Pentagon, Inc.

A Sprawling CIA Plot

Forty years ago, on the evening of October 5, 1986, I sat conferring with members of my local Nicaragua solidarity organization. We were trying to understand the implications of the day’s events in San Carlos, a small town in southern Nicaragua. A young Sandinista soldier had fired a shoulder-launched missile, bringing down a plane in a wreck survived by one Eugene H. Hasenfus. The plane contained U.S.-supplied weapons destined for the Contras, the counter-revolutionary force illegally supported by the CIA to overthrow the Nicaraguan government.

Hasenfus was captured, tried, and convicted of terrorism, and then, in a clever PR move by the Sandinista government, pardoned and released in time to spend Christmas at home with his family in Wisconsin.

Hasenfus’s capture — along with his planeload of AK-47s, 50,000 rifle cartridges, some shoulder-mounted missiles, and grenades — provided concrete evidence of something we’d known for a while: The Reagan administration was actively defying Congress by illegally funding and supplying the Contras. In those years, the Boland amendments (addenda to laws funding U.S. intelligence agencies) prohibited the CIA from using appropriated monies to support the Contras. Hasenfus’s capture not only demonstrated that those amendments were being violated, but also eventually led to the unraveling of a much bigger plot, known today as the Iran–Contra affair.

Oliver North, Iran, and “The Enterprise”

The trail from Hasenfus led to a military aide at the National Security Council, Oliver North, who was running a project to fund the Contras — with money from congressionally outlawed missile sales to Iran. Iran needed the military hardware for a brutal war of attrition with neighboring Iraq. The Reagan administration wanted to free U.S. hostages held in Iran and by Iran’s ally Hezbollah in southern Lebanon. So the arms-for-hostages deal was cooked up. Ollie North saw a way to use that one illegal deal to enable a second one. He would funnel unappropriated funds for the Contras by charging Iran a steep markup on the weapons and stashing the difference in Swiss bank accounts, outside U.S. government control.

At the suggestion of CIA Director William Casey, North had recruited Richard V. Secord, a retired Air Force major general, to establish what they called “the Enterprise.” North would later describe the Enterprise as an “off-the-shelf, self-sustaining, stand-alone entity that could perform certain activities,” i.e., covert overseas operations. The congressional committee that eventually investigated the Iran–Contra affair reported:

The Enterprise, functioning largely at North’s direction, had its own airplanes, pilots, airfield, operatives, ship, secure communications devices, and secret Swiss bank accounts. For 16 months, it served as the secret arm of the N.S.C. staff, carrying out with private and non-appropriated money, and without the accountability or restrictions imposed by law on the CIA, a covert Contra aid program that Congress thought it had prohibited.

North became something of a comic figure in U.S. history, especially after the escapade in which he choked a government office shredder during a late-night document “shredding party.” He and the coterie of implicated officials both above and below him all received pardons from incoming President George H. W. Bush, who’d served as Reagan’s vice president.

There is no way of knowing just how large North’s Enterprise might have grown had Hasenfus’s plane not been shot down, or what other sorts of dirty money-making businesses it might have spawned. Perhaps today we’d be living in a country with a largely self-funding, and therefore (even more) unaccountable, national security apparatus.

Big, “Dirty” Business in Venezuela

I thought about the Iran–Contra affair and North’s Enterprise for the first time in years when I read that Pete Hegseth’s Defense Department is getting into the oil business in Venezuela. Under the new arrangement, the Department of Defense would receive “penny warrants” for an ownership stake in at least one company developing Venezuelan oil fields. These warrants, according to the New York Times, “would give the Pentagon the option to take up to a 35 percent stake in the parent company” of North American Blue Energy Partners.

The company, which is legally registered in Barbados, is run by Alejandro Betancourt López, a Nicolás Maduro crony, around whom corruption rumors have swirled for at least a decade. The deal would also provide the Defense Department with the right to purchase up to 20 percent of the company’s oil output “at production cost” and first refusal on the remaining 80 percent, presumably at market rates.

There are a number of issues to consider here: The U.S. invasion’s legality, the logistical difficulties of extracting and using Venezuela’s “dirty” crude, and, of course, the human folly of pouring even more oil on the climate fire. But what especially caught my attention in the Times story is that the Pentagon taking an equity stake in a private oil company looks a lot like a new edition of North’s off-the-shelf operation from the 1980s.

