The CIA has a reputation for making the strictest security checks in the U.S. intelligence community, but its investigation of Max Hugel appears to have been a hurry-up, seven-day job that failed to sound even a mild alarm about his complex business career.
Hugel, who held one of the CIA's most sensitive posts, wasn't particularly helpful himself. His dealings with two Wall Street brokers in the early 1970s involved what Hugel described as attempted "blackmail," but he said he saw no need to report this or other details of the acrimonious relationship when he joined the agency earlier this year.
The CIA's investigation posed a sharp contrast to the measured pace outlined in an official description of the agency's standard procedure.
Reaction from members of the Senate Intelligence Committee late yesterday indicated that the Hugel matter could cause problems for the Reagan administration on Capitol Hill.
As deputy director for operations, the post he resigned yesterday, Hugel had access to the government's top secrets and directed the agency's global network of covert intelligence agents.
The first interview concerning Hugel were conducted by the CIA's Office of Security beginning Jan. 14, just one week before Hugel started work at the agency, and the last were completed on Jan. 16.
The records indicate that Hugel had been "cleared at some CIA echelons on Jan. 19 and was given final approval by the Office of Security, pending some overseas checks, on Jan. 21, the day Hugel started work at the agency.
Some of the interviews, including a set in the New York area that contained just a whisper of criticism, were not put together and synopsized until March 6, several weeks after Hugel had been given his first promotio, to deputy director for administration.
Through it all, however, the Office of Security, which is responsible for investigating everyone hired at the agency, from top officials down to the cleaning crews, evidently found nothing to arouse its suspicions about Hugel's business dealings or any other facet of his life.
Under a longstanding directive from the director of central intelligence, last updated in 1976, anyone to be granted access to "senstive compartmented information" -- which is a notch above top secret -- is supposed to be called in for questioning about "any significant adverse information and/or inconsistencies" that government investigators might have turned up.
No such interview was conducted of Max Hugel.
The CIA's field interviews, which a reporter inspected with Hugel's consent, certainly show no cause for alarm. The agency's general counsel, Stanley Sporkin, said he regarded them as "amazing" in their consistency.
They are uniformly full of praise, depicting Hugel as a hard-driving millionaire whose "workaholic" habits consitute his biggest failing.
In all, 28 people were interviewed in New York, New Jersey, New Hampshire and Florida, although nine were just short-time neighbors and aquaintances of acquaintances with nothing of substance to say.
Those questioned at length included Manchester (H.H.) Union Leader publisher William Loeb and other individuals that Hugel gave as references. They included his tax adviser in New York and a business associate in Florida who owns a penthouse near Hugel's in Bal Harbour.
The CIA also checked with what it called "developed informants," but this is apparently a catchall category that includes everyone, except neighbors, whom Hugel did not list as references.
For instance, Robert Howard, president of the Centronics Data Computer Corp., who had known Hugel for more than 20 years, was listed as a "developed informant." So was Roy Nagagawa, successor to Hugel as chief executive officer of Brother International Corp. in Piscataway, N.J., and an acquaintance since World War II.
The flavor of the interviews is reflected by those conducted Jan. 16 in the Miami area, where Hugel was described as "hard-driving, very adept, intelligent, capable of working well under pressure" -- a man wealthy enough to relax, but who was, nonetheless, accustomed to working 18 to 20, sometimes 24 hours a day.
Police records turne dup nothing buty three speeding tickets in Nashua, N.H., one in 1976 and two in 1978, all of which resulted in $15 fines.
The only slightly reproachful notes crept in during some of the New York area interviews, where several associates and longtime neighbors recalled some marital strains brought on by Hugel's preoccupation with work that caused him to spend a lot of time away from home. But these had apparently been smoothed over, investigators were told.
The investigation produced not a hint of Hugel's volatile relationship with brokers Thomas and Samuel McNell.
The McNells, who secretly taperecorded a number of Hugel's business conversations, charged that he participated with them in a series of improper and perhaps illegal stock market practices to boost the stock of Brother International Corp.
"I didn't think it was a reportable event," Hugel told reporters and editors of The Washington Post. At a subsequent meeting, he added that he "never regarded the McNells as being able to blackmail me." But he also asserted that "time and again, the ploy was used."
