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Beginning in the late 1960's, Scientology became heavily involved in litigation around the world and particularly in the United States. The litigation fell into three general categories: 1) lawsuits brought by the Scientologists against private citizens who criticized them; 2) lawsuits brought by private citizens against the Scientologists seeking damages for tortious and criminal activity, and 3) litigation between the Scientologists and various government agencies involving the enforcement of criminal and tax laws. In all three categories, all around the world, the Scientologists have lost virtually every case. There is a growing body of written judicial opinion which castigates the Scientologists in blistering language for their obstructive and unconscionable courtroom tactics, which include the raising of frivolous defenses, various means of obstruction of justice, and general abuse of the judicial process. See Appendix VII and X.

The following is a more detailed discussion of the three categories of litigation which the Scientologists have been involved in.

1. Lawsuits by the Scientologists against private citizens

In the early 1960's Scientology became the subject of public discussion and criticism. Hubbard and his henchmen realized that they would not be able to continue to attract victims if it became known on a widespread basis how Scientology treats its "members", and what the content of Hubbard's teachings actually was. Accordingly, they conceived a plan to silence public discussion of Scientology and to force defectors into remaining silent about their experiences. This plan included aggressive criminal action, including extortion through use of confidential auditing information, which is described elsewhere in this Report. The plan also involved resort to the courts. Hubbard realized that many people cannot afford the financial burden of defending themselves in litigation. As his own financial resources grew, he was able to afford lawyers in cities all over the world to do his bidding. He launched a campaign of legal terrorism against all who dared to say anything about Scientology. His own writings set forth this policy very clearly. At one point he wrote:

"The purpose of a lawsuit is to harass and discourage rather than to win."

At another point Hubbard wrote:

"Don't ever defend. Always attack. Find or manufacture enough threat against them to cause them to sue for peace. Originate a black PR campaign to destroy the person's repute and to discredit them so thoroughly they will be ostracized. Be alert to sue for slander at the slightest chance so as to discourage the public presses from mentioning Scientology."

In one of his books, Hubbard gives even more explicit instructions about how lawsuits should be filed against people even against the advice of counsel. He wrote,

"The law can be used very easily to harass, and enough harassment on somebody who is simply on the thin edge anyway, well knowing that he is not authorized, will generally be sufficient to cause his professional decease. If possible, of course, ruin him utterly ..... "

"Should you ever be arrested for practising Scientology, treating people, make very sure, long before the time comes, that you have never used drugs or surgery, and that you have never prescribed a diet, or vitamins, and when that time might come, make very sure that you immediately and instantly, within two or three hours after your receipt of the warrant, have signed upon the server of that warrant, a personal civil suit for $100,000.00 damages for having caused the arrest of a Man of God going about his business in his proper profession, and for having brought about embarrassing publicity and molestation...." "And if you are foolish enough to have an attorney who tells you not to sue, immediately dismiss him and get an attorney who will sue. Or, if no attorney will sue, simply have an HASI suit form filled out and present yourself to the court clerk in the court of the area in which your case has come up ..." (Emphasis supplied).

Pursuant to these policies, which are carried out by Guardians' Office "Legal Officers", at each local org, Scientology organizations have, over the years, filed hundreds of lawsuits against private citizens and organizations. Most of them are absurdly frivolous. Most have been dismissed. Generally, the Scientologists have won cases only where they have so exhausted their victims' resources that the victims were unable to defend themselves. For example, in many instances the Scientologists have sued the same person or publisher simultaneously in many different states and countries, making it impossible for the person to defend himself. One of their favorite tactics is to sue a person in a far away place, in hopes that he will not go to the trouble to defend himself. For example, they sued the Reader's Digest in Perth, Australia. They sued Paulette Cooper, a resident of New York, in many parts of Canada. They sued Michael J. Flynn, a resident of Boston, in Nevada and California, as well as in Boston itself. They sued the St. Louis Post Dispatch in California. Fortunately, the courts have become more and more aware of these terrorist tactics. See Founding Church of Scientology v. Verlag 536 F 2d. 429 (1976).

The following are illustrative examples of lawsuits by the Scientologists against private citizens. They are given by illustration only. The total number of cases is too lengthy to be included in this report.

(i) Hubbard v. Vosper (1972) 1 All Eng. Rep. (decided by the highest judicial court in England).

L. Ron Hubbard sued Vosper, attempting to enjoin him from revealing the contents of certain Scientology writings which he had taken with him when he left Scientology. The Court held that Hubbard was not entitled to relief because

1) the courses of the Church of Scientology contained such dangerous material that it was in the public interest that it should be made known, and

2) Hubbard had protected his secrets by such deplorable means that he came into court with "unclean hands" and therefore could not seek equitable relief.

(ii) Church of Scientology v. Kaufman (1973)

R.P.C. 627, A lower court decision involving a similar effort by the Scientologists to enjoin publication of certain of its writings. The court followed the Hubbard v. Vosper opinion, after closely examining Scientology practises, including its habit of viciously attacking its critics.

(iii) Church of Scientology v. Department of Health and Social Security (1979) 3 All Eng. Rep. 97.

In this case the Scientologists tried to get the names of people who had written to the Department with complaints against Scientology. The Court severely restricted their access to the names, after finding that there was a "real risk" that the documents requested would be used for "threats and blackmail". The Court referred to "the strong arm of Mr. Hubbard" which could harass and intimidate people in distant lands.

(iv) Church of Scientology v. Cazares 638 F.2d 1272 (1981)

The Scientologists sued former Mayor of Clearwater for defamation and civil rights violations. The Federal District court dismissed all the counts, and held further that the suit was so frivolous that Cazares was entitled to be paid $38,000 for the amount he had expended to defend himself. This very extraordinary award was upheld by the Fifth Circuit Court of Appeals.

(v) Church of Scientology of California et al. v. James Siegelman et al., 475 F. Supp. 950 (1979)

Church filed suit for defamation against publisher and authors. The District Court judge ruled that various statements of several of the defendants would not sustain a cause of action for defamation and the case was properly dismissed. The Court left standing a cause of action against one defendant.

(vi) Founding Church of Scientology, Etc. v. Verlag, 536 F.2d 429 (1976)

A German magazine article described the terrorization of two women by West German Scientologists and noted an investigation into the activities of Scientologists by the West German Federal Criminal Affairs Bureau. The Scientologists sued for libel. The Court noted that this was one of many lawsuits which the Scientologists had filed against the same publisher.

(vii) Church of Scientology of California v. James E. Adams 584 F.2d 893 (1978)

The Scientology organization sued a Missouri newspaper publisher for libel in California. The Court of Appeals upheld the District Court's dismissal of suit based upon lack of personal jurisdiction.

(viii) Founding Church of Scientology of Washington v. American Medical Assoc.,

The American Medical Association's monthly magazine, Today's Health, contained an article, "Scientology -- Menace to Mental Health." The Scientologists sued for libel and defamation. The trial judge dismissed the complaint with prejudice. The Court of Appeals affirmed the dismissal and ruled that third count, interference with contractual relations failed to state a cause of action.

