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Gary Webb
MANAGUA -- To help Nicaragua's teetering tyrant, Anastasio Somoza, fend off a band of leftist guerrillas called Sandinistas, the United States in the late 1970s poured millions of dollars into this tiny Central American nation.

It may well be the worst investment Washington has ever made.

What taxpayers eventually got for their money, an 11-month Mercury News investigation found, was a deluge of crack cocaine, a scourge that has ruined countless lives, decimated inner city neighborhoods, and filled prisons with thousands of young black men.

For more than a decade, the sordid saga of how U.S. foreign policy brought crack to black America has been hidden away in secret government files and sealed court records scattered across the country. Many details are still confidential. But thanks to some newly declassified documents and evidence produced during three recent cocaine trials -- two in California and one in Nicaragua -- the story is finally emerging.

The labyrinthine trail starts here, in Nicaragua's dusty capital, with the last breaths of a dying dictatorship. In June 1979, amidst the chaos of Somoza's collapsing dynasty, two members of the dictator's ruling elite -- a government marketing expert named Oscar Danilo Blandon Reyes and a crime boss named Juan Norwin Meneses Cantarero -- slipped through the encircling Sandinista rebels and made their separate ways to California.

Blandon, the 29-year old son of a wealthy slumlord, had been Nicaragua's Director of Wholesale Markets, a $27 million program financed by the U.S. government to create a market system for the country's agricultural wealth.

Though the Sandinista revolution stunted his career as a government bureaucrat, Blandon's expertise -- which included an MBA in marketing -- didn't go to waste.

Assigned to raise money for a guerrilla army the Central Intelligence Agency was forming to retake Nicaragua, Danilo Blandon created a market in Los Angeles for an agricultural product of a different sort: Colombian cocaine. His pioneering efforts were so successful that by 1984, he was wholesaling roughly $8 million worth every week to the black gangs of L.A's inner city.

Today, Blandon is a well-paid and highly trusted operative for the Drug Enforcement Administration. Federal officials say he is one of the DEA's top informants in Latin America, collecting intelligence on drug lords, introducing undercover agents into their organizations, and setting up DEA stings.

In March, he was the government's star witness at a San Diego drug trial where, for the first time, he testified publicly about his decade-long career as an international cocaine broker for the Crips and Bloods.

A stocky man with salt-and-pepper hair and a distinguished bearing, Blandon insisted that he hadn't planned on becoming one of California's biggest cocaine dealers when he fled Nicaragua in 1979 with $100 in his pocket. It happened, he said, out of patriotism.

When destiny called, he was working as a salesman at a used car lot in East L.A. In his spare time, he and a handful of fellow exiles worked to rebuild Somoza's defeated army, the Nicaraguan National Guard, in hopes of one day returning to Managua in triumph.

Like his friends, Blandon nursed a keen hatred of the men who were now running his homeland. Sandinista tribunals had confiscated his family's cattle ranches and vast urban neighborhoods. His parents, who remained behind, were reduced to peniless hostages.

''Because of the horror stories and persecution suffered by his family and countrymen, Blandon said that he decided to assist his countrymen in fighting the tyranny of the (Sandinista) regime,'' a 1992 report from the U.S. Probation and Parole Department stated. ''He decided that because he was an adept businessman, he could assist his countrymen through monetary means.''

But the rallies and cocktail parties he hosted were amateurish affairs.

''Unfortunately, he discovered that the amount of money that was necessary to "make a difference' far surpassed the amount of money that he could raise through legitimate endeavors,'' the probation report states. ''At this point, he become committed to raising money for humanitarian and political reasons via illegal activity (cocaine trafficking for profit.)''

That began, Blandon said, in late 1981 with a phone call from a friend and former college classmate in Miami named Donald Barrios, a wealthy Nicaraguan who was also working against the Sandinistas. At the time, corporate records show, Barrios was in business with one of the ex-dictator's highest ranking officers: Major General Gustavo Medina, a steely eyed counterinsurgency expert who'd killed many Sandinista leaders during the war.

Blandon said he was instructed to go to the Los Angeles International Airport and pick up a man named Norwin Meneses, a fellow Nicaraguan knew to be a drug smuggler.

