IRAN-CONTRA AFFAIR

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CREST

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General CIA Records

Document Number (FOIA) /ESDN (CREST):

CIA-RDP89T00142R000500610001-7

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RIFPUB

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Document Page Count:

706

Document Creation Date:

December 23, 2016

Document Release Date:

May 25, 2011

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Case Number:

Publication Date:

November 1, 1987

Content Type:

REPORT

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CIA-RDP89T00142R000500610001-7.pdf	58.89 MB

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Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 S. Rept. No. 100-216 100th Congress, 1st Session H. Rept. No. 100-433 Report of the Congressional Committees Investigating t With Supplemental Minority, and Additional Views November 1987 U.S. Senate Select Committee On Secret Military Assistance to Iran And the Nicaraguan Opposition U.S. House of Representatives Select Committee to Investigate Covert Arms Transactions with Iran Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 C".3 y Union Calendar No. 277 100th Congress, 1st Session S. Rept. No.100-216 H. Rept. No. 100-433 Report of the Congressional Committees Investigating the Iran-Contra Affair With Supplemental, Minority, and Additional Views Daniel K. Inouye, Chairman, Senate Select Committee Lee H. Hamilton, Chairman, House Select Committee U.S. Senate Select Committee On Secret Military Assistance to Iran And the Nicaraguan Opposition U.S. House of Representatives Select Committee to Investigate Covert Arms Transactions with Iran November 17, 1987.? Ordered to be printed. November 13, 1987.?Committed to the Committee of the Whole House on the State of the Union and ordered to be printed. Washington: 1987 For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington. D.C. 20402 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 DANIEL K INOUYE. HAWAII. CHAIRMAN WARREN RUDMAN, NEW HAMPSHIRE, VICE CHAIRMAN GEORGE J. MITCHELL, MAINE SAM NUNN. GEORGIA PAUL S SARBANES, MARYLAND HOWELL T. HEFLIN, ALABAMA DAVID I BOREN. OKLAHOMA ARTHUR L LIMAN, CHIEF COUNSEL PAUL BARBADORO. DEPUTY CHIEF COUNSEL JAMES A. McCLURE. IDAHO ORRIN G. HATCH, UTAH WILLIAM S. COHEN. MAINE PAUL S. TRIBLE. Jet VIRGINIA MARK A. BELNICK, EXECUTIVE ASSISTANT TO THE CHIEF COUNSEL MARY JANE CHECCHI, EXECUTIVE DIRECTOR CH. ALBRIGHT, Jig. DANIEL FINN C.H. HOLMES CHARLES M. KERR JAMES E. KAPLAN ASSOCIATE COUNSELS JOEL P. LISKER RICHARD D. PARRY JOHN D. SAXON TERRY A. SMIUANICH TIMOTHY C. WOODCOCK Honorable John C. Stennis President pro tempore United States Senate Washington, DC lanitEd t$tatts *nate SELECT COMMITTEE ON SECRET MILITARY ASSISTANCE TO IRAN AND THE NICARAGUAN OPPOSITION WASHINGTON, DC 20510 November 17, 1987 Dear Mr. President: We have the pleasure to transmit herewith, pursuant to Senate Resolution 23, the final Report of the Senate Select Committee on Secret Military Assistance to Iran and the Nicaraguan Opposition. We will submit such other volumes of Appendices to the Report as are authorized and as they become available. Sincerely, Daniel K. Inouye Chairman Vice Chairman Warren B. Rudman DKI:WBR:cp Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 LEE H HAMILTON, INDIANA. CHAIRMAN DANTE B FASCELL. FLORIDA, VICE CHAIRMAN THOMAS S FOLEY, WASHINGTON PETER W RODIN?. JR NEW JERSEY JACK BROOKS. TEXAS LOUIS STOKES, OHIO LES ASPIN, WISCONSIN EDWARD P BOLAND, MASSACHUSETTS ED JENKINS. GEORGIA JOHN W NIELDS, JR., CHIEF COUNSEL W NEIL EGGLESTON, DEPUTY CHIEF COUNSEL CASEY MILLER, STAFF DIRECTOR U.S. HOUSE OF REPRESENTATIVES SELECT COMMITTEE TO INVESTIGATE COVERT ARMS TRANSACTIONS WITH IRAN UNITED STATES CAPITOL WASHINGTON, DC 20515 (202) 225-7902 November 13, 1987 The Honorable Jim Wright Speaker of the House U.S. Capitol Washington, D.C. DICK CHENEY, WYOMING WM S. BROOMFIELD, MICHIGAN HENRY J HYDE, ILLINOIS JIM COURTER, NEW JERSEY BILL McCOLLUM, FLORIDA MICHAEL DcWINE, OHIO THOMAS R SMEETON, MINORITY STAFF DIRECTOR GEORGE VAN CLEVE, CHIEF MINORITY COUNSEL RICHARD LEON. DEPUTY CHIEF MINORITY COUNSEL Dear Mr. Speaker: Pursuant to the provisions of House Resolutions 12 and 294, 100th Congress, First Session, I transmit herewith the Report of the Congressional Committees Investigating the Iran-Contra Affair, which the Select Committee to Investigate Covert Arms Transactions with Iran ordered reported to the House on November 5, 1987. The report includes findings, conclusions and recommmendations, together with supplemental, minority and additional views. Within the next 30 days, the Select Committee will file for printing the accompanying appendices to the report. The complete set of appendices will include volumes containing a chronology of events; a testimonial chronology; miscellaneous documents used as sources in the committee report; depositions conducted by the Committees; and an index to the report and appendices. After filing, the appendices will, where appropriate, be declassified before they are printed. If necessary, the Committees will also file an appendix containing classified information. The appendices will be published as soon as possible after declassifica ion. Si ly yours, Lee H. Hamilton Chairman (V) AnnrovedForRelease2011/05/25:CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 United States Senate Select Committee on Secret Military ,Assistance To Iran and the Nicaraguan Opposition Daniel K. Inouye, Hawaii, Chairman Warren Rudman, New Hampshire, Vice Chairman George J. Mitchell, Maine Sam Nunn, Georgia Paul S. Sarbanes, Maryland Howell T. Heflin, Alabama David L. Boren, Oklahoma James A. McClure, Idaho Orrin G. Hatch, Utah William S. Cohen, Maine Paul S. Trible, Jr., Virginia Arthur L. Liman Chief Counsel Mark A. Belnick Executive Assistant To the Chief Counsel Mary Jane Checchi Executive Director Lance I. Morgan Press Officer Paul Barbadoro Deputy Chief Counsel (VI) Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 United States House of Representatives Select Committee to Investigate Covert Arms Transactions with Iran Lee H. Hamilton, Indiana, Chairman Dante B. Fascell, Florida, Vice Chairman Thomas S. Foley, Washington Peter W. Rodino, Jr., New Jersey Jack Brooks, Texas Louis Stokes, Ohio Les Aspin, Wisconsin Edward P. Boland, Massachusetts Ed Jenkins, Georgia Dick Cheney, Wyoming, Ranking Republican Wm. S. Broomfield, Michigan Henry J. Hyde, Illinois Jim Courter, New Jersey Bill McCollum, Florida Michael DeWine, Ohio John W. Nields, Jr. Chief Counsel W. Neil Eggleston Deputy Chief Counsel Kevin C. Miller Staff Director Thomas R. Smeeton Minority Staff Director George W. Van Cleve Chief Minority Counsel Richard J. Leon Deputy Chief Minority Counsel (VII) Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II II 1....1... Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 United States Senate Select Committee on Secret Military Assistance to Iran and the Nicaraguan Opposition Arthur L. Liman Chief Counsel Mark A. Belnick Paul Barbadoro Executive Assistant Deputy Chief Counsel to the Chief Counsel Mary Jane Checchi Executive Director Lance I. Morgan Press Officer Associate Counsels C. H. Albright, Jr. Daniel Finn C. H. Holmes James E. Kaplan Charles M. Kerr Joel P. Lisker Committee Staff W. T. McGough, Jr. Richard D. Parry John D. Saxon Terry A. Smiljanich Timothy C. Woodcock Assistant Counsels Legal Counsel Intelligence/Foreign Policy Analysts Investigators Press Assistant General Accounting Office Detailees Security Officer Security Assistants Chief Clerk Deputy Chief Clerk Committee Members Steven D. Arkin* Isabel K. McGinty John R. Monsky Victoria F. Nourse Philip Bobbitt Rand H. Fishbein Thomas Polgar Lawrence R. Embrey, Sr. David E. Faulkner Henry J. Flynn Samuel Hirsch John J. Cronin Olga E. Johnson John C. Martin Melinda Suddes* Robert Wagner Louis H. Zanardi Benjamin C. Marshall Georgians Badovinac David Carty Kim Lasater Scott R. Thompson Judith M. Keating* Scott R. Ferguson ' Designated Liaison Senator Inouye Senator Rudman Senator Mitchell Senator Nunn Senator Sarbanes Senator Heflin Senator Boren Senator McClure Senator Hatch Senator Cohen Senator Trible Peter Simons William V. Cowan Thomas C. Polgar Richard H. Arenberg Eleanore Hill Jeffrey H. Smith Frederick Millhiser Thomas J. Young Sven Holmes Blythe Thomas Jack Gerard Dee V. Benson James G. Phillips James Dykstra L. Britt Snider Richard Cullen Staff Assistants Administrative Staff Secretaries Receptionist Computer Center Detailee Part Time* John K. Appleby Ruth Balin Robert E. Esler Ken Foster* Martin H. Garvey Rachel D. Kaganoff* Craig L. Keller Hawley K. Manwarring Stephen G. Miller Jennie L. Pickford* Michael A. Raynor Joseph D. Smallwood* Kristin K. Trenholm Thomas E. Tremble Bruce Vaughn Laura J. Ison Hilary Phillips Winifred A. Williams* Nancy S. Durflinger Shari D. Jenifer Kathryn A. Momot Cindy Pearson Debra S. Sheffield* Ramona H. Green Preston Sweet Assistant Counsel Hearings Coordinator Staff Assistants Interns Document Analyst Historian Volunteers Peter V. Letsou Joan M. Ansheles Edward P. Flaherty, Jr. Barbara H. Hummell David G. Wiencek Nona Balaban Edward E. Eldridge, III Elizabeth J. Glennie Stephen A. Higginson Laura T. Kunian Julia F. Kogan Catherine L. Udell Lyndal L. Shaneyfelt Edward L. Keenan Lewis Liman Catherine Roe Susan Walsh *The staff member was not with the Select Committee when the Report was filed but had, during the life of the Committee, provided services. Approved For Release 2011/05/25: 61;87RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 United States House of Representatives Select Committee to Investigate Covert Arms Transactions with Iran Majority Staff Special Deputy Chief Counsel Staff Counsels Press Liasion Chief Clerk Assistant Clerk Research Director Research Assistants Charles Tiefer Kenneth M. Ballen Patrick J. Carome V. Thomas Fryman, Jr. Pamela J. Naughton Joseph P. Saba Robert J. Havel Ellen P. Rayner Debra M. Cabral Louis Fisher Christine C. Birmann Julius M. Genachowski Ruth D. Harvey James E. Rosenthal John W. Nields, Jr. Chief Counsel W. Neil Eggleston Deputy Chief Counsel Kevin C. Miller Staff Director Systems Administrator Systems Programmer/Analysts Executive Assistant Staff Assistants Minority Staff Catherine L. Zimmer Charles G. Ratcliff Stephen M. Rosenthal Elizabeth S. Wright Bonnie J. Brown Christina Kalbouss Sandra L. Koehler Jan L. Suter Katherine E. Urban Kristine Willie Mary K. Yount Associate Minority Counsel Assistant Minority Counsel Minority Research Director Committee Staff Robert W. Genzman Kenneth R. Buck Bruce E. Fein Thomas R. Smeeton Minority Staff Director George W. Van Cleve Chief Minority Counsel Richard J. Leon Deputy Chief Minority Counsel Investigators Director of Security Security Officers Editor Deputy Editor Associate Editor Production Editor Hearings Editors Printing Clerk Robert A. Bermingham James J. Black Thomas N. Ciehanski William A. Davis, III Clark B. Hall Allan E. Hobron Roger L. Kreuzer Donald Remstein Jack W. Taylor Timothy E. Traylor Bobby E. Pope Rafael Luna, Jr. Theresa M. Martin Milagros Martinez Clayton C. Miller Angel R. Torres Joseph Foote Lisa L. Berger Nina Graybill Mary J. Scroggins David L. White Stephen G. Regan G. R. Beckett (IX) Minority Staff Editor/Writer Minority Executive Assistant Minority Staff Assistant Associate Staff Michael J. Malbin Molly W. Tully Margaret A. Dillenburg Representative Hamilton Representative Fascell Representative Foley Representative Rodino Representative Brooks Representative Stokes Representative Aspin Representative Boland Representative Jenkins Representative Broomfield Representative Hyde Representative Courter Representative McCollum Representative De Wine General Counsel to the Clerk Michael H. Van Dusen Christopher Kojm R. Spencer Oliver Bert D. Hammond Victor Zangla Heather S. Foley Werner W. Brandt M. Elaine Mielke James J. Schweitzer William M. Jones Michael J. O'Neil Richard M. Giza Richard E. Clark Warren L. Nelson Michael W. Sheehy Robert H. Brink Steven K. Berry David S. Addington Diane S. Dornan Dennis E. Teti Tina L. Westby Nicholas P. Wise Steven R. Ross Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 L. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Contents Origins of This Report xv Section I: Part I Part II Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Part III Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Part IV Chapter 17 Chapter 18 Chapter 19 Chapter 20 Part V Chapter 21 Chapter 22 Chapter 23 Part VI Chapter 24 The Report Executive Summary Executive Summary 3 Central America Introduction: Background on U.S.-Nicaragua Relations 25 The NSC Staff Takes Contra Policy Underground 31 The Enterprise Assumes Control of Contra Support 59 Private Fundraising: The Channell-Miller Operation 85 NSC Staff Involvement in Criminal Investigations and Prosecutions 105 Keeping "USG Fingerprints" Off the Contra Operation: 1984-1985 117 Keeping "USG Fingerprints" Off the Contra Operation: 1986 137 The Arms Sales to Iran U.S.-Iran Relations and the Hostages in Lebanon 157 The Iran Arms Sales: The Beginning 163 Arms to Iran: A Shipment of HAWKs Ends in Failure 175 Clearing Hurdles: The President Approves a New Plan 193 Arms Sales to Iran: The United States Takes Control 213 Deadlock in Tehran 237 "Taken to the Cleaners": The Iran Initiative Continues 245 The Diversion 269 Summary: The Iran Initiative 277 Exposure and Concealment Exposure and Concealment: Introduction 285 October 1986: Exposure Threatened 287 November 1986: Concealment 293 November 1986: The Attorney General's Inquiry 305 The Enterprise Introduction to the Enterprise 327 The Enterprise 331 Other Privately Funded Covert Operations 361 Conclusions and Recommendations Covert Action in a Democratic Society 375 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 XI 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 Chapter 26 Chapter 27 Chapter 28 Powers of Congress and the President in the Field of Foreign Policy 387 The Boland Amendments and the NSC Staff 395 Rule of Law 411 Recommendations 423 Section II The Minority Report The Minority Views of Mr. Cheney, Mr. Broomfield, Mr. Hyde, Mr. Courter, Mr. McCollum, Mr. DeWine, Sen. McClure, and Sen. Hatch 431 Part I Chapter 1 Part II Chapter 2 Chapter 3 Chapter 4 Part III Chapter 5 Chapter 6 Chapter 7 Part IV Chapter 8 Chapter 9 Chapter 10 Part V Chapter 11 Chapter 12 Part VI Chapter 13 Part VII Chapter 14 Part VIII Section III XII Introduction Introduction 437 The Foreign Affairs Powers of the Constitution and the Iran-Contra Affair The Foreign Affairs Powers and the Framers' Intentions 457 The President's Foreign Policy Powers in Early Constitutional History 463 Constitutional Principles in Court 471 Nicaragua Nicaragua: The Context 483 The Boland Amendments 489 Who Did What to Help the Democratic Resistance 501 Iran The Iran Initiative Iran: The Legal Issues The Diversion 519 539 549 Disclosures and Investigations The Disclosure and the Uncovering 561 The NSC's Role in Investigations 567 Putting Congress' House in Order The Need to Patch Leaks Recommendations Recommendations 575 583 Appendixes Supplemental and Additional Views The Additional Views of Sen. Inouye and Sen. Rudman 637 The Additional Views of Mr. Rodino, Mr. Fascell, Mr. Foley, Mr. Brooks, Mr. Stokes, Mr. Aspin, and Mr. Boland 639 The Additional Views of Mr. Rodino, Mr. Fascell, Mr. Brooks, and Mr. Stokes 643 The Additional Views of Sen. Boren and Sen. Cohen 651 The Additional and Separate Views of Sen. Heflin 655 The Additional Views of Sen. Boren 657 The Supplemental Views of Sen. McClure 659 The Additional Views of Mr. Broomfield 661 The Supplemental Views of Sen. Hatch 665 The Supplemental Views of Mr. Hyde 667 Approved For Release 29,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 The Additional Views of Sen. Cohen 673 The Supplemental Views of Mr. McCollum 675 The Additional Views of Sen. Trible 679 Section IV Appendix Organization and Conduct of the Committees' Investigation 683 XIII Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 NOTE ON CITATIONS IN THIS REPORT Footnotes appear at the end of the each chapter and refer to a variety of sources available to the Committees. The most common are: 1. Hearings. Refers to The Iran-Contra Investigation: Joint Hearings Before the House Select Committee to Investigate Covert Arms Transactions with Iran and the Senate Select Committee on Secret Military Assistance to Iran and the Nicaraguan Opposition, 100th Cong., 1st Sess. (Washington: Government Print- ing Office, 1987, 13 vols.). Most page references in the footnotes are to these volumes. Because of publication production necessities, however, some references are to the original transcripts of the hearings. A table converting transcript page numbers to hearings page numbers is published in the Hearings. 2. Dep. or Depo. A sworn deposition taken in the presence of one or more Members of the Committees and/or counsel for the Committees, and counsel for the deponent. Please consult other volumes of the Committees' publications for further information. 3. Int. An unsworn interview conducted by one or more Committee Members and/or Committee counsel, with counsel for the interviewee present if the interviewee wished. 4. PROF Notes. Messages generated on a computer system used by the National Security Council staff. The exact time and date of the message are recorded. 5. Tower. Report of the President's Special Review Board, John Tower, Chairman (Washington: Government Printing Office, Feb. 26, 1987). 6. Letter and Number Codes. Source and Document File Codes for materials that have been assigned a Senate letter code and stamped page number. These materials are stored in the Committees' archives in Washington, D.C. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Preface Origins of this Report On November 3, 1986, Al-Shiraa, a Lebanese weekly, reported that the United States had secretly sold arms to Iran. Subsequent re- ports claimed that the purpose of the sales was to win the release of American hostages in Lebanon. These reports seemed unbeliev- able: Few principles of U.S. policy were stated more forcefully by the Reagan Ad- ministration than refusing to traffic with ter- rorists or sell arms to the Government of the Ayatollah Khomeini of Iran. Although the Administration initially denied the reports, by mid-November it was clear that the accounts were true. The United States had sold arms to Iran and had hoped thereby to gain the release of Ameri- can hostages in Lebanon. However, even though the Iranians received the arms, just as many Americans remained hostage as before. Three had been freed, but three more had been taken during the period of the sales. There was still another revelation to come: on November 25 the Attorney General an- nounced that proceeds from the Iran arms sales had been "diverted" to the Nicaraguan resistance at a time when U.S. military aid to the Contras was prohibited. Iran and Nicaragua?twin thorns of U.S. foreign policy in the 1980s?were thus linked in a credibility crisis that raised serious ques- tions about the adherence of the Administra- tion to the Constitutional processes of Gov- ernment. The public and Members of Congress ex- pressed deep concern over the propriety and legality of actions by the staff of the Nation- al Security Council (NSC) and other officers of the Government regarding both the arms sales and the secret assistance to the Contras. The issue of U.S. support for the Contras was not new. The President and Congress had engaged in vigorous debate over the proper course of U.S. policy, and Congress had barred U.S. support of Contra military operations for almost 2 years. Subsequently, senior Administration officials had assured Committees of Congress repeatedly that the Administration was abiding by the law. The Iran-Contra Affair, as it came to be known, carried such serious implications for U.S. foreign policy, and for the rule of law in a democracy, that the 100th Congress de- termined to undertake its own investigation of the Affair. The inquiry formally began on January 6, 1987, when the Senate, by S. Res. 23, estab- lished the Select Committee on Secret Mili- tary Assistance to Iran and the Nicaraguan Opposition. The next day, the House, by H. Res. 12, established the Select Committee to Investigate Covert Arms Transactions with Iran. The two Chambers charged their re- spective Committees with investigating four major areas: arms sales to Iran, the possible diversion of funds, to aid the Contras, viola- tions of Federal law, and the involvement of the NSC staff in the conduct of foreign policy. The two Committees took the unprece- dented step of merging their investigations and hearings and sharing all the information they obtained. The staffs of the two Commit- tees worked together in reviewing more than 300,000 documents and interviewing or ex- amining more than 500 witnesses. The Com- mittees held 40 days of joint public hearings XV Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II 11 .1 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Preface and several executive sessions. The two Committees then decided to combine their findings in a joint Report. The conclusions in this Report are based on a record marred by inconsistent testimony and failure on the part of several witnesses to recall key matters and events. Moreover, a key witness?Director of Central Intelli- gence William J. Casey?died, and members of the NSC staff shredded relevant contem- poraneous documents in the fall of 1986. Consequently, objective evidence that could have resolved the inconsistencies and over- come the failures of memory was denied to the Committees?and to history. Under the American system, Government is accountable to the people. A public bipar- tisan investigation such as this one helps to ensure that the principle of accountability is enforced for all officials and' policies. It strengthens the national commitment to the democratic values that have guided the United States for two centuries. The President cooperated with the investi- gation. He did not assert executive privilege; he instructed all relevant agencies to produce their documents and witnesses; and xvi he made extracts available from his personal diaries, although he rejected the Committees' request to refer to those entries in this Report on the ground that he did not wish to estab- lish a precedent for future Presidents. The Committees also received unprece- dented cooperation from a sovereign nation, the State of Israel. Although not willing to allow its officials to be examined, the Gov- ernment of Israel assembled and furnished the Committees with extensive materials and information, including information affecting its national security. The Committees' investigation of the Iran- Contra Affair is not the first, following as it does the findings of the Senate Select Com- mittee on Intelligence and the President's Special Review Board (known as the Tower Board); nor will it be the last, for the investi- gation of the Independent Counsel assigned to this matter continues. But the Committees hope this Report will make a contribution by helping to explain what happened in the Iran-Contra Affair, and by helping to restore the public's confi- dence in this Nation's Constitutional system of Government. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Section I The Report Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11? . .1 . 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part I Executive Summary The full story of the Iran-Contra Affair is complicated, and, for this Nation, profoundly sad. In the narrative portion of this Report, the Committees present a comprehensive ac- count of the facts, based on 10 months of investigation, including 11 weeks of hearings. But the facts alone do not explain how or why the events occurred. In this Executive Summary, the Committees focus on the key issues and offer their conclusions. Minority, supplemental, and additional views are print- ed in Section II and Section III. Summary of the Facts The Iran-Contra Affair had its origin in two unrelated revolutions in Iran and Nicaragua. In Nicaragua, the long-time President, General Anastasio Somoza Debayle, was overthrown in 1979 and replaced by a Gov- ernment controlled by Sandinista leftists. In Iran, the pro-Western Government of the Shah Mohammed Riza Pahlavi was over- thrown in 1979 by Islamic fundamentalists led by the Ayatollah Khomeini. The Kho- meini Government, stridently anti-American, became a supporter of terrorism against American citizens. Nicaragua United States policy following the revolu- tion in Nicaragua was to encourage the San- dinista Government to keep its pledges of pluralism and democracy. However, the San- dinista regime became increasingly anti- American and autocratic; began to aid a left- ist insurgency in El Salvador; and turned toward Cuba and the Soviet Union for politi- cal, military, and economic assistance. By December 1981, the United States had begun supporting the Nicaraguan Contras, armed opponents of the Sandinista regime. The Central Intelligence Agency (CIA) was the U.S. Government agency that assist- ed the Contras. In accordance with Presiden- tial decisions, known as Findings, and with funds appropriated by Congress, the CIA armed, clothed, fed, and supervised the Con- tras. Despite this assistance, the Contras failed to win widespread popular support or military victories within Nicaragua. Although the President continued to favor support of the Contras, opinion polls indicat- ed that a majority of the public was not supportive. Opponents of the Administra- tion's policy feared that U.S. involvement with the Contras would embroil the United States in another Vietnam. Supporters of the policy feared that, without U.S. support for the Contras, the Soviets would gain a dan- gerous toehold in Central America. Congress prohibited Contra aid for the purpose of overthrowing the Sandinista Government in fiscal year 1983, and limited all aid to the Contras in fiscal year 1984 to $24 million. Following disclosure in March and April 1984 that the CIA had a role in connection with the mining of the Nicara- guan harbors without adequate notification to Congress, public criticism mounted and the Administration's Contra policy lost much of its support within Congress. After further vigorous debate, Congress exercised its Con- stitutional power over appropriations and cut off all funds for the Contras' military and paramilitary operations. The statutory provi- sion cutting off funds, known as the Boland Amendment, was part of a fiscal year 1985 omnibus appropriations bill, and was signed 3 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .l I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary into law by the President on October 12, 1984. Still, the President felt strongly about the Contras, and he ordered his staff, in the words of his National Security Adviser, to find a way to keep the Contras "body and soul together." Thus began the story of how the staff of a White House advisory body, the NSC, became an operational entity that secretly ran the Contra assistance effort, and later the Iran initiative. The action officer placed in charge of both operations was Lt. Col. Oliver L. North. Denied funding by Congress, the President turned to third countries and private sources. Between June 1984 and the beginning of 1986, the President, his National Security Adviser, and the NSC staff secretly raised $34 million for the Contras from other coun- tries. An additional $2.7 million was provid- ed for the Contras during 1985 and 1986 from private contributors, who were ad- dressed by North and occasionally granted photo opportunities with the President. In the middle of this period, Assistant Secretary of State A. Langhorne Motley?from whom these contributions were concealed?gave his assurance to Congress that the Adminis- tration was not "soliciting and/or encourag- ing third countries" to give funds to the Contras because, as he conceded, the Boland Amendment prohibited such solicitation. The first contributions were sent by the donors to bank accounts controlled and used by the Contras. However, in July 1985, North took control of the funds and?with the support of two National Security Advis- ers (Robert McFarlane and John Poindexter) and, according to North, Director Casey? used those funds to run the covert operation to support the Contras. At the suggestion of Director Casey, North recruited Richard V. Secord, a retired Air Force Major General with experience in special operations. Secord set up Swiss bank accounts, and North steered future donations into these accounts. Using these funds, and funds later generated by the Iran arms sales, Secord and his associate, Albert Hakim, cre- ated what they called "the Enterprise," a private organization designed to engage in covert activities on behalf of the United States. The Enterprise, functioning largely at North's direction, had its own airplanes, pilots, airfield, operatives, ship, secure com- munications devices, and secret Swiss bank accounts. For 16 months, it served as the secret arm of the NSC 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. Although the IA and other agencies in- volved in intelligence activities knew that the Boland Amendment barred their involve- ment in covert support for the Contras, North's Contra support operation received logistical and tactical support from various personnel in the CIA and other agencies. Certain CIA personnel in Central America gave their assistance. The U.S. Ambassador in Costa Rica, Lewis Tambs, provided his active assistance. North also enlisted the aid of Defense Department personnel in Central America, and obtained secure communica- tions equipment from the National Security Agency. The Assistant Secretary of State with responsibility for the region, Elliott Abrams, professed ignorance of this support. He later stated that he had been "careful not to ask North lots of questions." By Executive Order and National Security Decision Directive issued by President Reagan, all covert operations must be ap- proved by the President personally and in writing. By statute, Congress must be noti- fied about each covert action. The funds used for such actions, like all government funds, must be strictly accounted for. The covert action directed by North, however, was not approved by the President in writing. Congress was not notified about it. And the funds to support it were never accounted for. In short, the operation func- tioned without any of the accountability re- quired of Government activities. It was an Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary evasion of the Constitution's most basic check on Executive action?the power of the Congress to grant or deny funding for Government programs. Moreover, the covert action to support the Contras was concealed from Congress and the public. When the press reported in the summer of 1985 that the NSC staff was en- gaged in raising money and furnishing mili- tary support to the Contras, the President assured the public that the law was being followed. His National Security Adviser, Robert C. McFarlane, assured Committees of Congress, both in person and in writing, that the NSC staff was obeying both the spirit and the letter of the law, and was neither soliciting money nor coordinating military support for the Contras. A year later, McFarlane's successor, Vice Admiral John M. Poindexter, repeated these assurances to Congressional Committees. Then, with Poindexter's blessing, North told the House Intelligence Committee he was involved neither in fundraising for, nor in providing military advice to, the Contras. When one of Secord's planes was shot down over Nicaragua on October 5, 1986, the President and several administration spokesmen assured the public that the U.S. Government had no connection with the flight or the captured American crew member, Eugene Hasenfus. Several senior Government officials, including Elliott Abrams, gave similar assurances to Congress. Two months later, McFarlane told Con- gressional Committees that he had no knowl- edge of contributions made by a foreign country, Country 2, to the Contras, when in fact McFarlane and the President had dis- cussed and welcomed $32 million in contri- butions from that country. In addition, Abrams initially concealed from Congress? in testimony given to several Committees? that he had successfully solicited a contribu- tion of $10 million from Brunei. North conceded at the Committees' public hearings that he had participated in making statements to Congress that were "false," "misleading," "evasive and wrong." During the period when the Administra- tion was denying to Congress that it was involved in supporting the Contras' war effort, it was engaged in a campaign to alter public opinion and change the vote in Con- gress on Contra aid. Public funds were used to conduct public relations activities; and certain NSC staff members, using the pres- tige of the White House and the promise of meetings with the President, helped raise pri- vate donations both for media campaigns and for weapons to be used by the Contras. Pursuant to a Presidential directive in 1983 the Administration adopted a "public diplo- macy" program to promote the President's Central American policy. The program was conducted by an office in the State Depart- ment known as the Office for Public Diplo- macy for Latin America and the Caribbean, (S/LPD). S/LPD's activities were coordi- nated not within the State Department, but by an interagency working group established by the NSC. The principal NSC staff officer was a former senior CIA official, with expe- rience in covert operations, who had been detailed to the NSC staff for a year with Casey's approval, and who upon retirement from the CIA became a Special Assistant to the President with responsibility for public diplomacy matters. S/LPD produced and widely disseminated a variety of pro-Contra publications and ar- ranged speeches and press conferences. It also disseminated what one official termed "white propaganda": pro-Contra newspaper articles by paid consultants who did not dis- close their connection to the Administration. Moreover, under a series of sole source con- tracts in 1985 and 1986, S/LPD paid more than $400,000 for pro Contra public relations work to International Business Communica- tions (IBC), a company owned by Richard Miller, whose organization was described by one White House representative as a "White House outside the White House." The Administration, like Members of Con- gress, may appeal directly to the people for support of its positions; and government agencies may legitimately disseminate infor- 5 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary mation and educational materials to the public. However, by law appropriated funds may not be used to generate propaganda "designed to influence a Member of Con- gress;" and by law, as interpreted by the Office of the Comptroller General, appropri- ated funds may not be used by the State Department for "covert" propaganda activi- ties. A GAO report concluded that S/LPD's white propaganda activities violated the ban on arranging "covert propaganda." Private funds were also used. North and Miller helped Carl R. "Spitz" Channell raise $10 million, most of which went to Chan- nell's tax-exempt organization, the National Endowment for the Preservation of Liberty ("NEPL"). They arranged numerous "brief- ings" at the White House complex on Cen- tral America by Administration officials for groups of potential contributors. Following these briefings, Channell reconvened the groups at the Hay-Adams Hotel, and made a pitch for tax-deductible contributions to NEPL's Central America "public education" program or, in some individual cases, for weapons. Channell's major contributors were given private briefings by North, and were afforded private visits and photo sessions with the President. On one occasion, Presi- dent Reagan participated in a briefing. Using the donated money, Channell ran a series of television advertisements in 1985 and 1986, some of which were directed at television markets covering the home dis- tricts of Congressmen considered to be "swing" votes on Contra aid. One series of advertisements was used to attack Congress- man Mike Barnes, a principal opponent of Contra aid, and one of the Congressmen to whom Administration officials had denied violating the Boland Amendment in Septem- ber of 1985. Channell later boasted to North that he had "participated in a campaign to ensure Congressman Barnes' defeat." Of the $10 million raised by North, Chan- nell and Miller, more than $1 million was used for pro-Contra publicity. Approximate- ly $2.7 million was sent through IBC and off-shore accounts of another Miller-con- 6 trolled company to Secord's Swiss accounts, or to Calero's account in Miami. Most of the remainder was spent on salaries and expenses for Channell, Miller and their business asso- ciates. NEPL's charter did not contemplate rais- ing funds for a covert war in Nicaragua, and the Internal Revenue Service never ap- proved such activity when NEPL was grant- ed exempt status. As a consequence, Chan- nell and Miller have each pleaded guilty to the crime of conspiring to defraud the United States Treasury of revenues "by sub- verting and corrupting the lawful purposes of NEPL." Channell named North as a co- conspirator. In private fundraising, as in the "white propaganda" campaign, the goal of support- ing the Contras was allowed to override sen- sitivity to law and to accepted norms of be- havior. Iran The NSC staff was already engaged in covert operations through Secord when, in the summer of 1985, the Government of Israel proposed that missiles be sold to Iran in return for the release of seven American hostages held in Lebanon and the prospect of improved relations with Iran. The Secre- taries of State and Defense repeatedly op- posed such sales to a government designated by the United States as a supporter of inter- national terrorism. They called it a straight arms-for-hostages deal that was contrary to U.S. public policy. They also argued that these sales would violate the Arms Export Control Act, as well as the U.S. arms embar- go against Iran. The embargo had been im- posed after the taking of hostages at the U.S. Embassy in Tehran on November 4, 1979, and was continued because of the Iran-Iraq war. Nevertheless, in the summer of 1985 the President authorized Israel to proceed with the sales. The NSC staff conducting the Contra covert action also took operational control of implementing the President's deci- sion on arms sales to Iran. The President did Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary not sign a Finding for this covert operation, nor did he notify the Congress. Israel shipped 504 TOW anti-tank missiles to Iran in August and September 1985. Al- though the Iranians had promised to release most of the American hostages in return, only one, Reverend Benjamin Weir, was freed. The President persisted. In November, he authorized Israel to ship 80 HAWK anti- aircraft missiles in return for all the hostages, with a promise of prompt replenishment by the United States, and 40 more HAWKs to be sent directly by the United States to Iran. Eighteen HAWK missiles were actually shipped from Israel in November 1985, but no hostages were released. In early December 1985, the President signed a retroactive Finding purporting to authorize the November HAWK transaction. That Finding contained no reference to im- proved relations with Iran. It was a straight arms-for-hostages Finding. National Security Adviser Poindexter destroyed this Finding a year later because, he testified, its disclosure would have been politically embarrassing to the President. The November HAWK transaction had additional significance. The Enterprise re- ceived a $1 million advance from the Israe- lis. North and Secord testified this was for transportation expenses in connection with the 120 HAWK missiles. Since only 18 mis- siles were shipped, the Enterprise was left with more than $800,000 in spare cash. North directed the Enterprise to retain the money and spend it for the Contras. The "diversion" had begun. North realized that the sale of missiles to Iran could be used to support the Contras. He told Israeli Defense Ministry officials on December 6, 1985, one day after the Presi- dent signed the Finding, that he planned to generate profits on future arms sales for ac- tivities in Nicaragua. On December 7, 1985, the President and his top advisers met again to discuss the arms sales. Secretaries Shultz and Weinberg- er objected vigorously once more, and Wein- berger argued that the sales would be illegal. After a meeting in London with an Iranian interlocutor and the Israelis, McFarlane rec- ommended that the sales be halted. Admiral John Poindexter (the new National Security Adviser), and Director Casey were of the opposite opinion. The President decided to go forward with the arms sales to get the hostages back. He signed a Finding on January 6, 1986, author- izing more shipments of missiles for the hos- tages. When the CIA's General Counsel pointed out that authorizing Israel to sell its U.S.-manufactured weapons to Iran might violate the Arms Export Control Act, the President, on the legal advice of the Attor- ney General, decided to authorize direct shipments of the missiles to Iran by the United States and signed a new Finding on January 17, 1986. To carry out the sales, the NSC staff turned once again to the Enter- prise. Although North had become skeptical that the sales would lead to the release of all the hostages or a new relationship with Iran, he believed that the prospect of generating funds for the Contras was "an attractive in- centive" for continuing the arms sales. No matter how many promises the Iranians failed to keep throughout this secret initia- tive, the arms sales continued to generate funds for the Enterprise, and North and his superior, Poindexter, were consistent advo- cates for their continuation. What North and Poindexter asserted in their testimony that they did not know, however, was that most of these arms sales profits would remain with the Enterprise and never reach the Contras. In February 1986, the United States, acting through the Enterprise, sold 1,000 TOWs to the Iranians. The U.S. also provid- ed the Iranians with military intelligence about Iraq. All of the remaining American hostages were supposed to be released upon Iran's receipt of the first 500 TOWs. None was. But the transaction was productive in one respect. The difference between what the Enterprise paid the United States for the missiles and -what it received from Iran was more than $6 million. North directed part of 7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H 1 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary this profit for the Contras and for other covert operations. Poindexter testified that he authorized this "diversion." The diversion, for the Contras and other covert activities, was not an isolated act by the NSC staff. Poindexter saw it as "imple- menting" the President's secret policy that had been in effect since 1984 of using non- appropriated funds following passage of the Boland Amendment. According to North, CIA Director Casey saw the "diversion" as part of a more gran- diose plan to use the Enterprise as a "stand- alone," "off-the-shelf," covert capacity that would act throughout the world while evad- ing Congressional review. To Casey, Poin- dexter, and North, the diversion was an inte- gral part of selling arms to Iran and just one of the intended uses of the proceeds. In May 1986, the President again tried to sell weapons to get the hostages back. This time, the President agreed to ship parts for HAWK missiles but only on condition that all the American hostages in Lebanon be re- leased first. A mission headed by Robert McFarlane, the former National Security Adviser, traveled to Tehran with the first installment of the HAWK parts. When the mission arrived, McFarlane learned that the Iranians claimed they had never promised to do anything more than try to obtain the hos- tages' release. The trip ended amid misunder- standing and failure, although the first in- stallment of HAWK parts was delivered. The Enterprise was paid, however, for all of the HAWK parts, and realized more than an $8 million profit, part of which was ap- plied, at North's direction, to the Contras. Another portion of the profit was used by North for other covert operations, including the operation of a ship for a secret mission. The idea of an off-the-shelf, stand-alone covert capacity had become operational. On July 26, 1986, another American hos- tage, Father Lawrence Jenco, was released. Despite all the arms sales, he was only the second hostage freed, and the first since Sep- tember 1985. Even though McFarlane had vowed at the Tehran meeting not to deliver 8 the remainder of the HAWK parts until all the hostages were released, the Administra- tion capitulated again. The balance of the HAWK parts was shipped when Father Jenco was released. In September and October 1986, the NSC staff began negotiating with a new group of Iranians, the "Second Channel," that Albert Hakim had opened, in part, through prom- ises of bribes. Although these Iranians alleg- edly had better contacts with Iranian offi- cials, they, in fact, represented the same prin- cipals as did the First Channel and had the same arrangement in mind: missiles for hos- tages. Once again, the Administration insist- ed on release of all the hostages but settled for less. In October, after a meeting in London, North left Hakim to negotiate with the Irani- ans. Hakim made no secret of his desire to make large profits for himself and General Secord in the $15 billion-a-year Iranian market if relations with the United States could be restored. Thus, he had every incen- tive to make an agreement, whatever conces- sions might be required. As an unofficial "ambassador" selected by North and Secord, Hakim produced a re- markable nine-point plan, subsequently ap- proved by North and Poindexter, under which the United States would receive "one and one half" hostages (later reduced to one). Under the plan, the United States agreed not only to sell the Iranians 500 more TOWs, but Secord and Hakim promised to develop a plan to induce the Kuwaiti Gov- ernment to release the Da'wa prisoners. (Seventeen Kuwaiti prisoners, connected to "al-Dawa," an Iranian revolutionary group, had been convicted and imprisoned for their part in the December 12, 1983, attacks in Kuwait on the U.S. Embassy, a U.S. civilian compound, the French Embassy, and several Kuwaiti Goverment facilities.) The plan to obtain the release of the Da'wa prisoners did not succeed, but the TOW missiles were sold for use by the Iranian Revolutionary Guard. Following the transfer of these TOWs, a third hostage, David Jacobsen, was released Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary on November 2, 1986, and more profit was generated for the Enterprise. Poindexter testified that the President ap- proved the nine-point plan. But other testi- mony raises questions about this assertion. Regardless of what Poindexter may have told the President, Secretary Shultz testified that when he informed the President on De- cember 14, 1986, that the nine-point plan in- cluded a promise about the release of the Da'wa prisoners in Kuwait, the President re- acted with shock, "like he had been kicked in the belly." During the negotiations with the Second Channel, North and Secord told the Iranians that the President agreed with their position that Iraq's President, Saddam Hussein, had to be removed and further agreed that the United States would defend Iran against Soviet aggression. They did not clear this with the President and their representations were flatly contrary to U.S. policy. The decision to designate private parties? Secord and Hakim?to carry out the arms transactions had other ramifications. First, there was virtually no accounting for the profits from the arms deals. Even North claimed that he did not know how Secord and Hakim actually spent the money com- mitted to their custody. The Committees' in- vestigation revealed that of the $16.1 million profit from the sales of arms to Iran only about $3.8 million went to support the Con- tras (the amount representing "the diver- sion"). All told, the Enterprise received nearly $48 million from the sale of arms to the Contras and Iran, and in contributions directed to it by North. A total of $16.5 million was used to support the Contras or to purchase the arms sold to (and paid for by) the Contras; $15.2 million was spent on Iran; Hakim, Secord, and their associate, Thomas Clines, took $6.6 million in commis- sions and other profit distributions; almost $1 million went for other covert operations sponsored by North; $4.2 million was held in "reserves" for use in future operations; $1.2 million remained in Swiss bank accounts of the Enterprise; and several thousand dollars were used to pay for a security system at North's residence. Second, by permitting private parties to conduct the arms sales, the Administration risked losing control of an important foreign policy initiative. Private citizens?whose mo- tivations of personal gain could conflict with the interests of this country?handled sensi- tive diplomatic negotiations, and purported to commit the United States to positions that were anathema to the President's public policy and wholly unknown to the Secretary of State. The Coverup The sale of arms to Iran was a "significant anticipated intelligence activity." By law, such an activity must be reported to Con- gress "in a timely fashion" pursuant to Sec- tion 501 of the National Security Act. If the proposal to sell arms to Iran had been re- ported, the Senate and House Intelligence Committees would likely have joined Secre- taries Shultz and Weinberger in objecting to this initiative. But Poindexter recommend- ed?and the President decided?not to report the Iran initiative to Congress. Indeed, the Administration went to consid- erable lengths to avoid notifying Congress. The CIA General Counsel wrote on January 15, 1986, "the key issue in this entire matter revolves around whether or not there will be reports made to Congress." Shortly thereaf- ter, the transaction was restructured to avoid the pre-shipment reporting requirements of the Arms Export Control Act, and place it within the more limited reporting require- ments of the National Security Act. But even these reporting requirements were ig- nored. The President failed to notify the group of eight (the leaders of each party in the House and Senate, and the Chairmen and Ranking Minority Members of the Intelli- gence Committees) specified by law for un- usually sensitive operations. After the disclosure of the Iran arms sales on November 3, 1986, the American public was still not told the facts. The President sought to avoid any comment on the ground 9 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary that it might jeopardize the chance of secur- ing the remaining hostages' release. But it was impossible to remain silent, and inaccu- rate statements followed. In his first public statement on the subject on November 6, the President said that the reports concerning the arms sales had "no foundation." A week later, on November 13, the President conceded that the United States had sold arms, but branded as "utterly false" allegations that the sales were in return for the release of the hostages. The President also maintained that there had been no violations of Federal law. At his news conference on November 19, 1986, he denied that the United States was involved in the Israeli sales that occurred prior to the January 17, 1986 Finding. The President was asked: Mr. President . . . are you telling us tonight that the only shipments with which we were involved were the one or two that followed your Janu- ary 17 Finding and that . . . there were no other shipments which the U.S. condoned? The President replied: That's right. I'm saying nothing, but the missiles we sold. And, on November 25, 1986, the Attorney General?with the President at his side?an- nounced at a press conference that the Presi- dent did not know of the Israeli shipments until after they had occurred. He stated that the President learned of the November 1985 HAWK shipment in February 1986. In fact, however, the Israeli sales, includ- ing the HAWK shipment, were implemented with the knowledge and approval of the President and his top advisers; and the Presi- dent himself told Shultz on the day of his press conference that he had known of the November 1985 shipment when it occurred. McFarlane, Poindexter, and North were inti- mately involved in the Israeli shipments; and the CIA had actually transported one deliv- ery from Israel to Iran. 10 While the President was denying any ille- gality, his subordinates were engaging in a coverup. Several of his advisers had ex- pressed concern that the 1985 sales violated the Arms Export Control Act, and a "cover story" had been agreed on if these arms sales were ever exposed. After North had three conversations on November 18, 1986, about the legal problems with the 1985 Israeli ship- ments, he, Poindexter, Casey, and McFarlane all told conforming false stories about U.S. involvement in these shipments. With McFarlane's help, North rewrote NSC staff chronologies on November 19 and 20, 1986, in such a way that they denied contemporaneous knowledge by the Admin- istration of Israel's shipments to Iran in 1985. They asserted at one point that the U.S. Government believed the November 1985 shipment consisted of oil-drilling equipment, not arms. Poindexter told Congressional Committees on November 21, 1986, that the United States had disapproved of the Israeli ship- ments and that, until the day before his brief- ing, he believed that Administration officials did not know about any of them until after they had occurred. He then destroyed the only Finding signed by the President that showed the opposite. Casey told Congressional Committees on November 21, 1986, that although a CIA proprietary airline had actually carried mis- siles to Iran from Israel in 1985, the proprie- tary had been told the cargo was "oil-drill- ing equipment." McFarlane told the Attorney General on November 21, 1986, that the Israelis said they were shipping oil-drilling equipment in November 1985 and that McFarlane did not learn otherwise until May 1986. On learning that the President had author- ized the Attorney General to gather the rele- vant facts, North and Poindexter shredded and altered official documents on November 21, 1986, and later that weekend. On No- vember 25, 1986, North's secretary con- cealed classified documents in her clothing Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary and, with North's knowledge, removed them from the White House. According to North, a "fall guy" plan was proposed by Casey in which North and, if necessary, Poindexter, would take the re- sponsibility for the covert Contra support operation and the diversion. On Saturday November 22, 1986, in the midst of these efforts to conceal what had happened, Poin- dexter had a two and one half hour lunch with Casey. Yet Poindexter could not recall anything that was discussed. North testified that he assured Poindexter that he had destroyed all documents relating to the diversion. The diversion nevertheless was discovered on November 22, 1986, when a Justice Department official, assisting the Attorney General's fact-finding inquiry, found a "diversion memorandum" that had escaped the shredder. Prior to the discovery of the diversion memorandum, each interview by the Attor- ney General's fact finding team had been conducted in the presence of two witnesses, and careful notes were taken in accordance with standard professional practices. After discovery of the diversion memorandum? which itself gave rise to an inference of seri- ous wrongdoing?the Attorney General de- parted from these standard practices. A series of important interviews?Poindexter, McFarlane, Casey, Regan, and Bush?was conducted by the Attorney General alone, and no notes were made. The Attorney General then announced at his November 25 press conference that the diversion had occurred and that the Presi- dent did not know of it. But he made several incorrect statements about his own investiga- tion. He stated that the President had not known of the Israeli pre-Finding shipments, and he stated that the proceeds of the arms sales had been sent directly from the Israelis to the Contras. These statements were both mistaken and inconsistent with information that had been received during the Attorney General's fact-finding inquiry. Poindexter testified to these Committees that the President did not know of the diver- sion. North testified that while he assumed the President had authorized each diversion, Poindexter told him on November 21, 1986, that the President had never been told of the diversion. In light of the destruction of material evi- dence by Poindexter and North and the death of Casey, all of the facts may never be known. The Committees cannot even be sure whether they heard the whole truth or whether Casey's "fall guy" plan was carried out at the public hearings. But enough is clear to demonstrate beyond doubt that fun- damental processes of governance were dis- regarded and the rule of law was subverted. Findings and Conclusions The common ingredients of the Iran and Contra policies were secrecy, deception, and disdain for the law. A small group of senior officials believed that they alone knew what was right. They viewed knowledge of their actions by others in the Government as a threat to their objectives. They told neither the Secretary of State, the Congress nor the American people of their actions. When ex- posure was threatened, they destroyed offi- cial documents and lied to Cabinet officials, to the public, and to elected representatives in Congress. They testified that they even withheld key facts from the President. The United States Constitution specifies the process by which laws and policy are to be made and executed. Constitutional process is the essence of our democracy and our democratic form of Government is the basis of our strength. Time and again we have learned that a flawed process leads to bad results, and that a lawless process leads to worse. Policy Contradictions and Failures The Administration's departure from democratic processes created the conditions for policy failure, and led to contradictions which undermined the credibility of the United States. 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? 