The Pentagon isn’t alone among federal agencies acquiring ownership stakes in a variety of companies. Perhaps most notable is the Commerce Department’s purchase of an almost 10 percent interest in the chip manufacturer Intel for $8.9 billion, a stake that’s now reportedly worth $42 billion. As the Center for Strategic and International Studies reported in February, “the Trump administration is acquiring a strategic portfolio of investments in companies directly related to national security, spanning minerals, nuclear energy, and semiconductors, among other sectors.”

The CSIS report lists several smaller — though still enormous — Defense Department equity investments, among them:

• Vulcan Elements, a manufacturer of rare earth magnets: warrants to purchase equity at an undisclosed fixed price; $620 million loan against a $50 million equity stake
• MP Materials, a rare earth magnet manufacturer: 15 percent stake for $400 million
• Korea Zinc, a joint venture with Commerce and private investors in a Tennessee smelting installation; Defense Department to take 40 percent ownership, total cost $1.9 billion
• ReElement Technologies, a rare earth magnet recycler: warrants for future stock purchase; $80 million from Defense “matched by private capital”
• Trilogy Metals, a Canada-based company with Alaskan mining rights: 10 percent stake purchased for $35.6 million, with warrants to purchase another 7.5 percent

Since that report was published, DoD has continued to expand its portfolio with other equity purchases, which seem to be aimed at least in part on restocking American weapons reserves depleted by the Iran war:

• L3Harris Missile Solutions: $1 billion direct equity investment for solid rocket motor and missile production
• The Elmet Group: $450 million preferred equity investment in the only U.S.-based tungsten producer. Tungsten is crucial in the production of Patriot missiles, an essential defense against incoming missiles and drones, and a much-depleted armament in U.S. stores because of the Iran war.
• Hertha Metals: an apparent $65 million investment — for an undisclosed number of shares — in a steel manufacturer. The libertarian Cato Institute, which generally opposes federal ownership stakes in corporations, called the investment with Hertha an “apparent” deal, as only the company, not the DoD, has announced it publicly.

Beyond taking direct ownership shares in corporations, DoD continues to diversify its loan portfolio beyond traditional military materials. For example, President Donald Trump recently promised a $100 million Pentagon investment to rebuild a pharmaceutical factory in Winchester, Kentucky — but only if Republicans won the midterms in that state.

How Does Government Ownership of Corporations Work?

The federal government has taken temporary partial ownership of U.S. corporations before Trump’s current string of acquisitions. What makes this round of purchases different is that it seems the Pentagon intends to make them permanent. In the past, when the federal government acquired warrants or corporate shares, the move was part of a program to shore up failing institutions in the midst of a more general financial disaster.

This was the case with the Troubled Assets Relief Program, which formed part of the Obama administration’s response to the 2008 fiscal crisis, and more recently when airlines faced bankruptcy during the 2020-21 Covid pandemic. In neither case did the government retain permanent ownership of the entities it bailed out.

The evidence is that this time around, the Trump administration envisions permanent ownership stakes in companies it deems essential to military preparedness and national security. In the case of the Pentagon, two related offices are responsible for overseeing DoD’s equity investments.

The Office of Strategic Capital was established in 2022 during Joe Biden’s administration and funded under the National Defense Authorization Act for fiscal year 2024. The OSC’s initial purpose was to facilitate Pentagon loans to industries it deems crucial to national security. Other parts of DoD use grants or purchases to get money to defense industries. Only OSC can lend those corporations money. Still, neither the NDAA for 2024 nor subsequent NDAAs permits the OSC to buy shares in companies.

The OSC received a huge funding boost under Trump’s 2025 One Big Beautiful Bill Act. While simultaneously meting out drastic cuts to programs that support Americans’ actual everyday security — such as Medicaid, nutritional assistance, housing, and student loans — the One Big Beautiful Bill Act awarded OSC $1.5 billion in additional funds.

The other entity tasked with overseeing Defense equity investments is the Economic Defense Unit. Established this year through an internal DoD memo, the EDU offers a hint that the Pentagon isn’t ready to give up on capital. Like the Office of Strategic Capital, the EDU is overseen by Defense Department Undersecretary Stephen Feinberg, a billionaire, major Trump donor, and co-founder of the private equity firm Cerberus Capital Management.