(vii) Lawsuits against Michael J. Flynn and Associates

Beginning in early 1980. the Scientologists have continually attempted to disrupt Michael J. Flynn's law practice by filing frivolous lawsuits against him and his associates. They began by filing a lawsuit in Federal Court in Las Vegas, Nevada, against Kevin Flynn and Attorney Thomas Hoffman alleging civil rights violations. The suit was dismissed within three months. They then filed a nearly identical lawsuit against Kevin Flynn in State Court in Las Vegas. That suit was dismissed earlier this year. They also filed a nearly identical suit against Michael J. Flynn in January of this year. It is expected that the suit will be dismissed shortly. They sued Michael J. Flynn in Massachusetts Superior Court in early 1980, alleging that he was a bailee of certain documents. Recently, after learning that Michael J. Flynn had been retained by the City of Clearwater, they filed a new suit against him in Federal Court in Los Angeles, and complaints against him in Washington. They have also filed four bar Complaints against Michael J. Flynn, and one against Attorneys Thomas Greene and Thomas Hoffman, all of which have been dismissed. After learning of the Clearwater situation, they filed another bar Complaint against Mr. Flynn. All of those suits and complaints are entirely frivolous.

(viiii) Canadian Litigation.

The Scientologists sued Lorna Levett and several other people in Canada for libel. After the case had gone on for some time, the judge ordered the Scientologists to post bond for defendant's attorney's fees in the amount of $60,000, after concluding that the action was probably frivolous. They also sued Levett and others in California, where they could not afford to defend themselves.

(ix) Ernest and Adelle Hartwell

These two people are outspoken critics of Scientology in Las Vegas, Nevada. After the Hartwells contacted Michael J. Flynn, the Scientologists sued them for alleged civil rights violations. The Hartwells counter sued. The court denied the Scientologist's Motion to Dismiss.

(x) Paulette Cooper

The Scientologists, over the years, have filed nearly twenty lawsuits against Ms. Cooper, including three in the last few weeks prior to the  presentation of this report.

(xi) Boston Litigation

After learning that four defecting members had contacted Michael J. Flynn, the Scientologists attempted to get criminal complaints against them in the Boston Municipal Court. Failing in this, they sued them in Superior Court.

(xii) Readers Digest

The Scientologists sued the Readers Digest in connection with an article 18 months ago and in connection with the article in the present issue. The first suit was brought in Perth, Australia, for the sum of $15,000, apparently in hopes that it would be ignored or settled. The suit has not been successful.

(xiii) St. Louis Post

The Scientologists sued the St. Louis Post in several places in connection with a series it did on Scientology. The suits were not successful.

(xiv) Divorce Actions.

The Scientologists have often financed or provided legal counsel for members seeking divorces or awards in divorce actions, consistent with the policy of "disconnect" which encourages divorce.

2. Lawsuits by private citizens against the Scientologists

Over the years the Scientologists have regularly engaged in tortious and criminal acts against members, former members, and critics who have never been members. Many of these plaintiffs have been horribly damaged and are seeking large compensation. The following is an illustrative list:

(i). Allard v. Church of Scientology of California, et al., 120 Cal. Rptr 797 (1976)

The plaintiff sued for abuse of process alleging that the Scientologists had maliciously caused a criminal complaint to be issued against him. The criminal complaint was filed pursuant to the "Fair Game" doctrine but lacked any basis in fact. The jury awarded damages against Scientology in the amount of $300,000 for abuse of process.

(ii) Christofferson v. Church of Scientology, Civil Action 7704-05-184, Portland, Oregon

Jury awarded approximately 2 million dollars to [a] former member who had only been in the organization for 7 months and only expended $3,000. Jury awarded punitive damages for fraud, violation of the Oregon Deceptive Trade Practices Act, and outrageous conduct. Case is now on appeal.

(iii) McLean v. Church of Scientology v. Tampa Federal District Court

Former member suing for fraud, intentional infliction of emotional distress and other damages.

(iv) Florida Physician

In late 1980, a Florida physician received a $165,000 punitive damage award against the Church of Scientology in a libel case.

(v) La Venda Van Schaick v. Church of Scientology of California, Church of Scientology of New York, Church of Scientology of Florida, L. Ron Hubbard, Mary Sue Hubbard, United States District Court, Boston Civil Action No. 792491-6

Plaintiff is a named party in a $200,000,000 class action filed on behalf of thousands of class members nationwide who have been victimized by a pattern of racketeering activities perpetrated by the corporate defendants. Plaintiff alleges various individual causes of action, to wit: fraud, intentional infliction of emotional distress, breach of contract, violations of Fair Labor Standards Act. She was kidnapped and imprisoned for a period of time. She was forced to divorce her husband. After she left Scientology, she was pursued and harassed, and her confidential auditing information was disclosed to the newspapers.

(vi) Tonja Burden v. Church of Scientology of California, et al., Civil Action No. 80-501 T-K. United States District Court, Tampa

Plaintiff relied on various representations pertaining to the philosophy and nature of the Scientology organization. Defendants promised plaintiff an education, a salaried position, comfortable living quarters, and that auditing benefits were scientifically guaranteed. Plaintiff alleges damages for breach of contract, fraud, emotional distress, conversion, false imprisonment, violations of Fair Labor Standards Act and Racketeer Influenced Corrupt Organizations Act. Tonja was subjected to the "R.P.F.", a humiliating and degrading prison type environment at the Fort Harrison where she saw one person "chained up", and others in various stages of mental and emotional deterioration. Tonja, from the age of 13 to 17, served as Hubbard's personal slave, decoding telexes for criminal operations, received no education, worked 80 hour weeks without pay, escaped, was kidnapped, given a $60,000 "Freeloaders' Debt", subjected to "Fair Game", and has had confidential information disclosed to the media.

(vii) Paulette Cooper v. Church of Scientology of Boston, et al., Civil Action No. 81-681-MC, United States District Court, Boston

Plaintiff's suit alleges damages for intentional infliction of emotional distress and for invasion of privacy. Defendants engaged in a nationwide conspiracy to attack, defame and destroy the plaintiff. This conspiracy included burglarizing the office of the Boston Globe; planting covert agents in the Attorney General's Office and in the Better Business Bureau, and burglarizing her psychiatrist's office.

The plaintiff's motion for substituted service upon L. Ron Hubbard was allowed by the court. This was the first court order allowing service upon Hubbard. The court allowed plaintiff's motion for a real estate attachment in the amount of $300,000. The court ordered all discovery to be completed by December 31, 1981.

Paulette Cooper is also suing the Church of Scientology in California and New York. These actions relate to a frame-up on federal charges which the Scientologists carried out against Ms. Cooper after she wrote a book critical of Scientology. They subjected Ms. Cooper to years of burglary, harassment, anonymous smear campaigns, and other vicious tactics specifically designed to drive her insane, and at one point succeeded in having federal indictments brought against her, which were subsequently dismissed.

