?

Then there is money itself. Catherine Austin Fitts knows money. She is a former managing director of the Wall Street investment bank Dillon Read, holds an MBA from the Wharton School of Business, and is a former Assistant Secretary of Housing.

Fitts expresses a key principle of competitive advantage thus: "Those who have the lowest cost of capital win." If you have financed a car or a home, you have probably had your credit checked. It is your credit rating and the down payment  that determine what your monthly payments are. It is no different if, for example, ExxonMobil wants to finance a new refinery or if AOL wants to buy Time Warner and has to borrow money to do it. They call that a leveraged buyout or LBO.

If you finance a $24,000 car and make a $4,000 down payment then, assuming your credit is good, the dealership or your bank might finance your $20,000 loan at 5 percent interest over four years. In that case your payments would be $460.60 a month. If, however, your credit is not so good, then you might pay 10 percent, in which case your monthly payments would be $514.49.

Following this same premise let's say, for example, that you are ChevronTexaco (where National Security Advisor Condoleezza Rice used to sit on the board), and you want to finance a pipeline so that you can get your oil into people's cars, computers, and food. The cost of the pipeline is estimated at US$2 billion. You decide to put $300 million of Chevron's money into the deal. You form a consortium with other oil companies to share the costs. But none of you has all that money up front.  That's not good business. The oil business is sometimes risky, and oil companies frequently keep large financial cushions to protect them in case there are international crises, oil prices drop, or a particular field they want to invest in is a dud.

An anecdote illustrates the point. The first well in Kazakhstan's Kashagan field, owned by a consortium involving Agip (Italy), British Gas, ExxonMobil, Shell,  Total, BP, Phillips, and others, had cost $300 million by the time it was finished.  What if that well and your next three proved to be dry holes? That would mean no income with continuing heavy capital expense. 1 Oil companies plan for these  contingencies well in advance. They've been in the business for a hundred years now, and have had plenty of time to do accounting studies.

So, after doing all the analysis, you and your consortium find that you need to borrow $1 billion to finance and build your pipeline. You decide to amortize the  payments over 20 years (the expected life of the field). 2 Now you have to go out  and borrow the money. Lets see what various interest rates would do to the company's monthly payments. A major bank such as HSBC, Deutsche Bank, or  JPMorgan Chase might offer you an interest rate of, say, 9 percent. To pay back a billion dollars over 20 years at 9 percent interest, your monthly payments would be $917,000. But an interest rate of 6 percent would mean payments of $716,440 month.

In other words, your company would have $200,560 extra profit each month merely by shaving 3 percent from the interest rate. This has a direct impact on net profits, which are defined as gross revenues minus the cost of doing business. And  this is where what the cost of capital can do gets really interesting.

The pop

A price-to-earnings ratio (P/E or "the pop") for any given stock is calculated with two basic facts: the market capitalization of a company, and its net profits. Market capitalization is simply the total number of shares in circulation multiplied by the stock price at any given time. If someone has a company with 1,000 shares of stock, each selling at $100, then her market capitalization is $100,000.

Net profits are simply the gross revenues minus the cost of doing business. So if you have a company that brings in $100,000, and all of your costs to produce, advertise, sell, and pay your bills are $80,000, your net profits are $20,000. The important thing to note is that market capitalization cannot be lied about. Its there for everyone to see. Net profits, on the other hand, are something completely different. Enron, WorldCom, and a few other giant companies taught us that.

Now, if you had a company with a market capitalization of $300,000,000 and net profits of $10,000,000, your price to earnings ratio would be 30/1. Most sober financial analysts have long held that a healthy (i.e., rational from an investor's standpoint) P/E is about 15/1. That's why they shake their heads in disbelief when they look at companies like Enron, which had a P.E of 60 before it collapsed, or  like Cisco Systems, which recently had a P/E of 90. That's also why many sober analysts believe that the Dow Jones average should properly be at around 5,000.

If the relationship were strictly mathematical then adding just one dollar to the "bottom line" would create 30 dollars in stock value. 

30/1 = 60/2

It doesn't work that way in real life. What happens is that a market analyst will keep looking at the earnings reports of companies that he or she evaluates. When an analyst sees that a given company's earnings are rising quickly, the analyst will  put out a "buy" or a "strong buy" recommendation. As people buy the stock, the share price will rise roughly to the point of the established P/E for that company. 

Decreasing or increasing net profits thus has a multiplying impact on your stock value. So in our loan scenario evaluating different interest rates, a difference of $200,560 per month in profits means that with a P/E ratio of 60, over the course of a year the decrease in total stock value ($200,560 x 12 x 60) would  be $144,403,200. With a P/E of 30 it would be $72,201,600. This is the main reason why Wall Street so closely watches what the Federal Reserve chairman does with interest rates.

A major tool for maintaining stock profits is to find the cheapest capital possible. This is especially true in a competitive bidding process where companies determine their bids based upon how much they can afford to pay back (in much the same way that most people buy cars). Thus, those who have the lowest cost of capital win. In the best-case scenario this would be capital on which you didn't have to pay any interest at all, or even raised -- somehow -- for free. Finding the cheap capital (just like the cheap oil) is the trick: knowing where the money is and how it works. But big money doesn't always broadcast its location.

The CIA is Wall Street

The CIA is Wall Street. Wall Street is the CIA. This is perhaps one of the easiest landmarks to establish on our map. We do it by looking at key players in the CIA's history and their relationships to America's financial engine.

