U.S. PAID PERU SPY CHIEF MILLIONS

CIA Pursued Anti-Drug Ties, Despite Possible Links To Cartels

LIMA, Peru -- The CIA 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, 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 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 shown
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 is probing allegations of 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 identify the officers, but said Montesinos contends 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.

Cayo said 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 elsewhere around the globe.
Former Justice Minister Diego Garcia-Sayan, Peru's new foreign minister,
alleges that Montesinos may have stolen $800 million.

Montesinos, 56, once a key ally of former Peruvian President Alberto
Fujimori and the architect of Peru's successful war against leftist rebels,
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, including
money laundering, illicit enrichment and corruption, organizing death
squads, protecting druglords and illegal arms trafficking.

When Montesinos fled to Panama in October in an aborted attempt at exile,
he is believed to have had so much information about so many people
throughout Latin America that nine heads of state pressured the Panamanian
government to accept him.

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.

Former Secretary of State Madeleine Albright and former anti-drug czar
Barry McCaffrey have both publicly said that 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 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.

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, expects 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.

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.

Roett appears in a declassified State Department document on a list of
people said to have been visited by Montesinos during his first trip. Roett
said he has no recollection of meeting the then-obscure army captain.

Also on the list was Abraham Lowenthal, a well-known Latin America expert
who now teaches at the University of Southern California, Los Angeles.
Reached by telephone in New York, Lowenthal also said he did not remember
meeting Montesinos.

In another declassified document obtained by the National Security Archive
but not yet published, Montesinos' U.S.-provided translator offered a
prophetic assessment after his visit with Einaudi, defense officials and
academics.

"He is a firm friend of the United States, and the results of his visit
will accrue benefits to both nations for many years to come," wrote Lili S.
Packer. Reached in Miami on Thursday, she said, "There was no indication
that this young man would become what he became."

Montesinos was jailed in 1976, not long after his return. He was tried by
the military on charges of selling secrets to the CIA and cashiered from
the army in 1977. Then-U.S. Ambassador to Peru Robert W. Dean intervened on
Montesinos' behalf with Peru's foreign minister, and Montesinos asked his
lawyer to contact the State Department's Einaudi, according to declassified
department documents.

Einaudi could not be reached for comment.

Declassified State Department documents suggest why the CIA may have sought
out Montesinos. At the time, Peru was the only left-wing regime on 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 archconservative
Nixon-administration ally.

Reached by telephone in Dallas, Dean, 81, said he no longer remembers
Montesinos or much of anything else about his days as a diplomat. But his
recollections of the Velasco government, which was hostile to the United
States, point to why Montesinos would have been a valuable asset.

"One day my CIA chief came in and said, 'Mr. Ambassador, I have some bad
news. Velasco wants everything the American ambassador does to fail.' If
you get that message, you get a chill up your spine," Dean recalled about
his efforts to promote democracy. "He didn't like that kind of breeze
blowing in on his frozen system."