From ............... National Catholic Reporter

May 5, 1989

By- [the late] Penny Lernoux


[2 of 3] page 11

P-2 was unmasked in 1981 during police investigations into the Mafia contacts and financial crimes of Italian banker Michele Sindona, who for many years was the chief influence in the Vatican Bank, thanks to his contacts with Paul VI and Prince Massimo Spada, a Vatican nobleman, top financial adviser to the Holy See, and a Knight of Malta. Numerous members of P-2 also turned out to be Knights of Malta, including several military and police intelligence chiefs and bankers.

The most sinister was Count Umberto Ortolani, SMOM's ambassador to Uruguay and the brains behind the P-2. Ortolani had extensive bank and real estate holdings in Uruguay and was at one time the head of Uruguay's second-largest private bank, Banco Financiero Sudamericano. He also established a P-2 branch in Montevideo, with about 500 members, including prominent military hard-liners. When the P-2 scandal broke, Ortolani fled to Sao Paulo, Brazil, whence the Italian police were unable to extradite him, because of Brazil's resistant extradition laws.

The membership overlap of P-2 and SMOM is not surprising in view of the conspiratorial, right-wing outlook of some factions of the European Knights. For example, SMOM members also belong to the European Freedom Council, a spin-off of the Anti-Bolshevik Bloc of Nations. The bloc is itself a regional federation of ex-Nazis, including the Croatian Ustashi, that came into being with U.S. financial aid in another variation of Project Paperclip and the rehabilitation of "Ghelen Org" by the OSS/CIA. These groups form the core of the ultraright World Anti-Communist League [WACL], which in the 1980s oversaw the private funding network for the Nicaraguan contras in cooperation with the New York branch of SMOM and a cabal of American Knights, including former CIA Director William Casey and J. Peter Grace.

The Knights as a group are primarily attracted by the cachet of membership in an ancient and romantic religious order and by the noblesse oblige of a charity sponsored by aristocrats. Or as one specialist put it, "Humberto Ortolani is quite a different case from a vice president of a Midwest corporation in the United States."

On the other hand, the process of selection guarantees that those recommended for membership by the national associations and their "protectors" [either the local cardinal or king or queen] share a political outlook and exercise political and economic influence. Prospective members cannot apply to join but are recommended by the existing membership for what is usually pro forma approval by headquarters in Rome.

As in any aristocratic organization, children have hereditary rights of membership, which they do not always exercise [Kennedy children failed to join]. Members of local SMOM associations tend to frequent the same clubs and boardrooms. Often, they have gone to the same schools and followed parallel careers in government and business. In the United States they are virtually a Catholic establishment.

Contrary to conspiracy theories that SMOM is running a secret world government, its dubious character arises from the actions of individual Knights or groups of Knights who support political projects that "would be good for our side," in the words of a knowledgeable church source. SMOM is more useful for such projects than a private club or foundation because its sovereign status provides diplomatic immunity - valuable in sending shipments through foreign customs, for example - and it maintains a network of contacts around the world. A SMOM seal on a Knight's project also gives it the appearance of church support, although the Vatican may have no control over the venture or even know of its existence. This is particularly true of the activities of Knights outside Europe, most of whom are not personally known to headquarters in Rome.

In any case, headquarters is hardly equipped to run a world conspiracy. Housed in a small palace on a narrow, crowded Roman street, SMOM's offices are more suitable to a museum than a military command post. The order's grand master, Sir Andrew Bertie, a Scottish friar and a cousin of England's, Queen Elizabeth, and his court are primarily concerned with protocol, knightly honors and the Vatican intrigue that inevitably infects church institutions in Rome. Church sources familiar with SMOM's workings dismiss the idea that the prince is "privy to all the schemes of Knights in other countries," and they cite the case of J. Peter Grace Jr., the best-known American Knight and the most controversial.

Scion of the W.R. Grace fortune in Latin America, Grace is high-handed, ambitious and frenetically busy. Such qualities helped him build the family business from annual sales of $12 million when he took control in 1945 to $7.1 billion by the mid-1980s, but they have not always endeared him to the church. Although Grace is admired for his fundraising on behalf of Catholic institutions, he evokes mixed reactions in New York church circles, where he is seen as a second power center in competition with the archdiocese through his position as president of the U.S. eastern Knights.

