COLUMN ONE : Rewarding Terrorism Tipsters : A multimillion-dollar bounty program featuring a global hot line and matchbook ads has helped crack down on anti-U.S. violence. But paying people to turn in criminals makes some uneasy.

Four days before Christmas, 1988, Bruce Smith received a frantic call from his son that Pan Am Flight 103, en route from London to New York, had blown up.

Smith, a Pan Am pilot who had flown the same kind of plane on the same route, raced to John F. Kennedy Airport and arrived in the crew room in time to see live television pictures of the fire ignited by the crashing fuselage in Lockerbie, Scotland. He knew almost instantly that his wife, Ingrid, was dead.

Smith became a man with a mission. He buried his wife at the small English church where they had married. And then, with the $100,000 in life insurance payments as seed money, he turned his attention to catching terrorists.

The investment paid off in a big way last month.

Ramzi Ahmed Yousef, alleged mastermind of the 1993 World Trade Center bombing and the most important terrorist ever sought by the United States, was nabbed by U.S. and Pakistani officials as he lounged in an Islamabad guest house.

After disappearing for almost two years, Yousef was tracked and trapped with the aid of an associate who saw his face--and the promise of a reward--on a pack of matches.

The reward fund envisioned by Smith, and now funded by the U.S. government and airline and pilots associations, is part of a serious but largely unpublicized shift in strategy in the United States’ battle against international terrorism.

Gone are the days of deals or mediation--such as what the Ronald Reagan Administration tried in the arms-for-hostage swap with Iran in the 1980s, or what the George Washington Administration did in 1795 by trading a fully outfitted warship for 115 sailors held by Barbary pirates.

Incentive capitalism--and greed--have turned out to be more effective.

“It is one part of a broader effort that reflects the dramatic evolution in our counterterrorism efforts and our thinking about what we can concretely do,” said Anthony C.E. Quainton, assistant secretary of state for diplomatic security.

“It’s also an important way of saying we don’t and won’t forget. These acts aren’t something on our radarscope for one day and then pass off as other heinous acts take place.”

The change has not come without misgivings. Skeptical officials have questioned the morality of paying off witnesses, in some cases almost as unsavory as the fugitives they turn in. And they admit concerns about creating a marketplace for kooks, liars and frauds whose leads could waste untold investigative hours.

But so far a growing record of achievements has tilted the balance.

The reward fund, which makes up to $4 million available for information leading to the arrest of terrorists, has played an unpublicized part in the identification, arrest or conviction of extremists under secret U.S. indictment on four continents, State Department officials claim. Shortly after two U.S. diplomats were killed and a third person wounded in an attack in Karachi, Pakistan, on March 8, the U.S. ambassador to Pakistan posted a $2-million bounty for the culprits.

The reward program has brought with it new tactics, including a hot line: to turn in a terrorist, dial 1-800-HEROES-1.

And then there are television ads featuring such Hollywood stars as Charles Bronson, Charlie Sheen and Charlton Heston that are broadcast in countries where incidents have occurred, notably the Middle East, and subtitled in the appropriate language. They appeal to “ordinary people” to do “extraordinary things”--such as handing over their local terrorist to the police. Heston also recorded the hot line message.

“If you have information on a planned act of international terrorism, or if this is an emergency, please press 1 now for a special agent,” Heston instructs callers.

“If you’d like to provide information to the U.S. government regarding terrorism, but the information is not of an urgent nature, please press 2,” Heston continues. A separate recording provides a Washington post office address to send information, along with a request to leave a name and address for a callback. The hot line is staffed around the clock.

The pack of matches that apparently doomed Yousef showed his face on the cover and, in a host of local languages, described how to turn him in and collect the bounty. Thousands of the matchbooks had been quietly disbursed in public places in Islamabad, and other locations in Pakistan and elsewhere that Yousef frequented.

“As long as Yousef is free,” the bright green matchbook warned, “more innocent lives could be at risk.”

Since the program was instituted in 1990, it has paid out more than $3 million to more than 20 people for a wide range of information. Several men have been imprisoned and hundreds of American lives have been saved, according to the State Department.

The highest single award was $750,000 paid to Adnan Awad, a Palestinian from Iraq who walked into the U.S. Embassy in Bern, Switzerland, and confessed to placing a bomb in his room at the Geneva Hilton. The device, crafted from thin sheets of plastique lining his suitcase, was so sophisticated that Swiss police couldn’t find it--and at first called him a fraud.

But the bomb--and the complex history behind it--turned out to be so genuine that Awad’s information led to an eight-year U.S. manhunt that yielded Mohammed Rashid, a top operative of the May 15 Organization, a radical Palestinian group based in Iraq notorious for bombings across Europe and the Mideast.

Rashid had coerced Awad, a contractor, into planting the Geneva bomb with a combination of threats against his construction company and appeals to his Palestinian nationalism. The hotel was purportedly targeted because the franchise was held by a Jew who contributed heavily to Israel.

But Awad got cold feet and instead turned himself in.

With Awad’s testimony, Rashid was finally convicted in 1991 of bombing a Pan Am flight from Tokyo to Honolulu, which killed one and injured 15. It is one of several incidents in which Rashid has been implicated.

The Awad case is the only reward U.S. officials will openly discuss--and only because Awad went public with the story.

The idea of offering a reward was first approved by Congress in the 1984 Act to Combat International Terrorism. But it was virtually stillborn because of small rewards, a complex bureaucracy and lack of publicity.

