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.
The Black Budget Report:
An Independent
Investigation of the CIA’s ‘Black Budget’ and the Second Manhattan
Project
Introduction
[1]
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.
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.
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.
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 network of ‘deep black projects’ that collectively form a highly classified second Manhattan Project whose existence, goals and budget are kept secret.
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:
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.
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]
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]
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:
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 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]
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]
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:
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.
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.
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.
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’.
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’ 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.
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]
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:
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:
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:
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.
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.
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.
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.
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.
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.
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 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.
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 DCI has statutory power to move funds in the intelligence community with the approval of the Secretary of Defense as described in the following:
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.
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 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 1949 CIA Act describes this power as follows:
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:
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.
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]
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