ITT UNDER THE GUN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP09T00207R001000030050-7
• Release Decision: RIFPUB
• Original Classification: U
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: August 5, 2011
• Sequence Number: 50
• Publication Date: August 13, 1977
• Content Type: OPEN SOURCE

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couldn't guarantee he could continue being open with
me if I couldn't guarantee I would include his
expression of love for the losers.
The staff of IPS is generally uncomfortable with the
past. Their time is the future. Gary Wills wrote in
Esquire in 1971, "Indeed, the group's primary gift seems
to be a feel for what is coming up next. They have not
caused developments so much as anticipated them."
The last prospectus put out by IPS is from 1973. The
pamphlet has the tone of religious conversion: "The
Institute for Policy Studies was formed by a group of
men each of whom had come to Washington between
1958 and 1962 to work in or on the edges of
government. These men were all in their 20s and 30s,
all were white, all were university trained. . . . They
found that the government was chiefly responsive to
institutional interests that were divorced from public
needs. . . . They discovered that [their educations] had
to be totally remade.... But most important, they did
not shrug off their discoveries: they listened carefully
to the changes within them and decided to act upon
them."
IPS was established to provide "public scholarship."
The Institute was set up along collegiate lines granting
titles such as fellow, associate fellow and administrative
fellow. Raskin and Barnet will be the first distinguished
fellows. There is an intern program for un-
dergraduates, and IPS also give PhDs in connection
with the Union Graduate School in Ohio. However,this
whole system, which has shifted over the years, will be
reviewed in January. Foundations, individual donors
and universities-no government grants have been
allowed-support the Institute.
Barnet, a soft-spoken scholarly man with wild gray
hair says the Institute provides a "rational analysis" of
and for society. "What we've done is point out what's
irrational in society at a time when an issue is wildly
unpopular-before it becomes part of the conventional
wisdom. A definition of a radical is very much a matter
of timing."
Meanwhile, what has happened to all the issues IPS
was involved in before they became fashionable? The
weapons stockpile has more than doubled since the
1960s. Multinational corporations (which Barnet's
book Global Reach was one of the first to examine
critically) show no sign of redomesticating. And on a
more immediate level, Raskin says, "I used to believe we
shouldn't charge tuition. Knowledge should be shared.
We even paid kids to come. Unfortunately we have to
charge them now." In this context IPS seems not so
much a harbinger as a barometer.
Stavins says, "The consciousness of the '60s is
embedded in 1977, but the trappings are 1957.
Homosexuality and all that shit is in public. In 1957 we
didn't have the national security state we have today. It
shits. But we're not into defending fags dancing in
public, we're interested in reactionary state struc-
tures."
Raskin retains a firm belief in the importance of the
work of institutions like IPS. "Over the next decade
society is going to go through horrible crises, both felt
and silent. I believe the Institute will prosper, we will
build on the reputation of the last 15 years. There are
now three great institutions: AEI on the right,
Brookings in the middle and IPS on the left. Our next
period has to be devoted to developing the right
knowledge structures."
Emily Yoffe
This is the second in a series of profiles of Washington institutes,
associations and miscellaneous acronyms.
Everyone's favorite corporate bogeyman may soon face
criminal charges for its transgressions in Chile.
ITT Under the Gun
by Tad Szulc
A federal grand jury in Washington is about to
complete a nine-month investigation concerning
activities of the International Telephone and Telegraph
Corporation and the Central Intelligence Agency in
Chile. The grand jury is considering whether to indict
ITT for fraud, and its chairman, Harold Geneen, its vice
president, Edward J. Gerrity, and former CIA Director
Richard Helms for perjury.
The accusation against ITT is that it defrauded
United States taxpayers of $94 million in insurance
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payments it received from a government agency
following nationalization of its holdings in Chile in
1971. The alleged fraud was that in claiming reimburse-
ment for the nationalization ITT concealed its secret
payments to political figures in Chile, despite a
provision of the insurance contract requiring disclosure
of all relevant company operations.
The allegations of perjury involve testimony by
Geneen, Helms and Gerrity, two Senate committees
investigating subversive activities in Chile by ITT, the
CIA or both working together.
The Securities and Exchange Commission,
meanwhile, is completing its own investigation of
questionable payments by ITT, in Chile and other
foreign countries as well as here in the United States.
