The CEO Who Came in from the Cold

 

There was also that one large account -- Aircraft Overseas Packing Service (AOPS) -- handled by Williams. "I knew there was something unusual with that account," Rautenberg says. "When I looked over what was being shipped, I figured this must be government stuff. It had to be government stuff. I suspected that right at the beginning." But Williams, who had many friends in the military, played his cards very close to the vest. Finally, he spilled the beans: during a harrowing commercial plane flight in South America, with one of the plane's two engines out and uncertain prospects of a safe landing, Williams confided to his young partner that tiny ASF's big client, AOPS, was, in reality, a company connected to the CIA.

By the early 1950s, however, AOPS had run into trouble -- ironically, with the government. The company had attracted the attention of California's tax authorities. Inspectors from the State Board of Equalization began demanding the sales and use taxes due for products taken out of transit and repacked prior to overseas shipment. The CIA was caught in a bind: AOPS, its packing operation, had not paid any state taxes on shipments it had routinely repacked, modified, inspected, or relabeled before it sent them overseas. Meanwhile, California authorities were busy adding up past-due liabilities and penalties while promising to monitor future shipments more closely for additional levies. Money to pay those domestic taxes and penalties was not in the CIA's operating budget. (The agency is not legally authorized to do business within the United States.)

A team of lawyers from Washington, D.C., and Los Angeles, retained by CIA-owned Air Asia, AOPS's customer, was dispatched to solve the problem. Moving quickly, they identified and widened a legal loophole through which the CIA operation could squeeze unnoticed and untaxed. The repacking would have to be done not by a company such as CIA-affiliated AOPS but under the cover of an independent freight forwarder that didn't appear to be engaged in anything other than picking up freight and delivering it. The CIA, however, needed to retain full control over the operation and looked to Rautenberg for assistance.

"I knew it was getting hotter," he recalls, "when I found out government agents were visiting my neighbors and asking them all sorts of questions." The gumshoes apparently liked what they heard; Rautenberg was quietly offered an opportunity to be of service to his government.

The immigrant onetime shipping clerk and struggling entrepreneur seemed a perfect choice for the assignment. He had an existing freight-forwarding business that had never been in trouble with tax or legal authorities, and given his refugee background, fervent patriotism was his strong suit. He was, he recalls, initially honored to be selected for the task, although he did feel uncomfortable enough to ask for three assurances: a promise that everything done would be strictly legal, a promise that he would never be asked to do anything illegal, and the provision of free legal representation if anything ever did go wrong. He was, he says, promised all three in perpetuity.

"I was particularly impressed with O'Melveny & Myers," Rautenberg says of the high-powered Los Angeles law firm retained by Air Asia to help work out the solution to the CIA's tax quagmire. "They were real big shots." The prestigious firm's alumni include some of California's most accomplished citizens, such as the current secretary of state, Warren Christopher. "They told me, 'Don't worry, Erwin, we are going to take care of you." The result: ASF was spun off as an independent company from LACT.

Under the terms of a handshake deal in 1956 that would later come back to haunt Rautenberg, the CIA would run ASF's Valley branch, asking for his assistance and services whenever necessary. Rautenberg agreed to lend the name and the equipment of his small company to the CIA, help process the paperwork necessary for CIA shipments, and act as an intermediary with shippers, suppliers, and tax collectors. The intelligence agency opened a separate ASF bank account with government funds and paid the Valley-branch rent and all other expenses for the facility, including those for recruiting and screening employees and meeting payroll. From time to time Rautenberg would walk around the Valley facility and wave back, among winks and smiles, as some of his more-informed pseudo-employees hollered out a jestfully insincere, "Hello, boss."

In addition to providing him with a $300 monthly stipend to cover mileage expenses and some record keeping, the intelligence agency also agreed to cover all of Rautenberg's related out-of-pocket expenses and permitted him to collect normal third-party commissions from the airlines and shipping companies hired to transport the government cargo overseas.

The CIA-owned Air Asia, the Valley branch's misnomered sole customer, was not actually an airline at all. Instead, it operated an airplane-service-and-repair facility in Taipei, where planes used in Southeast Asia military operations were refurbished. As such, every truckful of government equipment had to be picked up at the Valley branch and delivered to commercial airlines, which paid Rautenberg the usual 5% commission, or to the shipping companies, where a 1.25% brokerage fee was the norm. In addition, Rautenberg's pickup service received the customary regulated fees for moving the cargo, usually in 40-foot trucks, from the ASF Valley branch to the shipping company or airline. "The trucks were running in and out of that place like clockwork," Rautenberg recalls of the days when the CIA's freight kept the Valley branch bustling as the war in Vietnam accelerated. At its peak, as many as six trucks rumbled out of the Valley facility each day, laden with tonnage that translated into hefty freight-forwarding commissions.

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