Building a Better CIA : With Washington Insider John M. Deutch in The Director's Chair, The Once-Proud Spy Agency Cleans House, Looks for New Enemies and Struggles to Reinvent Itself.

James Risen is a national correspondent in The Times' Washington bureau. His last article for the magazine was on the Rose Law Firm of Little Rock, Ark., and its role in the Whitewater scandal

Deep in the basement of the Central Intelligence Agency's sprawling headquarters complex in Langley, Va., the staff of the agency's Crime and Narcotics Center sat rigidly at one end of a long conference table, girding for a unique briefing for the Washington press corps.

The CIA men--they were all men--were clearly uncomfortable. They had worked in the shadows all their lives, and the media seemed to fill them with more dread than the KGB.

There was Jack Devine, the CIA's acting operations chief, with the hulking look of a retired linebacker, and others whose names must be kept secret: the owlish, balding director of the narcotics center; the center's Hispanic deputy director, a man with a background in clandestine operations in Latin America, and the narcotics center's prematurely gray research director, a desk-bound analyst who could rattle off the latest cocoa crop estimates for Bolivia and Peru.

They were here to talk about the CIA's latest contributions to the federal government's war on drugs, one of the highest of the high-profile missions for the spy agency as it seeks to redefine its place in the New World Order. The CIA now finds itself in a world in which The Communist Threat--the 48-year-old agency's reason for being--is conspicuously absent. A piece of the Berlin Wall now stands outside the agency's headquarters as a memento of The Great Game, the good old days.

And so these American spies seemed eager to let the public know they have found new work.

But before they could begin their background briefing, a reporter quickly took the air out of the occasion: "Hey, before you start, isn't this where Ames worked?" Awkward silence.

"Yes," finally came a terse reply from across the room. "His last assignment was here in the narcotics center."

For the CIA officers in the room, it was as if a rude house guest had just inquired about the family's crazy, ax-wielding uncle. The churlish press seemed obsessed by the Ames case; didn't these reporters realize that Ames was an aberration? The Ames issue hit uncomfortably close to home with this particular crowd. Devine had once been Ames' station chief in Rome, and Devine's hopes of becoming the CIA's permanent operations chief--in charge of the CIA's clandestine espionage service--had been dashed as a result.

Yet it also served as another reminder that Aldrich Ames--and countless other Cold War ghosts--still haunt the CIA as it confronts an increasingly uncertain future. The reporter's question may have seemed impertinent, but privately, CIA people admit that they have been more traumatized by the Ames case than anything else. Many can recall where they were when they heard the news; it was Pearl Harbor and the Kennedy assassination rolled into one for American intelligence professionals, a searing day of infamy. They thought the agency couldn't sink any lower than it did on the morning of Feb. 21, 1994, when FBI agents pulled Ames from his Jaguar on his way to work. Sadly, the past year has proven them wrong.

The bad news has just kept on coming. No matter that truth and fiction are still to be sorted out from many of the negative stories that have emerged from the hazy world of espionage. The damage has already been done to the CIA's public image, which hasn't been so badly tarnished since the ugly days of Iran-Contra.

The agency was still reeling from the Ames scandal when it was hit early in 1995 by explosive revelations about the CIA's murky role in Guatemala, leaving the perception of a rogue agency dealing with Third World thugs involved in the murder of American citizens. A class-action lawsuit, brought by some 450 current and former women spies, charging widespread sexual discrimination and harassment within the CIA, which the agency settled this summer, seemed to provide evidence that the CIA was still dominated by a network of leering old boys. Finally, a high-profile attempt by the agency to make a foray into the post-Cold War world of economic espionage blew up in its face, when five of its officers get caught red-handed--by the French, of all people. French intelligence beat the CIA so badly--rolling up the American attempt to penetrate French and European trade negotiations and then, for good measure, leaking the story in February just before French elections--that the CIA needed an internal investigation to determine what went wrong.

Turmoil at the top of the agency has only made matters worse. With four CIA directors in just over four years--not counting one acting director and a nominee who imploded because of a messy personal controversy--the agency has endured so many leadership changes lately that it is becoming Washington's version of the Steinbrenner Yankees. Above all, the turnover has underscored President Clinton's inattention to and lack of interest in the problems facing the U.S. intelligence community, especially by comparison with George Bush, the first CIA director to become President.

"You're talking about a different President than the last one," conceded one Administration official.