''I picked him up and he started telling me that we had to (raise) some money and to send to Honduras,'' Blandon testified. He said he accompanied Meneses there, where they met with the new military commander of the CIA's army, Enrique Bermudez.

Bermudez, a former National Guard colonel who'd been Somoza's liason to the American military, had been hired by the CIA in mid-1980 to begin pulling together the remnants of the dictator's shattered brigades. At a press conference in August 1981 the reconstituted army was unveiled as the Nicaraguan Democratic Force -- in Spanish, the FDN. The American public would come to know it by another name: the Contras.

While it pretended to be a creation of Nicaraguan exiles, Congressional investigations later revealed that the 5,000-man FDN was organized, trained and run largely by the CIA. Bermudez and the rest of its leaders received regular CIA paychecks and reported directly to American agents, Congressional records show.

On Dec. 1, 1981, President Ronald Reagan secretly gave the CIA the green light to begin paramilitary operations against Nicaragua's Sandinista government. But Reagan authorized the spy agency to spend only $19.9 million on the project, an amount CIA officials acknowledged was not nearly enough to field a credible fighting force. For much of the war, the Contras were forced to scrounge money and supplies from a variety of sources.

At the meeting in Honduras -- which occurred within days of Reagan's official go-ahead -- Blandon, Meneses and Bermudez discussed ways to raise money in California to support the newborn army, Blandon said.

''There is a saying that the ends justify the means,'' Blandon testified. ''That is what Mr. Bermudez told us in Honduras.''

Though Blandon claimed Bermudez didn't know cocaine would be sold to raise money for the FDN, the presence of Blandon's traveling companion -- Norwin Meneses -- suggests otherwise.

Records show Meneses, known in Nicaraguan newspapers as ''Rey de la Droga'' (the King of Drugs), was already under investigation in the U.S. by both the FBI and DEA at the time he met with Bermudez. Moreover, the Meneses family was well-known to Bermudez.

Two of Norwin's brothers had been generals in Somoza's National Guard. One of them, Edmundo, was Nicaragua's top cop, chief of the Managua police department, where Bermudez had also worked.

''We used to go down and party with them in Managua (before the revolution) and it was a trip. You'd walk down the street with Mundo and everyone would salute you,'' recalled Rafael Cornejo, a former Lafayette cocaine trafficker who worked for the Meneses family for years.

In September 1978, shortly after his arrival in Guatemala as Nicaragua's ambassador, Edmundo Meneses was machine-gunned to death by the Poor People's Guerrilla Army, which claimed the general had ''coordinated police repression plans'' against leftist groups throughout Central America.

Brother Norwin, then a Managua nightclub owner, was nearly as famous as the martyred Edmundo. In 1977, he was at the center of a nasty scandal that erupted when Nicaragua's chief of Customs was gunned down in a supermarket alley. According to newspaper accounts, the dead agent was working with the FBI to smash an international stolen car ring Meneses was allegedly running on behalf of the dictator's mistress and the Nicaraguan Minister of Finance.

From his deathbed, the Customs boss accused Norwin of hiring his assassin. But the Managua police -- then commanded by brother Edmundo -- cleared Norwin and refused to assist FBI agents sent to investigate the murder of their comrade, Nicaraguan newspapers reported.

Despite that incident and a stack of federal law enforcement reports describing him as an international cocaine trafficker, Norwin Meneses was welcomed into the U.S. in July 1979 as a political refugee and given a visa and a work permit. He settled in the Bay Area, buying expensive homes in Pacifica and Burlingame, along with restaurants, car lots and other businesses in Los Angeles and San Francisco.

And he began working for the CIA's army.

At the meeting with Contra commander Bermudez in Honduras, Meneses said in an interview, Blandon was assigned to collect money in Los Angeles. Meneses was put in charge of ''intelligence and security'' for the FDN in California. ''Nobody (from California) would join the Contra forces down there without my knowledge and approval,'' said Meneses, who described himself as an old friend of Bermudez. He was murdered in Managua in 1991.

Meneses also bought supplies for the guerrillas in the United States, including weapons, vehicles and electronic gear, but strenuously denied using cocaine profits to do so.

