The CEO Who Came in from the Cold

The CEO Who Came in from the Cold


As Originally Published in Inc. Magazine


The CEO Who Came in from the Cold
Story of an entrepreneur who ran a legitimate shipping company that reserved one branch office for CIA business.
From: Inc., Mar 1994 | By: Hal Plotkin

Ever wonder what it would be like to build your legitimate business while being a front for the CIA? When it worked, it worked well for Erwin Rautenberg. When it fell apart, it really fell apart

Wheeling his ding-free blue 1987 Brougham d’Elegance Cadillac onto the 405 North freeway ramp, Erwin Rautenberg watches as his odometer clicks past the 75,000-mile mark. “I suppose I should buy a new car,” he says. In the rearview mirror, the main office of Rautenberg’s Air-Sea Forwarders Inc. (ASF), a cavernous two-story, 42,000-square-foot building with an American flag out front, located on the outskirts of the Los Angeles International Airport, fades from sight.

This is a trip Rautenberg has made hundreds, if not thousands, of times before. “Now we are going to the scene of the crime,” he says, settling into the comfortable leather seat as his features tighten slightly. “My personality always changed when I went over this hill,” he says, pointing toward the vista that separates Los Angeles proper from the San Fernando Valley. “Here I am an entrepreneur, a free-enterprise businessman. When I went over the hill, I became a secret government worker, taking orders. When I came back, I became a businessman again. Two entirely different worlds,” he says, slowing the words to emphasize the dichotomy.

Within minutes the car is parked in the other world, a now-abandoned warehouse on a dusty side street off Van Owen Boulevard in North Hollywood. Rautenberg walks around the building and points out the indentations where a tall security fence once stood. The windows, too dirty to see through, are held together with frayed masking tape. “This was a perfect location,” he says, adding, “in those days, they needed me much more than I needed them.”

The regular trips over the hill were necessary in part because none of Rautenberg’s employees were authorized to visit ASF’s San Fernando Valley facility. “We all understood that it was an account Mr. Rautenberg handled personally,” recalls Lydia Rollins, 55, whom Rautenberg hired in 1966 as an export clerk and who now manages ASF’s ocean-export department. Rollins processed most of the paperwork for Rautenberg’s Valley branch office. “I had no idea it was the CIA,” she offers, appearing, even now, more than slightly incredulous that her usually soft-spoken boss had been a front for the agency’s activities. “It seemed like just another commercial account,” she recalls, even though Air Asia, the ASF Valley branch’s sole client, was unusually picky and demanding. “Mr. Rautenberg told us to have backup for everything we did for them, every invoice,” she recalls.

* * *

For more than 30 years, German-born Holocaust survivor Erwin Rautenberg helped the Central Intelligence Agency conceal a clandestine packing, shipping, and freight-forwarding operation run out of a nondescript warehouse first in Burbank and then in his ersatz Valley branch office. By all accounts, the masquerade was a smashing success; to outsiders the CIA-owned operation looked like an offshoot of Rautenberg’s legitimate freight-forwarding business.

The facility, with an ASF logo out front, was a site Rautenberg himself had helped select. It was chosen because it met conditions outlined by CIA operatives: it had to be of sufficient size, and, Rautenberg was told, it had to be hidden from the public, preferably on a dead-end street. “It’s kind of hard to look for real estate when you are limited to dead-end streets,” he says with a chuckle. “It’s not so easy to explain to commercial real estate agents why you need a nice, quiet, out-of-the-way place to run a packing-and-sorting operation.”

After signing the lease for the San Fernando Valley facility in 1957, Rautenberg drove back to his real office across town, never having received a set of keys. Hundreds of millions of dollars of government freight, mostly aircraft parts and related supplies, passed smoothly and unnoticed through the Valley branch of ASF to their destinations in Southeast Asia and, later, Latin America.

The arrangement between Rautenberg and the CIA had taken shape in stages over a period of many years. In 1948 Rautenberg had helped create ASF, as part of Los Angeles Consolidators and Trucking (LACT), where he had worked as a shipping clerk.

