Covert Cash and the CIA
BOOK REVIEW: THE HIDDEN COST OF FREEDOM: The Untold Story of the CIA’s Secret Funding System, 1941- 1962
By Brad L. Fisher / University Press of Kansas
Reviewed by: Jason U. Manosevitz
The Reviewer — Jason U. Manosevitz is a seasoned Intelligence Community officer with 20 years of experience. This includes analyzing East Asia and Middle East security issues, managing overseas programs, and supporting Agency-Congressional intelligence oversight relations
REVIEW — How can we budget for national intelligence when security crises and collection opportunities are so unpredictable? How do we square the secrecy vital for intelligence activities with the accountability democracy requires? Brad Fisher’s work, The Hidden Cost of Freedom: The Untold Story of the CIA’s Secret Funding System, 1941-1962, begins to answer these key questions with a story of how CIA’s financial system emerged and the fiscal tools that underpinned the Agency’s early operations.
Let me be honest, The Hidden Cost of Freedom is no spy thriller. Government funding and auditing are dry subjects. And some readers may find Fisher’s story difficult to connect with, given its discussion of forgotten bureaucratic and political figures, technocratic focus, and inter-governmental turf wars. In places, it’s a tedious read. However, students of intelligence should pay attention to The Hidden Cost of Freedom because it offers a starting point for understanding how budgeting and accounting connect with the intelligence mission. Fisher’s work focuses on how the Government Accounting Office (GAO) and CIA’s debate over auditing intelligence funds evolved from uneasy collaboration to frosty estrangement. It also provides insight into how CIA engaged Congress and the media to gain the legislative authorities needed to audit its operational funds and protect intelligence activities.
The Hidden Cost of Freedom is a labor of love. Fisher spent some 20 years on the manuscript. His inspiration was his grandfather, Lyle Fisher, who was GAO’s General Counsel during the late-1940s through the mid-1950s and a key player in the GAO-CIA relationship. The book is also a work of serious scholarship. Fisher draws on declassified documents that provide rich, granular details on the financial mechanisms CIA used to support its operations. He also brings to light the differing approaches of the GAO and CIA regarding monitoring funds and how the CIA inherited some of its financial systems from the Office of Secret Services (OSS) and the Central Intelligence Group (CIG).
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The Hidden Cost of Freedom starts with the transition from the OSS to the CIG. Fisher covers how the OSS’s Special Funds Branch was set up to handle the financial administration to obscure the use of funds for overseas operations during World War II. The creation of “unvouchered funds” was critical for intelligence operations. Fisher explains that unvouchered funds were a new class of government funds that enabled OSS officers to covertly support field operations, make black market currency trades, and clandestinely pay assets. Unvouchered funds were rooted in the War Powers Act of 1941, which gave President Roosevelt the authority to direct funds to intelligence operations “without regard to the provisions of law regulating the expenditure or accounting of funds of the United States.”
When President Truman created the CIG to replace the OSS, the CIG inherited some of the OSS’s financial systems and operations. This included the GAO’s Comptroller General delegating certification authority to the Director of Central Intelligence (DCI), allowing the DCI to use unvouchered funds for intelligence operations in peacetime. Like the OSS, this meant CIG’s intelligence funds were split into two categories—vouchered funds that the GAO would audit and unvouchered funds that CIG would self-audit. This split between vouchered and unvouchered funds carried over to the CIA. Fisher focuses on how this split in funds ultimately led to deep divisions between the GAO and CIA, with CIA portrayed as blocking the GAO from auditing intelligence expenses.
Fisher writes that the CIA Act of 1949 provided the statutory authority for CIA’s financial system and enabled it to get its own congressional appropriations. He highlights that Section 10b authorized the DCI to spend government funds without adhering to the usual regulations and laws related to the expenditures. Fisher repeatedly points to GAO’s problems with Section 10b of the CIA Act. Specifically, the DCI’s authority to certify CIA expenditures of unvouchered funds undermined the GAO’s ability to conduct auditing of government funds. Unfortunately, Fisher’s repetition of the point grows wearisome.
Importantly, Fisher identifies two key mechanisms for CIA’s early financial system—the creation of a “reserve fund” for emergencies and the use of front companies to obscure support activities.