So by mid-1995, morale, what was left of it, was awful. Thus, the question that has become one of Washington's hardy perennials: What to do with the CIA?

*

Enter John Deutch.

A former MIT scientist and deputy secretary of Defense--and the fourth CIA director on that four-year list--the 57-year-old Deutch has reluctantly marched into what many consider the worst job in political Washington. A prototypal Washington technocrat with a background in nuclear weaponry and defense research, Deutch turned the job down at first, perhaps uncertain that it really represented a step up from his job as the No. 2 man at the Pentagon, where he was already responsible for broad swatches of U.S. national security and intelligence policy.

He was finally drafted by President Clinton after retired Air Force General Michael Carns withdrew his own nomination in March, rather than submit to dirty-linen airing by a former house servant from the Philippines. Given cabinet status and persuaded that he would have the kind of access and high-level input that had eluded his predecessor, James Woolsey, Deutch pitched in and vowed at his confirmation in May to clean house and prepare the spy agency for new post-Cold War tasks.

Today, Deutch's great insight may be that he recognizes what Woolsey did not--that to change the CIA he must first tame its permanent bureaucracy. Like a host rejecting an invading virus, it has foiled repeated reform attempts by a long string of directors. Deutch's great opportunity is that frustration with the agency--on Capitol Hill, in the White House, and among the American public in general--has reached such a high level that the time for revolution at the CIA may finally have arrived.

Indeed, in an era when budgets are dwindling and Communists can only be found in Havana and the history books, Sen. Patrick Moynihan (D-N.Y.) and others are asking fundamental questions about whether we still need the CIA at all in the post-Cold War world.

In 1994, the federal government estimates that it created 4,773,897 new secrets, 31% of which were generated by the CIA.

But to what end? Moynihan introduced radical legislation in January calling for the elimination of the CIA--and in a Senate speech pointedly urged America's spooks to heed the advice given by spy novelist John LeCarre: "It's over. We've won. The Iron Curtain is crashing down! The monolith we fought is a bag of bones! Come out of your trenches and smile!"

Moynihan now slyly says he only raised the issue of abolishing the CIA to get the debate about the future of U.S. intelligence going. The country has counted on spies since the Revolution, Moynihan concedes, when George Washington submitted $17,617 in wartime intelligence expenses to Congress. What's more, the New York Democrat now says he is convinced that Deutch is the answer to the agency's problems. "A scientist who understands the limits of these things," Moynihan says in his clipped, patrician style.

But others have picked up where Moynihan left off. "The CIA is an institution that doesn't make sense anymore, especially after Ames," huffs William Odom, a former director of the National Security Agency, the secretive agency that breaks codes and intercepts communications. "You've got to start over."

"My view is that in an essentially peaceful world, the kind of large intelligence base we had in the Cold War is not warranted," acknowledges one U.S. intelligence official. "The question now should be what to keep and what not to keep."

Supporters insist, however, that it is a mistake to believe that the CIA is now scrambling for something to do in the post-Cold War world. The Soviet threat may be gone, but in its place has come a world of complex and constantly shifting geopolitics--increasing the value to American leaders of solid information. "It's a myth that the agency is wandering around looking for work," says former CIA Director Robert Gates. "The CIA is probably more heavily tasked today by policy-makers than at any time in the past."

CIA officials point to a long laundry list of intelligence targets on which the White House demands answers: terrorism, nuclear proliferation, drugs and international organized crime, trade and economic competition, and regional problems like North Korea, Iraq, Iran, Bosnia and China. And they complain that the CIA hasn't been given due credit for the speed at which it has been restructured to deal with the changing landscape. At the height of the Reagan Cold War buildup in the mid-1980s, the CIA devoted some 58% of its budget to targeting the Soviet Union; after the Soviet Union's collapse in the early 1990s, only 13% of its budget still went to target the former Soviet Union.

But having many missions is different from having an overriding focus like the agency did during the Cold War. So while the CIA may not be searching for work, it is still looking for direction, a vision of its future. Thus, Deutch realizes that the talk of killing the agency could turn serious quickly enough, and the CIA must reinvent itself in order to survive. To do so, it must find a way to dispel the ghosts, to weather the nasty disclosures from its Cold War past that are certain to ooze out of the vaults for years to come.

"It's very important that Deutch be allowed to lead," observes former CIA Director William Webster. "He can't keep looking at the past. He was sent over there to be director of central intelligence, not to be director in charge of the Ames investigation."