11 V , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary The United States simultaneously pursued two contradictory foreign policies?a public one and a secret one: ?The public policy was not to make any ? concessions for the release of hostages lest such concessions encourage more hostage- taking. At the same time, the United States was secretly trading weapons to get the hos- tages back. ?The public policy was to ban arms ship- ments to Iran and to exhort other Govern- ments to observe this embargo. At the same time, the United States was secretly selling sophisticated missiles to Iran and promising more. ?The public policy was to improve rela- tions with Iraq. At the same time, the United States secretly shared military intelligence on Iraq with Iran and North told the Iranians in contradiction to United States policy that the United States would help promote the over- throw of the Iraqi head of government. ?The public policy was to urge all Gov- ernments to punish terrorism and to support, indeed encourage, the refusal of Kuwait to free the Da'wa prisoners who were convict- ed of terrorist acts. At the same time, senior officials secretly endorsed a Secord-Hakim plan to permit Iran to obtain the release of the Da'wa prisoners. ?The public policy was to observe the "letter and spirit" of the Boland Amend- ment's proscriptions against military or para- military assistance to the Contras. At the same time, the NSC staff was secretly assum- ing direction and funding of the Contras' military effort. ?The public policy, embodied in agree- ments signed by Director Casey, was for the Administration to consult with the Congres- sional oversight committees about covert ac- tivities in a "new spirit of frankness and co- operation." At the same time, the CIA and the White House were secretly withholding from those Committees all information con- cerning the Iran initiative and the Contra support network. ?The public policy, embodied in Execu- tive Order 12333, was to conduct covert op- erations solely through the CIA or other 12 organs of the intelligence community specifi- cally authorized by the President. At the same time, although the the NSC was not so authorized, the NSC staff secretly became operational and used private, non-accounta- ble agents to engage in covert activities. These contradictions in policy inevitably resulted in policy failure: ?The United States armed Iran, including its most radical elements, but attained neither a new relationship with that hostile regime nor a reduction in the number of American hostages. ?The arms sales did not lead to a modera- tion of Iranian policies. Moderates did not come forward, and Iran to this day sponsors actions directed against the United States in the Persian Gulf and elsewhere. ?The United States opened itself to black- mail by adversaries who might reveal the secret arms sales and who, according to North, threatened to kill the hostages if the sales stopped. ?The United States undermined its credi- bility with friends and allies, including mod- erate Arab states, by its public stance of op- posing arms sales to Iran while undertaking such arms sales in secret. ?The United States lost a $10 million contribution to the Contras from the Sultan of Brunei by directing it to the wrong bank account?the result of an improper effort to channel that humanitarian aid contribution into an account used for lethal assistance. ?The United States sought illicit funding for the Contras through profits from the secret arms sales, but a substantial portion of those profits ended up in the personal bank accounts of the private individuals executing the sales?while the exorbitant amounts charged for the weapons inflamed the Irani- ans with whom the United States was seek- ing a new relationship. Flawed Policy Process The record of the Iran-Contra Affair also shows a seriously flawed policymaking proc- ess. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary Confusion There was confusion and disarray at the highest levels of Government. ?McFarlane embarked on a dangerous trip to Tehran under a complete misappre- hension. He thought the Iranians had prom- ised to secure the release of all hostages before he delivered arms, when in fact they had promised only to seek the hostages' re- lease, and then only after one planeload of arms had arrived. ?The President first told the Tower Board that he had approved the initial Israeli shipments. Then, he told the Tower Board that he had not. Finally, he told the Tower Board that he does not know whether he approved the initial Israeli arms shipments, and his top advisers disagree on the question. ?The President claims he does not recall signing a Finding approving the November 1985 HAWK shipment to Iran. But Poin- dexter testified that the President did sign a Finding on December 5, 1985, approving the shipment retroactively. Poindexter later de- stroyed the Finding to save the President from embarassment. ?That Finding was prepared without ade- quate discussion and stuck in Poindexter's safe for a year; Poindexter claimed he forgot about it; the White House asserts the Presi- dent never signed it; and when events began to unravel, Poindexter ripped it up. ?The President and the Attorney General told the public that the President did not know about the November 1985 Israeli HAWK shipment until February 1986?an error the White House Chief of Staff ex- plained by saying that the preparation for the press conference "sort of confused the Presidential mind." ?Poindexter says the President would have approved the diversion, if he had been asked; and the President says he would not have. ?One National Security Adviser under- stood that the Boland Amendment applied to the NSC; another thought it did not. Neither sought a legal opinion on the question. ?The President incorrectly assured the American people that the NSC staff was ad- hering to the law and that the Government was not connected to the Hasenfus airplane. His staff was in fact conducting a "full serv- ice" covert operation to support the Contras which they believed he had authorized. ?North says he sent five or six completed memorandums to Poindexter seeking the President's approval for the diversion. Poin- dexter does not remember receiving any. Only one has been found. Dishonesty and Secrecy The Iran-Contra Affair was characterized by pervasive dishonesty and inordinate secre- cy. North admitted that he and other officials lied repeatedly to Congress and to the Amer- ican people about the Contra covert action and Iran arms sales, and that he altered and destroyed official documents. North's testi- mony demonstrates that he also lied to mem- bers of the Executive branch, including the Attorney General, and officials of the State Department, CIA and NSC. Secrecy became an obsession. Congress was never informed of the Iran or the Contra covert actions, notwithstanding the requirement in the law that Congress be no- tified of all covert actions in a "timely fash- ion." Poindexter said that Donald Regan, the President's Chief of Staff, was not told of the NSC staffs fundraising activities because he might reveal it to the press. Secretary Shultz objected to third-country solicitation in 1984 shortly before the Boland Amendment was adopted; accordingly, he was not told that, in the same time period, the National Securi- ty Adviser had accepted an $8 million con- tribution from Country 2 even though the State Department had prime responsibility for dealings with that country. Nor was the Secretary of State told by the President in February 1985 that the same country had pledged another $24 million?even though the President briefed the Secretary of State on his meeting with the head of state at 13 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary which the pledge was made. Poindexter asked North to keep secrets from Casey; Casey, North, and Poindexter agreed to keep secrets from Shultz. Poindexter and North cited fear of leaks as a justification for these practices. But the need to prevent public disclosure cannot jus- tify the deception practiced upon Members of Congress and Executive branch officials by those who knew of the arms sales to Iran and of the Contra support network. The State and Defense Departments deal each day with the most sensitive matters affecting millions of lives here and abroad. The Con- gressional Intelligence Committees receive the most highly classified information, in- cluding information on covert activities. Yet, according to North and Poindexter, even the senior officials of these bodies could not be entrusted with the NSC staff's secrets be- cause they might leak. While Congress's record in maintaining the confidentiality of classified information is not unblemished, it is not nearly as poor or perforated as some members of the NSC staff maintained. If the Executive branch has any basis to suspect that any member of the Intelligence Committees breached security, it has the obligation to bring that breach to the attention of the House and Senate Leaders? not to make blanket accusations. Congress has the capability and responsibility of pro- tecting secrets entrusted to it. Congress cannot fulfill its legislative responsibilities if it is denied information because members of the Executive branch, who place their faith in a band of international arms merchants and fmanciers, unilaterally declare Congress unworthy of trust. In the case of the "secret" Iran arms-for- hostages deal, although the NSC staff did not inform the Secretary of State, the Chair- man of the Joint Chiefs of Staff, or the lead- ership of the United States Congress, it was content to let the following persons know: ?Manucher Ghorbanifar, who flunked every polygraph test administered by the U.S. Government; 14 ?Iranian officials, who daily denounced the United States but received an inscribed Bible from the President; ?Officials of Iran's Revolutionary Guard, who received the U.S. weapons; ?Secord and Hakim, whose personal in- terests could conflict with the interests of the United States; ?Israeli officials, international arms mer- chants, pilots and air crews, whose interests did not always coincide with ours; and ?An unknown number of shadowy inter- mediaries and financiers who assisted with both the First and Second Iranian Channels. While sharing the secret with this dispar- ate group, North ordered the intelligence agencies not to disseminate intelligence on the Iran initiative to the Secretaries of State and Defense. Poindexter told the Secretary of State in May 1986 that the Iran initiative was over, at the very time the McFarlane mission to Tehran was being launched. Poin- dexter also concealed from Cabinet officials the remarkable nine-point agreement negoti- ated by Hakim with the Second Channel. North assured the FBI liaison to the NSC as late as November 1986 that the United States was not bargaining for the release of hos- tages but seizing terrorists to exchange for hostages?a complete fabrication. The lies, omissions, shredding, attempts to rewrite his- tory?all continued, even after the President authorized the Attorney General to find out the facts. It was not operational security that moti- vated such conduct?not when our own Government was the victim. Rather, the NSC staff feared, correctly, that any disclo- sure to Congress or the Cabinet of the arms- for-hostages and arms-for-profit activities would produce a storm of outrage. As with Iran, Congress was misled about the NSC staff's support for the Contras during the period of the Boland Amendment, although the role of the NSC staff was no secret to others. North testified that his oper- ation was well-known to the press in the Soviet Union, Cuba, and Nicaragua. It was not a secret from Nicaragua's neighbors, Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary with whom the NSC staff communicated throughout the period. It was not a secret from the third countries?including a totali- tarian state?from whom the NSC staff sought arms or funds. It was not a secret from the private resupply network which North recruited and supervised. According to North, even Ghorbanifar knew. The Administration never sought to hide its desire to assist the Contras so long as such aid was authorized by statute. On the contrary, it wanted the Sandinistas to know that the United States supported the Contras. After enactment of the Boland Amendment, the Administration repeatedly and publicly called upon Congress to resume U.S. assist- ance. Only the NSC staff's Contra support activities were kept under wraps. The Com- mittees believe these actions were concealed in order to prevent Congress from learning that the Boland Amendment was being cir- cumvented. It was stated on several occasions that the confusion, secrecy and deception surround- ing the aid program for the Nicaraguan free- dom fighters was produced in part by Con- gress' shifting positions on Contra aid. But Congress' inconsistency mirrored the chameleon-like nature of the rationale of- fered for granting assistance in the first in- stance. Initially, Congress was told that our purpose was simply to interdict the flow of weapons from Nicaragua into El Salvador. Then Congress was told that our purpose was to harrass the Sandinistas to prevent them from consolidating their power and ex- porting their revolution. Eventually, Con- gress was told that our purpose was to elimi- nate all foreign forces from Nicaragua, to reduce the size of the Sandinista armed forces, and to restore the democratic reforms pledged by the Sandinistas during the over- throw of the Somoza regime. Congress had cast a skeptical eye upon each rationale proffered by the Administra- tion. It suspected that the Administration's true purpose was identical to that of the Contras?the overthrow of the Sandinista regime itself. Ultimately Congress yielded to domestic political pressure to discontinue as- sistance to the Contras, but Congress was unwilling to bear responsibility for the loss of Central America to communist military and political forces. So Congress compro- mised, providing in 1985 humanitarian aid to the Contras; and the NSC staff provided what Congress prohibited: lethal support for the Contras. Compromise is no excuse for violation of law and deceiving Congress. A law is no less a law because it is passed by a slender major- ity, or because Congress is open-minded about its reconsideration in the future. Privatization The NSC staff turned to private parties and third countries to do the Government's business. Funds denied by Congress were ob- tained by the Administration from third countries and private citizens. Activities nor- mally conducted by the professional intelli- gence services?which are accountable to Congress?were turned over to Secord and Hakim. The solicitation of foreign funds by an Ad- ministration to pursue foreign policy goals rejected by Congress is dangerous and im- proper. Such solicitations, when done secret- ly and without Congressional authorization, create a risk that the foreign country will expect and demand something in return. McFarlane testified that "any responsible of- ficial has an obligation to acknowledge that every country in the world will see benefit to itself by ingratiating itself to the United States." North, in fact, proposed rewarding a Central American country with foreign as- sistance funds for facilitating arms shipments to the Contras. And Secord, who had once been in charge of the U.S. Air Force's for- eign military sales, said "where there is a quid, there is a quo." Moreover, under the Constitution only Congress can provide funds for the Execu- tive branch. The Framers intended Con- gress's "power of the purse" to be one of the --principal checks on Executive action. It was designed, among other things, to prevent the 15 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary Executive from involving this country unilat- erally in a foreign conflict. The Constitution- al plan does not prohibit a President from asking a foreign state, or anyone else, to contribute funds to a third party. But it does prohibit such solicitation where the United States exercises control over their receipt and expenditure. By circumventing Con- gress' power of the purse through third- country and private contributions to the Contras, the Administration undermined a cardinal principle of the Constitution. Further, by turning to private citizens, the NSC staff jeopardized its own objectives. Sensitive negotiations were conducted by parties with little experience in diplomacy, and financial interests of their own. The dip- lomatic aspect of the mission failed?the United States today has no long-term rela- tionship with Iran and no fewer hostages in captivity. But the private financial aspect succeeded?Secord and Hakim took $4.4 million in commissions and used $2.2 million more for their personal benefit; in addition, they set aside reserves of over $4 million in Swiss bank accounts of the Enterprise. Covert operations of this Government should only be directed and conducted by the trained professional services that are ac- countable to the President and Congress. Such operations should never be delegated, as they were here, to private citizens in order to evade Governmental restrictions. Lack of Accountability The confusion, deception, and privatiza- tion which marked the Iran-Contra Affair were the inevitable products of an attempt to avoid accountability. Congress, the Cabinet, and the Joint Chiefs of Staff were denied information and excluded from the decision- making process. Democratic procedures were disregarded. Officials who make public policy must be accountable to the public. But the public cannot hold officials accountable for policies of which the public is unaware. Policies that are known can be subjected to the test of reason, and mistakes can be corrected after 16 consultation with the Congress and delibera- tion within the Executive branch itself. Poli- cies that are secret become the private pre- serve of the few, mistakes are inevitably per- petuated, and the public loses control over Government. That is what happened in the Iran-Contra Affair: ?The President's NSC staff carried out a covert action in furtherance of his policy to sustain the Contras, but the President said he did not know about it. ?The President's NSC staff secretly di- verted millions of dollars in profits from the Iran arms sales to the Contras, but the Presi- dent said he did not know about it and Poin- dexter claimed he did not tell him. ?The Chairman of the Joint Chiefs of Staff was not informed of the Iran arms sales, nor was he ever consulted regarding the impact of such sales on the Iran-Iraq war or on U.S. military readiness. ?The Secretary of State was not in- formed of the millions of dollars in Contra contributions solicited by the NSC staff from foreign governments with which the State Department deals each day. ?Congress was told almost nothing?and what it was told was false. Deniability replaced accountability. Thus, Poindexter justified his decision not to inform the President of the diversion on the ground that he wanted to give the President "deniability." Poindexter said he wanted to shield the President from political embarrass- ment if the diversion became public. This kind of thinking is inconsistent with democratic governance. "Plausible denial," an accepted concept in intelligence activities, means structuring an authorized covert oper- ation so that, if discovered by the party against whom it is directed, United States involvement may plausibly be denied. That is a legitimate feature of authorized covert op- erations. In no circumstance, however, does "plausible denial" mean structuring an oper- ation so that it may be concealed from?or denied to?the highest elected officials of the United States Government itself. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary The very premise of democracy is that "we the people" are entitled to make our own choices on fundamental policies. But freedom of choice is illusory if policies are kept, not only from the public, but from its elected representatives. Intelligence Abuses Covert Operations As former National Security Adviser Robert McFarlane testified, "it is clearly unwise to rely on covert action as the core of our policy." The Government cannot keep a policy secret and still secure the public support necessary to sustain it. Yet it was precisely because the public would not support the Contra policy, and was unlikely to favor arms deals with Iran, that the NSC staff went underground. This was a perver- sion of the proper concept of covert oper- ations: ?Covert operations should be conducted in accordance with strict rules of account- ability and oversight. In the mid-1970s, in response to disclosures of abuses within the intelligence community, the Government en- acted a series of safeguards. Each covert action was to be approved personally by the President, funded by Congressional appro- priations, and Congress was to be informed. In the Iran-Contra Affair, these rules were violated. The President, according to Poin- dexter, was never informed of the diversion. The President says he knew nothing of the covert action to support the Contras, or the companies funded by non-appropriated monies set up by North to carry out that support. Congress was not notified of either the Iran or the Contra operations. ?Covert actions should be consistent with publicly defined U.S. foreign policy goals. Because covert operations are secret by defi- nition, they are of course not openly debated or publicly approved. So long as the policies which they further are known, and so long as they are conducted in accordance with law, covert operations are acceptable. Here, however, the Contra covert operation was carried out in violation of the country's public policy as expressed in the Boland Amendment; and the Iran covert operation was carried out in violation of the country's stated policy against selling arms to Iran or making concessions to terrorists. These were not covert actions, they were covert policies; and covert policies are incompatible with de- mocracy. ?Finally, covert operations are intended to be kept from foreign powers, not from the Congress and responsible Executive agencies within the United States Government itself. As Clair George, CIA Director of Oper- ations, testified: "to think that because we deal in lies, and overseas we may lie and we may do other such things, that therefore that gives you some permission, some right or some particular reason to operate that way with your fellow employees, I would not only disagree with tbat I would say it would be the destruction of a secret service in a democracy." In the Iran-Contra Affair, se- crecy was used to justify lies to Congress, the Attorney General, other Cabinet officers, and the CIA. It was used not as a shield against our adversaries, but as a weapon against our own democratic institutions. The NSC Staff The NSC staff was created to give the President policy advice on major national security and foreign policy issues. Here, however, it was used to gather intelligence and conduct covert operations. This depar- ture from its proper functions contributed to policy failure. During the Iran initiative, the NSC staff became the principal body both for gather- ing and coordinating intelligence on Iran and for recommending policy to the President. The staff relied on Iranians who were inter- ested only in buying arms, including Ghor- banifar, whom CIA officials regarded as a fabricator. Poindexter, in recommending to the President the sale of weapons to Iran, gave as one of his reasons that Iraq was winning the Gulf war. That assessment was contrary to the views of intelligence profes- sionals at the State Department, the Depart- 17 77-026 0 - 87 - Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .11 .L. I. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary ment of Defense, and the CIA, who had concluded as early as 1983 that Iran was winning the war. Casey, who collaborated with North and Poindexter on the Iran and Contra programs, also tailored intelligence reports to the positions he advocated. The record shows that the President believed and acted on these erroneous reports. Secretary Shultz pointed out that the intel- ligence and policy functions do not mix, be- cause "it is too tempting to have your analy- sis on the selection of information that is presented favor the policy that you are ad- vocating." The Committees agree on the need to separate the intelligence and policy functions. Otherwise, there is too great a risk that the interpretation of intelligence will be skewed to fit predetermined policy choices. In the Iran-Contra Affair, the NSC staff not only combined intelligence and policy functions, but it became operational and con- ducted covert operations. As the CIA was subjected to greater Congressional scrutiny and regulation, a few Administration offi- cials?including even Director Casey?came to believe that the CIA could no longer be utilized for daring covert operations. So the NSC staff was enlisted to provide assistance in covert operations that the CIA could not or would not furnish. This was a dangerous misuse of the NSC staff. When covert operations are conducted by those on whom the President relies to present policy options, there is no agency in government to objectively scrutinize, chal- lenge and evaluate plans and activities. Checks and balances are lost. The high policy decisions confronting a President can rarely be resolved by the methods and tech- niques used by experts in the conduct of covert operations. Problems of public policy must be dealt with through consultation, not Poindexter's "compartmentation"; with hon- esty and confidentiality, not deceit. The NSC was created to provide candid and comprehensive advice to the President. It is the judgment of these Committees that the NSC staff should never again engage in covert operations. 18 Disdain for Law In the Iran-Contra Affair, officials viewed the law not as setting boundaries for their actions, but raising impediments to their goals. When the goals and the law collided, the law gave way: ?The covert program of support for the Contras evaded the Constitution's most sig- nificant check on Executive power: the President can spend funds on a program only if he can convince Congress to appropriate the money. When Congress enacted the Boland Amendment, cutting off funds for the war in Nicaragua, Administration officials raised funds for the Contras from other sources? foreign Governments, the Iran arms sales, and private individuals; and the NSC staff controlled the expenditures of these funds through power over the Enterprise. Con- ducting the covert program in Nicaragua with funding from the sale of U.S. Govern- ment property and contributions raised by Government officials was a flagrant violation of the Appropriations Clause of the Constitu- tion. ?In addition, the covert program of sup- port for the Contras was an evasion of the letter and spirit of the Boland Amendment. The President made it clear that while he opposed restrictions on military or paramili- tary assistance to the Contras, he recognized that compliance with the law was not op- tional. "[W]hat I might personally wish or what our Government might wish still would not justify us violating the law of the land," he said in 1983. A year later, members of the NSC staff were devising ways to continue support and direction of Contra activities during the period of the Boland Amendment. What was previously done by the CIA?and now pro- hibited by the Boland Amendment?would be done instead by the NSC staff. The President set the stage by welcoming a huge donation for the Contras from a for- eign Government?a contribution clearly in- tended to keep the Contras in the field while U.S. aid was barred. The NSC staff thereaf- Approved For Release 29,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary ter solicited other foreign Governments for military aid, facilitated the efforts of U.S. fundraisers to provide lethal assistance to the Contras, and ultimately developed and di- rected a private network that conducted, in North's words, a "full service covert oper- ation" in support of the Contras. This could not have been more contrary to the intent of the Boland legislation. Numerous other laws were disregarded: ?North's full-service covert operation was a "significant anticipated intelligence ac- tivity" required to be disclosed to the Intelli- gence Committees of Congress under Sec- tion 501 of the National Security Act. No such disclosure was made. ?By Executive order, a covert operation requires a personal determination by the President before it can be conducted by an agency other than the CIA. It requires a written Finding before any agency can carry it out. In the case of North's full-service covert operation in support of the Contras, there was no such personal determination and no such Finding. In fact, the President disclaims any knowledge of this covert action. ?False statements to Congress are felonies if made with knowledge and intent. Several Administration officials gave statements de- nying NSC staff activities in support of the Contras which North later described in his testimony as "false," and "misleading, eva- sive, and wrong." ?The application of proceeds from U.S. arms sales for the benefit of the Contra war effort violated the Boland Amendment's ban on U.S. military aid to the Contras, and con- stituted a misappropriation of Government funds derived from the transfer of U.S. prop- erty. ?The U.S. Government's approval of the pre-Finding 1985 sales by Israel of arms to the Government of Iran was inconsistent with the Government's obligations under the Arms Export Control Act. ?The testimony to Congress in November 1986 that the U.S. Government had no con- temporaneous knowledge of the Israeli ship- ments, and the shredding of documents relat- ing to the shipments while a Congressional inquiry into those shipments was pending, obstructed Congressional investigations. ?The Administration did not make, and clearly intended never to make, disclosure to the Intelligence Committees of the Finding? later destroyed?approving the November 1985 HAWK shipment, nor did it disclose the covert action to which the Finding relat- ed. The Committees make no determination as to whether any particular individual in- volved in the Iran-Contra Affair acted with criminal intent or was guilty of any crime. That is a matter for the Independent Counsel and the courts. But the Committees reject any notion that worthy ends justify viola- tions of law by Government officials; and the Committees condemn without reserva- tion the making of false statements to Con- gress and the withholding, shredding, and alteration of documents relevant to a pend- ing inquiry. Administration officials have, if anything, an even greater responsibility than private citizens to comply with the law. There is no place in Government for law breakers. Congress and the President The Constitution of the United States gives important powers to both the President and the Congress in the making of foreign policy. The President is the principal archi- tect of foreign policy in consultation with the Congress. The policies of the United States cannot succeed unless the President and the Congress work together. Yet, in the Iran-Contra Affair, Administra- tion officials holding no elected office re- peatedly evidenced disrespect for Congress' efforts to perform its Constitutional over- sight role in foreign policy: ?Poindexter testified, referring to his ef- forts to keep the covert action in support of the Contras from Congress: "I simply did not want any outside interference." ?North testified: "I didn't want to tell Congress anything" about this covert action. 19 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II , 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary ?Abrams acknowledged in his testimony that, unless Members of Congressional Com- mittees asked "exactly the right question, using exactly the right words, they weren't going to get the right answers," regarding solicitation of third-countries for Contra sup- port. ?And numerous other officials made false statements to, and misled, the Congress. Several witnesses at the hearings stated or implied that foreign policy should be left solely to the President to do as he chooses, arguing that shared powers have no place in a dangerous world. But the theory of our Constitution is the opposite: policies formed through consultation and the democratic process are better and wiser than those formed without it. Circumvention of Con- gress is self-defeating, for no foreign policy can succeed without the bipartisan support of Congress. In a system of shared powers, decision- making requires mutual respect between the branches of government. The Committees were reminded by Secre- tary Shultz during the hearings that "trust is the coin of the realm." Democratic govern- ment is not possible without trust between the branches of government and between the government and the people. Sometimes that trust is misplaced and the system falters. But for officials to work outside the system be- cause it does not produce the results they seek is a prescription for failure. Who Was Responsible Who was responsible for the Iran-Contra Affair? Part of our mandate was to answer that question, not in a legal sense (which is the responsibility of the Independent Coun- sel), but in order to reaffirm that those who serve the Government are accountable for their actions. Based on our investigation, we reach the following conclusions. At the operational level, the central figure in the Iran-Contra Affair was Lt. Col. North, who coordinated all of the activities and was involved in all aspects of the secret 20 operations. North, however, did not act alone. North's conduct had the express approval of Admiral John Poindexter, first as Deputy National Security Adviser, and then as Na- tional Security Adviser. North also had at least the tacit support of Robert McFarlane, who served as National Security Adviser until December 1985. In addition, for reasons cited earlier, we believe that the late Director of Central In- telligence, William Casey, encouraged North, gave him direction, and promoted the concept of an extra-legal covert organiza- tion. Casey, for the most part, insulated CIA career employees from knowledge of what he and the NSC staff were doing. Casey's passion for covert operations?dating back to his World War II intelligence days?was well known. His close relationship with North was attested to by several witnesses. Further, it was Casey who brought Richard Secord into the secret operation, and it was Secord who, with Albert Hakim, organized the Enterprise. These facts provide strong reasons to believe that Casey was involved both with the diversion and with the plans for an "off-the-shelf' covert capacity. The Committees are mindful, however, of the fact that the evidence concerning Casey's role comes almost solely from North; that this evidence, albeit under oath, was used by North to exculpate himself; and that Casey could not respond. Although North told the Committees that Casey knew of the diver- sion from the start, he told a different story to the Attorney General in November 1986, as did Casey himself. Only one other wit- ness, Lt. Col. Robert Earl, testified that he had been told by North during Casey's life- time that Casey knew of the diversion. The Attorney General recognized on No- vember 21, 1986 the need for an inquiry. His staff was responsible for finding the diver- sion memorandum, which the Attorney Gen- eral promptly made public. But as described earlier, his fact-finding inquiry departed from standard investigative techniques. The Attor- ney General saw Director Casey hours after Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary the Attorney General learned of the diver- sion memorandum, yet he testified that he never asked Casey about the diversion. He waited two days to speak to Poindexter, North's superior, and then did not ask him what the President knew. He waited too long to seal North's offices. These lapses placed a cloud over the Attorney General's investigation. There is no evidence that the Vice Presi- dent was aware of the diversion. The Vice President attended several meetings on the Iran initiative, but none of the participants could recall his views. The Vice President said he did not know of the Contra resupply operation. His Na- tional Security Adviser, Donald Gregg, was told in early August 1986 by a former col- league that North was running the Contra resupply operation, and that ex-associates of Edwin Wilson?a well known ex-CIA offi- cial convicted of selling arms to Libya and plotting the murder of his prosecutors?were involved in the operation. Gregg testified that he did not consider these facts worthy of the Vice President's attention and did not report them to him, even after the Hasenfus airplane was shot down and the Administra- tion had denied any connection with it. The central remaining question is the role of the President in the Iran-Contra Affair. On this critical point, the shredding of docu- ments by Poindexter, North, and others, and the death of Casey, leave the record incom- plete. As it stands, the President has publicly stated that he did not know of the diversion. Poindexter testified that he shielded the President from knowledge of the diversion. North said that he never told the President, but assumed that the President knew. Poin- dexter told North on November 21, 1986 that he had not informed the President of the diversion. Secord testified that North told him he had talked with the President about the diversion, but North testified that he had fabricated this story to bolster Secord's morale. Nevertheless, the ultimate responsibility for the events in the Iran-Contra Affair must rest with the President. If the President did not know what his National Security Advis- ers were doing, he should have. It is his responsibility to communicate unambiguous- ly to his subordinates that they must keep him advised of important actions they take for the Administration. The Constitution re- quires the President to "take care that the laws be faithfully executed." This charge en- compasses a responsibility to leave the mem- bers of his Administration in no doubt that the rule of law governs. Members of the NSC staff appeared to believe that their actions were consistent with the President's desires. It was the Presi- dent's policy?not an isolated decision by North or Poindexter?to sell arms secretly to Iran and to maintain the Contras "body and soul," the Boland Amendment notwithstand- ing. To the NSC staff, implementation of these policies became the overriding con- cern. Several of the President's advisers pursued a covert action to support the Contras in disregard of the Boland Amendment and of several statutes and Executive orders requir- ing Congressional notification. Several of these same advisers lied, shredded docu- ments, and covered up their actions. These facts have been on the public record for months. The actions of those individuals do not comport with the notion of a country guided by the rule of law. But the President has yet to condemn their conduct. The President himself told the public that the U.S. Government had no connection to the Hasenfus airplane. He told the public that early reports of arms sales for hostages had "no foundation." He told the public that the United States had not traded arms for hostages. He told the public that the United States had not condoned the arms sales by Israel to Iran, when in fact he had approved them and signed a Finding, later destroyed by Poindexter, recording his approval. All of these statements by the President were wrong. 21 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 11 . .. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Executive Summary Thus, the question whether the President knew of the diversion is not conclusive on the issue of his responsibility. The President created or at least tolerated an environment where those who did know of the diversion believed with certainty that they were carry- ing out the President's policies. This same environment enabled a secretary who shredded, smuggled, and altered docu- ments to tell the Committees that "some- times you have to go above the written law;" and it enabled Admiral Poindexter to testify that "frankly, we were willing to take some risks with the law." It was in such an environment that former officials of the NSC staff and their private agents could lecture the Committees that a "rightful cause" justi- fies any means, that lying to Congress and other officials in the executive branch itself is acceptable when the ends are just, and that Congress is to blame for passing laws that run counter to Administration policy. What 22 may aptly be called the "cabal of the zeal- ots" was in charge. In a Constitutional democracy, it is not true, as one official maintained, that "when you take the King's shilling, you do the King's bidding." The idea of monarchy was rejected here 200 years ago and since then, the law?not any official or ideology?has been paramount. For not instilling this pre- cept in his staff, for failing to take care that the law reigned supreme, the President bears the responsibility. Fifty years ago Supreme Court Justice Louis Brandeis observed: "Our Government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the Government becomes a law-breaker, it breeds contempt for law, it invites every man to become a law unto himself, it invites anarchy." The Iran-Contra Affair resulted from a failure to heed this message. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part II Central America Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 Introduction: Background on U.S.-Nicaragua Relations On July 17, 1979, President Anastasio Somoza De- bayle and his family fled Nicaragua. A civil war that had devastated the nation's economy and caused more than 130,000 casualties was at an end, as was the autocratic and corrupt 43-year rule of the Somoza family. But the battle for Nicaragua's future was just beginning. The United States had long played a role in Nicara- gua's affairs. Under the Monroe Doctrine of 1823, the United States had declared the Western hemisphere, including Central America, off-limits to European powers. For the rest of the 19th century, U.S. influ- ence was episodic. An American privateer named William Walker briefly seized control of Nicaragua in 1855, opened its borders to slavery, and appointed himself President before he was deposed and execut- ed. The opening of the Panama Canal, however, in- creased the strategic importance of Nicaragua to the United States in the early 20th century. A treaty signed by the United States and Nicaragua in 1911 gave the United States an exclusive right of intervention in return for the reorganization of Nica- ragua's finances. One year later, President Taft in- voked this pact as a basis for dispatching 2,700 Ma- rines to Nicaragua. The Marines initially arrived at the request of a U.S.-supported Nicaraguan President, ostensibly to protect American property and citizens. They stayed, with one brief intermission, until 1933. During this period, Nicaragua was a virtual depend- ency of the United States. From 1927 to 1933, the Marines and the Marine- trained Nicaraguan National Guard, with General Anastasio Somoza Garcia at its head, fought a guerril- la war against the forces of General Augusto Cesar Sandino, who opposed the U.S.-backed Conservative Government of Adolfo Diaz. Sandino, whose aim was to rid Nicaragua of "U.S. imperialists," became a na- tional hero to many Nicaraguans during those years; the Sandinistas were named after him. When U.S. forces withdrew in 1933, Sandino accepted a truce. He was shot dead a year later. Many authorities be- lieve Sandino was killed on direct orders from Somoza, who seized power from the civilian govern- ment in 1936. From 1936 to 1979, Anastasio Somoza Garcia and then his son, Anastasio Somoza Debayle, ruled Nica- ragua. The rule of Anastasio Somoza Debayle was characterized by corruption; the Somoza family owned nearly one-third of all the land and controlled much of the country's wealth. In 1961, opponents of Somoza formed the National Liberation Front (FSLN), popularly known as the Sandinistas. This fledgling resistance organization drew much of its early support from students. Fidel Castro provided some of its initial financial backing. Through the early 1970s, the FSLN was a marginal group, unable to succeed in its low-level guerrilla war or to marshal popular support. The 1972 earthquake that devastated the capital city of Managua, however, changed the nature of the conflict between the rebels and the Government. Fol- lowing the earthquake, Somoza reaped immense prof- its from international relief efforts. His show of greed in the face of so much suffering was an important fact in his loss of support from the growing Nicaraguan business and professional classes. Another was his grooming of his son, known as Tachito, to inherit his position. Successive attacks by the FSLN were met by in- creasingly harsh reprisals by the National Guard. Strikes, street protests, and guerrilla raids prompted Somoza to order the wholesale shooting of alleged peasant collaborators and the clearance of large areas of the countryside where opposition fighters found sanctuary. Somoza's human rights abuses led the Carter Administration in April 1977 to reduce mili- tary and economic aid to the regime. Six months later, the aid was restored after Nicaragua promised to curb the excesses of the National Guard. Despite Somoza's promises, the situation deteriorat- ed. In January 1978, Pedro Joaquin Chamorro, the editor of La Prensa, Nicaragua's foremost opposition newspaper, was assassinated. His assassins were never found, but the public reacted against the Government. A wave of protest swept the country. The ranks of the FSLN swelled with new recruits. Business, trade, and church groups joined the rebellion. The FSLN was the only force trained and capable of opposing the National Guard. The fact that the movement had taken on the rhetorical trappings of a leftist insurgency seemed of little consequence to Nicaraguans eager to remove Somoza. Following the 25 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Figure 1-1. Map of Central America. Chetumal MEXICO Tuxtla Gutierrez Belize City OBelme BELIZ GUATEMALA Rio MotagLia Gue;oltenango 0 Guatemala ?San Pedro Sala Santa ? Ana Madero HONDURAS Tegucigalpa Matagalpa Grande Pt? ua tranada NICARAGUA Bluefielda Lago de Nicaragua Central America International boundary o National capital Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 killing of Chamorro, non-Marxist resistance groups began to gather around the FSLN, leading ultimately to the creation of the Broad Opposition Front seeking to draw all economic classes, ages, and professions. By the beginning of 1979, the movement could claim the full backing of Cuba, the unqualified support of the democracies of Venezuela and Costa Rica, and broad sympathy throughout Latin America. In February 1979, the State Department announced that, because of Somoza's unwillingness to accept a negotiated settlement, the United States was recalling more than half of its officials in Nicaragua and sus- pending all new economic and military aid. The end of U.S. backing cut the last props of support for the Government, and the end of the Somoza dynasty came on July 17, 1979. The Sandinistas were enormously popular when they began their rule. A Provisional Government of National Reconstruction was formed to lead the coun- try. At its head was a five-person directorate com- posed of Violetta Chamorro (widow of the murdered La Prensa editor), Alfonso Robelo, Sergio Ramirez, Moises Hassan, and Daniel Ortega. Hassan and Ortega came from the militant wing of the Sandinista Party. Members of the 18-member cabinet and the 33- member council were drawn from a broad spectrum of Nicaraguan public life. Though Nicaraguans were generally satisfied that the new Government repre- sented the Somoza opposition, the United States was not, pointing to Ortega and Hassan as left-wing radi- cals. The Sandinistas Take Over The Sandinistas set out to court public favor and international support. They promised free elections, a free press, free enterprise, an independent judiciary, and an end to political oppression. Yet, the Sandinistas took over television and radio stations and censored the newspaper La Prensa, which opposed repression whether by the Sandinistas or by Somoza. The Sandinistas forced the two moder- ate members of Nicaragua's governing council, Cha- morro and Robelo, to resign, pressured opposition parties, continued political detentions, and expropriat- ed land. The revolutionary party organization as- sumed the functions of state. On September 19, 1980, the Government announced that it would not hold national elections until 1985. Americans were divided on how to interpret Sandi- nista intentions. If the Carter Administration did not openly embrace the Sandinistas, neither did it close all doors to a possible reconciliation. Immediately fol- lowing the Sandinista victory, the United States do- nated $39 million in emergency food aid to Nicara- gua, and in 1980 Congress appropriated an additional $75 million in emergency economic assistance (Public Law 96-257). Similarly, Washington supported the provision of aid to Nicaragua from international lend- ing organizations. The Carter Administration accepted the fact that the United States was in "competition" with Cuba to win over the Nicaraguan Government, but it hoped that friendly relations could be maintained. Yet while providing overt financial assistance, President Carter in the fall of 1979 signed a Finding authorizing sup- port to the democratic elements in Nicaragua because of the concern about the effect of the Sandinista take- over on such institutions. In public statements, Sandinista officials expressed their desire for better relations with the United States, and insisted that they had no intention of supporting insurgencies aimed at subverting their neighbors. Their actions, however, began to raise doubts. Weap- ons and equipment sent by Cuba through Nicaragua were making their way to rebels in El Salvador. The new regime received aid from several sources, including United States, Mexico, Venezuela, and Western Europe. But the United States, the largest single contributor, became increasingly concerned about the new regime's growing ties with the Eastern bloc. Nicaragua increased its number of Cuban advis- ers, and in 1980 and 1981 signed agreements with the Soviet Union and East bloc governments, including Bulgaria and East Germany, for advisers and military and intelligence assistance. Candidate Ronald Reagan stated his firm opposition to any further U.S. support for the Sandinistas. In January 1981, President Carter suspended aid to the Nicaraguan regime. In April 1981, the Reagan Ad- ministration continued this policy. It announced that it would withhold the remaining $15 million in un- spent U.S. assistance to Nicaragua and not request further economic aid until the revolution was democ- ratized and all assistance to the Salvadoran rebels ceased. Concerns about Nicaragua's internal repression, its growing military force, its ties to the Soviet bloc and its support for the Salvadoran insurgency led the Ad- ministration to consider ways to assist the regime's opponents, who came to be known as the Contras. The Contras As the Sandinistas consolidated their hold on Nicara- gua in 1979 to 1981, the concerns of the United States were matched within Nicaragua itself. In response, a new Nicaraguan rebel movement?anti-Sandinista "Contras"?emerged. 27 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 Figure 1-2. Map of Nicaragua I / NUE TA SEGOV)A . 0?1,.1111????luil / ? 0 . N.,... 0?' MAD) ? .. j? / /Combos 1 ? de Yall .N. Sondlito pto Tum ? inse / % Edell \ jin ? ..--.... 0 . ? . N -% illopratle . ? Rio Blanco ??r.???? r...; El Sauce i .Muy Muy ollue L. ? . \ Beane tRio Jim Bonito 11 ' JCHONTALES ? M ?Julgaipa International boundary ??? Departamento boundary o National capital 0 Departamento capital Departamentos have the same name as their capitals except where noted o2.5 op Kilometers 0 25 510 Miles 28 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 The Contras were not a monolithic group, but a combination of three distinct elements of Nicaraguan society: former National Guardsmen and right-wing figures who had fought for Somoza and against the revolution; anti-Somocistas who had supported the revolution but felt betrayed by the Sandinista Govern- ment; and Nicaraguans who had avoided direct in- volvement in the revolution but opposed the Sandinis- tas' increasingly anti-democratic regime. Many future Contra leaders fled to exile. Some, like Jose Francisco Cardenal, head of the Superior Coun- cil of Private Enterprise (COSEP), moved to the United States, where they began a political campaign to win support for their cause in Congress and from among the Cuban and Nicaraguan exile communities. Other anti-Sandinistas set about organizing a resist- ance movement in neighboring nations. The largest and most active of these groups, which later came to be known as the Nicaraguan Democrat- ic Force (FDN), was led by Adolfo Calero Portocar- rero. Calero had been an accountant and businessman, and had been active in the movement to oust Somoza. Following the liberation, he served as the political coordinator of the Conservative Democratic Party and became an outspoken critic of the Sandinista Government. Calero joined the resistance movement after his office and home were attacked and he was forced into exile. Although Calero had opposed Somoza, the FDN had its roots in two insurgent groups made up of former National Guardsmen who fled Nicaragua after the fall of Somoza. In 1981, this branch of the resist- ance consisted of only a few hundred men. Other elements of the anti-Sandinista resistance emerged following the failure of members of the Nic- araguan provisional government to resolve their dif- ferences over the political direction of the country. Increasingly, those who opposed the Sandinistas found themselves isolated within the Government. The resignation in 1980 of Violetta Chamorro from the ruling directorate triggered an exodus of moderate leaders from the Government. Among those who left were Alfonso Robelo Calle- jas and Arturo J. Cruz. Robelo had entered politics during the two national strikes organized against Somoza. In March 1978, he founded the Nicaraguan Democratic Movement and was imprisoned by Somoza. After his release, he was forced into exile. He participated in the post-revolutionary Government as the head of his own political party and as an opponent of the Sandinista regime. Cruz, who would become a prominent Contra leader, was named Nica- raguan Ambassador to the United States in 1981. He resigned 2 years later in protest against Sandinista policies, and joined the resistance in 1983. In addition to the main force of FDN fighters cen- tered primarily in the northern portion of the country, other resistance forces became active in other parts of Nicaragua. These include several Indian groups oper- ating along the Atlantic coast and, after 1981, a group formed by the charismatic figure and former Sandi- nista guerrilla leader and hero, Eden Pastora. Forces under Pastora were based along the southern border with Costa Rica. Initial support for the Nicaraguan resistance came from another country, which organized and supplied paramilitary forces in early 1981. By the end of 1981, however, the Contras were looking to the United States for their support. They were to find a receptive audience?President Reagan. 29 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 The NSC Staff Takes Contra Policy Underground In December 1981, the President authorized a Central Intelligence Agency (CIA) covert action program to support the Contras. The CIA's activity, however, did not remain covert for long: within months, it was the topic of news reports and the subject of Congres- sional debate questioning the Administration's policy in support of the Contras. The Administration re- sponded that it did not intend to overthrow the San- dinista Government in Nicaragua, but sought to check the spread of communism to El Salvador and other nations in Central America. In 1982, in the first Boland Amendment, Congress sought to enforce that claim by barring the Adminis- tration from using Congressionally appropriated money for the "purpose" of overthrowing the Sandi- nista regime. The Administration, although not pleased with the amendment, nevertheless accepted it, because the amendment allowed the Administration to maintain support for the Contras so long as that sup- port had as its "purpose" stopping the spread of the Sandinista revolution outside Nicaragua's borders. With the first Boland Amendment, then, came a temporary compromise between the Administration and Congress. But it was an inherently uneasy com- promise, based more on semantics than substance: The Contras were not in the field to stop Sandinista arms flowing to El Salvador; they were in the field to overthrow the Sandinistas. The Intelligence Commit- tees of Congress, while rejecting that objective, nev- ertheless approved CIA use of contingency reserve funding to support the anti-Sandinistas. And the Ad- ministration embraced the contradiction inherent in the new law, by emphasizing that U.S. support was aimed only at interdicting arms destined for other Central American Communist insurgencies. During 1983, press reports of a "secret" CIA war in Nicaragua led to increased questioning in Congress. In July, the House voted to end all Contra aid. Mean- while, in the hopes of forestalling an aid cutoff, the Administration accepted an invitation by the Senate Select Committee on Intelligence to clarify its inten- tions in pursuing a covert program. Despite Adminis- tration efforts to meet those concerns, by the winter, the House and Senate had agreed to cap Contra fund- ing at $24 million, a sum that both the Administration and the Congress knew would not last through fiscal 1984. Nonetheless, the Administration decided to escalate the operations in Nicaragua. When the Nicaraguan harbor mining was disclosed in April, it created a storm of protest in Congress and around the country and, chiefly as a result, Congress declined to appro- priate more money for the Contras. With the CIA out of funds for the Contras, the NSC staff took over the program of supporting the Contras. But this time, the operation was covert in a new sense?it was con- cealed from Congress. Beginning in May 1984, when the CIA-appropri- ated funds for the Contras ran out, the National Secu- rity Council (NSC) staff raised money for Contra military operations from third countries with the knowledge of the President, supervised the Contras' purchase of weapons, and provided guidance for the Contras' military operations. The operational responsi- bilities fell largely to Lt. Col. Oliver L. North, a member of the NSC staff who reported to the Nation- al Security Adviser, Robert C. McFarlane, and his deputy, Vice Admiral John M. Poindexter. In October 1984, the Congress passed and the President signed the second Boland Amendment pro- hibiting the expenditure of any available funds in sup- port of Contra military operations by any agency or entity involved in intelligence activities. Rather than halting U.S. support for the Contras, the CIA's with- drawal was treated as a call for the NSC staff to take over the entire covert operation, raising more money from a third country, arranging for arms purchases, and providing military intelligence and advice. The NSC staff went operational?and underground. The December 1981 Finding Within 2 months of President Reagan's inauguration, the CIA proposed, and the NSC considered, plans for covert action to deal with the growing Cuban pres- ence in Nicaragua. The United States continued to recognize the Nicaraguan Government, but diplomat- ic relations became increasingly adversarial because of the Administration's concern that the Sandinistas were continuing to receive significant military support 31 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 _ ? , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 from Cuba, support targeted, in part, for insurgent groups beyond Nicaraguan borders.2 In December 1981, President Reagan signed his first Finding specifically authorizing covert paramili- tary actions against the Sandinista Government in Nicaragua.3 Under the law, covert actions may be initiated only by a personal decision of the President. A Finding is an official document embodying that decision. By signing a Finding, a President not only authorizes action, but accepts responsibility for its consequences. Sponsoring the CIA's new covert program in Cen- tral America was the Director of Central Intelligence, William J. Casey. Casey was a veteran of covert operations, having served with the Office of Strategic Services (OSS), the predecessor to the CIA, during the Second World War. In 1945, Casey, just 32 years old and a Navy lieutenant, was chief of the Secret Intelligence Branch that directed intelligence gather- ing in German-controlled Europe from OSS head- quarters in London. After the war, Casey became a successful corporate lawyer and a wealthy investor, was appointed Chair- man of the Securities and Exchange Commission, and later became head of the President's 1980 election campaign. Following the 1980 election, Casey was named Director of Central Intelligence, the first Di- rector to enjoy Cabinet rank. Casey was a firm believ- er in the value of covert operations, and took an activist, aggressive approach to his craft. In the words of the CIA's Deputy Director of Operations, Clair George, "Bill Casey was the last great buccaneer from OSS."4 Pastora Defects Casey saw the opportunity to make military head- way against the Sandinistas in early 1982, when rebel leader Eden Pastora defected from the ruling Sandi- nista junta. Pastora appeared to be an ideal candidate for Contra military leadership. Known to his follow- ers by the nom de guerre, "Comandante Zero," he had been one of the heroes of the fight against Somoza. From 1977 to 1978, he served in the Sandinista Na- tional Liberation Front and later held several high posts in the new Government until his abrupt resigna- tion in 1981. In April 1982, Pastora organized the Sandinista Revolutionary Front (FRS) and declared war on the Sandinista Government. Although Pastora was a popular, charismatic leader with the potential to challenge the Sandinistas, his geographic base presented a problem for the Adminis- tration. He insisted on operating in the southern part of Nicaragua. The Administration, however, claimed that its only purpose in aiding the Contras was to interdict arms flows to El Salvador, which lies to the north of Nicaragua. Support for Pastora in the South contradicted that claim. 