Anatomy of a Sad CIA Affair

By Ed Magnuson

Casey survives the furor, but suspicion and intrigue linger

"It is the unanimous judgment of the committee that no basis has been found for concluding that Mr. Casey is unfit to serve as director of Central Intelligence."

It was hardly a ringing endorsement, but that statement by a sour Senator Barry Goldwater nevertheless ended a two-week furor in Washington over the fitness of William Joseph Casey, 68, to stay on as head of the Central Intelligence Agency. The Senate Intelligence Committee, which Goldwater leads, promised to push on with its investigation of Casey, but Ronald Reagan's former campaign manager clearly had won, on points, one of the nastiest brawls in Washington since the President took office. In a broader sense, however, everyone lost. Casey remained under suspicion. Goldwater and other Senators who attacked Casey prematurely had been forced to retreat. Questions about secret CIA operations, and the character and judgment of the nation's top spymasters, had been raised around the world.

The Casey battle involved a complex mixture of personal and institutional motives, the springing of leaks and planting of misinformation, and a web of backstage intrigue that tended to obscure the real reasons for the struggle. As pieced together last week by TIME correspondents, the inside story reflects little glory on any of the participants.

A central figure in the drama was the increasingly crusty Goldwater, who considers himself the Senate's leading expert on intelligence. The venerable (72) Arizona Republican was miffed when the Reagan transition team failed to consult him last January on who should head the CIA. He did not like the choice of Casey, a wily and tough Washington operator, to direct the agency. Casey made matters worse by virtually ignoring both Goldwater's committee and the House Intelligence Committee, which take their duties to oversee the CIA seriously. He even curtailed the CIA's congressional liaison staff.

Meanwhile, tension was rising between the White House and the oversight committees on just how much flexibility the CIA should be given to conduct covert operations and plant undercover agents abroad. The committees want to retain their own close surveillance in order to prevent the kind of excesses that caused the CIA so much public grief in the 1970s. Reagan, however, has prepared an Executive order under which many of the restrictions imposed on the agency by the Carter Administration would be lifted. The CIA, for example, might be able to use the Peace Corps and students abroad as undercover agents. This proposal has led some Senate Intelligence Committee members, as one put it, to believe that "the White House favors anything over at the CIA so long as it's not embarrassing."

Within the agency, philosophical fights were brewing too. One faction, including Casey's top deputy, Admiral Bobby Inman (who had been Goldwater's choice to head the agency), advocates more emphasis on "pure" intelligence gathering and analysis--calling the world as the agency sees it, whatever the conflicts with Administration policy. Other officials feel that the agency should tailor its reports to the decision-making needs of the President. Casey was seen by some as reflecting this view. When a CIA report failed to detect the degree of Soviet influence over worldwide terrorism that the White House is convinced exists, for example, Casey ordered the study to be redone, and then redone again.

The agency was also split over an internal reorganization plan under which all of its work relating to the Soviet Union would be consolidated in a single and probably dominant directorate. At present, responsibility for Soviet affairs is parceled out to directorates that deal with intelligence gathering, analysis and covert operations. The reorganization was first pushed by Max Hugel, the man whom Casey chose to head clandestine operations--a wheeler-dealer from New Hampshire who was widely viewed inside the CIA as a political amateur and incompetent spymaster.

Late last month two Wall Street stockbrokers, Thomas and Samuel McNeil, publicly accused Hugel of illegal stock manipulation in the mid-1970s. The timing of the McNeils' attack, so long after the events that had turned them into enemies of Hugel's, fueled suspicions that it may have been instigated by Hugel's CIA foes. When Hugel promptly resigned, his mentor, Casey, suddenly looked vulnerable too. Goldwater, in particular, saw the Hugel fiasco as reason enough to replace Casey for having chosen a misfit for the sensitive job.