Yet the agency still hasn't found a way to rid itself of its worst nightmare, Aldrich Ames. Deutch has inherited the detritus of the Ames case, which has been enough to twist the agency into knots for months as counter-intelligence professionals try to put the wraps on their final assessment of how much damage the Soviet mole caused; how many American agents, operations and espionage techniques that he compromised. The damage report has been delayed at least until November, because Deutch is not yet satisfied that its findings are complete.

One stumbling block may be Ames himself, now in solitary confinement in a maximum-security prison in Allenwood, Pa. On the advice of his attorney, Ames has halted debriefings with the FBI and the CIA until he can negotiate improved living conditions in prison, where he is now allowed outside his cell for just four hours per week. Ames wants to be moved into the prison's general population, but the CIA is blocking his request, and until the agency compromises, he won't cooperate.

CIA spokesman Dennis Boxx counters that the agency has already talked to Ames for 200 hours; Boxx believes it has everything it needs from him. "We're not going to negotiate with a traitor," he adds sternly.

"It is a shocking story," Deutch says of Ames. "But even more shocking than the penetration of the agency are the lax practices which let it go undetected for such a period of time. So that lesson has been taken to heart by me. I think the lessons of [Ames] are terribly important."

Still, Deutch is trying to get beyond Ames by surrounding himself with fresh faces at the top rung of the agency, outsiders willing to rethink the mission of American espionage in the wake of the CIA's worst failure. Deutch and his new team, including a few from the Pentagon who are steeped in the modern military culture, are hoping to transfer to the CIA some concepts from the military services.

"The way I have tried to think of [what is happening to the CIA now] is that this is not unlike what happened to the military services after Vietnam," observes CIA general counsel Jeffrey Smith, one of Deutch's closest aides. The military came back to this country and had to rethink who they were and what they did, what their values were, what their mission was, how they recruited people, how they got promoted, what their ethics were, what their values were. They essentially reinvented the Army from the ground up. You can make the argument that we are going through the same thing. We have to rethink [how we should] human beings to operate in a world of deception and then at the same time be scrupulously honest with one another and with their customers--the White House, the State Department, the Defense Department."

But the task at hand is akin to turning a battleship in heavy seas. The CIA's budget and staffing levels remain classified, but they are among the worst kept secrets in Washington. Congress mandated a 27% cut in CIA staffing between 1990 and 2000, but with a work force of about 17,000 and a budget of $3 billion, even some of the CIA's most ardent supporters acknowledge the agency is still too bloated. What's worse, despite the enormous buildup in the intelligence budget under Ronald Reagan and his top spook, William J. Casey, sources say the CIA has experienced very little increase over the last 15 years in the number of case officers--American spies--it keeps overseas.

Throughout the 1980s, the State Department steadfastly refused to alter regulations that limited the number of CIA personnel stationed in each country to a set percentage of the number of State Department personnel, forcing Casey and his successors to increase staffing--and thus the bureaucracy--at the headquarters instead. Sources note that much of the Reagan buildup in intelligence went to buy new satellites and other high-tech equipment, while Casey also ran large, quasi-secret wars in Afghanistan and Central America; still, too much of the agency's expanded budget was spent in Langley.

Yet the overseas operations have plenty of lard as well. Sources say the Directorate of Operations, the CIA's clandestine espionage arm, still has about 5,000 men and women on its payroll and a budget of nearly $1 billion; and while some stations have been closed, it still maintains large field operations in American embassies around the world, including many in obscure Third World nations. Stations in Mexico City and other capitals in the developing world were originally given large staffs in part to recruit Communist spies, who were easier to target when they were far from their East Bloc homes. But such large staffs no longer make sense when the only espionage work remaining there is to steal secrets from the desk of the local prime minister. "The problem is, that in some of these countries, there aren't any secrets in the prime minister's office worth stealing," sighs one former CIA official.

More broadly, a giant intelligence-industrial complex, a shadow version of the military-industrial complex, has grown up to build and support America's spy satellites and the government's vast array of communications interception capabilities--and the jobs and money it generates makes it far more difficult politically to institute rapid change or even scale back intelligence spending. In fact, despite its seemingly conflicting demand for reform at the CIA, the Republican-controlled House has passed the first increase in the intelligence budget in five years for fiscal 1996, and the Senate is expected to go along.