32 Casey's deputy, Admiral Bobby R. Inman, an intel- ligence professional who had headed the National Se- curity Agency, objected to this broadening of the covert program. He believed that it was unsound, and unauthorized by the existing Presidential Finding. Yet Casey was determined to proceed. Inman retired at the end of June 1982 and the CIA supported Pastora without any change in the Presidential Finding.6 A Proposal for a New Finding Pastora's rebel group "develop[ed] quickly."6 By July 12, 1982, Donald Gregg, then head of the NSC's Intelligence Directorate and responsible for all covert action projects, proposed a new draft Finding to keep pace with Pastora's developing operations. Gregg, like Inman, believed that broad support for Pastora was outside the scope of the December 1981 Find- ing.7 He wrote to William Clark, the National Securi- ty Adviser, that "additional actions not covered by previous authority are now being proposed." Those "additional actions" included providing "financial and material support," training, and arms supply to Pas- tora's forces.6 The problem with providing that assist- ance under the December 1981 Finding, as Gregg saw it, was that the "rationale" of the earlier Finding appeared "to be to have the anti-Sandinista forces strike against the Cuban presence in Nicaragua rather than attacking the Sandinista units."" Vice Admiral Poindexter, then military adviser to the National Security Adviser, disagreed. In a hand- written note, Poindexter stated: "I don't see this really needs to be approved since the earlier Finding covers it, but maybe it would be good to get a confirmation since we now have a better idea as to where we are going."11 As drafted by Gregg, the proposed Finding provided for CIA paramilitary support to forces inside Nicaragua for the purpose of "effect[ing] changes in Nicaraguan government policies."12 This draft Finding, with its broadly stated goals, was never approved by the President. Boland I By the fall of 1982, press reports told of a growing U.S. involvement in Nicaragua." Administration spokesmen responded by stating that the U.S. Gov- ernment was seeking not to overthrow the Nicara- guan Government, but merely to prevent it from ex- porting revolution to El Salvador. Aid to the Contras was presented as an act in defense of El Salvador, not a hostile act against Nicaragua. Congress soon began to question this explanation." The Contras were in the field for the announced purpose of overthrowing the Sandinistas, not simply to interdict supplies destined for El Salvador." Con- gress debated the issue extensively, with some Mem- bers questioning whether their own Government was Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 violating the charters of both the United Nations and the Organization of American States by interfering in the internal affairs of Nicaragua." Members voiced concern that U.S. support for the Contras was provid- ing a "convenient pretext" for the Sandinistas to impose martial law, suppress freedom of the press, stifle religion, and undermine the rights of assembly and free elections." Those who supported these views called for a complete cutoff of aid to the Con- tras. There was equally strong support in Congress, par- ticularly in the Senate, for aiding the Contras. Some Members believed that the Sandinistas were trying to spread a Marxist revolution to neighboring states. They argued that no Communist regime had ever stepped down or consented to free elections and that support for the Contras was necessary to bring about democracy in Nicaragua.'8 Out of this debate emerged an amendment to the Defense Appropriations bill for fiscal year 1983, later known as Boland I. Introduced by Representative Edward P. Boland, the amendment passed the House by a vote of 411-0, and was adopted, in December 1982, by a Conference Committee of the House and Senate. This first Boland Amendment prohibited CIA use of funds "for the purpose of overthrowing the Government of Nicaragua." '9 The internal contradictions of the Administration's announced Nicaragua policy" were carried forward in the new law: Congress appropriated funds that would be used by the CIA for Contra assistance, but at the same time rejected the Contras' objective to remove the Sandinista Government. During the floor debate on his amendment, Representative Boland indi- cated that while the Administration did not like his proposed restrictions, it would accept them." Con- gress had not cut Contra funding; it merely had legis- lated an impermissible purpose. The Administration still could maintain support for the Contras and did, by relying upon its original justification for Contra support?stopping arms flows to El Salvadoran Com- munist insurgents. In December 1982, The New York Times reported intelligence officials as saying that Washington's "covert activities have. . . become the most ambitious paramilitary and political action operation mounted by the C.I.A. in nearly a decade. . . ."22 One month later, in January 1983, Senator Patrick J. Leahy, ac- companied by staff of the Senate Intelligence Com- mittee, visited Central America to review U.S. intelli- gence activities related to Nicaragua. His findings, supplemented by followup Committee briefings and inquiries, revealed that the covert action program was "preceding policy," that it was "growing beyond that which the Committee had initially understood to be its parameters," and that "there was uncertainty in the executive branch about U.S. objectives in Nicara- gua."23 Questions about compliance with the Boland Amendment increased throughout 1983. In March, 37 House Members sent a letter to the President warning that CIA activities in Central America could be vio- lating the law." In April, news reporters visiting Contra base camps wrote that "[t]he U.S.-backed secret war against Nicaragua's leftist Sandinista regime has spilled out of the shadows."" Challenged to defend the Administration's compli- ance with the law, the President asserted in April that there had been no violation of the Boland Amend- ment. There would be none, said the President, be- cause even a law he disagreed with had to be ob- served: "We are complying with the law, the Boland Amendment, which is the law."" "[VV]hat I might personally wish or what our government might wish still would not justify us violating the law of the land."27 When asked if his Administration was doing anything to overthrow the Government of Nicaragua, he replied, "No, because that would be violating the law."28 According to some in Congress, the Administration was facing a "crisis of confidence" about the legitima- cy of CIA support for the Contras." The President responded with a major address on Central America to a joint session of Congress on April 27, 1983. Rejecting images of a new Vietnam, the President stated: But let us be clear as to the American attitude toward the Government of Nicaragua. We do not seek its overthrow. Our interest is to ensure that it does not infect its neighbors through the export of subversion and violence. Our purpose, in con- formity with American and international law, is to prevent the flow of arms to El Salvador, Hon- duras, Guatemala, and Costa Rica. It soon became clear, however, that the President had not made the case for the Administration's Contra support policy with either the Congress or the American people." He was not helped by the Con- tras' performance on the ground. The Contras had failed to win either popular support or military victo- ries in Nicaragua and could not, without both, sustain public support in the United States." The Administration Responds to Congressional Unrest: May- September 1983 In May 1983, both the House and Senate Select Com- mittees on Intelligence challenged the Administra- tion's Nicaragua policy, but in different ways. The Senate Intelligence Committee "took the rather un- usual step of requiring" that "the Administration ar- ticulate, in a clear and coherent fashion its policy 33 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 ...1 ..1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 objectives." Before the Committee would vote for more aid, it wanted a new Presidential Finding.33 The House Permanent Select Committee on Intelli- gence, on the other hand, favorably reported a new bill, the "Boland-Zablocki" bill, to the full House for consideration.34 The bill barred aid for the Nicaragua covert action program, but it also took the Adminis- tration at its word about the need to stop arms flows to El Salvador. The legislation provided $80 million in assistance to Central American governments to stop the flow of arms to rebel groups, but no funds for "support of military or paramilitary activities in Nicaragua."35 Despite strong Administration opposi- tion, the House passed the bill on July 28, 1983, by a vote of 228195.36 With its implicit threat of an aid cutoff, the Boland- Zablocki measure challenged the Administration to articulate a plausible rationale for covert aid. The bill exposed the loose fit between the Administration's announced policy of stopping arms flows to El Salva- dor and its covert support of the Contras. If the Administration really wanted to stop arms flows to El Salvador, it could do so directly, said the Congress; but if its purpose was to aid the Contras in over- throwing the Nicaraguan Government, there would be no funding.37 The Administration responded to the threat of an aid cutoff in three different ways. First, the Adminis- tration established a public relations office in the State Department attempting to muster the public and Con- gressional support necessary for the Contras. Second, anticipating that a cutoff might nevertheless occur, the Administration developed a secret plan to stock- pile weapons for the Contras at the CIA. Finally, at the same time, to satisfy Congressional demands, the Administration agreed to draft a new Finding. White Propaganda In June of 1983, the Administration decided upon a new method of trying to win public support for the President's policy in Central America. On July 1, 1983, then National Security Adviser Clark an- nounced that "the President had decided that the Ad- ministration must increase our efforts in the public diplomacy field to deepen the understanding of the support for our policies in Central America."39 As a result, an office of Public Diplomacy for Latin American and the Caribbean (S/LPD) was estab- lished in the State Department, headed by Otto Reich,39 who eventually was given the rank of Am- bassador.40 The S/LPD was an interagency office with personnel contributed by the Department of State, the Department of Defense (DOD), the Agency for International Development, and the U.S. Information Agency. Although created as part of the State Department, the office was established at the direction of the National Security Council.4' The S/ LPD's activities were coordinated by an interagency 34 working group staffed by the NSC. The principal NSC staff officer was a former senior CIA official. With the knowledge and approval of Director Casey, he was detailed to the NSC staff for a year. He later became Special Assistant to the President with re- sponsibility for public diplomacy matters. The mission of the office?public diplomacy?was a "new, non-traditional activity for the United States government," according to the State Department. In fact, "public diplomacy" turned out to mean public relations-lobbying, all at taxpayers' expense. The office arranged speaking engagements, published pam- phlets, and sent materials to editorial writers.42 In its campaign to persuade the public and Congress to support appropriations for the Contras, the office used Government employees and outside contractors?in- cluding Richard Miller and Francis Gomez who would later work with North to provide Contra as- sistance.4 3 A Deputy Director of S/LPD, Jonathan Miller, reported the office's success in what he labeled a "White Propaganda Operation," which sought to place op-ed pieces in major papers by secret consult- ants to the office.44 By Reich's own description, the office adopted "a very aggressive posture vis-a-vis a sometimes hostile press." It "briefed Members of Con- gress, reached out to audiences previously over- looked, found new ways of reaching traditional audi- ences, and generally did not give the critics of the policy any quarter in the debate."45 It claimed that lajttacking the President was no longer cost free."'" Later, the Comptroller General would find that some of the office's efforts, in particular Jonathan Miller's "White Propaganda," were "prohibited, covert propaganda activities,"47 "beyond the range of acceptable agency public information activities. . . 2'49 In a September 30, 1987, letter, the Comptroller General concluded that S/LPD had violated "a restriction on the State Department's annual appropriations prohibiting the use of federal funds for publicity or propaganda purposes not authorized by Congress." 49 The CIA Tries to Stockpile In the summer of 1983, while efforts were under- way at the State Department to change public opin- ion, the CIA began secret preparations in the event Congress decided to cut off aid to the Contras. In that event, the Agency planned to obtain equipment free of charge from the DOD. On July 12, the President directed that the DOD provide enhanced support for the CIA in its efforts to assist the Contras.5? One day later, the CIA sent a "wish list" to the DOD, requesting that $28 million in equipment be transferred to it, "free-of-charge."' The list covered everything from medical supplies to aircraft, and included a request for personne1.52 The Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 Joint Chiefs of Staff proposed that each of the four services carry a quarter of the cost of these trans- fers.53 The equipment then could be stockpiled by the CIA and provided to the Contras if the need arose. The CIA would not run afoul of any aid ceiling since it had not paid for the equipment. The equipment involved had been paid for out of the normal DOD budget allocation. In short, money appropriated by Congress for one purpose would be used for another, bypassing any limits Congress might place on CIA appropriations, such as the then-pending Boland- Zablocki bill.54 By late summer, the DOD's General Counsel con- cluded that a nonreimbursable transfer would violate the Economy Act, a law requiring that the DOD be reimbursed for the cost of interagency transfers.55 The CIA would have to pay for all items except surplus equipment. From the CIA's perspective, this defeated the purpose of the plan: to avoid the expend- iture of CIA funds and shift the cost to the DOD.56 The project was finally terminated on February 12, 1985, after the CIA had obtained, without cost, 3 surplus Cessna aircraft and, at cost, 10 night vision goggles, 1 night vision sight, and a Bushmaster cannon.57 The September 1983 Finding: A New Rationale for Covert Aid Trying to forestall a complete cutoff of Congres- sional aid, the Administration accepted the Senate Intelligence Committee's proposal that it draft a new Finding defining and delimiting the purposes of the covert program. By August, Director Casey had pre- sented the Committee with a first draft and later, in September, proceeded to "informally discuss the find- ing with Senator Goldwater and other key Senators of the SSCI."58 Within the Administration, the Find- ing was, as North put it, "thoroughly scrubbed" by the State Department and NSC staff as well by as the Justice Department and lawyers from DOD and CIA." On September 16, 1983, at a National Security Planning Group (NSPG) meeting, Director Casey briefed the President and his advisers from the State and Defense Departments on the draft Finding. The Director explained that the earlier Finding had been "modified to reflect [a] change of objectives. No longer was the covert program justified solely by the need to curb Cuban support for the Sandinistas or to stop arms flows out of Nicaragua. A new, and broader, rationale was added: covert aid was intended to pressure the Sandinistas to negotiate a treaty with nearby countries.6' The new Finding also reflected a change of tactics. Congress would not accept a Finding broad enough to permit paramilitary operations conducted by U. S. citizens. The Administration gave its assurances that aid for paramilitary operations would be limited to third-country nationals." Casey told the President that the "new Finding no longer lets us engage in PM [paramilitary operations]."63 Three days later, on September 19, 1983, the Find- ing was signed.64 The next day, the Intelligence Committees received briefings on it. Shortly thereaf- ter, the Senate Intelligence Committee voted to pro- vide aid for a continued covert operation in Nicara- gua.65 The new Finding, however, was not without prob- lems. The Administration's stated objective in sup- porting the Contras was now to pressure the Sandinis- tas into accepting a treaty that had to include free elections. If, as the President believed, the Sandinistas could not win such an election, they would never agree to such a treaty.66 Only the prospect of a military defeat would push them toward a negotiating posture. Yet, the renunciation of a military victory was the price set by Congress for a bipartisan com- promise. The Finding thus contained within it a para- dox that would haunt the Administration's Nicaragua policy. Forcing the Issue: The December Funding Cap and Intensifying Covert Operations One day after the September Finding was briefed to the Intelligence Committees, an unnamed Administra- tion official was quoted in The New York Times explaining the rationale of the new Finding: "Yes, we are supporting the rebels until the Nicaraguans stop their subversion," an "approach," the official urged, that "should end the argument over whether the Ad- ministration was violating its pledge by doing more than just stopping the arms flow."67 But Administration hopes that the September Find- ing, and its new rationale for covert action, would end the debate on Contra aid were quickly dashed. Discussions were held on the House floor over the advisability of continuing covert aid, and the Presi- dent took his cause to the public in his radio address- es. In October, the House voted to halt all aid to paramilitary groups fighting the Nicaraguan Govern- ment." The Senate, however, wanted to continue aid. In early December, the House and Senate agreed to a compromise: A "cap" of $24 million would be placed on Contra funding, and the CIA would be barred from using its contingency reserves to make up any shortfal1.69 Congress and the Administration recognized that the $24 million appropriation would be insufficient to sustain a covert operation through the fiscal year.7? Therefore, the door was left open for a future Admin- istration funding request to carry the program for the balance of the year if negotiations for a peace treaty were thwarted by the Sandinistas. The President was 35 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 required to report to Congress by March 15 on the steps taken to achieve a negotiated settlement in Cen- tral America.? The Decision to Bring the Situation to a Head Having survived the threat of a total cutoff of funds for the Contras, the Administration decided to intensi- fy the CIA's covert activities while funding still re- mained.72 Charged by the new National Security Ad- viser, Robert McFarlane, to prepare an "in-depth review" of the Administration's Central America policy,73 a Special Interagency Working Group (SIG)74 concluded: "Given the distinct possibility that we may be unable to obtain additional funding in FY-84 or FY-85, our objective should be to bring the Nicaragua situation to a head in 1984." 74a At a Janu- ary 6 NSPG meeting, the President and his advisers concurred in the SIG recommendation: "Our covert action program should proceed with stepped up inten- sity." 7 5 Even before the decision had been officially ac- knowledged, plans had been implemented to step-up paramilitary operations in Central America. In the fall, speedboats carried out attacks against Sandinista patrol craft and fuel tanks.76 By November, a more heavily armed speedboat had been developed for follow-on operations.77 At the end of December, and thereafter, the mining and other operations increased. In early January, the CIA proposed attacks against fuel supply depots and transmission lines along the "entire Pacific coast of Nicaragua."78 On January 7, three magnetic mines were placed in Sandino harbor;79 on February 3, an air attack destroyed a Sandinista "communications and naval arms depot""; and on February 29, more mines were placed at Corinto." By March 29, plans had been made to support an attack by Eden Pastora on San Juan del Norte; it was hoped that the attack would result in the installation of a provisional gov- ernment.8 2 The Role of Lt. Col. Oliver North At the NSC, Lt. Col. Oliver North became the liaison with the CIA in its intensified covert effort. A graduate of the U. S. Naval Academy, he had distin- guished himself on the battlefield in Vietnam, winning a Silver Star, a Bronze Star, and two Purple Hearts." He was assigned to the NSC in October 1981, where he quickly established a reputation with his superiors as a staffer who could get a job done.84 North was energetic, articulate, action-oriented, and had a reputation for bypassing red tape.85 His superi- ors could depend on him not only to carry out orders, but to keep them informed." North was a prodigious writer, often staying in his office until late at night to complete lengthy papers or other work.87 36 As described by a number of his colleagues, North's relationship to McFarlane was very close.88 With McFarlane's rise to the position of National Security Adviser, North came to play an increasingly large role not only in the operational aspects of Contra policy, but also in forging that policy. North already had contacts in Central America who were pleased with his success. On November 7, 1983, John Hull, Indiana native, ranch owner in Costa Rica, and Contra supporter, wrote that "B.G.," or "blood and guts," as North was known, was to have a new boss, Robert McFarlane. Hull hoped this would make North "more powerful as we need more like him."89 North became a strong advocate within the NSC staff of intensified covert support for the Contras. He was the point of contact, transferring information from the CIA to the National Security Adviser for the President's approval.9? For every significant, and sometimes insignificant, operation, he provided a memorandum to the National Security Adviser des- tined for the President. His reports were detailed and enthusiastic, his recommendations supportive of fur- ther operations.9' In his new assignment, North looked to Casey for guidance. In his words, Director Casey was a "teach- er or philosophical mentor" of sorts, to whom he looked for help and advice on a regular basis.92 "Bill Casey was for me a man of immense proportions," North testified, "a man whose advice I valued greatly and a man whose concern for this country and the future of this land were, I thought, on the right track." "History," North stated "will bear that out."93 Tension Between the 1983 Finding and Intensified Operations In a series of memorandums written between Oc- tober 1983 and March 1984, North recorded the CIA's increasing covert presence in the region. Rela- tively minor operational details were given to the President, as on November 4, when North advised McFarlane to suggest an increase in the number of weapons supplied to the Contras by 3,000. The Presi- dent approved the recommendation.94 North not only sought approval for, but also reported the results of, various actions proposed to him by Agency person- nel. On February 3, he reported a successful attack on a Sandinista communications and naval arms depot. Admiral Poindexter penned, "Well done," and checked North's recommendation that the President would be briefed.9 5 North frequently stated in his memorandums that the actions recommended were within the Septem- ber 1983 Finding. 96Yet, progress toward negotiations and success in arms interdiction were not the focus of his attention; instead, the destruction of Sandinista fuel supply lines or the mining of harbors was the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 subjects of these memorandums. North kept his superiors advised of Contra actions that would weaken the Sandinista regime, explaining that the purpose of the mining and attacks was to enhance the Contras' military strength, while "reduc[ing] the mobility of Sandinista military units."97 North could contend that such military activities were within the scope of the Finding because of the Finding's essential ambiguity: Paramilitary action, once authorized, may be used to promote a diplomat- ic end while at the same time furthering the cause of military victory. But by March of 1984, it had become clear that the diplomatic end the Finding described was not what North anticipated or encour- aged. In memoranda to McFarlane, he proposed sig- nificant military actions against the Sandinistas, the details of which cannot be disclosed for national secu- rity reasons, but which give substance to the testimo- ny of Clair George, CIA Deputy Director for Oper- ations, that North's ideas were often extreme, "crazy," or "hairbrained."98 The memos reveal the same enthusiasm for covert paramilitary operations that North would later bring to his work as the "switching point" for Contra support during the next 2 years.69 The Money Begins to Run Out By February 1984, the $24 million earmarked by Congress for the Contras was being quickly depleted. On February 13, North wrote to McFarlane, empha- sizing the importance of obtaining "relief from the $24M ceiling,"1" but recognizing that "[c]ongres- sional resistance on this issue is formidable": [P]rospects for success are bleak even with a concerted effort. At some point, we may have to reassess our prospects and decide whether pru- dence requires that we somehow stretch our FY- 84 effort to avoid running out of funds.101 In a memorandum drafted by North for the President, McFarlane concluded that "[u]nless an additional $14M [million] is made available, the [Contra aid] program will have to be drastically curtailed by May or June of this year. "102 The Harbor Mining Disclosures In early April, the country learned that the U.S. Government was involved in the mining of Nicara- guan harbors. U.S. Government presence in Nicara- gua had become "embarrassingly overt."103 As McFarlane testified: "The disclosure that harbors had been mined in Nicaragua was received very badly. . . 104 Some in Congress believed that the Administration had misrepresented the activities it conducted under the September 1983 Finding.105 Senator Barry Goldwater, Senate Intelligence Committee Chairman, charged that his Committee Members had been de- ceived at the very moment they were being asked to vote to support Contra aid. "[lit is indefensible on the part of the Administration to ask us to back its for- eign policy when we don't even know what is going on," he declared.106 After initial assertions by Director Casey and the National Security Adviser 1?7 that full and detailed disclosure had been provided to Congress, the Ad- ministration decided to end the escalating battle and offered a truce. On April 26, Director Casey "apologize[d] profoundly," conceding inadequate dis- closure.'" But the "apology" could not heal the "fracture" between Congress and the Administration that the mining had created."9 The Administration's policy to bring the situation "to a head" had back- fired: the plan, rather than attracting support, lost it. Keeping the Contras Together: Spring-Summer 1984 The Administration's proposal for $21 million in supplemental assistance for the Contras now lay in doubt as Congress debated the course of U. S. policy in Central America. The uproar over the mining inci- dent made any further appropriation unlikely. Indeed, House Speaker Thomas P. (Tip) O'Neill, Jr. declared that, in his view, the President's funding request was "dead." 10 With or without appropriated funds, the Adminis- tration planned to continue supporting the Contras. In McFarlane's words, the President directed the NSC staff to keep the Contras together "body and soul."110a In Poindexter's words, the President "wanted to be sure that the contras were support- ed.,,i McFarlane assigned this responsibility to North, who testified: I was given the job of holding them together in body and in sou1.112 To keep them together as a viable political oppo- sition, to keep them alive in the field, to bridge the time between the time when we would have no money and the time when the Congress would vote again, to keep the effort alive, be- cause the President committed publicly to go back, in his words, again and again and again to support the Nicaraguan resistance. '13 37 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 Tapping Foreign Sources The First Efforts With the appropriated funds projected to run out in May or June, the Contras could be kept together only if an alternative source of funding could be found. The Administration began to look beyond the U.S. Treasury to foreign countries for monetary support. As early as February, North drafted a National Secu- rity Decision Directive recommending "immediate ef- forts to obtain additional funding of $10-$15 million from foreign or domestic sources to make up for the fact that the current $24 million appropriation will sustain operations only through June 1984."114 While McFarlane struck this language from an official pol- icymaking document,' 15 he quietly pursued the same idea. Looking to Country 1 for Contra Support McFarlane testified that perhaps as early as Febru- ary 1984, he considered "the possibility of in effect farming out the whole contra support operation to another country, which would not only provide the funding, but give it some direction."' 16 In February or March, McFarlane pursued the idea with an offi- cial from Country 1."7 He inquired whether Country 1 would have any interest in instructing "the contras in basic tactics, maneuver[s], and so forth."8 Coun- try 1 officials eventually declined the invitation."9 But McFarlane was not dissuaded from attempting a less ambitious plan for third-country support. On March 27, McFarlane met with Director Casey and proposed a plan to approach third countries, including Country 1, for Contra assistance. In a memorandum of that date, Casey recounted McFarlane's plan: In view of possible difficulties in obtaining sup- plemental appropriations to carry out the Nicara- guan covert action project through the remainder of this year, I am in full agreement that you should explore funding alternatives with [Coun- try 1] and perhaps others.12? Others were not in "full agreement," however, about an approach to Country 1. Secretary of State George P. Shultz testified that during other discus- sions within the Administration about third-country funding, he questioned the legality and wisdom of any third-country approach. Shultz testified that by April 18, McFarlane knew he (Shultz) felt it was a mistake to approach Country 1 for Contra support.'21 Nevertheless, McFarlane followed through with the plan recounted in Director Casey's March 27 memo. He directed Howard J. Teicher, the Director of Near East Affairs at the NSC, to speak to an official in Country l's Ministry of Foreign Affairs about obtain- ing monetary support. Teicher made the approach, but Country 1 declined to be a part of the plan.122 McFarlane, in a memorandum of April 20, told 38 Teicher that he was "disappointed in the outcome but we will not raise it further . . . [w]e will not press them on the question of assistance to the contras."123 In May, Secretary Shultz learned of Teicher's ap- proach from the U. S. Ambassador to Country 1, and he confronted McFarlane at the White House.'" Ac- cording to Shultz, McFarlane told him that Teicher's approach to Country 1 was without authorization and that Teicher was operating "on his own hook."125 But Shultz later learned, to the contrary, from his Ambassador, that Teicher had made a point of telling the Ambassador he was in Country 1 at McFarlane's instructions.'" Later, McFarlane told the Commit- tees that he had directed Teicher to seek a contribu- tion from Country 1.127 Looking to Country 6 for Contra Support Another third-country funding option considered by the CIA during the spring of 1984 was an ap- proach to Country 6. In his March 27 memorandum, Casey indicated that Country 6 officials alreadY had been approached and that the initial reaction had been favorable.'" Between April 10 and 13, 1984, Duane (Dewey) Clarridge, Chief of the Latin American Di- vision of the CIA Directorate of Operations traveled to Country 6.129 While there, CIA Deputy Director John N. McMahon, told Clarridge to "hold off" on his discussions because of the recent harbor mining disclosures.130 Upon his return to the United States, Clarridge wrote: Current furor here over the Nicaraguan project urges that we postpone taking [Country 6] up on their offer of assistance. Please express to [Coun- try 6 official] my deep regret that we must do this, at least for the time being, and I fully realize that he cannot crank up assistance on a moment's notice, should we decide to go forward in the future.131 Clarridge testified that neither Casey's March 27 memorandum nor the cable traffic (in some cases cap- tioned, "[Country 6] Assistance to the Nicaraguan Project"132), represented CIA efforts to solicit Contra assistance from Country 6.133 He conceded that the documents showed that, prior to his arrival, Country 6 had offered to aid the Contras, and that an offer may have been made as early as January 1984 in a meeting between Director Casey and a Country 6 official.'" But before he arrived in Country 6, Clarridge testified, "a decision had been taken . . . that we would neither ask for any assistance nor would we accept any . . . ."136 Clarridge did not explain why, if the Country 6 offer of assistance was dead before his visit, he urged on his return "we postpone taking [Country 6] up on their offer of as- sistance."136 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 Country 2 Contributes Funds By May 1984, the Contras had exhausted the last portion of the $24 million Congressional appropriation for fiscal 1984. McFarlane testified that possibly as early as May,'" he met with the Ambassador from Country 2 and explained that it was almost "inevita- ble that the Administration would fail" to win Con- gressional support for the Contras.138 According to McFarlane, the Ambassador offered to "provide a contribution of $1 million per month, ostensibly from private funds that would be devoted to?as a humani- tarian gesture?to sustenance of the Contras through the end of the year."1" In his testimony, McFarlane denied that any solicitation of Country 2 had oc- curred, and insisted the Country 2 contribution was merely a gift. 140 After receiving the contribution and informing his deputy, Admiral Poindexter, McFarlane charged North with the responsibility for arranging the trans- fer of funds: "[I] asked him to be in touch with the contra leaders and to find out where the bank account was kept. . . . Lieutenant Colonel North came back and provided the name of the bank, its address and the contras' account number for the bank in Miami. . . ."14' McFarlane communicated this to the Ambassador by handing him an index card with the account number on it.142 North testified that it was McFarlane who asked him "to establish the initial resistance account offshore to which money was sent by a foreign government."143 According to McFarlane, the President was in- formed of the Country 2 contribution shortly after it took place. McFarlane placed a note card into the President's morning briefing book. He chose this method of informing the President of the contribution to reduce any chance that others at the President's daily briefing might become aware of the funding scheme. After the meeting, McFarlane was called in to "pick up the note card which," he recalled, "ex- pressed the President's satisfaction and pleasure that this had occurred."144 McFarlane also testified he informed selected mem- bers of the executive branch of the funding. "Within a day or so," he told Vice President George Bush, and at a weekly breakfast with the Secretaries of State and Defense, he "drew them aside" and informed them that the Contras would be "provided for" until the end of the year. Neither Secretary, according to McFarlane's testimony, asked the source of the funds.145 McFarlane testified that it was "likely" he told then-Chief of Staff, James A. Baker III "Mil the spring of '84," and that it was "possible" he told then- Counselor to the President Edwin Meese III of the Country 2 contribution.146 McFarlane claimed he did not inform Director Casey of the Country 2 fund- ing.147 But McFarlane's account was disputed by other witnesses. Secretary of Defense Caspar W. Weinberg- er had no recollection of being so advised by McFar- lane;148 and Secretary Shultz testified that he was told of the contribution for the first time in June 1986 after Admiral Poindexter became concerned that the Secretary of State had not been told of the Country 2 contribution.149 Baker denied any knowledge of the contribution. 50 The June National Security Planning Group Meeting On June 25, the National Security Planning Group met to consider options for funding the Contras. In attendance were the President, Vice President Bush, Secretary Shultz, Secretary Weinberger, Director Casey, Meese, and McFarlane. Director Casey urged the President to seek third-country aid. Secretary Shultz responded that Chief of Staff James Baker had told him that if the U.S. Government acted as a conduit for third-country funding to the Contras, that would be an "impeachable offense."" Casey re- sponded that it was permissible if the plan called for direct contributions from third countries to the Con- tras. Meese recalled that there was an opinion by Attorney General William French Smith that provid- ed authority for such a plan, but also noted that if an opinion were sought, Justice Department lawyers should be given guidance on what the opinion should say. The meeting ended without any firm conclusion. McFarlane advised that no one was to do anything without the necessary Justice Department opinion. Although McFarlane had already secured the contri- bution from Country 2, neither he nor anyone else mentioned it.152 And although McFarlane had urged those at the National Security Planning Group meeting not to do anything, that very day North arranged for the trans- fer of Country 2 funds to Contra leader Adolfo Calero. North's notes reveal that on June 25, 1984, he told Calero that funds would be transferred "w/in 24 hrs.," through an offshore account. North issued a series of instructions to Calero: "Never let agency know of amt, source, or even availability" of the funds; "No one in our govt. can be aware"; and "Your organization must not be aware."153 North made these plans to send the Country 2 funds to Calero despite his apparent knowledge of the legal difficulties expressed earlier that day at the Na- tional Security Planning Group meeting. His notes reflect that he was advised of those discussions by Clarridge of the CIA. North recorded phrases such as "impeachable offense" (presumably referring to Sec- retary Shultz's remark), and "going to French Smith ?reading on US seeking alternative funding." The note continues: "Seek 3d party funding.91154 The next day, Director Casey met with Attorney General Smith along with members of the Justice Department and the CIA legal staff. In a memoran- 39 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 V , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 dum recording the meeting, the CIA's General Coun- sel, Stanley Sporkin, reported that in response to Di- rector Casey's question about the "legal limits" of funding options, the Attorney General stated: that he saw no legal concern if the United States Government discussed this matter with other na- tions so long as it was made clear that they would be using their own funds to support the Contras and no U.S. appropriated funds would be used for this purpose. The Attorney General also said that any nation agreeing to supply aid could not look to the United States to repay that com- mitment in the future. The DCI [Director of Central Intelligence] made it clear that if there is a possibility this option might be used, he would advise the CIA oversight committees.155 The Intelligence Committees were not advised of the Country 2 contribution until 1987. Providing Support?The Private Network With funds available from Country 2, North turned to creating a mechanism for providing materiel sup- port for the Contras. "When we ran out of money," North testified, "when people started to look in Nica- ragua and Honduras and Guatemala and El Salvador and Costa Rica for some sign of what the Americans were really going to do," a decision was made to create an infrastructure, what North termed a "covert operation" to provide the operational support denied by Congress.156 North testified that, at Casey's suggestion, he turned to Retired U.S. Air Force Maj. General Rich- ard V. Secord: 157 [I]n 1984, we were approaching the proscriptions under Boland, Director Casey and I had had a number of discussions. I had made a number of trips, and obviously by then I had become much more engaged in the support for the resistance. Director Casey is the one who had suggested General Secord to me as a person who had a background in covert operations . . . and was a man who, by Director Casey's definition, got things done, and who had been poorly treated. Those were his words. I approached General Secord in 1984 and asked that he become engaged in these activities. . . . I went back to him again and at some point in '84, he agreed to become actively engaged. He agreed to establish, and did, private commercial entities outside the United States that could help carry out these activities.158 It was always viewed by myself, by Mr. McFarlane, by Direc- tor Casey, that these were private commercial ventures, private commercial activities 40 It was clearly indicated that Mr. McFarlane and Admiral Poindexter and in fact almost drawn up by Director Casey, how these would be outside the U.S. Government, and that I told them right from the very beginning that those things that he did deserved fair and just compensation.16? [I]t was always the intention to make this a self- sustaining operation and that there always be something there which you could reach out and grab when you needed it. Director Casey said he wanted something you could pull off the shelf and use at a moment's notice.'" The network, albeit privately run, was created for the purpose of pursuing "foreign policy goals." Accord- ing to North: "It was never envisioned in my mind that this would be hidden from the President." 162 The President has publicly stated that he was kept informed of some of the efforts by private citizens to aid the Contras.163 Poindexter testified the President "knew the contras were being supported . . . by third-country funds and by private support activity. . . ." 164 There is no evidence, however, to suggest that the President was ever informed about an "off-the-shelf' covert operation. Secord's Initial Role General Secord had served in the Air Force until 1983, when he retired and entered private business. During his service in the Air Force, he was involved in special operations with the CIA in Laos. From 1978 to 1981, Secord headed the U.S. Air Force International Programs office.155 In summer 1984, Secord's first assignment from North was to assist the Contras in buying weapons with the funds sent to Calero by Country 2. In July, Secord, accompanied by his associate and former CIA operative, Rafael Quintero, met with Calero to dis- cuss the Contras' need for low-priced weapons. He left the meeting with a weapons list.166 Although Secord was not an arms dealer, he agreed to act as a broker to procure the weapons with his business part- ner, Albert A. Hakim, a naturalized American of Ira- nian descent.'" In his testimony, Secord referred to the operation that he and Hakim used for Contra support as "the Enterprise." 168 Owen's Role North also obtained the assistance of Robert W. Owen to act on his behalf with Contra leaders. Owen was a private citizen who was a teacher before he joined the staff of Senator Dan Quayle in 1982. After leaving Senator Quayle's staff in 1983, Owen joined Gray & Co., a public relations firm in Washington, D. C.199 In the spring of 1984, while Owen was at Gray & Co., a Contra representative approached the firm Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 seeking representation. Owen was asked to contact the Nicaraguan Democratic Forces (FDN). He turned to North, whom he had met the year before while working for Senator Quayle. Owen learned from North that the Contras needed money, and they dis- cussed a plan to set up a group of European proprie- tary companies to purchase weapons overseas. During the discussions, North asked Owen to travel to Cen- tral America to determine the Contras' requirements over the next several months. Owen agreed.'" Taking a leave of absence from his firm, Owen traveled to Central America in late May or early June 1984 and met with Contra leaders. He was told, and subsequently repeated to North, that the Contras "would need $1 million a month, and if they wanted to increase in size they would need about a million and a half dollars a month." 171 Between October 1984 and March 1986, Owen made more than seven trips to Central America collecting information and delivering intelligence and money to the Contras on North's behalf. '72 He was given the code name "T.C." (The Courier), and in his own words, he served as North's "eyes and ears" in Central Amer- ica.'" Boland II In the summer of 1984, CIA covert assistance to the Contras began to wane as funds were depleted. Mean- while, legislation?the second Boland Amendment? that would bar the Agency from future support for the Contras had been passed by the House in early August. According to McFarlane, as the CIA stepped out of the picture, the task of supporting the Contras fell to the NSC: "[t]he President had made clear that he wanted a job done. The net result was that the job fell to the National Security Council staff." 174 In late August, North traveled to Central America to meet with Calero to resolve "immediate operation- al/logistic problems." McFarlane advised North: "Ex- ercise absolute 'stealth.' No visible meeting. No press awareness of your presence in the area." 175 On Sep- tember 1, North proposed to McFarlane that he obtain a "private donor" for a new helicopter to re- place one shot down the day before. The National Security Adviser penned a note: "I don't think this is legal." 176 One month later, on October 9, North proposed a National Security Decision Directive call- ing "for the CIA to provide assistance to the Nicara- guan Resistance Forces in interdicting Soviet arms bound for the FSLN in Managua." Once again, McFarlane wrote on the cover sheet: "011ie/Ken [de- Graffenreid]. 177 pls check w/ CIA legal counsel promptly to confirm this is legal . . . 178 By early October, Congress had adopted the Boland Amendment to an omnibus appropriations bill. Signed into law by the President on October 12, 1984, the bill would later be referred to as Boland II. It provided in relevant part: During fiscal year 1985, no funds available to the Central Intelligence Agency, the Department of Defense, or any other agency or entity involved in intelligence activities may be obligated or ex- pended for the purpose or which would have the effect of supporting, directly or indirectly, mili- tary or paramilitary operations in Nicaragua by any nation, group, organization, movement or individual. Similar provisions were adopted as parts of the De- fense and Intelligence Authorization bills. While Boland II cut off all funding for the Contras, it held out some hope for renewing Contra aid in the future by providing that the Administration could seek a $14 million appropriation on an expedited basis after February 28, 1985. But, even as the bill held out a future hope, its sponsors made clear that the law was intended to achieve an immediate cutoff of aid. As Representative Boland put it, the law "clearly ends U.S. support for the war in Nicaragua. Such support can only be renewed if the President can convince the Congress that this very strict prohibition should be overturned." 178 Poindexter and North, who admitted assisting the Contras in their military activities, had a different view. Both testified that they did not believe that Boland II was applicable to the NSC staff and that while the CIA could no longer provide any assistance to the Contras, the NSC staff was free to do so.'" Poindexter put it succinctly: "I never believed, and I don't believe today, that the Boland Amendment ever applied to the National Security Council staff. . . .,* 181 Their former superior, Robert McFarlane, was sur- prised by that view. '82 McFarlane, who denied au- thorizing the NSC staff to provide military assistance to the Contras, maintained that the "Amendment gov- erned our actions." 183 In "cutting off money for the Contras," he understood Congress to say "we don't want any money raised for the Contras." McFarlane testified that he repeatedly addressed the NSC staff with "a kind of litany of mine, . . . [not to] 'solicit, encourage, coerce, or broker'" financial contributions for the Contras.'" According to McFarlane, he spe- cifically told North to "stay within the law and to be particularly careful not to be associated with or take part in any fundraising activities." 185 He dismissed his instruction to North to keep the Contras "together body and soul" as meaning nothing more than "smoke and mirrors." 186 What he intended North to provide was only moral and political, not military, support.'" North and Poindexter both denied hearing McFarlane's warnings against solicitation and en- treaties to observe the law.'88 Both claimed that they were acting within their legal rights in aiding the 41 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 I] 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 Contras. North stated that all of his acts were author- ized by his superiors,'" and Poindexter, speaking as one of those superiors, confirmed that he had given North a "broad charter" to support the Contras and had "authorized in general" North's actions in carry- ing out that charter.'" McFarlane testified he was unaware of the breadth of North's activities.'91 In any case, Poindexter and North were not de- terred by Boland II in assisting the Contras. Thus, after the Boland Amendment passed, Poindexter ex- plained to McFarlane his Nicaraguan strategy for the future: "continue active negotiations but agree on no treaty and agree to work out some way to support the Contras either directly or indirectly. Withhold true objectives from staffs." 192 Indeed, Boland II was a spur to action. The CIA had to withdraw from supporting the Contras and, according to North, this meant he "was the only person left talking to them." 193 As North put it: "The U.S. contact with the Nicaraguan resistance was me, and I turned to others to help carry out that activity." 194 Poindexter saw it the same way: Very frankly, we were willing to take some risks in order to keep the Contras alive, as I said, until we could eventually win the legislative battle. So for all intents and purposes, Colonel North largely took over the?much of the activity that [the] CIA had been doing prior to their being prohibited from carrying [on] activity because of the Boland Amendment.195 As Poindexter summed up North's role, "[O]nce the CIA was restricted," North was the "switching point that made the whole system work. . . the kingpin to the Central American opposition . . . ." 196 Boland II did not deter North?it simply reinforced the need to keep what he was doing secret from Congress, the public, and others in the Government. The CIA support of the Contras had not been kept from Congress?it was openly debated on the floor and was funded by appropriations. With Boland II, the assistance?now handled by the NSC staff?went underground. Contra Aid Fall 1984 to Winter 1985 Boland II did not cause any immediate crisis for the Contras. Steps taken months before ensured their sur- vival. As McFarlane testified, "[T]here wasn't any need" for funds at the time.'" The $1 million-a- month pledged by Country 2 in June 1984 would "bridge the gap" at least until December. And as North testified, by the time the Boland Amendment was passed, "General Secord had been engaged and money had started to flow to the Nicaraguan Resist- ance from outside sources." 199 42 Arms Shipments Begin and Blowpipes Are Sought While Secord undertook to procure weapons, North remained heavily involved. Calero testified that he consulted with North regarding weapons needs and purchases 199 and North's notebooks confirm this.299 In the fall, the Contras' most pressing need was ground-to-air missiles. The Sandinistas had just ob- tained Soviet-designed HIND-D helicopters, sophisti- cated assault helicopters. North devoted his efforts to finding a missile capable of shooting them down. North learned in December 1984 that Blowpipe missiles were available in a Latin American country and, on his advice, Calero visited the country to ne- gotiate for their purchase."' On December 17, Calero reported back to North that the Latin Ameri- can country was willing to donate Blowpipes provid- ed that Calero bought eight launchers for $200,000.202 Permission was required and North tried to get that permission, recommending to McFarlane that the President take it up directly with the perti- nent head of state.2" McFarlane denied he ever asked "the President to intercede with any person for the obtaining of Blowpipes for the Contras." 204 In any event, permission was not secured and on January 3, 1985, Calero reported to North that the "Blow Pipe deal is off." 205 North would try the following year to revive it. In the meantime, Secord had located ground-to-air missiles in Country 4. But in December, North learned that Secord was having difficulty in arranging their shipment to the Contras. North asked Gaston Sigur, an NSC consultant and expert in Far Eastern Affairs, to set up a meeting in Washington between a representative of the originating country, Country 4, and North.2" At the meeting, North told the Coun- try 4 official that the missiles were going to the Contras, not to the Central American country identi- fied in the official documents.207 North said that while he was "actually seeking to facilitate the trans- portation" of the missiles, he hoped that he could persuade Country 4 to donate them.2" Ultimately, Country 4 agreed to sell the missiles to the Contras. North sent McFarlane and Poindexter a memoran- dum reporting on the meeting. Although McFarlane could not recall the memorandum, he testified that it would likely have prompted him to ask "Admiral Poindexter to find out what was going on . . . and how his [North's] actions squared with the law." McFarlane did not recall how his questions were re- solved.2" North testified that McFarlane and Poin- dexter approved the meeting with the Country 4 rep- resentative described in his memo.2" Meanwhile, the Contras were also running out of basic weapons. According to Secord, in November, Secord, using money provided by Calero, made a Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 downpayment on a shipment of arms which was to come by sea from the Far East. But the shipment was delayed and, in fact, it would not arrive until the spring of 1985.2" To make the first arms shipment, the Enterprise needed an end-user certificate (EUC)?a document certifying that the arms were for the exclusive use of the country to which the arms were being sent. The Contras could not issue end-user certificates because they were not a recognized government. Thus, false certificates had to be procured for the Enterprise, and again it fell to North to arrange their procurement. By the end of January, he was engaged in the task. He wrote in his notebooks: "Mtg. w/ Adolfo [Calero]-. . . . [Central American Leader] re: EUC for M-79 Rounds. [Leader of Central American country] turned down." 212 "Private mtg. w/ [U.S. Ambassador to a Central American country], offline items?EUC- $5000 M-79 Rds." 213 By early February, there was urgency in the request: Second met with North and told him that he "need[ed] to get a bunch of EUC's from [Country 14] NOW for next shipment." 