''Bullshit!'' he shouted. ''I never transferred benefits from my business to the FDN. Business is business. I had no business of that nature with the FDN.'' Blandon, however, testified that all the money from their cocaine sales in L.A. went to the Contras.

Blandon said Meneses took him to San Francisco and for two days trained him as a cocaine dealer.

''Mr. Meneses explained how to see the quality, how they sell it -- by the ounce, by kilo -- and then how I can put that stuff in the pickups, in the compartment of the door,'' Blandon said. ''He showed me that, don't give credit, don't do this, don't do a lot of things.''

Lesson over, Meneses gave him two kilos of cocaine, the names of two customers, and sent him back to Los Angeles, Blandon testified..

''Meneses was pushing me every week. It took took me about three months, four months to sell those two keys because I didn't know what to do...In those days, two keys was too heavy.''

Two kilos is a little more than four pounds and was then worth about $1.6 million on the streets, according to the DEA. At the time, cocaine was so costly -- more than $5,000 an ounce -- that only rock stars and studio executives could afford it.

But Blandon didn't peddle his powder in Beverly Hills or Hollywood. To find customers for the Contras' cocaine, he and several other Nicaraguan exiles working with him headed straight for the vast, untapped markets of L.A.'s black ghettos.

While Blandon's marketing strategy -- selling the world's most expensive drug in some of California's poorest neighborhoods -- seems curious, in retrospect his timing was uncanny. He and his compatriots arrived in South Central L.A. right when street-level drug users were figuring out how to make cocaine affordable: by turning the pricey white powder into powerful little nuggets that could be smoked.

Crack, a simple preparation discovered accidentally by Northern California cocaine dealers, revolutionized the cocaine business. Cocaine smokers got an explosive high that couldn't be matched by ten times as much inhaled powder. And since only a tiny amount was needed for that rush, cocaine no longer needed to be sold in large, expensive quantities. Anyone with $20 could get wasted.

It was a substance ''tailor-made to addict people,'' said Dr. Robert Byck, a Yale University cocaine expert during Congressional testimony in 1986. ''It is as though (McDonald's creator) Ray Kroc had invented the opium den.''

Crack's Kroc was an enterprising young car thief named ''Freeway'' Rick Ross.

A high school dropout who could neither read nor write, Ross said he knew very little about cocaine sales until he met Blandon and his drug-dealing Nicaraguan friends in South Central. But Blandon was a good teacher, he said.

''He had the patience, he had the know-how to show me how to work a scale,'' Ross said in an interview. ''He was able to sit down and show me what a tenth of a gram was, what an ounce was, what a half ounce was, what a key (kilogram) was ... they couldn't teach me that in school.''

Ross said he initially bought an eighth-ounce of cocaine for $250 from one of Blandon's dealers and sold it for $500. With that, Ross bought more, and once again doubled his money. Each time he made a sale, Ross said, he reinvested his profits in more cocaine.

Through a network of friends in South Central and Compton, including many members of various Crips gangs, Ross and his best friend, Ollie ''Big Loc'' Newell, steadily built up clients.

''We moved up quick,'' Ross said. ''In a couple weeks we was getting ounces. At first, we was just going to do it until we made $5,000. We made that so fast we said, no, we'll quit when we make $20,000. Then we was going to quit when we saved enough to buy a house...''

Ross would eventually own millions of dollars worth of real estate across Southern California, including houses, motels, a theater, and several other businesses.

Nicaraguan drug dealer Jacinto Torres, a former supplier of Ross and partner of Blandon, told drug agents in a 1992 interview that after a slow start ''Blandon's cocaine business dramatically increased...Norwin Meneses, Blandon's supplier as of 1983 and 1984, routinely flew quantities of 200 to 400 kilograms from Miami to the west coast.''

By then, Ross' drug network dominated inner city Los Angeles and many of the city's biggest dealers were his customers. When crack hit L.A.'s streets hard in late 1983, Rick Ross had the infrastructure in place to gobble up the new market. It was not uncommon, he said, to move $2 million or $3 million worth of wholesale rock cocaine in a single day.

