CHAPTER 19

THE POLITICAL CONNECTION

“I CAN BUY ANY MAN IN THE WORLD”

By the late 1960s, the Hughes empire had crafted perhaps the most powerful private political machine in the country. Other corporations, other businessmen, engaged in some of the same practices, lobbied as vigorously as the Hughes organization, and rang up important victories. But none could match Hughes’s long Washington record. For more than two decades the IRS had granted it one special favor after another. So, too, had the Department of Justice, the Civil Aeronautics Board, the Department of the Interior, the army, the navy, the air force, and any number of lesser agencies and departments. The empire spent billions of American tax dollars without public accountability, received billions of dollars in government contracts without competitive bidding, and received millions of dollars in subsidies. It submitted to federal courts fraudulent or forged documents. It ignored federal court orders with impunity. It was exempted from the myriad laws and regulations binding on others.

The empire thrived on shadowy alliances, intricate deals, quiet understandings, secret political contributions. The beauty of it all was that the machine was apolitical. By 1970 it had become so potent that the identity of the man in charge did not matter. It could be Bob Maheu one day, Bill Gay the next. The changing faces mattered not at all in the nation’s capital. The power rested in the magic of the Hughes name. Whoever chose to invoke the name, and exercise the influence that went with it, could do so. After all, everyone—from the man in the White House to the man in the street—believed it was Howard Hughes making the decisions and issuing the orders. Thus the political machine never once sputtered when the empire changed hands in 1970.

On January 23, 1970, Richard G. Danner, the empire’s liaison officer to the Nixon administration, was in Attorney-General John Mitchell’s office to discuss a sensitive subject. His employer, preparing to buy another Las Vegas hotel and gambling casino, wanted a sign from Mitchell that the Justice Department would not block the acquisition or file an antitrust lawsuit.

Two years earlier, under another administration, Attorney-General Ramsey Clark had threatened an antitrust proceeding if Hughes carried out his purchase of the Stardust Hotel and Casino. Clark had gone so far as to draft the complaint, but had never had to file it because Hughes, bowing to Justice Department pressure, backed out of the deal. It was one of the very few times in a career distinguished by harmonious relations with government agencies that Howard Hughes had been thwarted.

With the inauguration of Richard Nixon, however, harmony between Hughes and the federal government had returned. When Hughes let it be known late in 1968 that he intended to buy the Landmark Hotel and Casino, Clark was still in office and the Justice Department had reacted in the same hostile way, advising Hughes’s lawyers that “the Department of Justice cannot undertake to refrain from taking action with respect to the proposed acquisition. It appears that Hughes’ acquisition of the Landmark would violate Section 7 of the Clayton [Antitrust] Act.”¹ Four weeks later, as Richard Nixon moved into the White House, the Justice Department had a change of personnel and a change of heart. Hughes’s lawyers were advised that the Department of Justice “does not presently intend to take action with respect to the proposed acquisition.”² And the Landmark deal went through.

Hughes hoped now for another Landmark-like accommodation. This time he wanted to buy the Dunes Hotel and Casino, which would boost his Las Vegas holdings to six hotels—24 percent of the hotel rooms in the city—and seven casinos. Danner spelled out the proposal to Attorney-General Mitchell, who asked Danner to supply a statistical summary of Hughes’s Las Vegas hotel and casino investments. The meeting lasted fifteen minutes.

A month later, Danner returned to the attorney-general’s office with the report. After glancing at it, Mitchell told Danner, “Let my people look at this, and we will let you know.”³ Mitchell’s “people” included Richard McLaren, the hard-nosed assistant attorney-general in charge of the Antitrust Division. Mitchell did his best to coach McLaren. He told him that the governor of Nevada was “trying to drive out hoodlum elements influential in various Las Vegas hotels and casinos, including the Dunes,” and that he was “inclined to go along with Hughes’ purchase of the Dunes if it could be approved without doing too much violence to established antitrust policies.”⁴ McLaren was not inclined to go along. He reported to Mitchell on March 12 that the acquisition would definitely violate antitrust guidelines and “that approval would appear inconsistent with the Justice Department’s earlier refusal to approve Hughes’ proposed purchase of the Stardust.”⁵

Such positions on McLaren’s part often incurred the wrath of the White House. That anger was reflected in a telephone conversation later between President Nixon and Deputy Attorney-General Richard G. Kleindienst concerning McLaren’s handling of another antitrust issue—the ITT-Hartford Fire Insurance Company case. “I want something clearly understood,” the president raged, “and, if it is not understood, McLaren’s ass is to be out within one hour. I do not want McLaren to run around prosecuting people, raising hell about conglomerates.”⁶

In the Hughes case, however, the attorney-general simply ignored the advice of his antitrust chief. He called Danner and told him to stop by the next time he was in Washington. On March 19, Mitchell gave Danner an opinion the Hughes organization wanted to hear: “From our review of the figures, we see no problem. Why don’t you go ahead with the negotiations.”⁷

There were no written accounts of the understanding. It was just a gentleman’s agreement between the nation’s chief law-enforcement officer and the special emissary of Howard Hughes. “Insofar as getting a ruling, anything in writing from the attorney general, it was very informal,” Danner explained.⁸ He reported on the conference to Robert Maheu and flew to Florida to meet with President Nixon’s friend and financial adviser, Charles G. (Bebe) Rebozo. It did not take long for the story to move along the Las Vegas Strip that John Mitchell had told Howard Hughes he could buy the Dunes. On March 23, four days after the Danner-Mitchell meeting, FBI director J. Edgar Hoover sent a memorandum to McLaren.