214 By February 14, 1985, North had the end-user certificates, and Secord was able to ship more than 90,000 pounds of East European munitions by chartered aircraft from Defex, a European arms dealer, to a Central American country for the Contras.215 Providing Intelligence and Military Advice North's role was not limited to assisting arms pur- chases. On direction from McFarlane, he gave politi- cal advice to the Contras on unifying the different factions and adopting a platform recognizing human rights and pledging a pluralistic society.216 Even more critical for the Contras, North provided military intelligence and advice. The CIA and the DOD could not provide military intelligence directly to the Contras, so North provid- ed it himself. North would obtain maps and other intelligence on the Sandinista positions from the CIA and DOD, ostensibly for his own use.217 North would then pass the intelligence to the Contras using Owen as a courier.215 North explained the reasons for this system: Q: Did you believe that you were complying with Boland when you took intelligence from the CIA and passed it to the Contras through Robert Owen? A: Yes. And the intelligence that I passed myself personally, and it wasn't all from the CIA, much of it came from the Department of Defense. Q: And did you understand at the time that the CIA and the Department of Defense couldn't pass that intelligence directly? A: Exactly. Q: And you believed that it was compliance with Boland, that it was fulfilling the purposes of Boland for you to take the intelligence from the CIA or the Department of Defense and pass it to the Contras? That is what you are saying? A: I am not saying that it was fulfilling the pur- poses of Boland. I am saying it was working around the problem that Boland would have cre- ated in trying to comply with Boland that al- lowed me to do that.219 Director Casey was eager to keep the CIA bu- reaucracy insulated from North's activities in support- ing the Contras. Indeed, in November, Casey com- plained to Poindexter that North was conducting his support activities "indiscreetly," 220 and had disclosed to CIA officials that he was raising funds for, and providing intelligence to, the Contras.221 Learning of the complaint, North wrote McFarlane on November 7, 1984, to defend his behavior. North insisted he had not implicated the Chief of the CIA's Central American Task Force in his Contra support activities. "Clarifying who said what to whom," North acknowledged that he had passed intelligence to Calero to assist him in destroying the Sandinistas' newly acquired HIND-D helicopters. North stated that he had gone to both the CIA and to the DOD for information on the helicopters' location and passed this on to Calero.222 North denied, however, that he had disclosed his purpose to the Chief of the Central American Task Force, or advised him about the "financial arrange- ments of the FDN." 223 In fact, the memo recounts a conversation showing that North misled the Task Force Chief, telling him that the intelligence request had been "a fall out of the CPPG [the Crisis Pre- Planning Group]," and that he (North) had no idea where the Contras were obtaining their funding. In the memorandum, North reported that he encouraged the Task Force Chief's impression that the funding had been obtained from "outside" sources.224 McFarlane testified that he did not authorize North to pass intelligence to the Contras and if, as the memo indicated, North had passed that information to Calero, Boland II would had been violated.225 North admitted that he had provided the intelligence but maintained that Boland II did not "prevent the trans- fer of basic intelligence information to the Con- tras." 226 In early February 1985, North became concerned about a shipment of weapons bound for the Sandinis- tas aboard the ship, the Monimbo. In a memorandum to McFarlane and Poindexter, North recommended the vessel be seized or sunk: If asked, Calero would be willing to finance the operation. He does not, however, have sufficient numbers of trained maritime special operations 43 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 personnel or a method of delivery for seizing the ship on the high seas. . . . If time does not permit a special operation [on the high seas] . . . Calero can quickly be provided with the maritime assets required to sink the vessel before it can reach port at Corinto. He is in contact with maritime operations experts and purveyors of materiel nec- essary to conduct such an operation.227 North asked McFarlane for authorization to provide Calero "with the information on Monimbo" and for permission to approach him "on the matter of seizing or sinking the ship." 228 This time, Admiral Poindexter raised a legal ques- tion, but only to advise McFarlane about how North's recommendation should be handled. On the bottom of the memorandum, Poindexter agreed with North that, "We need to take action to make sure ship does not arrive in Nicaragua. JP."229 But in a cover note to McFarlane, Admiral Poindexter wrote: Except for the prohibition of the intelligence community doing anything to assist the Freedom Fighters I would readily recommend I bring this up to CPPG [Crisis Pre-Planning Group] at 2:00 today. Of course we could discuss it from the standpoint of keeping the arms away from Nica- ragua without any involvement of Calero and Freedom Fighters. What do you think?230 No action was taken on North's recommendation to seize the Monimbo. In addition to providing intelligence, North also secured the logistical assistance of a paramilitary op- erations expert. He described those efforts in the same December 4 memorandum to McFarlane in which he had outlined his intervention with Country 4 to secure surface-to-air missiles. According to the memo, Secretary of the Navy John Lehman had suggested to North that he meet with David Walker, a former British SAS officer, to discuss the services Walker's company could provide. North met with Walker, and proposed to McFarlane that Walker: establish[ ] an arrangement with the FDN for certain special operations expertise aimed particu- larly at destroying HIND helicopters. . . . Unless otherwise directed, Walker will be introduced to Calero and efforts will be made to defray the cost of operations from other than Calero's limit- ed assets.231 In his testimony, North confirmed that he had ar- ranged for Walker to "provide operational support for certain activities in the region," and that Walker was paid either by the Contras or Secord. This step, according to North, was approved by Poindexter or McFarlane.232 McFarlane testified that he referred North's memo on the subject to Poindexter,233 and 44 Poindexter said that, if asked, he would have ap- proved North's actions.234 Three months later, Walker provided two techni- cians to help carry out a military operation in Nicara- gua. North testified that he was involved in the oper- ation.235 A subsequent PROF note confirms Walker's role.236 Singlaub Efforts with Countries 3 and 5 Country 2 had pledged funds only through the end of 1984. Therefore, by the end of the year, an urgent need existed to find money for the Contras to contin- ue into 1985. In late November 1984, North approved the efforts of Retired U.S. Army Maj. Gen. John K. Singlaub to obtain funds from third countries to support the Con- tras.237 Singlaub met in Washington with officials of Country 3 and Country 5 to request aid. Singlaub was blunt about the Contras' needs: bullets, guns, and anti- aircraft missiles. The foreign country officials, howev- er, expressed concern about running afoul of "Con- gress by openly defying the Boland Amendment." At the same time they were willing to help "if this could be done in a way that did not attract attention." They agreed to send Singlaub's request to their respective governments.236 On November 28, Singlaub reported to North the reaction of the officials of Countries 3 and 5, inform- ing him he "was prepared to go and meet with senior officials in those governments." According to Sing- laub, North concurred and gave the plan "his bless- ing. . . . [I]t was a good idea, he saw no objec- tion . . ." 239 Whether North was authorized to "bless" Sing- laub's efforts is a matter of conflicting testimony. Ac- cording to McFarlane, to solicit or facilitate aid from a third country was barred by the Boland Amend- ment and he did not authorize North to pursue fund- ing from third countries.24? But according to North, he believed McFarlane had approved: "he was aware of each and every one of [my] actions to obtain money from foreign countries and approved of it. "241 North defended his actions, testifying that Country 3 had offered to make a contribution;242 he had never made any "solicitation" because that would be an improper act for a Government officia1.243 Singlaub followed up on his request, travelling to Countries 3 and 5 in January. He met with highly placed officials and reiterated his earlier request for military donations to the Contras.244 Singlaub provid- ed the officials with an index card bearing the name of the bank and account number, under Calero's con- trol, where the funds could be deposited directly.245 Singlaub told the officials he was a private citizen, but wanted to make it clear he was not an "unguided missile ricocheting around to that part of the world." 246 He expressed the belief that "it would be possible. . . to have someone in the Admin- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 istration send a signal to them. . . to indicate that [he] . . . was not operating entirely on [his] . . . own, without the knowledge of the Administration."247 On February 1, 1985, North's notes reflect that Singlaub called North and told him that Country 3 needed a signal that the Administration would be "greatly pleased" by a donation before Country 3 would be willing to contribute.248 On February 6, North wrote McFarlane and reported that: "Singlaub will be here to see me tomorrow. With your permis- sion, I will ask him to approach [the Country 3 and 5] Embass[ies] urging that they proceed with their offer. Singlaub would then put Calero in direct contact with each of these officers. No White House/NSC solicita- tion would be made."243 McFarlane made no re- sponse on the memo to North's recommendations.2" Singlaub testified that he returned to Washington on February 7, met with North to report his results, and recounted his "entire presentation."2" He rec- ommended that now was the time for a U.S. Govern- ment representative to send a signal to Countries 3 and 5. According to Singlaub's testimony, North re- sponded that he would "brief his superiors," and eventually told him (Singlaub) that he had informed his superior, whom Singlaub assumed to be McFar- lane.252 Countries 3 and 5 did not contribute any money as a result of Singlaub's efforts. Not until late 1985, after a signal was in fact given by an NSC official, did Country 3 make a contribution.263 Country 2 Makes an Additional Contribution With the Contras running out of funds, McFarlane turned once more to Country 2. McFarlane made the initial approach to its Ambassador for more funds. He testified that he did not "solicit" funds because the Boland Amendment prohibited such solicitation. He merely told the Ambassador of the plight of the Con- tras and hoped for a contribution.264 According to Secord, North asked him to follow up on McFarlane's initial meeting.255 Secord testified that he did in fact follow up with the Ambassador, with whom he "had dealt. . . in the past with respect to possible contributions to the Con- tras." When Secord raised the subject, the Ambassa- dor responded curtly, "You can stop twisting my arm . . . . I have decided to take it up with the head of state."266 McFarlane did not recall Secord's involve- ment. 257 In early February 1985, Country 2 agreed to con- tribute an additional $24 million.268 McFarlane in- formed the President of the contribution by placing a note card in the President's daily briefing book. The President again reacted with "gratitude and satisfac- tion," expressing no surprise.263 Unknown to McFar- lane, the Country 2 head of state had already in- formed the President directly of the new contribution. But the President did not mention this when he briefed the Secretary of State and McFarlane on his meeting with the government leader.26? Nor did McFarlane tell the Secretary of De- fense.26' Both Secretary Weinberger and General John W. Vessey, Jr., the Chairman of the Joint Chiefs of Staff, learned of the contribution from other sources.262 Secretary Shultz, who dealt regularly with Country 2, was not told of the contribution until June 1986.263 This was an omission "not of conscious choice," according to McFarlane.264 The new donation from Country 2, like its prede- cessor, was sent to Calero's accounts. Between June 1984 and March 1985, Country 2's contributions, to- taling $32 million, were virtually the only funds the Contras had. 265 Contra Aid: Winter-Spring 1985 The Administration Returns to Congress When the President signed the Boland Amendment, he made it clear he would return to Congress for additional Contra support: I sincerely regret the inability of the Congress to resolve the issue of continuing certain activities in Nicaragua . . . . I am signing this act with every expectation that shortly after the next Congress convenes it will provide adequate support for programs to assist the development of democracy in Central America. 266 In the winter of 1985, the Administration pinned its hopes on obtaining the $14 million in aid held out by the Boland legislation. The law provided for expedit- ed consideration of such a request after February 28, 1985, if the President certified to Congress that Nica- ragua was supporting other Central American com- munist insurgencies. McFarlane conveyed to his staff, in particular to North and Donald R. Fortier, then Senior Director for Policy Development, the Presi- dent's "strong wish that we not break faith with the Contras. . . . [We need] to do everything possible to reverse the course of the Congress, and get the fund- ing renewed," he said. "[T]he mission was to win the vote the next time . . .?"267 The chances for success were dim from the start. The new Chairman of the Senate Intelligence Com- mittee, David Durenberger, had warned publicly that he would oppose both the release of the $14 million and any future Contra aid.268 But the President had not given up. He told a group of reporters, "We're going to do our best."269 Defense Secretary Weinberger called for an updat- ed legislative strategy and new funding alternatives to win the battle in Congress.27? White House officials considered a number of legislative proposals including third-country assistance and/or the supply of non- 45 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Il . 1 . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 lethal aid coupled with third-country lethal assist- 271 Legislative strategy groups met to consider the proposals. McFarlane, accompanied by North, traveled to Central America to gauge the reaction of leaders in the region. Donald Fortier was dispatched to Capitol Hill to assess Congressional sentiment.272 While North assisted in drafting various legislative proposals, his preferred option was to seek Congres- sional approval for sufficient sums to fund an in- creased covert action program "adequate to achieve victory."273 North understood that foreign contribu- tions would ensure Contra survival, but success could only be achieved with increased funding: [R]esources available to the resistance from sym- pathetic government(s) and/or individuals will permit current small-scale operations to continue for at least another 6 to 8 months. A resumption of USG funding or additional alternative re- sources would be essential in order to bring the scale of activity to that which existed in the spring of 1984 and, over time, to prevent an erosion of the will and determination of the FDN combatants.274 North was optimistic that "[w]ith adequate support the resistance could be in Managua by the end of 1985.,, 275 Any legislative proposal for increased aid depended upon the Contras' survival in the field. McFarlane testified he told North that "unless the Contras become a credible military force, they would never gain political support in Congress and among the American people."278 North was counting on the En- terprise to provide the support necessary to maintain the Contras as a viable force. The Weapons Shipments from the Enterprise Continue In the spring of 1985, two weapons shipments ar- ranged by Secord in consultation with North and Calero would finally reach the Contras: first, in Feb- ruary, a planeload of 90,000 pounds of munitions from Europe and, second, in the spring, a sealift. Both shipments were arranged through Transworld Arma- ment, and both apparently required end-user certifi- cates.2" North needed the cooperation of Central American countries to provide documentation and to receive the shipments for the Contras. On March 5, 1985, he proposed that one country be rewarded for its assis- tance. In a memorandum to McFarlane, North sug- gested that the Secretaries of State and Defense and Chairman Vessey of the Joint Chiefs of Staff be asked to grant the Central American country additional se- curity assistance. 278 The "real purpose" of this memo, North explained, was to: 46 find a way by which we can compensate [Coun- try 14] for the extraordinary assistance they are providing to the Nicaraguan freedom fighters. At Tab II are end-user certificates which [Country 14] provided for the purchase of nearly $8M worth of munitions to be delivered to the FDN.27? In the attached memorandum to Weinberger, Shultz, and Vessey, drafted by North, the real purpose behind the request was not stated. The memorandum contained no reference to the end-user certificates, "to the arrangements which have been made for support- ing the resistance through [Country 14],"280 or to the Country 14 munitions "wish list" North attached for McFarlane's information.281 Instead, the request for aid was predicated on its merits. McFarlane testified that he recommended that the Cabinet approve increased assistance based solely on his assessment of Country 14's need, without taking into account its support of the Contras.282 North testified that he had not promised a "quid pro quo." There was no "need" to make such a promise to a country threatened by the Sandinista presence, he said. 283 Disbursements to Other Contra Leaders During the winter and spring of 1985, North decid- ed to use the money sent directly to Calero from Country 2 to support other Contra leaders. To do this, funds were withdrawn from Calero's account using traveler's checks, and hand-carried to North. North stored the checks in his safe. Additional cash was secured from Secord.284 North testified that the idea for maintaining this fund came from Director Casey:285 My recollection is that the very first traveler's checks came either very late '84 or certainly early 1985 and that the sum total of traveler's checks was probably in excess of $100,000 or thereabouts. I also had cash which I estimated to be some- where in the neighborhood of 50 to 75 thousand dollars in cash, so we are talking about an oper- ational account that went from somewhere around 150 to 175 thousand dollars. At various points in time there would be considerable sums in it and at various points in time there would be none in it. My recollection is that I got the traveler's checks in packages of less than $10,000. I understand that others have remembered elsewise, but that is how I remember it. Those funds were used to support the operations that we were conducting. They were used to Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 support the covert operation in Nicaragua, and then eventually were used to support other ac- tivities as well. The fact that I had those funds available was known to Mr. McFarlane, to Admiral Poin- dexter, to Director Casey, and eventually to Ad- miral Art Moreau over at the Pentagon. It also came to be known to others, some of whom you have had testimony here.286 * * a * * What is important that you realize is that meticu- lous records were kept on all of this. I kept a detailed account of every single penny that came into that account and that left that account. All of the transactions were recorded on a ledger that Director Casey gave me for that purpose. Every time I got a group of traveler's checks in, I would report them, and I would report them when they went out, even going so far as to record the traveler's check numbers themselves. The ledger for this operational account was given to me by Director Casey, and when he told me to do so, I destroyed it because it had within it the details of every single person who had been supported by this fund, the addresses, their names, and placed them at extraordinary risk.287 Poindexter testified that he knew of the account almost from the start, in 1984: [lit was associated with the first contribution of Country 2, I think it came to my attention, by Colonel North reporting to me, that Mr. Calero had provided some funds to him, and it was my understanding it was cash, at least that's my recollection of my understanding.288 Poindexter "didn't see anything illegal about it," but, as he testified, "any time you handle cash there are perception problems that can certainly develop . . . . And so I told Colonel North he should get rid of the money by returning it or whatever, that I didn't think that was a good idea."288 In fact, the money was instead funneled to various Contra leaders throughout 1985 and 1986. One of the principal beneficiaries of North's fund was a Resistance leader. With McFarlane's approval, North decided to assume support for the Resistance leader, using funds drawn from the Calero ac- count.2" North assured McFarlane that Casey had been told that North would maintain contact with the Contra leader." Later, though, North reported that "the CIA will not be told of the new source for [Resistance leader's] funds."262 By February 27, 1985, "Adolfo [Calero] ha[d] agreed to provide Ethel requisite funds in the blind without [the] [Resistance leader] becoming aware of the source."2" Eventually, Calero was to "deposit $6,250 per month in [Resistance leader's] checking account without [his] knowledge [of the source]."294 But before the direct deposit mechanism could be put into operation, North enlisted Robert Owen and Jona- than Miller, then-Deputy Coordinator for Public Di- plomacy at the State Department, to pass the money to the Resistance leader. Sometime in early March, North handed Owen and Miller traveler's checks from his office safe, and requested that the checks be cashed. Miller and Owen did so, and returned to North's office. Later that day, at his apartment, Owen passed $6,000 to $7,000 in cash to the Resistance leader.295 Owen handled a number of transfers to Contra leaders. He testified that he paid "[s]omewhere be- tween six and ten" Contra leaders, and the total amount paid was "[s]omewhere around $30,000."2" On March 22, 1985, for example, Owen traveled to Central America carrying several thousand dollars in cash or traveler's checks for delivery to a Contra leader.287 In some cases, Owen's efforts did not take him far from the White House itself. In April, for example, he waited outside the Old Executive Office Building in the rain. A car drove up, and Owen passed cash to a Nicaraguan Indian leader sitting inside.2" These payments had a number of purposes: One payment was made to an Indian leader as a "quid pro quo" for ceasing negotiations with the Sandinistas and joining instead with other Indian leaders to "work together in a united front."2" Keeping the Operation Secret North provided the logistical and funding assistance the Contras needed to keep going in Central America at the same time that he worked to keep their cause alive in Washington. To persuade Congress to vote for renewed aid, it was critical that the NSC staff's Contra assistance remain secret. As North warned Calero: "Too much is becoming known by too many people. We need to make sure that this new financing does not become known. The Congress must believe that there continues to be an urgent need for fund- North actively cultivated an image of Contra self- sufficiency within the Administration. For example, he urged the CIA's Chief of the Central American Task Force to reject the State Department's opinion that the Resistance had become largely ineffective since U.S. funding ran out in May 1984. "I told [the Chief of the Central American Task Force]," wrote North, "that it was important that the SNIE [Special National Intelligence Estimate] reflect the fact that there was substantial outside support which had con- tinued for some months and showed no signs of abat- ing.,930i 47 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II II . 1 . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 But even without such active encouragement, the secrecy shrouding North's efforts contributed to the appearance of Contra self-sufficiency. As funds ar- rived and weapons were shipped, CIA intelligence reports confirmed that the Contras remained not only a viable force, but were surviving on their own, with- out apparent U.S. Government assistance. By March, close to a year after U.S. Government aid had ceased, Director Casey's subordinates provided Casey with briefing materials, reporting surprise at the Contras' survival, but noting there was little intelligence on how the Contras had managed to flourish: Since the cutoff of official funds to the anti-San- dinistas in May 1984 they have been able to field a viable guerrilla fighting force, have increased their numbers, and improved their tactical effi- ciency. It is estimated that to maintain the level of activity that they have it would cost an esti- mated one and one half to two million dollars per month. There is, however, no intelligence on the source of this income, except that it comes from private groups, and possibly some U.S. business corporations.30 2 The secret of North's involvement, however, was not to last. North's name had begun to appear periodi- cally in the press along with that of Singlaub. By March, Singlaub already had become something of a "lightning rod" in the press, attracting attention as a private fundraiser for the Contras.303 According to Singlaub, North told him that his frequent visits to the NSC were a source of concern.304 But North "understood and agreed" that Singlaub had to keep a "high profile" in order to raise funds, and he support- ed the effort. If Singlaub "had high visibility, [he] might be the lightning rod and take the attention away from [North] and others who were involved in the covert side of support." 3 ? 5 Covert Operation and Legislative Strategy Intertwine While maintaining the secrecy of his Contra support activities, North worked to promote a legislative strategy that would change both the Congressional and the public perception of the Nicaraguan threat.306 In March, he and Donald Fortier spon- sored an elaborate plan calling for lobbying, a media blitz, and culminating in almost daily Presidential speeches and phone calls in support of the initiative. At its most ambitious stage, the plan included a 10- page, day-by-day chronology to describe each of the players' appointed tasks.30 7 At the same time, North proposed a "Fallback Plan," should Congress refuse to provide aid or lift the Boland Amendment restrictions.3" In a memo- randum to McFarlane, North noted that the Contras had sufficient funding for munitions to carry them 48 through October 1, 1985, but they needed money for the following year.3" The fallback plan, sent to McFarlane on March 16, called for Country 2, de- scribed as the "current donor," to contribute an addi- tional $25 million to $30 million to the Resistance for the purchase of arms and munitions; for the President to appeal to the public for contributions instead of seeking a Congressional appropriation; and for a tax- exempt foundation to be established to receive the contributions. McFarlane rejected the idea of the Presidential appeal, expressed doubt about seeking more money from Country 2, and approved the estab- lishment of a tax-exempt foundation." ? With McFarlane ruling out a return to Country 2, a return to Congress was the Administration's only hope for renewed Contra funding. During March 1985, North focused his attention on the elaborate legislative strategy plan he had been working on since late February. The plan was developed in conjunction with a peace initiative drafted by North in a Miami hotel room with FDN head Adolfo Calero and other Contra leaders, which became known as the San Jose Declaration. North arranged the deadline for a Sandi- nista response to the peace plan to coincide with the vote by Congress. If the Sandinistas rejected the over- ture, as North anticipated, then "special operations against highly visible military targets in Nicaragua," were timed to follow in the hopes that successful and "visible" Contra military activities might favorably influence Congress's decision on Contra aid.3" At the last minute, however, the Administration considered delaying the submission of the Administra- tion's new aid request to Congress.312 North recog- nized that if the vote were delayed, the Contras' planned military operations would not serve as an effective tool in influencing Congress's decision on the aid proposal. He strongly recommended to McFarlane that the vote take place as originally scheduled. He wrote: The deadline for substantive negotiations . . . was carefully chosen to ensure that the internal oppo- sition would have a specific date for their own planning purposes. Military operations were planned based on the expiration of the offer on April 20. . . . [A]n attack is scheduled for April 25. Based on my request Calero has agreed to postpone the attack for five days. The force which is being inserted to conduct this operation cannot be logistically supported in this area after May 5. The resupply situation will require that they be withdrawn after that date. * * * It is my belief that urging the resistance leaders (particularly Calero) to accept a major delay . . . will result in a breakdown of the unity we have achieved. [Calero] has only cooperated to date in Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 the unity effort because he trusts the only persons in the U.S. Government who have supported the movement since October 1984?North and McFarlane.313 The Administration Responds to Congressional Defeat In early April, the Administration submitted a Contra aid proposal to the Congress, along with its own peace plan modeled on the San Jose Declaration. The President pledged that lethal aid would only be pro- vided if the Sandinistas rejected the proposal. The plan provoked controversy, and on April 23, the House rejected the Administration's proposal. When the House rejected the bill, the President's first step was to reassure Central American leaders that he had not given up on Contra aid. As to one country, the President had special cause for concern: A military leader had seized ammunition intended for the Contras. The President telephoned the head of state and received an assurance that the ammunition would be delivered to the Contras.3" Publicly, the President expressed his determination "to return to the Congress again and again." 313 Soon after the House defeat, the Administration was back on Capitol Hill hoping to mold a compromise in sup- port of nonlethal aid. Meanwhile, Nicaraguan President Daniel Ortega traveled to the Soviet Union and throughout Europe, seeking renewed assistance for the Sandinista forces. President Ortega's visit to Moscow prompted the President to issue a warning to Congress: And whatever way they may want to frame it, the opponents in the Congress of ours, who have opposed our trying to continue helping those people, they really are voting to have a totalitar- ian Marxist-Leninist government here in the Americas, and there's no way for them to dis- guise it. So, we're not going to give up.3" President Ortega's Moscow trip also prompted a renewed sense in Congress that something had to be done to support the Contras. With strong support from Congressional leaders, President Reagan an- nounced the imposition of economic sanctions against Nicaragua on May 1, 1985.3'7 Maintaining the Covert Operation Before the Congress rejected the Administration's aid proposal, North was optimistic about the Contras' prospects. In an early April 1985 memo to McFar- lane, North explained what the operation had achieved up to that point, and the plans he had for its future.3" Based on information provided by Calero, North outlined what the Contras had spent "since USG funding expired in May 1984."3" Of the "grand total" of $24.5 million received by Calero, "$17,145,594 has been expended for arms,32? muni- tions, combat operations, and support activities."321 Extolling the FDN's nearly twofold increase in size, and its newly acquired expertise in guerrilla warfare, North emphasized that the money had been spent wisely: "In short, the FDN has well used the funds provided and has become an effective guerrilla army in less than a year."322 The image of Contra military capability cultivated by North was arguably at odds with reality. U.S. Army General Paul F. Gorman, Commander of the Southern Command from May 1983 through Febru- ary 1985, told the Committees that "the prospects of the Nicaraguan resistance succeeding [were] dim at best." Specifically referring to Congressional testimo- ny he gave in June and December 1985, Gorman testified: what I was saying in those days was that I did not see in the Nicaraguan resistance a combina- tion of forces that could lead to the overthrow of the government or the unseating of the Sandinis- tas. . . . The training of the Contras was, when I last saw them in 1985, abysmal. . . . I didn't regard them as a very effective military organiza- tion, based on what I could see in reflections of battles, in communications on both sides. The Sandinistas could wipe them out. Regarding North's reaction to his views, Gorman added: Oliver was terribly concerned about my attitude, and he knew that I was travelling up here on the Hill and in other circles where I was being asked to comment on the prospects of these people. Q: I take it Colonel North, who had been your friend . . . was not pleased with the position you were taking? A: No. . . . I made a speech over at the National Defense University which was reported in the Washington Post . . . and Oliver . . . got very exercised because in it I said . . . I can't see any amount of money or any amount of time, given the present set of conditions, that would be effi- cacious. . . . Oliver got very exercised about that and called me and said would you try to put to- gether an op ed piece . . . which he allegedly was going to get placed in the Washington Post. It never was, and I gather it's because what I wrote displeased him. Gorman concluded by telling the Committees, "it was also very clear to me, he [North] saw me as a prob- lem in terms of what I was saying, and I think he was just doing his damndest to get me to shut up?old General, put a cork in it."323 In the spring, North had made ambitious plans for the Contras' future, according to his April 11 memo. The force would be increased in size. Two special 49 77-026 0 - b7 - 3 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 operations were planned: an "attack against Sandino airport with the purpose of destroying" Sandinista HIND-D helicopters; and a "ground operation against the mines complex" in Nicaragua securing the princi- pal lines of communication in and out of Puerto Cabe- zas. Finally, North told McFarlane the Contras would open a Southern front.324 These plans were soon stalled, though, when in late April, Congress rejected the Administration's funding request. The defeat precipitated a crisis atmosphere among Contra leaders, who had planned on renewed Congressional funding. There were daily contacts be- tween Contra leaders and North, and between North and the CIA Chief of the Central American Task Force. The problems of the Resistance were further complicated when one Central American country, re- sponding to Sandinista encroachment, ordered the Contras to move to less exposed locations.325 Meanwhile, in Congress, a consensus was building in favor of humanitarian aid. By May 15, 1985, Con- gressional leaders were seeking counsel from the NSC on the Administration's position about a Contra sup- port bill that was limited to nonlethal aid. North, along with other NSC staff members, drafted talking points for a meeting between McFarlane and Minority Leader Robert H. Michel, emphasizing that the "pri- mary goal" was to lift the Boland Amendment restric- tions, "which severely limit our ability to support/ advise the now unified Nicaraguan resistance."326 By the end of May, North was optimistic that the Boland Amendment restrictions would be lifted, at least with respect to the CIA's provision of intelli- gence and political support. But even if they were lifted, and Congress appropriated humanitarian aid, North did not contemplate that his covert operation would end. He told McFarlane in a May 31 memo: Plans are underway to transition from current arrangements to a consultative capacity by the CIA for all political matters and intelligence, once Congressional approval is granted on lifting Section 8066 [Boland Amendment] restrictions. The only portion of current activity which will be sustained as it has since last June, will be the delivery of lethal supplies.327 The Secord Group and Its Competition As humanitarian aid measures were debated in Con- gress, Secord's Enterprise was continuing to procure weapons for the Contras. By May, Secord was using Thomas G. Clines, rather than the original broker. Clines' source was a European arms dealer.325 Secord was also using Rafael Quintero to handle the logistics of the arms deliveries in Central America. As North put it, Quintero was the "Secord man on [the] scene."329 He coordinated the arms reception in Cen- tral America, and "all of the liaison with the Contras and with the local authorities."33? From Quintero, Secord would obtain the information necessary to 50 provide North with what North termed "views from on [the] scene" in Central America.331 Clines, Quin- tero, and Secord were to play an increasingly large role in the Contra support structure as the summer progressed. During May, Secord arranged through Clines for the third in a series of arms transfers to the Contras. This time, the shipment was to arrive by sea.332 Peri- odically, Secord would call North with the latest update, as on May 8: "Came out of mtg/ in . . . now in Paris; -Tested every item; -ship arrived 4-5 hours ago; -40,000 M-79 . . . ."333 Later, on May 24, North recorded: "Call from Dick; -Vessel needs shipping agent for receiving; -Need to do long lead plan for Aug-Sep delivery; -need to make deposit for M-79 buy."334 As Secord testified, North "was in the infor- mation collection business" and "[h]e wanted to know if I would provide him with details of any deliveries or deals that were made, and I did so gladly."335 General Secord was not the only weapons dealer seeking the Contra account during the summer of 1985. For example, Ronald Martin, a Miami arms dealer, was by May "setting up [a] munitions 'super- market'" in Central America.336 As North testified: "You had a very competitive environment down there. Once the U.S. Government withdrew in '84 from directly supporting the resistance, you ended up with a lot of folks out there running a very cutthroat business."337 North discouraged Calero from dealing with some of Secord's competitors. He testified that CIA Direc- tor Casey had suspicions that the arms warehouse operation run by Martin was supported by U.S. fund- ing that had been diverted to Martin by a Central American country. According to North, Casey told him "that there shouldn't be any further transactions with that broker until such time as he resolved or they were able to resolve where" the money to stock- pile "several millions of dollars worth of ordnance" had come from.338 Secord's other competitor for procuring arms for the Contras during the spring of 1985 was General Singlaub. As early as April, Singlaub had begun to arrange for a major weapons purchase, after meeting at FDN base camps in March with the FDN military commander, Enrique Bermudez.339 The list of weap- ons Singlaub drew up with Bermudez included AK-47 rifles, RPG-7 rocket launchers, light machine guns, and SA-7 surface-to-air missiles. Singlaub took the weapons list to North, who made "some additions and subtractions." North and Singlaub "reach[ed] a clear- cut statement of what we were going to buy.',340 Sometime later that month, Singlaub introduced Calero to a European arms dealer.34' Calero was astonished at the low prices he had been quoted; "at least in the case of the AK-47s that price was about half of what we had previously had to pay.91342 (In part, this can be attributed to the fact that Singlaub did not take a commission.) Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 According to Singlaub, North later confirmed that the prices quoted by the European arms dealer were lower than anything he had ever seen before. Con- fronted with the price list, North "expressed some surprise, doubt, that they could be purchased for that price." But, he "made it quite clear that that was a very, very good price and a bargain. We were getting twice as many weapons for the same amount of money."343 In his testimony, North maintained that he checked Secord's prices against the prices of other dealers: "[s]ome were higher, some were lower."344 Part of the explanation for the difference between Secord's prices and those of Singlaub's dealer was Secord's profit margin?a margin of which Calero was unaware. Secord testified that his markup on all Contra shipments "averaged out almost exactly 20 percent."345 In fact, the actual commission charged on the cost of arms averaged 38 percent.346 In Secord's own words: By the way, this was a strict commercial kind of transaction. There was nothing spooky about it. It was just a normal brokering deal. The prices were marked up in the process, different markups for different line items depending upon the size, but between 20 and 30 percent was the markup which is quite low in the arms business.347 Secord candidly admitted that he was to make a profit:348 Q: I take it from what you are saying that you were to make a profit on these arms transactions? A: Yes . . . . It was intended that the profits generated would be shared by Hakim, myself, and, of course, the arms dealer.349 Calero testified he was unaware that Secord was earning money off the arms sales. He believed that Secord was supplying the weapons at cost.35? "My understanding, right from the beginning, was that he was not making a profit," Calero recalled.351 North, on the other hand, testified that it was his understand- ing from his conversations with Casey in 1984 that those running the off-the-shelf covert entities were entitled to fair compensation:352 "The arrangement that I made with General Secord starting in 1984 recognized that those who were supporting our effort were certainly deserving of just and fair and reasona- ble compensation." 3 5 3 Calero Tries Singlaub In early May, Calero and Singlaub met with Secord in North's office to discuss procuring SA-7 mis- siles.354 Although Singlaub's price was lower than Secord's, North and Calero decided that Secord should supply the missiles because Secord was pre- pared to provide training and Singlaub was not.355 Sometime in mid-May, Calero placed an order for weapons?other than SA-7s?through Singlaub's dealer. Calero "preferred" dealing with Singlaub, rather than Secord, because not only was Singlaub a closer personal friend, but also his prices were lower. Singlaub told Calero that he believed Secord was making a profit. Secord, on the other hand, told Calero that Singlaub would be unable to deliver: "The price was so, you know, so low that he thought he [Singlaub] couldn't make, he couldn't do it. Yes, he [Secord] told me that, yes."356 North's notes reflect an unsuccessful attempt to per- suade Calero not to deal with Singlaub via the Euro- pean arms dealer.357 On May 17, Secord met with North and discussed pending weapons transactions, including Martin's munitions supermarket and the "Singlaub deal w/ A.C; -[European arms dealer] . . . .; - 10K AK47s; -procuring items from USSR . . ." 358 An hour and 20 minutes later, North spoke to Calero and noted, "will stop move w/ [Europe- an arms dealer]." 359 But despite Calero's apparent decision to stop the Singlaub deal, Secord informed North on May 20 that it "[s]ounded like Calero was going to have to go through with [the European arms dealer] purchase." 369 North appears to attribute to Director Casey his reluctance to procure arms through the European dealer. According to North, Casey warned him of "a transaction of some five to six million dollars from a broker who he was concerned had also been involved in reverse technology transfer to the Eastern Bloc, and he told me to do everything possible to discour- age further purchases."361 Although North did not name the dealer, his reference to a "transaction of some five to six million dollars" points to the Europe- an arms dealer. The arms dealer denied to the Com- mittees any involvement in reverse technology trans- fers.3 6 2 The purchase that Singlaub arranged did in fact go forward after Owen, at North's request, confirmed the list with Calero. The arms arrived in Central America on July 8, 1985.3 6 3 This was the last shipment Calero was to order from Singlaub or any arms dealer other than Secord. The Singlaub shipment had nearly exhausted the funds in Calero's own accounts. Calero told North in May, "[I] have enough to cover this [shipment] but [it] will leave nothing." 3 6 Thereafter, money raised by North and Secord was given directly to Secord, who then provided the Contras with arms. Calero testified he was "never given a reason" why his "au- thority to have cash directly sent to [him] to make those purchases in the future was taken away."365 51 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I .J I Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 2 Chapter 2 1. See R. McFarlane Memo, 2/27/81, to Secretary Haig, N33323-47 (forwarding Director Casey's proposal). 2. See "Review of Foreign Policy," House Foreign Af- fairs Committee, 97th Cong., 1st Sess., 16-17 (Nov. 12, 1981) (state-ment of the Hon. Alexander M. Haig, Jr., Sec'y of State). 3. Earlier, in March 1981, the President had authorized a CIA covert program for Central America in general. 4. George Test., Hearings, 100-11, 8/6/87, at 269. 5. Inman Int., 3/16/87. 6. Gregg Memo, 7/12/82, to Clark,"Proposed Covert Action Finding on Nicaragua," N44654. 7. Gregg Memo, 7/12/82, to Clark, "Proposed Covert Action Finding on Nicaragua," N44654. 8. Id. 9. Id. 10. Id. 11. Poindexter handwritten note, attached to Gregg Memo to Clark, 7/12/82, "Proposed Covert Action Finding on Nicaragua," N44652. 12. Gregg Memo, 7/12/82, to Clark, "Proposed Covert Action Finding on Nicaragua," N44656. 13. See e.g., Newsweek, Nov. 8, 1982, at 43. 14. See, e.g., Cong. Rec. H9148-49 (Dec. 8, 1982) (state- ment of Rep. Harkin). 15. See The Washington Post, April 3, 1983 at A13 (quot- ing Contra leaders rejecting the Administration's explana- tion for Contra aid: "The people who are fighting, they are not fighting to stop the weapons. . . . We are fighting to liberate Nicaragua. As Suicide [a Contra leader] put it . . . We're not going to stop the transport of arms and supplies to the Salvadoran guerrillas until we cut the head off the Sandinistas.) 16. See Cong. Rec. H9149 (Dec. 8, 1982) (statement of Rep. Leach); id. at H9151 (statement of Rep. Mikulski); id. at H9153 (statement of Rep. Studds). 17. See Cong. Rec. H9149 (Dec. 8, 1982) (statement of Rep. Leach); id. at H9158 (statement of Rep. Matsui). 18. See Cong. Rec. S15363-64 (Dec. 18, 1982) (statement of Sen. Helms). 19. Pub. L. 97-377, Defense Appropriations Act for FY 1983, Sec. 793. In enacting the Boland Amendment, the Congress re-jected a bill that would have barred all covert action funding, as well as an amendment that would have barred Administration support of any insurgent group having the purpose to overthrow the Nicaraguan Govern- ment. See "The Boland Amendment," Chapter 26. 20. Since 1982, the Administration has taken the position that, under the Boland Amendment, it was the agency's purpose that was controlling, not the Contras' purpose. See Opinion of the Intelligence Oversight Board, Apr. 6, 1983, J4825; "The Boland Amendment," Chapter 26. 21. Cong. Rec. H9156 (Dec. 8, 1982) (statement of Rep. Boland); "The Boland Amendment," Chapter 26. 22. The New York Times, Dec. 9, 1982, at A9. 23. Select Committee on Intelligence, S. Rep. No. 665, 98th Cong., 2d Sess., at 5 (1984) (hereinafter "S. Rep. 98- 665"). 52 24. Letter, from 37 Congressmen, 3/24/83, to the Presi- dent, HF1367; see Turner Memo, 4/6/83, to the President's Intelligence Oversight Board, at 17, J4824. 25. Newsweek, April 11, 1983, at 46. 26. 1983 Public Papers of the President of the United States, Ronald Reagan, Vol. 1, at 539 (April 14, 1983) [hereinafter "Presidential Papers"]. 27. Id. at 541. 28. Id. 29, See The Washington Post, April 3, 1983 at A3 (state- ment of Sen. Daniel Moynihan). 30. 1983 Presidential Papers, Vol. 1, at 603-04 (April 27, 1983). 31. In June 1983 a CBS/New York Times poll showed that the public opposed helping the Contras try to over- throw the Nicaraguan Government by 53 percent to 23 percent. New York Times, July 1, 1983, at A2. In Septem- ber, a Harris survey showed 60 percent opposed, and 24 percent favored, U.S. Government support for the Contras. The Harris Survey, 9/29/83, at 3. 32. See Gorman Dep., 7/22/87, at 25-32; McFarlane Test., Hearings, 100-2, 5/11/87, 9-10, 21. 33. S. Rep. 98-665 at 5-6. 34. H.R. 2760 was sponsored by Representative Edward P. Boland, then Chairman of the House Intelligence Com- mittee and Representative Zablocki, then chairman of the Committee on Foreign Affairs. See H. Rep. 122, 98th Cong., 1st Sess., Part 1 at 1; Part 2 at 2 (May 13, 1983). 35. See H. Rep. No. 122, 98th Cong., 1st Sess., at 4. 36. Cong. Rec. H5880-81 (July 28, 1983). 37. See Cong. Rec. H5721-62 (July 27, 1983); id. at H5819-82 (debate on Boland-Zablocki). Ultimately, the Boland-Zablocki legislation was never considered by the Senate, and did not be come law. See "The Boland Amend- ment," Chapter 26. 38. Clark Memo, 7/1/83, to SPG Principals, S9243. 39. Id. 40. Report to the Senate Committee on Foreign Rela- tions: Subj: "Conferral of Personal Rank of Ambassador," S9516. 41. S9468. 42. In its first year, S/LPD claimed credit for 1,500 speaking engagements and for sending material to 239 edito- rial writers in 150 cities. Comptroller General's Report, 2/ 8/85, S9391. It published pamphlets, such as "Broken Prom- ises: Sandinista Repression of Human Rights in Nicaragua, "The Sandinista Military Build-up, "Misconceptions About U.S. Policy Toward Nicaragua," all for the purpose of "Spreading the President's Message to the Public, the Media and the Congress." Gardner Memo, 6/25/85, to Twohie: Subj: "Current Program of S/LPD," S9441. 43. See Chapter 4. 44. J. Miller Memo, 3/13/85, to P. Buchanan: Subj: "'White Propaganda' Operation," S9418. 45. Reich Memo, 3/1/86, to W. Raymond, S9460. 46. Id. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 47. Comptroller General Letter, 9/30/87, to Hon. Jack Brooks, Hon. Dante Fascell, at S11655. 48. Id. at S11652. 49. Id. at S11656. The State Department's Inspector Gen- eral concluded in Audit Report No. 7PP-008 (July 1987) that "there is no evidence that S/LPD staff participated directly or indirectly in any unlawful lobbying or that IBC spent S/LPD contract funds for lobbying activities." 50. Vessey Memo, 9/6/83, to Chief of Staff, U.S. Army et Subj: "DoD Support for the DCI," at D15331. 51. See DOD "Background Paper," D15321 (July 13, 1983 "wish list"); see Information Paper, 4/14/87, D13718 (referring to the CIA's original request as a "Christmas List"). 52. Memo, Subj: "Supplies Needed to Support Nicara- guan Resistance Effort," D15249; Memo for the Record, 7/ 15/83, Subj: "CIA Request for DoD Support," D15356-364. 53. See DoD Memo, 7/28/83, to Chief of Staff, U.S. Army, Chief of Naval Operations, Chief of Staff, U.S. Air Force, Commandant of the Marine Corps: Subj: "DOD Support for the DCI," D15344. 54. This effort has been addressed generally in the press. See, e.g., US. News and World Report, Dec. 15, 1986, at 27- 28. 55. DOD Memorandum for the Director, J-3, The Joint Staff, 8/19/83, Subj: "DoD support for the DCI," D15338- 40; DOD Memo, 12/9/83, "Background Paper for the Di- rector," D13760 (chronology of project developments). 56. W. Taft IV Memo, 9/2/83, to Weinberger: Subj: "CIA Request for DoD Support of Covert Activities in Nicaragua," D25051 ("The CIA has been disappointed with our pointing out this difficulty; it has suggested that it has insufficient funds to support such activities on its own"). 57. CIA paid the preparation and transfer cost of $28,000, but not the equipment cost of the aircraft. See DOD Memo, 12/9/86, "Background Paper for the Director," at D13762-63. 58. Clark Memo, "Meeting with National Security Plan- ning Group," N49258; see also S. Rep. 98-665 at 6. 59. North/deGraffenreid Memo, 9/15/83, to Clark: Subj: "NSPG Meeting on Covert Action in Nicaragua," N49255. 60. NSC Handwritten Notes, 9/16/83, N54822. 61. Presidential Finding Scope Paper, 9/19/83, N6783. 62. Presidential Finding Scope Paper, 9/19/84, N6783. 63. NSC Handwritten Notes, 9/16/83, N54823 (emphasis in original). 64. Presidential Finding, 9/19/83, N6780-82. 65. S. Rep. 98-665 at 6. 66. See Minutes of 5/16/86 NSPG Meeting, 6/4/86, N10288. 67. S. Rep. 98-665 at 6 (quoting The New York Times); see Casey Memo, 9/27/83, to Clark, N6787-89. 68. See Cong. Rec. H8389-432 (Oct. 20, 1983). 69. See H.R. Rep. 98-569. 70. See Cong. Rec. H10543-45 (Nov. 18, 1983); id. at S16859-60. 71. Intelligence Authorization Act, FY 1984, sec. 109. 72. SIG Paper, 12/20/83: Subj: "Where Next in Central America," at N32314. 73. C. Hill Memo, 12/20/83, to McFarlane: Subj: "Next Steps in Central America," N32308. 74. The Special Interagency Working Group consisted of representatives from the State Department, CIA, DOD, NSC, Joint Chiefs of Staff and the White House. See Memo, 9/23/83, Subj: "Legislation on Nicaragua," N6883. Later, an interagency policymaking group on Central America would be called a Restricted Interagency Group or "RIG." 74a. SIG Paper, 12/20/83: Subj: "Where Next in Central America," at N32314; see McFarlane Memo, 1/6/85, Subj: "Meeting with the National Security Planning Group," at N46540 (summarizing SIG strategy paper). 75. McFarlane Memo, 1/6/85: Subj: "Meeting with the National Security Planning Group," N46450; NSDD 124 (approving measures outlined in the SIG paper, "Where Next in Central America," N32308-359). 76. North/Menges Memo, 10/19/83, to McFarlane: Subj: "Special Operations: Nicaragua," N44721. 77. North/Menges Memo, 10/19/83, to McFarlane: Subj: "Special Operations: Nicaragua," N44721. 78. Attachment to North/Menges Memo, 12/22/83, to McFarlane: Subj: "Anti-Sandinista Actions," at N30844. 79. McFarlane Memo, 2/17/84, Subj: "Meeting with the National Security Planning Group," at N40040. 80. North Memo to McFarlane, 2/3/84, Subj: "Attack on Guerrilla Command and Control Centers in Nicaragua," at N44831. 81. North/Menges Memo, 3/2/84, to McFarlane: Subj: "Special Activities in Nicaragua," at N44842. 82. North Memo, 3/30/84, to McFarlane: Subj: "Nicara- gua Special Activities Program," at N34514. 83. See North Personnel File, D6087, D6089. 84. Poindexter Test., Hearings, 100-8, 7/15/87, at 41-42; McFarlane Test., Hearings, 100-2, 5/11/87, at 31. 85. Poindexter Test., Hearings, 100-8, 7/15/87 at 41-42 McFarlane Test., Hearings, 100-2, 5/11/87, at 31-32; Gregg Int., 4/2/87, at 4, 6; P.X. Kelley Int., 9/30/87, at 7. 86. McFarlane Test., Hearings, 100-7, 7/14/87, at 203, 221. 87. Hall Test., Hearings, 100-5, 6/8/87, at 466; see North Test., Hearings, 100-7, Part II, 7/13/87, at 55-56. 88. Gregg Int., 4/2/87, at 4; Ledeen Dep., 6/19/87, at 33; Earl Dep., 5/22/87, at 29. 89. Letter, 11/7/83, J. Hull to R. Owen, N7460. 90. North's notes reveal frequent Contra-related contacts during this period between North and Dewey Clarridge, then Chief of the Latin American Division of the CIA's Directorate of Operations. See North Notebooks, 1/84- 3/29/84, Q0011-0165. 91. See, e.g., North memo, 3/30/84, to McFarlane: Subj: "Nicaragua Special Activities Program," N34514; North/ Menges Memo, 3/2/84, to McFarlane: Subj: "Special Ac- tivities in Nicaragua," N44842. 92. North Test., Hearings, 100-7, Part II, 7/13/87, at 40; North Test, Hearings, 100-7, Part I, 7/9/87, at 244-45. 93. North Test., Hearings, 100-7, Part I, 7/9/87, at 245. 94. North/Menges Memo, 11/4/83, to McFarlane: Subj: "Support for Nicaraguan Democratic Opposition," N40079, N40081. 95. North Memo, 2/3/84, to R. McFarlane: Subj: "Attack on Guerilla Command and Control Centers in Nicaragua," N44831-32; see North/Menges Memo, 1/23/84, to McFar- lane: Subj: "Targeting Guerilla Command and Control Cen- ters in Nicaragua," N44837. 96. See, e.g., North/Menges Memo, 10/19/83, to McFar- lane: Subj: "Special Operations: Nicaragua," at N44721; North/Menges Memo, 12/22/83, to R. McFarlane: Subj: "Anti Sandinista Actions," at N30842; North Memo, 3/30/ 53 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 84, to McFarlane: Subj: "Nicaragua Special Activities Pro- gram," at N34515. 97. North/Menges Memo, 12/22/83, to McFarlane: Subj: "Anti Sandinista Actions," N30841; see North Memo, 3/30/ 84, to McFarlane: Subj: "Nicaragua Special Activities Pro- gram," N34514. 98. George Test., Hearings, 100-11, 8/6/87, at 269. 99. Poindexter Dep., 5/2/87, at 63. 100. North Forwarding Note to McFarlane, 2/13/84, N16901. 101. North/Keel Memo, 2/7/84, to McFarlane: Subj: "Additional Resources for Our Anti-Sandinista Program," N16908 (attached to North Forwarding Note, 2/13/84, N16901). 102. McFarlane Memo, 2/21/84, to the President: Subj: "Central America Legislative Strategy?Additional Funding for the Anti-Sandinista Forces," N16894. 103. Los Angeles Times, Apr. 13, 1984, at 1. 104. McFarlane Test., Hearings, 100-2, 5/11/87, at 13. 105. The National Security Adviser later expressed his regret about "lapses," such as the "failure to brief the Com- mittees on the San Juan del Norte operation." McFar- lane, PROF Note, 5/4/84 at 17:57:43, to Poindexter, N7091; see also deGraffenreid Memo, 6/13/84, to McFarlane: Subj: "Prospectus on New Covert Action Procedures," N7094 ("with the exception of the special measures on Nicaragua (mining . . . etc.) our Hill briefings have been timely and thorough"). 106. S. Rep. 98-665 at 8 (quoting Goldwater statement). 107. See, e.g., Weekly Presidential Documents, Vol. 20, No. 15, at 517-18 (Apr. 10, 1984 statement); McFarlane letter, 4/5/84, to Sen. H. Baker, N43406-07 ("Please be assured that we have not deviated from the strictest inter- pretation of this Finding.") 108. S. Rep. 98-665 at 8-9. 109. S. Rep. 98-665 at 10. 110. Los Angeles Times, April 13, 1984, at 9. 110a. McFarlane Test., Hearings, 100-2, 5/11/87, at 5, 20- 21. McFarlane testified these were his words, expressing the President's "sentiment." McFarlane Test., Hearings, 5/11/ 87, at 21. North testified that, lals they were relayed to me," the words 'body and soul' "were the words of the President." North Test., Hearings, 100-7, Part I, 7/9/87, at 265. 111. Poindexter Test., Hearings, 100-8, 7/15/87, at 54. 112. North Test., Hearings, 100-7, Part I, 7/7/87, at 74. 113. North Test., Hearings, 100-7, Part I, 7/9/87, at 265. North testified that he received this assignment around the time of the Kissinger Commission Report, which was re- leased Jan. 10, 1984. Report of the National Bipartisan Commission on Central America (H. Kissinger, Chairman); North Test., Hearings, 100-7, Part I, 7/13/87, at 79. McFar- lane dated the instruction "in the days leading to Boland II," which was enacted in October 1984. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 221. 114. North/Menges Memo, 1/13/84, to McFarlane: Subj: "Central America?Draft NSDD to Implement NSPG De- cisions of January 6, 1984," N43397 (emphasis added). 115. Memo, North/Menges, Memo, 1/13/84, to R. McFarlane: Subj: "Central America?Draft NSDD to Im- plement NSPG Decisions of January 6, 1984," handwritten changes, N43397. 116. McFarlane Test., Hearings, 100-2, 5/11/87, at 14. 54 117. The Committees agreed at the request of the White House that, in the interest of U.S. foreign relations, certain foreign nations which were approached or enlisted for Contra aid would not be referred to by name. Accordingly, those countries were given numerical designations. 118. McFarlane Test., Hearings, 100-2, 5/11/87, at 15. 119. The idea that Country 1 might fund U. S. ventures in Central America was not a new one for McFarlane. In the spring of 1983, he learned that Country 1 might be willing to provide security assistance and agricultural training to other countries. In a note to Oliver North recounting this offer, McFarlane mused that since the U. S. appropriation to Country 1 increased every year, perhaps it would be willing to sign over the increase for use in Central America. 120. Casey Memo, 3/27/84, to McFarlane, RCM Ex. 29 at 456, C7490. Casey already had devised his own plan for raising additional funds. In the March 27 memorandum, he indicated that two initiatives already were underway at the CIA to provide the Contras with weapons and other materi- als: one involved an arrangement with Country 1, and the other involved an approach to Country 6. Neither effort produced any significant Contra assistance. Id., C7490. 121. Shultz Test., Hearings, 100-9, 7/23/87, at 13. 122. McFarlane Test., Hearings, 100-2, 5/11/87, at 15-16; Teicher Dep., 4/23/87, at 15. 123. McFarlane Memo, 4/20/84, to Teicher, RCM Ex. 30 at 459, N10576. Secretary Shultz was unaware of the sub- stance of this memo. Shultz Test., Hearings, 100-9, 7/23/87, at 14-15. 124. Shultz Test., Hearings, 100-9, 7/23/87, at 13-14. 125. Shultz Test., Hearings, 100-9, 7/23/87, at 13-14. 126. Shultz Test., Hearings, 100-9, 7/23/87, at 13-14. 127. McFarlane Test., Hearings, 100-2, 5/11/87, at 15-16. 128. Casey Memo, 3/27/84, to McFarlane, C7490. See also CIA Cable, 3/8/84, DRC Ex. 19, CIA Cable, 3/10/84, DRC Ex. 19-1. 129. CIA Cable from D. Clarridge, 4/5/84, DRC Ex. 19- 11; id., 4/12/84, DRC Ex. 19-15. 130. CIA Cable, 4/10/84, DRC Ex. 19-14. 131. Clarridge Test., Hearings, 100-11, 8/4/87, at 31; CIA Cable, from D. Clarridge, 5/11/84, DRC Ex. 19-18. 132. See, e.g., CIA Cables, 3/23/84, DRC Ex. 19-2; id., 3/ 24/84, DRC Ex. 19-3; id., 4/2/84, DRC Ex. 19-5; id., 4/3/ 84, DRC Ex. 19-6; id., 4/4/84, DRC Ex. 19-7. 133. Clarridge Test., Hearings, 100-11, 8/4/87 at 29-32. 134. Clarridge Test., Hearings, 100-11, 8/4/87, at 29-30, 32-33. 135. Clarridge Test., Hearings, 100-11, 8/4/87, at 34. Clarridge also defended the Agency's conduct by emphasiz- ing that Country 6's early offer was rejected because it turned out Country 6 wanted reimbursement and that Coun- try 6 sought a bilateral arrangement with a Central Ameri- can country, not the Contras specifically. Clarridge Test., Hearings, 100-11, 8/4/87, at 28-32. 136. CIA Cable from D. Clarridge, 5/11/84, DRC Ex. 19-18. 137. McFarlane Test., Hearings, 100-2, 5/12/87, at 84. 138. McFarlane Test., Hearings, 100-2, 5/11/87, at 17. 139. McFarlane Test., Hearings, 100-2, 5/11/87, at 17. 