SPIES FOR THE NEW DISORDER

By ELAINE SHANNON AND DOUGLAS WALLER WASHINGTON

Driving to a Mediterranean seaport in 1986, Tom Darcy didn't realize he was part of espionage's wave of the future. Most CIA officers operate overseas as U.S. diplomats. But Darcy was posing as a businessman, an operative with what the CIA calls nonofficial cover, or NOC (pronounced knock). Darcy was transporting signal- interception equipment to a CIA boat that would sail off the coast of Lebanon to eavesdrop on terrorists. In front of him, police at a roadblock were searching all cars. If the police discovered his spy equipment, there would be no diplomatic immunity to keep him out of jail.

Darcy had come dangerously close to trouble not long before. The previous year, on a secret surveillance operation in the Caribbean, he had had to convince a Bahamian cop pointing a machine gun at his chest that he was a tourist, not a drug trafficker. Now he kept his cool as border police searched his car. They never found the gear hidden in secret compartments. ``There were a couple times I thought I was coming home in a body bag,'' recalls the spy.

Darcy left the agency in 1993. But more and more of the spies being recruited today are going into his school of hard NOCs rather than the diplomatic corps. For the past four years, the CIA has been quietly expanding its NOC program, placing undercover officers in U.S. businesses that operate overseas. The reason is simple. During the cold war, CIA case officers under embassy cover could cruise foreign ministries and cocktail parties to collect intelligence on the Soviet Union. But, as last week's arrest of Ramzi Ahmed Yousef showed, drug traffickers, terrorists, nuclear smugglers, money launderers and regional warlords aren't found on the diplomatic circuit. To penetrate the new threat, unconventional covers are needed. Indeed, President Clinton's newly nominated CIA spymaster--Air Force General Michael P.C. Carns--will have to continue to grope through the murky new world of espionage. ``General Carns will face a challenge,'' Clinton said last week. ``The cold war is over, but many new dangers have taken its place.''

Even before he figures out how to deploy his spies, Carns will have to deal with the bureaucratic miasma of the agency. Morale is at rock bottom. Young case officers are privately demanding a housecleaning of top officials in the clandestine Directorate for Operations, whose lax management and protective culture allowed Aldrich Ames to get away with selling secrets to Moscow for nine years. Last December the CIA settled a lawsuit with former Jamaican station chief Janine Brookner for $410,000 plus lawyers' fees. Brookner claimed she was denied promotions after she disciplined subordinates for drinking, carousing and, in one case, wife beating. ``They're almost a whole generation behind in their thinking about how to handle a modern work force,'' a recently retired senior CIA official says of the Directorate.

The intelligence community, which includes the CIA as well as the Pentagon, the State Department and FBI intelligence services, hasa $28 billion-a-year budget. That is likely to shrink, given thecost-cutting mood in Congress. Its most expensive items are the billion-dollar spy satellites that former CIA Director James Woolsey, who had frequent funding battles with Congress, wanted to upgrade. But Senate critics complain that the CIA already has six photographic spy satellites sitting in warehouses, which, along with the ones in orbit, could take pictures for at least the next decade. New satellites for intercepting communications signals would be parked most of the time over the former Soviet Union. ``They should have been sent to the Air and Space Museum,'' argues John Pike, a space expert with the Federation of American Scientists.

Amid the debates about funding and organization, the CIA continues to expand its NOC program. Intelligence officials say several hundred NOCs are now in the field, and the number is growing. Senior officials from the agency's National Collections Branch have been quietly approaching businesses doing overseas work to ask if they will provide covers for CIA case officers. Energy companies, import-export firms, multinational concerns, banks with foreign branches and high-tech corporations are among those being approached. Usually the company president and perhaps another senior officer, such as the general counsel, are the only ones who know of the arrangement. ``The CEOs do it out of a sense of patriotism,'' says former deputy CIA Director Bobby Inman.