“Information was received by the Las Vegas, Nevada, office of this Bureau that on March 19, 1970, a representative of Howard Hughes contacted officials of the Dunes Hotel, Las Vegas, Nevada, and stated that Hughes had received assurance from the Antitrust Division of the Department of Justice that no objection would be interposed to Hughes’ purchasing the Dunes Hotel,” Hoover wrote. “The above is furnished for your information.”⁹

The memorandum was a classic Hoover communication. It was the FBI director’s way of telling Justice that he knew it had reached a private understanding with an influential citizen. Should the matter later become public knowledge, or improper conduct be shown on the part of a government official, Hoover’s record was clear.

McLaren puzzled over Hoover’s memorandum. Surely there had been some misunderstanding. He wrote to Mitchell reiterating his objections to Hughes’s purchase of the Dunes. “I trust,” he said, “that the attached FBI report inaccurately records the understanding received from the Department.”¹⁰ Again the attorney-general ignored McLaren. Negotiations for the sale continued.^*

This quiet understanding between the attorney-general and the Hughes organization was not unusual. For years, Hughes had cultivated politicians, making a campaign contribution here, dispensing a favor there, encouraging an aspiring government official by lending him the magic of the Hughes name. His political equation was quite elementary—the right amount of money made available to the right people would produce the right result. There were sometimes variations. Personal favors—a sinecure in a Hughes company, a Hughes plane for business or pleasure, an all-expense-paid trip—could be substituted for cash. Also, fear of losing a job or a contract.

Mostly, though, it was hard cash that Hughes used to work his political will, such as in the summer of 1968 when he dispatched Maheu to deliver personally the $50,000 campaign contribution to Vice-President Humphrey in an effort to persuade him to end nuclear testing if he were elected president. Covering his bets, Hughes instructed Maheu later to go “see Nixon as my special emissary. I feel there is a really valid possibility of a Republican victory this year. If that could be realized under our sponsorship and supervision every inch of the way, then we would be ready to follow with [Nevada Governor Paul] Laxalt as our next candidate.”¹¹

Spelling it out in the crudest possible terms, Hughes advised Maheu on another occasion, “You just remember that every man—I can buy—I, Howard Hughes, can buy any man in the world, or I can destroy him.”¹²

The Hughes equation contained a built-in multiplier. The formation of one relationship led to a second and a third until scores of government officials and congressmen and congressional staff members and influential associates of politicians and lawyers were involved.

The maze of intertwining relationships—always shrouded in Hughes’s secrecy—made it difficult, if not impossible, to pin down responsibility for governmental favors accorded to the Hughes empire. The only certain thing was that the relationships existed and that their presence defied coincidence.

The political power of Howard Hughes took on a new significance in 1970. Even as he lost his grip on the empire, his influence reached to the highest level of the United States government.

 

Richard Danner—onetime special agent in charge of the Miami FBI office, Lincoln-Mercury car dealer, campaign manager for Representative and later Senator George A. Smathers of Florida, Washington lawyer, campaign worker for Richard M. Nixon, and now an executive in the Nevada operations of the Hughes organization—sat one July afternoon in 1970 on the patio of the Western White House at San Clemente, chatting with his friend Bebe Rebozo.

Rebozo—a former filling-station attendant, chauffeur, airline flight attendant, owner of a tire-recapping business, operator of a self-service laundry chain, real-estate speculator, campaign worker for Smathers, and now bank president, millionaire, and confidant of the president of the United States—was drinking coffee.

After Rebozo had finished his cup, he and Danner strolled across to the guest cottage where Rebozo was staying at the San Clemente compound. Once inside, Danner handed his friend a bulky, unmarked manila envelope. It contained ten bundles of $100 bills—$50,000 in all—each bundle secured by a Las Vegas bank wrapper. Rebozo “laid the bundles out on the bed and counted them, but he didn’t fan them or break down the amounts, he put them back in the envelope and put them in his handbag.”¹³ There were no formalities. Danner did not ask for a receipt. Rebozo did not offer to write one. The two men had been friends for thirty years. They had a quarter century of mutual experience in political fundraising, dating back to George Smathers’s first campaign for Congress. This was a private matter, the first installment of a previously arranged $100,000 contribution to the president from the Hughes empire.^*

The transaction completed, Danner and Rebozo walked about the San Clemente estate, inspected the golf course, and then dropped in on the president in his office. Danner and the president were also well acquainted. Danner had introduced Rebozo to then Senator-elect Nixon in Florida in 1950. Since then, Rebozo had become a fifth member of the Nixon family, sharing holidays and vacations and attending church services with them. The president asked Danner how he liked working in Las Vegas, and lamented his “problems at the White House in getting entertainment that [was] suitable for a young audience, a mixed audience, and so on. How difficult it was to get movies that were not a little too raw.”¹⁴ Which Las Vegas entertainers, Nixon wondered, “would be suitable for the White House?”¹⁵ No mention was made of the money, Danner said, for “Rebozo had always made it clear that he didn’t want any discussion with the President having to do with contributions, receiving them, or soliciting them.”^16†

Richard G. Danner, the Hughes agent who delivered the mysterious contribution. United Press International

Charles G. “Bebe” Rebozo, the president’s friend and custodian of the $100,000 secret campaign contribution from Hughes. United Press International

Rebozo maintained later that, without discussing it with anyone, he placed the $50,000 in his suitcase and on returning to his Florida home, stopped by his Key Biscayne Bank, took the manila envelope, wrote “HH” on the corner, and placed it in safe-deposit box 224.

