The CIA set up a network of front companies in Europe and elsewhere after the Sept. 11 attacks as part of a constellation of "black stations" for a new generation of spies, according to current and former agency officials.

But after spending hundreds of millions of dollars setting up as many as 12 of the companies, the agency shut down all but two after concluding they were ill-conceived and poorly positioned for gathering intelligence on the CIA's principal targets: terrorist groups and unconventional weapons proliferation networks.

The closures were a blow to two of the CIA's most pressing priorities after the 2001 terrorist attacks: expanding its overseas presence and changing the way it deploys spies.

The companies were the centerpiece of an ambitious plan to increase the number of case officers sent overseas under what is known as "nonofficial cover," meaning they would pose as employees of investment banks, consulting firms or other fictitious enterprises with no apparent ties to the U.S. government.

But the plan became the source of significant dispute within the agency and was plagued with problems, officials said. The bogus companies were located far from Muslim enclaves in Europe and other targets. Their size raised concerns that one mistake would blow the cover of many agents. And because business travelers don't ordinarily come into contact with Al Qaeda or other high-priority adversaries, officials said, the cover didn't work.

Summing up what many considered the fatal flaw of the program, one former high-ranking CIA official said, "They were built on the theory of the 'Field of Dreams': Build them and the targets will come."

Officials said the experience reflected an ongoing struggle at the CIA to adapt to a new environment in espionage. The agency has sought to regroup by designing covers that would provide pretexts for spies to get close to radical Muslim groups, nuclear equipment manufacturers and other high-priority targets.

But current and former officials say progress has been painfully slow, and that the agency's efforts to alter its use of personal and corporate disguises have yet to produce a significant penetration of a terrorist or weapons proliferation network.

"I don't believe the intelligence community has made the fundamental shift in how it operates to adapt to the different targets that are out there," said Rep. Peter Hoekstra of Michigan, the top Republican on the House Intelligence Committee.

The cover arrangements most commonly employed by the CIA "don't get you near radical Islam," Hoekstra said, adding that six years after the attacks on New York and the Pentagon, "We don't have nearly the kind of penetrations I would have expected against hard targets."

Whatever their cover, the CIA's spies are unlikely to single-handedly penetrate terrorist or proliferation groups, officials said. Instead, the agency stalks informants around the edges of such quarry -- moderate Muslims troubled by the radical message at their mosques; mercenary shipping companies that might accept illicit nuclear components as cargo; chemists whose colleagues have suspicious contacts with extremist groups.

Agency officials declined to respond to questions about the front companies and the decision to close them.

"Cover is designed to protect the officers and operations that protect America," CIA spokesman Paul Gimigliano said. "The CIA does not, for that very compelling reason, publicly discuss cover in detail."

But senior CIA officials have publicly acknowledged that the agency has devoted considerable energy to creating new ways for its case officers -- the CIA's term for its overseas spies -- to operate under false identities.

"In terms of the collection of intelligence, there has been a great deal of emphasis for us to use nontraditional methods," CIA Director Michael V. Hayden said in November 2006 radio interview shortly after taking the helm at the agency. "For us that means nontraditional platforms -- what folks call 'out of embassy' platforms -- and we're progressing along those lines."

The vast majority of the CIA's spies traditionally have operated under what is known as official cover, meaning they pose as U.S. diplomats or employees of another government agency.

The approach has advantages, including diplomatic immunity, which means that an operative under official cover might get kicked out of a country if he or she is caught spying, but won't be imprisoned or executed.

Official cover is also cheaper and easier. Front companies can take a year or more to set up. They require renting office space, having staff to answer phones and paying for cars and other props. They also involve creating fictitious client lists and resumes that can withstand sustained scrutiny.

One of the CIA's commercial cover platforms was exposed in 2003 when undercover officer Valerie Plame was exposed in a newspaper by columnist Robert Novak. Public records quickly led to the unraveling of the company that served as her cover during overseas trips, a fictitious CIA firm called Brewster Jennings & Associates.

Official cover worked well for the duration of the Cold War, when holding a job at a U.S. Embassy enabled American spies to make contact with Soviet officials and other communist targets.

But many intelligence officials are convinced that embassy posts aren't useful against a new breed of adversaries. "Terrorists and weapons proliferators aren't going to be on the diplomatic cocktail circuit," said one government official familiar with the CIA's cover operations.

After the terrorist strikes, the Bush administration ordered the agency to expand its overseas operation by 50%. The agency came under intense pressure from Congress to alter its approach to designing cover and got a major boost in funding to expand the nonofficial cover program, which is commonly referred to by the acronym NOC, pronounced "knock."

Although the agency has used nonofficial cover throughout its history, the newer front companies were designed to operate on a different scale. Rather than setting up one- or two-person consulting firms, the plan called for the creation of companies that would employ six to nine case officers apiece, plus support staff.

The NOC program typically had functioned as an elite entity, made up of a small number of carefully selected case officers, some of whom would spend years in training and a decade or more overseas with only intermittent contact with headquarters. But the new plan called for the front companies to serve as way stations even for relatively inexperienced officers, who would be rotated in and out much the way they would in standard embassy assignments.

"The idea was that these were going to be almost like black stations," said a former CIA official involved in the plan to form the companies. "We were trying to build something that had a life span, that had durability."

In the process, the agency hoped to break a logjam in getting post-Sept. 11 recruits overseas. Thousands of applicants had rushed to join the CIA after the attacks, and many were sent to Afghanistan and Iraq. But outside of those war zones, open slots were scarce.

"The embassies were full," said a former CIA official involved in deployment decisions. "We were losing officers by the dozens because we didn't have slots for them overseas."

In separate interviews, two former CIA case officers who joined the agency after the attacks said that 15% to 20% of their classmates had quit within a few years.

The front companies were created between 2002 and 2004, officials said, and most were set up to look like consulting firms or other businesses designed to be deliberately bland enough to escape attention.

About half were set up in Europe, officials said -- in part to put the agency in better position to track radical Muslim groups there, but also because of the ease of travel and comfortable living conditions. That consideration vexed some CIA veterans.

"How do you let someone have a white-collar lifestyle and be part of the blue-collar terrorist infrastructure?" said one high-ranking official who was critical of the program.

But the plan was to use the companies solely as bases. Case officers were forbidden from conducting operations in the country where their company was located. Instead, they were expected to adopt second and sometimes third aliases before traveling to their targets. The companies, known as platforms, would then remain intact to serve as vessels for the next crop of case officers who would have different targets.

'A very bitter fight'

The concept triggered fierce debate within the agency, officials said.

"This was a very bitter fight," said a CIA official who was a proponent of the plan because it insulated the fictitious firms from the actual work of espionage.

"When you link the cover to the operation, the minute the operation starts getting dicey, you run across the screen of the local police, the local [intelligence service] or even the senior people in the mosque," the official said. "I saw this kill these platforms repeatedly. The CIA invests millions of dollars and then something goes wrong and it's gone."

But critics called the arrangement convoluted, and argued that whatever energy the agency was devoting to the creation of covers should be focused on platforms that could get U.S. spies close to their most important targets.

"How does a businessman contact a terrorist?" said a former CIA official involved in the decision to shut down the companies. "If you're out there selling widgets, why are you walking around a mosque in Hamburg?"

Rather than random businesses, these officials said, the agency should be creating student aid organizations that work with Muslim students, or financial firms that associate with Arab investors.


By Greg Miller, Los Angeles Times Staff Writer
February 17, 2008
WASHINGTON --
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