'The Spy Who Conned Me': a real-life thriller in Surrey

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John Savage, left, took millions from British firms who thought they were helping the CIA.Now the US government is impeding efforts to bring the affair into the open. Mark Watts reports on a potentially explosive US court case

A SMALL British life assurance company has brought the wrath of the United States' Central Intelligence Agency upon itself by filing a lawsuit that exposes the activities of a rogue CIA agent in Britain. The case, brought against the US government by Monarch Assurance, a firm with branches in Cheshire and the Isle of Man, threatens to reveal a secret CIA operation worth billions of dollars to fund Eastern bloc countries emerging from communism - without the knowledge of the US Congress. Such an operation would have been not only contrary to official US government policy of the early 1990s, but also illegal in US law. If proved, it would be a repeat of the "Iran-Contra" scandal of the 1980s, in which Oliver North used Iranian money to su pport right-wing Nicaraguan rebels. The CIA director, John Deutch, has issued the American equivalent of a public interest immunity certificate to try to persuade a US court to dismiss the case. The hearing takes place in Washington on Tuesday. The firm, suing the US government for $70m (pounds 45m), is one of six companies which, together with more than a dozen British individuals, were defrauded a total of $30m by John Savage, an American financier based in Britain between 1985 and 1992.Anot her was the cooker manufacturer Belling, which lost $3.5m just before it collapsed. Mr Savage claimed to be a CIA man. Mr Deutch does not deny his claim but is most unwilling to throw light on it. He says in an affidavit: "I have determined that any discussion of John Patrick Savage's alleged relationship with the CIA would necessarily involve information protected from disclosure [by statute]." Mr Savage, who died aged 39 two years ago, officially of cancer, told business people in Britain and Europe that he was the CIA's deputy director of European affairs, and that he was running two covert projects, codenamed Bluebook and Ultima, to finance countries as they moved away from communism. The CIA would do this, he said, by secretly accessing funds such as overseas deposits belonging to the late Ferdinand Marcos of the Philippines, and Chinese assets frozen by the US government after Mao's revolution; but to secure them it needed payments in advance. Those who paid were promised large returns when the frozen cash was freed, with Mr Savage providing documentation that appeared to show the transactions were sanctioned by the US government, and that advance fees would be kept in protected accounts and r eturned if anything went wrong. Monarch Assurance, for example, paid $8m in 1990 in return for what appeared to be contractual commitments that it would subsequently receive $35m. But the promised payments never materialised. Mr Savage used money advanced to him for an extravagant lifestyle with his English wife Sarah that included an pounds 820,000 six-bedroom house set in 14 acres in Surrey, and a formidable classic-car collecti on of Porsches, Ferraris and Mercedes. (One Porsche 959 Comfort was bought with a pounds 550,550 cheque.) In America, he owned another four properties, more Porsches and three light aircraft. That he was a fraudster is clear. In some capacity, he worked for the CIA, although it is unclear whether he was its deputy director of European affairs or whether projects Bluebook and Ultima existed. The agency will not comment. But Monarch's attempt to retrieve its promised $35m - plus interest at a 15 per cent annual rate, adding an extra $35m - and have these allegations examined in a US court has alarmed Washington. Mr Savage's activities are considered so potentially embarrassing to the CIA that their revelation would "result in irreparable damage to future diplomatic relations with foreign countries", according to US government lawyers, who have filed two affidavi ts signed by Mr Deutch, one of them secret, arguing the case be dismissed on grounds of national security. If Projects Bluebook and Ultima did exist, the CIA was contravening the official foreign policy of George Bush's Republican administration, which d eclined to pour aid into the Eastern bloc states and the tottering Soviet Union in the immediate aftermath of the 1989 fall of the Berlin wall. Monarch's Isle of Man-based managing director, Patrick Taylor, said: "We were told that money was required to enable the Bluebook project to be completed. We were told that Bluebook was basically to do with the funnelling of gold bullion related to the M arcos regime and the Philippine government to Russia." He added: "I believe Mr Savage was directly involved in projects aimed at turning Russia into a free-market economy." Giudo Reynolds, a solicitor who held Mr Savage's power of attorney in Britain, says in an affidavit for the lawsuit: "Savage told me that his work was 'covert', and hence there was the necessity for secrecy and for him to do certain things - like raising money within the UK - to avoid scrutiny by the Senate [intelligence] committee. "I was told by Savage that the monies were used to break down communism within the communist bloc, to help Russia become more open, and to assist in the unification of Germany." Mr Taylor became suspicious when the payment was "delayed", and checked whether Mr Savage really was a CIA officer by hiring a senior Washington lawyer, Lloyd Cutler, to carry out enquiries. A former intelligence officer with good connections to theCIA, Mr Cutler is a past counsel to Presidents Clinton and Carter and is currently Hillary Clinton's attorney. He established that Mr Savage worked for the CIA, and confirmed this for Monarch's lawsuit. He says in an affidavit: "I made appropriate inquiries with persons who were then or who had been officials of the agency... I was advised that one John Patrick S avage had had a relationship with the agency in recent years." The US court has already decided that Monarch has filed evidence showing Mr Savage did work for the CIA. The judge, Roger Andewelt, told the company's lawyers at a hearing last month: "You have certainly made a prima-facie case that he was deputy [direct or of European affairs] at the CIA." The judge also revealed that Mr Deutch's secret affidavit rejects Monarch's claim that it had an enforceable contract, but says nothing to deny that Mr Savage worked for the CIA. The court hearing on Tuesday is to decide whether Monarch can show Mr Savag e had authority to sign the contracts. The lawsuit could help the appeals of Mr Savage's British solicitor, Charles Deacon, and a UK associate, Keith Fuller, who were jailed for nine and seven years respectively last January in London for encouraging businessmen to participate in Mr Savage's transactions. They say they believed Mr Savage was a CIA officer, and that the agency would make the promised payments. The US court's acceptance that there is a prima-facie case Mr Savage worked for the CIA, and the basis for that belief, could prove critical tothei r appeals.