In August, Danner flew to Miami to visit Rebozo at his bank office—where photographs of Nixon and Smathers adorned the walls—and handed over a second manila envelope containing $50,000. Once again, the money was gathered in ten bundles of $100 bills held in place by Las Vegas bank wrappers. Rebozo later removed the wrappers “because of the stigma that is applied to anything from Las Vegas.”¹⁷ His action had nothing to do with Hughes personally, whom Rebozo admired. Hughes had earned his respect long ago when, after inheriting a fortune, he “went ahead and did a lot on his own, without living off of it or becoming a bum.”¹⁸ Rebozo removed the wrappers also because he recalled “vividly” the scandal over Hughes’s 1958 loan to Donald Nixon. This time, Rebozo wanted to make certain that no one found out about the $100,000 Hughes gift.

Exactly what happened to the Hughes cash after Rebozo placed it in his safe-deposit box may never be known. It was said later, and vehemently denied, that Rebozo “had disbursed part of the funds to Rose Woods, to Don Nixon, to Ed Nixon [the president’s two brothers] and to unnamed others.”¹⁹

Rebozo steadfastly insisted that the entire $100,000 remained intact in the safe-deposit box. He said he intended to use the money in Nixon’s 1972 reelection campaign, but changed his plans because of the furor that erupted with Maheu’s ouster from the Hughes organization. After the firing, “Maheu got mad at Danner,” who remained on the Hughes payroll, Rebozo recalled. “When you get family squabbles sometimes they shoot from the hip in every direction and I thought that I just didn’t want anything, even remotely, to reflect on the campaign. I didn’t want to risk even the remotest embarrassment about any Hughes connection with Nixon.”²⁰

The “stigma” of Hughes and Las Vegas notwithstanding, Nixon’s money managers did put to use $150,000 more in Hughes contributions that were delivered through other channels for the 1972 election. Still, the secret $100,000 gift languished, held in waiting, Rebozo said, for use in 1974 or 1976. But then, he said, “matters went from bad to worse with the Hughes organization and I could just see one talking about the other, and I felt that sooner or later, this matter would come up and be misunderstood.”²¹ So in the spring of 1973, in the midst of the spreading Watergate scandal, Rebozo “decided to return” the $100,000.²² He called on the special agent in charge of the Miami FBI office to witness the opening of his safe-deposit box and the counting of the money that “had been in the box all these years.”²³ Subsequently, the cash—there turned out to be an extra $100 bill—was returned to the Hughes organization. It was, Rebozo reaffirmed, the very same money that he had received in 1970 from his friend Danner.

Rebozo’s otherwise very tidy story held, however, a fatal flaw. The bundles of $100 bills inventoried under FBI supervision included some whose serial numbers showed that they “were not available for commercial distribution until after August 1970,” the month of Danner’s second delivery to Rebozo.²⁴

THE SECRET INVESTMENT

Herbert W. Kalmbach and Frank DeMarco Jr., his partner in the Los Angeles and Newport Beach, California, law firm of Kalmbach, DeMarco, Knapp & Chillingworth, arrived at the White House about noon on Friday, April 10, 1970.

The two lawyers were soon ushered into the Oval Office for a private meeting with the president.²⁵ They had coffee and discussed the upcoming California elections, and then DeMarco, turning to the purpose of the visit, told the president that he had some good news. He had just completed work on Nixon’s 1969 federal income-tax return, and the president would receive a large refund. DeMarco “went through the pages of the return,” showing that Nixon’s income for the year totaled $328,161.52.²⁶ Taxes withheld on his salary as president, combined with a previous payment of estimated taxes, amounted to $107,983.26. But owing to a variety of deductions, the president’s taxes were only $72,682.09, and therefore he was entitled to a refund of $35,301.17. With an income of $328,161.52, his effective tax rate was 22 percent, slightly above that applied to families earning $30,000 a year.^*

Nixon was pleased with the work of DeMarco and Kalmbach.²⁷ “That’s fine,” the president told his two lawyers. He signed the return and called Mrs. Nixon, on the second floor of the White House, to tell her that DeMarco would bring the return up for her to sign. After Mrs. Nixon signed, DeMarco personally took the president’s tax return to IRS officials.

The Kalmbach and DeMarco law firm had represented Nixon since shortly after his inauguration in 1969. The relationship seemed to be working well for all parties. In addition to looking after the president’s taxes, the firm was responsible for establishing the Richard Nixon Foundation and acquiring Nixon’s San Clemente estate. And Kalmbach was the president’s most effective fundraiser.

Everyone knew that the Kalmbach law firm represented the president. What only a very few knew was that the firm also handled a secret investment scheme financed by the assets of a tax-exempt charity for some of the top executives in the Hughes empire.

Five months after the president’s tax return was filed, DeMarco and Arthur Blech, a Los Angeles accountant retained by the law firm “to maintain the president’s financial books and records and to assist in the preparation of his tax returns,” were named general partners in Del Rey Investors, a California limited partnership.²⁸ Del Rey Investors was one of a number of partnerships and companies created to build and operate a large luxury apartment project at Marina del Rey, just south of Los Angeles.

Today, Marina del Rey is a deluxe collection of high-rise apartments and hotels, fashionable shops, three dozen restaurants, and exclusive clubs spread over four hundred acres around the country’s largest man-made small-craft harbor. Located along the Pacific Ocean midway between Santa Monica and Los Angeles International Airport, it houses nine thousand residents and six thousand yachts.