Clark Clifford: The National Security Act of 1947 was written by Clark Clifford, a Democratic Party powerhouse, former secretary of defense, and one-time advisor to President Harry Truman. In the 1980s, as chairman of First American Bancshares, Clifford was instrumental in getting the corrupt CIA drug bank BCCI (founded by a Pakistani national) a license to operate on American shores. His profession: Wall Street lawyer and banker. BCCI and its particular web of characters have been a virtual cut-and-paste overlay linking up Osama bin Laden, al Qaeda, and terrorist financing. 3 It was Clark Clifford who was retained by former CIA Director Richard Helms when the latter was indicted and prosecuted for lying to Congress in 1976. 4

Clifford and his banking partner Robert Altman were eventually indicted on criminal charges for their role in illegally helping BCCI purchase an American bank, First American Bancshares. At the time BCCI had been connected to both drug money laundering and financial support for Afghan rebels supported by the CIA through its director Bill Casey. 5

John Foster and Allen Dulles: These two brothers "designed" the CIA for Clifford. Both were active in intelligence operations during World War II. Allen  Dulles had been America's top Office of Strategic Services (OSS) spy in  Switzerland, where he met frequently with Nazi leaders and looked after US investments in Germany. He also held an executive position with Standard Oil John Foster went on to become secretary of state under Dwight Eisenhower, and Allen served as CIA director under Ike, only to be fired by JFK after the abortive 1961 US-led covert invasion of Cuba known as the Bay of Pigs. Their professions:  partners in the most powerful -- to this day -- Wall Street law firm of Sullivan and Cromwell.

Enron is only one of Sullivan and Cromwell's current clients, and it employed a dozen "former" CIA officers before its fall from grace. 6 Other prominent Sullivan and Cromwell clients are AIG, Global Crossing, ImClone, Martha Stewart, and  the Harvard Endowment.

After the assassination of JFK in 1963, Allen Dulles became the staff director and lead investigator of the Warren Commission, which asserted that Lee Harvey Oswald was a lone assassin who had fired a bullet that had caused JFK's throat wound, hung suspended in mid-air for several seconds, changed directions twice, then wounded Texas Governor John Connally in the chest, wrist, and thigh only to fall out of his body in nearly pristine condition on a stretcher at Parkland Hospital in Dallas about 30 minutes later. When asked about how he could have offered the Warren Report, full of inconsistencies, to the American people with straight face, Dulles is reported to have said, "The American people don't read."

Bill Casey: Reagan's CIA director and the OSS veteran who served as chief overt wrangler during the Iran-Contra years was, under Richard Nixon, chairman of the Securities and Exchange Commission. His profession: Wall Street lawyer and stock trader.

In 1984 ABC News was devoting serious attention to a CIA scandal in Hawaii connected to the investment firm BBRDW (Bishop, Baldwin, Rewald, Dillingham, and Wong). The BBRDW story was lifting a veil connected to money laundering, drugs, and the failed CIA drug bank named Nugan-Hand. Bill Casey and the  CIA's general counsel Stanley Sporkin put extreme pressure on both the network lid anchor Peter Jennings to stop their coverage. During the semi-public battle, ABC's stock dropped from $67 to $59 a share, and by December, the firm Capital Cities was trying to buy the network. Capital Cities successfully completed the buyout of ABC in March of 1985, after which the CIA conveniently dropped a suit against the network.7

Bill Casey had helped to found Capital Cities and had served both as its lawyer and as a member of its board of directors in the years between his service as SEC chairman for Nixon and as director of Central Intelligence for Reagan. ABC became known thereafter as "the CIA network."

Other sources, including the family of the late Colonel Albert Vincent Carone -- about whom I have written extensively -- confirm that Casey was a lifelong resident of Long Island and that Carone, a "made" member of the Genovese crime family, retired NYPD detective, and CIA operative, routinely exchanged insider trading information with Casey. Multiple witnesses have confirmed that Casey attended the christening of Carone's grandson. 

Stanley Sporkin: Sporkin served as the CIA's general counsel under Casey. But he had previously served for more than 20 years at the Securities and Exchange Commission, rising to the post of general counsel. Casey's right-hand man, he was one of the first people Casey brought with him to the CIA in 1981. Almost all of Sporkin's tenure at the SEC was spent in the enforcement division, charged with  prosecuting corporate and stock fraud.

During the Iran-Contra investigations it was revealed that Sporkin had routine contact with Lt. Col. Oliver North, who was later convicted on several felony counts including lying to Congress. 8 At times the e-mails between the two men, alluding to the 1920s comedy team Laurel and Hardy, read "To Stanley from Ollie."

After retiring as CIA general counsel in 1986, Sporkin was soon appointed a US district court judge in Washington, DC, where he presided over some of the most important trials (including Microsofts) in the country. He resigned from the bench in January of 2000 and joined the Wall Street law firm of Weill, Gotschall, and Manges, self-described as specializing in "Wall Street Management and  Capital." Weill, Gotschall, and Manges is currently serving as Enron's bankruptcy counsel. Although Sporkin received praise for many of his decisions from anti-corporate critics such as Ralph Nader, he presided over a number of more nefarious cases, including that of former Federal Housing Commissioner Catherine Austin  Fitts, whose firm Hamilton Securities had been targeted for malicious and  unfounded harassment after uncovering evidence of covert operations that tied the Department of Housing and Urban Development (HUD) to drug operations, slush funds, "friendly" Wall Street interests, and political corruption.