New disclosures about the company's secret activities
are reported to be imminent. Informed sources describe
the information as "explosive." SEC staff members are
negotiating with ITT, with a goal of voluntary full
disclosure of all illicit activities. If an agreement cannot
be reached, the SEC intends to begin legal action of its
own against ITT.
Former Attorney General Edward H. Levi authorized
the grand jury proceedings in the middle of last year,
when justice Department officials believed they had
enough information to justify investigating the
possibility of possible fraud and perjury indictments.
The Justice Department has declined to comment
officially on the present status of these grand jury
investigations.
hose close to the investigation think the Carter
Administration may be reluctant to prosecute Helms,
Geneen and Gerrity on the perjury charges even if the
grand jury votes to indict them. The reason is that a
trial may force the government to produce and make
public very sensitive materials which could compromise
-the CIA's "sources and methods."
The fraud prosecution against ITT, if it occurs, would
concern ITT's own alleged misbehavior, and therefore
would not threaten to compromise government
intelligence operations. Nevertheless, sources at the
White House say that both the perjury and fraud cases
against ITT and its officials are among investigations
initiated by the last administration currently under
review by President Carter. Thus it is not clear how a
decision to drop the perjury charge against the
individuals would affect the fraud charge against the
corporation. Both allegations of misbehavior, of course,
are related to the same general United States campaign
to undermine the regime of Chile's late Marxist
president, Salvador Allende.
Beyond any possible threat to American intelligence
machinery, any prosecutions that emerge from the
current grand jury proceedings will have political
ramifications. Helms has been quoted as saying that if
he were indicted, he would "bring down" with him
former Secretary of State Henry Kissinger. Kissinger
was one of the architects of the American anti-Allende
policies that contributed to the bloody military coup
that overthrew Allende in September 1973.
Helms, who was not available for comment last week,
testified to the Senate Foreign Relations Committee on
e ruary 5, 1973, that contacts 'Uetween the CIA and
ITT concerning Chile were only "for the purposes of
the acquisition of information and things of this kind."
Subsequently, however, the Senate Select Committee
on Intelligence discovered that the CIA, in the words of
the Committee report, had "advised ITT as to ways in
which it might safely channel funds" to Arturo
Alessandri, the conservative candidate in the 1970
elections, and to his National Party. ITT contributed
$350,000 to the Alessandri campaign, using the
channel proposed by the CIA. According to the
Intelligence Committee report, the "CIA was informed
of the extent and the mechanism of the funding." ITT
later hid this fact from the government agency that
paid the $94 million insurance claim in January 1975.
The CIA's own involvement in Chile between 1969
and 1970-first to prevent Allende's election and then
to help bring him down-was sanctioned by Kissinger
in his capacity of chairman of the White House's "Forty
Committee" in charge of supervising covert in-
telligence. Kissinger, in effect, gave Helms his
marching orders against Allende. Former President
Nixon specifically reconfirmed these orders on
September 15, 1970-11 days after Allende won a
plurality in the Chilean elections.
The occasion. on which Harold Geneerr and his
associates are alleged to have committed perjury was in
testimony under oath before the Senate Subcommittee
on Multinational Corporations on April 2, 1973.
Geneen denied that ITT had done anything illegal in
Chile. He added, "Nor did ITT contribute money to any
person or to any agency of any government to block the
election of Dr. Allende." Senator Charles Percy asked
him, "Have you ever made a political contribution as a
company to a candidate or a party in any of those
countries?" Geneen replied, "Absolutely not." Com-
menting on a press report that two ITT representatives
SUMMER SCHEDULE:
We will omit issues
on August 13 (next week)
and August 27.
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in Santiago had offered money to Alessandri's cam-
paign manager, Geneen said: "I can only say that
nobody was authorized to make any kind of a
contribution and nobody asked me to authorize one. If
they did, I would have turned it down."
The Senate Intelligence Committee reported in 1975
that even though ITT had given $350,000 to the
campaign of Allende's electoral opponent, (spending it
according to CIA instructions), after Allende became
president the company paid $20,000 in bribes to Jacobo
Shaulsohn, a representative of the Allende government
assigned to the team negotiating with ITT. The Allende
regime and ITT were negotiating over the fate of the
ITT-owned Chilean telephone company before it was
finally nationalized in September 1971. Having failed to
prevent Allende's rise to power, ITT quickly shifted
tactics, suborning a trusted adviser of the Chilean
president in the hope of forestalling nationalization and
obtaining better terms if it occurred. The payments to
Shaulsohn also were made with the knowledge of the
CIA. Like the earlier CIA-recommended expenditures,
they were in vain.