After the Washington Post published the McNeils' charges, other papers followed up with a story about an overlooked May 19 decision by a federal judge; he had ruled that Casey and other directors of Multiponics, a New Orleans agribusiness venture, had misled investors about the finances of the firm. With that, Goldwater swung into action, ordering an investigation of Casey's fitness for his job. Even before the probe began, Goldwater and two other Republican Senators, Ted Stevens of Alaska and William Roth of Delaware, called on Casey to quit.

The anti-Hugel faction at the CIA, sometimes using members of an "old boy" network of former agents, pushed for a quick Casey kill. It fed Goldwater the dubious information that Casey had emerged from Multiponics' bankruptcy in 1971 with a profit of some $750,000; he insisted he had lost almost his entire $145,000 investment. The same CIA sources apparently spread a false report that Casey and Hugel had planned a covert operation aimed at the "ultimate" removal of Libya's Strongman Muammar Gadaffi from power. Misinformation was leaked to Newsweek that the House Intelligence Committee had been so alarmed at the Libya plot that it had written Reagan to protest. (TIME had also learned about the alleged plot, but concluded that the report was untrue.) The White House last week flatly denied Newsweek's story. But then, in another deceptive leak, apparently designed to stop the Libya rumor, CIA sources suggested that the West African nation of Mauritania was the object of a somewhat similar-sounding operation. In fact, both congressional committees had objected to a much broader, proposed CIA operation--one that did not involve physical attacks on any national leader--to shore up U.S. interests in the Middle East and North Africa. This hasty scheme reinforced Goldwater's view that, according to one Senator, "he just couldn't stand watching a bunch of amateurs running things."

As the attacks on Casey mounted, Reagan kept asking aides: "Is there anything to these charges against him?" The White House began to qualify its backing of Casey. But then the old pro counterattacked. He made an effective series of calls on Senators, admitting that he had been wrong in appointing Hugel. Most surprising of all, the reticent, publicity-shy Admiral Inman went on ABC's Night-line TV program to deny rumors that he was leading a coup against Casey. Declared one astonished former CIA spook: "That's like seeing George Smiley appear on the Gong Show."

Behind the scenes, Senate Majority Leader Howard Baker worked to keep Goldwater's committee from appearing to lynch Casey first and give him a hearing later. While publicly supporting Goldwater, Baker urged him to appoint Fred D. Thompson, a longtime friend from Tennessee who was Republican counsel in the Senate's Watergate investigation, as chief counsel in the Casey probe. Thompson accepted the post, promising a prompt but careful study. Casey supplied the committee with volumes of documents and demanded a quick hearing.

Walking into a Capitol elevator last week, Casey confidently declared, "It's going to be a cakewalk." During the five-hour, closed-door grilling, most of the Senators, who had not had time to study the Casey papers, were less interested in his business practices than his leadership of the CIA. Some Senators complained about a lack of good intelligence from the Middle East under Casey. Others contended that the CIA's analytical reports were too "political." Mostly he was assailed on his appointment of Hugel.

Casey took full blame for the Hugel choice, admitting that it "turned out badly." He insisted that he was on the same side as Inman in wanting a nonpolitical, objective analysis of intelligence. He agreed that many of the restrictions on the agency were proper. He promised to cooperate fully in helping congressional committees perform their oversight.

Still, the Senate committee's final statement on Casey was a compromise. Some Senators, including Washington's Henry Jackson, Texas' Lloyd Bentsen and Rhode Island's John Chafee, had urged the committee to express its "absolute confidence" in Casey. Others, including Goldwater, New York Democrat Daniel Patrick Moynihan and Delaware Democrat Joseph Biden, wanted to avoid any pronouncement until the investigation of Casey's background was complete. Instead, the committee found him merely "not unfit" to continue.

The Reagan Administration had hoped to free the CIA from controversy, stiff restrictions and stern oversight. Instead, the agency is saddled with a director whose every major move now seems likely to be carefully scrutinized and with morale problems resulting from its own internecine plotting. Getting back to its real work, the mission of forewarning the U.S. of its enemies abroad, may not come easily. --By Ed Magnuson.

Reported by Jonathan Beaty and Johanna McGeary/Washington

With reporting by Jonathan Beaty, Johanna McGeary

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