Spellman, who was tough as nails and shared Grace's right-wing philosophy, knew how to handle the Knight, but later cardinals who fell heir to the role of "Grand Protector" found the relationship more vexing. According to a source intimate with Terence Cooke, Spellman's successor, the cardinal had difficulty controlling Grace. "He would call up five and six times a month with some idea, and Cooke would tell him, 'Peter, you can't do that,' because Grace was involving the Knights of Malta in a political scheme. Ordinary Knights out in the Middle West aren't into that sort of thing, but Peter, who is a crusader and really believes he is a religious knight, would use them for his political schemes. And he was all over the place.

One minute we would get a message that he was flying to Brazil, the next to Japan. You never knew what he would get into next. Cooke was always afraid he would drag the Knights and the church into some political mess involving the government. He wanted to send a complaint to Rome about Grace's activities, but who do you complain to in Rome? Some old gentleman in a marble palace at SMOM headquarters ?

Grace got the Knights involved in contra funding when Cooke was dying, and Cooke's chief concern, even though he was so ill, was Grace. 'What's Peter doing?' he would ask. Grace can never get enough power, and he can cause the church embarrassment. He's a very important Catholic layman who speaks to Republican corporate leaders who are Catholics and who is identified with Reaganism. He has done some good things for the church, such as his charitable foundation, but he is dangerous."

One expert on the Knights of Malta came to similar conclusions: "When Grace puts pressure on the archdiocese, he is saying, I am an important Catholic layman. But he is doing it for political reasons. Nor should one forget that W.R. Grace is a major corporate power."

Blunt and often outrageous, Grace has been accustomed to flaunting his power since he was a young executive in his father's empire. In those days, W.R. Grace was chiefly involved in shipping, planes, sugar plantations and mining in Latin America, and some chemicals. But Grace, soured by the loss of company properties in Cuba after the 1959 revolution and by rising nationalism in Peru [originally the pillar of the empire], virtually abandoned Latin America to concentrate on agricultural chemicals, oil and later, retailing and restaurants.

Grace describes his hobbies as "economics and anticommunism," and he pursued both in his public activities. For example, he was a trustee of the American Committee for Liberation from Bolshevism, which was founded in 1950 and later became Radio Liberty.

Under the guiding hand of the CIA, the committee funded various "research institutes," which were "little more than front groups for ex-Nazi intelligence officers," according to John Loftus [author of UNHOLY TRINITY ] who had access to secret documents on the subject as a prosecutor in the Office of Special Investigations, the Justice Department's Nazi-hunting unit.

A year after the committee was established, Grace hired a Nazi scientist, Otto Ambros, following his release from prison, where he had served three years for war crimes because of his work with I.G. Farben, the multinational chemical giant that fueled Hitler's war machine. Ambros subsequently became a director of a subsidiary of the giant Flick conglomerate, another German dynasty that played a role similar to that of Farben during the war.

While Friedrich Flick Sr. was being tried for war crimes, his son and heir Friedrich Karl was sent to the United States to work in a small New York bank controlled by the Grace family. Grace later claimed that the younger Flick "is like a member of the family."

Flick purchased 26 percent of W.R. Grace stock, but the deal came under strong attack in Germany when it was revealed that Flick had paid off German politicians to hush up the illegal use of a tax loophole to make the Grace investment. Grace got little sympathy from Wall Street when he had to buy back the flick stock since he has treated the Street much as he has the New York archdiocese, by thumbing his nose at its advice and warnings.

Grace feels strongly about the "communist threat" in Latin America, and since the 1960s has actively promoted the American corporate way of life in the region. For many years he was board chairman of the American Institute for Free Labor Development [AIFLD], a Trojan horse for the multinationals and the State Department that was involved in a string of U.S.-supported coups, including the overthrow of elected governments in Brazil and the Dominican Republic.

He also chaired a businessmen's committee charged with evaluating President Kennedy's Alliance for Progress that recommended less aid to the Latin Americans and more tax breaks and subsidies for

U.S. corporations. He expressed his feelings about Latin Americans and government aid when he told a meeting of the American Feed and Grain Manufacturers Association that the number one cause of government waste was "Puerto Rican food stamps," Puerto Ricans being the biggest recipient of such aid - a claim that was factually untrue and a racial slur.