After the telephone company was nationalized, ITT
sought redress in the form of an insurance payment
from the US government. On October 8, 1971 the
company filed a $94 million claim with the Overseas
Private Investment Corporation (OPIC), a
government-sponsored organization responsible for
insuring private American holdings as a way of
encouraging private investment in underdeveloped
countries. ITT had four insurance contracts with
OPIC, each one specifically covering ITT for expropria-
tion or nationalized action of its assets in Chile. (ITT
has similar contracts covering its investments in other
foreign countries.)
It was perfectly proper for ITT to make the claim. It
had paid more than two million dollars in insurance
premiums to OPIC. Furthermore, ITT had met one of
the OPIC requirements by negotiating in good faith
with the Chileans before the takeover. Other American
companies, including the huge Kennecott Copper
Company, submitted similar claims of their own.
Ultimately OPIC received 23 claims totalling $450
million resulting from the Allende government
takeover. Chile was considered so unstable that as far
back as 1967, over 24 percent of total OPIC insurance
contracts covered investments in Chile.
But there was a difference between ITT and the
other companies filing claims with OPIC. The
difference was that ITT, at the time its insurance claim
was being processed, already was known to have
meddled in Chilean politics, even though the full extent
of these operations had not yet emerged.
As early as March 1972 Jack Anderson disclosed that
ITT had offered the CIA one million dollars in July
1970, to be used in the anti-Allende campaign. Internal
ITT documents revealed that Geneen had made the
offer to William Broe, then chief of the CIA's
clandestine operations for the Western Hemisphere. As
the Senate Intelligence Committee reported later, ITT
volunteered this money after the CIA station in
Santiago "suggested the name of an individual who
could be used as a secure channel for getting these
funds to the Alessandri campaign." The CIA already
was covertly financing the Alessandri forces with funds
approved by Kissinger's "Forty Committee" for the
anti-Allende "spoiling" operation. As a result CIA
Director Helms decided that the Agency had no need
for ITT's money. Nevertheless, the CIA was happy to
help ITT direct a private contribution to the ap-
propriate source.
The Senate Subcommittee on Multinational Cor-
porations opened hearings on ITT's interference with
Chilean politics in March 1973, just as OPIC was
approaching the end of its review of the company's $94
million insurance claim. The hearings covered
Geneen's financial offer to the CIA, along with his
efforts and those of his associates to persuade the
Nixon administration to take an open anti-Allende
posture. It is not clear whether ITT had any inkling of
the CIA's deep involvement in Chilean politics when it
first made contact. But it is a good guess that the
company did. For one thing, John McCone, who was
CIA Director in 1964 when the Agency secretly
expended eight million dollars to prevent Allende from
winning an election in that year (an election won by
Eduardo Frei, a Christian Democrat fully supported by
the Johnson administration), had become a member of
ITT's board of directors. It was McCone who, through
Helms, arranged for the meeting between Geneen and
Broe, the CIA's Western Hemisphere chief. In any
event, Geneen and his colleagues testifying to the
subcommittee denied any ITT mischief-making within
Chile, including contributions to Alessandri. The
subcommittee appeared to believe him, although some
senators criticized his efforts to influence American
policy in Chile. Geneen argued that he and his company
had the right to "petition" the government for a change
of official policy toward Chile. The claim before OPIC
was discussed at length, but Geneen said he assumed
that the insurance payment would be made.
OPIC, however, was more suspicious of ITT than the
Senate subcommittee was. On April 9, a week after
Geneen's public denial of illegal activities, OPIC
stunned him by rejecting the claim. Actually, its staff
had recommended this action even before the subcom-
mittee's hearings. Although ITT never informed OPIC
that it had contributed the $350,000 to Alessandri-
this became known only two-and-a-half years later-
OPIC concluded that the company had breached the
contract just by lobbying the administration in
Washington and, as the Anderson papers had revealed,
establishing political links with the Alessandri cam-
paign in Santiago. Citing language from the insurance
contract, OPIC ruled that ITT had failed to meet its
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obligation of full disclosure of information concerning
"the nature either of the Project or the Investment"
and, while the claim was pending, all facts "material to
the claim." A former OPIC official remarked later, "ITT
simply lied to us" in suggesting that it had no political
involvements in Chile.