EDU’s ostensible purpose is to coordinate U.S. economic competition with adversaries such as China, Iran, Russia, and North Korea. But reporting suggests another reason Feinberg established the unit. Quoting a knowledgeable inside source, The American Prospect says that the EDU “operates as a ‘venture capital firm-type entity that looks at deals, what the government’s going to do and evaluates them,’” determining what the government’s ownership stake should be.

The Cato Institute says of the EDU:

Available information points to an investment apparatus being created within the Pentagon, staffed by financiers connected to the same private-equity world that stands to benefit from it. 

It sounds like another attempt by the administration to construct a pseudo-sovereign wealth fund controlled by the executive branch.

In other words, the Economic Defense Unit looks like the beginning of a Defense Department investment bank.

As of today, no law explicitly permits the Pentagon to own pieces of corporations or to develop its own pseudo-investment bank, but the 2027 NDAA may change that.

In the meantime, what happens to any revenue derived from DoD’s investments? Such income could include interest on loans, share dividends, or proceeds from the sale of equities. Legally, any such income should be deposited to the U.S. Treasury within three days, according to the U.S. legal code section § 3302(b), perhaps in the Pentagon’s Industrial Base Fund at Treasury.

History tells us North sent the Iran–Contra money to Swiss banks, not the U.S. Treasury. Can we trust Hegseth — who just this week survived an impeachment vote — and his boss not to do something similar with the Pentagon’s earnings today? How would we even know if that trust were violated?

Just Like Egypt and Iran?

The prospect of a metastasizing U.S. Defense Department may seem far-fetched, but it’s already happened in a number of other countries. In Egypt, popular demonstrations brought down President Hosni Mubarak, the country’s effective dictator, during the 2011 Arab Spring. After a brief period under an increasingly unpopular elected president, the Egyptian military staged a coup and has ruled the country directly ever since.

But Egypt’s army is more than a military force. It’s the most powerful economic entity in the country as well. As the Carnegie Middle East Center describes the situation, the Egyptian military has its tentacles in every aspect of Egypt’s economy. Members of the military:

… deliver massive infrastructure projects, produce consumer goods ranging from food to household appliances, manufacture industrial chemicals and transport equipment, and import basic commodities for civilian markets. They have expanded into new sectors as diverse as steel production, pharmaceuticals, gold prospecting, and managing religious endowments and pilgrimage.

At the same time, “thousands of retired senior officers have benefited from the powerful political influence of the military to occupy senior positions throughout the state’s civilian apparatus and public sector companies, securing extra postretirement incomes for themselves while complementing the formal military economy in return.”

(This sounds a lot like the egregious post-service opportunities promised to the investment bankers being recruited to work in the Pentagon’s EDU. After serving on the Pentagon’s new 30-person investment team, where they would have “unmatched access to top-level government officials and privileged information flow,” the recruitment pitch goes, “if you ever want to raise your own fund, you will gain access to fund-raising channels that include royal families and foreign sovereign contacts,” according to the New York Times.)

The Islamic Revolutionary Guard Corps, which has emerged as Iran’s most powerful economic force, plays a similar role, according to CSIS:

The IRGC now owns businesses in the oil and gas sectors, as well as land, marine, and air transportation. The IRGC-owned company, Khatam al-Anbiya, established as the IRGC’s arm in the construction sector, currently controls 812 officially registered Iranian companies which have a total of some 1,700 governmental contracts. Another IRGC-owned company has also recently bought a 51 percent stake in the Iranian Telecommunications company that was privatized at a value of $5 billion.

Can It Happen Here?

Could the Pentagon really emerge as an economic power in its own right, one that operates in tandem with, but parallel to, the federal government? Not tomorrow, certainly, but now is the time to step on the brakes to prevent that scenario.

The prospect of an economically independent U.S. military would be frightening under any circumstances. But it becomes both more frightening and more likely with a Pentagon that Hegseth is reshaping in his own white Christian nationalist and misogynist image. He’s already removed many of the potential human guardrails by purging long-serving top military leadership. As long as DoD doesn’t threaten any of the enterprises of the Trump family and friends — including those of Don Jr. and Eric Trump, Jared Kushner, and Steve Witkoff — we can expect little resistance from the demented relic in the White House.

Fortunately, Hegseth is not the sharpest bayonet in the armory. As with many aspects of this nightmare administration, we may yet be saved from a metastasizing Pentagon by the ineptitude of its leader. Let us work to make it so.