His statement caused a furor in Puerto Rico, where his company has investments, forcing him to fly to the island to make an official apology. Nevertheless, Grace continued to air his controversial opinions, as in a $400,000 newspaper and TV advertising campaign in support of Reaganomics. He nagged so much about government waste that Reagan finally appointed him to head a task force on ways to reduce government spending.

The task force produced some 2,500 recommendations, including those by representatives of oil, plastics and chemical corporations, among them W.R. Grace, who were charged with advising the government on how to prune spending by the Environmental Protection Agency. Congressional committees raised the question of conflict of interest, since W.R. Grace was embroiled in a major lawsuit in Massachusetts over W.R. Grace's alleged contamination of well water. In any case, the Congressional Budget Office and the General Accounting Office, which reviewed the task force's work, found that few of the recommendations were of practical use.

In addition to running the task force and his company, Grace found time to support the attack by Michael Novak and William Simon on the U.S. bishops' economic pastoral; the Reagan-backed, anti-Castro radio station, Radio Marti; and various schemes against the Sandinistas, including a contra lobby headed by Lewis Lehrman, a drugstore tycoon, former candidate against Mario Cuomo for governor of New York and a Knight of Malta.

In May 1984, when Managua's Cardinal Obando y Bravo was visiting Cardinal John O'Connor in New York, a Grace representative was dispatched to meet with the Nicaraguan to discuss his request for money for his archdiocese's leadership formation programs. No friend of the Sandinistas, the cardinal painted the situation in Nicaragua in the blackest terms, according to a memorandum of the conversation sent to Grace. The memo recommended that funds from the Sarita Kenedy East Foundation, of which Grace had partial control, be used to support the cardinal's programs since they "represent the best organized opposition in Nicaragua."

Some $30,000 was reportedly earmarked for the Managua archdiocese, but the plan was ruined by public revelation of the memo and Obando's meeting with a Grace representative. In the end, the aid was limited to a shipment of rosaries that was confiscated by Nicaraguan customs. Although Obando later claimed that he had never solicited money from W.R. Grace, the memorandum from Peter Grace's representative, John Meehan, clearly showed that Obando had hoped to obtain substantial financial support from the Catholic millionaire.

O'Connor, who is SMOM's current "Grand Protector," strongly supported Obando and saw nothing untoward in making the archdiocese's offices available for the 90 minute interview with Meehan. As a close associate of the cardinal explained, O'Connor believed in respect for the hierarchy, and he "implicitly trusted" Obando, whereas he felt "total repugnance" for the so called "popular church" that supported the Sandinista government.

On the other hand, said his associate, O'Connor was not unaware "of the horror stories about the contras," and he supported the policy of the U.S. bishops" conference in opposing aid to the contras.

Grace, in contrast, was gung ho for the contra cause and used SMOM's network to help provide private funding. Millions of dollars in supplies were channeled through the Knights to the contra camps in Honduras; distribution was facilitated by SMOM's diplomatic privileges and its Central American membership. Among the largest shipments handled by the Knights were those from the Americares Foundation, directed, among others, by Grace; former Treasury Secretary William Simon, also a Knight; and Prescott Bush Jr., brother of President George Bush.

Founded during the Vietnam war to raise money for Saigon children, Americares later focused its attention on Poland, Lebanon, Afghanistan and Central America. Most of its supplies are donated by U.S. pharmaceutical companies and AID, ...........

[AID is US taxpayer funded "Agency for International Development" .... JP ]

.............. but it also received contributions from Pat Robertson's Christian Broadcasting Network. Another important contributor was the Nicaraguan Freedom Fund, established by the Reverend Sun Myung Moon's Unification Church. Simon was a board member of the fund, as was cold warrior Clare Booth Luce, SMOM's leading American Dame and a board member of Moon's 'Washington Times.'

Logistics in Central America were handled by Roberto Alejos, a wealthy Guatemalan sugar and coffee grower who was SMOM's ambassador to Honduras and had had a relationship with the CIA since 1960 when the agency used his estates to train Cubans for the Bay of Pigs invasion. Grace's explanation of why the Knights of Malta were running the supply network instead of such established aid groups as the Red Cross was that "the Knights have been doing this for 900 years. They have their own cross [the Maltese cross] ......They'd consider themselves way beyond the Red Cross."

Although Grace told fellow Knights that their good deeds in Central America "reflect glory on the Order of Malta," on-the-spot investigations showed just the contrary. Supplies sent to Guatemala, for example, were used by the military in its "model village" program, which forcibly relocated Indian peasants to controlled settlements that were little better than concentration camps. A report by a Canadian government aid mission to El Salvador stated that the Knights' supplies were also going to military-controlled relocation camps of displaced Salvadorans.