As director of central intelligence, Deutch is the titular head of this massive complex, but in reality he has only limited influence over budgets and personnel outside of the CIA, which, despite its notoriety, represents only a small slice of the U.S. intelligence community. The total intelligence budget, yet another classified figure, is about $28 billion a year, meaning that the CIA accounts for only about 10% of spending; the rest goes to the Pentagon and more obscure agencies such as the NSA. In fact, the Pentagon's intelligence apparatus alone dwarfs the CIA's--the military has about 13,000 intelligence analysts, compared with just 1,500 at the CIA, sources say. In addition to the Defense Intelligence Agency, every branch of the military has its own intelligence service, and each major command has an intelligence operation as well, providing tactical information to America's war fighters. And now, the Pentagon is creating yet another secret layer--the Defense Human Intelligence Agency, a new branch designed to consolidate military espionage often conducted by defense attaches.

So Deutch finds himself in the unenviable position of having broad responsibilities with limited powers. "I've been struck by the lack of executive authority that the director of central intelligence has," Deutch complains. But if he can ever get his hands around this behemoth, Deutch will find that he has a unique opportunity for change.

*

Not only has Ames stunned people inside the agency into a greater acceptance of reform, but outside forces are also at work to help Deutch prod the system. The House Permanent Select Committee on Intelligence, chaired by Texas Republican Larry Combest, is in the midst of a comprehensive review of the intelligence community, at the same time that a presidentially appointed intelligence-reform commission is gearing up. That panel's work has been slowed by the recent death of its chairman, former Defense Secretary Les Aspin, but its new chairman, Harold Brown, another former defense secretary, is still planning to issue a final report next March. So Deutch may be able to convince CIA bureaucrats that cooperation is in their best interest. "He has a wonderful opportunity to get out in front of these reform groups," argues David Whipple, a former CIA station chief and now executive director of the Association of Former Intelligence Officers.

Other CIA people agree that they are so tired of turmoil that they are eager for Deutch to succeed. "I think the agency is looking for stability," said one CIA source. "Hopefully Deutch can bring that."

In spite of the scope of the problems confronting him and the fact that the looming 1996 presidential campaign may limit his time to deal with them, Deutch's initial moves have won him early praise. There seems to be an audible sigh of relief coming from 1600 Pennsylvania Avenue, gratitude that Deutch seems to be making the CIA go away as a political problem for the President at the outset of the 1996 campaign.

Administration officials now say intelligence reports sent to the White House seem more sharply focused since Deutch took over, and happily report that the CIA has posted some recent successes, accurately predicting, for instance, the outcome of Croatia's late-summer military triumph over ethnic Serbs in the Krajina region. (Agency sources add that the CIA has been shifting case officers from other European stations to the Balkans in recent months, in order to beef up the agency's ability to provide intelligence on Bosnia to both the Pentagon and Administration diplomats.)

"The CIA work on Bosnia has been extraordinarily good," said one White House official.

Congressional leaders are more guarded, but supportive as well. "I think he has made great progress. I hope he stays for the next six years as DCI," says Sen. Robert Kerrey (D-Neb.), the ranking Democrat on the Senate Select Committee on Intelligence. "I believe it's going to take that long," to reform the CIA. It's not going to happen overnight."

In an effort to avoid one of Woolsey's great errors, which was to anger congressional leaders with his high-handed style, Deutch's initial personnel moves have been made with an eye toward pleasing the congressional oversight committees. His choice for the No. 2 man at the CIA, George Tenent, is a former staff director of the Senate oversight committee, general counsel Smith was a staffer on the Senate Armed Services Committee, and Nora Slatkin, the CIA's new executive director and third highest-ranking official, worked for Aspin on the House side.

On the Hill, Deutch is already benefiting from the contrast he presents with the miscast Woolsey, whose disastrous tenure at the CIA was marked by brawls with congressional leaders that often broke out into the open. Congressional sources note, for instance, that when Woolsey took over at the CIA in 1993, former Senate intelligence committee chairman Dennis DeConcini (D-Ariz.) suggested that Woolsey bring in his own team of outsiders and that he name George Tenent as his deputy. Woolsey rejected the advice, and his relations with DeConcini never recovered.