At the center of Marina del Rey is the luxurious Marina City Club, six curved apartment towers containing 671 garden, ocean-view, and penthouse units renting for as much as $2,300 a month. There are swimming pools and tennis courts, a computerized golf course, handball courts, health-spa facilities, three dining rooms, and the Wine Tasting Cellar, an intimate setting for twelve oenophiles. There are facilities for more than four hundred boats, a twenty-four-hour switchboard, and a private security service to screen every person seeking to enter the thirty-acre compound. A staff of more than two hundred provides maid and porter services and parks cars. The residents are “affluent men and women from a wide variety of fields. Financiers, doctors, lawyers, entertainment-industry personnel, publishers, corporate executives, and management consultants.”²⁹

The Marina City Club is the heart of Marina del Rey, “the unchallenged pacesetter of singles hanky-panky,” as one writer described the area. With singles accounting for 70 percent of the area’s population and nearly half of them divorced at least once, the Marina, it is said, represents “a sort of sexual supermarket—chock-full of glittering new goodies to help obliterate painful old memories.”³⁰ As one resident, a divorced anesthesiologist, described it, “This place is paradise. I mean, I love living here ’cause everyone looks so pretty. Matter of fact, you could say it’s the home of the Pretty People. Not the Beautiful People. The Beautiful People are phonies, tinseled stuck-ups. The Pretty People, on the other hand, are just—well, naturally pretty.”³¹

Back in 1970, when all this was still only a gleam in a hedonist’s eye, rumors abounded that the Marina City Club was being financed by Howard Hughes. That was to be expected. Hughes had owned part of the land on which Marina del Rey was built. He still owned land adjoining it. And the main plant of his Hughes Aircraft Company in Culver City was just a few minutes away. But the rumors were laid to rest by a story published in the Los Angeles Times which asserted that “contrary to some reports, neither industrialist Howard Hughes nor the Hughes Tool Company has a financial interest in this $70 million development.”³²

That was true. Howard Hughes did not have a penny of his money invested in the Marina City Club. Neither did the Hughes Tool Company. But the Howard Hughes Medical Institute, the alleged charity created by Hughes “for the benefit of mankind,” was deeply involved. Its investment had been made through the Hughes Aircraft Company, all of whose stock was owned by the medical institute.

In the beginning, the aircraft company merely guaranteed millions of dollars in loans for the Marina City Club. It did so not for itself or the medical institute, but for the personal benefit of various Hughes executives.

The Marina City Club project was in fact conceived as an investment device and tax shelter for key people at the aircraft company. “In the late 1960s, competitors were raiding Hughes Aircraft Company of its executive and technical talent by offering stock options,” explained a high-level company official. “Hughes Aircraft pays reasonably good salaries, but offers no stock options. That’s why we were losing some very fine people. Pat Hyland [the general manager of the company] and [another officer] decided we had to do something. That is how Marina City evolved.”³³

In keeping with Hughes’s own business practices, his executives established a maze of interlocking partnerships and companies to build and run Marina City. These partnerships were linked to President Nixon’s law firm, Kalmbach, DeMarco, Knapp & Chillingworth. Del Rey Investors, of which DeMarco and Blech were general partners, was only one of half a dozen.

The limited partner of Del Rey Investors, for example, was another partnership called Executive Investors Limited, made up of some sixty individuals, mostly Hughes Aircraft executives. Then there was Horizons West, another limited partnership. Alan R. Wolen, an attorney in the Kalmbach and DeMarco law firm, was a general partner of Horizons West. The other was Arthur Blech, who before he handled Nixon’s tax returns had assisted the president’s brother Donald, “in serious tax trouble” himself at the time.³⁴ The limited partner of Horizons West was yet another partnership, Management Investors Limited. It, too, was made up of some sixty Hughes Aircraft executives.

Under the terms of the partnerships, the financial obligations of the Hughes executives were substantial. The commitments of John D. Couturie, then the treasurer of the aircraft company, totaled $381,256 in both Executive Investors Limited and Management Investors Limited. Executive Vice-President Allen E. Puckett’s commitments amounted to $330,414, and those of John H. Richardson, the senior vice-president, were $268,278.

Long before Marina City opened it got caught in a severe financial squeeze. Construction costs far exceeded estimates. Interest charges soared. When the first apartment towers opened, rental income fell far below original projections as more than half the apartments remained empty. Other apartments, including expensive penthouse suites, were occupied by Marina City Company officers who lived there rent free. “As of August 1, 1972, Marina City Company reported to Aetna Life Insurance Company [a mortgage holder] occupancy of 48 percent-140 apartments rented, 151 apartments vacant.”³⁵

Losses for an eight-month period ending June 30, 1972, totaled $1, 458, 593.³⁶ By 1974, the annual loss had spiraled to $9,165,228. On its federal income-tax return for the fiscal year ending October 31, 1974, Marina City Company reported income of $2,382,921 against expenditures of $11,548,149. Interest payments for the year amounted to $3,117,972, while income from apartment rentals totaled just $2,179,243, according to its federal tax return prepared by Arthur Blech, the president’s accountant.

And that’s when Hughes Aircraft intervened in a big way. To avoid the embarrassment of having many of its top executives caught in a financial disaster, the company did more than guarantee loans—it invested millions of dollars to bail the development out. Every dollar invested was an asset of the tax-exempt Howard Hughes Medical Institute. The law firm and the accountant handling the legal and financial details were the same ones representing the president of the United States in his tax affairs. And all the while the Internal Revenue Service looked the other way.