Santa Tecla, the camp the mission visited with the Knights of Malta ambassador, "left an awful impression on us," according to the Canadian report. In some ways, it reminded us more of a squalid prison camp than a social rehabilitation or reintegration experiment." Yet another settlement, near San Juan de Opico, adjoined a heavy artillery training camp for the military and "caused some trepidation to those installed there."

The Canadians questioned the "neutrality of relocation schemes undertaken by a government at war with part of its own population" and drew a sharp distinction between groups like AID, the Knights of Malta and Project Hope, which were working with the government, and independent charitable organizations that served the people's needs. The mission recommended that the Canadian government not participate in any of the government-associated projects.

It was clear to the Canadians that the U.S. and Salvadoran governments were attempting to destroy any possible peasant support for the guerrillas by bombing the peasants out of the countryside and forcing them into relocation camps similar to the "model villages" in Guatemala. Unlike the Knights of Malta, the Canadians wanted nothing to do with a plan that they said was "ethically questionable."

In contrast to Grace's Knights, SMOM members in other parts of the country are more circumspect [the U.S. membership is divided into three associations - eastern, southern and western]. In California, for example, most of the Knights' charity goes to traditional good works, such as hospitals and clinics. But, of course, the western Knights do not have such a determined crusader to lead them.

Grace, who often works 16 to 18 hours a day, is a driven man.

He always wears two watches, one with the local time wherever he happens to be, the other with the time back at New York headquarters. He is in such a hurry that, on occasion, he dictates to two secretaries at the same time. He wears a gun in his belt, which he will display when showing off a 34-inch waist - one of his many vanities. Another is his refusal to wear a hearing aid, forcing people to shout to make themselves heard.

Although he is famous for telling off his executives and for demanding yards-long "spread sheets" with infinitesimal operating detail, a former executive gave him high marks for building W.R. Grace into a corporate giant. As to the "spread sheets," he said, Grace "feels about numbers as other men do about women or alcohol. It's a passion."

Passionate is also a good description of Grace's feelings about peace activists, affirmative action, environmental programs, government bureaucracy and the media, all of which he loathes. Described by one biographer as "a living example of the roots of Reaganism," Grace hates the New Deal and passionately yearns for a time when business was unfettered. But he also stands in the older SMOM tradition of kings and crusading knights. His stamp on the eastern chapter of SMOM, which he has led for many years, is clearly reflected in the choice of members, eight of whom are on the board of W.R. Grace, including the order's chancellor, John D.J. Moore, former U.S. ambassador to Ireland.

Other influential Knights and Dames include(d):

William Casey, director of the CIA from 1981 until his death, in 1987. Casey, who began his government career as chief of the OSS covert intelligence branch in Western Europe, symbolized SMOM links to the U.S. and European intelligence services.

Casey was a good example of the cynicism of some Catholics in government - a man who could divorce public morality from private morality without seeing the connection. According to the Washington Post, he had intended to lie to a Senate commission about the sale of U.S. arms to Iran by saying that government authorities knew nothing about the delivery of U.S. antitank missiles. Casey changed his testimony, said the Post, only after Secretary of State George Shultz raised hell.

The Post's' Bob Woodward confirmed - as did Lieutenant Colonel Oliver North - that Casey was aware of the illegal transfer of money to the contras from U.S. arms sales to Iran. Nevertheless, he mumble-bumbled through congressional questioning about the CIA's role in the scandal, asserting in public that "I don know anything about [a] diversion of funds." [An intelligence Committee report found that Casey had been "less than candid" in his testimony to Congress.]

An aggressive businessman and master of deception, Casey was a vain man who made a fortune as a New York City lawyer. He skirted the law on several occasions, as in his controversial dealings with fugitive financier Robert Vesco when Case was head of the Securities and Exchange Commission.

But this did not hurt his standing in Republican circles, and in 1980 he became Reagan's campaign manager. He received the CIA directorship as a reward for his services.

Both before and after Reagan nominated him to head the CIA, he was part of a small inner circle that chose cabinet appointees, and he continued to influence policy through "The Group," a select gathering

Pictures of- William Casey, Peter Grace, and Cardinal O'Connor.