Fitts was the target of a 1996 qui tam whistleblower lawsuit, which allows charges to be filed under seal for 60 days while the Department of Justice (DoJ)  investigates whether there is merit to the case. As a result, Fitts was nor allowed to  know who had made allegations against her, or even what the allegations were.  Sporkin extended that seal for five years, thereby turning a brief investigation peri-od into a nightmare that prevented Fitts and her attorneys from being able to  know, or even address, an accuser or his allegations. Sporkin was able to do this with no evidence of any wrongdoing, yet his decisions in the case routinely favored the unnamed parties seeking to discredit Fitts and upheld illegal actions by the federal government, including the seizure of her company offices (a clear violation of the Fourth Amendment).

During this period the government destroyed the company's proprietary software tools and databases that documented community financial flows, and kept the backup tapes under the control of Sporkin-appointed trustees. Fitts has subsequently been completely exonerated (no formal charges were ever filed), and it has been officially admitted that there was no basis for any action against her in the first place. Fitts has also documented several attempts by the Department of  Justice investigators to falsify or destroy evidence. According to Insight Magazine, Department of Justice and HUD officials admitted off the record that it was a political vendetta.

After a nine-:year herculean struggle, Fitts is still in court defending against the qui tam lawsuit (indirectly supported all this time by generous government payments and contracts to the government informant who originally brought the suit) and trying to recover an estimated $2.5 million in funds owed to her company, Hamilton Securities. A court of claims ruling in 2004 concluded that the government  had breached its contract with Hamilton by refusing to pay Hamilton's outstanding  invoices. DoJ has indicated that the government will not pay, but will appeal.

Hamilton had successfully helped HUD auction defaulted home mortgages, saving the Federal Housing Administration Fund over $2.2 billion. 9 In 2001, after finally succeeding in getting the seal removed from the original lawsuit and obtaining some of the transcripts of sealed hearing -- one crucial item was "missing" from court records, Fitts and her attorneys discovered that Sporkin, apparently  frustrated at DoJ'S inability to make anything stick, had actively coached DoJ  attorneys on how best to keep the case going in spite of its transparent lack of merit and that DoJ was taking contradictory positions in an unsealed case before a different judge in the same court.

David Doherty, who replaced Sporkin as CIA general counsel in 1987, is now the executive vice president of the New York Stock Exchange, for Enforcement.

A. B. "Buzzy" Krongard: until he joined the CIA in 1998, Krongard was the CEO of the investment bank Alex Brown. In 1997 he sold his interest in Alex Brown to Banker's Trust, where he served as vice chairman until "joining" the CIA in 1998. A close friend of CIA Director George Tenet, the colorful, cigar-smoking  former Marine specialized in private banking operations serving extremely wealthy  clients. It has been heavily documented by official US government investigations into money laundering that private banking services are frequently used for the laundering of drug money and the proceeds of corporate crime.10 Private banking services were especially criticized in investigations of money laundering connected to the looting of Russia throughout the 1990s. 11

John Deutch: Deutch retired from the CIA as its director in December 1996. He immediately accepted an offer to join the board of directors of the nation's second largest bank, Citigroup, which has been repeatedly involved in the documented laundering of drug money. This includes Citigroup's 2001 purchase of a Mexican bank known to launder drug money, Banamex. 12 Deutch narrowly  escaped criminal prosecution after it was learned that he had kept a large number of classified CIA documents on non-secure personal computers at his private residence. 13

Maurice "Hank" Greenberg: The CEO of American International Group (AIG) insurance and manager of the third largest pool of investment capital in the world was floated as a possible CIA director by Bill Clinton in 1995. 14 FTW exposed Greenberg's and AIG's long connection to CIA drug trafficking and covert operations in a two-part series that was interrupted by the attacks of September 11.  Under Greenberg's stewardship, an AIG subsidiary severely bent several laws in conjunction with the Arkansas Development Financial Authority (ADFA) to establish what many have alleged was a first-class money laundering operation for drug funds arising from CIA-connected cocaine smuggling into Mena, Arkansas, in the 1980s.

In that series FTW reported that AIG employed in its San Francisco legal offices the wife of Medellin Cartel co-founder Carlos Lehder. I actually went to San Francisco and had lunch with her in the summer of 2001. Our investigations later disclosed that AIG had been tied to US covert operations going back to the World War II and conclusively linked to the heroin trade.15 We also reported that AIG owned and operated the largest private fleet of full-sized airliners and cargo planes on the planet.16

As an illustrative example of how the quiet connections operate behind the scenes to conceal criminal activity, it was an AIG subsidiary, Lexington Insurance, that was involved in the ADFA deal and that also acted as the errors and omissions carrier for Catherine Austin Fitts's Hamilton Securities. At the start of Fitts's  harassment by DOJ, Lexington reneged on obligations to pay Fitts's attorneys, who  then dropped out of the case. This effectively enabled the DoJ with support from Judge Stanley Sporkin to seize Hamilton's computers and data, destroy the computers and software, and tie up the backup tapes for years. Those tapes likely contain data -- originally supplied to Fitts by HUD -- that could expose many illegal covert government operations.

I was not surprised then when Greenberg -- a staunch supporter of Israel -- was chosen by the Council on Foreign Relations in 2002 to lead an investigation of terrorist financing. The CFR report, not surprisingly, was extremely critical of Saudi Arabia. 17

Professor Peter Dale Scott of the University of California at Berkeley, author of many historically crucial books on covert operations and deep politics, observed in the early 1970s that six of the first seven CIA deputy directors were from the  New York social register, and all seven deputy directors "under Walter Bedell Smith and Truman, came from New York legal and financial circles." 18 The headquarters of the CIA's World War II predecessor, the Office of Strategic Services, was in the New York financial district.

