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Why was the CIA experimenting with Osama Bin Laden action figures under the code name Demon Eyes?

Answer: propaganda

According to The Verge, the CIA developed Osama Bin Laden action figures in 2005, with the idea that making a scary-looking doll in his image could indoctrinate the youth to hate him.

Hundreds of prototype dolls were reportedly made, but the CIA decided to abandon the idea and they were not distributed officially. The CIA called upon the talents of Donald Levine, toy executive known for introducing G.I. Joe to the world. (Levine died in May at the age of 86.)

The Osama doll’s face was coated with a special heat-dissolving material that would make it appear as though his skin was peeling off, revealing a demonic visage beneath.