BY GARY WEBB Mercury News Sacramento Bureau FOR THE BETTER PART of a decade, a Bay Area drug ring sold tons of cocaine to the Crips and Bloods street gangs of Los Angeles and funneled millions in drug profits to a Latin American guerilla army run by the U.S. Central Intelligence Agency, a Mercury News investigation has found. This drug network federal records show, opened the first pipeline between Colombia's cocaine cartels and the black neighborhoods of Los Angeles, a city now known as the crack capital of the world. The cocaine it brought into the United States fueled the crack explosion in urban America, and the simultaneous rise to power of the murderous gangs of black L.A. It is one of the most bizarre alliances in modern history, a marriage of convenience between a U.S.- backed army attempting to overthrow a revolutionary Communist government, and the Uzi-toting gangstas of Compton and South Central L.A. The army's financiers provided the cocaine, smuggled it into cities along the West Coast -- primarily San Francisco and Los Angeles -- and delivered it directly to the gangs, the Mercury News found. Unaware of their suppliers' political connections, gang members distributed the drug and collected the money, which the army then used to buy weapons and supplies. Over the years, hundreds of millions of dollars were made by both sides. While the guerilla war that the cocaine pipeline helped finance is barely a memory today, black America is still dealing with its after-effects. Hundreds of thousands of young black men currently are serving long prison sentences for selling cocaine -- a drug that was virtually unobtainable in black neighborhoods before the army's backers began bringing it into L.A. And the street gangs, which used their enormous cocaine profits to arm themselves and expand their crack trade to black neighborhoods across the country, are still thriving, turning entire sections of major cities into occasional war zones. Government complicity in the delivery of drugs to black neighborhoods is a charge some African Americans have been making for years, starting in the late 1960s with the Black Panther Party. It is an accusation that has uniformly been met with scorn and laughter by both the government and most white Americans. But recently declassified reports, federal grand jury testimony, undercover tapes, court records here and abroad, and hours of interviews with those directly involved leave little doubt that the men who brought cocaine to the "hoods of L.A. -- Norwin Meneses and Danilo Blandon -- weren't ordinary drug dealers. They were Uncle Sam's drug dealers. Two months ago, Blandon admitted under oath that his very first cocaine sale in California was to raise money for the CIA's guerrilla army, a group of anti-Communist Nicaraguan exiles known to most Americans as the contras. From 1981 until 1988, the contras -- created, trained and advised by the CIA -- waged a losing guerrilla war against Nicaragua's ruling Sandinista Party, which seized power in 1979 by overthrowing the dictatorship of Anastasio Somoza, a longtime American ally. ''Whatever we were running in L.A., the profit was going for the contra revolution,'' Blandon, an ex-official of the Somoza regime, testified during a recent cocaine trial in San Diego. ''We were trying to rebuild the army.'' Blandon, who appeared in court as a witness for the Drug Enforcement Administration, described himself as one of the founders of the California branch of the Nicaraguan Democratic Force, the official name of the CIA's contra forces. ''When we raised money for the contras, we received orders from other people,'' Blandon testified. He wasn't asked to elaborate. Before he took the witness stand, federal prosecutors had obtained a court order prohibiting any of the defendants from delving into Blandon's relationship with the CIA. Blandon ''will admit that he was a large-scale dealer in cocaine, and there is no additional benefit to any defendant to inquire as to the Central Intelligence Agency,'' Assistant U.S. Attorney L.J. O'Neale argued in his motion to the judge. Blandon, who at one time was one of the most important cocaine wholesalers in Southern California, said the drug organization he began working for in 1981 sold 900 kilos of cocaine in California during the first year he was there -- $54 million worth at wholesale prices. It was not clear how much of that money found its way back to the CIA's army. According to a December 1986 report from the Los Angeles office of the FBI, Blandon's longtime lawyer Bradley Brunon told investigators that the ''CIA winked at this sort of thing.'' That report, part of the files of Iran-Contra Special Prosecutor Lawrence Walsh, was made public only last year, when it was released by the National Archives at the Mercury News' request. Blandon is currently on the U.S. government's payroll as an undercover informant for the DEA, a job federal officials provided when they got him out of prison in 1994, court records show. Though Blandon admitted to crimes that have sent other men to prison for life, the Justice Department turned him loose on unsupervised probation after only 28 months. It has paid him more than $166,000 since then, court records show. ''He has been extraordinarily helpful,'' a federal prosecutor enthusiastically told Blandon's judge in a plea for the trafficker's release. Blandon's former boss, Norwin Meneses, has never spent a day in an American prison, even though the DEA has been aware of his cocaine dealings since at least 1974, records show. He is listed in the DEA's computers as a Class One narcotics trafficker yet he lived quite openly in the Bay Area for years, buying homes in Pacifica and Burlingame, along with restaurants, car lots, and factories in San Francisco and Los Angeles. Under his own name, he safely criss-crossed American borders, even while a federal warrant was pending for his arrest. ''I even drove my own cars, registered in my name,'' Meneses said during a recent interview in Managua, where he is serving a 12-year cocaine trafficking sentence. All the while, Norwin Meneses moved tons of cocaine into California -- for more than 15 years. It arrived in all kinds of containers: false-bottomed shoes; Colombian freighters; cars with hidden compartments; luggage from Miami. Once here, it disappeared into a series of houses and nondescript storefront businesses scattered from Hayward to San Jose, Pacifica to Burlingame, Daly City to Oakland. What made the Meneses organization particularly difficult to penetrate, drug agents said, is that it was made up of friends and relatives of Norwin Meneses. Some, like his nephews, were full-time employees. Others, like his many girlfriends and ex-wives, simply agreed to let their basements or garages be used as a temporary hiding place for cocaine or cash. One of his favorite tricks -- both here and