THE SECRET MISSION AND SECRET ALLIANCE

In the fall of 1970 Glomar II, a 5,500-ton, 268-foot-long ship able to drill nearly five miles into the ocean floor, began conducting tests at undisclosed locations in the Pacific Ocean. The Glomar II was one of a fleet of vessels owned and operated by Global Marine, Inc., a Los Angeles-based company specializing in offshore drilling and related services for the oil and gas industry. But on this particular voyage, the Glomar II was not looking for undersea oil and gas deposits. The ship, which had just undergone modifications, was said to be testing a prototype mining system, the results of which would “determine the economic feasibility of deepsea mining operations.”³⁷

Global Marine was conducting the tests under a contract with the Hughes Tool Company. The work was to signal a new era in mining for metals, in which specially designed ships would scoop up from the ocean floor nodules containing manganese, copper, cobalt, nickel, and other ores. Enthusiastic about its new venture, Global Marine explained to stockholders that “growing interest in deep-ocean mining is prompted by accelerated demand for various strategic ores, many of which will become increasingly scarce in the years ahead.”³⁸

That was the beginning of the cover story for a top-secret United States intelligence operation. For five years it would have everyone believing that Howard Hughes was preparing to mine the ocean floor for minerals. In truth, the voyage of the Glomar II that fall, and the Hughes Tool Company contract with Global Marine, were part of one of the most expensive and bizarre intelligence projects in American history: the effort to retrieve a sunken Russian submarine.

Code-named Project Jennifer by the Central Intelligence Agency, the mission’s goal was to raise a vessel that had exploded and sunk in 1968 between Hawaii and Midway and was resting at a depth of more than three miles. By almost any assessment it was an odd intelligence target. The submarine was a conventional diesel-powered model, 320 feet long, which had carried a crew of eighty-six. It was already twelve years old, an outdated submarine carrying outdated equipment. Nevertheless, the CIA wanted it, or so it said, and the agency settled on Howard Hughes to provide the cover story.

There were sound reasons for selecting Hughes. He was a zealous patriot. The Hughes payroll was studded with former intelligence operatives, government agents, and retired army, navy, and air force officers. The Hughes Aircraft Company was deeply involved in the intelligence community’s spy-satellite program. And because the project called for construction of a unique salvage vessel at a cost of a quarter of a billion dollars, who better than the notoriously eccentric industrialist could build and operate such a ship without attracting undue public attention? Lending further credence to the ocean-mining cover story was the fact that Hughes had already spent a fortune buying up mining claims across Nevada, where it was rumored that he would soon introduce new computerized mining techniques.

As the CIA was negotiating with the Hughes Tool Company to act as a cover for Project Jennifer, a veteran CIA agent and a CIA front man were preparing to retire from the intelligence business. The spy was fifty-two-year-old Everette Howard Hunt, Jr. Born at Hamburg, New York, the son of a state court judge, Hunt had spent twenty-one years in the CIA working on clandestine assignments from Montevideo to Tokyo. But by 1970, he was bored with his desk job at CIA headquarters, where he had gone following his role in the agency’s Bay of Pigs fiasco.

So Hunt went job hunting. There are conflicting versions of his departure from the agency. Some say that CIA Director Richard M. Helms had arranged for Hunt’s new job, and others that the agency merely gave Hunt the same good recommendation it gives any loyal spy. Whatever the case, on April 30, 1970, Hunt retired from the CIA and on May 1 he went to work for Robert R. Mullen and Company, a Washington, D.C., public-relations firm. In a city abounding in public-relations offices, one characteristic set the Mullen Company apart. It was a CIA front.

The CIA’s alliance with the Mullen Company dated back to 1959 when it was founded by Robert R. Mullen. A longtime Republican party stalwart, Mullen was a former editorial executive at Life and the Christian Science Monitor and director of information for the Economic Cooperation Administration. In the 1960s, the Mullen Company began to establish foreign branch offices from Mexico City to Amsterdam and Singapore. Each office was staffed by a CIA agent posing as a Mullen Company publicist. Even the company’s bookkeeper was a retired CIA finance officer, and Mullen himself had helped to set up the Cuban Freedom Committee in the days before the Bay of Pigs.

In addition to its CIA business, the Mullen Company had contracts with other government agencies. When Hunt joined the firm, at a salary of $24,000 a year, his first public-relations efforts were on behalf of a project that the Department of Health, Education and Welfare was conducting on behalf of handicapped children. Later, he moved on to assignments more in keeping with his previous experience—surreptitious interviews, the bugging of offices, burglaries, forging government documents, and the like.

During this period, Mullen was planning his own retirement, and he began looking for someone to take over his agency. Because of the firm’s relationship with the CIA, he needed just the right person, someone of unquestioned loyalty who would follow CIA orders and ask few questions, someone with a measure of influence in political circles and who could deal expertly with the media. After considering and then rejecting the idea of allowing Hunt and another employee to buy the company, Mullen settled on an obscure Washington bureaucrat who then was the director of the Office of Congressional Relations in the Department of Transportation.

He was Robert Foster Bennett. The youngest of the five children of Wallace F. Bennett, the conservative Republican senator from Utah and onetime president of the National Association of Manufacturers, Robert Bennett possessed every credential for the presidency of the Mullen Company. He was a conservative and fiercely loyal American. By virtue of his father’s twenty years in the Senate, he had solid political connections, yet he remained in the background, the model of anonymity. Perhaps best of all was his uncanny ability to manipulate the news media.

But Mullen was not alone in his interest in Bennett’s future. Bill Gay was also interested. After the overthrow of Robert Maheu in December of 1970, Gay wanted to install his own man as Hughes’s Washington representative. What better person for the job than another Utah Mormon, whose father, like Gay, was prominent in the church?