''Our biggest problem had got to be counting the money,'' Ross said. ''We got to the point where it was like, man, we don't want to count no more money.''

Blandon confirmed that: ''They were using two or three counting machines and they were counting day and night.''

A February 1995 DEA report said Blandon was selling Ross up to 100 kilos of cocaine every week, which was then ''rocked up'' and distributed ''to the major gangs in the area, specifically the "Crips' and the "Bloods'. ''

At wholesale prices, that's roughly $65 million to $130 million worth of cocaine a year.

Leroy ''Chico'' Brown, a Compton crack dealer familiar with Ross' organization, told the Mercury News of visiting one of Ross' five cookhouses and finding huge steel vats of cocaine bubbling atop restaurant-size gas ranges.

''They were stirring these big pots with those things you use in canoes,'' Brown said with amazement. ''You know -- oars.''

But Freeway Rick is the first to admit that it wasn't just hard work and business savvy that made him L.A.'s first king of crack. Other dealers, he acknowledged, were selling it long before him.

What he had -- and they didn't -- was Danilo Blandon, who had a seemingly inexhaustable supply of high-grade cocaine and an expert's knowledge of how to market it.

Blandon testified that he soon began giving Ross hundreds of kilos of cocaine on credit -- sell now, pay later -- which dramatically accelerated the expansion of Ross's crack empire, even beyond California.

''I'm not saying I wouldn't have been a dope dealer without Danilo,'' Ross stressed. ''But I wouldn't have been Freeway Rick.''

The secret to his success, Ross said, was no secret at all. It was price.

Blandon's cocaine prices were so low ''it was unreal. We were just wiping out everybody. Because (kilos) was going for like $45,000 and he was getting them for us for like $30,000 or $28,000. Nobody in the neighborhood could believe we had gotten it so cheap.''

By 1986, Ross would be paying a mere $10,000 a kilo.

More than anything, Blandon's bargain-basement prices helped Ross consolidate and expand his crack empire. Dealers who didn't buy from Ross couldn't compete. And Freeway Rick was a cutthroat competitor.

''It didn't make no difference to Rick what anyone else was selling it for. Rick would just go in and undercut him $10,000 a key,'' Chico Brown said. ''Say some dude was selling for 30. Boom -- Rick would go in and sell it for 20. If he was selling for 20, Rick would sell for 10. Sometimes, he be giving the shit away.''

Ross said he never learned how Blandon was able to get cocaine so cheaply. ''He never talked about that. I just figured he knew the people, you know what I'm saying? He was plugged.''

Blandon testified that it was simple economics. The more he sold, the cheaper he got it from his supplier. Ross, he said, was a big customer and a tough negotiator.

But a far more extraordinary explanation surfaced in Nicaragua during the August 1992 cocaine trafficking trial of Blandon's main supplier, Norwin Meneses.

Nicaraguan Supreme Court records show that Meneses' top aide, a former military intelligence officer named Enrique Miranda, testified that the Colombian cocaine used to finance the CIA's guerrilla army was flown into the United States aboard military aircraft.

Reading from a handwritten statement, Miranda told the jury that ''he (Norwin) and his brother Luis Enrique had financed the Contra revolution with the benefits of the cocaine they sold. This operation, as Norwin told me, was executed with the collaboration of high-ranking Salvadoran military personnel. They met with officials of the Salvadoran Air Force, who flew (planes) to Colombia and then left for the U.S., bound for an Air Force base in Texas, as he told me.''

Since transportation costs are the single biggest factor in determining how much a kilo of Colombian cocaine eventually sells for in the U.S., Miranda's account, if true, would explain why Blandon's cocaine prices were so much lower than other drug dealers in Los Angeles during the mid-1980s.

General Accounting Office records confirm that the Salvadoran air force was directly involved in supplying and supporting the CIA's Nicaraguan guerrillas and was receiving free aircraft fuel from the U.S. government at the time.

Miranda, the prosecution's star witness against Meneses, did not identify the Texas airbase where the cocaine was allegedly flown and he disappeared before he could be asked. The same day the Mercury News requested permission to interview Miranda at the Nicaraguan prison where he'd been living for the past four years, the model prisoner failed to return from a weekend furlough. He has been missing since November.

