CIA PAID PERU SPY AGENCY IN DRUG WAR

Early Ties May Come Back To Haunt U.S.

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 of smuggling 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.

U.S. Cultivated Montesinos New documents obtained by Knight Ridder
show how the CIA and State Department first cultivated Montesinos
decades ago. They also show 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 arrived 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 anticorruption court that's probing alleged illicit activity
by Montesinos, said in an interview 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 he 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 Follow Money Investigators are trying to determine
whether Montesinos diverted any of the money the CIA provided for
antidrug 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.

The judges who are investigating Montesinos are able to provide the
first glimpses of this highly secretive man. They 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
said.

Montesinos was once a key ally of former Peruvian President Alberto
Fujimori and the architect of Peru's successful war against leftist
rebels. Now he faces 57 cases and at least 168 criminal
investigations, divided among the six anticorruption judges. The
inquiries, which will end in public, probably televised, trials, cover
24 crimes that range from money laundering to organizing death squads,
protecting drug lords and illegal arms trafficking.

Sarkis Soghanalian, a Lebanese arms dealer of Armenian descent, has
told Peruvian authorities that Montesinos arranged for an illegal
shipment of up to 50,000 AK-47 assault rifles to be parachuted to
Colombian guerrillas in the jungles.

When news of the arms shipments broke in August 2000, Montesinos held
a rare news conference to suggest that Peru had discovered the illegal
activity and broken a gun-running ring. It was only the third time
the shadowy spymaster had been photographed in a decade.

Alleged Bribe Stirs Furor A month after the revelations about arms
smuggling, a secretly taped video was released showing Montesinos
allegedly bribing a Peruvian lawmaker.

The furor that followed forced Montesinos into exile until he was
captured in Venezuela on June 24.

Former President Alberto Fujimori, a longtime ally of Montesinos and
the United States, was implicated in the scandal, and in November he
faxed his resignation from Japan, where he's been granted
citizenship.

Since his capture, speculation has been intense that Montesinos would
try to link the United States to his illicit activities.

The CIA and U.S. Drug Enforcement Administration have privately
defended him against detractors in the past.

Former Secretary of State Madeleine Albright and former antidrug 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 DEA.

A declassified DEA document written on Aug. 27, 1996, shows U.S.
authorities knew of allegations Montesinos and the chairman of Peru's
joint chiefs of staff, Gen. Nicolas Hermoza Rios, who also is in jail,
took protection money from drug traffickers.

Newly declassified U.S. government documents, not yet published but
provided to Knight Ridder, 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 nonprofit 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.