Thus OPIC took the view that ITT's political
activities in the summer and fall of 1970 in Washington
and Santiago amounted to a "material breach" of the
contract. It reasoned that, in a way, ITT might have
brought the expropriation on itself by antagonizing
Allende, who learned of its hidden activities from the
Jack Anderson stories. The great irony is that at that
point OPIC had no idea how monumental, indeed,
ITT's "material breach" had been. Not surprisingly, the
CIA also failed to inform OPIC that ITT was financing
the anti-Allende campaign. This particular piece of CIA
misbehavior has been ignored in all the investigations
of the intelligence community, despite its importance.
In denying knowledge to another government agency,
OPIC, the CIA had become an accomplice in the fraud.
Its silence cost the American taxpayers $94 million.
On April 30, 1973, three weeks after OPIC denied
the claim, ITT filed a demand for arbitration, as
provided for under OPIC procedures. Instantly, the
American Arbitration Association named a three-
person "Commercial Arbitration Tribunal."
The arbitrators took their time. In November 1974,
after hearing 18 witnesses and examining over 300
exhibits, they overruled OPIC and held that ITT was
entitled to the insurance payment. Their view was that
ITT had not committed any breach of contract by its
1970 dealings in Washington and Santiago. The
arbitrators wrote that ITT's activity "was (a) either
permissible gathering of information or (b) tentative,
insubstantial activity, neither extensive nor effective,
and not shown to have been followed up by ITTSA
(ITT's South American subsidiary) in any significant
manner," and that "ITTSA's 1970 activity in
Chile ... was not such as to be given any weight in this
proceeding."
The arbitrators' opinion seems naive in the light of
the facts that have emerged subsequently. To be sure
the arbitrators, like OPIC, were unaware of the ITT
contributions to Alessandri and the bribing of the
Chilean negotiator. But even though Allende had been
overthrown 14 months earlier and there were grave
suspicions about the role played in these events by the
US government and by ITT, the arbitrators seemed to
-disregard all of it. (Needless to say, the CIA was just as
unhelpful to the panel as it had been to OPIC.) In their
conclusions, for example, the arbitrators found that
"there ... was no evidence that a political contribu-
tion, if in fact one had been made, would have been a
violation of the Chilean law." But this was irrelevant to
the merits of the ITT claim before OPIC. Next, the
panel argued that the insurance contracts "contain no
express provision which forbids an Investor (a) to seek
in the United States, US Government action in or
toward a host country in support of the Investor's
interests, or (b) to engage in any political activity
designed to protect the Investor's property within the
host country. It would have been natural, if any such
prohibition by the contracts had been intended, to
include it in explicit terms." Obviously such an idea
never even occurred to OPIC in those relatively
innocent days.
Faced with the arbitrators' ruling, OPIC had no choice
but to pay ITT's insurance claim. After negotiating the
details with ITT, OPIC paid the company $34 million in
cash and provided a guarantee for $59 million of bonds
issued by Chile's new military government in repay-
ment for the expropriation of the telephone company.
The settlement was announced on January 7, 1975; it
added up to $94 million, the exact amount ITT had
claimed in the first place.
In December 1975-11 months after ITT received its
OPIC award-the Senate Select Committee on In-
telligence issued its report on "Covert Action in Chile,"
describing how the company had financed the anti-
Allende forces with the CIA's assistance. OPIC
considered whether to reopen the whole case in light of
the new information-it more than confirmed its worst
suspicions of 1973-but an in-house review led to the
conclusion that this would be impractical. OPIC
assumed that the arbitration panel would again take the
position that no matter what ITT really did in Chile, it
could not be proved that the company was responsible
for losing its investment since Allende, like everybody
else, was unaware of the information not made public
until 1975 when he nationalized ITT's holdings in 1971.
OPIC felt that so long as the new Chilean regime was
repaying ITT for the expropriation, the US govern-
ment was being automatically reimbursed on an
installment plan. ITT, of course, has to reimburse OPIC
for any money it gets from Chile beyond the $59
million already deducted from its claim.