During an appearance before a federal grand jury in 1994, Blandon suggested that the CIA was well aware the Contras were getting money from cocaine sales. The spy agency, Blandon said, decided it no longer needed drug money once American taxpayer dollars started flowing.

''So after that, in 1983, okay, the Contra gets a lot of money from the United States...when Mr. Reagan get in the power we start receiving a lot of money,'' Blandon told the San Francisco grand jury. ''And the people that was in charge, it was the CIA, so they didn't want to raise any money because they have, they had the money that they wanted.''

''From the government?'' asked Assistant U.S. Attorney David Hall.

''Yes, for the Contra revolution,'' Blandon said. ''So we started -- you know, the ambitious person, we started doing business by ourselves.''

''To make money for yourselves?'' Hall asked.

''Yes.''

Asked recently about Blandon's testimony, prosecutor Hall said, ''I don't know what to tell you. The CIA won't tell me anything.''

The CIA rejected a Freedom of Information Act request for records about Meneses on national security grounds, but a top DEA official who read Meneses' intelligence files confirmed that Meneses ''either was or represented himself to be'' a CIA agent. An FOIA request for Blandon's CIA files was still being processed at press time.

Despite Blandon's claim that his Contra-related drug trafficking ended in 1983, records show he and Meneses continued to be closely affiliated with members of the CIA's army for years after that. In 1992, a prominent Miami-area Contra posted bail for Blandon's wife after she was arrested in San Diego on cocaine charges, court records show.

In late 1984, Meneses' nephew, Jairo, and the San Francisco spokesman for the FDN, Renato Pena Cabrera, were arrested by DEA agents on cocaine trafficking charges, federal court records show. Both men were bailed out by Blandon's sister, Leysla Balladares, a San Francisco tax accountant who was then dating the FDN's spokesman. They pled guilty and Jairo Meneses agreed to cooperate with a state narcotics investigation of his uncle Norwin.

Like the 45 other investigations federal drug agents unsuccessfully mounted against Meneses over the years, that one, too, never touched the wily smuggler. U.S. lawmen, it seemed, just couldn't get near him.

Records obtained from the files of Iran-Contra Special Prosecutor Lawrence Walsh show that a Bay Area FDN supporter reported to the FBI in 1987 that Meneses' cocaine operation seemed to operate under some kind of protection.

The man -- a prominent Republican fundraiser -- told FBI agents that U.S. Customs was investigating ''the Nicaraguan role in a large narcotics ring extending from Miami, Florida, to Texas and California'' in mid-1985 but said an agent assigned to the case complained that ''national security interests kept him from making good narcotics cases.'' Two other Customs agents reportedly had resigned and gone into hiding after being ''intimidated by National Security interference in legitimate narcotics smuggling investigations,'' the FBI report said.

The Customs agent ''told (the FDN supporter) that Norwin Meneses would have been arrested in a major drug case in 1983 or 1984 except that he had been warned by a corrupt (information deleted) officer,'' stated the report, obtained by the Mercury News under the Freedom of Information Act.

Meneses was never arrested in the United States. He left the Bay Area in November 1985 and moved to a ranch in Costa Rica. In the capital of San Jose, he and one of Blandon's L.A. drug dealers opened a Pollo Loco chicken restaurant -- right across the street from the U.S. Embassy.

It was there, Meneses said, he first met the head of the DEA's Costa Rican office, Robert Nieves, who'd come looking for information on the death of a DEA agent in Mexico. By 1989, Nieves was asking Meneses to undertake intelligence missions for the DEA, Meneses said. As an example, he said Nieves asked him to go to Panama shortly before the U.S. invasion to gather information on the head of the Panamanian defense forces.

The entire time he lived in Costa Rica, Meneses said, Nieves permitted him to journey in and out of the United States by pre-clearing his border crossings -- a real boon since Meneses was listed in DEA computers as a Class One drug trafficker.

''When I tried to come in without (Nieves) knowing, I would set off all the computers (at the U.S. airport) and then I'd have to go to the little room,'' Meneses laughed.