(viii) Dr. Lawrence Stifler v. Church of Scientology of Boston et al., Civil Action No. 44706, Suffolk Superior Court

Plaintiff, a 40 year old psychologist, specializes in physical exercise as a therapy for emotional problems. As he returned from work one evening, he was battered by an employee of the Church who had been frustrated in his attempt to induce the plaintiff to return for a "free personality test". Defendant jumped upon plaintiff's back and began choking him. Plaintiff, a marathon runner, fell to the ground and tore the medial meniscus in his knee. Plaintiff faces a prognosis of knee surgery, and has been unable to engage in his regular activities. The defendant's motion to dismiss was denied. The court allowed plaintiff's motions for real estate attachments totalling $60,0000. On request of the Plaintiff, the court set an early trial date for December, 1981

(ix) Ernest and Adelle Hartwell v. Church of Scientology of Nevada, Nevada District Court No. A196800

The Hartwells counterclaimed against the Scientologists, who originally sued them for civil rights violations. The Scientologists' motion to dismiss was denied by the court. The Hartwells were induced by false promises to leave gainful employment in Las Vegas, sell their belongings, and go to work for Scientology. They were promised salaried positions with luxurious accommodations in Clearwater at the Fort Harrison. They were sent, instead, to a secret desert location and given a vermin infested shack to live in. Hubbard was present at the desert ranch, attempting to make films. After the Hartwells left they were viciously attacked in an attempt to keep them quiet about Hubbard. The Scientologists attempted to break up their marriage, threatened to accuse them of crimes, libeled and slandered them in the public media, and threatened them with death. Ernest Hartwell was called a murderer and an extortionist.

(x) James Gervais v. Church of Scientology of Boston, et al., Civil Action No. 40906, Suffolk Superior Court

Plaintiff counterclaimed against the Church for fraud, breach of contract, emotional distress, invasion of privacy, and other causes of action. Plaintiff purchased $12,000 of auditing and was promised that auditing was scientifically guaranteed to confer miraculous benefits. Plaintiff was recruited by the Guardian's Office to engage in covert activities in Boston, to wit: investigation and intelligence gathering on Mayor Revin White, Senator Joseph Timilty and other individuals. Plaintiff seeks damages for breach of contract, invasion of privacy, breach of fiduciary duty, unfair and deceptive trade practices, fraud, intentional infliction of emotional distress. The defendant's motion to dismiss was denied by the court and the suit is proceeding through the discovery stage.

(xi) Stephen Garritano v. Church of Scientology of Boston, et al., Civil Action No. 40906, Suffolk Superior Court

Plaintiff counter-claimed against the Church for fraud, emotional distress, breach of contract, violations of Fair Labor Standards Act, and other causes of action. Plaintiff worked seven days each week for approximately two years. Plaintiff became gravely ill when he was instructed to cure his illness through auditing. Plaintiff contracted hepatitis at the Fort Harrison which required hospitalization and a protracted period of convalescence, and was not allowed to see a doctor while he was there. During his time in Scientology he was subjected to intensive brainwashing routines.

(xii) Peter Graves v. Church of Scientology of Boston, et al., Civil Action No. 40906, Suffolk Superior Court

Plaintiff counterclaimed against the Church for fraud, emotional distress, violations of Fair Labor Standards Act, breach of contract and other causes of action. Plaintiff rendered services for approximately 4-1/2 years as a staff member. Plaintiff was subjected to the "Disconnect" and "Fair Game" policies. The defendants' motion to dismiss was denied.

(xiii) Marjorie Hansen v. Church of Scientology, Inc., Church of Scientology of California, Inc., Civil Action No. 41074, Suffolk Superior Court

Plaintiff is a twenty-one year old woman who fell prey to a typical "bait and switch" scheme on the street. Defendants fraudulently represented the nature of various Scientology courses; made fraudulent statements to the plaintiff's mother; subjected the plaintiff to the "Fair Game" and "Disconnect" policies. Plaintiff invested $3,000 in Scientology processing and paraphernalia and provided services per contract agreement for five weeks working sixty hours per week. Defendants disclosed plaintiff's auditing materials and forced her to engage in sexual activities with her auditor. The defendants' motion to dismiss was denied by the court. The defendants refused to produce requested documents asserting the First Amendment right. The Supreme Judicial Court found no privilege and the defendants were defaulted for failing to produce the documents. Subsequently, the plaintiff stipulated for a removal of default.

(xiv) Lucy Garritano v. Church of Scientology of Boston, et al., Civil Action No. 40906, Suffolk Superior Court

Plaintiff counterclaimed against the Church for fraud, emotional distress, violations of the Fair Labor Standards Act, breach of contract, and other causes of action. Plaintiff rendered services for approximately seven years. Plaintiff was subjected to Disconnect policy and Fair Game doctrine. The defendants' motion to dismiss was denied by the court, and the suit is proceeding through discovery.

(xv) Janet Troy v. Church of Scientology of Boston, et al., Civil Action No. 41073, Suffolk Superior Court

Plaintiff, a professional woman, was induced to join Scientology at a time when she was emotionally troubled. Defendant subjected the plaintiff to Disconnect policy, and insisted she disconnect from her therapist and family. Defendants told plaintiff that auditing would cure her emotional problems. Defendants conspired to defraud plaintiff's father. Defendants forced plaintiff to quit her job and work on the Church staff. Plaintiff purchased auditing for $4,100. Plaintiff sues for breach of contract, invasion of privacy, violations of Fair Labor Standards Act, intentional infliction of emotional distress, unfair and deceptive trade practices, deceit, breach of fiduciary duty.

The defendants' motion to dismiss was denied by the court and the case is proceeding through discovery.

(xvi) Jane Lee Peterson v. Church of Scientology of California et al., Civil Action No. CV-81-3259 (CBM) (KX), United States District Court, Central District of California

Plaintiff was induced to join the Scientology organization in reliance upon numerous misrepresentations concerning the organization and the benefits of auditing. The plaintiff has alleged numerous tortious counts for which she has suffered severe emotional and psychological distress.

The case was recently filed and the court has not acted on the defendants' motion to dismiss.

(xvii) Carol A. Garrity v. Church of Scientology of California, et al., Civil Action No. CV-81-3260 (WMB) (MX), United States District Court, Central District of California

The plaintiff was defrauded of her time and money after relying on numerous misrepresentations concerning the Scientology organization and the benefits derived from the auditing process.

(xviii) Richard J. Peterson v. Church of Scientology or California, et al., Civil Action No. CV-8103251 (CBM) (KX), United States District Court, Central District of California

The plaintiff sued for intentional infliction of emotional distress, fraud, violation of Fair Labor Standards Act and numerous other actionable wrongs. The case was recently filed and discovery has just been initiated.

(xix) Paul Garrity v. Church of Scientology of California, et al., Civil Action No. CV-81-3260 (WMB) (MX), United States District Court, Central District Court of California

The plaintiff sued for damages after suffering severe emotional and psychological distress. The plaintiff relied upon numerous false representations concerning the nature of Scientology and the benefits of auditing. The case was recently filed and the court has not ruled on the defendants' motion to dismiss.

