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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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