Nieves, who recently retired as head of the DEA's International Division, did not respond to a request for an interview nor would DEA officials answer any questions about his relationship with Meneses. The DEA refused to release any records regarding Meneses or Blandon, citing concerns for their personal privacy.

It wasn't until 1989 -- four years after Meneses left the U.S. and a few months after the Nicaraguan civil war ended -- that the U.S. government accused him of wrongdoing. Meneses was charged with conspiracy to distribute one kilo of cocaine in San Francisco during 1984, a year in which Meneses was working closely with the FDN.

To this day, Meneses' indictment is a secret in the U.S., inexplicably locked away in the vaults of the San Francisco federal courthouse. The Mercury News found a copy in Nicaragua, along with a federal arrest warrant issued Feb. 8, 1989.

The no-bail warrant was never entered into the national law enforcement database called NCIC, which police use to track down fugitives. A federal prosecutor confirmed last year that Meneses had entered the U.S. several times after his indictment.

His L.A. distributor, Danilo Blandon, seemed to lead an equally charmed life.

On Oct. 27, 1986, agents from the FBI, the IRS, Bell police and the L.A. County Sheriff fanned out across southern California and raided more than a dozen locations connected to Blandon's cocaine operations, including his sprawling Spanish-style home in Rialto, his used car lots and restaurants. Blandon and his wife, along with nearly a dozen associates, were arrested.

The search warrant affidavit shows that state and federal drug agents had a wealth of information regarding Blandon's involvement with cocaine and the CIA's army more than 10 years ago. Parts of the affidavit, which local law enforcement officials said disappeared after the raids, were produced by federal prosecutors in San Diego earlier this year.

''Danilo Blandon is in charge of a sophisticated cocaine smuggling and distribution organization operating in Southern California,'' the 1986 affidavit, signed by Sgt. Tom Gordon of the Los Angeles County Sheriff's narcotics squad, states. ''The monies gained from the sales of cocaine are transported to Florida and laundered through Orlando Murillo, who is a high ranking officer of a chain of banks in Florida named Government Securities Corporation. From this bank the monies are filtered to the Contra rebels to buy arms in the war in Nicaragua.''

Corporate records confirm that Murillo, an ex-official of a Somoza-owned bank in Nicaragua, was a vice-president of Government Securities Corporation in Coral Gables, a brokerage firm that collapsed in 1987. Blandon testified that Murillo, a relative, ''kept my money for me'' but didn't know it came from cocaine sales.

Despite their intimate knowledge of Blandon's drug operations -- which included the addresses of his drug and cash storehouses and the names of his couriers and drivers -- the police raids were a spectacular failure. Every location had been cleaned of anything remotely incriminating and no charges were ever filed.

Sheriff's Department spokesman Ron Spear said Blandon had been tipped off that he was under police surveillance.

Los Angeles federal public defender Barbara O'Connor said in an interview that ''there was some suspicion of the CIA being involved...The cops always believed that investigation had been compromised by the CIA.'' O'Connor knew of the raids because she later represented their leader, Sgt. Gordon, in a police corruption trial. Gordon declined to be interviewed.

Soon after the raids, according to a December 1986 FBI teletype, Blandon's longtime attorney, Bradley Brunon of Los Angeles, called the Sheriff's office to suggest that his client's troubles stemmed from a most unlikely source: a recent Congressional vote authorizing $100 million in military aid to the Contras.

Brunon told officers that the ''CIA winked at this sort of thing...(Brunon) indicated that now that U.S. Congress had voted funds for the Nicaraguan contra movement, U.S. government now appears to be turning against organizations like this,'' the FBI report states.

In an interview, Brunon confirmed making that call. He said Blandon never told him directly that he sold cocaine for the CIA, but Brunon drew his own conclusions from the ''atmosphere of CIA and clandestine activities'' that surrounded Blandon and his Nicaraguan friends.

''Was he (Blandon) involved with the CIA? Probably. Was he involved with drugs? Most definitely,'' Brunon said. ''Were those two things involved with each other? They've never said that, obviously. They've never admitted that. But I don't know where these guys get these big aircraft...''

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