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 relation to these dissident factions it is boviousobvious [sic] that their only consideration in relation to the National Government is a retention of power and maintenance of a "sphere of influence" in their own areas. The Cao Dai and Hao Hoa arc supposedly religious groups with ethnic ties to specific areas of South Viet-Nam. However, their religious backgrounds are in reality used as a basis for the development of their political and power aspirations. The Binh Xuyen Sect has no specific ethnic ties but is considered to have originated in the area south of Saigon and to have ban principally engaged in the past in river piracy activities. Recently, they have controlled the gambling and other vice activities in Saigon and nearby Cholon, and have been Bao Dai's chief source of income.

It is considered that the problem of the Sects is one of the major factors retarding establishment of a stable, viable government in Viet-Nam and any plan for the replacement of the Diem Government must also give adequate consideration to this problem. Action to reduce the power of the Binh Xuyen should be immediate and would probably result in this Sect going underground and initiating guerrilla activities. However, paramilitary and subversive activities are so prevalent in South Viet-Nam present that it is not believed this would seriously aggravate the situation.

A major effort should be made concurrently to strengthen the National Amy and, as soon as possible, the other Sects should be subjugated to the will of the National Government.

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 * A strong, stable, viable government cannot be developed in South Viet-Nam until a reasonable solution to the problem or the Sects has been determined.