in Nicaragua, records show -- was to have secret vaults sunken into basement floors by his own skilled craftsmen. ''They rented a house, got attack dogs at a rental house, put in an alarm system, in a very nice section of San Bruno, and then jackhammers were going at night time,'' recalled Mitch Brown, a veteran agent with the California Bureau of Narcotic Enforcement. Unfortunately for Meneses, Brown said ''they did it on the street where a city councilmember or the mayor lived.'' Acting on the politician's tip, police staked out the house and arrested one of Meneses' relatives on cocaine charges. As late as 1991, according to testimony of Meneses' former top aide, Meneses was helping the U.S. government gather intelligence on top officials of the Nicaraguan military, at the same time he was smuggling thousands of kilos of cocaine for a Colombian cartel. During a hearing on his drug charges in 1991, the Nicaraguan judge expressed astonishment that Meneses had never been arrested once during his long stay in the U.S. ''How do you explain the fact that Norwin Meneses, implicated since 1974 in the trafficking of drugs ... has not been detained in the United States, a country in which he has lived, entered and departed many times since 1974?'' Judge Martha Quezada asked Roger Mayorga, then-head of the Nicaraguan Anti-Narcotics police. ''Explain, that after nearly 22 years, you have not been asked on the part of the anti-narcotics police of the United States to issue an arrest warrant against the Nicaraguan citizen Norwin Meneses?'' ''Well, that question needs to be asked to the authorities of the United States,'' Mayorga replied. He pointed out that Meneses was arrested by Nicaraguan police within 18 months of his arrival there. Meneses' longevity amazed some American authorities as well. A Customs agent who investigated Meneses in 1980 before transferring elsewhere said he was reassigned to San Francisco seven years later ''and I was sitting in some meetings and here's Meneses' name again. And I can remember thinking, "Holy cow, is this guy still around?' '' A federal official said late last year that a San Francisco grand jury was considering new charges against Meneses for drug trafficking crimes he allegedly committed in the Bay Area, even though he has been in a Nicaraguan prison since November 1991. No indictment has been returned. Street-level drug agents who attempted to investigate Meneses' cocaine operation in the U.S. and abroad during the 1980s found their probes compromised by leaks, dropped or discouraged by higher-ups, records and interviews revealed. Investigators from four different agencies have claimed investigations were hampered by the CIA or ''national security interests.'' In a 1994 affidavit, a federal prosecutor acknowledged that the Meneses organization was ''the target of unsuccessful investigative attempts for many years.'' That included an investigation by the U.S. Senate in 1988, which was trying to find out why the Justice Department had given back $36,000 that San Francisco police had seized from a Nicaraguan cocaine dealer. The money was returned after the dealer presented letters from a CIA-linked attorney swearing that the drug dealer had been given the money to buy weapons for the anti-Communist guerillas. ''The Justice Department flipped out to prevent us from getting access to people, records -- finding anything out about it,'' recalled Jack Blum, former chief counsel to a U.S. Senate subcommittee that investigated allegations of drug trafficking by the CIA's Nicaraguan army. ''It was one of the most frustrating exercises that I can ever recall.'' None of the government agencies that became involved with Meneses and Blandon over the years would provide the Mercury News with any information about the two men, or their relationship with the agency. A Freedom of Information Act request filed with the CIA was denied on national security grounds. FOIA requests filed with the DEA were denied on privacy grounds. Requests filed with the FBI and the Immigration and Naturalization Service were simply ignored, despite a federal law that requires a written response in 10 days. None of the DEA officials who worked closely with the two men would agree to an interview. Questions submitted to the DEA's public affairs office in Washington were never answered. For the Department of Justice, the disclosure that a government-linked drug ring supplied cocaine to black street gangs comes at an awkward time. The federal law enforcement agency is currently fending off accusations that it is using harsh crack laws to unfairly prosecute African Americans in Los Angeles and elsewhere. Two federal judges and a federal appeals court panel have already have said the charges appear to be supported by government statistics, which show that few, if any, whites have ever been federally prosecuted on crack charges in most major cities. ''There are few claims as serious as the charge put forth by the defendants here -- that the government selected them for prosecution because of their race,'' the 9th Circuit Court of Appeals ruled last year, upholding the dismissal of federal crack charges against five young blacks. On May 13, U.S. Supreme Court overturned that ruling, saying that in order to win their case, the defendants first had to prove that white crack dealers were not being prosecuted. The court did not explain how defense lawyers were supposed to learn about such cases, which would not be made public. Writing for the 8-1 majority, Chief Justice William Rehnquist disputed the appeals court's premise that crimes cannot be ''the exclusive province of any particular racial or ethnic group.'' Citing figures showing that more than 90% of all crack sentences in 1994 were given to blacks, Rehnquist strongly implied that crack dealing was an offense peculiar to African Americans. ''Presumptions at war with presumably reliable statistics have no proper place in the analysis of this issue,'' Rehnquist wrote. The Justice Department, which refused to comply with court orders to turn over information on how it targets cocaine dealers, had made the same argument, insisting that it wasn't the government's fault that nearly all the crack dealers it had prosecuted were black. ''Socio-economic factors led certain ethnic and racial groups to be particularly involved with the distribution of certain drugs,'' the Justice Department argued in court, ''and blacks were particularly involved in the Los Angeles area crack trade.'' But the fact that tons of cheap, high-grade cocaine were being dumped into black neighborhoods in L.A. throughout much of the 1980s -- and to a lesser extent in San Jose, Oakland, San Francisco, Portland, Houston, Oklahoma City, and New Orleans -- goes a long way towards explaining why crack was able to sink such deep roots into black America. It's where the seed was planted.