So it was that as Mullen negotiated with Bennett to take over his CIA front, the CIA was arranging for the Hughes organization to manage its secret Russian submarine project, and the Hughes organization was hiring Bennett to become its official Washington representative. By January of 1971, the alliance was forged.

Bennett’s political connections were already working for him when he moved into the Mullen offices just down the street from the White House. On January 15, 1971, Charles W. Colson, special counsel to the president, sent a confidential memorandum on White House stationery to a staff aide concerning Bennett and his new job:

Bob Bennett, son of Senator Wallace Bennett of Utah, has just left the Department of Transportation to take over the Mullen Public Relations firm here in Washington. Bob is a trusted loyalist and a good friend. We intend to use him on a variety of outside projects. One of Bob’s new clients is Howard Hughes. I’m sure I need not explain the political implications of having Hughes’ affairs handled here in Washington by a close friend. As you know, Larry O’Brien has been the principal Hughes man in Washington. This move could signal quite a shift in terms of the politics and money that Hughes represents.

Bennett tells me that one of the yardsticks by which Hughes measures the effectiveness of his Washington lobbyist is the important people he knows; that’s how O’Brien got on board. Bob Bennett tells me that he has never met the Vice President and that it would enhance his position greatly if we could find an appropriate occasion for him to come in and spend a little time talking with the Vice President. Maybe you can think of a better way to do this than a meeting in the office; maybe there is a social occasion that Bennett could be included in on. The important thing from our standpoint is to enhance Bennett’s position with Hughes because Bennett gives us real access to a source of power that can be valuable, and it’s in our interest to build him up.³⁹

At that moment the White House and the Hughes organization had special concerns that each believed the other could resolve. President Nixon was worried about Lawrence F. O’Brien, the chairman of the Democratic National Committee. The Hughes organization was worried about Robert Maheu and the lawsuit that he was pressing against Hughes.

For some months the White House had been obssessed with O’Brien’s position on the Hughes payroll in Washington. The president and his aides wanted to know the current status of O’Brien’s relationship with the Hughes Tool Company, the financial details of the arrangement, and exactly what services the Democratic official was performing, all with an eye to leaking the information to the news media as a major political scandal. The day before Colson wrote about the need to build up Bennett, the president himself had expressed a strong interest in the Hughes-O’Brien connection.

“It would seem that the time is approaching when Larry O’Brien is held accountable for his retainer with Hughes,” Nixon wrote to his chief of staff, H. R. Haldeman. “Bebe [Rebozo] has some information on this, although it is, of course, not solid. But there is no question that one of Hughes’ people did have O’Brien on a very heavy retainer for ‘services rendered’ in the past. Perhaps Colson should check on this.”⁴⁰

With Nixon’s approval, Haldeman gave the assignment to John W. Dean III, the president’s counsel, instead of Colson. But Dean discussed the problem with Colson, who told him about Bennett and his new position. A meeting with Bennett was promptly set up, and on January 26 Dean relayed the results to Haldeman:

Bennett informs me that there is no doubt about the fact that Larry O’Brien was retained by Howard Hughes and the contract is still in existence. The arrangements were made by Maheu and Bennett believes that O’Brien, through his associate [Claude] Desautels, is going to seek to have Hughes follow through on the alleged retainer contract even though Maheu has been removed. Bennett also indicates that he will be going to the West Coast to talk about the specifics of his Hughes relationship with Mr. Gay (the man who is responsible for releasing Maheu). Bennett also indicated that he felt confident that if it was necessary to document the retainer with O’Brien that he could get the necessary information through the Hughes people, but it would be with the understanding that the documentation would not be used in a manner that might embarrass Hughes.⁴¹

Haldeman responded two days later, telling Dean that he “should continue to keep in contact with Bob Bennett, as well as looking for other sources of information on this subject. Once Bennett gets back to you with his final report, you and Chuck Colson should get together and come up with a way to leak the appropriate information. Frankly, I can’t see anyway to handle this without involving Hughes so the problem of ‘embarrassing’ him seems to be a matter of degrees.” Confirming the importance of Bennett’s relationship with the White House, Haldeman concluded that “we should keep Bob Bennett and Bebe out of it at all costs.”⁴²

When Bennett flew west for his meeting with Bill Gay, the shrewd Hughes executive advised him that he could not provide information relating to the O’Brien contract, even for the White House. Perhaps Gay sensed, as Haldeman had told Dean, that any use made of the information would be embarrassing to Hughes. Or perhaps Gay just adhered to the policy that helped him rise from telephone message clerk to top executive in the Hughes empire—never to discuss Howard Hughes or his business affairs with any outsider.

On his return to Washington, Bennett had few specific details and no documentary evidence on the O’Brien contract to offer Dean. Instead, during his meeting with the president’s counsel, Bennett described the bitter struggle taking place between his superiors in the Hughes Tool Company and the ousted Maheu. The two sides, he said, were “trying to destroy each other.”⁴³ He pointed out that since O’Brien had been hired by Maheu, his services were no longer needed and negotiations were proceeding toward an amicable parting of the ways.