It didn’t take off until after Pan Am 103--and Smith’s prodding.

“I couldn’t stand doing nothing,” he said. “So I got the notion that it might be helpful to offer a bigger reward for information. Because many of the countries and parties sponsoring terrorism can afford to buy loyalty, experts told me it’d take $3 million to $5 million to make a difference--an amount clearly out of my reach as an individual,”

“I thought if I could get 19 relatives (of Pan Am victims) who had not lost a breadwinner to also put up their $100,000 insurance, and we convinced the government to match it, we might create incentive (for informants) that would produce evidence allowing us to catch those responsible.”

But Smith was the only one willing to accept the $100,000 insurance stipulated under international aviation agreements. Many families decided the amount was inadequate to compensate for their losses or to force Pan Am to improve security, which they blamed for not detecting the bomb.

“Bruce Smith is an absolute pariah among family members. . . . We feel that he was, and still is, fronting for the airlines,” said Daniel Cohen, who lost his daughter on Pan Am 103.

Smith conceded he is a controversial figure. “Since I was a Pan Am pilot, very few people showed an interest. I was accused of trying to get Pan Am off the hook,” he said.

So Smith, a native of Homer, Alaska, went to Sen. Frank H. Murkowski (R-Alaska), who agreed to sponsor legislation increasing the reward to up to $2 million and expanding its terms to include prevention of terrorism.

Smith then pressed for matching funds from Pan Am, which suggested the whole industry should get involved. His efforts led the Air Transport Assn. and the Airline Pilots Assn. to each pledge $1 million more.

The idea didn’t have universal support. Some Justice Department officials opposed the reward as equivalent to bribing a witness. A ranking Scottish official involved in the Lockerbie investigation refused to broadcast the reward, which he reportedly dismissed as a “Wild West American kind of thing to do.”

Indeed, despite U.S. prodding of allied governments to offer their own rewards, only Argentina has followed suit.

And it’s still controversial. Many Pan Am victims’ families claim the reward is little more than a salve for the airline industry.

“By making contributions to a reward fund, they can claim to be fighting terrorism. It’s a lot cheaper than beefing up security, which costs real money,” Cohen said.

Yet in contrast to past programs that produced little or, like the Iran scheme of the 1980s, backfired--U.S. officials claim this one works.

“It’s a low-cost and high-gain program that has proven to be quite a success over the past four years. It provides the practical incentive for people to offer information who otherwise might not do so because of the perceived risk,” said Philip C. Wilcox Jr., coordinator of the State Department’s counterterrorism office.

That incentive has often yielded unexpected results.

The first big U.S. reward campaign--launched worldwide in 1990 and designed to attract information on the Pan Am 103 bombers--did not lead to the Libyans who were indicted in 1991. But it did foil a series of deadly attacks elsewhere, U.S. officials say.

In the tense run-up to Operation Desert Storm, as Washington mobilized more than 30 nations to force Iraq to withdraw from Kuwait, an informant heard about the reward--and walked into an American Embassy with a stunning story.

Iraqi hit teams were plotting to attack American, Israeli, British and Australian installations in Southeast Asia, he alleged. They were also targeting American and European airplanes and airline offices. The boldest attacks were to be in Bangkok, Thailand.

The information, for which the informant was eventually paid $300,000, led to a worldwide alert and joint police action by U.S. and host country agents. Several Iraqis operating under diplomatic cover were deported from Thailand. And large quantities of explosives, weapons and timing devices were uncovered.

Authorities also feared the terrorists in Bangkok, reportedly supplied and operating through the Iraqi Embassy, had Russian SA-16 missiles. The shoulder-fired devices are similar to American-made Stinger missiles used to shoot down aircraft.

“Among other things, the informant helped us prevent another Pan Am 103. That alone makes the program worthwhile,” said a senior U.S. official.

To protect the informant, he was brought to the United States, as was Awad earlier. Legislation passed last year now allows up to 25 informants to be relocated annually in the United States, where they are given new identities and enter the witness protection program. The latest arrival is Istiaque Parker, the South African Muslim who turned in Yousef for an unspecified reward.

The results of the first publicity campaign surprised even its sponsors. Now, the hot line averages 10 calls a week and the mail brings even more responses. Although the great majority of the tips don’t pan out or involve domestic crimes rather than international ones, the minority have produced “several good leads,” said one U.S. official.

On the basis of a lead in 1993, Colombian agents tracked down a suspect in the 1989 bombing of Avianca Flight 203, in which 107 people, including two Americans, were killed. Although the suspect died in a shootout, the informant got the reward.

The most unusual letter came from a foreigner who requested that authorities confirm receipt of his information by playing a message backward over a radio frequency at a certain time. As with many of the leads, the letter was analyzed by a psycholinguistics expert “to see if the individual was an oddball,” a U.S. official said.

“But he came back and said, ‘Listen to this guy, he’s legit.’ So we did, and he gave us some good information that led to the prevention of something.”

In light of the program’s recent breakthroughs, posters, ads and pamphlets have been printed in two dozen languages, from Mandarin to Hindi.

And now matchbook covers are advertising rewards for Abdul Rahman Yasin, the last remaining suspect in the World Trade Center bombing, and Mir Aimal Kansi, the alleged assassin of two CIA employees in front of agency headquarters in Langley, Va.

Meanwhile, at the State Department, the matchbook bearing Yousef’s face has become a collector’s item.