JAILED SPY CHIEF OF PERU DRAGS CIA INTO DEFENSE

LIMA, Peru -- The CIA paid the Peruvian intelligence organization run by
fallen spy-master 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, the Mercury News has learned.

Montesinos, 56 and in jail near Lima on corruption charges after his
capture June 23 in Venezuela, 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 former 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 the Mercury News 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 Rodr(acu)guez 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
anti-corruption court that's probing alleged illicit activity by
Montesinos, said in an interview last week that the former intelligence
chief had given court officials the names of two CIA officers who can
provide him with an alibi.

CIA As Alibi

Cayo would not name the officers, but he said Montesinos claims they can
back his claims 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 the Mercury News
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 pocket. At
least $270 million allegedly belonging to Montesinos has been found in
secret bank accounts in Miami, New York and elsewhere around the globe.
Former Justice Minister Diego Garc(acu)a-Sayan, Peru's new foreign
minister, charges that Montesinos may have stolen $800 million.

The judges who are investigating Montesinos, and are able to provide the
first glimpses of this highly secretive man, describe him as compulsive,
orderly and accustomed to stature. In prison, he has insisted on dining on
Gerber baby food -- to soothe his gastritis -- with fancy cutlery brought
by his family. Appearing to forget that he is imprisoned, he sought
unsuccessfully to persuade his keepers to allow him a different menu each
day, and to be served separate courses.

"He is very sure of himself," Judge Magaly Bascones-Gomez Velasquez told
the Mercury News.

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 alleged crimes from money
laundering, illicit enrichment and corruption to organizing death squads,
protecting drug lords and illegal arms trafficking.

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

Internal Debate

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

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

Newly declassified U.S. government documents, not yet published but
provided to the Mercury News, show that the State Department and the CIA
cultivated Montesinos as early as 1974. State Department documents obtained
under the Freedom of Information Act by the National Security Archive, a
non-profit foreign-policy center at George Washington University, indicate
that the U.S. Embassy in Lima identified Montesinos as a potential ally and
took him to Washington in 1976 when he was an obscure army captain.

Peter Kornbluh, a senior analyst at the archive, predicted that a Peruvian
trial of Montesinos would produce "ample evidence" of the secret U.S.
association with the spymaster.

Documents show Montesinos was a political operative in the dictatorship of
Juan Velasco when the U.S. government first sought him out. When the
left-wing general was toppled in 1975, Montesinos managed to remain in the
government led by Gen. Francisco Morales Bermudez and other conservative
generals.

Washington Visit

Despite Montesinos' low rank, he was brought to the United States from
Sept. 5 to Sept. 21, 1976, and met with Robert Hawkins in the CIA's Office
of Current Intelligence along with military officials and the State
Department's longtime Latin America policy-planning chief, Luigi Einaudi,
who is now the assistant secretary-general of the Organization of American
States in Washington.

"In those days, it was a big deal to get one of these paid trips to
Washington. It had to be someone identified by the agency or embassy as a
potential recruit for U.S. interests. You didn't nominate yourself," said
Riordan Roett, director of the Western Hemisphere Program at the Johns
Hopkins University School of Advanced International Studies in Washington.

Declassified State Department documents suggest why the CIA may have sought
out Montesinos. At the time, Peru was the only left-wing government in a
continent largely run by right-wing dictators, and the United States was in
an ideological war with the Soviet Union and its ally in Cuba. Montesinos
had information about a potential attack by the Peruvian generals against
Chile, which was then run by Gen. Augusto Pinochet, an arch-conservative
U.S. ally.