Drugs

In late June of 1999, NYSE Chairman Dick Grasso traveled to Colombia and met with the leader of the FARC rebels controlling the southern third of the country.  His trip was reported in the Associate Press, and, remarkably, the AP openly stated that Grasso had asked the Colombian rebels to invest their profits in Wall Street. The FARC make their money by taxing the cocaine trade. Catherine Austin  Fitts described the visit as "the ultimate cold call." 19

The amount of profit generated annually by the drug trade, if it is known with any accuracy, is probably one of the most closely guarded secrets in the world. There are two kinds of money generated by the drug trade. First there is the money generated at all the stages from growth or manufacture, to processing, to perhaps two or three stages of wholesaling, to retail street sales. Then there is all the money generated by funding law enforcement, court systems, prisons, and al1 the construction, radios, boats, guns, and airplanes that go into that. It has been estimated that cost of prison construction and operation alone is around $30 billion a year. 20  But all of that, as important as it is, is not what we are concerned with here.  What we are concerned with is the cash generated from the growth or manufacture and sale of drugs -- because that money is illegal. It needs to hide, and then it needs to be laundered before it can be used openly. It is not only cheap and secret capital; it is capital that must be put someplace legal before it can be used. The illegal- to-legal transition is where someone must know what is taking place. Ignorance there -- especially when the laundering transactions are gigantic ones  -- is not a tenable position.

Among the many kinds of illegal activities in the world, the production and laundering of drug money is central because it establishes channels for the flow of  other criminal profits. In 2001, according to the International Monetary Fund, money laundering processed $1.5 trillion, a figure that exceeded the gross domestic products of all but the world's five largest economies. 21 In 2000 Le Monde  Diplomatique, a respected French publication, estimated total annual criminal revenues at $1 trillion: "The drug trade accounts for as much as $500 bbn and at least $1 bbn in criminal money is laundered every day." 22 In 1997 the United Nations estimated that, as of 1996, the drug trade represented 8 percent of all world trading activity as measured in dollars. It estimated then that the narcotics industry accounted for $440 billion in revenues. 23

Looking at the cash flow in just one locality, PBS's "Frontline" tried to make the numbers a little easier to grasp. "Imagine a typical weekend in New York City.  Experts estimate that at least one percent of the population (80,000 plus) spends  $200 on illicit drugs. That alone would amount to $16 million dollars a week or  $832 million a year. And that's just New York." 24

Newer figures suggest that the drug trade generates $400-500 billion a year in cash. However, I once had a conversation with an expert on money laundering who held a very high-ranking position in a US government agency charged with monitoring global cash flows. On condition of anonymity, that expert told me,  "It's much, much higher than that. Every conference I go to is attended by the CIA, and we all round the figure off to around $700 billion." Since the last real numbers I've been able to find date back a few years, and the drug trade is perpetually growing (along with the budgets to regulate it), I have settled on the figure of $600 billion a year for the purposes of my lectures and this book.

Six hundred billion dollars a year is too much money to hide under a pillow.  In fact, that much cash turning up in one place could overwhelm the banking system of a small or medium-sized country. Of course the money is scattered all over the place, except in the cases of the major traffickers, and it has a way of moving  by itself, electronically, always seeking the places where it will either earn the most profits or do the most good for its owners. Cash, either hard currency or the electronic kind, is a prized commodity on financial markets because it does things that other kinds of wealth cannot do -- such as pay bills or investors. The money moves so quickly that, unless one were in control of the computer systems that  handle it, or the software that manages it, it would be impossible to trace. (An  excellent discussion of how illegal money moves according to a separate set of laws  -- having nothing to do with what we tend to think of as the law -- is contained  in Hot Money by R.T. Naylor [Black Rose Books, 1994].)

Second, of all the illegal drugs, from heroin to steroids to ecstasy to cocaine to marijuana, it is heroin and cocaine that are by far the most profitable and which  make up the lion's share of that $600 billion figure. The mark-up for these drugs is substantially higher, especially when one considers the weight or volume involved per dollar of markup in price.

Almost all of the world's cocaine comes from Colombia, having been either grown or processed there. The heavy production of cocaine in the 1980s from Bolivia, Peru, and in smaller quantities from other Andean nations was largely eradicated by the early 1990s as most production moved north. However, it is important to understand that worldwide cocaine use has not seen a major drop since the 1980s.  After having peaked at around 600 metric tons in 1987-1988, recent estimates and statements by the Department of Justice have placed US cocaine consumption at around 500 metric tons (a metric ton is 2,200 lbs) a year. 25 That's an interesting fact, since according to an interview I conducted with Dr. Sidney Cohen, a drug expert at UCLA, domestic cocaine consumption in 1979 was only around 80 metric tons. 26

Somewhere between 400 and 500 metric tons of heroin is consumed worldwide each year. According to DEA and Department of Justice intelligence reports, about 60 percent of the heroin consumed in the US also comes from Colombia. 27  But almost all the heroin consumed elsewhere in the world comes from Afghanistan.  Like the coca leaf, the opium poppy from which heroin is made grows mainly in  the mountains and prefers altitudes above 5,000 feet. But unlike coca, opium is  grown in several different regions of the world: South America; the so-called  Golden Triangle of Laos, Burma, and Thailand; and Afghanistan, Pakistan, and central Asia in an area called the Golden Crescent. From 1997 to 2000 and again in 2002, the world's largest producer of opium was Afghanistan, responsible for about 70 percent of the world's supply. 28

What happened in 2001? The Taliban banned opium production in the late summer of 2000 and destroyed almost all the opium that still remained planted; this was completed and confirmed in January of 2001. 29 According to the Independent,  "The area of land given over to growing opium poppies in 2001 fell by 91 percent compared with the year before, according to the UN Drug Control Programme's  (UNDCP) annual survey of Afghanistan. Production of fresh opium, the raw material for heroin, went down by an unprecedented 94 percent, from 3,276 tonnes to 185 tonnes."