140. McFarlane Test., Hearings, 100-2, 5/11/87, at 17: I should stress, I described it as it happened, and while there is no solicitation, cry for solicitation, in fact it was unmistakable in his own mind that my concern and my view of this impending loss would represent a significant setback for the President, Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 and if anyone with any gumption could manage without being led or asked, then a contribu- tion would have been welcome. 141. McFarlane Test., Hearings, 100-2, 5/11/87, at 17-18. North's notes show that the arrangements were made by June 25. On June 24, he noted "call to RCM re arrange- ments" and on June 25 he noted that he had told Calero the funds were on their way. North Notebook, 6/24/84, Q0338; id., 6/25/84, Q0340. Bank records show the pay- ment was actually received in Calero's account on July 6, 1984. Bank Records, 0318. 142. McFarlane Test., Hearings, 100-2, 5/11/87, at 18. 143. North Test., Hearings, 100-7, Part II, 7/13/87, at 80. 144. McFarlane Test., Hearings, 100-2, 5/11/87, at 18-19. 145. McFarlane Test., Hearings, 100-2, 5/11/87, at 18. 146. McFarlane Test., Hearings, 100-2, 5/11/87, at 53. 147. McFarlane Test., Hearings, 100-2, 5/11/87, at 24. 148. Weinberger Dep., 6/17/87, at 74 (denying any knowledge of a Country 2 contribution). 149. Shultz Test., Hearings, 100-9, 7/23/87, at 4; Poindex- ter Test., Hearings, 100-8, 7/15/87, at 78-79. 150. Baker Dep., 6/22/87, at 12. Attorney General Meese did not testify on this issue. 151. Baker did not recall "using that language or having a specific opinion such as that, although I do, as I have stated, recall feeling that we should take a very close look at the question of legality and feeling that we could not do indirectly what we couldn't do directly." Baker Dep., 6/22/ 87, at 8-9. 152. See Shultz Test., Hearings, 100-9, 7/23/87, at 14-17. 153. North Notebook, 6/25/84, Q0340 (emphasis in origi- nal). 154. North Notebook, 6/25/84, Q0343. 155. Sporkin Memo for Record, 6/26/84, Subj: "Nicara- gua," C8322. Secretary Shultz testified that, as far as he knew, no Justice Department opinion was ever obtained. Shultz Test., Hearings, 100-9, 7/23/87, at 17-18. 156. North Test., Hearings, 100-7, Part I, 7/7/87, at 74. 157. North Test., Hearings, 100-7, Part I, 7/8/87 at 116. There is some evidence that Secord may have been in- volved in another covert operation prior to the Contra project. In an Apr. 27, 1984, notebook entry, North relates what appears to be an arms deal with Country 1 ("Team to [Country 1] $54 million worth of arms"). Later the note states: "McFarlane talked to [Country 1 official] Can't produce $; similar to Secord arrangement; 65 lift vans; $750K." North Notebook, 4/27/84, Q0228 (emphasis added). 158. North Test., Hearings, 100-7, Part I, 7/8/87, at 116. 159. North Test., Hearings, 100-7, Part I, 7/8/87, at 117. 160. North Test., Hearings, 100-7, Part I, 7/8/87, at 117. 161. North Test., Hearings, 100-7, Part I, 7/8/87, at 122. As recounted by North, Casey's plan mirrored the sugges- tions of others. It was about this time that Robert Owen, who would become North's courier, provided him with a plan for "setting up proprietary companies . . . to purchase goods overseas and provide assistance to the contras." Owen Test., Hearings, 100-2, 5/14/87, at 325-26. 162. North Test., Hearings, 100-7, Part II, 7/13/87, at 46. 163. See The New York Times, May 16, 1987, at Al ("As a matter of fact, I was very definitely involved in the decisions about support to the freedom fighters. It was my idea to begin with.") 164. Poindexter Test., Hearings, 100-8, 7/20/87, at 228. 165. See Secord Test., Hearings, 100-1, 5/5/87, at 46. 166. Secord Test., Hearings, 100-1, 5/5/87, at 48-49. On July 26, North had a conversation with Gen. Secord, and his notes report the involvement of "Chi Chi" Quintero: L-100 Shipping prices Shipping Agent?Raphael Chi Chi Quintero Cuban/Miami knows maritime ops knows logistic support would make a logistics advisor travels in region frequently Canadian Arms dealer?Century Arms Ltd. North Notebook, 7/26/84, Q0448. 167. Secord Test., Hearings, 100-1, 5/5/87, at 50-51; Hakim Test., Hearings, 100-5, 6/3/87, at 200. 168. Secord Test., Hearings, 100-1, 5/7/87, at 172. 169. Owen Test., Hearings, 100-2, 5/14/87, at 325-26. 170. Owen Test., Hearings, 100-2, 5/14/87, at 325-26. 171. Owen Test., Hearings, 100-2, 5/14/87, at 327; see Owen Letter, 7/2/84, to North, RWO Ex. 1 at 777 ("fire- cracker costs"). 172. Owen Test., Hearings, 100-2, 5/14/87, at 326-42. 173. Owen Test., Hearings, 100-2, 5/14/87, at 334-35; Id., 5/19/87, at 385. 174. McFarlane Test., Hearings, 100-2, 5/11/87, at 5. 175. North Memo, 8/28/84, to McFarlane: Subj: "Official Travel to Honduras on August 31, 1984," at N46204. 176. North Memo, 9/2/84, to McFarlane: Subj: "FDN Air Attack of 1 September," RCM Ex. 30-B at 426, N44850. 177. Ken deGraffenreid was, at the time, the head of the NSC Staffs Intelligence Directorate, the group responsible for coordinating policy on covert action projects. deGraf- fenreid Dep., 6/19/87, at 5; id., 7/27/87, at 58. 178. North Memo, 10/9/84, to McFarlane: Subj: "Draft National Security Decision Directive (NSDD) on Arms Interdiction in Central America," at N6446-51. 179. Cong. Rec. H11974 (Oct. 10, 1984). Representative Hyde, an opponent of the Boland Amendment, gave it a similar interpretation in urging members to reject it. He stated: "[S]ection 107 . . . forbids any assistance to the freedom fighters in Nicaragua. . . . Arm them and abandon them on a party line vote. No food, no medicine, no ammu- nition, not even moral support. We barely leave them a prayer." Cong. Rec. H8269 (Aug. 2, 1984). See Chapter 26 for a fuller discussion of the legislative history of the Boland Amendment. 180. North Test., Hearings, 100-7, Part I, 7/8/87, at 162- 63; see id., at 270-71; McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 223-24; Poindexter Test., Hearings, 100-8, 7/ 20/87, at 52-53. See Chapter 26 for a fuller discussion of their views. 181. Poindexter Test., Hearings, 100-8, 7/15/87, at 52-53. 182. See McFarlane Test., Hearings, 100-7, Part II, 7/14/ 87, at 203-04. 183. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 203; see also McFarlane Test., Hearings, 100-2, 5/12/87, at 129. 184. McFarlane Test., Hearings, 100-2, 5/11/87, at 44-48; McFarlane Test., Hearings, 100-2, 5/11/87, at 20. 185. McFarlane Test., Hearings, 100-2, 5/11/87, at 21. 186. McFarlane Test., Hearings, 100-2, 5/11/87, at 21. 187. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 204, 221-22. 55 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 , . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 188. Poindexter Test., Hearings, 100-8, 7/21/87, at 340-41; North Test., Hearings, 100-7, Part I, 7/9/87, at 177. 189. North Test., Hearings, 100-7, Part I, 7/8/87, at 177; id, 7/9/87, at 186; id., 100-7, Part II, 7/13/87, at 78-79. 190. Poindexter Test., Hearings, 100-8, 7/20/87, at 228- 29; id., 7/15/87, at 74. 191. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 204; see also id., 7/14/87, at 211-22. 192. Poindexter PROF to McFarlane, 11/23/84 at 21:27:14, JMP Ex. 4. 193. North Test., Hearings, 100-7, Part I, 7/7/87, at 74. 194. North Test., Hearings, 100-7, Part I, 7/7/87, at 74. 195. Poindexter Dep., 5/2/87, at 51-52. 196. Poindexter Dep., 5/2/87, at 63. 197. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 225. 198. North Test., Hearings, 100-7, Part II, 7/10/87, at 2-3. 199. Calero Test., Hearings, 100-3, 5/20/87, at 11-12. 200. See, e.g., North Notebook, 1/10/85, Q0957; id., 1/3/ 85, Q0934; id, 12/12/84, Q0893. 201. North Notebook, 12/7/84, Q0882; id., 12/17/84, Q0910; see North Memo, 12/20/84, to McFarlane: Subj: "Follow-up with [ ] re: Terrorism and Central America," N7200-02. 202. North Notebook, 12/17/84, Q0910; cf. North Memo, 12/20/84, to McFarlane: Subj: "Follow-up with [1 Re: Terrorism and Central America," N7200 (indicating $15K price per launcher). 203. North Memo, 12/20/84, to McFarlane: Subj: "Follow-up with [ ] re: Terrorism and Central America," N7200-02. 204. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 222. 205. North Notebook, 1/3/85, Q0934. 206. North Memo, 12/4/84, to McFarlane: Subj: "Assist- ance for the Nicaraguan Resistance," RCM Ex. 32 at 468, N16887. 207. North Memo, 12/4/84, to McFarlane: Subj: "Assist- ance for the Nicaraguan Resistance," RCM Ex. 32 at 468, N16887. 208. North Test., Hearings, 100-7, Part I, 7/7/87, at 83-84. 209. McFarlane Test., Hearings, 100-2, 5/11/87, at 29-30. 210. North Test., Hearings, 100-7, Part I, 7/7/87, at 83-84. 211. Secord Test., Hearings, 100-1, 5/5/87, at 51-52. Bank records indicate that the downpayment for the first sealift was not made until February. H9409. 212. North Notebook, 1/29/85, Q1553-54. 213. North Notebook, 1/30/85, Q1555. 214. North Notebook, 2/5/85, Q1580 (emphasis in origi- nal). 215. See North Memo, 3/5/85, to McFarlane: Subj: "Aid to the Nicaraguan Resistance," RCM Ex. 35 at N7189-97 (attaching end user certificates dated Feb. 14, 1985). 216. See McFarlane Test., Hearings, 100-7, Part II, 7/14/ 87, at 221; North Notebook, 1/2/85, Q0932. 217. C/CATF Test., Hearings, 100-11, 8/4/87, at 237-38. 218. See Owen Test., Hearings, 100-2, 5/14/87, at 332-33. 219. North Test., Hearings, 100-7, Part I, 7/9/87, at 266- 67. 220. See Poindexter Test., Hearings, 100-8, 7/15/87, at 193. 221. See North Memo, 11/7/84, to McFarlane: Subj: "Clarifying Who Said What to Whom," RCM Ex. 31 at 463, N6914. 56 222. Id, RCM Ex. 31, at 463-64, N6914-15. 223. Id, RCM Ex. 31, at 465, N6916. 224. Id, RCM Ex. 31, at 464, N6915. 225. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 222; McFarlane Test., Hearings, 100-2, 5/11/87, at 166. 226. North Test., Hearings, 100-7, Part I, 7/9/87, at 204- 05. 227. North Memo, 2/6/85, to McFarlane: Subj: "Nicara- guan Arms Shipments," RCM Ex. 33 at 472, N6918. 228. Id, RCM Ex. 33, at 472, N6918. 229. Id, RCM Ex. 33, at 472, N6918. 230. Id, RCM Ex. 33, at 475, N6921. 231. North Memo, 12/4/84, to McFarlane: Subj: "Assist- ance for the Nicaraguan Resistance," RCM Ex. 32, at 470, N16889. 232. North Test., Hearings, 100-7, Part II, 7/14/87, at 157. 233. McFarlane Test., Hearings, 100-2, 5/11/87, at 29-30. 234. Poindexter Test., Hearings, 100-8, 7/20/87, at 230. 235. North Test., Exec. Session, 7/9/87, at 58. 236. North, PROF Note, 8/23/86 at 15:52:52, to Poin- dexter, N12151. [North Classified Ex. 336.] 237. Singlaub Test., 5/20/87, at 192; see North Test., 7/7/ 87, at 199-202. 238. Singlaub Test., 5/20/87, at 190-93; see also North Test., 7/7/87, at 199-202. 239. Singlaub Test., 5/20/87, at 192. 240. McFarlane Test., 5/11/87, at 14-15; id., 5/14/87, at 203. 241. North Test., 7/7/87, at 198-99. 242. North Test., 7/7/87, at 202-04. 243. North Test., 7/7/87, at 234 ("[S]omeone had told me that a U.S. Government official should not, cannot, will not, whatever solicit.") 244. Singlaub Test., 5/20/87, at 193-94. 245. Singlaub Test., 5/20/87, at 201. 246. Singlaub Test., 5/21/87, at 164. 247. Singlaub Test., 5/20/87, at 198-99. 248. North Notebook, 2/1/85, Q1567; see Singlaub Test., 5/20/87, at 198-201. 249. North Memo, 2/6/85, to McFarlane, RCM Ex. 34 at 479, N7015. In a handwritten addition, North wrote: "Nor should Singlaub indicate any U.S. Government endorsement whatsoever." Id 250. North Memo, 2/6/85, to McFarlane, RCM Ex. 34, at 479, N7015. 251. Singlaub Test., 5/20/87, at 200. Singlaub informed North that he presented three options for Country 3 to contribute to the Contras: (1) a deposit to a foreign bank account where no subsequent accounting would be provid- ed; (2) a contribution directly to, and with an accounting by, Singlaub; and (3) a diversion from the proceeds of an upcoming arms sale to Country 3 (so that no disbursement would then be reflected on Country 3's books). Singlaub also proposed that Countries 3 and 5 make direct contribu- tions to the Contras of military supplies. Singlaub Test., 5/ 20/87, at 195-97. 252. Singlaub Test., 5/21/87, at 204. 253. See North Test., 7/7/87, at 199-207. 254. McFarlane Test., 5/13/87, at 103-05. 255. Secord Test., 5/5/87, at 154-56. 256. Secord Test., 5/5/87, at 154-56. 257. McFarlane Test., 7/14/87, at 218. 258. McFarlane Test., 5/11/87, at 49-52. 259. McFarlane Test., 5/11/87, at 51-52. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 260. McFarlane Test., 5/11/87, at 50-51; see Shultz Test., 7/23/87, at 8-9; McFarlane Int., 4/5/87, MF1955. 261. Weinberger Test., 7/31/87, at 133, 135. 262. Vessey Dep., 4/17/87, at 6; Weinberger Test., 7/31/ 87, at 134; cf. CWW Ex. 39, CIA Memo for the Record by J. McMahon, "Breakfast with Secretary and Deputy Secre- tary of Defense," 3/15/85, ("In closing the Secretary stated that he had heard that [Country 2] had earmarked $25 million for the Contras in $5 million increments"). While Weinberger did not recall making the statement recorded in the memo, Weinberger Dep., 6/17/87, at 74-75, McMahon confirmed, in his deposition, the accuracy of the informa- tion. McMahon Dep., 7/1/87, at 57 (Q: "Do you remember that meeting where Secretary Weinberger mentioned that he had heard that [an official of Country 2] had earmarked $25 million foi- the contras?" A: "Yes." Q: "What did he say in that meeting?" A: "Exactly what you said. It was like an offhand remark.") 263. Shultz Test., 7/23/87, at 8-9. 264. McFarlane Test., 5/11/87, at 54. 265. See 04882-83. 266. Weekly Presidential Documents, Vol. 20, No. 45, 11/ 9/84, at 1817. 267. McFarlane Test., 5/11/87, at 43. 268. The Washington Post, 11/30/84, at Al (statement of Sen. David Durenberger). 269. Weekly Presidential Documents, Vol. 20, No. 51, 12/ 21/84, at 1909. 270. See Weinberger Memo, 1/3/85, to McFarlane: Subj: "U.S. Policy Toward Nicaragua," at N6495. 271. See North Memo, 1/15/85, to McFarlane: Subj: "Nicaragua Options," Tab F, "Options and Legislative Strategy for Renewing Aid to the Nicaraguan Resistance," at N45086-93. 272. See North Memo, 1/15/85, to McFarlane: Subj: "Nicaragua Options," at N45025, N45029; see also McFar- lane Test., 5/11/87, at 44. 273. North Memo, 1/15/85, to McFarlane: Subj: "Nicara- gua Options," Tab I, "Policy Options for Nicaragua," at N45029. 274. North Memo, 1/15/85, to McFarlane: Subj: "Nicara- gua Options," Tab E, "The Future of the Nicaraguan Re- sistance," at N45083. 275. North Memo, 1/28/85, to Poindexter: Subj: "Nicara- guan SNIE," (referring to "The Future of the Nicaraguan Resistance," Tab E to "Nicaragua Options" Memo, at N45029), at N32824. 276. McFarlane Test., Hearings, 100-2, 5/11/87, at 21. 277. Secord Test., Hearings, 100-1, 5/5/87, at 49-52. 278. North Memo, 3/5/85, to McFarlane: Subj: "Aid to the Nicaraguan Resistance," RCM Ex. 35 at 494, N7184. 279. North Memo, 3/5/85, to McFarlane: Subj: "Aid to the Nicaraguan Resistance," RCM Ex. 35 at 494, N7184. 280. Id. RCM Ex. 35 at 495, N7185. 281. Id. RCM Ex. 35 at 494, N7184. 282. McFarlane Test., Hearings, 100-2, 5/11/87, at 32-33; McFarlane Int., 4/5/87, MF1957. 283. North Test., Hearings, 100-7, Part I, 7/8/87, at 147- 48. 284. North Test., Hearings, 100-7, Part I, 7/8/87, at 132, 135. 285. North Test., Hearings, 100-7, Part I, 7/8/87, at 132 286. North Test., Hearings, 100-7, Part I, 7/8/87, at 132. 287. North Test., Hearings, 100-7, Part I, 7/8/87, at 133. North made no mention in his testimony about what he believed to be the "extraordinary risk" involved. In con- trast, in the case of his notebooks, which also contained the names and addresses of private donors and recipients, North felt free to remove them from the protection of his locked and guarded office. North Test., Hearings, 100-7, Part I, 7/ 8/87, at 134. He destroyed the ledgers as the Contra diver- sion was coming to light in November 1986. North Test., Hearings, 100-7, Part I, 7/8/87, Part I, at 134. 288. Poindexter Test., Hearings, 100-8, 7/15/87, at 74. 289. Poindexter Test., Hearings, 100-8, 7/15/87, at 74. 290. North Memo, 3/15/85, to McFarlane, N7127-28. 291. North Memo, 2/27/85, to McFarlane, N6418-19. 292. North Memo, 3/15/85, to McFarlane, at N7128. 293. North Memo, 2/27/85, to McFarlane, N6419. 294. North Memo, 3/15/85, to McFarlane, N7128. 295. Owen Test., Hearings, 100-2, 5/14/87, at 237-39. 296. Owen Test., Hearings, 100-2, 5/19 at 347-48. 297. Owen Test., Hearings, 100-2, 5/14/87, at 34.0-41. 298. Owen Test., Hearings, 100-2, 5/14/87, at 341-42. 299. Owen Test., Hearings, 100-2, 5/14/87, at 339-40. 300. "Steelhammer" Letter to "My Friend," RWO Ex. 3 at 782 (emphasis in original). 301. North Memo, 11/7/84, to McFarlane: Subj: "Clarify- ing Who Said What to Whom," RCM Ex. 31, at 464, N6915. 302. CIA Memo, 3/5/85, "Outside Support to the FDN," C2470. 303. See, e.g., Guardian, 3/13/85, at 3; see also Boston Globe, 12/30/84, at A21, A24. 304. Singlaub Test., Hearings, 100-3, 5/20/87, at 83-84. 305. Singlaub Test., Hearings, 100-3, 5/20/87, at 83-84. 306. As Owen wrote to North in February, "[a] major lobbying, educational and public relations effort is needed to help sway a Congress which appears inclined not to vote for passage of covert funding." Owen Memo, 2/19/85, to North: Subj: "Public Relations Campaign for the Freedom Fighters," RWO Ex. 4 at 783. 307. North/Fortier Memo, 3/22/85, to McFarlane: Subj: "Timing and the Nicaraguan Resistance Vote," Tab, "Chronological Event Checklist," N40320-331. The plan ap- parently evolved from meetings of an ad hoc working group chaired by Patrick Buchanan. See id. at N40317. 308. North Memo, 3/16/85, to McFarlane: Subj: "Fall- back Plan for the Nicaraguan Resistance," RCM Ex. 36 at 511, N10618. 309. Id. RCM Ex. 36 at 512, N10619. 310. Id. RCM Ex. 36 at 512, N10619. 311. North/Fortier Memo, 3/22/85, to McFarlane: Subj: "Timing and the Nicaraguan Resistance Vote," at N40317. 312. See Fortier Memo, 4/1/85, to McFarlane: Subj: "Contra Vote ?Delay to May," N18785-86. 313. North Memo, 4/1/85, to McFarlane: Subj: "Using the March 1 San Jose Declaration to Support the Vote on the Funding for the Nicaraguan Resistance," N40317 (em- phasis added). 314. McFarlane Test., Hearings, 100-2, 5/11/87, at 28. 315. Weekly Presidential Documents, Vol. 21, No. 18, at 537 (Apr. 24, 1985). 316. Weekly Presidential Documents, Vol. 21, No. 18, at 557 (Apr. 29, 1985). 317. Weekly Presidential Documents, Vol. 21, No. 18, at 566 68 (May 1, 1985). 57 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ....1 ..1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 318. North Memo, 4/11/85, to McFarlane: Subj: "FDN Military Operations," RCM Ex. 37 at 520, N10592. 319. Calero Test., 5/20/87, at 29; North Memo, 4/11/85, to McFarlane: Subj: "FDN Military Operations," RCM Ex. 37 at 520, N10592. 320. In all but one case, these arms had been purchased by Calero from General Secord. Calero Test., 5/20/87, at 30. 321. North Memo, 4/11/85, to McFarlane: Subj: "FDN Military Operations," RCM Ex. 37 at 520, N10592. As of March 25, 1985, Calero had received $32 million. 04881-83. 322. Id., RCM Ex. 37 at 521, N10593. 323. Gorman Dep., 7/22/87, at 25-32. 324. RCM Ex. 37 at 521, N10593. North's notes suggest that these plans were at least to some extent pursued. On June 17, North first met with Secord and "Tom" (perhaps Clines); that same morning he met with the Chief of the Central American Task Force, and noted "-need more Intel; -MAPS - 1:80,000 Northern Area; -Maps of Managua Air- port Area." The note continues: "-Log/Mil Pining - Miami -3 small Maule, 1 C-47, 1 Helo, Medevac -Log Support for 3 mines Area -Log Support for Managua Ops -Phaler Boat Ops -Refinery -Ammo Purchase Program -Training Pro- gram." North Notebook, 6/17/85, Q1953-54. 325. On May 6, North learned from the Chief, Central American Task Force, the details of a Sandinista attack. North Notebook, 5/6/85, Q1796. By the next day, the Con- tras had been ordered to move out, and Calero called North to tell him that he was "waiting for word on where they want[ed the] FDN to move to." North Notebook, 5/7/85, Q1800. North received the same news from the Chief, CATF: They had to "immed. vacate [location], will have to vacate." North Notebook, 5/8/85, Q1808. On May 13, North learned from the U.S. Ambassador that the "disper- sal" was "complete." North Notebook, 5/13/85, Q1818. North told a Central American Ambassador that it was "essential that [the] movement not feel abandoned . . ." "There must be some visible link/continuity in [the] pro- gram." North Notebook, 5/9/85, Q1810. 326. North/Fortier/Lehman/Burghardt Memo, 5/15/85, to McFarlane: Subj: "Congressional Strategy for Nicara- guan Resistance Funding," N40244. 327. North Memo, 5/31/85, to McFarlane: Subj: "The Nicaraguan Resistance: Near Term Outlook," RCM Ex. 38 at 532, N10584. 328. Secord Test., Hearings, 100-1, 5/5/87, at 52-53. 329. North Notebook, 5/1/85, Q1790. 330. Secord, Hearings, 100-1, 5/5/87, at 53. 331. See, e.g., North Notebook, 5/17/85, Q1832: "Mario [Calero] more & more in picture;-ponchos, Howard, tires for C-47;-LORAN C w/ Bad cable, boots w/bad soles; - serious logistics problems; - possible Martin interference w/ [Central American] delivery; -ship arrives 1 June 85 - Danish vessel; -$148/copy for . . . in lots of 5K or more." 58 332. See RCM Ex. 37 at 525, "FDN Expenditures and Outlays." 333. North Notebook, 5/8/85, Q1806. 334. North Notebook, 5/24/85, QI861. 335. Secord Test, Hearings, 100-1, 5/5/87, at 57. 336. North Notebook, 5/1/85, Q1790. 337. North Test., 7/8/87, at 83. 338. North Test., 7/8/87, at 84. 339. Singlaub Test., 5/20/87, at 202-03. 340. Singlaub Test., 5/20/87, at 204. 341. Singlaub Test., 5/20/87, at 206-08. 342. Singlaub Test., 5/20/87, at 210-11. 343. Singlaub Test., 5/20/87, at 218. 344. North Test., 7/8/87, at 83. 345. Secord Test., Hearings, 100-1, 5/5/87, at 53. 346. See Chapter 22. 347. Secord, Hearings, 100-1, 5/5/87, at 51. 348. But see Secord Test., 5/5/87, at 152 ("[L]ater in 1985, I foreswore my share of the profits that had accrued to that time, none of which I had drawn, and discussed this extensively with Mr. Hakim"). 349. Secord Test., 5/5/87, at 142. For details of the finan- cial workings of the Enterprise, see Chapter 22. 350. Calero Test., 5/20/87, at 32. 351. Calero Test., 5/20/87, at 279-80. 352. North Test., 7/10/87, at 155-56. 353. North Test., 7/8/87, at 62. 354. Singlaub Test., 5/20/87, at 211-13. 355. Singlaub Test., 5/20/87, at 213-14. 356. Calero Test., 5/20/87, at 90. 357. North called Clarridge immediately after he dis- cussed the purchase with Secord, and asked Clarridge to do a check on the European arms dealer. North Notebook, 5/ 18/85, Q1834. Clarridge, who was by then Chief of the CIA's European division, reported back on May 23, 1985. Id., 5/23/85, Q1858. 358. North Notebook, 5/17/85, Q1831. 359. North Notebook, 5/17/85, Q1833. 360. North Notebook, 5/20/85, Q1837. 361. North Test., 7/8/87, at 84. 362. Committee Interview, 6/10/87. 363. Singlaub Test., 5/20/87, at 222-25. The vessel was met by an associate of Ron Martin, Mario DelAmico, who held himself out as a representative of a Central American country, charged with FDN matters. In September, Sing- laub met with DelAmico, who warned him that he should never send another ship but, instead, purchase weapons through Martin. Id. at 227. Singlaub told North of this "threat," and North responded that "he would take what- ever action was necessary of this." Id. 364. North Notebook, 5/15/86, Q1825. In fact, Calero's funds were not completely depleted until October 1985. See bank records, 04737. 365. Calero Test., 5/20/87, at 152. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 The Enterprise Assumes Control of Contra Support In the summer of 1985, Congress voted to appropriate $27 million for the Contras' humanitarian needs, in- cluding food, medicine and clothing. At the same time, the covert program, run by the National Securi- ty Council (NSC) staff, entered a new and bolder phase. With the Contras' daily living needs taken care of by Congress, and their requirements for arms having been met through Country 2's prior donations, the NSC staff was able to focus on attempting to improve the Contras' military effectiveness. This in- volved establishing an air resupply program for the main Contra fighting force operating in the North of Nicaragua, the Nicaraguan Democratic Force (FDN), and promoting the opening of a second Contra front in the South of Nicaragua by supporting other Contra fighters, independent of the FDN, who were operat- ing there. This support for the southern forces includ- ed the procurement of arms as well as the establish- ment of an air resupply program. Disappointed at the failure of Adolfo Calero to develop a logistics infrastructure, Lt. Col. Oliver North asked Gen. Richard Secord and his associates to assume new responsibilities that under the Boland Amendment the U.S. Government could not under- take. Secord agreed to continue to handle all future weapons procurement for the Contras and to acquire and operate a small fleet of planes to make air drops of weapons, ammunition, and other supplies to the Contras in both northern and southern Nicaragua. North arranged the funding for Secord to carry out these activities, directing third-country and private contributions to Secord that previously went to Calero. These funds were later augmented by the diversion from the Iranian arms sales that North, with Admiral John Poindexter's approval, initiated. Financed by contributions and the diversion, the Secord group purchased and operated five airplanes, built an emergency airstrip in Costa Rica, maintained an air maintenance facility and a warehouse in an- other Central American country, and hired pilots and crew to fly the air drop missions. They also pur- chased weapons and ammunition in Europe and deliv- ered them to Central America for use by the Contras in the south and north. North called the organization "Project Democracy." Secord and his partner, Albert Hakim, referred to it as the Enterprise. The Enterprise, though nominally private, func- tioned as a secret arm of the NSC staff in conducting the covert program in Nicaragua. While Secord con- trolled the operational decisions of the Enterprise, North remained in overall charge of the Contra sup- port program. He set the priorities and enlisted the support of an Ambassador, Central Intelligence Agency (CIA) officials, and military personnel to carry out the air resupply operation. He dealt with crises as they arose, sometimes on a daily basis. In carrying on these tasks, North had the unqualified support of Admiral Poindexter, who had replaced Robert McFarlane as National Security Adviser in December 1985. The efforts of the NSC staff and the Enterprise to carry out a government function with a makeshift covert organization were, however, dogged by prob- lems from the beginning. The Enterprise's aircraft were in poor condition and the group had to over- come numerous tactical problems in carrying out its mission. While the Enterprise conducted routine air drops in northern Nicaragua, it was not able to begin a regular air drop operation in the south until late summer of 1986?at a time when both Houses of Congress had voted to authorize the CIA to resume its support for the Contras with appropriated funds and when the Enterprise was trying to sell its assets to the CIA. The operation ended abruptly in October 1986 when the plane that Eugene Hasenfus was on was shot down while on a mission to drop supplies to the Contras in Nicaragua. Before that and for more than 2 years, the NSC staff had secretly achieved what Congress had openly disapproved in the Boland Amendment?an extensive program of military support for the Contras. The Boland Amendment operated as a restraint on disclo- sure, not on action, as the NSC staff placed policy ends above the law. The Enterprise's Mission is Expanded On June 12, 1985, the House passed a bill approving $27 million in humanitarian assistance to the Contras, paving the way for final approval and signature by the President in August 1985. While that vote virtual- 59 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 , i 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 ly ensured that the Contras would have adequate food, medical supplies, and other provisions, it also strictly limited the money to nonmilitary uses. The provision of covert military assistance re- mained the secret business of the NSC staff. In the summer of 1985, articles appeared in the press specu- lating about the role of the NSC staff in assisting the Contras and Congress began inquiring of the National Security Adviser whether this was true. Yet, at this very time, the NSC staff decided to extend its covert program to include a system for resupplying Contras in the field. Some of the Contras fighting within Nica- ragua were as many as 30 days away by land from border areas. To keep them supplied and to encour- age other fighters to move from border sanctuaries to Nicaragua, a capacity to make aerial drops of ammu- nition and other supplies was essential.' As early as February 1985, North had urged Calero to set aside $10 million from the funds raised from Country 2 to hire a logistics expert and create a resupply operation. But the available money was used to purchase and stockpile weapons. As a result, by summer 1986, the Contras had a surplus of arms. Their problem was how to deliver these weapons to the fighters. For North, the answer lay with Secord and his group.2 In early July, North held a meeting in Miami of Contra leaders and members of Secord's group to arrange for what Congress had refused to fund?the air resupply of lethal material for the Contra forces inside Nicaragua. Present were North, FDN leader Adolfo Calero, Enrique Bermudez, the FDN military commander, Secord, and his associates, Thomas Clines and Rafael Quintero.3 North began the meeting with an expression of a loss of confidence in the way the FDN was handling the donated funds he had directed to the FDN. Secord described North's remarks: The meeting commenced on a pretty hard note, with Colonel North being worried about and critical of the Contras, because he had been re- ceiving reports that the limited funds they had might be getting wasted, squandered or even worse, some people might be lining their pockets. His concern, as he articulated it, was a very serious one. He was afraid that if anything like this was going on that since they were dependent on contributions that the image of the Resistance could be badly damaged; it could ruin us, in fact, and he was very, very hard on this point.4 North's solution, though not unveiled at the meet- ing, was to have Secord and his group take over the procurement function for the Contras. As Robert Owen, North's courier, testified, "I think he and Gen- eral Secord felt they probably could do a better job" of handling the funds than the Contras.3 60 North had decided to furnish the FDN directly with arms, air support, and other supplies. He would no longer leave to the Contras the task of spending their own money on these goods and services. Almost immediately after the Miami meeting, Secord's part- ner, Albert Hakim, established the Lake Resources account in Geneva, Switzerland, and thereafter virtu- ally all donated funds were directed by North to the Lake Resources account in Switzerland, not Calero's accounts. The Secord group?the Enterprise?would no longer function simply as an arms broker from which Calero would purchase the arms. With the contributions, it would make all the decisions on arms purchases and supply the Contras with the weapons and the other support they needed, without receiving from the Contras payment for the arms.6 The Contras' management of money was only one of the problems raised at the all-night meeting in Miami. More important was the need to create an airlift system to drop supplies to FDN troops inside Nicaragua and to open a Southern front. The first priority, all agreed, was the delivery of the arms already purchased to the soldiers fighting near and inside Nicaragua. Before the Boland Amend- ment was passed, the CIA helped to arrange the airlift of arms and other supplies to the troops. When the CIA withdrew, the Contras had difficulty maintaining this important logistical function. The FDN's aircraft were few and could not effectively and consistently penetrate Nicaraguan airspace past Sandinista de- fenses. Moreover, the FDN lacked properly trained personnel. The continuing resupply of troops and its attendant logistics, maintenance, and communications comprised the "sinews of war," the infrastructure nec- essary for any sustained and effective fighting force. North turned to Secord to establish and run the air resupply operation.7 The participants in the Miami meeting also agreed on the need to open a Southern front. With the FDN, the principal Contra force, operating in the North, the Sandinistas could concentrate their military forces on the Northern front. Forcing the Nicaraguans to fight a two-front war by building up a Contra force in the South was elemental military strategy. Calero, howev- er, continued to concentrate his resources on his own organization in the North, the FDN.8 The air resupply and Southern front projects went hand-in-hand. Because neighboring countries were re- luctant to permit land resupply from inside their bor- ders, a southern force could not live without air re- supply. And the FDN could not, or would not, un- dertake this mission on its own.3 Thus, the air resupply operation that North asked Secord to undertake was also the key to the Southern front. In giving this assignment to Secord, North testi- fied that he acted with McFarlane's authority." McFarlane denied this." Poindexter, however, stated that he was "aware that Colonel North was con- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 cerned about the logistics operation, the way it was going, and I was aware that he was going to talk to General Secord about setting up a more professional logistics support operation as a private operation." 12 The New Humanitarian Aid As the Enterprise began implementing the plans laid in Miami, the Contras received a boost from Wash- ington. On August 8, 1985, President Reagan signed legislation authorizing $27 million in humanitarian aid to the Contras." For the first time since May 1984, the Contras would receive U.S. Government funding as well as intelligence support from the CIA. Al- though the Boland Amendment remained in effect, new legislation specified that the Amendment did not prohibit exchanging information with the Contras." The legislation prohibited the CIA or the Depart- ment of Defense (DOD) from administering the new humanitarian funds and required that the President ensure that any assistance "is used only for the intend- ed purpose and is not diverted" for the acquisition of military hardware. The State Department was chosen to administer the aid. By executive order signed on August 29, 1985, the President created the Nicara- guan Humanitarian Assistance Office (NHAO) in the State Department.15 The State Department was reluctant to accept this responsibility. The Department had no experience and lacked the organization to feed and provide for the daily needs of troops. To run NHAO, Secretary George P. Shultz tapped Ambassador Robert Duem- ling, a seasoned diplomat, but with no prior experi- ence in administering an aid program. Secretary Shultz cautioned Duemling to administer the aid not only with "enthusiasm" but also with "care." Ambas- sador Duemling found the program difficult to admin- ister from the start.16 Nicaragua's neighbors did not officially recognize the Contra movement, even though Contras operated unofficially out of their ter- ritory. The cargo of the initial NHAO flight on July 10 was impounded when local Central American au- thorities learned that an NBC film crew was on board at the invitation of Calero's brother. Thereafter, that Central American country barred, for a period of time, the entry of NHAO employees, which prevent- ed them from conducting any on-site accounting of supplies or of the Contras' needs." Deumling's diffi- culties were definitional as well as operational. NHAO had continually to assess whether various items were "humanitarian" within the meaning of the statute." Preparations for the Resupply Operation In the beginning of August, Secord met with North and others to discuss the steps necessary to establish the resupply program. First, a logistics organization consisting of aircraft, spare parts, maintenance, com- munications, and trained personnel had to be set up. For that, Secord turned to former Air Force Lt. Col. Richard Gadd, who since his retirement from the military in 1982 had been providing, through a private business, air support to the Pentagon.19 The second task was to obtain a secure operating base from which the aircraft could launch their mis- sions. For this, Quintero, on Secord's instructions, consulted with the Contra leaders and chose a mili- tary airbase in a Central American country ("The Airbase".) Secord and North concurred in this choice. 2 ? Finally, Secord concluded that to establish a sus- tained air resupply operation on the Southern front, an emergency airstrip was necessary in the South. North suggested to Secord Santa Elena in the north- west corner of Costa Rica, which North believed could also be used as a covert secondary operating base for resupply to the Southern front.21 U.S. Support for the Covert Operation The plans made in Miami for a resupply operation and a Southern front could not have been implement- ed without the active support of U.S. Government officials. In July 1985, almost immediately after the Miami meeting, North asked Lewis Tambs, the newly ap- pointed Ambassador to Costa Rica, to help open a Southern front for the Contras, a request that Poin- dexter approved.22 Tambs agreed without consulting Secretary Shultz. Later that summer, North specifical- ly asked for Tambs' help, as well as that of CIA Chief Tomas Castillo, to facilitate the construction and use of the airfield.23 North testified that he had received authorization from Director of Central Intelligence William J. Casey to bring Castillo into the resupply operation. Moreover, according to North, the airstrip was dis- cussed in the Restricted Interagency Group on Cen- tral American Affairs, which consisted of, among others, North, the Chief of the Central American Task Force (CATF) at the CIA and the group's chairman, Elliott Abrams, Assistant Secretary of State for Inter-American Affairs.24 Abrams acknowledged the discussions, but testified that he believed "private benefactors, as we used to call them, were building the airstrip." 25 The Airfield Is Planned On August 10, 1985, North flew to Costa Rica where he met with Castillo and Tambs. North and Castillo discussed the establishment of a secret airbase that would permit moving all Contra military oper- ations inside Nicaragua for resupply by air. Castillo and Tambs then worked to achieve the establishment Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 61 I 1 II , I . 1 . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 of the airfield and air resupply depot for the Contra forces. Castillo reported these developments to the Chief of the CATF at CIA headquarters. The Chief replied that he was pleased with these developments but he "emphasize[d]" to Castillo that neither the CIA nor DOD could "become involved directly or indirectly" in the project." Less than a week later, North sent Robert Owen to Costa Rica to scout the Santa Elena site. Owen met with Tambs, who introduced him to Castillo as a North emissary. The next day, Owen and Castillo surveyed Santa Elena. Owen took photographs and returned to Washington with a map, photos, and a description of various logistical problems presented by the air strip. North later told Castillo that he thought Santa Elena was an ideal place for a refueling and resupply base.2 7 Meanwhile, North recruited a former Marine col- league, William Haskell, to negotiate the purchase of the land at Santa Elena for the airfield. By the begin- ning of September, Haskell, under the alias of Olm- stead, arrived in Costa Rica to meet with Joseph Hamilton, an American who headed the group that owned the land at Santa Elena. While Tambs assisted in bringing the parties together, Castillo alerted North that local groups had to be involved in the construc- tion. Eventually, Secord paid more than $190,000 for local contractors and guards at the airstrip.28 On Oc- tober 3, Haskell called North with news of Hamilton's tentative approval for the sale of the land. Shortly thereafter, North, Haskell, Secord, Gadd, and Hakim met. At North's request, Gadd agreed to assemble a team and assume responsibility for constructing the airstrip. 29 The Airbase Is Secured Once the Airbase in the other Central American country was selected as the most desirable main base for the air resupply operation, North also took the necessary steps to obtain host-government approval, which required the assistance of other U.S. Govern- ment officials. North's notebooks reflect that on Sep- tember 10, 1985, he met with Col. James Steele, a U.S. Military Group Commander stationed in Central America, and Donald Gregg, Vice President Bush's National Security Adviser. Among the discussion topics North listed was a "Calero/Bermudez visit to [the Airbase] to estab[lish] log[istical] support/ maint[enance]," as well as other possible locations for the resupply base.3? Gregg, however, testified that he did not know of the resupply operation prior to the summer of 1986.3' On September 16, North's notebooks reflect a call from Steele, "what about Felix?help for a/c [air- craft] maint[enance]." 32 An ex-CIA operative, Felix Rodriguez had volunteered as a private American cit- izen to aid a Central American Air Force in counter- insurgency maneuvers. Rodriguez had a close rela- 62 tionship with a local Commander stationed at the Airbase ("The Commander"). In a letter dated Sep- tember 20, North asked Rodriguez to obtain service space at the Airbase for one C-7 Caribou aircraft and for occasional Maule maintenance. The Maule would be operated by the FDN and the Caribou by a private contractor for aerial resupply of both the FDN in the North and eventually in support of a Southern front, North wrote. North also said Rodriguez could use North's name with the Commander. Rodriguez agreed to help and obtained the Commander's ap- proval.33 Poindexter had sanctioned North's efforts to obtain the Central American country's help in the logistics of air resupply.34 Securing suitable aircraft that the Enterprise could afford proved difficult. In the summer of 1985, North met with both Secord and Calero on the most imme- diate aircraft needs of the FDN and the resupply operation. They decided that their first need was a C- 7 Caribou, a twin-engine propeller aircraft capable of carrying a 5,000-pound cargo over a 900-mile range.35 By November 1985, Gadd, whose task it was to locate and purchase the airplanes, had found three surplus C-123 airplanes belonging to a Latin Ameri- can Air Force. Gadd had earlier formed Amalgamat- ed Commercial Enterprises (ACE), a shelf company registered in Panama, to hold title to the aircraft. ACE was owned equally by Gadd and Southern Air Transport of Miami, which was to provide mainte- nance and other logistical support." The logistics director of the Latin American Air Force was unwilling to sell the airplanes?whose use was for military transport?to Gadd without a sign of official U.S. Government approval. So, Gadd turned to North for assistance, who decided to intercede in an effort to obtain the airplanes. North told Gadd and Secord that he requested both Robert McFarlane and the State Department's assistance. On November 15, North indicated in his notebook that he called "El- liott" "re call to [the Latin American country]" for the purpose of telling [that country] that "ACE is OK." Abrams, however, denied any knowledge of the planes belonging to the Latin American country's Air Force. In addition, North asked Vince Cannistraro, a colleague at the NSC, to intercede with the Latin American country. In the PROF note on November 20, North referred to Cannistraro's upcoming call and provided the following talking points: A reputable business organization called A.C.E. Inc. is negotiating with your air force to buy three excess C-123 aircraft, a number of engines (48) and some spare parts. A.C.E. is a legitimate company which will use the aircraft for a good purpose that is in the interest of your country and ours?humanitarian aid deliveries to anti-communist resistance forces (. . . Nicaragua). Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Apparently the logistics director for the air force . . . was concerned that A.C.E. (Amalgamated Commercial Enterprises) may not be legitimate or that the A/C could be used for drug running or the like. This is not the case. It would be very helpful if you could contact someone who can clarify the good reputation of A.C.E. and encourage [the logistics director] to consummate the offer which has been made by A.C.E. The need is great for these planes. They will help the cause of democracy where it is most needed. Nonetheless, the Government of the Latin American country did not approve, and the Enterprise had to look elsewhere.37 From the inception of the air resupply operation in July 1985, North impressed upon Secord the fact that they were operating with donated funds that were strictly limited. Consequently, more preferable air- planes that were examined by Gadd and discussed by North and Secord, such as the Casa 212 and the L- 100 turbo jet propeller-driven aircraft, were rejected because of their high cost, in favor of the less expen- sive C-7 and C-123.38 Country 3 Comes Through More third-country money was needed to support the Contras. McFarlane had barred a return to Coun- try 2,39 and John K. Singlaub had since the end of 1984 been trying unsuccessfully to obtain money from Country 3. In the summer of 1985, North turned to Gaston Sigur, a Senior Director for Far Eastern and Asian Affairs on the NSC staff, to seek his assistance with Country 3.40 According to Sigur, North told him that it was an "emergency situation," and that he and McFarlane were aware that Country 3 "might have an interest in giving some assistance, financial assist- ance in the humanitarian area to the Contras." 41 North, too, testified that he had gone to Sigur with the knowledge, and approval, of McFarlane.42 McFarlane testified to the contrary, claiming that he was "firm" with North "in saying to him absolutely no participation by you or any other staff member in any kind of approach to this country." 43 Sigur recalled that when North asked him to set up the meeting, he inquired, "[N]ow everything here is quite legal?" to which North replied, "[O]h yes, we have checked all that out and there is no question about that. 9> 44 Sigur met with a Country 3 official and, without mentioning any specific amount of money, learned that the representative needed "to go back to his home government on it." The same day, Sigur went to McFarlane and told him that any contribution from Country 3 would have to be made directly through U.S. Government channels. According to Sigur, "Mr. McFarlane's response to that was that this is not pos- sible, that cannot be done, and so I saw that as the end of that, and I told Colonel North about it." 45 North was not deterred. He asked Sigur to arrange a face-to-face meeting with the Country 3 representa- tive." At the ensuing meeting at the Hay-Adams Hotel in the fall of 1985, North told the Country 3 representative that "this country [U.S.] would be very grateful if they were to make the contribution."47 North's plea was successful. Sometime later, the Country 3 official responded with a $1 million contri- bution in "humanitarian" assistance.48 North then sent Owen to give the official an envelope containing the Swiss bank number of the Enterprise's Lake Re- sources account. The $1 million was transferred to Lake Resources and another $1 million followed in the early months of 1986.49 The Link With NHAO Without the knowledge of its supervisors, the Nica- raguan Humanitarian Assistance Office (NHAO) pro- gram was used to further the Enterprise's activities. Robert Owen became the first link between NHAO and the covert operation. In mid-September 1985, Owen applied to Ambassador Duemling for a position in the humanitarian aid office. North recommended Owen as a "can do" person "who knows the scene," but Duemling declined to hire him." Duemling still refused to hire Owen even after the three directors of the United Nicaraguan Opposition (UNO)?Calero, Arturo Cruz, and Alfonso Robelo? wrote Duemling requesting Owen's help. North, how- ever, continued to press for Owen's employment. At a Restricted Interagency Group meeting on October 11, North complained about the October 10 NHAO re- supply flight impounded by Central American au- thorities, claiming that it would never have happened if Owen had been working for NHAO. Only then did Duemling relent and agree to fund a UNO contract with Owen's company, the Institute for Democracy, Education and Assistance, Inc. (IDEA), to assist in disbursing the humanitarian aid." North exploited Owen's new position by using his trips, funded by humanitarian aid dollars, to transfer and receive information about the Contra war and the fledgling resupply operation. Following his trips to Central America, Owen would submit two reports? one to NHAO describing humanitarian services per- formed and another to North describing his activities in coordinating lethal aid. The grant agreement with the State Department barred Owen from performing "any service" related to lethal supply "during the term of this grant." 52 North also told Owen that he should introduce Gadd to Mario Calero, who was in charge of pur- chases for the FDN in the United States, so that Gadd might get a contract to fly humanitarian aid supply missions." Later, North personally accompa- 63 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 nied Gadd to meet with Ambassador Duemling and urged Duemling to award Gadd an air delivery con- tract, to which Duemling, unaware of Gadd's role in the lethal resupply operation, agreed.54 New Legislation Congressional Support Increases On November 21, 1985, the Senate agreed to a con- ference report on the Intelligence Authorization Bill providing two significant Contra support measures: the CIA was granted additional money to provide communications equipment to the Contras and the bill specifically provided that the State Department was not precluded from soliciting third countries for hu- manitarian assistance. The U.S. Government was still barred from expending funds to provide lethal assist- ance to the Contras but, according to North, "the instructions were to bite off a little at a time and start moving back toward full support." 55 Poindexter Visits Central America On December 12, 1985, the newly appointed Na- tional Security Adviser, Admiral Poindexter, took a trip with North to Central America." In a PROF note to Poindexter, North recommend- ed the trip, suggesting that it be "billed as a quick tour through the region to confer w/ top ranking U.S. officials to reinforce the continuity of U.S. policy in the region." That explanation would be a "plausible cover" for the real purpose of the trip, which included delivering to Central American offi- cials "the messages we need sent." 57 One of the messages was that "we [the United States] intend to pursue a victory and that [a Central American country] will not be forced to seek a politi- cal accommodation with the Sandinistas." 58 North noted that this Central American country was at- tempting to use support of the Contras as leverage to force U.S. aid.59 The Santa Elena airstrip in Costa Rica was also an issue raised in discussions during the trip. North brought Poindexter up to date on the progress of the Santa Elena airstrip, and they discussed what meas- ures "could be taken to encourage" Costa Rica to be more cooperative with the Contras. When Poindexter returned from his one-day trip to Central America, he briefed the President on the morning of December 13, including informing the President of the efforts to secure the land necessary for the airstrip. Poindexter testified, and his notes reflect, that Poindexter "did talk to him [the President] about the private air- strip." 60 Continued Funding Problems By the end of 1985, North had put into motion the airlift operation and the beginnings of the Southern 64 front. A critical problem remained how to fund these efforts. Throughout 1985, North, Casey, and Singlaub discussed a variety of methods to fund support for the Contras. In early 1985, in connection with his solicita- tion of Country 3, Singlaub suggested to Country 3 officials and to North that a portion of his proposed arms sales to Country 3 be diverted and applied to the benefit of the Contras. During the summer of 1985, Singlaub worked without success through Geomili- tech Consultants, owned by Barbara Studley, on di- verting part of a $75 million proposed sale of torpe- dos to Country 3. In the fall of 1985, Singlaub ar- ranged for both North and Casey to meet with Stud- ley to present yet another plan to aid the Contras and democratic resistance forces worldwide. Geomilitech would be a vehicle for a three-way trade to "enable the U.S. Government, the Administration, to acquire some Soviet-bloc weapons without having to go through the painful process of appropriations," in order to furnish weapons to anti-Communist insurgen- cies in Nicaragua and around the world. The pro- posed trade entailed the U.S.'s giving credit for high technology purchases to another country, that coun- try using the credit to deliver military equipment to a totalitarian country, which would then transfer Soviet-compatible weapons to a trading company. Ac- cording to the plan, the company, at the direction of the NSC and CIA, would distribute the weapons to the Contras and other resistance movements, "man- dating neither the consent or awareness of the De- partment of State or Congress." These fundraising ideas were never approved. The diversion from the Iranian arms sales would provide the needed funds." Legislative Plans and a New Finding At a January 10, 1986, NSC meeting, the first in 15 months on Nicaragua, the President heard the views of his advisers. CIA Director Casey described a build- up of Soviet weaponry and increasing Sandinista re- pression in Nicaragua; Admiral William J. Crowe, Jr., discussed the inability of the Department of Defense to provide logistical assistance that the Contras badly needed; and Secretary Shultz voiced his approval for resumption of Congressional funding for a covert pro- gram. The President ended the meeting by instructing his advisers to prepare to go back to Congress with a request for full funding ($100 million) of a covert action program.62 A week after the meeting, the President signed a new Finding on Nicaragua, consolidating what had been separate Findings governing various aspects of the program. The Finding authorized the CIA to im- plement the newly granted aid and to establish the communications network for which Congress had just provided funding. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 The Resupply Operation Begins In January 1986, the plans set in motion by North in the fall of 1985 were beginning to give shape to the resupply operation. Gadd recruited flight crews, agreed with Southern Air Transport that it would handle all aircraft maintenance, and purchased the first aircraft, a C-7 Caribou. A team was also sent to Santa Elena and construction of the airstrip began in earnest.63 Moreover, the problem of secure communi- cations was solved with the help of the National Se- curity Agency. According to North, both Casey and Poindexter had told him to seek some type of secure communica- tions support. North turned to the National Security Agency for secure communications equipment.64 The National Security Agency provided KL-43 en- cryption devices to North. On January 15, North gave KL-43s to the principal members of the covert operation: Secord, Gadd, Steele, Castillo, Quintero, and William Langton, president of Southern Air Transport. North also put a device in his office at the Old Executive Office Building. Each month newly keyed material was distributed to the group to enable them to communicate with each other in a secure manner.6 5 Throughout January 1986, North also pursued dis- cussions with Steele and CIA representatives about arrangements for using the Airbase and for establish- ing the airstrip at Santa Elena. North's notebooks indicate a series of telephone conversations with Steele relating to obtaining the permission of Central American officials for the resupply aircraft to operate from the Airbase.6 6 During that same period, North wrote to Poin- dexter that General John Galvin, Commander of U.S. Southern Command, was "cognizant of the activities under way in both Costa Rica and at [the Airbase] in support of the DRF [Democratic Resistance Force]." North added, "Gen. Galvin is enthusiastic about both endeavors." According to North's notebooks, North, Poindexter, and others met with Galvin on January 16 to discuss, among other items, "covert strategy/ training/planning/support" for the Nicaraguan Resist- ance. General Galvin testified that he knew of the air resupply operation, but believed that it was being financed and run by private individuals, not the NSC staff.6 7 Meanwhile, North continued his discussions on the details of construction of the airstrip at Santa Elena. His discussions covered arrangements for fuel storage on site, the construction of guard quarters and even instructions to the bulldozer operation." In February, after consultation with Enrique Ber- mudez and various commanders connected with the Southern front, North and Secord decided to deliver approximately 90,000 pounds of small arms and am- munition geared for airdrop to the FDN, which also could be delivered to the Southern front. This was the first delivery of arms that North and Secord pro- vided to the Contras without payment from them and out of funds that had been contributed directly to the Enterprise. 