(xx) Thomas Jefferson v. Church of Scientology of California, et al., Civil Action No. CV-81-3261 (RMT) (JRX), United States District Court, Central District of California

The plaintiff sued for breach of contract, fraud, intentional infliction of emotional distress, invasion of privacy, breach of fiduciary duty and additional actionable torts. The plaintiff was defrauded in excess of $60,000. The case was recently filed. The plaintiff was a professional golfer, P.G.A. member, and a family man prior to entering Scientology. As a result of his involvement in Scientology, he lost his P.G.A. standing and his marriage was intentionally destroyed. He was declared "Fair Game".

(xxi) Smith v. Church of Scientology of California et al., Suffolk Superior Court

Plaintiff sued for breach of contract, fraud, intentional infliction of emotional distress, invasion of privacy, breach of fiduciary duty, and deprivation of civil rights. The defendants motion to dismiss has been denied by the court.

(xxii) Kim Varchal v. Church of Scientology of California et al., Civil No. __, Suffolk Superior Court

Plaintiff sued for breach of contract, fraud, intentional infliction of emotional distress, invasion of privacy, breach of fiduciary duty, and deprivation of civil rights. The defendants' motion to dismiss has been denied by the court.

(xxiii) Peggy Bear v. Church of Scientology of New York, et al., New York Federal District Court

Mrs. Bear was fleeced of $35,000 in less than two weeks. She is suing for return of her money, and for damages for fraud, infliction of emotional distress, etc. The Scientologists intentionally solicited her during a period of bereavement.

(xxiv) Dana Lockwood v. Church of Scientology of California, et al., Civil Action No. 81-4109-KN (JRX), United States District Court, Central District of California

The plaintiff filed suit alleging breach of contract, fraud, unfair and deceptive trade practices, invasion of privacy, breach of fiduciary duty, intentional infliction of emotional distress, violations of Fair Labor Standards Act and violations of the Racketeer Influenced Corrupt Organization's Act (for extortion and mail fraud), The plaintiff suffered severe emotional distress. The court has not acted on the defendants' motion to dismiss.

(xxv) Jose Baptista v. Church of Scientology Mission In Cambridge, Civil Action No. ___, Middlesex Superior Court

The plaintiff sued for fraud, intentional infliction of emotional distress, unlicensed practice of medicine, invasion of privacy and other actionable wrongs. The court allowed the defendants' motion to dismiss five of the six counts but failed to write an opinion supporting its decision, which conflicts with written opinions of four Massachusetts Superior Court judges in eight other cases. The decision will be appealed.

3. Litigation between the Scientologists and Government agencies.

(a) Tax Litigation History of Scientology

The Church of Scientology is no stranger to state and federal taxing authorities. In fact, the Church of Scientology's tax status has been challenged in more courts than any other cult of similar vintage. Scientology has lost every challenge.

In 1969, the Church of Scientology of California became the "mother church" of Scientology and has continued to hold said position. Prior to the California corporation's ascendancy, the Founding Church of Washington, D.C. held the titular position. In 1961, the Founding Church filed suit in the United States court of Claims, seeking a refund. The primary issue raised was the tax exempt status under section 501 (c) (3) of the Internal Revenue Code for the years 1956, 1953 and 1959. On July 16, 1969 the Court of Claims rendered an opinion finding that the Scientology Church did not qualify for the exempt status for the three years in question because, "nothing we have found in the record dispels the substantial doubts the Court entertains concerning the receipt (inurement) of benefit by the (L. Ron) Hubbards from plaintiff's (the Founding Church's) net earnings." Founding Church of Scientology v. United States, 412 F.2d 1197, 1202, Cert. denied, 397 U.S. 1009 (1969)

During July of 1967, while the Founding Church case was being litigated, the I.R.S. notified the Church of Scientology of California that it was no longer recognized as an exempt religious organization. The California Scientology corporation failed to heed the I.R.S. notice, and did not file corporate income tax returns. The I.R.S. attempted to audit the California Church for tax liability for 1968 and 1969 but the Church resisted claiming bad faith and harassment. The Scientologists filed motions for production of I.R.S files pertaining to the Church and attempted to notice depositions. The I.R.S. moved to quash discovery and the Court of Appeals ordered "a limited evidentiary hearing to inquire into the Service's purpose (i.e., harassment, Vel. none). United States and Cuberton v. Church of Scientology of California, 520 F.2d 818, 825 (9th Cir. 1975).

The parties conferred in Washington and the I.R.S. conducted a tax examination of the California Church for the years 1971 through 1974. The Service prepared a 131 page report and eight volumes of exhibits. The contested issues are briefly summarized below:

a) The accumulation of progressively increasing and substantial amounts of income ($3,367,873.91, by December 31, 1974), not expended for religious or other tax exempt purposes.

b) Inurement to a privately owned Panamanian corporation, OTC, via currency exchange gains amounting to $879,615.63 for the years 1971-1974. This appeared to represent income to the California Church but was not accounted for in the Church's income tax forms.

c) Approximately $470,000 paid by the United Kingdom and Danish Scientology Churches directly to OTC during the years 1971-1974. This appeared to represent income to the California Church but was not accounted for in the Church's income tax forms.

d) The California Church's failure to treat as income the advanced payments of the following amounts:

1971 - $ 788,704.96
1972 - 1,198,763.86
1973 - 1,635,786.00
1974 - 2,194,588.00

e) Inurement to L. Ron Hubbard and family, royalties, and salaries, in violation of regulations of I.R.S.

f) The California Church engaged in substantial commercial activity within the meaning of Better Business Bureau v. United States, 326 U.S. 279 (1945) and Scriptures Press Foundation v. United States, 285 F.2d 800 (Ct. Cl. 1961).

g) The California Church deducted payments to the Central Defense and Dissemination Fund (U.S. Church of Scientology Trust).

The Internal Revenue's Audit raised additional questions pertaining to the following areas:

a) The use by the United States Churches of Scientology Trust of Swiss and Luxembourg bank accounts as the depositories for millions of dollars of trust funds;

b) The application and control of the Trust's funds;

c) The maintenance of large amounts of currency belonging to Scientology aboard the ship Apollo for an extended period of time;

d) The degree of control still effectively exercised by L. Ron Hubbard over the California Church's affairs and policies.

The National Office of the Internal Revenue prepared a Technical Advice Memorandum that concluded the California Church had failed to establish either

"a) The non-existence of a substantial commercial purpose; or

b) The non-existence of inurement to private persons or organizations."

On February 14, 1977 statutory notice of deficiency for the years 1970-1974, inclusive, were prepared. The deficiency notice was issued on December 28, 1977. Recently, the LR.S. completed approximately three months of testimony which overwhelmingly demonstrated the following:

(1) The California Church operates for a substantial non-exempt purpose, i.e., the commercial profit-making activities.

(2) The California Church operates for a second, substantial, non-exempt purpose; i.e., the commission of acts and attempts to commit acts which are violative of public policy.

(3) The California Church committed acts so repugnant to public policy that any tax exempt status would be vitiated.