Rautenberg’s boss, LACT owner Paul Williams, had backed the upstart ASF in hopes of capitalizing on his young shipping clerk’s fluency in foreign languages, his interest in international business, and LACT’s expanding business in Southeast Asia. Within months Rautenberg, whose accent and language skills helped convince customers of his capacity to understand foreign markets, was shipping Southern California’s bounty to the hinterlands of Europe, Asia, and South America.

The incoming business soon enabled Rautenberg to move ASF into its own half-room office, with a single desk and two chairs, at Fourth and Main in downtown Los Angeles. The rent: $17.50 a month. “And when the airline salesman came in and sat down,” Rautenberg notes, “the chair collapsed.” Even so, ASF’s clientele grew steadily, propelled by Southern California’s postwar boom, which kept the young Rautenberg busy chasing down bills of lading, driving forklifts, and making deliveries.

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

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

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

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

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

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

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

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

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

“It was a very good and steady account,” Rautenberg recalls, quickly adding, as a point of honor, that he always billed his Valley-branch customer 10% to 20% less for export-documentation services than he charged most of his regular commercial customers. Those services — which include issuing airway bills; lining up export licenses; and preparing commercial invoices, customs declarations, and insurance papers — often account for most of a freight forwarder’s revenues.

“It was, for me,” he says, “a loss leader. It was a volume discount. I wanted to prove to Air Asia’s suppliers” — which included the cream of Southern California’s aerospace establishment — “that I could do a good job for them. My goal was to do a service for my country and build up my business.”

* * *

One problem did surface early on. The CIA-run ASF office inherited a team of union workers from the previous CIA-run packing operation, AOPS. “I needed union problems like I needed a hole in my head,” Rautenberg says, recalling his concern that, with a nose in the ASF tent, the teamster camel would soon push all the way into Rautenberg’s growing but nonunion work force. His fears were justified; shortly after the Valley branch opened, teamster organizers began visiting the real ASF facility and talking to employees. Worried, Rautenberg called in lawyer George Elmendorf from O’Melveny & Myers.

“I don’t know exactly how they solved the problem,” Rautenberg says. “But I do know they sent someone to talk with union officials in Washington.” The result: the next contract between the CIA-run ASF Valley branch and the union included a provision stipulating that the teamsters would not attempt to unionize the real ASF office.

“When these guys wanted to get something done,” Rautenberg says, still savoring the moment, “it got done.”

Initially, most of Rautenberg’s time was consumed with working out the operational details of his silent partnership with Uncle Sam, so much so, he says, that he was forced to neglect the commercial side of his freight-forwarding business. There were paperwork hassles to divert tax and customs authorities; the need to camouflage sensitive shipments, for example, led to a number of creative approaches, like the special labeling of crates whose true contents still had to be insured, requiring yet another set of documents. While ASF’s annual CIA-related revenues skyrocketed to more than $40 million in the mid-1960s, its commercial revenues sagged.

Rautenberg, however, sensed a bigger opportunity. While he was losing small customers left and right, he started replacing them with more sizable accounts from the ranks of the commercial CIA suppliers who had grown accustomed to working with the CIA-run branch of ASF. “I knew that we were really two separate entities,” Rautenberg says, “but the suppliers didn’t know that. All they knew was that Air-Sea Forwarders was already doing a great job for them.”

It was not uncommon, for instance, for a CIA-ASF shipment to be picked up one afternoon, clear customs the same evening, and be on a plane by midnight. “That kind of speed and efficiency was unheard of in the freight-forwarding business,” Rautenberg notes, explaining that the CIA-owned Air Asia had a special arrangement with the U.S. Customs Service. “Their stuff moved like greased lightning,” he says.