69 Yet by February, supply problems still plagued the operation. There was only one plane at the Airbase, and it was damaged. On its arrival flight, the C-7 plane had developed mechanical problems. The crew jettisoned spare parts, and even training manuals, but the plane crash-landed nonetheless.7? Faced with the Contras' requests for resupply and lacking aircraft to perform the job, North sought to deliver arms to the Contra soldiers using aircraft that had been chartered by NHAO to take humanitarian supplies from the United States to Central America." In February 1986, North called Gadd at home and told him to charter an NHAO flight from New Orle- ans to the Airbase in Central America. Once the plane arrived at the Airbase, it was directed to an FDN base where ammunition and lethal supplies were loaded and airdropped to the FDN. NHAO later re- fused to pay for the portion of the charter that cov- ered the delivery of lethal supplies." In the South, however, the Contra forces remained without necessary supplies. In part, the problem was logistical: the Costa Rican airfield was not yet open and the only planes available at the Airbase could not make the flight to southern Nicaragua. The problem was also political: the FDN did not want to share its scarce resources with the southern forces. In early February, Owen warned North that "our credibility will once again be zero in the south" if deliveries did not soon start: [T]hey have been promised they will get what they need. Who is to be the contact for these goods and who is to see that they are delivered? A critical stage is being entered in the Southern Front and we have to deliver.73 In early March, North asked Owen to travel with another NHAO humanitarian aid flight that, upon un- loading, would be reloaded at the Enterprise's ex- pense with lethal supplies for airdrop to the Southern front. However, the FDN never produced the muni- tions promised, even though CIA officials tried to persuade the FDN to release the munitions. The mis- sion thus resulted in failure. As Owen later wrote North, "the main thing to be learned from this latest exercise is . . . the FDN cannot be relied upon to provide material in a timely manner."74 The President Meets a Costa Rican Official In March 1986, a meeting North arranged for a Costa Rican Official with President Reagan at the White House occurred. The meeting was simply a photo 65 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 opportunity, attended as well by North and Cas- tillo.75 After the Oval Office visit, North asked the Official to meet with Secord that afternoon to work out some issues concerning the airstrip. At the meeting, the Official asked Secord for a letter, which the Official dictated, to the effect that the Costa Rican Civil Guard maintain control of the airstrip, have access to it for training purposes, and that ecological and envi- ronmental considerations apply.76 Lethal Deliveries Begin By the end of March 1986, the C-7 Caribou aircraft was operating and flights finally began to ferry lethal and nonlethal supplies for the FDN in the North. But the problem of resupplying the Southern front re- mained.77 On March 28, Owen wrote to North that he, Steele, Rodriguez, and Quintero reached a consensus on what steps had to be taken to successfully resupply the South: lethal and nonlethal supplies should be stockpiled at the Airbase; the Caribou or better yet a C-123 should load at the Airbase, deliver to the South, and refuel at Santa Elena on the return to the Airbase; and the Southern Air Transport L-100 should be used until Santa Elena was prepared to refuel the C-7 and C-123.78 While Gadd completed the purchase of a second C- 7 Caribou and the first C-123 in early April, North responded to the growing needs of the southern forces. Between early April and April 11, North co- ordinated virtually every aspect of the first drop of lethal supplies into Nicaragua by way of the Southern front. He was in regular communication with Secord and others to ensure that the drop was successful. KL-43 messages among the planners involved in this drop show both the level of detail in which North was concerned and the coordination among various U.S. Government agencies to ensure that the drop succeeded. The first message, from North to Secord, established the essential elements of the drop: The unit to which we wanted to drop in the southern quadrant of Nicaragua is in desperate need of ordnance resupply. . . . Have therefore developed an alternative plan which [Chief of the CIA's CATF] has been briefed on and in which he concurs. The L-100 which flies from MSY to [an FDN base] on Wednesday should terminate it's NHAO mission on arrival at [the FDN base]. At that point it should load the supplies at [the Airbase] which?theoretically [the CIA's Chief of Station in the Central American country] is assembling today at [the FDN base]?and take them to [the Airbase]. These items should then be transloaded to the C-123. . . . On any night be- tween Wednesday, Apr 9, and Friday, Apr 11 these supplies should be dropped by the C-123 in the vicinity of [drop zone inside Nicaragua]. The 66 A/C shd penetrate Nicaragua across the Atlantic Coast. . . . If we are ever going to take the pressure off the northern front we have got to get this drop in?quickly. Please make sure that this is retransmitted via this channel to [Castillo], Ralph, Sat and Steele. Owen already briefed and prepared to go w/ the L-100 out of MSY if this will help. Please advise soonest.79 Secord and Gadd arranged to lease the L-100 plane from Southern Air Transport. Secord transmitted the following instructions to Quintero on April 8: CIA and Goode [North's code name] report Blackys [a Southern front military commandante] troops in south in desperate fix. Therefore, [CIA's Chief of Station in a Central American country] is supposed to arrange for a load to come from [the FDN base] to [the Airbase] via L100 tomorrow afternoon. . . . Notify Steele we intend to drop tomorrow nite or more like Thurs nite. . . . Meanwhile, contact [Castillo] via this machine and get latest on DZ [drop zone] co- ordinates and the other data I gave you the format for. . . . CIA wants the aircraft to enter the DZ area from the Atlantic. . . .80 On April 9, Secord relayed to North that "all co- ordination now complete at [the Airbase] for drop? [Castillo] has provided the necessary inputs."' After the Southern military commanders relayed the drop zone information to Castillo's communications center, Castillo sent a cable to the Chief of the CATF at CIA headquarters, requesting flight path information, vec- tors based on the coordinates of the drop zone, and hostile risk evaluation to be passed to the crew. CIA headquarters provided the information, as it did on three other occasions that spring.82 After Secord's April 9 message, the L-100 arrived and was loaded with a considerable store of munitions for airdrop to the South on April 10. Castillo had provided the location of the drop zone to Quintero, and Steele told the Southern Air Transport crew how to avoid Sandinista radar. Despite North's intricate planning, the L-100 was unable to locate the Contra forces. The maiden flight to the Southern front had failed.83 On April 11, the L-100 tried again, airdropping more than 20,000 pounds of lethal supplies inside Nicaragua. This was the first successful drop to the southern forces. Before the plane left, Steele checked the loading of the cargo, including whether the as- sault rifles were properly padded. Castillo reported the drop to North in glowing terms: Per UNO South Force, drop successfully com- pleted in 15 minutes. . . . Our plans during next 2- 3 weeks include air drop at sea for UNO/KISAN indigenous force . . . maritime deliveries NHAO Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 3 supplies to same, NHAO air drop to UNO South, but with certified air worthy air craft, lethal drop to UNO South. . . . My objective is creation of 2,500 man force which can strike northwest and link-up with quiche to form solid southern force. Likewise, envisage formidable opposition on At- lantic Coast resupplied at or by sea. Realize this may be overly ambitious planning but with your help, believe we can pull it off." The Resupply Operation Steps Up Its Activities While the April 11 mission to the South was the only successful airdrop in that region, the air resupply op- eration was, by April, operating regular, almost daily, supply missions for the FDN in the North. Most missions delivered supplies from the main FDN base to the FDN's forward-operating positions. Other flights dropped lethal cargo to units operating inside Nicaragua. Many of these flights were helped infor- mally by CIA field officers on the ground, who pre- pared flight plans for aerial resupply missions, briefed the air crews on Nicaraguan antiaircraft installations, and provided minor shop supplies to the mechanics. On one occasion, the CIA operations officer at an FDN base flew Ian Crawford, a loadmaster for the resupply operation, in a CIA helicopter with lethal supplies on board over the border area so Crawford could see where he and his crew were airdropping cargo three to four times daily. However, the resup- ply operation was not without problems. Poor mainte- nance hampered the performance of the aircraft and a lack of a closely knit organization contributed to the Enterprise's troubles.95 Because of these problems, North and Secord flew to the Airbase in Central America on April 20 for a one-day meeting with the Commander, Steele, Rodri- guez, and the military leadership of the FDN. During the meeting, North and Secord emphasized the impor- tance of the Southern front and complained about the difficulty of getting stocks out of the FDN, thus pre- paring the FDN for the future storage of Southern front supplies directly at the Airbase. There was some misunderstanding as to whether the FDN were the legal owners of the aircraft, but North and Secord stated that the aircraft belonged to a private company dedicated to support all the Contras, both the FDN and the Southern front. In turn, the FDN leaders expressed their dissatisfaction with the C-7 aircraft. They were simply "too old" to operate effectively, Bermudez told them. He wanted bigger and faster aircraft. North responded that if he had the money to buy better aircraft, he would, but they were financing the operation with donated funds." The possible purchase for the FDN of Blowpipe surface-to-air missiles to use against the Sandinista HIND-D helicopters was also raised. In December 1985, Secord and Calero had tried to purchase Blow- pipes from a Latin American country. The transaction proceeded to the point where the Enterprise placed a deposit on the missiles. But necessary approvals for the sale could not be secured, even though North enlisted the help of Poindexter and of McFarlane, who remained in contact with North by PROF ma- chine even after he left the Government." After the April 20, 1986, meeting, the first shipment of lethal supplies by the Enterprise for the Southern front arrived at the Airbase to be stored by the resup- ply operation. At North's request, the Enterprise paid David Walker $110,000 for two foreign pilots and a loadmaster to fly missions inside Nicaragua so that U.S. citizens would not be exposed to possible shoot- down or capture." Secord tcok another step to overcome the resupply problems. He recruited Col. Robert Dutton to manage the resupply operation on a daily basis. Secord knew Dutton from their active duty together in the U.S. Air Force, where Dutton had considerable experience in managing covert air resupply oper- ations. Gadd's role was phased out and on May 1, Dutton, retiring from the Air Force, was placed in operational command of the resupply operation, re- porting to Secord, and increasingly over time, direct- ly to North on all operational decisions of conse- quence.89 At the outset, Secord emphasized to Dutton that the air program would receive very little in the way of additional funding. Dutton was instructed to manage the operation with existing equipment and conserve resources carefully as the money provided was all "donated." 90 When Dutton took over, he traveled to Central America to assess the operation. There were approxi- mately 19 pilots, loadmasters and maintenance opera- tors at the Airbase. In addition, Felix Rodriguez and his associate Ramon Medina coordinated with the Commander and oversaw the local fuel account. Dutton also examined the aircraft?two C-7s, one C- 123, and the Maule?and found that, indeed, they were in "very poor operating condition." 91 The resupply operation at the Airbase maintained a warehouse stocked with an assortment of munitions? light machine guns, assault rifles, ammunition, mor- tars, grenades, C-4 explosive, parachute rigging, uni- forms, and other military paraphernalia. The crews lived in three safe houses and used a separate office with maps and communications equipment. By May, the Santa Elena airstrip, along with emergency fuel storage space and temporary housing, was finished." Because Secord (and later North) had impressed on Dutton the need for strict accountability given the limited nature of the donated funds, Dutton enforced a stringent set of accounting requirements: Expendi- tures had to be carefully documented and all missions fully reported. Moreover, Dutton devised an organi- 67 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I .1 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 zation, based on a military hierarchy, that delineated each person's role and responsibility. Dutton also de- fined the legal constraints on the organization as he had understood from Secord: no Contra combatants could be airdropped into battle. These new require- ments of accountability, reporting, and organization were followed for the remaining life of the oper- ation.93 Despite these impending changes, North wrote to Poindexter expressing his weariness and warning that without Congressional authorization for CIA involve- ment, "we will run increasing risks of trying to manage this program from here with the attendant physical and political liabilities. I am not complaining, and you know that I love the work, but we have to lift some of this onto the CIA so that I can get more than 2-3 hrs. of sleep at night." 94 Dutton's Reorganization Plan Following his first trip to Central America in May, Dutton began drafting a reorganization plan for the Enterprise "to outline in one document exactly what the basic operating locations were, and who the key people were and what their responsibilities were."95 The plan was reviewed, edited, and approved by both Secord and North." The plan stated that "B.C. Washington has operational control of all assets in support of Project Democracy."97 While Secord maintained that B.C. Washington meant "primarily myself and Robert Dutton," 98 Dutton testified that "B.C. Washington" described North and Secord.99 According to Dutton, the purpose of the reorgani- zation plan was to disguise the role of Secord and North. The lawsuit brought by freelance journalisits Tony Avirgan and Martha Honey had named Secord and was generating publicity. North and Secord, ac- cording to Dutton, were concerned that Rodriguez, who had become disaffected, was providing informa- tion about the operation to Avirgan and Honey. North and Secord, therefore, wanted to create the pretense that they "had withdrawn from the oper- ation, they were no longer part of it, and this new company called B.C. Washington, which represented the donators [sic], therefore the benefactors?that they had come in to take over the operation." 100 But, according to Dutton, "the fact was that Colonel North and General Secord's relationship with the or- ganization had not changed one bit."?' As Dutton acknowledged, "B.C. Washington" was a facade that North and Secord developed in order to cloak their role.1?2 The Southern Front Resupply On May 24, 1986, the day after Dutton left Central America, another planeload of munitions, paid for by the Enterprise arrived at the Airbase for the Southern front. Because the FDN was reluctant to make arms available to the independent southern Contra forces, 68 North and Secord decided in April 1986 that arms and other supplies would now be stored under the control of the Enterprise at the Airbase. This second direct shipment of arms to the Airbase to be delivered to the Southern front was part of the new plan. To- gether with the late April shipment, there were now more than $1 million in arms at the Airbase available for airdrop to the Southern front forces.'" The warehouse, however, was not large enough to accommodate the new munitions. Dutton had to ask the Commander for permission to expand the ware- house, while seeking North's approval for the addi- tional cost of construction. After the Commander au- thorized the expansion, North relayed to Secord his approval for construction to proceed.'" With new arms and an expanded warehouse, Dutton had the material to deliver to the Southern front. However, while regular deliveries with the C-7 continued to the FDN in the North, no flights were being made to the South. North told Dutton that the Southern forces were adding 150 new recruits a day, but that they had neither enough weapons for the fighters nor enough medicine to treat the growing problem of mountain leprosy.1?9 On June 2, Castillo called North and told him that drops to the southern units were needed as soon as possible. Castillo advised North that Quintero had all the necessary vector information to make the drops. Following Castillo's request, two deliveries were pre- pared for the South totalling about 39,000 pounds, and on June 9, after coordinating with Castillo the location and needs of the Southern troops, the C-123 airplane tried to make an air drop. However, the plane could not locate the troops inside Nicaragua, and when it landed at the Santa Elena airstrip, it got stuck in the mud.'" The stuck plane caused consternation at the U.S. Embassy in Costa Rica. The month before, Oscar Arias had been inaugurated as the new President of Costa Rica. The new Costa Rican Government had told Ambassador Tambs that it had instructed that the airstrip not be utilized. Tambs, in turn, told Castillo to notify North and Udall Corporation that the airstrip had to be closed. Now Tambs was faced with explain- ing to President Arias why a munitions-laden airplane was stuck in the mud at Santa Elena. A plan was devised by Tambs, Castillo, and others at the U.S. Embassy to borrow trucks from a nearby facility to free the aircraft, but the plane was able to take off before the plan could be carried out.'" The needs of the FDN still had to be met. On June 10, North met with Calero who requested that the Caribou planes fly more missions inside Nicaragua. The Enterprise was just about to purchase additional arms for the FDN.'" However, the most pressing need, North wrote to Poindexter, was neither money nor arms, but rather: "to get the CIA re-engaged in this effort so that it can be better managed than it Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 now is by one slightly confused Marine Lt. Col." North further reported to Poindexter that "several million rounds of ammo are now on hand . . . Criti- cally needed items are being flown in from Europe to the expanded warehouse facility at [the Airbase]. At this point, the only liability we still have is one of Democracy, Inc.'s airplanes is mired in the mud (it is the rainy season down there) on the secret field in Costa Rica." 109 The decision to purchase additional millions of dol- lars in arms for the FDN was taken after the Enter- prise learned from Bermudez and the FDN leaders that FDN stocks were getting low. Hundreds of tons of East European weapons were paid for in three installments between June 27 to July 16. The ship- ment, the last arms purchased for the Contras by North and Secord, never reached Despite the difficulties, North wanted to continue to airdrop supplies, especially to the South. As soon as the C-123 was freed from the mud, it embarked on another mission with a full lethal load for the south- ern troops. But this time, fog covered a mountain, and William Cooper, the chief pilot for the resupply oper- ation, hit the top of a tree, knocking out an engine. After the plane reached the drop zone, Cooper could not locate the troops." Communicating by KL-43, North told Castillo that to facilitate further airdrops to the southern forces, he had "asked Ralph [Quintero] to proceed immediately to your location. I do not think we ought to contem- plate these operations without him being on scene. Too many things go wrong that then directly involve you and me in what should be deniable for both of us.""2 Meanwhile, North made further plans to ensure re- supply to the Southern front. With the C-123 dam- aged in flight, the remaining C-7 aircraft could only make the trip to the South if it were able to refuel before the return trip, and the Santa Elena strip was not operational. North asked Dutton to look for an- other C-123, and with Tambs' assistance, arranged for a new flight pattern in which the empty C-7 aircraft, after making its drops, refueled at the San Jose Inter- national Airport in Costa Rica. The new refueling plan permitted two small drops of supplies to the Southern front. But, by the third week in July, $870,000 worth of munitions were still sitting at the Airbase waiting for the Southern forces. Despite all the efforts, the vision of a year before for the South- ern front had yet to become a reality."3 Alternative Funding Sources: North's Response to Congressional Action The Administration continued to seek an appropria- tion for the CIA to resume its program of covert assistance to the Contras. In early May, according to Poindexter, the President told him, "If we can't move the Contra package before June 9, I want to figure out a way to take action unilaterally to provide assist- ance." Poindexter wrote his deputy, Donald Fortier, "The President is ready to confront the Congress on the Constitutional question of who controls foreign policy. . . . George [Shultz] agrees with the President that we have to find some way and we will not pull out." 114 North, who received a copy of Poindexter's PROF note, responded immediately with a suggestion: The Contras should capture some territory inside Nicara- gua and set up a provisional government. The Presi- dent would respond by recognizing the Contras as the true government and provide support. Asked by Poin- dexter whether he had talked to Casey about his plan, North replied, "Yes, in general terms. He is support- ive, as is Elliott [Abrams]. It is, to say the least, a high risk option?but it may be the only way we can ever get this thing to work."115 The Money: Third Country Assistance By the end of April 1986, the Contras' funding needs were critical. North told Fortier: "We need to explore this problem urgently or there won't be a force to help when the Congress finally acts."6 The same day, North wrote to McFarlane that "the resist- ance support acct. is darned near broke," and asked for assistance in filling the gap: Any thoughts where we can put our hands on a quick $3-5M? Gaston [Sigur] is going back to his friends who have given $2M so far in hopes that we can bridge things again, but time is running out along w/ the money. So far we have seven a/c working, have delivered over $37M in sup- plies and ordnance but the pot is almost empty. Have told Dick [Secord] to prepare to sell the ship first and then the a/c as a means of sustain- ing the effort. Where we go after that is a very big question. "7 An Aborted Solicitation Despite North's reference to "Gaston," it was not Gaston Sigur, but Singlaub who went to the Far East in May 1986 in search of Contra aid. This time, Sing- laub wanted to be sure that he would receive the official U.S. "signal" these countries had previously told him was a condition to their aid. Before he trav- eled to Countries 3 and 5, Singlaub spoke to Elliott Abrams at the State Department and, according to Singlaub, explained that he wanted to know "how the U.S. would send a signal." Singlaub testified that Abrams told him that he (Abrams) would send the signal. "8 Singlaub arrived in Country 3, but before he could meet with his contact, Abrams told him to stop the plan. When Singlaub and Abrams later met, Singlaub 69 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II LJL. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 testified that Abrams told him that the solicitation was "going to be handled by someone at the highest level." Singlaub assumed that it would be someone from the White House, although Abrams never gave him a specific name.119 However, Abrams disputed Singlaub's testimony. While acknowledging that he spoke to Singlaub about Singlaub's proposed solicita- tion, Abrams testified that he never agreed to provide to Singlaub a U.S. Government signal for the solicita- tion."? Abrams' account is supported by the testimo- ny of Richard Melton, at the time Director of the Office of Central American Affairs at the State De- partment, who was present during Abrams' conversa- tions with Singlaub.'21 The May 16, 1986, NSPG Meeting On May 16, 1986, the President and his advisers discussed the issue of obtaining funds from third countries. In a memorandum to the President for the National Security Planning Group (NSPG) meeting, North suggested three ways to "bridge the gap" in funding: (1) a reprogramming of funds from DOD to the CIA ($15 million in humanitarian aid); (2) a Presi- dential appeal for private donations by U.S. citizens; and (3) a "direct and very private Presidential over- ture to certain Heads of State." The last source of funds would, as North put it, eliminate the need "to endure further domestic partisan political debate." 122 Director Casey opened the meeting and explained the Contras' needs. The good news, he told the Presi- dent, was that the Contras had infiltrated more troops into Nicaragua than ever before, and the troops were now being resupplied by air.'" The "bad news" was that the Resistance was operating under the assump- tion that it would receive new funding at the end of May. Only $2 million remained from the humanitarian assistance appropriation. '24 Later in the discussion, Secretary Shultz returned to the Contras' need for funds. Noting the unlikeli- hood of an immediate Congressional appropriation and the improbability that the intelligence committees could be persuaded to reprogram funds, Secretary Shultz suggested that third countries be approached for humanitarian aid. North added that the Intelli- gence Authorization Act of 1986 permitted the State Department to approach other governments for non- military aid. '25 No one at the meeting discussed the fact that Coun- try 2 had already given $32 million to the Contras, including a $24 million donation committed to the President personally. Nor was it mentioned that sev- eral Far Eastern countries had been approached for donations or that Country 3 had given $2 million only 6 months earlier. Instead, Shultz was instructed to prepare for review by the President a list of countries that could be solicited. Later that day, North told Poindexter that the ur- gency of the need had lessened: The Enterprise had 70 that day received the last $5 million of the $15 million arms sales to Iran. North wrote Poindexter: "You should be aware that the resistance support organiza- tion now has more than $6 million available for imme- diate disbursement. This reduces the need to go to third countries for help." 126 North later testified that he wrote the message because "it was important he [Poindexter] understand that Secretary Shultz didn't need to go out that afternoon and go ask for addition- al help." Poindexter testified that he understood the $6 million to which North referred was coming from the Iranian arms sales, but he did not tell the Presi- dent the $6 million was available. North testified that as he was leaving the NSPG meeting, he mentioned to Poindexter that Iran was supplying $6 million for the Contras, but that he did not know whether he was overheard.'27 North wrote Poindexter that he did not know whether all those present at the NSPG meeting, such as Chief of Staff Donald Regan, knew of "my private U.S. operation." On the other hand, North noted to Poindexter, "the President obviously knows why he has been meeting with several select people to thank them for their 'support for Democracy' in CentAm."128 North also realized that disclosure of a significant sum of money earmarked for Contra support, but only made possible by arms sales to Iran, could prove politically embarrassing. The more money there is (and we will have a considerable amount in a few more days) the more visible the program becomes (airplanes, pilots, weapons, deliveries, etc.) and the more inquisitive will become people like Kerry, Barnes, Harkins, et al. While I care not a whit what they may say about me, it could well become a political embarrassment for the Presi- dent and you. He suggested that the problem could be "avoided simply by covering it with an authorized CIA pro- gram undertaken with the $15M" reprogrammed funding from the DOD budget.'29 Poindexter approved North's recommendation to seek the $15 million reprogramming and responded to his concerns: "Go ahead and work up the paper needed for the $15M reprogramming. . . . I under- stand your concerns and agree. I just didn't want you to bring it up at NSPG. I guessed at what you were going to say. Don Regan knows very little of your operation and that is just as well." By May 28, how- ever, it was clear that "the votes were not there," and the reprogramming effort was dropped in favor of a campaign to obtain Congressional support for the $100 million aid package. '30 Meanwhile, the concerns that prompted North's si- lence at the May 16 NSPG meeting persisted: Who knew about the secret aid third countries had given Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 i Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 earlier? In the prior 2 years, members of the NSC staff had approached several countries for financial assistance to the Contras. Of these, two had provided funds or other forms of assistance. Those solicitations were made without the knowledge of the Secretary of State and other senior diplomatic officials. The December amendment expressly provided that soliticitations for humanitarian aid were not preclud- ed. Now, Secretary Shultz and others were discussing making approaches to countries that had already con- tributed. Poindexter and North became concerned that their prior actions would be uncovered. On June 10, North wrote Poindexter, "[A]t this point, I'm not sure who on our side knows what. Elliott has talked to Shultz and had prepared a paper re going to [Country 2 and Country 3] for contribu- tions. Elliott called me and asked 'where to send the money." North asked Abrams to "keep quiet" until he talked to Poindexter. North added: At this point I need your help. As you know, I have the accounts and the means by which this thing needs to be accomplished. I have no idea what Shultz knows or doesn't know, but he could prove to be very unhappy if he learns of the [Country 2 and 3] aid that has been given in the past from someone other than you. Did RCM [McFarlane] ever tell Shultz. '31 North recommended that Poindexter and McFar- lane meet to discuss "how much Sec Shultz does or does not know abt [Country 2 and 3] so that we don't make any mistakes." 132 Poindexter declined to follow North's advice: "To my knowledge Shultz knows nothing about the prior financing. I think it should stay that way." '33 Nonetheless, McFarlane informed Secretary Shultz. As the Secretary described the event, on June 16, 1986, he received a telephone call on a secure phone from McFarlane, who had by then been out of the Government for approximately 6 months. In a con- versation that occurred completely out of context and long after the donation had been made, McFarlane told Secretary Shultz about the Country 2 donation to the Contras.134 Soon thereafter, Abrams recommended Brunei as a likely country from which to seek humanitarian assist- ance for the Contras. As Poindexter put it, "[t]hey have lots of money." 135 Brunei also qualified for another reason. The Secretary of State did not want to be beholden to any country that was a recipient of U.S. aid.'36 Brunei was not. Originally, the Secretary of State was to make the approach during a meeting with the Sultan of Brunei in June. Before Secretary Shultz left, Abrams asked North for a Contra account to which the money could be sent. North directed his secretary to prepare an index card with the account number on it. North told Abrams that the account was controlled by the Contras and Abrams so in- formed Secretary Shultz.'" Following Poindexter's instructions, North did not reveal that the NSC staff "had access to the accounts." 138 North gave the index card to Abrams, who gave it to the Secretary of State. The Secretary decided, however, that he would discuss the general issue of Central America with the Sultan but that he would not make an actual solicitation. The card was not used on that trip.'39 On August 8, 1986, Abrams met in London with a representative of the Government of Brunei. In an unusual occurrence for Abrams, he traveled under an alias. The two men first met at a London hotel, then walked in a nearby park where Abrams requested $10 million in bridge financing for the Contras. Asked by the official what Brunei would receive in return, Abrams responded, "Well, . . . the President will know of this, and you will have the gratitude of the Secretary and of the President for helping us out in this jam.''140 The official persisted, asking, "What concrete do we get out of this?" Abrams responded, "You don't get anything concrete out of it." Abrams then gave the account number that he had received from North to the Brunei official."' Although the Sultan of Brunei eventually trans- ferred the $10 million, the funds never reached the account for which they were intended. North testified that he had intended to give Abrams the number of the Lake Resources account controlled by Secord and Hakim, but the account numbers had been inadvert- ently transposed by North or by his secretary, Fawn Hal1.142 Felix Rodriguez Becomes Disaffected Shortly after North traveled to Central America in late April 1986, Rodriguez decided to leave Central America. Rodriguez testified: "I don't know if I got a sixth feeling or something, but after I saw the people in there, I didn't feel comfortable with it and I thought we had better leave." Rodriguez informed Steele, citing fatigue as the reason for his depar- ture.'43 Rodriguez met with Vice President Bush in Wash- ington on May 1. He had arranged the meeting through the Vice President's National Security Advis- er, Donald Gregg. The appointment scheduling memo for the meeting states: "To brief the Vice President on the status of the war in [a Central American coun- try] and resupply of the Contras." Members of the Vice President's staff gave conflicting testimony over how this description was printed on his schedule. Sam Watson, the Vice President's Deputy National Securi- ty Adviser, testified that the memo was inaccurate, and that he did not provide the description. Phyllis Byrne, the secretary who typed the memo, testified that Watson had given her the description.'" In the Old Executive Office Building on his way to the Vice President's office, Rodriguez stopped by to tell North he was leaving the operation. Rodriguez Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 71 ..1. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 said North asked him to remain in Central America, but he ignored the request. Escorted by Gregg and Watson, Rodriguez then met with the Vice Presi- dent.' 45 Before Rodriguez could tell the Vice President that he was leaving Central America, North arrived and told the Vice President about the good job Rodriguez was doing. Embarrassed to tell the Vice President he was going to leave, Rodriguez left the meeting with- out discussing his resignation, and eventually returned to Central America. Rodriguez testified that "at no point in any of this conversation did I ever mention doing anything that was remotely connected to Nica- ragua and the contras." Moreover, former Senator Nicholas Brady, who was also present at the meeting, testified that the resupply operation was not dis- cussed.146 Rodriguez stayed in Central America, but his rela- tionship with Dutton became increasingly strained. According to Dutton, they disagreed on how the operation should be run. At the same time, North had his own reservations that Rodriguez was "something of a loose cannon" who might reveal the oper- ation.147 On June 8, Dutton complained about Rodriguez in a KL-43 message to North: "He now wants a $10K emergency fund that he will control. He also wants partial control of our fuel fund ($50K)." Cash funds translated into unaccountable slush funds so far as Dutton was concerned. Furthermore, with the estab- lishment of cash accounts, the resupply operation would be "losing control of one of the most critical portions of the operation, that is the money." 148 Rodriguez was summoned to meet with North and Dutton in Washington on June 25. North began by showing Rodriguez the organizational plan drawn up by Dutton, in which Rodriguez was designated "liai- son officer." After North stated that he had intelli- gence that Rodriguez was compromising the oper- ation by talking over open, unsecured telephone lines, Rodriguez complained that the poor condition of the aircraft, the communications equipment, and the lack of adequate radar had endangered the pilots and crew on the flight which hit the mountain, even though on that flight, despite the fog, the pilot was able to locate the drop zone by using the aircraft's radar. North, in turn, offered Rodriguez $3,000 a month to stay in the operation, which Rodriguez later accepted.'" Rodriguez testified that at the end of the meeting, he asked to see North alone. Rodriguez told North that he had learned "that people are stealing here," in particular Thomas Clines, a former associate of Edwin Wilson. Rodriguez expressed his concerns that arms were being sold at inflated prices. North disput- ed Rodriguez's conclusions and told Rodriguez that Clines was a patriot, and that he was not buying equipment, only helping to transport the goods. In fact, none of the arms furnished to the FDN and the Southern front since Rodriguez became involved in 72 the operation were sold to the Contras. Instead, the Enterprise purchased arms with money obtained from the arms sales to Iran and private U.S. donors.15? At the close of the meeting, according to Rodri- guez, North made one last comment. Congress was voting that day on the $100-million Contra aid legisla- tion, and the television in North's office carried the floor debate. According to Rodriguez, North looked at the television and said: "Those people want me but they cannot touch me because the old man loves my ass." North did not recall that part of his conversation with Rodriguez. That meeting was the last between the two.151 New Legislation On June 25, 1986 the House approved the Adminis- tration's request for $100 million in Contra aid. Al- though the bill would not become law for another 3 months, the vote ensured passage of the Contra aid legislation. The President announced at 11:30 a.m. that day that the vote "signal[led] a new era of bipar- tisan consensus in American foreign policy. . . . We can be proud that we as a people have embraced the struggle of the freedom fighters in Nicaragua. Today, their cause is our cause." 152 The $100 million aid package marked the first time in more than 2 years that the House had voted to provide lethal assistance to the Contras. By June 1986, North had established air resupply to both the Northern and Southern fronts. The Enterprise had succeeded in flying lethal material to the Contra fight- ers inside Nicaragua; even Americans in the employ of North's organization were flying into that country, all financed by donated funds and proceeds from the Iranian arms sales overseen by North. None of North's activities were disclosed to Congress in ad- vance of the House vote. Only 1 month later, before the aid bill had been signed, Poindexter would write to Congress that the NSC was complying with the letter and spirit of the Boland Amendment.' 53 Selling the Assets to the CIA With the House vote in June, North's hopes to reengage the CIA in Nicaragua were on the verge of being realized. North was increasingly occupied with the Iran arms initiative, and he was anxious to give the Contra resupply operation back to the CIA. But North wanted the Enterprise to recoup its investment, and urged the CIA to buy the assets of the resupply operation in Central America.'" Secord had Dutton prepare a plan to present to the CIA. North wrote to Poindexter: We are rapidly approaching the point where the PROJECT DEMOCRACY [PRODEM] assets in CentAm need to be turned over to CIA for use in the new program. The total value of the assets (six aircraft, warehouses, supplies, maintenance Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 facilities, ships, boats, leased houses, vehicles, ordnance, munitions, communications equipment, and a 6520' runway on property owned by a PRODEM proprietary) is over $4.5M. All of the assets?and the personnel?are owned/ paid by overseas companies with no U.S. connec- tion. All of the equipment is in first rate condi- tion and is already in place. It wd be ludicrous for this to simply disappear just because CIA does not want to be "tainted" with picking up the assets and then have them spend $8-10M of the $100M to replace it?weeks or months later. Yet, that seems to be the direction they are head- ing, apparently based on NSC guidance. If you have already given Casey instructions to this effect, I wd vy much like to talk to you about it in hopes that we can reclaim the issue. All seriously believe that immediately after the Senate vote the DRF [Nicaraguan Democratic Resistance] will be subjected to a major Sandi- nista effort to break them before the U.S. aid can become effective. PRODEM currently has the only assets available to support the DRF and the CIA's most ambitious estimate is 30 days after a bill is signed before their own assets will be avail- able. This will be a disaster for the DRF if they have to wait that long. North predicted "disas- ter" if his plan was not followed.'" The plan drafted by Dutton at Secord's request offered two options. The first was to sell the assets of the organization to the CIA at cost; the second would continue the operation on behalf of the CIA for a monthly fee. Although Dutton, Secord, and North differed in their public testimony over whose idea it was to include these two options (and Secord denied that he ever authorized a sale of the assets), Dutton's plan contemplated that the Enterprise would continue in operation. The plan indicated a preference for a sale because the funds generated would permit the Enterprise to engage in other covert action projects: "[W]e prefer option I with the proceeds from the sale going back into a fund for continued similar require- ments." 156 North testified that the idea to sell the Enterprise's assets to the CIA was Director Casey's. In a PROF note to Poindexter at the time, North said that the sale to the CIA would be the only way to finance purchases for the Contras prior to the time the Con- gressional appropriation became effective: Given our lack of movement on other funding options, and Elliot/[C/CATF's] plea for PRODEM [Project Democracy] to get food to the resistance ASAP, PRODEM will have to borrow at least $2M to pay for the food. That's O.K., and Dick is willing to do so tomorrow? but only if there is reasonable assurance that the lenders can be repaid. The only way that the $2M in food money can be repaid is if CIA purchases the $4.5M worth of PRODEM equip- ment for about $2.25M when the law passes. Concluding his efforts to "sell" the project, North offered to send Poindexter a copy of Dutton's "pro- spectus," or, as he wrote, "the PROJECT DEMOC- RACY status report. It is useful, nonattributable read- ing." 167 Poindexter responded that he had not given Casey any "guidance" against the sale and, indeed, that he approved of North's plan. Poindexter explained that he had told CIA Deputy Director Robert Gates "the private effort should be phased out," but he agreed with North and asked him to talk to Casey about the plan to sell Project Democracy to the CIA.' 58 Clair George, the CIA Deputy Director for Oper- ations, testified that North asked him to buy the air- craft, but that he declined because their use in private resupply could result in criticism of the CIA. "I wouldn't buy those planes if they were the last three planes in Central America," he said.'" The Resupply Operation is Interrupted Relations between Felix Rodriguez and the resup- ply operation continued to deteriorate. Tensions in- creased when early in August a dispute erupted be- tween Secord's deputy, Rafael Quintero, and Rodri- guez. Ignoring Quintero's instructions not to use the aircraft, Rodriguez took an Enterprise-owned plane in Miami and flew into the Airbase with a load of spare parts and medicine. By the time Rodriguez arrived in Central America, Quintero was claiming that the plane had been stolen. Quintero gave instructions to refuel and send the plane back to Miami, full of the supplies. Rodriguez ignored the order and told the crew to unload." 6? Rodriguez maintained that all the aircraft belonged to the FDN, and expressed his concern to the Com- mander that the Enterprise would pull out, taking the planes away from their rightful owners?the FDN.'" On August 6, Dutton called North to tell him that Rodriguez "took C-123K from Miami." 162 North later complained to Gregg, the Vice Presi- dent's National Security Adviser, that Rodriguez had "made off with an airplane," and asked him, "Will you call him and find out what the hell is going on?" Rodriguez told Gregg he had decided to tell Gregg "about what had been going on." 163 Steele then called North to tell him that the "situa- tion was not good." Steele warned North there was no one on the "scene who can take charge," and that the Commander was becoming a "potential problem" because he believed that the aircraft "belong[ed] to the DRF [Democratic Resistance Forces]." Steele added that Rodriguez was "enroute to see Don [Gregg]."' 64 73 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 North sent his colleague and aide, Lt. Col. Robert Earl, to sit in on the Rodriguez-Gregg meeting. Brief- ing Earl before the meeting, North portrayed Rodri- guez as someone who had "insinuated himself into the organization and was giving rudder orders and it was not his place to do so." 165 In the dispute with Rodriguez, Quintero had also accused Rodriguez of air piracy. Now, after confer- ring with Rodriguez, the Commander understood that he too was accused of air piracy, and feared the aircraft themselves would be taken. On August 8, Rodriguez met with Gregg and set out his allegations about the Secord group. Gregg noted the points Rodriguez made: "using Ed Wilson group for supplies"; "Felix used by 011ie to get Contra plane repaired . . ."; "a swap of weapons for $ was arranged to get aid for Contras, Clines and Gen- eral Secord tied in"; "Hand grenades bought for $3 - sold for $9." Gregg, according to Earl, expressed shock about the involvement of Clines.166 On August 12, Gregg convened a meeting to dis- cuss Rodriguez's allegations with a group of Adminis- tration officials involved in Central American policy- making: Steele; Ambassador Edwin Corr; Deputy As- sistant Secretary of State Walker; the Chief of the Central American Task Force; and from the NSC, Earl and Ray Burghardt. Gregg testified that he "went over the notes with the people who were there." Without mentioning North's involvement, Gregg emphasized that he considered Clines not reli- able but that he had faith in Rodriguez.167 Gregg knew by this time that North was involved in the operation. Rodriguez had made that clear at his initial August 8 meeting, and Gregg's notes reflect that knowledge.'" Gregg testified that at no time did he pass that information on to the Vice President. Gregg did not report the meeting, because he be- lieved it "was a very murky business. . . . We had never discussed the Contras. We had no responsibility for it. We had no expertise in it. I wasn't at all certain what this amounted to. . . . I felt I had passed along that material to the organizations who could do some- thing about it, and I frankly did not think it was Vice Presidential level." 169 The Resupply Operation Resumes Shortly after Gregg's August 12 meeting, Steele was scheduled to meet with Dutton in Washington to resolve the dispute with the Commander. Dutton had told Steele by KL-43 that "It is everyone's intent to continue to support the effort," but that the aircraft were owned by an independent company, not the FDN, in part so they could be used to support the Southern front forces as well as the FDN. Secord, too, insisted that the aircraft belonged to a private company. Earl, North's deputy, told Secord by KL- 43 on August 13 that the crew should simply pull out because the threat of a lawsuit against the Command- 74 er had "poisoned the atmosphere." Secord responded that there was more than "1 million dollars worth equipment" in Central America owned by the Enter- prise, which had no intention of abandoning them. Secord explained that the "threat of air piracy lawsuit has nothing to do with [the Commander]. This was comment made to VP by 011ie ref Max [Felix Rodri- guez] vice [the Commander]." 170 Dutton later met with Steele in Washington and by the end of the meeting, Steele had agreed to help to solve the brewing "confrontation" between the Com- mander and the resupply operation.'" The warring parties reached an uneasy resolution after Steele returned to Central America. Steele took a more active role in overseeing the flights and was told to inform the Commander that, while the assets were made available to the Contra cause, they be- longed to a private company whose desire was to turn them over to the CIA once the Agency resumed Contra support. Steele felt that he would have trouble persuading the Commander to accept this position until he was assured that the CIA would continue to provide support.172 On August 22, Dutton was able to reassure Steele: Received new guidance through Goode [North] from his boss. We are to stay in full operation supporting the drops until 1 Oct. At that time NSC says that CIA will have been in operation approx. 1 month. The CIA will go to [The Cen- tral American government] and explain that they, the CIA, are now in contro1.1" During the fall of 1986, problems continued in the resupply operation, but some success on both the Northern and Southern fronts was finally achieved. The resupply operation delivered more than 180,000 pounds of lethal supplies to the Southern front in September alone.17 4 In late August, North attended a Restricted Inter- agency Group meeting at which the Chief of the CATF and others were asked what steps the airlift? i.e., according to North, the "covert operation being conducted by this government to support the Nicara- guan Resistance"?should take now that the CIA was due to assume control. According to North, he de- scribed at that meeting the activities in which the Enterprise was engaged and sought approval from the Restricted Interagency Group to continue until the CIA could take over.175 While the Chief of CATF acknowledged that North discussed airdrops to the Contras, he testified that he did not recall North dis- cussing "his full service covert action program."76 On August 22, Dutton met with Quintero and de- vised a new plan for Southern front resupply that he presented to North: The initial arrival over the drop zone should be at dusk; once the zone has been identi- fied by the pilots, repeated sequential drops would be made in the evening without communication to the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 troops. Castillo agreed with the plan, as did Steele. North also approved it.177 On September 4, North met with Poindexter. North asked Poindexter for the "go/no go" on sequential air deliveries to the Southern forces. Shortly afterwards, North told Secord to implement the new drop plan and conduct a "force feed" operation to the South where all supplies would be delivered sequentially in accordance with Dutton's plan.178 On September 9, Dutton flew with the crew in the second C-123 (now operational) inside southern Nica- ragua to attempt a lethal drop to the troops Castillo had identified. But this mission was unable to locate the troops, prompting Dutton to propose to North using two aircraft on each mission to increase deliv- ery potential once troops were located and to protect against increased Sandinista antiaircraft fire. Dutton also asked North for help on weather information and troop location. North approved the use of two air- craft and told Dutton to obtain weather information from Steele, and that he would speak to Castillo about troop locations. North cautioned Dutton not to personally fly inside Nicaragua again: The operation could not afford the exposure if the plane were shot down inside Nicaragua with Col. Robert Dutton at the controls.179 The pace of delivery stepped up. The resupply op- eration was finally becoming effective only weeks before the CIA would be back in the business. On September 11, a lethal drop was successfully made to the South using the C-123 while the C-7 delivered more arms for the FDN in the northern regions. Dutton reported the success of the southern delivery to North. On the 12th, three aircraft made more de- liveries: a C-123 delivered 10,000 pounds to the South and a C-7 and a Maule delivered to the FDN. Sep- tember 13 was "a red letter day," Dutton wrote to North. All five aircraft flew at the same time, with lethal loads dropped in both the North and South. "The surge is now in full force," Dutton relayed to North. The plan at last was working.180 Things were going so well that Dutton advised North that an additional $20,000 in cash was needed for the fuel fund and that the "C-123 is now armed with HK-21/7.62 machine gun on the aft ramp, bring on the MI-24." In fact, before Dutton returned to Washington, he could report to North that "all troops should now have equipment. Will stand by for direc- tion from [Castillo]. He already told us not to send any more to [a Southern commandante] for a while. Never thought we would hear that." 181 The "hand-to-mouth" operation that had limped along on limited resources for so long had, with the support of certain individuals, finally delivered the goods. Under North's direction, Dutton's operational control, Castillo's critical assistance in locating, dis- patching, and scheduling the needs of the Southern troops, and Steele's coordination with the Command- er, the South received arms, while deliveries contin- ued apace to the FDN in the North. Indeed, for the rest of September, lethal drops were successfully made to both the FDN and the Southern forces. North duly reported the operation's success to Poin- dexter.182 When Dutton returned from Central America later that month, he met with North. North asked him to arrange a 1-day trip to the region so that he could personally thank the pilots and crew. North told him, "Bob, you will never get a medal for this, but some day the President will shake your hand and thank you for it."183 Dutton had also prepared a photograph album de- picting the operation: the operational bases, drop zones, aircraft, munitions, and the crew replete with assault machine guns and other assorted weapons. Dutton showed the album to North, who liked it and said he wanted to show it to "the top boss."84 North testified that he sent the album to Poindexter to show to the President, but never heard further about the album. Poindexter testified that he did not show the album to the President.185 North Expands His Special Operations Even with the $100 million in appropriated funds becoming available in the near future, North tried to get other aid for the Contras. In May, Israeli Defense Minister Yitzhak Rabin had offered to provide Israeli military advisers for the Southern front. Although nothing came of this offer, North and Rabin met again in September and discussed an Israeli transfer of Soviet bloc weapons to the Contras. Rabin wanted "to know if we had any need for SovBloc weaps and ammo he could make avail." Rabin asked whether North's ship, the Erria, had left the Mediterranean. When North responded that it was in Lisbon, Rabin suggested that it dock at Haifa and "have it filled w/ whatever they cd assemble" of a "recently seized PLO shipment captured at sea." '86 Poindexter sanctioned the Israeli arms offer: "I think you should go ahead and make it happen. It can be a private deal between Dick [Secord] and Rabin that we bless. . . . Keep the pressure on Bill [Casey] to make things right for Secord." Later, Poindexter cautioned "[a]bsolutely nobody else should know about this. Rabin should not say anything to anybody else except you or me." On September 15, North told Poindexter that "orders were passed to the ship this morning to proceed to Haifa to pick up the arms. Loading will be accomplished by Israeli military per- sonnel." 187 Despite Poindexter's caution, North later recounted the offer in a memorandum briefing the President for a visit from Israeli Prime Minister Shimon Peres. North wrote that Prime Minister Peres was likely to raise certain sensitive issues, such as the transfer of Soviet bloc arms by the Israelis "for use by the Nica- raguan democratic resistance." North recommended: 75 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 "If Peres raises this issue, it would be helpful if the President thanked him since the Israelis hold consid- erable stores of bloc ordinance compatible with what the Nicaraguan resistance now uses." Next to this sentence, Poindexter penciled: "Rabin. Very tightly held."188 As another expansion of his special operations, North received an offer from a third party to engage in sabatoge and other activities inside Nicaragua, to be financed with Enterprise funds. Poindexter ap- proved the sabatoge plan, but instructed North not to become involved in conspiracy or assassinations.189 According to North, the plan was never implemented because North was dismissed.19? The Operation Begins to Unravel: Disclosure of the Airstrip Along with others in the Administration, North had helped to prevent the disclosure of his operation to Congress. The extent of his involvement in Central America, however, made him open to exposure. Al- though the U.S. Congress was not told of North's role in supporting the Contras, Central American governments?including that in Managua?were aware of it. Eventually, one of those governments chose not to remain silent. Early in the morning on September 6, North learned that a Costa Rican official was threatening to hold a press conference announcing the existence of the Santa Elena airfield and alleging violations of Costa Rican law by North, Secord, and Udall Re- sources. North immediately called Assistant Secretary Abrams and told him that the press conference had to be stopped. Half an hour later, North had reached Ambassador Tambs and placed a conference call to Abrams.191 President Arias was scheduled to visit the United States, and Abrams "instructed Tambs to advert to the visit in a way which made it clear to President Arias that his visit was at risk." Abrams testified, "It was supposed to be diplomatic, but the message was supposed to be clear." North's notes reflect the idea of a greater threat than the cancellation of a White House visit: "Conf. call to Elliott Abrams and Amb. Lew Tambs; -Tell Arias; -Never set foot in W.H.; - Never get 5 [cents] of $80M promised by McPher- son." An hour or two later, Tambs had made the call (but did not threaten the cutoff of aid), and the press conference was cancelled.192 In his report to Poindexter, North exaggerated his own role in the crisis. In a PROF note, North told Poindexter he had personally forestalled the crisis by calling the President of Costa Rica and threatening to cut off aid. North conceded to Poindexter that he may have overstepped the bounds of his authority: "I recognize that I was well beyond my charter in deal- ing with a head of state this way and in making 76 threats/offers that may be impossible to deliver." Poindexter responded: "Thanks, 011ie, you did the right thing, but let's try to keep it quiet." North admitted in his testimony that he had not called Presi- dent Arias. He claimed, instead, that the PROF mes- sage "was specifically cast the way it was to protect the other two parties engaged." 193 The Costa Rican officials were delayed but not deterred by the call. On September 25, Costa Rican authorities held a press conference announcing the discovery of a "secret airstrip in Costa Rica that was over a mile long and which had been built and used by a Co. called Udall Services for supporting the Contras." Olmstead was named as the man who set up the airfield as a "training base for U.S. military advisors."194 North offered a "damage assessment" to Poin- dexter, assuring him that "all appropriate damage con- trol measures" had been undertaken to "keep USG [U.S. Government] fingerprints off this." He wrote to Poindexter: Udall Resources, Inc., S.A. is a proprietary of Project Democracy. It will cease to exist by noon today. There are no USG fingerprints on any of the operation and Olmstead is not the name of the agent?Olmstead does not exist. We have removed all Udall Resources . . . to another account in Panama, where Udall maintained an answering service and cover office. The office is now gone as are all files and paperwork.' 95 The New York Times picked up the story. North, with assistance from Abrams and others, drafted press guidance for the Administration's response. The "guidance," approved by Poindexter, stated that the airstrip had been offered to the Costa Rican Govern- ment "by the owners of the property who had appar- ently decided to abandon plans for a tourism project." It concluded: "No U.S. Government funds were allo- cated or used in connection with this site nor were any U.S. Government personnel involved in its con- struction. Any further inquiries should be referred to the Government of Costa Rica." The U.S. Govern- ment's role in facilitating the construction of the air- field was concealed.196 At the same time North was promoting this cover story, he suggested to Poindexter that steps be taken to "punish" the Costa Rican Government for the dis- closure.'97 On September 30, North again argued that any attempt to benefit President Arias should be quashed: "Those who counsel such a course of action are un- aware of the strategic importance of the air facility at Santa Elena and the damage caused by the Arias' government revelations." 