The Presidential Slush Fund
The International Economy - Sept, 2000
The inside story of how the fund established to help stabilize the dollar, supplemented by enemy assets during World War II, financed the first U.S. coven operations after the Cold War.
Over the centuries, as every graduate student of history knows, presidents and potentates have had their slush funds to carry out discreet activities of statecraft that they would prefer not to explain in public. In the United States, the practice started with George Washington himself, and for his purposes he seemed to manage quite well with disbursements in the hundreds of dollars.
By the middle of the twentieth century, with the United States emerging as a global power and heading into a cold war with international communism, the covert doings of ages past were growing into an art form of intelligence -- and a major arm of foreign policy. On June 18, 1948, the National Security Council of the Truman administration secretly approved its Directive 10/2, a clandestine program for infiltration, sabotage, and subversion of the newly imposed communist regimes of Eastern Europe.
Since both the new Central Intelligence Agency, established barely a year before, and the Joint Chiefs of Staff were skittish about entering into the uncharted waters of covert action on such a scale, Truman's NSC created a new government agency to do the job that the top policymakers felt had to be done if the world was to be saved from communism.
The new creation was called the Office of Policy Coordination (OPC), an opaque label for the command headquarters running operations for which, the NSC mandated, the United States government could "plausibly disclaim any responsibility." (This was the origin of the doctrine, later infamous as its cynicism became all too evident, of "plausible deniability.") Recruitment of agents to parachute behind the Iron Curtain, their training, and logistical support became the secret mission assigned to a creative and energetic New York lawyer and World War II intelligence veteran named Frank G. Wisner.
Wisner's obvious first task, before any of the skullduggery could be mounted, was to scrounge up the cash to pay for it all. For this, the NSC blithely had made no provision. And it had to be cash on trust; the purposes for which it would be disbursed could not be openly described. "The heart and soul of covert operations" Wisner learned from his savvy legal counsel, Lawrence Houston, is "provision of unvouchered funds, and the inviolability of such funds from outside inspection." Thus was the notion of a slush fund expressed in bureaucratic parlance.
Traditionally, appropriations for secret operations are buried on innocuous lines of other agencies' budgets as submitted to Congress. The semblance of legal accountability is preserved, without wide disclosure of exactly how these funds are to be used. In 1948, with Truman and his NSC pressing him for immediate action, Wisner could not wait for a congressional appropriation procedure, however circumspect. The State and Defense departments, for all their endorsement of Wisner's mission, were not about to part with any of their own appropriated funds for some nefarious new venture.
Wisner cobbled together what his officers called "tenuous understandings" with key members of Congress, the General Accounting Office, and other government departments to locate obscure accounts that his agency could draw upon without having to answer for it in public.
He found his first tempting target in an extraordinary and (at the time) little-noted account accumulating out of sight in the Department of the Treasury known as the Exchange Stabilization Fund (ESF). Established in 1934, this ESF had provided the then extravagant fund of $2 billion in working capital before World War II, for short-term currency trading to stabilize the value of the dollar in world trade. Then, in 1941, War Powers legislation designated this convenient accounting device as the holding pool for captured enemy assets and other monies being smuggled out of Europe.
After the war, the bulk of the ESF was transferred to the new International Monetary Fund as America's capital contribution. But a relatively small portion, $200 million, was retained in the Treasury. As Congress was much later told, this would serve to help in the "reconstruction and rehabilitation of war-torn countries." Exactly how it would so help was not specified, nor indeed, under the founding mandate, did it have to be.
One special feature about the ESF was particularly enticing to Wisner and his financial officers, and their counterparts in Truman's White House, as they scoped out possibilities for seed money to get the OPC's clandestine operations up and running. From its origin, the ESF had been endowed with a provision which made financial sense at the time, but was also well suited to the funding of secret operations, never contemplated when the measure was enacted.
Currency trading and hedging tactics required "a high degree of flexibility and discretion," Congress noted in setting up the fund. "Operations for the account of the ESF are likely to be highly sensitive, requiring a substantial degree of confidentiality." Thus, Congress placed the fund "under the exclusive control of the Secretary of the Treasury, with the approval of the President, whose decisions shall be final and not be subject to review by any other official."
For Wisner and his OPC, THIS EXTRAVAGANT FREEDOM FROM SCRUTINY, ENSHRINED IN LAW, WAS NOTHING SHORT OF IDEAL.
A reported $10 million was quickly signed over to the OPC; no outside accounting was required or made. Lest this old device ever be challenged, Wisner sought the specific concurrence of the NSC after his first year of operations that financial measures could "jolt" the communist bloc, with repercussions "bound to be felt in the political, military and cultural spheres." Use of the ESF was thus brought within the OPC purview.
Since Congress had already stated that ESF disbursals were not proper subjects for scrutiny, neither the Senate nor the House of Representatives bothered to hold any hearings in the formative years of the Cold War ON THE CONFIDENTIAL ACCOUNTS OF THE EXCHANGE STABILIZATION FUND.
… IT WAS THE SLUSH FUND ESTABLISHED TO HELP STABILIZE THE DOLLAR IN WORLD TRADE, then supplemented by enemy assets during World War II, THAT STARTED THE UNITED STATES OFF ON THE FIRST COVERT OPERATIONS OF THE COLD WAR.
My reaction: When you realize that the Exchange Stabilization Fund runs the CIA' s black budget, a lot of things start to make sense. Some of the big implications of this:
1) Without covert financing provided through the ESF, there is no covert wing of the CIA.
2) The CIA' s worst secrets are buried in the ESF, and the fate of covert wing of CIA and ESF are therefore linked
3) By arranging covert funding and keeping its secrets, the ESF exerts enormous influence on the CIA.
4) The resources of the CIA, such as the propaganda networks set up during the cold war, are therefore at the disposal of the ESF.
Conclusion: The Exchange Stabilization Fund, operating through New York Fed with the CIA at its command, is the most powerful institution in the world.