Woolsey never developed a personal rapport with Clinton, and he was slowly cut out of policy debates. The coup de gra^ce came with the blundering way in which Woolsey dealt with the aftermath of the Ames case. Rejecting public pressure to "fire the first four people who came through the door," as one CIA official put it, Woolsey merely issued reprimands to 11 officials, many already retired. It looked as if he was handing out wrist-slaps for the greatest counter-intelligence failure of the Cold War. In December, 1994, with the perception spreading that he had lost control of the agency and the ear of the President, Woolsey resigned, and the agency went for more than four months at the start of 1995 without a permanent director. "I'm still very comfortable with the [personnel] decisions I made [in the Ames case]," Woolsey responds.

Woolsey was hampered by being an outsider, uncertain how far he could press senior managers, especially inside the shadowy Directorate of Operations (known as the "DO" inside the CIA). The DO operates in secrecy, and its managers often try to manage in secrecy as well, cleaning up their own messes, protecting their own people and turf from outside scrutiny. Former CIA Director Webster recalls that during his tenure from 1987 to 1991, a total of 12 CIA station chiefs were quietly brought home by the operations directorate for disciplinary reasons. None were fired; all were given other jobs.

Deutch is an outsider as well but, unlike Woolsey, is skillful at the subtleties of Washington's game of bureaucratic politics; and he's also at home in techno-politics, where science, industry and national security intersect. A former chemistry professor at MIT who handled nuclear energy policy in the Carter Administration and defense acquisition and technology policy at the Pentagon earlier in the Clinton Administration, Deutch clearly has an edge over a lawyer like Woolsey in dealing with an intelligence community that now puts most of its money and resources into satellites, supercomputers and other gee-whiz gear used in "technical" spying.

The fact that Deutch was not in awe of America's high priests of techno-espionage must have become clear to Congress and Clinton long before he was sent to the CIA. Last year, when DeConcini held sensational public hearings about how a secret new headquarters building was being constructed in suburban Virginia for the National Reconnaissance Office--the secret agency that buys spy satellites for the government--without proper congressional disclosures, Woolsey fought DeConcini head on. He argued that the Senate had been fully informed, and that the hearings were damaging to the intelligence community. Deutch, called into the mess in his role as deputy Defense Secretary, testified alongside Woolsey and made it clear that he understood the political problem: the Senate may have been notified, but if the chairman was upset, then the notification had clearly not been loud enough. "That was a perfect example of where Deutch got it and Woolsey didn't," recalls one former congressional staffer.

*

Born in Belgium in 1938, Deutch was a child war refugee whose parents fled to the United States; he became an American citizen in 1946. After growing up in Washington, he graduated from Amherst College in 1961 and earned a Ph.D. in chemistry from MIT in 1965 while working for the Pentagon.

A workaholic who proved it by scheduling his marriage to his second wife, Pat, early this year during his lunch hour (he went back to his office), Deutch is a complex character, a man with a reputation for being at once abrasive and gregarious, demanding and charming.

He clearly has a talent for cultivating important friendships. He and Defense Secretary William Perry, with whom he first worked during the Carter Administration, have become so close that they now are in business together. They are investors in a limited partnership that holds a stake in Delfin Systems, a Santa Clara high-tech company. (The Senate Intelligence Committee has agreed to allow Deutch to retain the stake in the government contractor, even while he serves as CIA Director.)

After his first high-level tour in Washington during the Carter Administration, Deutch returned to MIT, where in 1985 he was named university provost. But his career seemed to stall after he suffered a series of near-misses, first when he was passed over for the job of Energy Secretary in the Bush Administration and later when his bid to become MIT president fell short in the face of faculty opposition to his domineering management style. Finally, Bill Clinton's election in 1992 opened the way for Deutch to return to Washington to work with another old friend, Defense Secretary Aspin.

Deutch has a pretty specific to-do list for change at the CIA. He wants to reform the agency's outdated personnel structure and promotion system, which is now dominated by an old-boys network of turf-protecting middle-aged spies, and hopes to impose a new structure based on those now in use by the military services. Deutch has also begun a thorough review of foreign agents on the CIA's payroll to determine whether they have committed human-rights abuses--and also whether they are productive informants. Future potential informants will be scrutinized before field officials will be allowed to recruit them.