(4) The California Church allowed its net earnings to inure to the benefit of a private corporation, OTC.

The California Church is scheduled to present a rebuttal during the Fall of 1981 in Washington, OTC.

Meanwhile, in Missouri, a similar scenario developed. The Mission Church of Scientology resisted a ruling of the state tax commission which denied the "Church" tax exemption. In Missouri Church of Scientology v. State Tax Commission, et. al. 560 S.W. 2d837 (1978) the Church sought judicial review of the tax commission determination:

"The personal property of the appellant (Church) has not, therefore been shown to be used exclusively for religious or charitable purposes and therefore cannot be exempted from ad Valorem taxation."

Upon review, the Supreme Court of Missouri affirmed the Lower Court's decision. that Scientology did not qualify as a religion for purposes of tax exemption. The court subscribed to a strict definition of religion, belief in a Supreme Being. The Court adopted the Commission's finding:

"We find the testimony of the Reverend M. Rock (Scientology, witness) generally not to be credible and worthy of belief in particular in respect to his description and categorization of the activities of the Organization, its alleged religious services, its financial structure and the nature of the so-called donations which are made to the organization." 560 SW2d at 843.

The Commission further ruled:

" ... appellant (Scientology Church) has some of the trappings and accoutrements of an organized religion, it appears to be more an applied philosophy which has certain religious connotation, but which falls short of being devoted to the worship of a Supreme Being. 560 S.W. 2d at 843."

The Missouri Supreme Court found that Scientology failed to qualify for exemption as its property was not used exclusively for religious worship.

Likewise, the Florida Courts denied the Church of Scientology of California tax exempt status for the year 1976. In Church of Scientology of California v. Schultz, Fla. App., 371 So.2d 502 (1979), the Pinellas County Property Appraiser's determination that the Scientology organization failed to qualify for tax exempt status was upheld by the District Court of Appeal of Florida for the Second District.

In R. v. Registrar General (Lord Denning MR) 3 All ER 886 (1970), the Registrar General determined that the Chapel at Scientology's English location, Saint Hill Manor, in East Grinstead, Sussex, England failed to qualify as "a place of meeting for religious worship". Consequently, the Scientologists were denied certain privileges and were subjected to the levying of rates (Taxes). On appeal, Lord Denning of the Court of Appeal studied the creed of the Church of Scientology and opined:

"I must say that it seems to me to be more a philosophy of the existence of man or of life rather than a religion."

Lord Denning relied upon Scientology doctrine which stated:

"In a Scientology Church Service we do not use prayers, attitudes of piety, or threats of damnation. We use the facts, the truths, the understandings that have been discovered in the science of Scientology."

The Scientologists' appeal was dismissed and leave to appeal to the House of Lords was refused.

The Scientology organization's criminal, tortious and commercial activities will precipitate further governmental scrutiny which will result in additional challenges to claims of religious exemption.

(b) Enforcement of Criminal and Regulatory Laws

Scientology has been involved in many criminal cases and quasi-criminal cases both in the U.S. and in foreign countries involving violations of criminal law and other regulatory laws. Some of the case areas are as follows:

(i) United States v. Mary Sue Hubbard, U.S. District Court for the District of Columbia, Cr. No. 78-401.

The defendant, Mary Sue Hubbard (Ron Hubbard's wife) and 10 defendants, all of whom were top officials of the Church of Scientology, were indicted for conspiracy and criminal acts. All the defendants were convicted and sentenced to jail terms. The indictments were based on a massive campaign of criminal activity to infiltrate and burglarize government agencies and obstruct criminal investigations.

(ii) French convictions.

Hubbard was convicted in absentia and sentenced to a jail term in France for criminal activities by his employees there.

(iii) United States v. Article or Device, 333 F. Supp. 357 (1971)

Action was filed by the government seeking condemnation of the E- meter and writings for misbranding in violation of the Federal Food, Drug and Cosmetic Act. The court held that the literature of the church contained false, unqualified scientific claims without any religious content. The E-meter was misbranded as a result of the misrepresentation, in failing to label with adequate directions for use.

The Court ordered that the E-meter could be used only in a religious setting and only if explicit warning disclaimers were affixed thereto. Scientology has never complied with this order.

In the opinion, Judge Gesell made the following pertinent findings:

"All of this was false -- in short, a fraud. Contrary to representations made, there is absolutely no scientific, or medical basis in fact for the claimed cures attributed to E-meter auditing."

"The bulk of the material is replete with false medical and scientific claims devoid of any religious overlay or reference."

"Viewed as a whole the threat of the writings is secular, not religious."

(iv) Church of Scientology of California v. Elliot Richardson, 437 F.2d 214 (1971)

Scientologists filed suit alleging deprivation of constitutional rights. The government had seized various E-meters and sought to return them to the United Kingdom. The government alleged that the E-meters were misbranded as they failed to display adequate instructions concerning their use. The Scientologists argued that the government's action constituted an infringement of the Church's First Amendment rights. The court held that the government's seizure was proper and reasoned the right to religious freedom did not include the right to violate the Federal Food, Drug and Cosmetic Act.

(v) Church of Scientology of Minnesota v. Department of Health, Education and Welfare, 341 F. Supp. 563

Scientologists' motion to dismiss a case brought by the government was properly denied. The government alleged that the Scientologists misbranded E-meters by failing to supply adequate instructions concerning their use.

(vi) In Re Possible Violation of 18 USC 371. 641, 1503, Appeal of Arthur Maren, 184 U.S. App. D.C. 82 (1977)

A Scientologist minister, Arthur Maren, asserted a First Amendment privilege and refused to answer questions before the grand jury. Maren was found to be in contempt and sentenced. Maren appealed and the Court of Appeals affirmed the lower court's ruling which formed no valid privilege.

D. Scientology Operations in Clearwater

1. General description

Clearwater, Florida, and Los Angeles, California, represent the two largest Scientology headquarters in the world. Scientologists refer to their Clearwater operation as "FLAG". It is generally considered to be the home of the "Sea Org", which is supposedly Hubbard's elite corps of Scientologists complete with uniforms and paramilitary type training. The foregoing discussions about Scientology sales, practices, organizational structure, Guardian's Office activities, and enforcement policies, uniformly apply to Scientology activities in Clearwater. In fact, Clearwater and Los Angeles are the two central communications links for all Scientology activities, whether legal, illegal, fraudulent or criminal. The subtle brainwashing techniques of Scientology heretofore discussed which are set forth at length in the Australian and the English inquiries, are practiced daily in Clearwater. The deceptive and fraudulent sales practices including the breach of confidentiality of auditing information, and the "bait and switch" scheme which is a fundamental part of Scientology operations, are all practiced daily in Clearwater. The enforcement policies, including "Fair Game", "Attack the Attacker", "Disconnect", "Freeloaders' Debt", and "Security Checks", are practiced daily at the Clearwater facilities. The Guardian's Office activities which have been well publicized in the Clearwater media, including the incredible pattern of criminal burglaries, larcenies, infiltrations, harassment, and frame ups were all either formulated or implemented within the City of Clearwater, or Clearwater always remained the central communications link for all such criminal activity. XII