Other sources placed the 2000 Afghan opium harvest (conducted from May to June, before the ban) at more than 3,600 metric tons. The planting season for opium in that region is November, and the harvest is in the spring. A kilogram (2.2 lbs) of Afghan heroin, refined at a 10:1 ratio from opium, was then fetching US $150,000 in Moscow. 30

It is interesting to note that in 1996, according to the DEA, "Worldwide opium production was 4,157 metric tons" (an increase of 20 percent in a single year). 31  Contrast that with one report obtained from the UN Drug Control Program by the magazine High Times stating, "Production of raw opium in Afghanistan shot up from 2,600 tons in 1998 to a record 4,600 tons" in 2000. 32 

What is so significant about this is that if Afghanistan was producing 70 percent of the world's opium, and it produced a minimum of 3,600 tons in 2000, then global consumption increased from 4,100 tons to 5,100 tons (25 percent) in just four years. If, on the other hand, Afghanistan, as reported by the UN, produced 4,600 metric tons of opium in 2000 and retained a 70 percent market share, then world heroin use had risen 58 percent to 6,571 metric tons per year. Even Ken Lay of Enron would be jealous of that kind of growth.

It is not likely that opium use increased 60 percent worldwide in four years.  Based on my years of experience, my estimate is that only 8-12 percent of the world's population is predisposed to addiction. The other conclusion available is that world opium production was being deliberately concentrated in Afghanistan.  But by whom and for what purpose?

Drug money-- steroids of the financial world

Now, if you were a corporate executive needing to borrow money for an LBO or to finance a pipeline, you could go borrow the money legally at 9 percent, or you could  borrow drug money laundered once, looking to become legal, at 6 percent. The drug lord is only too happy to own the bonds of, for example, Halliburton or General Electric. But if you really wanted to make a killing, you would launder some drug money onto your bottom line and increase your net profits. You might do it by selling your products "off the books" and accepting cash for them. Then you would just  inflate your net profits without any increased costs. Philip Morris has been charged with doing just that. 33 Or, if you made vehicles, you could sell large quantities for a check from an offshore bank, no questions asked, to a guy in South America who wanted to open a Chevy dealership. GM (below) has reportedly done that.

Enron's crimes all centered around the illegal overstatement of net profits. They cooked their books using an accounting system called Pro-Forma that allowed them to borrow money with one subsidiary and then book the deposits as earnings. They even created phony companies that could do business, using paper or electronic transactions, with other Enron companies. This was the purpose of Enron's so-called off-the-books partnerships known as Chewco, Raptor, and LMJ.

Enron also manipulated energy prices through a variety of methods to create or worsen shortages, raise prices, and rob Californians blind. 34 Enron engaged  in a shockingly wide array of financial crimes, betraying their stockholders and employees. But all the creativity of Enron executives Andy Fastow or Jeff Skillings or Ken Lay could never produce the pure financial power that drug money offers.

Apparently Enron knew that. It ran about 2,000 subsidiary companies all over the world. About 700 of them were in the Cayman Islands. 35 There is no oil or gas in the Cayman Islands. There is, however, an awful lot of drug money.

Everything else Enron did had to pass through other companies, leaving records behind. Drug money is much, much simpler. Enron's trading company, Enron Online, was one of the largest money-moving operations in the world. It was just computers and wires in cities and to banks all over the globe. It was a bank. And  it was there that the greatest criminal activity occurred. When Enron went bankrupt, the US government allowed Enron to sell Enron Online to the Union Bank of Switzerland. 36 That meant that all of the evidence of money laundering by Enron is now owned by a Swiss bank and out of reach for federal prosecutors.  Neither the Congress nor any US enforcement agency did a thing to stop the sale or the transfer of the records. The evidence walked.

For banks also, drug money has a special allure. That is why major banks like Citigroup, Bank of America, Morgan Stanley, Deutsche Bank, and JPMorgan Chase all offer private client services for the very wealthy with very few questions asked. Yes, the US Treasury and the Department of Justice make a show of being tough under "Know Your Client" regulations. But the truth is that money does  pretty much whatever it wants to. And for a bank, every dollar that it has on deposit allows it to lend between 9 and 15 or so dollars based upon the requirements set for it by the Federal Reserve System.

For a bank, a loan is the same thing an order is for a manufacturer. Loans show up on a bank's books as assets, and that's part of what helps determine a bank's stock value. Of course, if a bank takes an extra fee, no questions asked, as Citigroup did from Raul Salinas de Gortari, brother of the former Mexican president, for laundering $100 million in drug profits, who's to say how that money gets report ed when it comes to net profits? 37

Birds do it, bees do it -- even GE does it

In 2000 the Department of Justice held a drug money laundering conference and invited some of the biggest names on Wall Street. The names were not chosen by accident. Their products had been tracked and linked to money laundering operations in Colombia. It had been noticed how much drug money was going into the bottom lines of certain major corporations. The companies asked to attend the  conference were Hewlett Packard, Ford, Sony, General Motors, Whirlpool, General Electric, and Philip Morris. 38

These companies, according to PBS and the Justice Department, were merely innocent victims of the trade. It's hard to understand how you are being victimized if your sales are great and people are paying with cash. But the case of Philip Morris perhaps exemplifies general corporate attitudes about drug money. Philip Morris has been sued by the government of Colombia for smuggling Marlboro cigarettes into that country (bypassing the tax man) and readily accepting large amounts of drug cash from traffickers, then smuggling the cash back into the United States. 39

Just recently the tobacco giant RJ Reynolds (Nabisco) has been sued by the entire European Union for large-scale smuggling and money laundering. 40 The competitive edge provided by handling drug money is an instrumental factor in who can compete in a globalized, new-world, corporate order.