In addition, Deutch wants to sharpen the agency's focus on top intelligence priorities, improving the CIA's responsiveness to both civilian and military policy-makers. The CIA came in for sharp criticism during the Gulf War from the military, and the agency has been working hard to mend fences since. Although U.S. Commander Gen. Norman Schwartzkopf later conceded that CIA hadn't done so badly--in a private meeting with then-CIA director Webster in Saudi Arabia, he said he had just fought "the best informed war in history"--the intelligence community did have trouble getting satellite imagery to field commanders quickly enough to be useful. To aid his former colleagues at the Pentagon, Deutch is trying to expand the agency's role in providing the latest tactical military intelligence, sources say. And, to make sure satellite photos are processed and distributed more rapidly, he has picked up on an idea first proposed by Gates to create a new National Imagery Agency. That organization would become a central clearinghouse to coordinate the collection, analysis and distribution of all satellite and aerial photography and imagery in the same way that the National Security Agency now handles "signals intelligence" from eavesdropping and code-breaking.

Deutch is pushing to expand the CIA's work with the FBI and other agencies involved in international law enforcement, bringing to an end interagency battles that date back to the days of J. Edgar Hoover and Allen Dulles. And he is asking for a greater integration of the budgets of all the intelligence agencies, including the NSA, the NRO and the DIA--to reduce costly overlaps--and coincidently enhance Deutch's influence outside the CIA.

Deutch has also moved to upgrade the long-neglected status of counterintelligence in the CIA to guard against future moles. And, in a move that may soon generate controversy, Deutch says he wants to expand the agency's capability to run large-scale covert operations overseas, which have been scaled back since the Iran-Contra scandal and the end of the Afghan war against the Soviet Union. Congress and CIA officials seem split on the decision; some are supportive, blaming Clinton for ignoring the need to maintain the country's ability to conduct covert operations, while others caution that Deutch could be setting himself up for big trouble. "The test of whether to do one of those should be what the American public will think when they find out about it, because they probably will," notes one CIA veteran.

"I call it the, 'well, I hope so', test. When they found out we were aiding the Afghan rebels, the American people said, 'Well, I hope so.' But they didn't say that when they found out about Iran-Contra."

*

Reforming the CIA's personnel system may sound like the most mundane of his proposals, but Deutch believes it could have the most profound and long-lasting impact on the agency's ability to become more accountable to the American people. Indeed, his advisers believe that the outdated personnel system at the agency must bear much of the blame for the poor oversight of the agency's inventory of paid foreign informants. Traditionally, promotions within the operations directorate would be based on how many foreign informants, or "assets," a CIA case officer had recruited. Very little weight would be given to whether the assets recruited were productive or useful to the United States.

Constant transfers around the globe ultimately also mean that CIA people are rarely responsible for the long-run care and feeding of assets they have recruited. They simply hand them off to their replacements. Such assets might also have been involved in terrorist activities or human rights abuses--problems that the CIA tended to overlook during the Cold War.

Deutch hopes to use the post-Vietnam reforms in the military personnel system as a model. He plans to mix directorate of operations officers increasingly with intelligence analysts, who traditionally have had little to do with each other. He will require managers to prove that they can work in several disciplines, often in joint operations with analysts as well as law enforcement and military leaders, before they gain promotion. Such "joint commands" became a prerequisite for military promotion after Vietnam, a move that has been credited with gradually reducing service rivalries while improving the coordination of military operations.

Still, Deutch bears the disadvantage that he has come at a time of growing impatience with such modest measures. Reforming the personnel system is hardly the type of revolutionary move that so many have been hoping to see from Deutch. And expanding covert operations sounds absolutely retro. So the big question being raised, both among outsiders and intelligence professionals, is whether Deutch is willing to go far enough to overhaul the CIA. The criticism may be unfair for a man who has spent barely four months in office. Still, some already believe they detect signs that Deutch is starting to pull his punches, perhaps becoming fearful, like his predecessor, of damaging the institution.

For the doubters, Deutch's first big leadership test will come in how he manages the Guatemalan controversy. That matter erupted in March when Rep. Robert Torricelli (D-N.J.) a member of the House intelligence committee, revealed that a Guatemalan Army officer on the CIA's payroll was implicated in the 1990 murder of an American innkeeper in rural Guatemala, and also may have been involved in the 1992 torture-murder of a Guatemalan rebel who was married to an American woman. The CIA had apparently known for more than three years of the involvement of their Guatemalan informant, Torricelli said, but had failed to notify Congress.