Several intelligence experts faulted Hugel in strong terms for his failure to report any of this to the agency. One called it "a great mistake." f
"He damn well should have," declared another professional, who once was deputy director for operations himself. "He had to . . . for his own protection as well as for the agency's. If there were expanations, he should have given them."
"It certainly sounds like a rather pertinent area," a FBI official agreed. "His discretion, his ability to keep confidences, to protect secrets, all those things could be affected."
Under the rules of the business CIA employes are supposed to be above reproach. Marital difficulties and financial irresponsibility are gounds for rejection. So is marijuana smoking. And Homosexuality.
According to the CIA's regulations, it is imperative that its personnel be "of excellent character, and of unquestioned loyalty, integrity, discretion and trustworthiness."
To that end, the agency has developed security procedures that a staff report for a House intelligence subcommittee characterized two years ago, on paper at least, as "the most comprehensive and stringent in the intelligence community."
Newcomers begin by filling out a personal history statement that takes up 17 pages. According to Robert Gambino, former director of the Office of Security, "that stops a lot of people right there."
Then there is a background investigation, beginning with a check of the files at the FBI and a short list of other government agencies. The CIA's inquiries are supposed to encompass that last 15 years of an applicant's life, or go back to the 17th birthday whichever is shorter.
The routine seems designed for ominiscience.As The House staff report described it:
"Investigators examine the applicant's education, employment and residences and conduct neighborhood checks, criminal justice information checks and credit checks. A minimum of five character references must be interviewed with a view toward establishing the habits, loyalty and morals of the individual. Both positive and negative information must be taken into account."
If no problems turn up, physical examination and a battery of psychiatric tests come next. The final step is a polygraph test that the CIA alone requires of all its personnel, including military officers on temporary assignment.
The main goal, as Gambino has testified, is to prevent "penetration of the agency, through its personnel, by foreign intelligence services or others whose interests are inimical to those of the United States."
The FBI steps in only to conduct background investigations of candidates for the CIA directorship and deputy directorship. And even for them, the CIA's Office of Security is in charge of the polygraph tests.
About one of every 10 CIA applicants is turned down for security reasons, which run the gamut from thievery to homosexuality to "gross character deficiences."
Another 3 to 5 percent are rejected as "unsuitable," a category of failings that ranges from "limited mental capacity" to marital difficulties. Alcoholics are considered "unsuitable." Drug users are regarded as security risks.
Hugel says he was given a polygraph, or so-called lie detector, test, though he was not asked to submit to the separate personal interview that the rules call for whenever any "significant" derogatory information has developed.
He was not clear on whether the polygraph examiner questioned him about his financial dealings, in general or in particular.
"I don't remember what they asked me on the polygraph because they asked me all kinds of questions," he said.
"They ask you whether you ever committed a crime," interjected CIA general counsel Sporkin, who joined the agency even more recently.
"They ask you that," Hugel agreed.
Despite all the seeming thoroughness of the CIA's routine, however, it missed the McNells. Yet Tom McNell claims that he was willing to stand up and be counted months ago. He says he had heard reports last December that Hugel was in line for a top job at the CIA and tried to contact President-elect Reagan's personnel director, E. Pendleton James, to deliver his warnings. He says James never called him back though he tried to make it plain that he had some unfavorable things to say about Hugel.
Hugel started work at the CIA Jan. 21 as a "special assistant" to Director William J. Casey, a good friend and colleague from the Reagan campaign. On Feb. 13, Casey made him the agency's deputy director for administration.
At the same time, by Hugel's account, the McNells had not been entirely forgotten. They paid off the last of their debt to Hugel. Hugel was not clear about exactly when this was, but he and his lawyers placed it around January or February.
In early May, Casey touched off shock waves in the intelligence community by naming the 56-year-old Hugel deputy director for operations.
Casey defended the appointment strenuously despite sharp protests.
At least some members of the Senate Intelligence Committee, which met yesterday with Hugel's successor, John H. Stein, suggested that Casey has not heard the last of the matter.
Sen. Daniel Patrick Moynihan (D-N.Y.), the committee's vice chairman, voiced his objections to what he regarded as the "politicization" of the operations directorate.
"With but rare exceptions, the deputy director for operations has been a career professional and never, surely, a campaign aide with no visible qualifications for the job.
"The administration," Moynihan concluded, "must ask itself how it allowed this disaster to come about in the first instance."