A final note before moving on: As Enron (an energy trading company) was failing, the energy giant Dynegy put up $1.5 billion in cash as part of a plan to bail  Enron out. Enron got the money and Dynegy wound up getting nothing. 41 What is significant is that Chevron, which had vast investments in central Asian oil fields, had been a part owner of Dynegy since 1996. In 2001 Chevron added to its investment by giving Dynegy $1.5 billion just before Dynegy gave $1.5 billion to Enron. 42 So Chevron was either directly or indirectly bailing out Enron, without getting tarred by the unfolding scandal.

This takes on an added significance given Enron's drug money laundering connections and the fact that Enron, along with other energy companies like Halliburton, had deep financial commitments in the region that were tied both to the successful development of central Asian oil and gas and had ready access to drug cash.

Enron had the contracts to do feasibility studies for much of the pipeline construction that was desperately needed in the region, and it also had a $3 billion investment in a new "white elephant' natural gas-powered electrical-generating station in Dabhol, India, that had only one problem: it couldn't get access to cheap natural gas without a pipeline across Afghanistan. One former oil industry corporate attorney summed it up best when he said, "When big oil eats, everybody eats.  When big oil doesn't eat, nobody eats."

The CIA's drug-dealing

This topic deserves an entire book. For 25 years I have researched it, studied it, and compiled documentary evidence proving it in the pages of FTW. In every one of  my twenty-eight 2002 lectures the audience universally accepted that the Central  Intelligence Agency of the United States deals drugs. But not everyone fully understood its significance.

In this section, rather than attempting to make the comprehensive case, what I want to do is merely present three or four key pieces of evidence demonstrating outright culpability on the Agency's part. They will all have a direct bearing on 9/11. My experience is that if three or four undeniable pieces of evidence don't convince people, the other 300 or 400 pieces will not make a difference.

A smoking gun

As the national controversy raged over the Gary Webb stories from 1996 through 1998, pieces of evidence started to leak into the public domain. One piece, a 1981 letter from then US Attorney General William French Smith to Director of Central Intelligence (DCI) Bill Casey, summarized the results of a long negotiation process that changed the CIA's obligations under the law when people who worked for it were caught dealing drugs.

It had previously been a requirement under Title 18 of the US Code that, whenever a manager or department of the executive branch discovered that an employee was breaking the law, an immediate notification to the US Department of Justice or one of its enforcement agencies had to be made. In 1981, at the start of the Contra War the CIA had a problem. It knew that the coming covert operations were going to witness a dramatic explosion in the volume of cocaine entering the States. It needed not only a cover for itself but also a legal way to circumvent what was sure to be a deluge of reports (which did occur) about US  government personnel or contractors who were moving drugs.

In a two-stage negotiation process, the CIA and the Department of Justice first made an arbitrary decision that anyone who worked for the CIA (whether a full-time employee or contractor or employee of a CIA proprietary company) 43 who did not hold "officer" rank within the agency was deemed not to be an employee.  In the next stage, it was decided that "no formal requirement" for the reporting of violations of drug laws was going to be required under the newly reached memorandum of understanding. 

Proof of this surfaced when a copy of the letter formalizing the agreement was sent anonymously to the office of Congresswoman Maxine Waters when she was still championing the issue. A key sentence in the letter said, "In light of these provisions, and in view of the fine cooperation the Drug Enforcement Administration has received from CIA, no formal requirement regarding the reporting of narcotics violations has been included in these procedures." 44 With the stroke of a pen the CIA had been absolved from turning in its employees, its contractors, and the employees of its proprietary companies who were soon to be found smuggling cocaine, hand over fist, and airplane over cargo ship.

A copy of the letter was inserted in the CIA's final inspector general (IG) report in October 1998, long after the nation had forgotten the issue and become lost in Monika Lewinsky's dress. (See page 64)

The smoking airplanes

In the 1980s and 1990s the Central Intelligence Agency schemed to move a number of large C-130 Hercules transports from US government ownership into the  hands of private contractors so that some of them could be used for covert operations that were "deniable" by the Agency. The C-130 is a military aircraft, and it is banned from export without State Department certifications. Under the CIA  plan, some 28 of the giant transports were moved from the Department of Defense into the hands of the US Forest Service. From there, ostensibly for the humanitarian purpose of fighting forest fires, they were again transferred into the hands of private contractors, many of whom were later revealed to have CIA connections  or contracts, or established relationships with CIA proprietaries. 45

Office of the Attorney General
Washington, D.C. 20____

February 11, 1982

Honorable William J. Casey
Director
Central Intelligence Agency
Washington, D.C. 20505

Dear Bill:

Thank you for your letter regarding the procedures governing the reporting and use of information concerning federal crimes. I have reviewed the draft of the procedures that accompanied your letter and, in particular, the minor changes made in the draft that I had previously sent to you. These proposed changes are acceptable and, therefore, I have signed the procedures.