With the CIA helping to build customer loyalty, Rautenberg worked tirelessly at parlaying his growing market niche. “I made my money off Air Asia’s suppliers,” he says, referring to the many aerospace companies that had a variety of freight-forwarding needs not connected to servicing Air Asia or the CIA. “They sought me out.” Although he was not able to offer those commercial customers the same unusually rapid service provided by the CIA-ASF branch, the real ASF was still quite a bit quicker than most of the other freight forwarders, especially when it came to shipping aircraft parts and supplies.

Rautenberg used a variety of techniques to build his clientele. Long before it became fashionable in the freight-forwarding industry, he emphasized customer service. ASF’s main office ran a night shift, unusual in those days, and stayed open on weekends. Customers could drive up at any time and drop off freight or check on incoming shipments. Meanwhile, Rautenberg and his crew worked the phones constantly, soliciting business and shepherding goods around the world.

ASF began to grow in earnest, adding an office in San Francisco in 1960. In 1962 it opened a Tokyo office, mainly to expedite Air Asia shipments to Southeast Asia. Commercial customers were also clamoring for an ASF presence in Europe. “They would tell me they wanted to use ASF everywhere,” Rautenberg recalls. The Paris office opened in 1965, creating a lucrative pipeline from Southern California’s aerospace industry to Europe’s burgeoning airlines. At the same time, Rautenberg was busy putting together a string of domestic ASF offices strategically located near the major Air Asia suppliers that now made up the core of his customer base. Additional ASF offices soon opened in San Diego, New York City, and Newark.

Rautenberg’s periodic visits to his Valley branch coincided with the ongoing need to keep up appearances. In negotiations with the landlord, for example, or whenever tax or local authorities came by for a visit, Rautenberg would hop into his car and make the half-hour trip from his real office to the Valley branch. Once there, he signed blank forms required for export documentation or to open or close bank accounts, and conducted other routine business — such as initialing purchase orders for things like lumber or nails, or signing a variety of letters and documents prepared by lawyers from O’Melveny & Myers. One of those letters, signed in 1966, stated that Air Asia had the right to review its relationship with Rautenberg’s company on an annual basis and to terminate that relationship with 30 days’ notice. The 1966 letter was required, Rautenberg was told, as a routine part of being a government contractor.

“They would put the papers in front of me, and I would sign them,” he says of the documents, which he never saw again. “I never dreamed there would be a problem signing those papers.”

Worried that the increasingly unpopular Vietnam War might soon have a negative impact on his business, Rautenberg worked even harder at building up his commercial accounts. Although business was never better for ASF than it was at the height of the Vietnam War, the country was in turmoil. “The people were demonstrating in the street,” he recalls, “and they had no idea what was going on in our building. We were right smack in the middle of it all.”

* * *

The unraveling of ASF’s partnership with the CIA, like its beginnings, took place in stages. As the Vietnam War wound down, the Valley branch’s business began to shrink, falling roughly 40% from its peak levels. Some CIA cargo still moved to other destinations in Southeast Asia, like Taiwan and Thailand, and shipments to Mexico and Latin America continued. But around 1973 a CIA-owned airline operation, Air America, blew its cover when a group of pilots sued the government, demanding employee benefits comparable with those provided to other military pilots. As a result of that and other incidents, Idaho senator Frank Church convened his attention-getting investigation into the misbehavior of the CIA. Air Asia became a principal target of the Church committee.

“It was a very painful time,” Rautenberg recalls. “We didn’t know how far the investigation would go or what the results would be.” When it was over, the CIA was directed to sell or disband the private companies it owned, particularly those that, like Air Asia, had been exposed. In January 1975 the CIA sold Air Asia to E-Systems Inc., allegedly for $1.9 million.

That company, a secretive Dallas-based defense contractor well known for maintaining the electronic gear on Air Force One, had on its board at the time retired admiral William F. Raborn, a former CIA director. E-Systems assumed all of Air Asia’s obligations, including its relationship with ASF, along with the government’s promise of complete indemnification from any financial liabilities related to Air Asia’s previous operation. (A few years later, according to court documents, the air force awarded E-Systems $2.4 million to compensate the company for losses it sustained after making the $1.9-million purchase. “It seemed to me like the sale of the century,” Rautenberg says. “They were paid more for buying Air Asia than it cost them.”)