Bennett also had a warning to convey to the White House. Dean recalled his explaining that “Maheu had handled all Hughes’ political activity for the last 15 years,” that he had information relating to the association between the president’s brother and the Hughes organization, and “since O’Brien was close to Maheu, there was a presumption that he knew a great deal. He had to be handled delicately.” But Maheu himself might be dealt with more aggressively; Bennett asserted that Maheu had been fired because of “his involvement with notorious gangsters and suggested that the administration pursue a criminal investigation.” As Dean remembered later, “I recoiled at the rat’s nest he was revealing. I admired how carefully he phrased his sentences, and I wondered about the things he was not telling me.”⁴⁴

The White House took heed of Bennett’s subtle suggestion about the need to handle O’Brien “delicately.” O’Brien certainly had knowledge of Donald Nixon’s dealings with the Hughes organization. Perhaps he also knew of the $100,000 locked away in Rebozo’s bank. Any political gain to be achieved by leaking some O’Brien story would surely be more than offset by potential revelations about the tie between Hughes and the Nixon administration.

So the first dealings between the two parties ended pretty much where they began. The White House did not get from Bennett documentary evidence of O’Brien’s work for Hughes. Bennett did not get from the White House the federal investigation of Maheu that the Hughes organization wanted. It mattered little, though, for soon the Hughes empire would be rid of Maheu entirely, and the White House found another way to deal with O’Brien.

Of far more importance were the new relationships that had been formed, the new doors opened. The White House and Bennett each had a keen awareness of what one could do for the other. In fact, the White House was so pleased with the new alliance that Colson immediately lined up another project for Hughes’s Washington representative.

The Associated Milk Producers, Inc., seeking higher price supports for milk, had offered to contribute $2 million to Nixon’s reelection campaign. But rather than making the contribution in one lump sum—a move that would attract undue attention and require the payment of federal gift taxes—the decision was made to break up the contribution into amounts of $2,500, each coming through a separate campaign committee. To create the hundreds of committees that would be necessary, the White House turned to Robert Bennett.

It was no easy task, coming up with enough people who would serve as chairmen and treasurers, people who would be discreet about heading dummy committees. Even so, Bennett rose to the occasion, finding faithful party workers, friends, and associates, and their husbands or wives. Displaying a fine flair for the ironic, he gave the committees names like the League of Dedicated Voters, Organization of Moderate Americans, Americans for Sound Ecological Policy, and Americans United for Decent Government. Bennett appointed himself chairman of Americans United for Economic Stability. He named Dorothy L. Hunt, the wife of his Mullen Company colleague, as chairman of Americans United for Political Moderation. Soon the money was rolling in from the dairy industry.

For its part, the Hughes empire also needed something special—preferential treatment in a critical tax case. And Bennett, with all his freshly minted White House contacts, appeared to be just the man to get it.

The problem had started back in 1969, when Congress enacted the most sweeping tax-reform legislation in history. The new code cut the long-sacred oil-depletion allowance from 27.5 to 22 percent, raised capital-gains taxes to a maximum of 35 percent, repealed the investment tax credit for businesses buying machinery and equipment, extended the income-tax surcharge, ended unlimited deductions for charitable contributions, and imposed a minimum tax on certain income. These and a number of other changes in the code were designed generally to make the tax system more just. In time, the various provisions of the 1969 Tax Reform Act were applied to every working American family, business, corporation, and tax-exempt organization, with only a few exceptions. The most notable exception was the Hughes empire.

Among the principal targets of tax reformers were the tax-exempt foundations and charitable trusts. By 1969, their number had swelled to more than thirty thousand. For the most part, they were seldom audited by the Internal Revenue Service, and their operations almost never monitored, despite the fact that they were accumulating billions of untaxed dollars. The not-too-surprising result of the IRS’ inattention and years of congressional neglect was a tax-exempt system riddled with abuse and corruption. Self-styled charities were being used as devices by the rich to increase their holdings and reduce their tax bills; often the purported beneficiaries saw little of the charities’ money.

Some years earlier, a congressional committee had established that “foundations have engaged in business operations in competition with private companies which lack the enormous advantage of a tax-exemption certificate. Foundations have loaned money to their creators, traded stock and property with them, paid for insurance policies on the life of the donor, financed benefit programs for a contributor’s employes and engaged in many other activities whose relevance to charity and social welfare seems remote.”⁴⁵

To end such abuse, the 1969 act contained a series of tax-reform measures aimed specifically at foundations and other tax-exempt organizations. The reform act divided all tax-exempt organizations into two categories: private foundations, such as the Ford and Rockefeller Foundations, and public charities, such as the United Fund and Red Cross.

The toughest restrictions applied to the private foundations. They were required to spend an amount equal to 6 percent of their assets each year, in order to prove they were truly charitable and not just interested in accumulating money. A 4-percent tax was imposed on their investment income. They were barred from owning more than 35 percent of the stock in any one company; in some cases they could own no more than 20 percent. Foundations that existed before 1969 were given up to twenty years to sell off their stock in excess of the 20- or 35-percent limitations. They were barred from engaging in transactions with their founders, managers, or anyone who had a substantial interest in businesses that were major contributors. Failure to abide by the new tax laws could result in stiff penalty taxes and even loss of tax-exempt status.

By 1971, most tax-exempt organizations had been designated either private foundations or public charities. The few not designated were awaiting the Treasury Department’s publication of regulations implementing the tax code in their categories. Among those waiting were medical-research organizations, and most prominently the Howard Hughes Medical Institute. In May of 1971, the Treasury Department finally published a set of proposed regulations under which a medical-research organization could be classed as either a private foundation or a public charity. To qualify as a public charity like the American Cancer Society, a medical-research organization was required to spend an amount of money equal to 4 percent of its assets on research each year. Thus, an organization of $100 million in assets would have to spend $4 million a year on medical research. The penalty for noncompliance was designation as a private foundation, and more stringent regulation.