I have been advised that a question arose regarding the need to add narcotics violations to the list of reportable non-employee crimes. (Section IV). 21 U.S.C. §874(h) provides that “[w]hen requested by the Attorney General, it shall be the duty of any agency or instrumentality of the Federal Government to furnish assistance to him for carrying out his functions under [the Controlled Substances Act] …” Section I.8(b) of Executive Order 12333 tasks the Central Intelligence Agency to “collect, produce and disseminate intelligence on foreign aspects of narcotics production and trafficking.” Moreover, authorization for the dissemination of information concerning narcotics violations to law enforcement agencies, including the Department of Justice, is provided by sections 2.3(c) and (i) and 2.6(b) of the Order. In light of these provisions, and in view of the fine cooperation the Drug Enforcement Administration has received from CIA, no formal requirement regarding the reporting of narcotics violations has been included in these procedures. We look forward to the CIA’s continuing cooperation with the Department of Justice in this area.

In view of our agreement regarding the procedures, I have instructed my Counsel for Intelligence Policy to circulate a copy which I have executed to each of the other agencies covered by the procedures in order that they may be signed by the head of each such agency.

Sincerely,

William French Smith
Attorney General

The scheme started to come unraveled as a number of investigators, including Vietnam veteran Gary Eitel, himself a pilot, began turning up documents in court cases showing links to the Agency. The cases were extremely well covered by mainstream press; they prompted stories in the AP and a large series in the Riverside Press Enterprise by veteran reporter Dave Hendrix. 46 The problem was that many  of the C-130s kept turning up in such remote locations as Panama, Mexico, Colombia, Angola, and the Middle East. In many cases, when they were examined,  they were carrying anything but fire retardant. In fact, one of the C-130s, connected to CIA affiliate T&G Aviation of Arizona, was seized in 1994 with a billion dollars worth of cocaine on board. Eitel's investigation had established a connection between T&G, operated by Woody Grantham, and another company called  Trans Latin Air. 47

The Trans Latin Air investigation led to an investigation of Aero Postale de Mexico. In April 1998 stories in the Mexican paper La Reforma reported that the Mexican Attorney General had indicted three officials of the private freight hauling company Aero Postale de Mexico which routinely delivered mail and other goods throughout Latin and Central America on charges that they had provided aircraft to the drug cartel headed by the Arellano Felix brothers. That investigation had commenced in 1997, and Aero Postale planes were reportedly hauling multi-thousand kilo loads of cocaine during the  period. One of the C-130s was impounded at the Mexico City airport. Purchase of the aircraft was financed by Mexican banker Carlos Cabal, who was assured repayment of the loans by the US Import-Export Bank. It is impossible to believe CIA would not have noticed such a transaction. T &G sold the planes to Aero Postale in 1993 at the same time he sold planes to Trans Latin Air. 48

Records of the massive cocaine bust, though suppressed by the major media, did get introduced into evidence in a major drug prosecution in Chicago that same year. 49

The heat had started to fall on the Forest Service five years earlier when the planes first started getting caught with drugs aboard during Contra support operations. The Forest Service had their lawyers evaluate the situation in the perennial government game of CYA. As a result, one of the most chilling documents to ever reveal the depth of government cynicism emerged into public light.  A 1989 memo from a Forest Service lawyer to Associate Chief George Leonard concluded, "Apparently, DoD [the Pentagon, CIA's name never appears on documents like this] thinks that by having the Forest Service as the intermediary, if any future aircraft are used in drug smuggling, the Forest Service and not DoD will  suffer the adverse publicity."

United States
Department of
Agriculture

Washington,
D.C.

DEC. 06 1989

TO: George M. Leonard
Associate Chief
Forest Service

FROM: Kenneth E. Cohen
Assistant General Counsel
Research and Operations Division

SUBJECT: Letter to Secretary from National Air Carrier Association, Inc.

This letter raises the issue of the authority of the Forest Service to acquire aircraft from the Department of Defense (DOD) and exchange the aircraft with airtanker contractors. For the reason discussed below, I conclude that the Forest Service does not have the authority to conduct the exchange program.

I understand that in the past one of the means whereby the airtanker contractors would obtain aircraft was through the exchange program with DOD. DOD would directly exchange an aircraft for an older, historical aircraft. The historic aircraft then would be donated to a museum, usually either the Smithsonian or one of the DOD museums. DOD has been willing to do this since there is no cost, and DOD saves the cost of storing and maintaining the excess aircraft. Apparently, because one of the excess aircraft that was exchanged under this program ended up in the possession of drug runners, DOD now is reluctant to exchange aircraft directly with the contractors.

The Forest Service now has assumed the role of intermediary, apparently at the suggestion of DOD. DOD transfers excess aircraft to the Forest Service via the General Services Administration (GSA). The Forest Service transfers the aircraft to an airtanker contractor in exchange for an historic aircraft. The Forest Service then donates the historic aircraft to a museum. Apparently, DOD thinks that by having the Forest Service as the intermediary, if any future aircraft are used in drug smuggling, the Forest Service and not DOD will suffer the adverse publicity.

The smoking Inspector General report

I could fill this book with excerpts from the CIA IG report, written by Frederick P. Hitz and released on October 8, 1998 -- the same day that the impeachment of Bill Clinton began in the House. To demonstrate what kind of material is in that report, I will include just three brief quotations. The number in front of each paragraph refers to its location in the IG report.