Immediately after the transfer, Rautenberg was reassured that nothing much was going to change as far as ASF was concerned. “They told me it was going to be the same thing in a new wrapper,” he recalls. Any legal problems would still be handled, free of charge to Rautenberg, by O’Melveny & Myers. And many of the people who worked for Air Asia continued to do the same jobs at E-Systems.

But according to Rautenberg, things did change. The first shot across ASF’s bow came when the manager appointed by E-Systems to run the Valley branch informed Rautenberg that he intended to personally take over the bookkeeping chores — along with the monthly stipend. When Rautenberg protested that doing so might once again attract the attention of tax authorities, the manager relented — and gave the job to his wife instead.

Bookkeeping hassles, including late payments to employees and vendors, worsened the situation at the Valley branch. By now, the teamsters’ union, dissatisfied with the changes, was threatening to walk out and picket Rautenberg’s legitimate ASF office. What started out in 1956 as a patriotic business venture had, by 1980, “turned into a den of thieves,” Rautenberg says. And then, what he calls “the disaster” happened: the hammer fell.

In a short, two-paragraph letter dated July 27, 1981, an E-Systems employee thanked Rautenberg “for the support that your company has provided Air Asia since 1969,” the date of one of the documents Rautenberg had previously signed at the request of Air Asia. The next sentence hit like a ton of bricks: “Regrettably, we must discontinue your services to Air Asia.” The cancellation, effective in 30 days, promised to wipe out more than half of ASF’s gross sales. Rautenberg immediately called his old friends at O’Melveny & Myers and was told, he says, that O’Melveny had orders from Washington, D.C., to cease representing Rautenberg and ASF.

Enraged, he headed over to the Valley branch with a locksmith and two of his real ASF employees in tow. “I had no idea what was going on,” one of the ASF employees who made the trip that day recalls. In his capacity as the lessee, Rautenberg had the locks changed. For the first time in 31 years, he had keys to the Valley branch. He relinquished them only after getting signed receipts from E-Systems representatives “for all the cargo and equipment, every single toothpick in the place.”

Stunned by the turnaround, Rautenberg continued to demand that E-Systems comply with the terms of his original 1956 arrangement with Air Asia. At a minimum, he wanted continuous free legal protection and a written promise from E-Systems that it would pay for any liabilities, including state and local taxes, that had been created by the Valley branch. E-Systems ignored Rautenberg’s demands, and 30 days later the ASF Valley branch metamorphosed into a branch of a freight-forwarding operation based in Taiwan. “The Taiwanese freight forwarder was just interested in overcharging the government,” Rautenberg says, hinting at the kickbacks he says he refused to make. Rautenberg adds that he has kept all his records and invoices in good shape, should anyone ever wish to compare what he charged Uncle Sam with what his replacement charged.

Rautenberg sued E-Systems for breach of contract — and began a life-and-death struggle to keep his remaining commercial business afloat. “The first months after the disaster,” he recalls, “I almost went under.”

The disaster was compounded by the fact that, initially, many Air Asia suppliers followed Air Asia’s lead and also took their business to E-Systems’ new Taiwan-based freight forwarder. The sudden, severe drop in sales forced Rautenberg to lay off more than 20% of ASF’s work force. Those who remained, regardless of their official job titles, became salespeople. Bonuses, a routine yearly event at ASF, were canceled, and Rautenberg substantially reduced his own salary. He did manage to keep all the ASF offices open, albeit with overworked skeleton crews.

In a move that paid off handsomely, he established a crisis-management team made up of six of his top managers. “They saved the company,” he says. The team met at least once each week to hone and implement marketing strategies. Every one of the commercial customers that had ever used ASF’s services was contacted and its business solicited. Despite the layoffs, Rautenberg hired three new experienced salespeople. “Everyone was beating the bushes,” he says. Fortunately, the sales push coincided with a boom in international shipments of computers and communications equipment, two market sectors ASF went after in a big way.