The explosive news set off a series of investigations throughout the executive branch and in Congress. The CIA's Inspector General, Fred Hitz, was the first to report his findings in July and largely exonerated the agency--but only by essentially admitting that CIA officers were guilty of incompetence rather than criminal wrongdoing. In his most controversial finding, Hitz declared that the failure to notify Congress had been inadvertent and may not have mattered anyway, because the information the agency received about the involvement of their paid informant was of dubious quality. Hitz recommended that, while some officers should be reprimanded, no one be fired as a result of the affair. On the Hill, the IG report was widely dismissed; many lawmakers were convinced that the failure to notify Congress was intentional.

Now, as Deutch prepares to inform Congress of how he will mete out punishment, CIA officials concede that Deutch faces a difficult balancing act: weighing the demands for head-chopping from Congress and the public against the need to avoid worsening morale inside the Directorate of Operations. Some aides are pushing Deutch to come down on the side of the outside constituency, but others are arguing that he must deal fairly with employees and avoid grandstanding with high-profile firings. No matter how Deutch comes down on the issue, some are complaining that he is becoming more accommodating of the CIA's bureaucracy than he seemed when he was confirmed in May.

Agency sources complain that there have been other small signs that Deutch may be too concerned about senior managers. Deutch's decision to give Devine a cushy assignment as London station chief as a sop for not being named operations chief drew so many employee complaints that an internal computer bulletin board established to air grievances was temporarily shut down, sources say; others stress, however, that it was only closed to further debate on the Devine issue.

Deutch's selection of David Cohen to run the Directorate of Operations is also widely seen as a sign that Deutch is not planning revolutionary change. The 53-year-old Cohen, previously acting director of the Directorate of Intelligence, had spent most of his career on the analytical side of the CIA, so his selection showed that Deutch was unwilling to anoint one of the old Brahmins of the DO to head up the clandestine service. But Cohen had served briefly in the operations directorate, where he handled the merger of the CIA's network of domestic offices, so he was not an unknown commodity. It wasn't as if Deutch had gone outside the CIA family.

Yet sources say that even Cohen, who took over in August, has already complained to friends that he suspects he may not always be getting complete information from his subordinates in the DO.

Deutch's new emphasis on tactical intelligence support also has some worried that, in order to satisfy the U.S. military leaders, the CIA could fall further under the Pentagon's shadow, making it even more difficult to institute reform.

Critics say Deutch shouldn't throw away the chance to think about ways to start from scratch. Some CIA people believe that the staff of the Directorate of Operations could easily be cut in half, to about 2,500, and many more of its foreign stations closed, without reducing the agency's effectiveness. That would have the advantage of forcing the DO to focus its resources on the nation's top post-Cold War intelligence priorities: hard-to-penetrate places like North Korea and Iraq.

The agency could create regional stations responsible for several countries, or have a pool of officers at headquarters, available to respond to new, unforeseen crises in countries without a station. Sources cite Somalia as an example: the CIA had closed its station in Mogadishu before the United States sent troops there on a humanitarian mission in December, 1992, but agency case officers were able to link up with old sources and are now credited with having conducted successful intelligence activities, despite the mission's overall failure.

Others believe the CIA could be broken up altogether; it could retain its clandestine arm while doing away with the intelligence analysis division, which often duplicates work done from unclassified sources at colleges like Harvard or think tanks like the Rand Corp.

Deutch responds to charges that he is too timid by arguing that he is simply the latest victim of Washington's impatience with people who refuse to make politically-expedient, headline-grabbing moves.

"In Washington, I notice that people like you to manage by explosion," he says. "They can understand explosions. They can report it, and it is something that they say, well, you're not moving fast enough, because in the last six weeks or the last month we haven't found one other new radical step that you've taken. I feel particularly strongly about that, because I really look at myself as being asked to manage an intelligence community . . . moreover, I have to give a warranty that it's a responsible system. That's going to take time."

But in fact, Deutch is smart enough to listen to some of his critic's ideas. Sources say, for example, that the White House and the CIA are already in the midst of an "active discussion" of how the CIA could cut back more sharply on the number of its foreign stations, while relying on "roving" case officers who could "surge" into a country when a crisis erupts.

But no matter where he takes the agency, Deutch should keep his eye on the fundamentals, and remember why the CIA exists in the first place. "What the CIA does that nobody else does is go into a prime minister's office in the dead of night and steal documents, or eavesdrop on the prime minister's conversations, to find out if he is lying to the American ambassador."

"Deutch should remember this: It's the spying, stupid."

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