490. On March 25, 1987, CIA questioned [Moises] 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. Nunez refused to identify the NSC officials with whom he had been involved. [Note: Oliver North was the NSC point man for all Contra support activities.]

491. 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 against ... debriefing Nunez." The cable offered no explanation for the decision. 50

Another key passage discussing a Honduran airline documented to be moving as much as four tons of cocaine a month found that: 

816. SETCO was chosen by NHAO [the Nicaraguan Humanitarian Assistance Office, at the time coordinated by current National  Security Council staffer Elliot Abrams] 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.51 

And finally. the CIA acknowledged in its IG report that it had withheld information about drug trafficking by operatives involved in the Contra effort from Congress, at the same time revealing that:

1074. The analyst who drafted a Memorandum for Vice President Bush in April 1986 that related to potential Contras involvement in drug trafficking recalls that OGI analysts who worked on counternarcotics issues were not aware of those reports at the time --  October to December 1984 -- that they were first disseminated  inside and outside the Agency. However, she says that CATF [Central American Task Force] Chief [Alan] Fiers did make the reporting available to her in April 1986, stipulating that it could be used only for the Memorandum she was preparing for Vice President Bush.

1084. 1986 Memorandum for Vice President Bush. On April 6, 1986, a Memorandum entitled "Contra Involvement in Drug  Trafficking" was prepared by CIA at the request of Vice President Bush. The Memorandum provided a summary of information that had been received in late 1984 regarding the alleged agreement between Southern Front Contra leader Eden Pastora's associates and  Miami-based drug trafficker Jorge Morales. Morales reportedly had offered financial and aircraft support for the Contras in exchange for FRS pilots to "transship" Colombian cocaine to the United States.  CIA disseminated this memorandum only to the Vice President. 52

The importance of this revelation is that it had been the official position of then Vice President Bush that he had no hands-on relationship with the Contras, was out of the loop, and knew nothing. That's the position he took with the press, with Congress, and with the American people.

Smoking history

The CIA has been dealing drugs since before it was the CIA; already in its first days, as the OSS during World War II, it was facilitating and managing the trade, and directing its criminal proceeds to the places of its masters' choosing. For additional reading on the subject I recommend three excellent books: The Politics of  Heroin, Alfred W. McCoy (Lawrence Hill Books, 1991); Cocaine Politics, Peter Dale Scott (University of California Press, 1991); and Powderburns, Celerino Castillo (Sundial, 1994). The use of the drug trade to secure economic advantage for an imperialist nation is at least as old as the British East India Company's first smuggling of opium from India into China in the late 1600s (the defense of that British practice, Scott points out, was John Stuart Mill's motivation for writing the tract "On Liberty"). They did that for 300 years. When something works that well, the ruling elites rarely let go of it.

An interesting end came to the investigations arising out of the Gary Webb stories that (re)started all the controversy about the CIA and drugs. Frederick P. Hitz,  the CIA inspector general who oversaw the report's production, retired immediately afterward in March 1998. A graduate of the Harvard Law School, Hitz was  rewarded with a teaching post at Princeton University funded by Goldman Sachs. 53 His retirement, seven months before a declassified version of the report was made public, was celebrated with an entry in the Congressional Record.

One question remains. Aside from the fact that from Afghanistan, to Pakistan, to Kazakhstan, to Colombia, oil and drugs always turn up in the same place, has  here ever been any evidence connecting the oil industry to drugs directly? And what does that have to do with 9/11?

Afghanistan and opium post-9/11

In this context it is not surprising that the US completed its invasion of Afghanistan in November 2001 in the middle of the opium planting season. Among the first things the US forces and CIA did was to liberate a number of known opium warlords who, they said, would assist US forces. 54 Opium farmers rejoiced and, amidst reports that they were being encouraged to do so, began planting massive opium crops. 55 In December, former CIA asset and opium warlord Ayub Afridi was released from prison and recruited by the CIA to unify local leaders against the Taliban. 56

When the harvest of June 2002 came, Afghanistan had again become the world's largest producer of the opium poppy and the world's largest heroin supplier. From a paltry 180 tons under the Taliban in 2001, according to the UN, the estimated 2002 harvest, under CIA protection, was close to 3,700 tons. 57 By March of 2003, World Bank President James Wolfensohn was reporting record levels of opium production and that drugs were a bigger earner for Afghanistan than foreign aid. 58

The 2003 crop set new records, coming in at almost 4,000 tons. 59 And experts warned that the June, 2004 harvest might be 50 percent larger than that of 2003. 60  In November of 2003, Reuters reported that current Afghan opium cultivation was 36 times higher than  under the last year of Taliban rule. 61

When I learned in early 2001 that the Taliban had destroyed Afghanistan's opium crop, I wrote that it was a form of economic warfare that might take a whole lot of  money out of the world's banking system and its cooked books. There is always a lag between planting, harvesting, and the cash flows that show up as the heroin moves from farm, to laboratory, through several layers of wholesaling to the streets. The  positive cash flow generated by Afghanistan's first post Taliban harvest would not have started to hit the banking system for maybe six to eight months after June of 2002. In the late summer and fall of 2002 the Dow Jones had sunk to nearly 7,200.  As this book is written, and even as American jobs are disappearing, corporate profits and the so-called "non-job" recovery have seen the Dow again at 10,000 based upon massive consumer spending which is financed by credit that must be serviced with fractional amounts of cash by the lending agencies. The unprecedented 2004  harvest might be connected with the fact that it is an election year.

I don't mean to offer drugs as a complete explanation for the so-called economic recovery. But it helps to remember Occam's Razor.

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