While aerospace shipments still constitute ASF’s leading market segment, ASF customers now include music companies that ship tapes and compact discs overseas, pharmaceutical makers, apparel manufacturers, and many of Southern California’s best-known communications-equipment and computer makers. It was a team put together by ASF, for example, that helped Microsoft get its first diskettes into Eastern Europe. Thanks to the surge of commercial business, ASF has opened offices in Atlanta, Boston, Chicago, Miami, and Munich since “the disaster.”

Despite ASF’s recent commercial success, some of Rautenberg’s employees say the legal turmoil that has engulfed the company has kept its founder from concentrating fully on building the business. He has spent much more than $1 million in legal fees so far, and the meter is still running. The expenses, Rautenberg concedes, are substantially larger than the actual financial damages he suffered, especially since no one at the California state tax board has ever come after ASF for the unpaid back taxes — although Rautenberg says he still worries that someone might.

“He works incredibly hard,” notes Emil Justrich, 55, ASF’s general manager, who joined the company as a shipping clerk 31 years ago. “He almost never leaves his apartment,” Justrich says, using a favorite ASF euphemism for his boss’s office, which does, in fact, have a cluttered suite behind what looks like a closet door. Inside, a small bathroom opens onto a larger room filled with couches and chairs. “He practically lives here,” Justrich says.

“There is no doubt that we would be considerably larger with more offices than we have today if it weren’t for this,” says Justrich, who serves on the senior management team that still helps lead the company. “That fight sometimes consumes half of his [Rautenberg’s] attention.” And no end appears in sight.

Meanwhile, $11,910.73 sits in the old Valley-branch ASF bank account, abandoned when E-Systems canceled ASF’s contract. The money technically belongs to Rautenberg, whose name appears on the account. “I won’t touch that money,” he says of the funds that have been on deposit for the last 13 years. “It’s not mine. It belongs to the government.”

* * *

Hal Plotkin is an independent journalist who covers business and science and is based in Palo Alto, Calif.



The piles of pulp in Erwin Rautenberg’s office are a monument to the freight forwarder’s nearly-13-year legal battle with his former client and silent business partner, the Central Intelligence Agency. Down the hall, Air-Sea Forwarders’ long-haired office cat, Bloomie, shares a room with Rautenberg’s mother lode: a half dozen file cabinets stuffed with additional documents, court pleadings, newspaper clips, and depositions.

Since filing his first lawsuit, in 1981 for breach of contract, Rautenberg has gone through seven law firms and about a dozen lawyers en route to winning two jury trials. In 1986 a federal jury awarded Rautenberg $6.2 million in punitive and compensatory damages, plus more than $1 million in legal expenses. That verdict was overturned by the presiding judge, Richard A. Gadbois Jr., after a private in-chambers meeting with CIA officials. Judge Gadbois, who was appointed to the bench by President Ronald Reagan in 1982, declared that Rautenberg had “blown cloak-and-dagger smoke at the jurors.” A federal appeals court reversed that ruling and ordered a new trial, scheduled for June of this year. Additionally, in 1992 a California state court determined that an E-Systems countersuit, which alleged that Rautenberg had defrauded Air Asia and misappropriated shipments, constituted “malicious prosecution,” and Rautenberg was awarded an additional $4.8 million in damages, although E-Systems has appealed, leaving that money sitting in an escrow account, where it’s earning 10% interest.

From the beginning Rautenberg has also tried to settle the case out of court. In 1984 he turned to lawyer Mickey Kantor, now U.S. trade representative, to try to work out a deal with E-Systems. The negotiations seemed to be moving along, Rautenberg says, pointing to his correspondence with Kantor, which indicates that, at one point, E-Systems was prepared to offer Rautenberg a cash settlement, a 10-year consulting contract, a written apology, and a medal “honoring Erwin Rautenberg for his years of honorable and valuable service to the United States.” Whether a private company is authorized to offer government medals is, of course, “an interesting question,” notes Rautenberg.