Writing that “national emergencies did not fit neatly into a normal budgetary cycle” and that “funds had to be available when needed,” Fisher explains that the CIA set up a special reserve fund—much like a rainy-day fund—for this challenge that would carry over year-to-year rather than needing annual appropriations. Fisher explains that DCI Hillenkoetter created the reserved fund in 1949 with a modest $4.0 million in unvouchered funds for emergency operations. He writes that the reserve fund “increased by orders of magnitude during the 1950s” and implies that congressional oversight somehow lacked insight into this critical mechanism for CIA to meet its mission. Fisher also highlights that from 1950 to 1953, CIA’s annual budget grew from $52 million to $587 million, hinting at further growth during through the early 1960s. But this is only part of the story.
Certainly, CIA’s general and reserve budgets increased during this time. But as early as FY1954, the House and Senate Appropriations Committees (HAC and SAC respectively) cut CIA’s budget by at least 15%. The HAC and SAC also made about a 50 percent cut in new funds for CIA’s budget, including its reserve fund, for FY1955, even though CIA’s mission was expanding. Members of the HAC and SAC CIA subcommittee also kept a close eye on CIA’s reserve budget, with HAC Chairman Cannon in a closed-door hearing in 1956 questioning why CIA was requesting so much for its reserve budget. Throughout the 1950s and 1960s, members debated how the reserve fund operated and began proposing alternatives for how CIA could deal with crises outside the normal budget cycle.
The second key financial mechanism CIA adopted early on was the use of front companies. Fisher points out that by 1950 government corporations had been around for at least 50 years, so there is nothing fishy about CIA using them, albeit such organizations were a pain in GAO’s side. Fisher explains that CIA’s first major business venture was the purchase of a small airline operating in China called the Civil Air Transport (CAT). Although the CAT was in major financial distress in1949, Fisher writes it was valuable to the Agency because it provided a secure means of transporting case officers, refugees, cash, weapons, and cargo to and from Far East hot spots. CIA officials injected money into the company and brought in its own accountant to oversee the company’s financial operations to protect the Agency from potentially large financial losses. According to Fisher’s research, “when the CIA finally liquidated the airline in the early 1970s, it had to turn over a $30 million profit to the American government,” making it a successful venture in several ways.
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At times, The Hidden Cost of Freedom unnecessarily implies CIA had ulterior, dark motives in seeking greater protection for, and independence of, monitoring of its budget and operational expenses. Fisher’s chapter on MKULTRA, the U2 development, and early efforts under the CORONA project to develop satellite intelligence collection adds a bit to each story about the budgetary challenges of keeping large projects under wraps and working with other government agencies and private corporations. However, the main theme seems to be how CIA sought to leverage unvouchered funds to avoid scrutiny by the GAO. Sadly, we learn little about how funds were used to develop intelligence networks, recruit assets, buy and sell needed foreign currencies, or support CIA stations that produced intelligence collection for analysis that informed policymakers on wide range of issues.
There are also other significant flaws. For example, Fisher highlights the actions of key representatives on the House Armed Services Committee and the House Appropriations Committee that enabled the CIA to audit its own financial system, but makes scant mention of key senators, the Senate Armed Services Committee, or the Senate Appropriations Committee, who by necessity would have also been engaged.
In his final chapters Fisher concentrates on the ultimate break between the GAO and CIA. The GAO, Fisher writes, had developed a new, comprehensive auditing system that it planned to use government wide and wanted to expand its audits of CIA’s budget. At the same time, CIA had increased the use of unvouchered funds for its expenditures. This was probably because CIA officials realized that expenses on activities in support of operations could just as easily expose the operations as expenses on the operations themselves.
Fisher provides a highly detailed account of the back and forth between the GAO and CIA to find a workable solution. Fisher’s assessment of the GAO’s effort to expand its auditing of CIA adds a bit of a twist of the usual bureaucratic turf war. He writes that part of the reason the GAO began its push to broaden its auditing of CIA was the perception that the CIA was politically weakened in 1958 following several failures, such as not warning about the coup in Iraq that year. He recounts that GAO ultimately brought its dispute with CIA to HAC Chairman Carl Vinson and asked him to weigh in on Congress’s legislative intent on CIA authorities because efforts to reach an accommodation with CIA had failed. Vinson, who oversaw CIA as HAC’s Chairman, sided with CIA’s need to protect sources and methods, including how funds were used.
Despite its flaws, Fisher’s Hidden Costs of Freedom is an important contribution to the intelligence literature. It adds a missing piece to CIA’s early development and may inform policymakers and academics to consider some of the unique challenges at the intersection of the intelligence mission and budgeting.
The Hidden Cost of Freedom earns a respectable 2.5 out of 4 trench coats
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