2. Scientology Origins in Clearwater

Intrusion into Florida occurred at Daytona Beach during October of 1975. Approximately 500 persons from Hubbard's primary ship, the Apollo, moved there and rented several hotels. A covert search was conducted in Florida at this time by the Guardian's Office to locate suitable headquarters for Hubbard and Scientology. This operation was called "Operation Goldmine". The controversial nature of the organization, and worldwide investigations by various nations required Hubbard to locate a quiet, non-controversial location. XII

Under the guise of "United Churches of Florida", Hubbard began purchasing buildings in Clearwater, Florida, through the Southern Land Development Corporation, a Scientology "straw" corporation. The purchase of these buildings in Clearwater was discussed in a letter dated November 25, 1975, to L. Ron Hubbard, by Henning Heldt, U.S. Guardian's Office chief. In that letter, Heldt writes:

"Available funds: I do not have all of the C of S of C (Church of Scientology of California) figures up to date here, but will shortly. Preliminarily, I have excellent news on covering the indebtedness. PER lola, C of S of C Lux Account balance is: $7,100,000.00 approximately. Defense Funds for C of S of C total $2,535,563.33 as of 30 September, 75. Subtracting $3,100,000.00 for Fort Harrison, Bank Building, cars and various costs, the remainder is in excess of $6,500,000. This leaves funds for Purchase of Building #3 and the covering of Marty's 14 November figure.

...... Since U.C.F. (United Churches of Florida) is a subsidiary of C of S of C, it can be funded by C. of S. of C. as to its P.R. activities, and since its a part of C. S. of C., it may lease, rent, and use C. of S. of C. space for its religious purposes. Also personnel may transfer freely back and forth, a factor which can prevent logistic difficulties.

Yet, to the outside world and Clearwater, U.C.F. may represent itself as the user of Harrison and even that C. of S. of C. is a member. It can keep doing what it's doing, which is from all reports quite successful. From the outside, the whole operation can be made to appear to be U.C.F., and its members. Yet corporate distinctions that could make these appearances difficult to maintain, (personnel, income), can be very loose.

U.C.F. can phase out, or not, when C. of S. of C. is ready to surface ..... "

Once the purchase of the first buildings in Clearwater, Florida, was accomplished, Hubbard moved his base of operations to that area. This occurred in November and December of 1975. Although the Scientologists moved into the Fort Harrison Building, Hubbard established a secret headquarters for himself in Dunedin. To prevent persons from finding Hubbard, and his secret base at Dunedin, the Scientologist Guardian's Office maintained tight security at Hubbard's base. Guardian Program Order #156, (G.P.g.m.O. 156), entitled, P.G.M. LR.H. Security: Code Name Power, explains how this process was to take place, and what persons were responsible at the "FLAG" base in Clearwater. Some of the following are persons reviewed in that report:

Milt Wolf, Laura Wolf: "FLAG personnel with experience on PR lines. Laura, former legal research U.S. Short mini-hatting -- internship, Dick Jones at WW for training for over a year, not A/G PR calibre, per WW."

B-1: "Randy Winmond and S.C. Covert Mission in CW (Clearwater). S.C. to be replaced by Cindy, Randy's wife. Both are very experienced in covert collection and ops. On Garrison M.O.S."

The Scientologists' clandestine presence in Clearwater, was shortlived since reporter Betty Orsini of the St. Petersburg Times initiated an investigation of United Churches of Florida, and/or Southern Land Development and Leasing Company on or about November 24, 1975. Later, in a letter dated March 5, 1976, the Guardian's Office penetrated the St. Petersburg Times and stole numerous notes and memoranda of her investigation dated between November 24, 1975 and January 30, 1976. After the Scientologist's presence in Clearwater had been discovered, Hubbard fled Dunedin. The local media responded at the time with an investigation into Scientology which prompted the Guardian's Office to locate all persons both public and private "attacking" the organization. In a Guardian's Office letter dated March 12, 1976, entitled "Prediction in C.W." (Dick Weigand) wrote:

"Dear Duke (Snider), you asked for a chart of enemy lines used up to this point for C.W. (Clearwater) attack after research of the files was done. Attached is this chart. It looks complete to me. From this I see the areas of priority to infiltrate are: 1) S.P.T. 2) Mayor 3) Channel 13 T.V. 4) Snider 5) Florida Attorney General 6) Florida State Attorney (Russell).

As things have been quite hectic with me the last two days, I wanted to send this to you to go over. Any changes or additions you want to make would be fine".

The operations against the Mayor in the preceding paragraph were carefully orchestrated by the Scientology Guardian's Office over a period of time. During this period, the Mayor, Gabriel Cazares, had publicly responded to Scientologists' presence in Clearwater. As a result, the Church of Scientology's Guardian's Office ran a covert campaign to "ruin Mayor Gabriel Cazares' political career by spreading a scandal about his sex life broadly." To achieve this, the Scientologists Guardian's Office wrote, "Get the C.W. Democratic political Machinery, the local press, and some of the local Cazares supporters and Sen. dissidents to turn against Cazares as a political candidate". The actual operations against Cazares are found at the end of this report in Appendix XII.

The Church of Scientology's Guardian's Office in Clearwater went to great lengths to prevent Mayor Cazares from "attacking the church". Secret Guardian operation "Keeler" set in motion a mailing to responsible public persons in Clearwater by forging Washington Post news articles. The program called for Scientologists to purchase a faunt, (a typeset like the Washington Post), and produce a forged Washington Post newspaper article. Additionally, the Guardian's Office prepared an operation to send false and unsigned letters, false information using threats, to the Clearwater City Commission regarding Cazares. The letters to be sent to the attention of Karlene Deblaker. Apparently Ms. Deblaker was chosen by the Guardian's Office since "an unsigned letter is to go to the City Commission. Pick one person who would show it to the Mayor. A female Commissioner".

Protection against "attacks" from the Florida Attorney General, and the Florida State Attorney (Russell), mentioned in the above letter was accomplished by placing Scientology FSMs (Scientology covert agents) in the State Attorney's office and in the local District Attorney's Office in Clearwater. Evidence of this infiltration is found in Guardian Program Order #158 dated December 5, 1975, entitled: Project Early Warning System: B-1. The purpose of the operation was to protect Hubbard. It stated:

"Maintain an alerting EARLY WARNING SYSTEM throughout the G.O. Network so that any situation concerning governments or courts by reason of suits is known in adequate time to take defensive actions to suddenly raise the level on LRH personal security very high."

The Guardian's Office infiltrated, with FSMs, the local U.S. Marshall's Office, the State Attorney General's Office, the local District Attorney's Office, and local I.R.S. District Office.