Hughes executives panicked on learning of the new regulations, and with good reason. From its inception in December of 1953 through 1970, the Howard Hughes Medical Institute had spent an average of only 0.6 percent of its assets each year on medical research. Even that figure was inflated because it was based on the medical institute’s own estimate of the value of its sole asset, the stock of the Hughes Aircraft Company, and that estimate was a false one. The medical institute had grossly understated the company’s value by anywhere from 200 to 300 percent. When the aircraft company’s real worth was taken into account, the institute’s expenditures for medical research averaged between 0.2 and 0.3 percent of its assets, less than a tenth of the amount required by Treasury Department regulations.

To make matters worse, the Howard Hughes Medical Institute had spent substantial sums of money unrelated to medical research. In seventeen years, the institute had given $10.3 million directly to research—for salaries of research workers, fellowships, laboratory supplies and equipment, and a medical library. During that same period, it gave $25.6 million to Howard Hughes’s wholly owned Hughes Tool Company in interest payments on an outstanding loan and lease payments on real estate. In other words, for every $1 million the institute gave to medical research, it gave $2.5 million to its founder, Howard Hughes.^*

It was little wonder, then, that Hughes executives were distressed. If the regulations became final, the medical institute would be designated a private foundation. That would mean it would have to spend an amount equal to 6 percent of its assets on medical research, and if it failed to do so, penalties would be imposed. Even worse, the medical institute would have to begin selling its stock in the Hughes Aircraft Company to meet the limitations set on stock ownership in a single company. Howard Hughes, sole trustee of the institute, and Howard Hughes, president of Hughes Aircraft Company, would be obliged to surrender the control he exercised over the aircraft company.

It was a foregone conclusion that the medical institute would not go to its own funeral. On June 21, 1971, a month after disclosure of the proposed Treasury regulations, the Washington law firm of Hogan & Hartson, which had represented Hughes and his medical institute ever since it was established, sent off a nine-page letter to the Internal Revenue Commissioner. Basically, the letter insisted that the provision requiring a minimum yearly expenditure for medical research “should be eliminated in its entirety.”⁴⁶ Two weeks later, Hogan & Hartson attorneys met privately with Treasury Department officials to present their case.

That was one level of Washington activity. In another part of town, Hughes’s Washington lobbyist was at work on a different level. On July 30, Robert Bennett took time off from creating phony campaign committees for the White House to write a “Dear John” letter to White House counsel John Dean, calling his “attention to a situation with which I think you should become familiar.”⁴⁷ Bennett explained the consequences of the Treasury Department regulations for Hughes’s self-styled charity, asserting, quite incorrectly, that “Hughes Aircraft is operated like any other business, with all of its dividends going to Howard Hughes Medical Institute for expenditure on medical research.”⁴⁸ Bennett warned that if the aircraft company, whose annual sales to the United States government were nearly $1 billion, had to increase its annual contribution of $2.5 million to the medical institute, it would be severely pressed:

It seems to me incongruous for the Treasury Department to be spending so much of its time and expertise on an effort to aid the Lockheed Corporation, a company with cash flow problems, while at the same time embarking on a course of dubious statutory legitimacy which will create similar if not more serious cash flow problems for Hughes Aircraft. I don’t want to challenge for a moment the wisdom of the decision to try to save Lockheed; instead, I want to put the Hughes Aircraft problem in the same perspective and urge the Administration to think long and hard about whether or not it wishes to precipitate a crisis for another contractor.⁴⁹

Bennett added that certain material had been passed along to the Treasury Department, including the “text of a proposed grandfather clause” that would exempt the Howard Hughes Medical Institute from the onerous spending requirement. “If you wish further information from me,” Bennett concluded, “I would be more than happy to supply it.”⁵⁰

John Dean touched base at the Treasury Department and responded to Bennett’s plea for assistance with a reassuring “Dear Bob” letter—“the proposed regulations are being reconsidered in light of this particular situation, but that no final decisions have been reached. I appreciate your bringing this matter to my attention.”⁵¹

What happened next was a textbook demonstration of assent by silence and of the political influence wielded throughout the United States government by the Hughes empire. The Treasury Department did not amend its regulations as Bennett and Hogan & Hartson had hoped. But it did the next-best thing: nothing. It simply did not enforce the 1969 Tax Reform Act on the Howard Hughes Medical Institute. The months slipped by and 1971 turned to 1972. Then 1973 came and went, and 1974 and 1975 and 1976 and 1977. As of this writing, the IRS has yet to make a final ruling.

Nothing changed at the Howard Hughes Medical Institute. It continued to spend only a token amount on medical research. In 1974, when Hughes Aircraft Company sales to the Defense Department totaled $813.2 million, the company gave just $3.5 million to the medical institute, 0.4 percent of its revenue from United States military contracts alone. Of the $3.5 million, the medical institute returned almost $1 million to Hughes’s holding company in interest on the outstanding loan.

During this same period, the Internal Revenue Service was rigorously enforcing various provisions of the 1969 Tax Reform Act as they applied to the more than thirty thousand other tax-exempt organizations. Large, legitimate foundations like Ford and Rockefeller and Mott were all paying the new taxes and adhering to the regulations governing the amount of money they had to distribute each year for charitable purposes.

The failure of the government to enforce its tax laws fairly saved the Hughes empire tens of millions of dollars. It also enabled the Hughes Aircraft Company to divert to other ventures money that should have gone to taxes or to medical research. Not the least of those ventures was the sultry singles ghetto built and operated for the enrichment of Hughes executives at Marina del Rey.