CIA PAID PERUVIAN SPY AGENCY $10 MILLION

LIMA, Peru -- The Central Intelligence Agency paid the Peruvian
intelligence organization run by fallen spymaster Vladimiro Montesinos $1
million a year for 10 years to fight drug trafficking, despite evidence
that Montesinos was also in business with Colombia's big drug cartels,
Knight Ridder has learned.

Montesinos, 56 and in jail near Lima on corruption charges, is now dragging
the CIA into his legal battles. He is asking Peruvian court officials to
interrogate two CIA officers as part of his defense against charges that he
helped smuggle guns to guerrillas who allegedly provided protection to big
drug cartels.

Despite attempts by the U.S. government to distance itself from the
powerful Peruvian intelligence chief, years of cooperation with Montesinos
dating to the mid-1970s may be coming back to haunt the United States. New
documents show how the CIA and the State Department cultivated Montesinos
as early as 1974 and how the U.S. government maintained a relationship with
him for a quarter-century despite warnings that he was working for both
sides in the drug war.

In a July 27, 1991, document, the U.S. Army Intelligence and Threat Policy
Center reported that Peruvian Gen. Luis Palomino Rodriguez had showed up at
a U.S. defense attache's home wearing a bulletproof vest and warned that
Montesinos was trying to "frustrate joint U.S.- Peruvian counterdrug efforts."

Judge Jimena Cayo Rivera-Schreiber, one of six judges on a special Peruvian
court that's looking into alleged illicit activity by Montesinos, said last
week that the former intelligence chief has given court officials the names
of two CIA officers who can provide him with an alibi. Cayo said Montesinos
claims that the officers can vouch that he had nothing to do with a ring
that smuggled arms from Jordan through Peru to guerrillas in the
Revolutionary Armed Forces of Colombia.

Officials confirmed that the CIA has told Peruvian investigators that the
agency gave Montesinos' National Intelligence Service $1 million annually
from 1990 to 2000. The CIA declined to comment.

Investigators are trying to determine whether Montesinos diverted any of
the money the CIA provided for anti-drug efforts into his own pockets. At
least $270 million allegedly belonging to Montesinos has been found in
secret bank accounts in Miami, New York and elsewhere. Former Justice
Minister Diego Garcia-Sayan, Peru's new foreign minister, charges that
Montesinos may have stolen $800 million.

Once a key ally of former Peruvian President Alberto Fujimori and the
architect of Peru's successful war against leftist rebels, Montesinos now
faces 57 cases against him and at least 168 criminal investigations. The
inquiries cover 24 crimes from money laundering, illicit enrichment and
corruption to organizing death squads, protecting drug lords and
trafficking illegal arms.

Since his capture, speculation has been intense that Montesinos would try
to link the United States to his illicit activities. The CIA and the U.S.
Drug Enforcement Administration have privately defended him against
detractors in the past.

Former Secretary of State Madeleine Albright and former anti-drug czar
Barry McCaffrey have both publicly said they tried to distance the Clinton
administration from Montesinos and Fujimori but lost out to the CIA and the
DEA.

A declassified DEA document from Aug. 27, 1996, shows that U.S. authorities
were aware of allegations that Montesinos and the chairman of Peru's joint
chiefs of staff, Gen. Nicolas Hermoza Rios, also in jail now, were taking
protection money from drug traffickers.