In effect, the companies get free executives. For the cover to be plausible, the CIA must recruit business-school graduates who can put in a productive day's work with the firm and then spy during their off-hours. The CIA has even begun experimenting with recruiting mid-level corporate executives who yearn for adventure, then placing them in overseas firms as ``NOCs of convenience'' to penetrate a target for several years. When the mission is over, the execs return to the business world. But while they are NOC officers, the CIA pays them a government salary. The company pays them a corporate salary-- usually much larger--to keep up the cover, but that money is quietly returned to the company. In fact, the agency's Covert Tax Branch has a secret relationship with the IRS to resolve the two W-2 forms an officer gets each year. The disparity in salaries, however, has already created a retention problem for the CIA. A NOC officer who discovered that his corporate earnings were making him a millionaire on paper recently left the agency to work in the company as an honest-to-goodness executive.

To recruit NOC officers, the CIA, working through phony front companies, will place advertisements in major newspapers asking for young business- school graduates who want to live overseas. Or the front company will hire corporate headhunting firms that remain unaware that they're finding candidates for the CIA. Applicants are told to show up at a northern Virginia business, where the vetting begins. Eventually, the recruit is told about the real job he's being asked to do. If he agrees, training begins at a secret location away from the ``farm'' at Camp Peary, Virginia, where other CIA officers are trained. The NOC classes are small, no more than two or three students, all of whom are given new names. Their real names will never appear on any personnel list in the agency's computers at its headquarters in Langley, Virginia.

Intelligence officials say that placing NOC officers overseas can be four times as expensive as assigning officers under an embassy cover. It can cost the agency as much as $3 million to set up a CIA officer as a corporate exec in Tokyo. Elaborate clandestine communications must be established so the NOC officer can pass his intelligence on to special handlers, who are often based in another country. The CIA's Office of Central Cover must assign a staff member to handle a NOC officer's personal affairs and keep his real-life bills paid while he leads his cover life. Companies providing the cover are understandably skittish about having it blown. Time contacted half a dozen Fortune 500 firms to ask if they accepted NOC officers. Most either refused to comment or said they do not participate. ``There's a real serious concern about the risk of exposure,'' said an executive for a high-tech company that once accepted NOC officers but no longer does.

NOC work can take its toll on the case officer as well. NOC officers cannot count on just being expelled from countries like officers with diplomatic immunity. Their post-cold war enemies don't trade captured spies as the KGB would. NOC officers in Colombia who have set up import-export companies as covers--bribing drug couriers on the side for intelligence--have been wounded or killed in gunfights with traffickers. A NOC officer serving in Africa was beaten up and jailed for a month. Another, grabbed by a Hizballah faction in Beirut, managed to talk his way out by convincing his fundamentalist captors that he was a U.S. narcotics agent fighting evil drugs. ``You've got to be your own life-support system,'' says John F. Quinn, who once worked as a NOC officer in Tokyo collecting economic intelligence. ``You're out in the cold. You're alone. You have to be a tightrope walker all the time, balancing your corporate job, your intelligence job and your mental sanity.''

But the CIA believes NOCs are the best way to carry out many clandestine operations. A foreign-intelligence service usually has no trouble spotting CIA officers operating under an embassy's cover. Not so for NOCs. ``If you're working drugs, thugs or tech transfers, you're going to be in banks all the time looking at financial transactions''--jobs often better suited for an officer under corporate cover, says a CIA contractor. NOC officers also have had more luck spying on ``hard targets'' such as Iran, Iraq and North Korea, where the U.S. has no embassies in which to hide CIA operatives. In some countries, Time has learned, the CIA is even experimenting with setting up two stations. One would be under the traditional embassy cover to serve as a decoy, while another much more secretive station would handle the NOCs.

Carns, whose confirmation by Congress is likely, will have a lot of people looking over his shoulder as he directs his new spies. The White House has appointed an independent commission, headed by former Defense Secretary Les Aspin, to produce a report by March 1996 on future directions for the entire U.S. intelligence community. The House Intelligence Committee is preparing a similar report, while Senate Intelligence Committee chairman Arlen Specter announced he is drafting legislation to reorganize and cut overlap in intelligence collection. Carns promised last week that the operation ``will be leaner, but at the same time we will do more of the more important things.''

However, the CIA is a byzantine organization made up of secretive fiefdoms that have walled out other directors who came from the outside. If Clinton isn't re-elected, Carns may end up being only a caretaker for two years until another President appoints a new spymaster.