But this perpetrated fraud in making the original
insurance claim without informing OPIC of all the
material and significant facts-of which the $350,000
in payments in Chile clearly was a most acute example.
It was on the basis of this reasoning that former
Attorney General Levi decided last year to place this
matter before the grand jury.
The Senate Intelligence Committee revelations
about ITT's behavior in Chile also were the stimulus for
the Securities and Exchange Commission investiga-
tion. ITT's failure to disclose these payments at the
time they were made appears to be a violation of SEC
regulations. ITT now has voluntarily disclosed that it
has made $3.8 million in questionable payments to
politicians at home and abroad. But SEC staff members
are not certain whether the $350,000 expended in Chile
is included in this total.
Looking beyond Chile, the SEC is trying to obtain the
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records of two ITT subsidiaries in foreign countries-
the Commission will not name them publicly because
ITT documents it had subpoened last year are under a
protective court order-because of the possibility that
major irregularities are involved. ITT claims that
because of local laws these records cannot be made
available, but persons close to the case suspect that the
company may not have tried hard enough to provide
them. These foreign records are said to contain
"dynamite" concerning ITT's international dealings.
The skein of possible perjury and fraud involving ITT
and the CIA has not been fully unraveled. Meanwhile,
investigators are awaiting the completion of the White
House review of "pending" cases. According to
knowledgeable sources, the White House has been slow
in providing needed documents, on grounds of
sensitivity surrounding past actions of the intelligence
community. It is up to President Carter to decide how
much truth we shall be permitted to know about ITT,
the CIA and their friends at home and abroad.
This article was prepared with the assistance of Emily Yoffe.
And the Eurocommunists dance.
Kremlin Cracks the Whip
by M chael Ledeen
The Russians have marshalled their forces for a major
new campaign in the ideological struggle between East
and West. The Kremlin has served notice on its allies
and some of its own leaders that no further experimen-
tation with "bourgeois" values will be tolerated, and
this latest reversion to an all too familiar form has
produced some important casualties, including the
Berlin agreement of last year which apparently
sanctioned the strategy of the "Eurocommunists."
The American human rights campaign has catalyzed
latent tendencies in Moscow. The quick elimination of
the "Charter 77" group in Prague, the imprisonment of
others calling for the observance of human rights
promised by the Helsinki agreement and the increasing
difficulties encountered by Western groups trying to
communicate with dissidents in Eastern Europe (not to
mention the gruff rejection of our SALT proposals and
the aggressive Soviet rhetoric at Belgrade) all point to
the seriousness with which the Kremlin is taking
Jimmy Carter's brave words.
The most recent development is the censure of
Santiago Carrillo following the poor showing of the
Spanish Communist Party (PCE) in the June elections.
The Soviet excommunication of Carrillo was hardly a
Michael Ledeen is executive editor of the forthcoming
quarterly, The Washington Review of Strategic & International
Studies.
surprise. Long before the June condemnation there
were signs that the advocates in the Kremlin of a more
tolerant line toward European Communist apostasies
had been losing ground. The most dramatic evidence
was the removal of Konstantin Katuscev, Russian
Communist Party secretary in charge of relations with
foreign Communist parties, and his replacement by
Boris Ponomariev. Katuscev had been a proponent of
the Berlin Conference of 1976, and had encouraged
Brezhnev to make his humiliating pilgrimage to
Yugoslavia, attempting to bring Marshall Tito--the
original Eurocommunist-back into the fold.
Ponomariev, in contrast, is one of the most Stalinist of
the Russian elite. He summoned the secretaries of 75
Communist parties to Prague at the end of April, and
told them that proletarian internationalism (the
international equivalent of the Leninist doctrine of
democratic centralism) was once again the order of the
day. "The testing ground of each of the elements of the
Communist movement," Ponomar.iev said, "is its
relationship with the Russian Communist Party." With
this, the Soviets abrogated the principle, endorsed by
Brezhnev in Berlin, that "only the working class of a
country must judge the validity of the policies of its
respective party."
The significance of the conflict between Carrillo and
Moscow has been grossly overstated in the American
press. After all, the Soviet Union attempted to create an
anti-Carrillo Communist party in Spain-the so-called
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