The increase in investigations of Scientology at this time led to a massive program by the Scientologists' Guardian's Office to silence its critics. A Scientology Guardians' Office document entitled DGUS Outstanding Orders into B-1 reveals a Log Entry #74, concerning "FSMs in the CW area. Debug the area". Included in these operations were the Clearwater Sun, the St. Petersburg Times, the Sertoma Club, the Clearwater Chamber of Commerce, the Easter Seals of Pinellas County, representative Culbreath, Dr. John Winter, Steve Advokat, the Executive Committee of the Pinellas County Democratic Club, St. Petersburg Junior College, Ron Stewart, the Clearwater City Departments of Health, Education, Sanitation, and the Fire Department. Scientology Logs of these operations are found in Appendix XII of this Report.

3. Clearwater, Communications Link for Criminal Activities

There is overwhelming evidence, particularly in the form of internal Scientology documents, to support the conclusion that Clearwater is a central communications link throughout the world for the many criminal activities in which Scientology is involved.

The aforementioned documents and others primarily came from the documents seized by the Federal Bureau of Investigation at the Washington and Los Angeles, Guardians' Office in 1977. There may be many thousands of documents still on file in Washington relating to Scientology operations in Clearwater which have not yet been released or procured by the media or this firm.

The criminal operations which were conducted in the United States using Clearwater as a base of operations are absolutely staggering. These crimes include infiltration and theft of documents from many prominent private, national, and international organizations, law firms, newspapers; the execution of smear campaigns and baseless law suits to destroy private individuals who had attempted to exercise their First Amendment rights to freedom of expression; the framing of private citizens who had been critical of Scientology including the forging of documents which led to the indictment of at least one innocent person; violation of the civil rights of prominent private figures and public officials, and the overall criminal activity against the United States and other nations code-named "Operation Snow White".

Prior to the sale of the Apollo and Scientologists' purchase of buildings in Clearwater, Operation Snow White was conducted primarily between the Apollo, the Worldwide Guardians' Office in England, and Los Angeles. Flag headquarters was on the Apollo before it was located in Clearwater. One former defector from Scientology who worked for Hubbard for a period of years, described the actual "Snow White Room", next to Hubbard's bedroom on the Apollo as being a continual source of coded communications concerning their criminal operations throughout the world. Later when Scientology purchased Fort Harrison, this defector personally observed Hubbard control the operation of Scientology worldwide through the use of coded messages both sent to and transmitted by him. At this time Hubbard used approximately 15 codes to conceal his operations, programs and policies. This particular defector personally delivered, in Clearwater, coded communications concerning Operation Snow White, Operation Freakout, Operation Goldmine and other Scientology secret and illegal activities.

The documents seized by the F.B.I. contain thousands of papers pertaining to the aforementioned criminal activities of the organization, most of which were routed through Clearwater, and many of which went through Mitchell Hermann, whose code name was Mike Cooper, who was in charge of the Guardian's Office, for "SEVS-SEC" (Clearwater) after Hubbard left the area in early 1976.

For example, "Operation Freakout", dated April 1, 1976, which was "To get P.C. incarcerated in a mental institution or jail, or at least to hit her so hard that she drop her attack," was routed through Clearwater. "Project Owl", which was an operation to steal documents either by burglary or infiltration from private individuals in Boston, private law firms in Boston, the Suffolk County District Attorney's office in Boston, and the Massachusetts Attorney General's office originated in Clearwater by Mitchell Hermann. Hermann was one of the 11 Scientologists who has been convicted in Washington, D.C. for a whole panorama of crimes including the massive conspiracy against the United States government.

In addition to the larcenies and burglaries which took place in Boston cited above, the Guardians' Office, using Clearwater as a communications link, implemented burglaries of the American Medical Association, the American Psychiatric Association, various psychiatrists' offices throughout the United States, the apartment of Paulette Cooper in New York, a law firm in Vancouver, Canada, law firms in Washington and Chicago, and numerous government agencies including the I.R.S., the Justice Department, the Attorney General, the Food and Drug Administration, the Coast Guard, and various newspapers including the Washington Post, The Washington Informer, The Boston Globe, St. Petersburg Times, the Clearwater Chamber of Commerce, the American Telephone and Telegraph Company, the organization known as EST, and many other government agencies throughout the United States.

Since Hubbard has maintained a small secret base with the use of telexes to control Scientology, he has relied on Clearwater as the central communications link with it. For example, two individuals who were deceived into joining Scientology through a number of false representations, were told that they were going to be involved in film making with Hubbard, and that they were going to live in Clearwater where the filming was taking place. All of their contacts and routing information came through Clearwater, but they actually ended up being blindfolded and taken to a base in Indio, California. At the present time, it is fair to conclude that most of the Guardian's activities are cleared through the Guardian's Office in Clearwater, before being implemented. These activities currently include operations against attorney Michael J. Flynn, Gene Methvin of the Reader's Digest, James Calderbank, Martin Cohen, the Internal Revenue Service, Raymond Banoun, and many private individuals who have sought legal redress against Scientology.

Clearwater is also a major mailing center for Flag and Scientology publications. Virtually every one of these mailings constitutes mail fraud, because the organization has never complied with the decree in the case of United States v. Article or Device, requiring the Scientologists to warn in each and every one of its publications, that Dianetics, Auditing, and Scientology, are not capable of improving the health of anyone. Therefore, any Scientology activities in Clearwater which are designed to sell courses and material without complying with the decree in the Article or Device case constitute a fraud on the public not only in Clearwater but on those outside Clearwater who receive the materials.

4. "Clearwater RPF" -- Physical and Mental Abuse of Individuals

The history of Scientology's abuse of private individuals in Clearwater, primarily at the Fort Harrison, is equally staggering. One Scientology defector who was in the "Rehabilitation Project Force", (RPF), at the Fort Harrison in 1976 and in 1977, has described many individuals on the verge of insanity, some of which were "chained to pipes in the boiler room" for long periods of time. This individual, although a minor, did not receive any education while at the Fort Harrison in violation of Florida law, and her living conditions were both deplorable and in violation of the fire and health laws of Florida. She slept on floors, hallways and storage areas which were concealed when the Scientologists learned, somehow, that officials were going to inspect the premises. Another Scientology defector described the RPF and security checks (r/s handling) as follows:

"I must have run dozens of these evil purposes, then we turned to my r/s handling. By now it's somewhere around the beginning of 1978, I think. I really have very little sense of time here -- for one thing, one day was just like the next. There was no variation weekends were the same as weekdays. It is all sort of one big lump to me --  especially after I started on my expanded dianetics and my brain really started to come apart. I was in sort of a cloud or daze most of the time, that's the only way I can describe it.

"My r/s handling I think to the point where my brain wasn't just falling apart, but it started to get fried. I was running out all these evil purposes connected to the rs's and I started spouting out and running out the weirdest things like, "to be somebody else", "to blow up a planet", "commit suicide", "to never grow up", "to kill myself", "to destroy bodies". The list was endless. My brain was just getting fried in all of this. I mean I had to have been the most evil and crazyiest that ever existed. I don't know how to describe what happens other than my brain was frying right up. I felt like I was in a daze half of the time."