198 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 The Covert Operation Ends The triumph of the airlift was short-lived. When Bill Cooper wrote to Dutton in late September after an- other successful drop, "Ho-Hum, just another day at the office," Dutton warned him to be careful.'29 On October 5, a C-123 left the Airbase at 9:50 a.m. local time with 10,000 pounds of ammunition for a drop to the FDN inside Nicaragua. Cooper was in command, Buzz Sawyer the co-pilot, and Eugene Ha- senfus the loadmaster who would actually drop the supplies. An FDN fighter was also on board for radio communications to the troops on the ground. Al- though the mission was to support the northern FDN forces, the plane flew a southern route to avoid San- dinista guns.20? First reports had the plane missing. Castillo sent Southern front troops to look for the plane and Dutton notified North's office in an attempt to mount a search operation. Earl attempted to arrange for a U.S. military search and rescue mission, while friend- ly governments in the region also organized a discreet search effort. Felix Rodriguez called the Vice Presi- dent's Deputy National Security Adviser at his home, telling him the plane could not be found. It was all to no avail: the plane had been hit by a Sandinista SAM- 7 over Nicaraguan territory. Three crew members were killed. Only Hasenfus survived, captured by the Sandinistas.201 Abrams called North and asked him to arrange to retrieve the bodies. The State Department issued press statements claiming no U.S. involvement in the mission.202 But the Enterprise had begun to unravel. The bodies of the crew were found bearing Southern Air Transport identification cards. The Federal Aviation Administration and the U.S. Customs Service began to investigate. With secrecy no longer possible, the resupply operation was shut down.203 Presidential Authorization and Knowledge The President told the Tower Review Board that he did not know that the NSC staff was assisting the Contras.204 After the Tower Report was issued, the President stated that private support for the Contras was "my idea." 205 In fact, the President knew of the contributions from Country 2.206 According to Poin- dexter, the President's policy was "to get what sup- port we could from third countries." 207 In general, Poindexter understood that the Presi- dent wanted the NSC staff to support the Contras, including encouraging private contributions. The President also knew, according to Poindexter, that North was the chief staff officer on Central America who was responsible for carrying out the President's general charter to keep the Contras alive. Poindexter regularly reported to the President on the status of the Contras, the fact that they were surviving, and "in general terms" North's role in facilitating their survival. As a result of these briefings, Poindexter thought that the President understood that both he and North were coordinating the effort to support the Contras. Poindexter also believed the President under- stood that "Col. North was instrumental in keeping the Contras supported without maybe understanding the details of exactly was he was doing." 208 As to the level of detail provided to the President on the Contra support operation, Poindexter testified that he: would not get into details with the President as to who was doing what. The President knew that there was a Boland Amendment, he knew there were restrictions on the government. As he has said, I think, since November of 1986, that he did not feel that the Boland Amendment applied to his personal staff and that that was his feeling all along. I knew that. He knew the Contras were being supported, and we simply didn't get into the details of exactly who was doing what.2" Poindexter testified that on one occasion, he briefed the President with some specificity about the Contra support program, but understood that the President did not recall the briefing: Now, you know, the President doesn't recall ap- parently a specific briefing in which I laid out in great detail all of the ways that we were going about implementing the President's policy, and I frankly don't find that surprising. It would not, frankly, at the time have been a matter of great interest as to exactly how we were implementing the President's policy.210 Without getting to the "extraneous ? detail[s]" of how the President's policy was being implemented, however, Poindexter briefed the President on the Santa Elena airstrip in Costa Rica. Poindexter testified that in December 1985, after he returned from Central America, he specifically briefed the President about the local assistance provided in establishing the air- strip. In addition, Poindexter informed the President that the "private individuals" were also involved in establishing the airstrip. At the same time, Poindexter excluded the "extraneous detail" that North, through Tambs and Castillo, had facilitated the construction of the airstrip.211 Similarly, while Poindexter thought that the President was aware of North's role in sup- porting the Contras, "it did not include something as specific as directing Col. North to conduct air supply operations." 212 North testified that he believed that the President approved his efforts to resupply the war. In fact, his actions support that belief. While Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 77 u Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Poindexter testified that he did not show the photo- graph album detailing the operation to the President, North testified that he sent the album to the President through Poindexter and told Dutton that the Presi- dent would thank Dutton for his efforts. Conclusion Although the North-Secord resupply operation ended on a disastrous note, with the shooting down of the Hasenfus plane, North had successfully managed, with the approval of his superiors, the covert pro- gram to assist the Contras for almost 2 years. The covert program that North had developed inevitably created conflicts of loyalties and shadings of duties among the persons whom he coopted to assist him. Felix Rodriguez was a close associate of Donald Gregg, the National Security Adviser to the Vice President. Yet North instructed Rodriguez not to tell Gregg that he was secretly working for North, and Rodriguez testified that he complied until the summer of 1986.213 According to North, Director Casey wanted to insulate the CIA's career employees from North's operation so that the CIA could not be charged with a violation of the Boland Amend- ment.2" CIA officials admitted that, far from their traditional role, they "actively shunned information. We did not want to know how the Contras were being funded . . . we actively discouraged people from telling us things." 215 78 The CIA's attempt to remain uninformed failed as North sought out the assistance of CIA personnel in Central America. Particularly after Congress amended the law to allow the CIA to exchange intelligence with the Contras, many flights undertaken by the Enterprise were reported by CIA field offices to CIA headquarters; and at least one CIA Chief of Station provided information necessary for the Enterprise to make accurate airdrops and avoid Sandinista fire. A CIA Chief of Station, the U.S. Ambassador to Costa Rica, and other operatives?both Government employees and private citizens?that North recruited with the approval of his superiors provided necessary support to his covert program of military support for the Contras. Yet throughout this time, the NSC staff repeatedly assured Congress that it was complying with the letter and spirit of the Boland Amendment. The NSC staff's resupply operation provided essen- tial support to the Contras' during 1986. Not only did North coordinate that effort, but he decided with Secord, after consulting the Contras' military com- manders, what supplies were needed in order to con- duct the entire Contra operation, both on the ground and in the air. North directed the Enterprise's efforts on behalf of the Contras with Poindexter's approval and in the belief that the President likewise concurred. The result was that, with the help of other U.S. Govern- ment officials, North managed to provide to the Con- tras what Congress had not: a full-scale program of military assistance. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Table 3-1.?Resupply Flights Made by the North/Secord Resupply Operation During 1986 DATE AIRCRAFT FDN/SOUTHERN NOTES 23 March 86 C-7 Caribou N/A Local Flight-No Cargo 24 March 86 C-7 Caribou N/A Local Flight-No Cargo 25 March 86 C-7 Caribou N/A Local Flights-No Cargo 26 March 86 C-7 Caribou N/A 3 Local Flights-No Cargo 28 March 86 C-7 Caribou N/A 2 Local Flights 28 March 86 C-7 Caribou N/A 2 Local Flights 28 March 86 C-7 Caribou N/A 2 Local Flights-No Cargo 31 March 86 C-7 Caribou N/A Local Flight-No Cargo 31 March 86 C-7 Caribou N/A Local Flight-No Cargo 31 March 86 C-7 Caribou N/A Training-No Cargo 1 April 86 C-7 Caribou FDN Lethal Cargo 3,440 lbs. 1 April 86 C-7 Caribou N/A Local Flight-No Cargo 4 April 86 C-7 Caribou FDN Lethal Cargo (2 flights) 9,200 lbs. 6 April 86 C-7 Caribou N/A Training 7 April 86 C-7 Caribou FDN Lethal Cargo (2 flights) 8,600 lbs. 8 April 86 C-7 Caribou FDN Lethal Cargo (2 flights) 11,500 lbs. 9 April 86 C-7 Caribou FDN Lethal Cargo (3 flights) 18,000 lbs. 10 April 86 C-7 Caribou FDN Lethal Cargo (2 flights) 7,900 lbs. 10 April 86 L-100 Southern Arrived DZ on time but never saw inverted or strobe light. Aborted after staying in area 25 minutes. Lethal Cargo: 18 bundles 11 April 86 C-7 Caribou FDN Lethal Cargo (3 flights) 16,250 lbs. 11 April 86 L-100 Southern Lethal drop UNO/ South received 20,000 lbs. ammo, grenades, rock- ets, launchers, rifles, magazines, etc. 1 May 86 C-7 Caribou FDN 1 May 86 C-7 Caribou FDN Lethal Cargo: Hard - 800 Soft - 700 5 May 86 C-7 Caribou FDN Lethal Cargo 5 May 86 C-7 Caribou FDN 7 May 86 C-7 Caribou FDN Lethal Cargo: 1000 lbs. 8 May 86 C-7 Caribou FDN Lethal Cargo 8 May 86 C-7 Caribou FDN Cargo: Soft 6300 9 May 86 C-7 Caribou FDN Cargo: Soft 3700 12 May 86 C-7 Caribou FDN 12 May 86 C-7 Caribou FDN Cargo: Soft 4150 12 May 86 C-7 Caribou FDN Lethal Cargo: 5140 lbs. 12 May 86 C-7 Caribou FDN Cargo: Soft - 6000 12 May 86 C-7 Caribou FDN Lethal Cargo: 3000 lbs. 13 May 86 C-7 Caribou FDN Lethal Drop 13 May 86 C-7 Caribou FDN Cargo: Hard - 3000 Soft - 20430 13 May 86 C-7 Caribou FDN Cargo: Hard - 3700 Soft - 1000 13 May 86 C-7 Caribou FDN Cargo: Hard - 500 Soft - 1500 13 May 86 C-7 Caribou FDN Cargo: Hard - 4150 14 May 86 C-7 Caribou FDN Cargo: Hard - 1000 Soft - 3850 14 May 86 C-7 Caribou FDN Cargo: Hard - 450 Soft - 4058 14 May 86 C-7 Caribou FDN Cargo: Hard - 2175 Soft - 3850 15 May 86 C-7 Caribou FDN Cargo: Soft - 5178 19 May 86 C-7 Caribou FDN Cargo: Soft - 600 20 May 86 C-7 Caribou FDN Cargo: Soft - 3756 20 May 86 C-7 Caribou FDN Cargo: Soft - 3778 20 May 86 C-7 Caribou FDN Cargo: Soft - 3714 20 May 86 C-7 Caribou FDN Cargo: Soft - 3778 21 May 86 C-7 Caribou N/A Airbase to Santa Elena airstrip and return 21 May 86 C-7 Caribou FDN Cargo: Soft - 3358 22 May 86 C-7 Caribou FDN Cargo: Soft - 358 6 June 86 C-123 N/A Airbase to Santa Elena airstrip and return 9 June 86 C-123 Southern Stuck in mud at Santa Elena 10,000 lbs of munitions, uniforms & medi- cines. 10 June 86 C-7 Caribou FDN Lethal Drop 79 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II . .. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Table 3-1.?Resupply Flights Made by the North/Secord Resupply Operation During 1986?Continued DATE AIRCRAFT FDN/SOUTHERN NOTES 11 June 86 C-123 N/A Return with 5000 pounds to Airbase 12 June 86 C-7 Caribou FDN 5000 pounds lethal 13 June 86 C-123 Loaded 7 pallets and Hold. Gross weight 7038 lbs. lethal. Bad weath- er put flight on hold until 1600 14 June 86 C-I23 Southern Lethal No drop zone contact 15 June 86 C-123 Southern Lethal, no drops made. While over Costa Rica, A/C bounced over the trees & damaged engine. By Checking radar with LORAN (a Navigational aid), A/C then flew over drop zone twice, avoiding enemy anti-aircraft fire. No DZ contact with troops. Plane down 7- 10 days. 21 June 86 C-7 Caribou Southern Refueled at San Jose AP Cargo: HK- 21 machine guns, cartridges, gre- nades Successful drop inside Nica- ragua 8 July 86 C-7 Caribou FDN Successful drop of lethal supplies to the FDN inside Nicaragua 9 July 86 C-7 Caribou FDN Lethal 8000 lbs. 9 July 86 C-123 Southern Airbase to Parrots Beak 10 July 86 C-7 Caribou FDN Drop 3 pallets of boots, 81 mm mor- tars & ammo plus small ammo, 6 pallets medical clothing & small ammo. DZ receipt confirmed. 12 July 86 C-7 Caribou Southern Lethal Cargo: Cartridges, grenades and non-lethal. Landed in San Jose, then returned to Airbase. 13 July 86 C-7 Caribou FDN Lethal drop made 1-1/2 mile from original DZ. 28 July 86 C-7 Caribou FDN Lethal drop. 29 July 86 C-7 Caribou FDN Lethal Cargo including ammunition is successfully dropped inside Nica- ragua. Inbound-received sporadic 37 mm AAA when crossing a road. Receipt of cargo confirmed by radio 31 July 86 C-7 Caribou FDN Lethal cargo dropped inside Nicara- gua. Receipt of cargo confirmed by radio 13 Aug 86 C-7 Caribou FDN Landed with 1500 lbs. 14 Aug 86 C-7 Caribou FDN Air drop 4580 lbs. lethal inside Nica- ragua. 30 mins in DZ 15 Aug 86 C-7 Caribou FDN Air Drop 4580 lbs. lethal Dropped 7 FDN parachute school graduates. 15 Aug 86 C-7 Caribou FDN 4030 lbs. 17 Aug 86 C-7 Caribou FDN Local Training 18 Aug 86 C-7 Caribou Southern 4000 lbs. Lethal Load 18 Aug 86 C-7 Caribou FDN 2,400 hand grenades 19 Aug 86 C-7 Caribou FDN Maintenance 20 Aug 86 C-7 Caribou FDN Still problems w/right engine 20 Aug 86 C-7 Caribou Southern C-7 Caribou returned w/4500 lbs. to be added to 7000 lbs. 21 Aug 86 C-7 Caribou FDN Still problems w/right engine 22 Aug 86 C-123 Southern Abort 23 Aug 86 C-123Southern Aborted 10,000 lbs. lethal 25 Aug 86 C-123 Southern Lethal Cargo Dropped 26 Aug 86 C-7 Caribou Southern Lethal 4800 pounds Returned w/load no radio contact no lights visible 27 Aug 86 C-7 Caribou Southern Lethal 4560 lbs. Bad weather. 28 Aug 86 C-7 Caribou Southern Lethal 4600 lbs. 5 Sept 86 C-7 Caribou Southern Lethal-10,000 lbs. No drop-20mm over DZ?no lights no radio con- tact?DZ UNO 80 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Table 3-1.?Resupply Flights Made by the North/Secord Resupply Operation During 1986?Continued DATE AIRCRAFT FDN/SOUTHERN NOTES 7 Sept 86 C-123 Southern Lethal HK-21 machine guns, car- tridges, C-4 explosive, hand gre- nades, shells 9 Sept 86 C-123 Southern Lethal No drop No contact in DZ Troops on ground unable to identi- fy coordinates of DZ. Bad weath- er. Arrived at coordinates early 10 Sept 86 C-7 Caribou FDN Weapons & supplies. 11 Sept 86 C-7 Caribou FDN Lethal 384 81mm shells 11 Sept 86 C-I23 Southern Lethal load 10,000 lbs. No drop made Bad weather. Called North's office to get assistance w/ weather reports. 12 Sept 86 C-123 Southern Drop 10,000 lbs. Rifles, grenades mortar shells, cartridges and non- lethal 12 Sept 86 C-7 Caribou FDN 3800 lbs. of ammo grenades and non- lethal 13 Sept 86 C-123 Southern 10,000 lbs. dropped cartridges, hand grenades and non-lethal 13 Sept 86 C-123 FDN 5,000 lbs food 4,630 grenades 13 Sept 86 C-7 Caribou FDN 1500 lbs of chutes & straps 13 Sept 86 C-7 Caribou FDN Additional delivery 14 Sept 86 C-123 . Southern 10,000 lbs cartridges, shells, machine guns, and grenades 14 Sept 86 C-7 Caribou FDN mortar shells 17 Sept 86 C-123 Southern 9850 lbs. cartridges, C-4 explosive, fuses, detonators, and grenades. 19 Sept 86 C-123 Southern 10,500 lbs. lethal 20 Sept 86 C-123 FDN in the Southern Provinces 10,500 lbs. lethal 3 machine guns, ammo, grenades, all received in good shape. 23 Sept 86 C-123 Southern 10,100 lbs 15 pallets Lethal: grenades, AK's 702 ammo 29 Sept 86 C-123 Southern Lethal Drop Cartridges, shells, and grenades 29 Sept 86 C-7 Caribou FDN 2,400 hand grenades 30 Sept 86 C-7 Caribou FDN Lethal Drop 30 Sept 86 C-7 Caribou FDN Lethal 5 Oct 86 C-123 FDN in the Southern Provinces Lethal; Plane shot down. Carrying guns & other ammo. Left Airbase at 0950. Full fuel and 10,000 lbs. route same as usual. Planned to return to Airbase 1530. Never reached DZ. Source: Flight logs and mission reports compiled by air resupply operation pilots and flight crew. 81 77-026 0 - 87 - 4 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Chapter 3 1. Secord Test., Hearings, 100-1 at pp. 57-65; (hereinafter "Secord"), North Test., Hearings, 100-7 I at 162; (herein- after "North"), Signed Memorandum of Interview of Rich- ard V. Secord, Aug. 18, 1987 (hereinafter "Secord Inter- view"). 2. Id. 3. Secord, Id. 4. Secord, Hearings, 100-1 at 58. 5. Id.; Owen, Hearings, 100-2, at p. 36. See also Section on Enterprise of the Narrative. 6. See Note 1 supra. 7. Id. 8. Id. 9. Id. Although the participants did not decide to author- ize specific action, they agreed on the need to conduct resistance activities inside Nicaragua's urban areas. This too was a subject that North and Calero had previously dis- cussed. Indeed, North had in December introduced Calero to David Walker, a British insurgency expert, to conduct such operations. 10. North Test., Hearings, 100-7, at 94. 11. McFarlane Test., Hearings, 100-2, at 96-97. 12. Poindexter Test., Hearings, 100-8, at 8 (hereinafter "Poindexter"). See also North, 100-7, at 150 and Secord at 6061, 138. 13. International Security and Develop. Act of 1985, Pub. L. 99-88, 99 Stat. 149. 14. Supplemental Appropriations Act for 1985, Pub. L. 99-88. 15. Calero Test., Hearings, 100-3, at 12. 16. Duemling Deposition, 8/20/87, at 9-11. 17. Duemling Deposition, 8/20/87, at 46-48. 18. Duemling Deposition, 8/20/87, at 28-29; Abrams Test., 100-3 at 35-36. 19. Secord Test. Id., Secord Interview and Deposition of Richard Gadd, May 1, 1987 at 6-7. 20. Id. 21. Id.; Castillo Test., Hearings, 100-4, at 40 et seq. (here- inafter "Castillo"). 22. Poindexter, Test., Hearings, 100-8, at 75. 23. Tambs Test., Hearings, 100-3, at 367-68, 375, 427; North, 100-7, 7/8/87, at 150. 24. North Test., Hearings, 100-7, Part 1 at 173-174. North did not identify which members of the Restricted Inter- Agency Group were present during these discussions. (Id.) 25. Abrams Test., Hearings, 100-5 at 20. 26. North Notebooks, 8/10, 8/18/85; Castillo at 11-15, Exhibits TC-1 and TC-2 at 87 et seq. 27. Memo from TC (Owen) to BG (North), 8/25/85, RWO Exhibit 9; Castillo at 14 and 60 et seq. 28. Owen at 351; Castillo at 16; North Notebooks 9/3/86 and 9/17/86; Interview of Joseph Hamilton; H6345 (summa- ry of CSF Ledger). 29. North Notebooks 10/3/85; Gadd Dep., 5/1/87, at 19- 22. 30. North Notebooks, 9/10/85. 31. Gregg Dep., 5/18/87 at 27. 32. North Notebooks, 9/16/85. 33. Rodriguez Test., Hearings, 100-3, at 289-90; Ex. FIR-1 (hereinafter Rodriguez). 34. Poindexter Test., Hearings, 100-8, at 75. 82 35. North Notebooks 7/23-24/85, 8/3/85, 8/15/85; Dutton Test., Hearings, 100-3, at 212 and 283 (hereinafter Dutton); Coors Test., Hearings, 100-3, at 44. 36. Gadd Dep., 5/1/87, at 13-16; Dutton at 212. 37. Gadd Dep., 5/1/87, at 16-19; Secord Interview Para. 3; North Notebooks 11/15/86; Abrams Test., Hearings, 100- 5, at 145-46; N12087 PROF Note 11/20/85, Exhibit OLN- 87. 38. Secord Interview, Para. 4; Gadd Dep., 5/1/87, at 12- 13. While the search for aircraft continued, in October 1985, North directed troop salary payments to the FDN and in December 1985, another 85,000 pounds of ammunition and other arms arrived for the FDN from the Enterprise.(/d., CSF Adjusted Ledger) 39. McFarlane, Test., Hearings, 100-2, at 28-29. 40. North Test., Hearings, 100-7, at 78-79. 41. Sigur Test., Hearings, 100-2, at 286-287. 42. North Test., Hearings, 100-7, at 78-79. 43. Ex. RCM-26. 44. Sigur Test., Hearings, 100-2, at 288-89. 45. Sigur Test., Hearings, 100-2, at 289. 46. Sigur Test., Hearings, 100-2, at 290. 47. North Test., Hearings, 100-7, at 79. 48. Sigur Test., Hearings, 100-2, at 291, id. at 286-292. 49. Owen Test., Hearings, 100-2, at 11-14; North Test., Hearings, 100-7, Part I, at 208. Congressman Jenkins gave this political context for the contribution from Country Three: "In October 1985 when the NSC staff was schedul- ing an appointment for Colonel North to meet with one of these countries that later contributed $2 million, I was in- volved in a tough legislative battle in this House. On Octo- ber 12, I believe, of 1985, this House passed a textile bill, very controversial. At that very time, Colonel North appar- ently was soliciting, from a nation that was impacted by this bill, funds secretly and that country later delivered $2 mil- lion, according to the testimony. The President vetoed that bill in December 1985 and between December 1985 and August 1986, when the Congress decided to sustain the President by an eight-vote margin, there were entreaties apparently made to many other nations that were impacted by this legislation." McFarlane 100-2, at 279. 50. S4344, Handwritten Notes, 9/24/85. 51. Owen Test., Hearings, 100-2, at 355; Duemling Dep., 8/20/87 at 65-68 and 60-63. 52. Owen Exhibit RWO-14, 100-2 at 825-26; RWO-17, 100-2 at 831. The contract between Institute for Democra- cy, Education and Assistance, Inc. and NHAO provided that as a condition of the receipt of this grant, the grantee [IDEA] agrees . . . "that Mr. Robert Owen shall not during the term of this Grant perform any service which is related to the acquisition, transportation, repair, storage or use of weapons, weapons systems, ammunition or other. . . [lethal aid]." RWO-17, Duemling Dep. at 69. 53. Owen Test., Hearings, 100-2, at 380. 54. Gadd Dep., 5/1/87, at 24-26. 55. North Test., Hearings, 100-7, at 268. 56. Poindexter Depo., 5/2/87 at 64; Memo from North to Poindexter, 12/2/85. 57. PROF Note, North to Poindexter, 12/5/85, 22:12:05. 58. N49179, Memo, North to Poindexter, 12/10/85. 59. Id. 60. Poindexter at 222-27, 310; Tambs at 380-81; Deposi- tion of Poindexter, 5/2/87 at 64-68. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 61. Singlaub Test., Hearings, 100-3, at 89-90; Exhibit JKS- 6 at 462-65. 62. N10720-28, Memo from Burghardt to Poindexter, 1/14/86. 63. Gadd Dep., 5/1/87, at 15, 21 and 26. 64. North Test., Hearings, 100-7, at 140-41; 151. 65. Gadd Dep., 5/1/87, at 42; North at 7/7/87 at 84, 150, Secord at 65, 252; Dutton at 208-09; Poindexter at 75; North Notebooks 1/15/86. 66. At the end of December 1985, Steele called North to report that all was "OK" on final flight arrangements at the Airbase and that fuel for the aircraft had to be handled on a "pay as you go" basis. On January 6, North talked to Steele about problems with Felix Rodriguez, including security concerns and Rodroguez' ties to an arms dealer connected to the military of a Central American country. Despite various organizational problems, Steele called North a week later to report significant progress. The Commander was now "fully aboard." The building construction for a ware- house was underway, and all that was needed was money to pay for the fuel. On January 16, North discussed with Steele the 3 Butler buildings Gadd was constructing and operational security at the Airbase. North talked to Steele again on January 20 concerning additional operational prob- lems and determined (apparently after a call from the Chief of the CATF) that flight planning data for resupply aircraft should be passed to Steele for local coordination. North Notebooks 12/19/85, 12/23/85, 1/6/86, 1/20/86, 1/31/86; Depo. of Col. James Steele 4/21/87 at 27, 68. 67. Id.; North Notebooks 1/16/86; Dep. of Gen. John Galvin, 6/13/87 at 32-33; Castillo, Test., Hearings, 100-4, at 15-16. 68. Id. By this time, North had also coordinated with Castillo, Quintero's arrival and help in overseeing the air- strip construction, particularly in obtaining local supplies. (Id.) 69. Secord Int. Para. 8; North Notebooks Feb. 27, 1986. 70. Rodriguez Test., Hearings, 100-3, at 292. 71. On Feb. 18, North wrote in his notebook: "Call [Chief of the CATF at the CIA] ASAP. Find A/C: L-100 C-7 standby. See Duemling - Americit crews." The C-7 at that time was still on standby while the L-100 were the aircraft Gadd had chartered from Southern Air Transport to deliver humanitarian supplies under NHAO contract from the United States to Central America. North Notebooks 2/18/86 and 2/29/86; Gadd at 34 et. seq.; C/CATF Dep. I 5/1/87 at 91, 103-05, 114. 72. Id. 73. Owen, RWO-11, 100-3 at 816-17. 74. Owen, at 358, and RWO-14 at 825. 75. Poindexter at 222-27; Castillo Test., Hearings, 100-4, at 33. 76. Id. 77. See Table of Resupply Flights made by the North/ Secord Resupply Operation During 1986, infra. 78. RWO-14a, 100-3 at 825. 79. Gadd Dep., 5/1/87, at 39; KL-43 Message April 1986; OLN-88, Hearings, 100-7, Part 3. 80. Gadd Dep., 5/1/87, at 34-35; KL-43 Message 4/8/86, Secord to Quintero (82330Z Apr 86). 81. KL-43 Message, 4/9/86 [Copp: 4/9/86 0945]. 82. Castillo at 21-23; C/CATF Dep. I 5/1/87 at 114. 83. Castillo at 24; Dep. of Ian Crawford, 3/13/87 at 60- 61; Secord Ex. 3, 100-1 at 418-20. 84. Castillo at 22; Exhibit TC-6, 100-4. (KL-43, 4/12/86); Dep. of Ian Crawford, 3/13/87, pp. 58-63. 85. See Note 77 supra; Crawford Dep., 3/13/87 at 58-63; Dep. of CIA Field Operations Officer, at 45 et. seq. 86. Rodriguez Test., Hearings, 100-3, at 299; Gadd at 37- 38; Secord Int. at Para. 6. 87. North to McFarlane Memorandum dated Dec. 4, 1984; Secord at 66-67; Exhibits OLN-83, 84, 281, 282. See also Chapter 2. 88. Secord at 68; Secord Int. Para. 8; H893 Wire Trans- fer; Dutton at 214. 89. Secord at 64; Dutton at 204-08. 90. Dutton at 208. See also Dutton Chronology of Events for May. 91. Dutton at 208, 212-13; Dutton Chronology of Events, entry for 5/19/86. 92. Id. 93. Dutton at 208, 223; Secord at 68. 94. PROF Note, OLN to JMP, 5/16, 19:29:43. 95. Dutton, Test., Hearings, 100-3, at 54. 96. Dutton, Test., Hearings, 100-3, at 118. 97. Dutton Ex. RCD-14. 98. Secord 5/7 at 111. 99. Dutton at 119-20. 100. Id. at 119-20. 101. Id. 102. Id. 103. Dutton at 213-14; Secord Int. Para. 8; Exhibits RCD- 14 and RCD-15, 100-3. 104. Dutton at 214-15; Secord at 251. 105. Dutton at 215 and 218. 106. Dutton at 216-17; KL-43 Message dated 6/9/86; Pilot Mission Reports; Secord at 74. 107. KL-43 #R00022; Tambs at 381-83 and 407; Castillo at 32-33; Interview of John C. Taylor, Commander of the Office of Defense Cooperation, U.S. Embassy, Costa Rica. 108. North Notebooks, 6/10/86; Secord Int. Para. 7; H495 Wire Transfer. 109. PROF Note, North to Poindexter, 6/10/86, Ex. OLN-70, 100-7, Part III. 110. See Note 108 supra. 111. Dutton at 217; Pilot Mission Report of Bill Cooper and John Piowatty; Dutton Chronology for June. See also Note 74. 112. KL-43 Message North to Castillo 6/16/86, Ex. OLN-89, 100-7, Part III. 113. Dutton at 217-219; Ex. RCD-14 at 8. 114. PROF Note, 5/2/86, Ex. JMP-45, 100-8. 115. PROF Note, Ex. OLN-287, 100-7, Part III. 116. PROF Note, Ex. OLN-27, 100-7, Part 3. 117. PROF Note, Ex. OLN-4; 100-7, Part III. 118. Singlaub Test., Hearings, 100-3, at 90. 119. Id. at 91. 120. Abrams Test. Hearings, 100-5, at 56-58, 124. 121. Depo. of Richard Melton, May 27, 1987, at 14-15, 20-21, 25 and 32. 122. Memo, Ex. JMP-50, N3873-34; N3738 Drop by CSIS Briefing (Robinson) 6/10/86. 123. N10290, Memo from Burghardt to McDaniel, 6/4/86. 124. N3738, Drop by CSIS Briefing (Robinson) 6/10/86. 125. N10296, Memo from Burghardt to McDaniel, 6/4/86. See also Shultz Test., at 17-19. 83 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 126. PROF Note, North to Poindexter, Ex. OLN-10, 100- 7, Part III. 127. North Test., Hearings, 100-7, Part 1, at 311-13. 128. Id. at 310; Ex. OLN-10, 100-7, Part III. 129. Id. 130. Ex. OLN-11, 100-7, Part III; PROF Note, Ray Burghardt to RBM, 5/28/86, 18:36, N18096. 131. PROF Note, North to Poindexter, Ex. OLN-70, 100- 7, Part III. 132. Id. 133. Id. and Ex. JMP-52, 100-8. 134. Shultz Test., Hearings, 100-9, at 4, 18-19, Ex. GPS-8. 135. PROF Note, 6/10/86 Poindexter to North, Ex. OLN-81. 136. Abrams Test., Hearings, 100-5, at 34; Shultz at 19. 137. Shultz Test., Hearings, 100-9, at 20. 138. PROF Note, 6/10/86, Poindexter to North, Ex. OLN-81. 139. Shultz Test., Hearings at 19-20. 140. Abrams, 100-5 at 126-31. 141. Abrams, 100-5 at 34. 142. Abrams, 100-5 at 42; North, 100-7, Part 1 at 33; Hall, 100-5 at 88. 143. Rodriguez Test., Hearings, 100-3, at 252-55. 144. N46325; Memo from Don Gregg to Debbie Hutton, 4/16/87; Deposition of Phyllis M. Byrne, 6/16/87 at 13; Samuel Watson Dep., 6/16/87 at 26-27. 145. Rodriguez at 257-60. 146. Id.; Depo. of Nicholas Brady, Oct. 1, 1987. 147. Dutton at 255-56; Dep. of Robert Earl 5/22/87 at 163. 148. KL-43 Message Dutton to North, 6/8/86 Ex. RCD- 1; Dutton at 220-21. 149. Dutton at 221-22; Rodriguez at 305 et seq. 150. Rodriguez at 306. See Note 65. 151. Id.; North, 100-7, Part 1 at 48. 152. N37096, Memo dated 6/25/86, Presidential State- ment: Victory of Contra Aid Legislation. 153. Poindexter, 100-8 at 104. 154. North, 100-7 at 312; Dutton at 222-25. 155. Ex. OLN-198, 100-7, Part III. 156. Secord Ex. 4, 100-1 at 439. 157. Ex. OLN-158, 100-7, Part III; North, 7/14/87 at 146. 158. PROF Note, 7/86, 15:31, Poindexter to North. North continued to hope, up through September, that the assets could be sold. On Sept. 3 or 4, North met with Ambassador Tambs and told him that he wanted to sell the assets because the Freedom Fighters were out of money. North hoped to raise about $5 million. Tambs was skeptical. He knew that the Costa Rican Government closed down the airstrip. Tambs asked North: "How could you sell something which you couldn't use?" North did not reply. Tambs, 5/28 at 170-72, 234. 159. George Test., Hearings, 100-11, at 35-36. 160. Dutton at 225-226; Rodriguez at 307-309; KL-43 Messages in July and August. 161. Id. 162. North Notebooks, 8/6/86. 163. Dep. of Donald Gregg at 11-12. 164. North Notebooks, 8/7/86. 165. Dep. of Robert Earl, 5/2/87 at 101-04. 166. Rodriguez at 309-10; Earl at 166-69. Sam Watson, Gregg's deputy, was also at the meeting. His notes state: 84 "Felix?Tom Clines, Secord?Ripping Off Contras?Fraud, a crime to profit." N46663. 167. Gregg Dep. 5/18/87 at 28-29. 168. Gregg Dep., 5/18/87 at 14, 34. 169. Gregg Dep. at 30-31; Earl Dep. at 175. 170. KL-Messages # 340, 342, 347, 351, and 345. See also Secord Ex. 3, 100-1 at 430 et seq; Dutton at 225-27. 171. Dutton at 225-27; Steele Dep. at 72. 172. See Note 170 supra. 173. KL-43 8/22/86 Secord Exhibit 3 at 431. 174. Dutton at 234. 175. North, 100-7 I at 86-89 and 158. 176. Hearings, Testimony of C/CATF 8/5/87 at 66-67. 177. Dutton at 229-30; KL-43 8/22/86 RCD-5. 178. Id. North Notebooks 9/4/86; KL-43, Secord Ex. 3 at 434. 179. Dutton at 230-35 and accompanying exhibits, RCD- 6, 7, 8 and 9. 180. Id. 181. KL-43 Messages Ex. RCD-9, 10 and KL-43 Message Dutton to North, 9/17/86, #423. 182. Dutton at 232-34; Ex. OLN-162, 100-7; PROF Note North to Poindexter Sept. 15, 1986. 183. Dutton at 236. 184. Dutton at 236-37. 185. North at 133; Poindexter at 227. 186. PROF Note, 9/12/86, 21:50, North to Poindexter (N12163). 187. Ex. OLN-60, OLN-160, OLN-161, 100-7, Part III; Ex. JMP 60, 100-8. 188. Ex. OLN-303, 100-7, Part III. 189. North Test., Executive Session. 190. Id. 191. North Notebooks 9/6/86; Tambs at 210. 192. Id., Abrams at 124-25. 193. Ex. OLN-203, 100-7, PROF Note, 9/7/86, 11:18:45, Poindexter to North; Ex. OLN-301, 100-7, Part III; North Test., 100-7 I at pp. 86-87. 194. PROF Note, 9/25/86, 11:23, Poindexter to North. 195. N18064-65, Prof Note, 9/25/86, 17:39:51 North to Poindexter 196. N30783, Memo North to Poindexter, 9/30/86 197. N18063, Prof Note, 9/25/86, 11:23:45, Poindexter to North 198. N30782, Memo, North to Poindexter, 9/30/86 199. Dutton at 237-38. 200. Dutton at 238-39; KL-43 Message, Ex. RCD-12. 201. Id. 202. Abrams Test., Hearings, 100-5, at 62. 203. Dutton at 239-40. 204. Report of the President's Special Review Board, February 26, 1987 at 111-24. 205. The New York Times, May 16, 1987 at Al. 206. McFarlane Test., Hearings, 100-2, at 17. 207. Poindexter Test., Hearings, 100-8, at 54-55. 208. Poindexter, 100-8, at 54-55, 73-76, 89, 222-29. 209. Poindexter, 100-8 at 101. 210. Id. 211. Poindexter, 100-8 at 225-226. 212. Id. at 229. 213. Rodriguez, 100-3 at 67. 214. North at 223-225. 215. Gates Test., Senate Select Committee on Intelligence Dec. 4, 1986, at 38. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Private Fundraising: The Channell-Miller Operation While donations from other countries and profits from the Iran arms sales provided most of the money for lethal assistance to the Contras after the Boland Amendment, the network of private foundations and organizations formed by Carl R. "Spitz" Channell and Richard R. Miller also played a role. Channell's prin- cipal organization, the tax-exempt National Endow- ment for the Preservation of Liberty (NEPL), used White House briefings and private meetings with the President to raise more than $10 million from private contributors, almost all for the Contra cause. Over half of this total came from two elderly widows? Barbara Newington and Ellen Garwood?who made the bulk of their contributions after receiving private and emotional presentations by Lt. Col. Oliver North on the Contras' cause and military needs. One dozen contributors accounted for 90 percent of NEPL's funds in 1985 and 1986. Of the $10 million that was raised, only approxi- mately $4.5 million was funnelled to, or spent on behalf of, the Contras, including more than $1 million for political advertising and lobbying. The rest was retained by Miller and Channell for salaries, fees, and expenses incurred by their organizations, including compensation to their associates, David Fischer and Martin Artiano. The NEPL money spent for direct and indirect assistance to the Contras was disbursed primarily by Miller at the direction of North. Approximately $1.7 million was "washed" by Channell through Miller's domestic and Cayman Island entities?International Business Communications (IBC) and I.C., Inc.?to the Enterprise, where it was commingled with funds from third-country contributions and the Iranian arms sale. Another $1 million was passed at the direction of North through Miller's entities to accounts controlled by Adolfo Calero, and approximately $500,000 was distributed at North's request to other persons and entities engaged in activities relating to the Contras. Channell and Miller made elaborate efforts to con- ceal the nature of their fundraising activities and North's role. Certain funds received by NEPL for Contra assistance were allocated on Channell's books to a project denominated "Toys," a euphemism for weapons. The NEPL and IBC employees were in- structed to refer to North by a code name, "Green." Funds were transferred to the Contras, not directly? which would be traceable?but through Miller's anonymous offshore entity, I.C., Inc. North misrepre- sented to several White House officials the nature of the network's fundraising activities. For instance, the President apparently was led to believe that the funds were being raised for political advertising; the Presi- dent's Chief of Staff, Donald Regan, was deliberately kept in the dark by North and Admiral John Poin- dexter; and North misrepresented to Congress and White House personnel the nature of his involvement in the activities of NEPL and IBC. As a result, the network was able to operate successfully until the latter part of 1986, when increased Government aid to the Contras and public disclosure of both the Iranian arms sales and the Contra resupply network made further assistance efforts unnecessary and unwise. By using a tax-exempt organization to funnel money to the Contras?for arms and other purposes? Channell and Miller provided tax deductions to donors. As a result, the U.S. Government effectively subsidized a portion of contributions intended for lethal aid to the Contras. In the spring of 1986, Chan- nell and Miller pled guilty to criminal tax charges of conspiring to defraud "the United States Treasury of revenues to which it was entitled by subverting and corrupting the lawful purposes . . . of NEPL by using NEPL . . . to solicit contributions to purchase mili- tary and other non-humanitarian aid for the Contras." At his plea hearing, Channell identified Miller and North as his co-conspirators. The Background Carl R. "Spitz" Channel! Channell, 42, was raised in Elkton, West Virginia. He attended American University from 1963 to 1968 and then, for a brief period, the Union Theological Seminary in Virginia. He left to join the Army and, after service for 3 years, received an honorable dis- charge.3 In 1976, Channell began to work for Terry Dolan, the founder of the National Conservative Political Action Committee (NCPAC). His initial responsibility was assisting in Congressional campaigns. After the 85 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ..1.. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 1978 elections, Dolan asked Channell to shift to fund- raising. To Channell's own surprise, he was an instant success, and was named by Dolan as NCPAC's first national finance chairman. In that position, Channell concentrated on NCPAC's "high dollar donor pro- gram" and set up a number of briefings in Washington for potentially large contributors.2 This fundraising method was to become the standard operating proce- dure for the Channell-Miller network. In 1982, Channell left NCPAC to form his own political consulting organization, the Channell Corpo- ration, to offer fundraising advice to campaigns and candidates. By 1984, he began to establish a network of other politically-oriented foundations. First, he founded the American Conservative Trust (ACT) as a Political Action Committee (PAC). At approximately the same time, he incorporated NEPL and sought Internal Revenue Service (IRS) recognition of NEPL as a tax-exempt foundation under Section 501(c)(3) of the Internal Revenue Code.3 In its application for tax-exempt status, NEPL as- serted that it was formed "to educate members of the general public on American political systems and soci- etal institutions." The application further stated that this education was to be accomplished through the study of the development of American political sys- tems and the influence of such systems on societal institutions in the United States. NEPL indicated to the IRS that it would collect information on these topics, make that information available to the general public, and eventually conduct seminars.4 On December 12, 1984, the IRS issued a determina- tion letter stating that, based on the information con- tained in NEPL's application and assuming that its operations would be consistent with the program out- lined in the application, NEPL qualified as an exempt organization under Section 501(c)(3).5* According to Channell, when he formed NEPL in late 1984, most "Washington insiders" doubted that anyone could raise money to advance foreign policy. Channell, however, believed that he could succeed because his major donors were committed to Presi- *Channell formed additional entities between 1983 and 1986. The American Conservative Trust State Election Fund (ACT-SEF) was formed as a state PAC to take advantage of state laws allowing corporate contributions to such entities. "Sentinel" was formed in 1983 as a lobbying organization under Section 501(c)(4) of the tax code. The "American Conservative Foundation," a 501(c)(3) corpo- ration also established in 1983, was intended to focus on issues that were "more worldwide in scope and interest" than NEPL. The "Anti-Terrorism American Committee" (ATAC) was formed in 1986 as a PAC focusing on "congressional attitudes toward terror- ism and policies associated with terrorism." "Grow Washington" and "Hill Potomac" were corporations established to pursue specif- ic initiatives that, according to Channell, never materialized. Those entities have therefore remained inactive and unfunded. In 1986, Channell assumed control of another conservative organization, Western Goals, which had been established by the late Representa- tive Larry McDonald. Channell Dep., 9/1/87, at 62-66. 86 dent Reagan and his philosophy toward foreign af- fairs. 6 At first, NEPL concentrated on raising funds to publicize "European issues," e.g., SALT, summits, and nuclear freeze proposals. In January 1985, after NEPL ran a large newspaper advertisement congratu- lating President Reagan on his inauguration, Channell received a call from Edie Fraser of the public rela- tions firm, Miner & Fraser. According to Channell, Fraser indicated that she admired the ad and asked for NEPL's assistance in organizing and promoting a fundraising dinner for the Nicaraguan Refugee Fund (NRF). This was Channell's introduction to the Con- tras' cause.7 To assist him, Channell recruited Daniel Conrad, a fundraising consultant from San Francisco, with whom Channell had dealt on earlier occasions. Conrad came to Washington, and together he and Channell initiated NEPL's involvement in the Nicara- guan issue.8 Daniel L. Conrad Conrad, 44, received a bachelors degree in English and Political Science from Northwestern University in 1965. He also did graduate work in philosophy and business at Northwestern and the University of Michi- gan.3 In the late 1960s, after short stints as a manage- ment trainee at Ford Motor Company and a fundrais- er for Northwestern, Conrad joined Harvey Fundrais- ing Management of Milwaukee, Wisconsin, as a field director for campaigns. In the early 1970s, after a brief career as a stock- broker, Conrad started his own firm, the Institute for Fundraising, in San Francisco. It was a sole propri- etorship that presented seminars, produced manuals, and offered consulting services in the field of fund- raising." In the late 1970s, Conrad incorporated his business as Public Management Institute (PMI), which evolved from a training and consulting services firm to one primarily engaged in the publishing of periodicals and reference materials on financial grants and capital campaigns. Conrad himself continued, however, to consult on fundraising matters.12 Conrad first met Channell in 1978 or 1979 at a seminar on fundraising being taught by Conrad in Alexandria, Virginia. After their initial meeting, Channell called Conrad periodically for informal advice on fundraising. In 1983 or 1984, Channell hired Conrad as a consultant to advise him on how to build a political consulting business, an assignment that lasted approximately 1 week.13 Given Channell's history of looking to Conrad for advice, it was natural for Channell to ask Conrad to assist him in fundraising for the Contras?even though Conrad had never been involved in political fundraising and had no particular interest in the Nica- raguan issue." Their financial arrangement was never Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 formalized. According to Conrad, Channell just gave him money periodically. For his efforts on the NRF dinner, for example, Conrad recalls receiving $10,000 or $15,000 from Channell, $10,000 from the NRF, and $1,500 from Miner & Fraser. After that time, Con- rad's compensation "kept changing," with Channell deciding at various intervals how much to pay him. According to Conrad, he signed on with Channell's organizations more as a matter of friendship than as a matter of business. i5 Although Conrad had no formal position or title, he served initially as the number two person in each of Channell's organizations. Channell eventually gave him the title, "Executive Director."18 When Conrad joined Channell, the common offices for Channell's various entities were in a small town- house at 305 4th Street, NE, in Washington, D.C. Later, in August 1986, as money from Contra donors rolled in, they moved to luxurious and spacious new quarters in National Place, 1331 Pennsylvania Avenue, NW, Washington, D.C., and hired additional staff and fundraisers. Lines of authority in Channell's organization were informal. Fundraisers reported either to Conrad or Channell, who shared responsibility for training them. Channell, however, was generally in charge of pre- paring the script to be used for soliciting prospective donors. '7 Richard R. Miller and IBC Miller, 35, received a bachelors degree in 1976 from the University of Maryland. During parts of 1979 and 1980, he served as director of broadcast services for the Reagan campaign. William Casey, Director of the 1980 Presidential campaign, furloughed him when funds ran short but then rehired him. During the furlough, Miller formed Ram Communications, a short-lived public relations firm.18 After the 1980 election, Miller served on the transi- tion team and then briefly as special assistant to the director of public affairs in the Department of Trans- portation. From February 1981 to February 1983, he was chief of news and public affairs for the Agency for International Development (AID). He was then promoted to public affairs director at AID, where he remained until 1984.19 Upon leaving AID, Miller established IBC as a sole proprietorship to engage in media relations, strategic planning for public affairs, political analysis, and exec- utive branch liaison. In 1984, he began to work with Francis Gomez who recently had left his position as Deputy Assistant Secretary for Public Affairs in the State Department. Miller had first met Gomez in Feb- ruary 1982.20 Immediately upon leaving the State Department in February 1984, Gomez received a contract from the State Department to assist its newly formed Office of Public Diplomacy for Latin America and the Caribbe- an (S/LPD) with public relations advice and support. The original purchase order for the contract specified that Gomez was to write talking point papers on Central America, prepare speaker kits, identify and refute distortions and false allegations regarding U.S. policy, draft sample speeches, prepare op-ed pieces and feature articles, assist Central American refugees and exiles visiting Washington, arrange media events for them, and make them available for Congressional interviews.21 This contract was renewed with Gomez in May 1984 and then assumed by IBC in August or Septem- ber 1984. Before it terminated in September 1986 after several renewals, Gomez and IBC received a total of $441,084 from the State Department.22* By mid-1984, with the assumption of the State De- partment contract, IBC was functioning as an infor- mal partnership between Miller and Gomez, even though Gomez was technically a subcontractor to IBC. At a later time, Miller and Gomez would each establish personal corporations?Miller Communica- tions, Inc. and Gomez International, Inc.?and, effec- tive January 1, 1986, would restructure IBC into a partnership of those two entities. There is not, howev- er, any written partnership agreement.23** In September 1984, IBC also began to represent one of Adolfo Calero's organizations, the Nicaraguan De- velopment Council (NDC). Initially, IBC charged NDC $3,000 a month for public relations services, a fee that was later raised to $5,000 a month when IBC hired a full-time employee to do work for NDC. This relationship gave Miller and Gomez significant oppor- tunities to work closely with Calero, Alfonso Robelo, and Arturo Cruz.24 In the course of assisting the Contras with their public relations, Miller was introduced to North, ap- parently by either Otto Reich or Jonathan Miller (no relation)?Director and Deputy Director of S/LPD? who were IBC's principal contacts at the State De- partment.25 In early 1985, Richard Miller became in- volved with the NRF dinner, with which Channel! and Conrad were also engaged. This was the begin- ning of their relationship, although the dinner de- manded little of their respective energies and was organized and run principally by others. *In Audit Report No. 7PP-008, July 1987, the State Depart- ment's Office of Inspector General filed its conclusions reached after a special inquiry into the awarding and supervision of these contracts with Gomez and IBC. That report concluded, in summa- ry, that, while the original contract was justifiable, its utility became questionable during its later stages. The Inspector General also criticized the sole-source, noncompetitive process for awarding and administering the contracts, especially the classification of one version of the contracts as "SECRET," indicating that the classifi- cation was unjustified and improper. Audit Report at 32-33. "In July 1986, IBC entered into a joint venture with David C. Fischer & Associates, a consulting firm founded by a former aide to President Reagan. R. Miller Dep., 8/20/87, at 93-95. 87 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 The NRF Dinner According to Channell, the NRF dinner had to be postponed several times and was an organizational disaster. When it finally took place on April 15, 1985, President Reagan attended and delivered the keynote address. The NRF dinner proved to Channell that large and expensive functions were not an efficient method of raising money for the Contras, but the President's commitment to the Contra cause con- vinced Channell that the Nicaraguan issue was fertile ground for fundraising and public education." Thereafter, Channell and Conrad, with the assist- ance of Miller, concentrated on private meetings with potential large donors, who would be given an audi- ence with North and, in some cases, a photo opportu- nity with the President. The idea of focusing on potential big givers to the Contras was not new. Edie Fraser, one of the princi- pal organizers of the NRF dinner, testified that at the suggestion of the State Department she met with North on December 11, 1984, to seek White House "participation" in the dinner. At that meeting, Fraser mentioned the Sultan of Brunei to North as a possible contributor to the NRF. Fraser explained that the Sultan had come to her attention because he had made a contribution to UNICEF in honor of Mrs. Reagan. On December 28, 1984, Fraser sent further biographical information on the Sultan to North, but does not know if North ever followed this lead." On March 4, 1985, Fraser sent additional informa- tion to North on the planned dinner. At the bottom of the cover letter she added a handwritten note: "011ie, Very Imp., Two people want to give major contribs i.e. 300,000 and up if they might have one 'quiet' minute with the President." 28 According to Fraser, she added this note to the letter because of her conversations with Channell and Conrad, who suggested that some of their contribu- tors might make large donations to the NRF dinner if they could meet alone with President Reagan. As far as Fraser can recall, she added the number of donors ("two") and the possible amount of money ("300,000") to her note to give the offer some defini- tion. She cannot be sure that either Channell or Conrad were that specific in their conversations with her." Neither Channell nor Conrad recall discussing such an offer with Fraser.3? Fraser received no response from North regarding the offer. In fact, Fraser says she never heard from or spoke to North again after their initial meeting on December 11, 1984. Her letters were not answered by North; someone else at the White House ultimately assumed responsibility for liaison with the group plan- ning the dinner." NEPL and IBC Meet In late March 1985, prior to the NRF dinner, Chan- nell called the office of Edward Rollins, then White 88 House Political Affairs Director, to ask how NEPL could help support "the President's agenda in Central America." Rollins's office referred the call to John Roberts, then a White House aide, who agreed to have lunch with Channell and Conrad." At that lunch, according to Channell, Roberts re- sponded to their interest in the Nicaraguan issue by stating that they should talk to Miller and Gomez, the principals of IBC. Roberts told Channell and Conrad that IBC was "the White House outside the White House" on this issue. Shortly thereafter, Channell and Conrad set up a meeting with Miller.33* Roberts had called Miller prior to that meeting and alerted him to the referral, suggesting that Channell and Conrad wanted to "help the President" on Nica- ragua. In particular, Roberts told Miller that Channel! and Conrad wanted to do a media campaign. Roberts did not mention any possibility of direct financial as- sistance to the Contras.34 Channell-Miller Network The Beginnings In late March or early April 1985, Channell, Conrad, Miller, and to a significantly lesser degree, Gomez, embarked on an effort to assist the cause of the Con- tras. Their joint efforts would extend into the latter portion of 1986. According to Miller, Channell initial- ly offered to IBC a retainer of $15,000 per month, which IBC accepted.35 In exchange for this retainer, IBC was to handle media relations, political analysis, research, advertis- ing copy, film production, and other public relations functions. There was never any written agreement, however, reflecting the arrangement between NEPL and IBC.36 At first, IBC lent support to the American Con- servative Trust and NEPL in their efforts to educate the public on the Nicaraguan issue. Very quickly, however, Channell expressed to Miller an interest in raising money for the Contras. Because of their prior contact with the Contras' organization and leaders, Miller and Gomez believed that they could be of assistance. One of Channell's first steps, with IBC help, was to secure a letter from Adolfo Calero au- thorizing NEPL to solicit contributions on behalf of his organizations.37 This letter, dated April 10, 1985, opened "Dear Spitz," and read in part: Please help us to achieve our dream, a free and democratic Nicaragua, not tied to a hostile Soviet threat but to a peaceful democratic American tradition. *With respect to this conversation, Roberts told the Committees in an interview that he possibly described Miller as "fronting for the State Department" or as "in the family." Roberts Int., 7/17/87. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 All resources you can raise will be appreciated. We can put all of them to good purposes. Richard Miller and Frank Gomez can keep you informed of our progress and serve as our con- tact point in the United States.38 The Initial Solicitations In early April 1985, Channell spoke with one of his prior contributors, John Ramsey of Wichita Falls, Texas, who Channell felt might be interested in con- tributing to support the Contras. Ramsey seemed re- ceptive to the idea, but wanted to meet Calero in person to ensure that any money he contributed would, in fact, be used to support the Contras." Channell scheduled a dinner for himself, Conrad, Miller, Gomez, Ramsey, and Calero in Washington, D.C., on April 10, 1985. At the last minute, however, Calero was unable to attend and the dinner went forward without him. Going into the dinner, Channell had told Miller and Gomez that Ramsey was a "tough cookie" who probably would be most interest- ed in the Contras' need for arms and other lethal supplies.4? At the dinner, in a private room at the Hay-Adams Hotel, Miller and Gomez spoke at length about the Contras' need for supplies, both lethal and non-lethal. Gomez showed Ramsey a book of photographs taken during a recent trip Gomez had made to various Contra bases in Central America. This collection in- cluded pictures of Contra fighters, mortars, and ma- chine guns.4' Conrad openly tape-recorded the conversation during dinner, supposedly because he was learning new information about the Contras and wanted to preserve it.'" The transcript of the tape, as further interpreted by Channell, Conrad, and Miller during depositions, confirms that Channell, Miller, and Gomez discussed the Contras' military and non-mili- tary needs at length, often in response to questions from Ramsey. At one point, Miller deflected a sugges- tion by Ramsey that people be solicited to send used shotguns to the Contras: RAMSEY: "The best I can tell, a shotgun is the best thing to use in jungle warfare." GOMEZ(?): "Or a very rapid fire machine gun. That's why the AK-47s and the M 16s are the best weapons." MILLER: "The M16 fires a 22.5 caliber bullet." RAMSEY: "I bet I could get 10,000 people to give their old shotguns to this." MILLER: "Only one problem. You can't export guns without a license."43 Shortly after this exchange, the subject turned to methods of counteracting Soviet-supplied HIND heli- copters: GOMEZ or MILLER: "Calero has said publicly, so that the Sandinistas could hear on secret radio communications in the field saying we have red eyes [missiles]. It's a big lie." UNKNOWN: "They're playing a psychological war against the Sandinistas." MILLER(?): "The more sophisticated of the shoulder-held missiles, the red eyes. There's 2 different kinds. One that's a little less expensive and there's one that's $8,000. It can take it out." 44 Later, Channell itemized some of Calero's needs: CHANNELL: "Calero wants those red eye mis- siles. He wants boots. He wants back packs. He wants AK-47 rounds which you can get on the international market. He wants communications equipment." 46 Ramsey, however, returned again to his suggestion to provide the Contras with donated arms, which is not what Channell and Miller had in mind: RAMSEY: "We're going to call it the Shotgun Drive. And we're going to get Remington to put up the amo [sic]. Dupont owns Remington. "We're going to start on CBs. We're not even going to invoke the electronic media until we get support or we have about three semis going north on Tobacco Road out of North Carolina full. "And they keep calling on another semi. "We got an empty semi out there? Somebody got an 18-wheeler empty can come down and help liberate Central America?" 46 Near the end of the transcript, the Channell-Miller group succeeded in turning the discussion back to missiles and money: UNKNOWN: "Between now and May 1 the red eye missiles could be the entire key. "Because if they succeed at this point in launch- ing an offensive including tanks and MI24 heli- copters into that region and go for the cans . . . . "There's two different kinds of red eye missiles. There's one that's very unsophisticated which is just a direct shot missile. And then there's one that's able to take on the Hind [sic] because the Hind has major decoy devices, has heavy arma- 89 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 ment, and it has these flares on the back of the exhaust from the jets?the expulsion from the engine?that mask the heat. "So you have to have the $8,000 red eye to make it work."4 7 The transcript concludes with an observation, at- tributed to Miller, summing up well the philosophy with which Channell, Conrad, and Miller approached their solicitations: MILLER: "If you provide money for ammuni- tion, the money they've set aside for ammunition can go to boots. "On the other hand, if you provide money for boots, what they've set aside for boots can go to ammunition." 4 8 The solicitation was a success. The next morning Ramsey had breakfast with Calero and, at that time or shortly thereafter, donated $20,000 directly to the Nicaraguan Development Council. As noted earlier, the NDC had previously retained IBC as a public relations consultant.* Later, in early June 1985, Miller received a tele- phone call from North, who asked him to try to raise $30,000 for an undisclosed purpose related to the Contras. North also gave Miller the name and number of a Robelo-controlled account in the United States? although Miller did not know that?into which any contribution could be deposited.49 At Channell's suggestion, Miller contacted Ramsey, who sent $10,000 directly to the Robelo-controlled account.5? North later confirmed to Miller that the contribution had been received." Channell then asked Miller to have North send telegrams of appreciation to both Ramsey and Chan- nell. Miller got North's approval for these telegrams and sent them over North's name.52 In those June 6, 1985 telegrams, North thanked Ramsey and Channell for their support." The Ramsey solicitation was not, however, to become the model. It did not produce enough money for the effort and the donation was sent directly to Robelo so that the Channell-Miller group was not compensated. A new approach was undertaken. North's Maiden Presentation After the Ramsey solicitation, Channell drew on his experience with NCPAC briefings, and worked with When Ramsey was shown a copy of the dinner transcript, he indicated that, while portions of the dialogue seemed familiar, "[t]here is very much on there I have never heard of before." Ramsey Dep. at 70. Ramsey suggested that Channell, Conrad, Miller, and Gomez "might not have ask[ed] for the money [for lethal supplies] directly." Instead, "[t]hey were just saying that if the [Contras] had the money they could buy them." Ramsey Dep. at 87. 