PERUVIAN SPY CHIEF PAID BY CIA

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, 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 provide 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 obtained by Knight Ridder show how the CIA and State Department
first cultivated Montesinos decades ago, 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 document dated July 27, 1991, 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
counter-drug efforts."

Judge Jimena Cayo Rivera-Schreiber, one of six judges on a special Peruvian
anti-corruption court that's probing alleged illicit activity by
Montesinos, said in an interview 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 would not name the officers, but said Montesinos claims they 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.

"He says it's the CIA that told him about this," Cayo said, adding that
court officials are trying to get sworn statements from the CIA officials.

Officials who spoke on condition of anonymity confirmed to Knight Ridder
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 around the globe. 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,
divided among the six anti-corruption judges. The probes, which will end in
public and probably televised trials, cover 24 crimes from money
laundering, illicit enrichment and corruption to organizing death squads,
protecting drug lords and illegal arms trafficking.