This individual later escaped, was brought back and placed under guard. She was finally released after her luggage and personal belongings were thoroughly checked and searched and she was made to execute affidavits and documents without reading them. Shortly after she left Fort Harrison, Jonestown occurred and she states that" I realized that if at any point LRH (Hubbard) had handed me a glass of poison and told me to drink it, I would have, with no questions asked, and no second thoughts. At that point, I think I got "shocked" out of Scientology." The authors of this Report have encountered numerous individuals who have come back from Clearwater after receiving extended periods of Scientology processing in extremely crippled states emotionally, and sometimes physically debilitated. One former member became gravely ill when a hepatitis epidemic broke out in the childrens' area of the Fort Harrison in 1979. Unqualified Scientology officials distributed drugs and gave shots to persons to prevent the epidemic from spreading. The person designated the "medical officer", who had no qualifications as medical doctor was placed in charge, of this problem. This individual returned from Clearwater and underwent a complete physical and blood analysis. It was discovered that he had liver damage and evidence of mononucleosis.

Other defectors have reported instances where Scientology courses in Clearwater promised miraculous results for cure of headaches, anxiety attacks, cerebral palsy, heart trouble, and other illnesses. Shortly after a Scientologist committed suicide in Clearwater by throwing herself into the bay, the Guardian's Office conducted a program to "guard" all individuals who were under psychological strain as a result of Scientology processing. In fact, some individuals were removed to other states, under the company of a guard, because of local media attention to the suicide.

The Fort Harrison also serves as a sanctuary for Scientologists involved in civil proceedings. Scientology considers Clearwater to be free of effective government monitoring at this time, and therefore uses it to hide witnesses who have been involved in simlar criminal activity on behalf of Scientology. For example in 1980, a Scientologist from Boston attacked and assaulted a psychologist on the streets of Boston. The Scientology agent was hidden for a period of time and then flown to Clearwater were he remained for a short period. This operation is typical of Scientology attempts to conceal witnesses pursuant to an operation code name "Project Quaker". This policy states,

"It may be deemed necessary for all the DC staff who could be pulled in for questioning to suddenly leave.  US B-1 sec. is to insure that all concerned are ready to leave at any time and that all cycles-finance, 2D, bills, are completely up to P.T. and there no PTPS or stops to immediate departure." "US B-1 seussec (Clearwater) is to immediately do up a confidential s-w for finances for this project. This is for seven or eight people so the amount should be about $10,000.00 for staffers." ...seusec US B-1 is to set up "early warning" system...."

The notations in the foregoing project Seus sec US B-1 refer to Clearwater. As previously stated, there are literally thousands of documents involving the commission of crimes such as the foregoing attempt to obstruct justice with the use of Clearwater as a sanctuary.

5. Commercial Activities of Scientology in Clearwater

The Church of Scientology in Clearwater, Flag, provides the most expensive Scientology processing in the world. Prices range from hundreds of dollars for many courses, to tens of thousands of dollars for high level processing, Rooms at the Fort Harrison cost up to $650.00 per week in 1980. Master Charge and Visa credit cards are accepted at Flag. Customers are solicited throughout the world by "Missionaries". Missionaries are the sales force sent to the local "organization" throughout the world to solicit customers. Scientology salespersons operating at the local level in cities throughout the world, solicit persons off the street to take Scientology processing. As stated throughout this Report, grandiose promises are made to cure physical or mental ailments through Scientology processing. VI

Once the sale is closed, Scientologists at the local level methodically review the person's financial history. Information on wealthy customers is immediately sent up "lines" to Scientology operations at Flag. If the customer has sufficient wealth, "Flag representatives" from Clearwater fly to the local "org" to close the sale, and send the person to Flag for processing.

The Scientology "processing" at "Flag" emphasizes the most expensive courses including expanded dianetics and OT III. Expanded dianetics involves "auditing" of past lives and OT III involves a description of the supposed origins of Hubbard and Scientology. For example, an individual at Flag taking OT III, for which he has paid thousands of dollars to reach over a period of time, is presented with "secret" materials which state that he is a specially chosen person with superhuman powers who came to earth after surviving a galactic explosion engineered by Xemu, the evil ruler of Helatrobus, 40 trillion years ago. The price for this course at Flag is $9,021.78. The price for seven (7) levels of "OT" processing is $26,614.32, which according to some medical doctors, causes the mind to undergo a process of "dissociation", eventually leading to permanent degenerative mental illness.

For example, one individual undergoing a divorce had turned to "EST", (a self- improvement type technique) to help him through this traumatic period. Scientology had  infiltrated EST and this person ended up buying Scientology processing after being "guaranteed" a host of cures for his problems, and having been told extravagant representations about Hubbard's background. He expended approximately $75,000.00 in Scientology processing after being enticed by "Flag reps" to "come to Flag" and take the OT III course. His mind and personality gradually became so "dissociated" that he gave up his job as a CPA and spent three (3) years of his life taking Scientology "processing". He is now in the process of initiating suit against Hubbard and Scientology.

Another individual from Boston, the beneficiary of an inheritance, was approached one day by the regular street soliciters of the Boston "org". After numerous promises were made to this person to lure him back to the org, a complete financial "rundown" was performed. After discovering the person's financial status, Flag representatives flew to Boston and extracted over $14,000.00 from him within one week. Shortly thereafter, this person met with the authors of this Report and the monies were eventually returned to him.

Another victim was not as lucky. This person was recently the beneficiary of an inheritance when her husband died. Since Scientology's primary marketing "targets" are the emotionally distraught, the loss of her husband left this woman particularly vulnerable. Flag reps from Clearwater met with her and defrauded her of $33,000.00 in the course of a few weeks.

Flag representative salesmen move as rapidly as possible to drain all funds from their victims. When all available funds are drained, some are allowed to "join staff" in order to continue in Scientology. The normal period for these individuals is 12 to 18 hours per day, 7 days per week. Their pay, if any, is generally under $15.00 per week. There are many individuals working in Clearwater today in violation of the minimum wage laws.

There are many instances where individuals have paid tens of thousands of dollars to Flag under the deceptive sales techniques engineered by Hubbard and his "Flag reps". Many of these individuals frequently realize they have been defrauded and seek their money back.

Prior to the media exposure of Scientology practices, it was virtually impossible for someone to get his money back because  Scientology would first cajole, then subtly frighten, then overtly threaten the person. Since many of Scientology's fraudulent practices have come to light, more and more persons are gaining the courage to stand up to Scientology and demand refunds. Moreover, in the past, most lawyers were reluctant to take on Scientology clients because of First Amendment problems, the expectancy of harassive litigation, and the knowledge that Scientology might expose in the courtroom some of the hidden details of the client's life. The cases heretofore set forth suggest that this may be changing.

Another Hubbard method of channeling funds from churches throughout the world to Clearwater is through the use of management fees. The "Flag" representative at each local "org" ensures that these managements fees are allocated and sent to Clearwater. These fees range between 10 and 20% of the gross income of each local "org". Between the "management fees" and the courses and material sold in Clearwater, one former Scientologist who worked close to Hubbard as Material Marketing Secretary, reported gross income from Flag to $1,000,000.00 per week in 1979.

All of the commercial activities of Scientology previously discussed are practiced on a daily basis in Clearwater.

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