Just who backed away from the settlement is in dispute, but Rautenberg claims that on Election Day 1984, as Walter Mondale was getting his clock cleaned by Ronald Reagan, Rautenberg was urgently summoned to Kantor’s office, where federal agents were waiting. When he arrived, Rautenberg says, he and his lawyers, including Kantor and John Emerson, now White House deputy personnel director, were intimidated by federal agents into signing a protective order about his company’s previous relationship with the CIA under the threat of immediate arrest or even more dire consequences. Neither Kantor nor Emerson will comment on the meeting, but one other participant does confirm Rautenberg’s version of the events.

Despite the protective order, which prohibits Rautenberg from using or requesting government secrets to press his legal appeals, he continues to claim that because he was not given a copy of the secrecy pledge, he should not be expected to comply with it. (Congressman Howard Berman, chairman of the House Subcommittee on International Operations, recently petitioned the CIA to reverse the protective order.)

E-Systems, with $1.6 billion in contracts from the CIA and the Pentagon, turns away all inquiries about Rautenberg and ASF, citing its obligation to maintain the confidentiality of its government contracts. Sounding more like a jilted lover than a former secret government contractor, Rautenberg says he wants the money two juries have awarded him. He wants ironclad protection from the tax authorities. He wants a public apology. “And I want that medal.”



(Numbers are approximate yearly averages, in millions)

Commercial Commercial
Total Gross gross sales gross sales
ASF sales from from non-
gross CIA/Valley CIA-related CIA-related
Years sales branch customers customers
1948 – 1950 $5 – – $5

1950 – 1956 $45 $40 $2 $3

1956 – 1970 $62 $50 $9 $3

1970 – 1975 $52 $38 $10 $4

1975 – 1981 $43 $27 $11 $5

1981 – 1985 $33 – $8 $25

1985 – 1992 $36 – $11 $25

Source: Erwin Rautenberg




Rautenberg’s version

Government’s version*

1956 handshake agreement

ASF agrees to provide cover for CIA packing operation

It never happened

Air Asia

Rautenberg knew it was a CIA-owned plane-maintenance-operation

Was a commercial air enterprise owned by CIA without Rautenberg’s knowledge

ASF Valley branch

Facility where Air Asia concealed a CIA packing-and-shipping operation. Rautenberg had no key and no access to records or materials at this site

Facility that ASF allowed Air Asia to use exclusively as way to provide good customer service to an important large commercial account

Air Asia tax avoidance

CIA used ASF as a cover to avoid state taxes on CIA goods taken out of transit

CIA used ASF as a legitimate commercial-tax-reduction strategy

E-Systems legal bills

Paid in full, in perpetuity, by CIA

Not reimbursed by any government agency

O’Melveny & Myers

Prestigious L.A. law firm retained by CIA. Worked out legal problems, such as tax-avoidance scheme, Valley-branch lease, union contracts

Prestigious L.A. law firm retained by CIA-owned Air Asia, a commercial enterprise. Law firm didn’t know who really owned Air Asia

Protective order

In 1984 Rautenberg was forced to sign this agreement prohibiting use of certain evidence

Government requested this order to protect confidential information not related to ASF/Air Asia dispute

*Position compiled from legal documents, court papers, and an interview with a government official familiar with the case.

About the Author /

My published work since 1985 has focused mostly on public policy, technology, science, education and business. I’ve written more than 600 articles for a variety of magazines, journals and newspapers on these often interrelated subjects. The topics I have covered include analysis of progressive approaches to higher education, entrepreneurial trends, e-learning strategies, business management, open source software, alternative energy research and development, voting technologies, streaming media platforms, online electioneering, biotech research, patent and tax law reform, federal nanotechnology policies and tech stocks.