90 Miller to sponsor a White House "event" for prior and potential NEPL contributors. This event was in- tended to educate contributors about the situation in Nicaragua and to solicit funds for the Contras. Through North, Miller and other IBC associates were successful in arranging a White House briefing for a group invited by NEPL.54 The briefing was held on June 27, 1985, in the Old Executive Office Building next to the White How with North as the principal speaker. According to Channell, North delivered what became his standard speech about Nicaragua and the Contras. North showed slides during his presentation, some of which had been provided by IBC.55 North's speech was an impassioned plea. He dis- cussed the Communist threat posed to Nicaragua's neighbors by the Soviet and Libyan military buildup in Nicaragua, the political and religious repression in Nicaragua, the humanitarian and military needs of the Contras, and the importance of United States support for the Contras. North also emphasized that the United States would be flooded with millions of refu- gees if Nicaragua continued under its existing regime and policies.* This briefing was the initial substantive encounter between Channell and North.** 56 After the briefing, the potential donor group was taken across the street for a reception and dinner at the Hay-Adams Hotel. As was to become customary, NEPL arranged and paid for food and lodging at the Hay-Adams for persons attending this special White House briefing. At the dinner, Channell presented Calero with a check for $50,000, which represented all Contra-related contributions received to date by NEPL. At Miller's instruction, the check was made payable to a Calero account.57 Channell testified that his understanding was that the contributed funds would be used for humanitarian supplies. This understanding was based on Calero's specific appeal that night for medicine and food.58 The Establishment of LC., Inc. Meanwhile, in March or April 1985, North was contacted by Kevin Kattke?whom North described to Miller as an "intelligence community gadfly"? about an alleged Saudi Prince who proposed donating to the Contras $14 million of profits derived from the sale of Saudi oil.*** North referred the Prince?who *North presented a version of his slide presentation during the public hearings. North Test, Hearings, 100-7, Part II, at 142-46. **Some donors who contributed money to Calero through NEPL had received expressions of appreciation from North prior to the June 27 briefing. E.g., RM 3577. These communications were apparently arranged by Miller at Channell's request. R. Miller Dep., 6/23/87, at 27. ***The Prince eventually was determined to be a fraud, and now is imprisoned for a separate swindle involving a Philadelphia bank. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 used a variety of pseudonyms, the most common of which was Ebrahim al-Masoudi?to Miller, who was engaged to market the Prince's oil. Miller and the Prince met several times over the course of the next several months. Miller's interest was twofold: he and North wanted to raise money for the Contras, and he was to receive $1 million of the profit that would be derived from the sale of the oil." Miller kept North fully apprised of his dealings with the Prince, which eventually also included a prospective gold transaction and assistance in freeing the hostages held in Lebanon.6? Indeed, Miller be- lieved that he "was an agent working on [North's] behalf" in connection with these and other activities undertaken at North's request.6' * On April 26, 1985, Miller and Gomez incorporated a Cayman Islands corporation known as I.C., Inc.62 This entity originally was intended to receive the profits from the transactions conducted with the Prince. Gomez was included because Miller needed a second corporate director under Cayman Islands law and Gomez was a close business associate on whom Miller could rely." The Cayman Islands were chosen by Miller on the recommendation of a "political friend." Miller wished to keep "offshore" any money that he derived from his transactions with the Prince, because: (1) he did not want to incur federal income tax on these pro- ceeds; and (2) he and North "took precautions all the time . . . not to have organizations be readily available for public view." Miller was told that it was cheaper to maintain bank accounts in the Cayman Islands than in Switzerland. He also received advice from an attor- ney that such an offshore "collection point" was a lawful arrangement. 6 4 Although no proceeds were derived from the ven- ture with the Prince,** I.C., Inc. became an integral part of the Channell-Miller fundraising network for the Contras. It served as a conduit, protected by Cayman Islands bank secrecy laws, through which the funds contributed to the tax-exempt NEPL could be transferred to the Contras or to the Enterprise. Miller advised North in late April or early May 1985 of the actual formation of I.C., Inc." Indeed, North testified that he directed Miller to establish this Cayman Islands corporation to be used for Contra funding efforts.66 In May 1986, Miller changed the name of I.C., Inc. to "Intel Co-Operation, Inc.," and amended the corporate charter to specify that the company was engaged, among other things, in provid- *For a more detailed account of the Prince's activities in connec- tion with operations and persons under investigation by the Com- mittees, see Chapter 5. **According to Miller, he spent approximately $370,000 on ac- tivities involving the Prince. North was aware of and approved these expenditures. Miller did not incur monetary loss, however, because North authorized Miller to reimburse himself for these expenditures from Contra assistance funds transferred to IBC from NEPL. R. Miller Dep., 8/21/87, at 404-07. ing grants to "political and benevolent" organiza- tions.67 At that time, Miller told North about this name change and charter amendment, which Miller asserts was not aimed at providing increased cover for the operation.6 The Creation of the Network Soon after the June 1985 briefing, Channell asked Miller to arrange a meeting with North. Certain con- tributors to NEPL were concerned about press re- ports suggesting that contributions for the Contras were being skimmed or spent on unnecessary or obso- lete items." In addition, Channell wished to express his appreciation to North for the June 27 briefing.70 Miller ultimately arranged a meeting on July 9 for himself, North, Channell, and Conrad at the Grill Room in the Hay-Adams Hotel. At the meeting, Channell asked North how best to ensure that funds contributed to NEPL for the benefit of the Contras actually were used for that purpose. North told Chan- nell that henceforth "continued" contributions to NEPL for the Contras should be passed to IBC for proper dispersal. From shortly after this meeting through the fall of 1986, NEPL made all Contra as- sistance payments to IBC or to I.C., North had shown a flow chart to his deputy, Robert Earl, and Miller sometime in 1985, which showed NEPL, IBC, and I.C., Inc. as vital parts of an elaborate Contra funding network. While this chart turned out not to be a fully accurate depiction of the actual workings of the network, North used it with Miller to explain "how a covert operation is set up." Miller recalls that the chart was similar to (although not as complete as) a chart found in North's safe and reproduced in the Tower Review Board Report at C- 17.72 Channell-Miller Network The Operation White House Briefings and Hay-Adams Gatherings The North briefing in June 1985 served as the blue- print for other similar briefings during the next year for NEPL contributors or potential contributors. These group briefings occurred on October 17, 1985, November 21, 1985, January 30, 1986, and March 27, 1986. The White House briefings were meticulously planned by NEPL, IBC, North, and White House personnel. Internal White House memorandums ob- tained by the Committees show that North was the switching point for arranging and coordinating the briefings with White House liaison, White House Counsel, and White House security. 91 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 NEPL prepared and sent invitations to persons se- lected by Channel] and his associates. A typical invi- tation to a briefing stated in pertinent part: You are one of a small group of dedicated Amer- icans who has stood by President Reagan . . . in support of his agenda. . . . It will be a pleasure to meet you in Washington on [date] when you attend our special security briefing followed by a working dinner. . . . Please be reminded that your accommodations at the Hay-Adams Hotel are taken care of and there is no expense to you. 7 3 For those who attended, NEPL met them at the airport with a limousine and escorted them to the Hay-Adams Hotel, where all expenses were paid by NEPL. The group typically was taken from the Hay- Adams to a reception room in the Old Executive Office Building, where they were introduced to North and other White House personnel. Other than North, among those who participated in these brief- ings were Patrick Buchanan, White House Communi- cations Director; Mitch Daniels, Political Assistant to the President; Linas Kojelis, Special Assistant to the President for Public Liaison; Linda Chavez, Deputy Assistant to the President and Director of the Office of Public Liaison; and Elliott Abrams, Assistant Sec- retary of State for Inter-American Affairs. For the January 30 briefing, David Fischer?a former Special Assistant to the President who became a highly paid consultant to NEPL and IBC?even arranged for a Presidential "drop-by." North always delivered the principal speech and slide presentation along the lines of the June 1985 briefing. While he was an effective speaker, North generally was careful not to ask for money, often telling the audience that he could not solicit funds because he was a Federal employee. He did, however, suggest that persons interested in contributing funds for the Contras should speak with Channell. At least one attendee at these briefings recalled North's stating that there were certain matters he could not discuss with them "on this side of Pennsylvania Avenue" but that Channell would raise later "on the other side of the street," a reference to the Hay-Adams Hote1.74 An account of North's presentation was provided at the public hearings by an eventual contributor in at- tendance at the March 1986 briefing, William O'Boyle: [North] described the military and political situa- tion in Nicaragua. He had photographs of an airport in Nicaragua that had been recently built; the purpose of the airport was ostensibly com- mercial, but it was in fact a disguised military airport. One of the uses for which the airport was intended was to recover the Russian Backfire 92 bombers after they made a nuclear attack on the United States. Another possible use of this airport was to fly a certain kind of mission that was currently being flown out of Cuba, up and down the east coast of the United States. Apparently every day a Rus- sian plane leaves Cuba, as I recall, and goes right up the 12-mile limit, has some kind of large device on the outside of the plane. . . . This Nicaraguan air base would allow the Russians to fly the same kind of mission up the west coast to the United States. . . . He described the refugee problem . . . and we could look forward in the next few years to mil- lions of refugees flooding across our borders as this happened. . . . He showed photographs which indicated that the Nicaraguan government officials were indicated in smuggling dope. . . . He also told an anecdote about some Nicaraguan agents that were recently caught with dope and money and so forth and disguised as American agents.75 O'Boyle indicated also that North furnished him with classified information designed to show that the Sovi- ets were managing the diplomacy of the Nicaraguans before the United Nations.76 After the briefings, Channell, Miller, and their asso- ciates hosted a cocktail party and dinner at the Hay- Adams, often attended by Contra leaders and some U.S. Government officials. During the reception and dinner, NEPL and IBC employees attempted to deter- mine which attendees were the most likely contribu- tors. The enticement of purchasing lethal supplies for the Contras was often used with potential contribu- tors. Those persons who expressed a serious interest in contributing money for the Contras were offered the opportunity to meet one-on-one with North, and, if they gave enough, a meeting with the President.77 Large contributors to NEPL uniformly received thank you letters from North (and often from the President) for their support of the President's policies in Central America, although without specific refer- ence to any contribution.78 North's Involvement in Solicitations Intended for the Purchase of Lethal Supplies In his public testimony, North testified that "I do not recall ever asking a single, solitary American citi- zen for money."79 He readily admitted, however, that "I showed a lot of munitions lists" to Contra contrib- utors or potential contributors "in response to ques- tions about the cost of lethal items."" The Commit- tees received evidence on North's activities that shed light on these statements. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 1. "Big Ticket Items" and "011ie's New Purchase" Lists. In the late fall or early winter of 1985, Channell asked Miller to have North prepare and provide a list of "big ticket items" to be used in soliciting contribu- tions for the Contras. At Miller's request, North recit- ed a list that included heavy lifting of cargo by air- craft (approximately $675,000 worth); training and outfitting of an "urban tactics unit"; the resupply of a Contra fighting unit known as the "Larry McDonald Brigade" (a Contra unit); and probably missiles of some kind.81 Miller typed the list onto his computer, printed a single copy, gave that copy to Channell, and deleted the computer entry. Channell used this list, which totalled approximately $1.2 million, to solicit contribu- tions." An apparently different "big ticket items" list was prepared by North and used by him and Channell in a solicitation of Nelson Bunker Hunt. Handwritten notes produced by Miller indicate other conversations with North about fundraising for lethal supplies. A note dated September 18, 1985, contains entries read- ing "$415,000-Weapons, C4, M79" and "520,000 MAUL."83 "C4" refers to an explosive, "M79" likely refers to a grenade launcher, and "$520,000 MAUL" refers to the cost of eight Maule airplanes. Miller testified that North provided this information to him with the understanding that it would be used for fundraising.84 Another handwritten note of Miller's contains the entry "011ie's new purchase list." The note is dated February 5, 1986.85 Miller does not recall the deriva- tion of this entry.86 2. North's Special Appeals. As North testified public- ly, he met with scores of potential contributors to convey the plight and needs of the Contras. Insofar as North's actual role, the more revealing of these meet- ings are those that were conducted in private. As the descriptions below indicate, North prepared potential large contributors for what Conrad termed "the call to the altar." 87 a. Nelson Bunker Hunt?In September 1985, Chan- nell arranged a meeting in Dallas between North and Nelson Bunker Hunt, a wealthy Texas businessman who had contributed $10,000 to NEPL the previous July. Channell rented a private airplane for $8,000 to $9,000 to transport North to and from Dallas.88 * The trip was worth the cost. In Dallas, there was a private dinner at the Petrole- um Club attended by Hunt, Conrad, Channell, and North. North gave his standard briefing, without slides, and showed Hunt a list of various Contra needs. The list was divided about evenly between lethal and non-lethal items, and included Maule air- craft and a grenade launcher possibly described as an * This was the first time North used an airplane supplied by NEPL; on one other occasion, NEPL chartered a plane to fly North and his family for a weekend visit to Barbara Newington's house in Connecticut. Channell Dep., 9/1/87, at 148. "M-79." The total price was about $5 million. Ac- cording to Channell, after discussing the items on the list and their prices, North "made the statement that he could not ask for funds himself, but contributions could be made to NEPL, or words . . . to that effect." North then left the room, a maneuver that had been "pre-arranged."89 Channell explained that the list was his idea because he wanted a "fundraising objective" to take to Hunt. He therefore had asked North to prepare a list total- ling about $5 million for use in the solicitation of Hunt.5? Despite this evidence, Hunt has told the Commit- tees that Channell never spoke to him about the Con- tras' need for weapons. According to Hunt, Channell told him that the Contras had "unpaid bills" for "[flood and shelter, medicine, [and] general expenses. . . ." 91 Hunt testified that he does not recall any conversation he had with North at the dinner.52 Nonetheless, as a result of this dinner, Hunt made two payments to NEPL of $237,500 each." One of them was a contribution and one was a loan. The loan was evidenced by an unsigned promissory note be- cause Channell would not agree to the loan (especial- ly after he was unable to find a contributor to guaran- tee the loan on NEPL's behalf). Nevertheless, he held the $237,500 principal for 4 months, repaying it to Hunt in January 1986 without interest." Hunt subse- quently paid $237,000 to NEPL in March 1986 as a contribution, making his total contributions to NEPL $484,500.55 In the case of Hunt's initial $10,000 contribution in 1985, he sent NEPL a personal check drawn pursuant to a "check request" and marked "contribution." He also itemized the $10,000 contribution as a charitable deduction on his 1985 tax returns. By contrast, each step in the later transactions was conducted with Hunt's law firm?Shank, Irwin & Conant (SI&C) of Dallas, Texas?acting as an intermediary, and issuing its own checks, backed by Hunt's funds." Hunt testified that he handled these transactions in this manner in an effort to avoid publicity in the "liberal media" over the contributions. He acknowl- edged that the NEPL gifts were the only ones he had ever made indirectly. Moreover, none of the check requests or check stubs for the three large checks has any entry in the section designated for "purpose." Documentation for other checks produced by Hunt consistently included this entry. Hunt indicated that he must have overlooked this omission on the three checks in question.57 Finally, Hunt did not itemize the $237,500 contribu- tion on his 1985 tax return or the $237,000 contribu- tion on his 1986 return. He explained that, because of large losses each year, he did not need the deductions. Nonetheless, numerous other contributions apparently were itemized by Hunt on those tax returns." 93 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 In short, it seems that Hunt took great pains to keep his large contributions to NEPL "off the books." As indicated above, a note made by Miller 1 day after Hunt issued the checks for the contribution and loan to NEPL contains the entries "$415,000?Weapons C4, M79" and "$520,000 MAUL," referring to muni- tions and airplanes." This same note refers expressly to Hunt in a different context.1?? b. Barbara Newington?Barbara Newington, a wealthy widow from Greenwich, Connecticut, had been a large contributor to Channell organizations (and at least one predecessor organization) for a few years. In 1985 and 1986, Newington contributed a total of $2,866,025 to NEPL. On June 25 or 26, 1985, she met privately with North because she was unable to attend the Channell group meeting arranged for the next day. She also met privately with President Reagan on two occasions.101 In early November 1985, North, Miller, and Chan- nell participated in a solicitation of significant contri- butions from Newington. Miller's handwritten notes leading up to the meeting indicate that Channell pre- pared a proposed "pitch" for "Green"?the code name for North used by NEPL and IBC?to use with Newington. This "pitch" included statements such as "[you are] the most secure person we know in the U.S." and "[w]e are asking you to take on a project that requires your kind of person.'9102 Although Miller does not specifically recall, he might have re- layed a somewhat softened version of this solicitation to North.1?3 In further preparation for the solicitation, Miller created a file folder that contained an unclassified photograph of a Soviet HIND helicopter on one side of the folder and a picture of a shoulder-held surface- to-air missile on the other side. He also included an article from The New York Times on the capabilities of the HIND helicopter.'" The critical meeting took place in Newington's suite at the Hay-Adams Hotel where Channell, Miller, and Newington were joined by North. At the meet- ing, North referred to the file folder prepared by Miller, placed The New York Times article in front of Newington, and described the capability of the pictured surface-to-air missile to counteract HIND helicopters. In response to a question from Newing- ton, North indicated that he knew where to obtain such missiles, although Miller cannot recall whether North quoted any prices. North left the room shortly thereafter. According to Miller, North's absence was not specifically prearranged, "but it was his practice not to be in the presence of the donor when they were asked for money.',105 Channel] then solicited Newington for a substantial amount of money. Over the course of the next 4 to 6 weeks, Newington made stock contributions to NEPL worth approximately $1.1 million.106 Like Hunt, 94 Newington has denied that she ever made a contribu- tion intended for the purchase of lethal supplies."7* At some point in the spring of 1986, Channell and Newington decided to invite North and his family to Newington's house for a weekend of recreation and relaxation. Miller, North, and North's family travelled to Connecticut in a private plane chartered by Chan- nell. It is unclear whether there was any discussion of Contra assistance that weekend.'" c. William O'Boyle?William O'Boyle testified that he received several fundraising calls from NEPL in early 1986. O'Boyle, an independently wealthy busi- nessman from New York City, had been referred to NEPL by a friend from Texas.'" In late March, he was invited by mailgram to a private White House briefing on Nicaragua. He flew to Washington on March 27, was met at the airport by a limousine arranged by NEPL, and was delivered to the Hay-Adams Hotel, where he met Channell, Miller, and others. Channell escorted the group to a meeting room in the Old Executive Office Building, where North presented the briefing described above." ? After the briefing, the participants returned to the Hay-Adams for a cocktail reception and dinner at- tended by Channell, Miller, and other NEPL and IBC personnel. During the reception, O'Boyle indicated to a NEPL employee, either Cliff Smith or Krishna Litt- ledale, that he was interested in making a contribution to purchase weapons for the Contras. He wanted to know what weapons were needed and how much they cost. The NEPL employee with whom O'Boyle spoke told him later that a Blowpipe antiaircraft mis- sile could be purchased for $20,000.111 After dinner, Channell told O'Boyle that there was a small, select group of persons in the United States who contributed money for lethal supplies to carry out the President's policy in support of the Contras. Channell asked O'Boyle if he would meet with North at breakfast the next morning. O'Boyle agreed."2 Breakfast took place in the main dining room of the hotel. Before North arrived, the conversation between O'Boyle and Channell continued in the same vein as the evening before. Channell told O'Boyle that they had him "checked out" overnight to ensure that he (O'Boyle) was reputable enough to join the select group of Americans Channell had mentioned.113 When North arrived, Channell told him that O'Boyle was willing to contribute funds for the pur- chase of weapons. North immediately began to de- scribe from a notebook the Contras' needs, including several million rounds of "NATO" ammunition, East- ern bloc ammunition, Blowpipe and Stinger antiair- *Miller later heard from Calero that no missiles had been re- ceived by the Contras. North told Miller that the Newington money had been used to purchase "secure radios." R. Miller Dep., 8/20/87, at 237. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 craft missiles, and Maule aircraft. North explained that Blowpipe missiles cost $20,000 each, but that they had to be purchased in packs of 10. He also mentioned that the cost of Maule airplanes was $65,000 each. According to O'Boyle, North stated that "he could not ask for money himself as a govern- ment employee."114 Either at this breakfast or the evening before, Channell informed O'Boyle that if he contributed $300,000 or more, a 15-minute "off-the-record" meet- ing would be arranged between O'Boyle and Presi- dent Reagan. Channell indicated that other people who had contributed that amount of money had met with the President. O'Boyle understood that these meetings with the President were "off-the-record" be- cause the subject matter was so secret and sensi- tive.115 O'Boyle told Channell that he wanted time to con- sider whether to make a contribution. After returning to his home in New York for a few days, O'Boyle decided to contribute $130,000 to NEPL for the pur- chase of two Maule airplanes.* He flew to Washing- ton to deliver his check to NEPL headquarters and was taken to the Hay-Adams Hotel by a NEPL em- ployee. Channell met O'Boyle at the hotel. O'Boyle then gave his check to Channell, who telephoned North to join them at the hotel. '16 When North arrived, Channell showed him O'Boyle's check, which North acknowledged. North spoke to O'Boyle again of the Contras' military needs and corresponding costs, but indicated that Blowpipe missiles no longer were available. In North's presence, Channell again told O'Boyle that a larger contribution would warrant a meeting with the President and asked for more money. 117 Despite a visit in New York from Channell and Conrad and another meeting with North in Washing- ton in which North disclosed a purported "secret" plan as to how the Contras would prevail in Nicara- gua, O'Boyle informed Channell that he did not wish to make further contributions to NEPL.** In any event, in response to a subsequent mailing from NEPL, O'Boyle made one more contribution for $30,000.118 d. Ellen Clayton Garwood?Ellen Garwood also tes- tified at the Committees' public hearings. She had been a NEPL contributor on several occasions. She is a wealthy octogenarian widow from a well-known family in Austin, Texas. Garwood first met North in *The Committees have concluded from Enterprise records that O'Boyle's contribution was used for general Contra support, not for the purchase of two Maule aircraft. **At the meeting in New York, O'Boyle expressed to Channell some concerns about the legality of using tax deductible contribu- tions for weapons. According to O'Boyle, Channell told him that a lawyer had advised favorably on the question of legality, but that in any event the money could not be traced because contributions were being passed through a for-profit corporation and overseas. O'Boyle Dep. at 91. 1984 at a Council for National Policy meeting. She had been briefed privately by him on the Contras' needs at least a handful of times, including once at a small airport in Dallas when North flew there to solicit Hunt in September 1985."9 Garwood travelled to Washington in April 1986 to attend meetings of NEPL contributors. Prior to the trip, Channell told Garwood that she would be pre- sented with an appeal for much more money than had been requested of her before.'20 During the last day of the NEPL meetings, Chan- nell asked Garwood to meet with him and North that evening in the hotel lounge. At the evening meeting, North told Garwood that the situation of the Contras was desperate. With tears in his eyes, North explained to her that the Contras were hungry, poorly clothed, and in need of lethal supplies. He emphasized that the Contra forces might not exist by the time the Con- gress renewed Contra aid.'21 Either North or Channell then produced a small piece of paper with a handwritten list on it. They discussed the list in hushed tones outside of Gar- wood's hearing. After North left the lounge, Channell showed the paper to Garwood. The paper contained a list of weapons and ammunition, with a price oppo- site each category of items. She recalls that the list included hand grenades, antiaircraft missiles, bullets, cartridge belts, and other items.122 Channell told Garwood that the items were what the Contras needed to sustain their efforts and re- quested her to provide the amount necessary to pur- chase the listed lethal supplies. Channell transcribed a copy of the list for Garwood to take with her.123 To supply the items on the list, Garwood immedi- ately contributed more than $1.6 million to NEPL; she wired $470,000 in cash and transferred stock valued at $1,163,506. For this same purpose, she con- tributed an additional $350,000 the next month. All told, she contributed $2,518,135 in 1986. Garwood stated unequivocally that the principal purpose of these April and May 1986 contributions was to pur- chase for the Contras the weapons and ammunition on the list provided by North and Channe11.124 * * These descriptions of the Hunt, Newington, O'Boyle, and Garwood solicitations are not exhaus- tive. The Committees interviewed or deposed 13 of NEPL's significant contributors during the relevant time period, nearly all of whom reported personal contact with North. The Committees have received evidence that several of these contributors?including John Ramsey of Wichita Falls, Texas, and C. Thomas Claggett, Jr., of Washington, D.C.?made donations intended for the purchase of lethal supplies. Chan- nell's records reveal that 12 contributors, including Newington and Garwood, accounted for slightly more than 90 percent of NEPL's contributions in 1985 and 1986. 95 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II . . .. I . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 By giving to the tax-exempt NEPL, the contribu- tors were able to claim tax deductions even though their contributions were intended for the purchase of lethal supplies. The Committees have received evi- dence that several of these contributors claimed tax deductions for their NEPL contributions. For taxpay- ers in the 50 percent tax bracket, this meant that the public in effect paid for half their gifts. The Role of the President In a May 19, 1986, PROF note to Poindexter, North wrote "the President obviously knows why he has been meeting with several select people to thank them for their 'support for Democracy' in Cent[ral] Am[erica]."123 In fact, what the President knew is a matter of some doubt. The President, in his March 19, 1987, press confer- ence said that he believed that contributors he met had donated money for political advertising for the Contras.126 The minutes of the May 16, 1986, Nation- al Security Planning Group (NSPG) meeting reveal the same understanding on the part of the President. He stated, "What about the private groups who pay for ads for the Contras? Have they been contacted? Could they do more than ads?" 127 Similarly, in prep- aration for the January 30 briefing, Linda Chavez wrote a memorandum to the President, stating that "ACT and NEPL spent in excess of $3 million sup- porting the President's programs through public awareness using television and newspaper mes- sages." 128 In fact, much of the $3 million was direct- ed toward Contra support activities, including arms. Poindexter, however, testified at his deposition that "Where wasn't any question in my mind" that the President was aware that the contributors he was thanking were giving to the Contras 123 He added that "in the White House during this period of time that we were encouraging private support, we really didn't distinguish between how the money was going to be spent." 1" North testified that in writing his May 19 PROF note, he assumed that the President was aware that the contributions were for munitions, as well as other things, although he denied ever dis- cussing this with the President.131 The President met with and thanked several large contributors for their support of his policies. David Fischer, former Special Assistant to the President, arranged Presidential photo opportunities or meetings with at least seven major Channell-Miller contributors in 1986. Fischer and Martin Artiano, a Washington lawyer, were paid steep fees by IBC (which charged these fees to NEPL) for arranging these meetings (among other services). Channell's statement to O'Boyle that these meetings carried a $300,000 price tag is substantiated by Edie Fraser's cryptic note to North (mentioned above); at least five of the six con- tributors who donated more than $300,000 to NEPL were invited to meet with the President. 96 The Role of David Fischer and Martin Artiano In late November or early December 1985, Miller asked Martin Artiano, an acquaintance from the 1980 Reagan Presidential campaign, to help him find some- one "who had some Washington experience at a rela- tively senior level" to provide "consulting" assistance to IBC on behalf of NEPL.132 When Artiano learned of IBC's needs, he contacted David Fischer, who had been a friend since they worked together as advance men in the 1976 Reagan campaign."3 After the unsuccessful 1976 Reagan Presidential effort, Fischer worked as an employee of Deaver and Hannaford, a public relations firm that did extensive work for Mr. Reagan. Fischer was in charge of Mr. Reagan's advance operations and served on occasion as his personal aide during the years of preparation for another Presidential run in 1980.134 During the 1980 campaign, Fischer became the full-time personal aide to Mr. Reagan, travelling on the campaign plane with the candidate. After the inauguration in January 1981, Fischer was appointed Special Assistant to the President with an office adjacent to the Oval Office.135 For the next 4 years?until April 1985? Fischer was in almost constant contact with the Presi- dent. As President Reagan's second term began in early 1985, Fischer and his wife decided for personal rea- sons to move to Utah. By the fall of 1985, however, Fischer wanted to return to Washington and asked Artiano to let him know about employment or con- sulting opportunities136 When contacted by Artiano about the IBC opportunity, Fischer authorized Ar- tiano to pursue discussions with Miller on his behalf.137 When Miller decided to retain Fischer and Artiano, he sought Channell's concurrence because NEPL ulti- mately was to be the recipient of, and billed by IBC for, the "consulting" services performed by Fischer and Artiano. While all the participants recall that Fischer and Artiano agreed to act as subcontractors for IBC and provide services to Channell's organiza- tions, there is sharp dispute over the terms of that agreement. This dispute is only sharpened by the ab- sence of a written understanding. Channell and Conrad insist that they agreed to pay Fischer and Artiano $50,000 for each meeting Fischer scheduled with the President for a NEPL contributor. Conrad claims to recall a meeting in December 1985 in Miller's office attended by Miller, Artiano, Fischer, Channell, and himself at which Artiano broached, and Channell accepted, this proposal.'" Channell recalls Fischer and Artiano making this proposal but claims that he rejected it as too expensive. Instead, according to Channell, he opted for a straight retainer of $20,000 per month.'" Gomez recalls that Fischer and Artiano were to be compensated at least in part based Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 on the number of Presidential meetings they could arrange for NEPL contributors.'" Fischer and Artiano vehemently deny that any such proposal was made or accepted. Artiano, who negoti- ated with Miller on behalf of Fischer, testified that they initially agreed to a 2-year consulting contract for a monthly retainer of $20,000 a month. When he and Fischer realized the amount of work Channell demanded, however, Artiano testified that he request- ed a $50,000 "acceleration" of their retainer. This payment was made to them on January 31, 1986, and was split evenly by Artiano and Fischer. Later, Fisch- er demanded and received another $50,000 "accelera- tion," which he did not split with Artiano. In July 1986, Fischer and Artiano recast their arrangement with IBC entirely, replacing the 2-year consulting contract with a formal joint venture between "David C. Fischer & Associates" and IBC."' According to both Fischer and Artiano, they learned in early 1986 that Channell and Conrad were operating under the assumption that there was a straight fee-for-Presidential meeting arrangement. Ar- tiano thereupon convened a meeting of all the princi- pals and disabused Channell and Conrad of that notion.142 Miller's recollection lends some credence to every- one's account. He testified that the initial agreement, struck in December 1985, was a $20,000-a-month con- sulting arrangement. He testified, however, that this initial agreement did not contemplate Fischer setting up meetings at the White House. Shortly after striking the original deal, according to Miller, Channell began to make increased demands upon Fischer, one aspect of which was setting up meetings between the Presi- dent and major NEPL contributors. In exchange for servicing those increased demands, Fischer and Ar- tiano demanded, through Miller, an acceleration of their retainer to $70,000 per month (that is, $50,000 per month more than the monthly fee of the original arrangement). When Miller relayed this demand to Channell, Channell suggested that, for such a sum, NEPL should get at least one meeting with the Presi- dent each month. According to Miller, Channell ulti- mately did agree to this acceleration.'" All told, between December 1985 and February 1987, IBC paid Fischer $397,400 and Artiano $265,000. Artiano transferred $60,000 of his payments to Fischer. All of the payments were reimbursed to IBC by NEPL. When asked about allegations that Fischer was paid $50,000 for each meeting arranged with the President, Donald Regan, the President's Chief of Staff, testified that he had no independent knowledge of such an arrangement, but, if true, the allegations would be a "real embarrassment." According to Regan, "we thought he was doing it out of his concerns for the contras and the goodness of his heart, a public pro bono type of thing." He continued: "To find out he was being paid for it was a real shock . . . . [A]nyone getting paid to get a group into the White House, we tried to block that." 144 Fischer, however, contends that Regan knew by the first meeting between the President and Channell supporters?in January 1986?that Fischer was acting as a paid consultant to the Channell organization. When he raised the subject with Regan, according to Fischer, Regan responded, "I hope you're being com- pensated for this."14 5 North's Other Fundraising Efforts Separate from his Channell-related efforts, in the fall of 1985, North enlisted Roy Godson?a consult- ant to the National Security Council?to assist in rais- ing funds for a humanitarian organization involved with Nicaragua. Godson's efforts led to a deposit to the I.C., Inc. account through first the Heritage Foundation and then the Institute for North-South Issues (INSI), a non-profit organization controlled by Miller and Gomez. This deposit originally took the form of a $100,000 grant from the Heritage Founda- tion to INSI. The Heritage Foundation received the money for the "grant" from a private contributor arranged by Godson and Clyde Slease, a Pittsburgh attorney and friend of Godson's. Godson had ar- ranged for Slease to meet privately with North and McFarlane on the need to raise funds for the humani- tarian organization.146 The true objective of this "grant" was disguised in correspondence between Miller (as Treasurer of INSI) and Edwin J. Feulner (as President of the Her- itage Foundation) with whom Godson had met pre- viusly. Miller sent an INSI "grant proposal" to the Heritage Foundation in September 1985 proposing the preparation and dissemination of public information materials in Central America. This proposal requested $100,000. On October 15, the Heritage Foundation sent INSI a check for $100,000, with Feulner stating by letter that "[m]y colleagues and I have discussed your proposal in some detail, and are pleased to re- spond in a positive way." 147 INSI passed to I.C., Inc. only $80,000 of the $100,000 Heritage Foundation "grant," and retained the $20,000 balance as an administrative fee. The ulti- mate distribution of the $80,000 forwarded to I.C., Inc. was made to an entity which, according to Miller, North represented was an account controlled by the humanitarian organization. INSI misrepresent- ed on its 1985 IRS Form 990 the nature of the activi- ties supported by this money.148 Godson also arranged for John Hirtle, a stockbro- ker in Philadelphia, to meet with North in Washing- ton. Following this meeting, Hirtle and North met again in Philadelphia with two prospective contribu- tors.'" One subsequently donated $60,000 by check dated December 13, 1985, directly to INSI. Shortly thereafter, this amount was then transferred by INSI directly to a Lake Resources account in Switzerland. 97 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 What Happened to the Money Just as only a small fraction of the Iranian arms profits was used for the Contras, so only a small part of the money Channell raised for the Contras reached them. Fischer and Artiano received more than $650,000 or more than five percent of the total money raised, and Miller, Gomez, and their companies re- tained a large percentage of the $5 million that IBC received from NEPL. A total of $2,740,000 was trans- ferred by IBC to I.C., Inc., and $430,000 directly to Lake Resources. After deducting the payments to Fischer and Artiano?which eventually were reim- bursed by NEPL?the balance, approximately $1.2 million, was retained by IBC for fees-for-services and expenses on NEPL's behalf.* This amount, however, is not all that Miller and Gomez received from the venture. Miller testified that North agreed in late 1985 that he and Gomez could begin to collect a 10 per- cent commission on the payments funnelled to the Contras through IBC and I.C., Inc. Miller stated that North said that the 10 percent was reasonable since "most of the other people in the business of providing assistance to the Contras were taking 20% to 30%." 150 North, in his testimony, denied that he had agreed to any specific percentage, but rather stated that he had approved "fair, just, and reasonable" com- pensation to Miller and Gomez.'51 Nonetheless, North's notebooks contain an entry for November 19, 1985, which states "IBC - 10%." Miller and Gomez formed another Cayman Islands corporation in early May 1986, World Affairs Coun- selors, Inc. (WACI) to receive the compensation ap- proved by North. Miller instructed his Cayman Is- lands agent to deduct automatically for WACI 10 percent of all funds transferred to I.C., Inc."2 A total of $442,000 was taken by Miller and Gomez pursuant to this commission arrangement. Miller never told Channell that he and Gomez were receiv- ing a 10 percent commission approved by North. Both Miller and Gomez believed that once the Contra assistance money left NEPL, it was subject to North's total discretion and control."3 Including these commissions, IBC, Miller, and Gomez received more than $1.7 million from the money raised by NEPL for the Contras. Channell's take was also substantial, though apparently not of the magnitude of Miller's and Gomez's total compensa- tion. He furnished his offices extravagantly and was lavish in his expenditures. He drew compensation for 1985 and 1986 totalling $345,000, while Conrad and his organization received more than $270,000, extraor- dinary earnings for nonprofit fundraisers. *During the relevant time periods IBC received $356,472 under its contract with the State Department, $39,000 from Calero for services, $180,000 from affiliated entities, and $407,304 from other individuals or organizations. In other words, the amount retained by IBC from NEPL accounted for nearly 60% of IBC's income in 1985 and 1986. 98 Out of the money raised by NEPL, the Contras and their affiliated entities received only $2.7 million, with approximately $500,000 going to other persons and entities engaged in activities relating to the Contras. The money was routed through IBC and I.C., Inc. and disbursed at the direction of North to Lake Re- sources, Calero, and the other persons and entities. In virtually every case, Miller would tell North when money was available and North would then instruct him on what to do with it. Figure 4-1 depicts the flow of money. In addition, as described in the next section, more than $1.2 million was spent on political advertising and lobbying for the Contras. Political Advertising for the Contras Apart from financial assistance to the Contras, the major project of the Channell and Miller organiza- tions in 1985 and 1986 was a "public education" and lobbying program in support of U.S. Government aid for the Contras. The major vehicle in the "public education" cam- paign was a series of television advertisements pre- pared by the Robert Goodman Agency in Baltimore that cost NEPL $1 million. Adam Goodman of that agency, following the Senate's approval of the Contra funding bill in 1986, wrote a letter to Channell de- scribing their achievement: By design, we launched the four-week national television ad campaign in Washington, DC, in late February. This reflected the economy of reaching all 435 Members of the House (and 100 United States Senators) in one sitting. Beginning with Week 2, and running through the first deci- sive House vote in late March, we also aired spot commercials in 23 additional television markets across the country. These targeted markets, cov- ering the home Districts of nearly thirty Con- gressmen experts considered to be at the core of the key 'swing vote' on Contra funding, added scope and credibility to the ad campaign. In fact, N.E.P.L.'s national television spot series was ulti- mately seen by more than 33 million people, or one out of every seven Americans.' 5 4 Supplementing the television programs were press conferences and speaking tours by persons supporting the Contras. These were arranged by IBC and an- other public relations firm, Edelman, Inc., retained by Channell, which was paid $92,000 by NEPL. NEPL paid $115,000 for extensive polling by the Finkelstein Company as an aid to selecting areas where television advertisements and speaking tours would most likely have a favorable effect on a Con- gressional vote. He also retained two companies, Miner & Fraser and the Lichtenstein Company, to generate letters to Congressmen supporting Contra aid, and he paid two lobbyists for their services in Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 support of this effort: Dan Kuykendall, who concen- trated on undecided Republicans and conservative Democrats, and Bruce Cameron, who focused on lib- eral Democrats. Another organization, Prodemca, which had con- centrated on Central American issues, also received payments from Channell. Its representatives apparent- ly participated in strategy sessions about enlisting Congressional support. Finally, it appears that Channell engaged in adver- tising targeted to defeat Representative Michael Barnes's bid for a Senate seat in Maryland. Represent- ative Barnes had been a vocal opponent of military assistance to the Contras. Channell's Anti-Terrorism American Committee ran a series of television adver- tisements opposing Representative Barnes during the primary campaign. When Representative Barnes was defeated in the primary, Channell and his associates (Cliff Smith and Krishna Littledale) sent a telegram to North exulting in this result: We have the honor to inform you that Congress- man Michael Barnes, foe of the freedom tighter movement, adversary of President Reagan's for- eign policy goals and opponent of the President's vision for American security in the future has been soundly defeated in his bid to become the Democratic candidate for the U.S. Senate from Maryland. His defeat signals an end to much of the disinfor- mation and unwise effort directed at crippling your foreign policy goals. We, at the Anti-Terrorism American Committee (ATAC), feel proud to have participated in a campaign to ensure Congressman Barnes' defeat.155 Channell-Miller Network: The End The Beginning of the End On October 18, 1986, the President signed legisla- tion appropriating $100 million for the Contras ($30 million for humanitarian assistance and $70 million in unrestricted aid). The anticipation of this legislation led to a downturn in the activities of the Channell- Miller fundraising and Contra assistance network (see Figure 4-1) after the summer of 1986. With the disclosure in early November of the sale of arms to Iran, however, persons involved in the network became concerned that the story of the net- work would unravel and become public. This pre- scient concern led to meetings between Miller and North on November 20 and 21. The initial meeting was requested by Miller. They met in the hallway outside of North's office in the Old Executive Office Building. Miller told North that he was worried about the possible legal ramifications and the costs associated with a legal defense. North told Miller that he should use the money left in the Intel Co-Operation (or I.C., Inc.) account (approxi- mately $200,000) for any legal fees that might arise.156 North called Miller the next day, November 21, to arrange a meeting later that afternoon. Miller met North in the Old Executive Office Building, and North asked him for a ride to Dupont Circle. Miller told North that money was needed from a foreign source to fund public relations and congressional ac- tivities on behalf of the United Nicaraguan Opposition (UNO). Miller suggested contacting the Sultan of Brunei or an Arab country. North's response was "I gave one to Shultz already and he [screwed it up]." North also stated that "if Shultz knew that the Aya- tollah was bankrolling this whole thing he'd have a heart attack." Miller did not understand either refer- ence.157 Either that day or the day before, North told Miller that the Attorney General had advised North to obtain legal counsel.* Miller dropped North at the office building at 1800 Massachusetts Avenue, N.W., where Tom Green's law offices, among others, are located.158 The Lowell Sun Allegations On December 14, 1986, the Lowell (Mass.) Sun ran a story under the headline "Money from Iranian Arms Sales Was Used to Back Conservatives During 1986 Election." The story stated that "[a]bout $5 mil- lion from the almost $30 million in excess raised from arms sales to Iran was filtered to conservative politi- cal action groups" to "support candidates who backed President Reagan's pro-Contra and Star Wars poli- cies." The only such group named in the article was NEPL. The Committees have uncovered no evidence to substantiate the allegation that NEPL or any other of Channell's political action groups received any pro- ceeds derived from the sale of arms to Iran. In this regard, the Committees have accounted for virtually all of the funds received by Channell's organizations during the relevant period, none of which are trace- able to the Iranian arms sales. Similarly, the Commit- tees have accounted for virtually all expenditures from the Enterprise, and none of these were paid to Channell's organizations. NEPL Activities in December 1986 In December 1986, NEPL's staff received an un- usually lengthy holiday vacation from December 15 to January 5, 1987. The reason given for this lengthy break was that the media were making it too difficult *The Attorney General denied that he offered such advice to North. Meese Dep., 7/8/87, at 103. See Chapter 20 for a more complete description of the events in November 1986. 99 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 for the organizations to conduct their work and that the most sensible response was to close operations for a couple of weeks.' 5 9 Immediately prior to the extended holiday, two NEPL accounting employees were instructed by their supervisors to delete from the accounting records any and all references to the "Toys" project. As men- tioned above, contributions intended for the purchase of lethal supplies generally were designated on NEPL's books for the "Toys" project. Alterations in the accounting records and related floppy discs were made to modify prior references to "Toys" to a neu- tral project named "CAFP TV" (presumably Central American Freedom Project?Television Advertis- ing).1 6 0 In addition, NEPL's principal accountant took all NEPL accounting materials home with him during the vacation, including financial records, bank state- ments, check books, deposit slips, and the like.161 The evidence obtained by the Committees suggests that all such records were taken to perform year-end accounting tasks and were returned by the accountant without further alteration. February 1987 Report from IBC to NEPL On February 16, 1987, IBC issued a report to NEPL that reconstructed the disposition of the Contra assistance payments made by NEPL to IBC and I.C., Inc. during the period from July 1985 through the end of 1986. The report contained sup- porting documentation for many of the relevant 162trans- actions. In a summary at the beginning of the report, IBC acknowledged that most of the disbursements of these 100 funds were made "at the request of Lt. Col. Oliver L. North." Moreover, the summary states that "we were assured by [North] at the time that the funds were to be applied solely for humanitarian assistance."163 Miller has told the Committees that he would write these statements differently if he were writing them today.1 6 4* Guilty Pleas of Channel! and Miller On April 29, 1987, Channell pled guilty to a one- count criminal information filed the same day by the Independet Counsel. As noted above, the information charged that Channell, Miller, "and others known and unknown to the Independent Counsel" conspired "to defraud the IRS and deprive the Treasury of the United States of revenue to which it was entitled by subverting and corrupting the lawful purposes . . . of NEPL by using NEPL . . . to solicit contributions to purchase military and other types of non-humanitarian aid for the Contras," in violation of 18 U.S.C. Section 371. The acts identified by the information as part of the conspiracy include the Ramsey, Hunt, Newington, O'Boyle, Garwood, and Claggett solicitations. At the hearing in which Channell's guilty plea was accepted by the Federal district court, Channell named Miller and North as his co-conspirators. Miller pled guilty to a substantively identical crimi- nal information on May 6, 1987. Both Channell and Miller are awaiting sentencing. *According to Miller, he told North in late 1986 that he "hoped to hell the account had been used for humanitarian assistance." North responded "Oh hell, yes." R. Miller Dep., 8/21/87, at 331. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Figure 4-1. The Channell-Miller Contra Assistance Network National Endowment for the Preservation Of Liberty (NEPLI Total Contributions 1985-1986 $10.385.929 55 487 751 May '85 Dec 86 55 037 751 Aug ? Nov 86 5450 000 Gomez International Miller Communications May Dec '86 5135 500 May -Dec 86 5302500 International Business Communications (IBC) Sep 85 ? May '86 52.740.000 ? World Affairs Counselors. Inc May - Dec '86 $442 000 C Inc (Intel Co-operation) Sept '85 - Dec '86 $493.221 Other Contra-Related Persons & Other Entities Nov '85 ? Feb '87 51 030 000 Adolfo Calero Oct '85 - Apr '86 $1.308.075 Sep -Dec '85 $430.000 Lake Resources This chart represents the money flow of the Channell-Miller Contra Assistance Network. Source: Senate Select Committee on Secret Military Assistance to Iran and the Nicaraguan Opposition and House Select Committee to Investigation Covert Arms Transactions with Iran. 101 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H .1 . 1 . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Chapter 4 1. Channell Dep., 9/1/87, at 2-4. 2. Id., at 6-10, 14-16, 21; 9/2/87, at 163. 3. Id., 9/1/87, at 30-34. 4. CH 4477-80. 5. CH 4437. 6. Channell Dep., 9/2/87, at 163-64. 7. Id., 9/1/87, at 40-41; 9/2/87, at 165. 8. Id., 9/1/87, at 49-50. 9. Conrad Dep. at 4-6. 10. Id. at 6-8. 11. Id. at 8-10. 12. Id. at 12-16. 13. Id. at 20-22, 25-27. 14. Id. at 24, 557, 559-60. 15. Id. at 28-38. 16. Id. at 38-39. 17. Id. at 41. 18. R. Miller Dep., 8/20/87, at 92-93. 19. Id., 6/23/87, at 19-20. 20. Id., 6/23/87, at 19-21; 8/20/87 at 93-95. 21. Audit Report No. 7PP-008, Office of Inspector General,Department of State (July 1987). 22. Id. 23. R. Miller Dep., 8/21/87, at 93. 24. Id., at 285-86, 306. 25. Id., 8/20/87, at 125-26. 26. Channell Dep., 9/2/87, at 165-67. 27. Fraser Dep. at 28, 31-39; N 6298. 28. Fraser Dep. Ex. 3. 29. Fraser Dep. at 41-60. 30. Channell Dep., 9/2/87, at 75-77; Conrad Dep. at 580- 81. 31. Fraser Dep. at 28-30, 48-49. 32. Channell Dep., 9/1/87, at 52-53. 33. Id., at 52-54. 34. R. Miller Dep., 8/20/87, at 135-37. 35. Id., at 137. 36. Id., at 137-39. 37. Id., at 14849. 38. CH 32022. 39. Channell Dep., 9/1/87, at 80-82; R. Miller Dep., 8/ 20/87, at 141-42. 40. Channell Dep., 9/1/87, at 80-83; R. Miller Dep., 8/ 20/87, at 142. 41. CH 36920-35; R. Miller Dep. Ex. 10. 42. Conrad Dep., 6/10/87, at 75-76; Gomez Dep. at 32- 33. 43. R. Miller Dep. Ex. 10. 44. Id. 45. Id. 46. Id. 47. Id. 48. Id. 49. R. Miller Dep., 6/23/87, at 24-25. 50. Ramsey Dep. at 55; R. Miller Dep., 6/23/87, at 27. 51. R. Miller Dep., 6/23/87, at 27. 52. Id. 53. RM 3577; RM 3578. 54. Channel! Dep., 9/1/87, at 76-78. 55. Id., 9/2/87, at 171. 56. Id., 9/1/87, at 87-88; 9/2/87, at 168-71. See also O'Boyle Test., Hearings, 100-3, 5/21/87, at 117-19. 102 57. Channel] Dep., 9/1/87, at 78-80. 58. Id. 59. R. Miller Dep., 8/21/87, at 382-89. 60. Id., at 389-90. 61. Id., 8/20/87, at 98-99. 62. RM 1136-44. 63. R. Miller Dep., 8/20/87, at 96-100. 64. Id., at 102-04, 113-14. 65. Id., 6/23/87, at 29. 66. North Test., Hearings, 100-7, Part II, 7/13/87, at 58- 59. 67. RM 1541-42. 68. Miller Dep., 8/20/87, at 124. 69. Id., 6/23/87, at 28. 70. Channel! Dep., 9/1/87, at 91. 71. R. Miller Dep., 6/23/87, at 28-30. 72. Id., 8/20/87, at 110-13. 73. CH 35141. 74. McLaughlin Dep. at 50-52. 75. O'Boyle Test., Hearings, 100-3, 5/21/87, at 117-19. 76. Id. 77. Id. at 120. 78. R. Miller Dep., 9/15/87, at 511-15. 79. North Test., Hearings, 100-7, Part I, 7/7/87, at 89-90. 80. Id., at 91. 81. R. Miller Dep., 6/23/87. at 32-33. 82. Id., at 32-34. 83. RM 971. 84. R. Miller Dep., 7/3/87, at 75-76; 8/20/87, at 252-56. 85. RM 859. 86. R. Miller Dep., 8/20/87, at 266-67. 87. Conrad Dep., 6/10/87, at 147-48. 88. Channell Dep., 9/1/87, at 123. 89. Id., at 113-20; 9/2/87, at 171-72. 90. Id., 9/1/87, at 110-11. 91. Hunt Dep., at 32-33. 92. Id., at 21. 93. Id., at 32, 48. 94. Channell Dep. 9/1/87, at 124-25. 95. Hunt Dep. at 52. 96. Id., at 46-55, 79-80, 82-83. 97. Id., at 34, 56, 80-85. 98. Id., at 67, 82-83. 99. RM 971. 100. R. Miller Dep., 6/23/87, at 75-76; 8/20/87, at 254- 55. 101. Newington Dep., at 16-17, 36, 56-58. 102. RM 1042. 103. R. Miller Dep., 8/20/87, at 248-50. 104. Id., 6/23/87, at 34-35. 105. Id., at 34-36. 106. Id., at 36-37. 107. Newington Dep., at 33, 45, 86-87, 90-93. 108. Channell Dep., 9/1/87, at 148. 109. O'Boyle Test., Hearings, 100-3, 5/21/87, at 116-17. 110. Id at 117-18. 111. Id at 118-19. 112. Id at 119. 113. Id at 120. 114. Id at 120-21; O'Boyle Dep. at 42-44. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 115. O'Boyle Test., Hearings, 100-3, 5/21/87, at 120; O'Boyle Dep. at 46-47. 116. O'Boyle Test., Hearings, 100-3, 5/21/87, at 121-22; O'Boyle Dep. at 54-55. 117. O'Boyle Test., Hearings, 100-3, 5/21/87, at 122. 118. Id. at 123-24. 119. Garwood Test., Hearings, 100-3, 5/21/87, at 112-14; Garwood Dep. at 12-15, 16-18, 20, 28-30, 32-36. 120. Garwood Test., Hearings, 100-3, 5/21/87, at 113. 121. Id. at 112-13; Garwood Dep. at 33-34. 122. Garwood Test., Hearings, 100-3, 5/21/87, at 113-14; Garwood Dep. at 34. 123. Garwood Test., Hearings, 100-3, 5/21/87, at 114; Garwood Dep. at 35-38. 124. Garwood Test., Hearings, 100-3, 5/21/87, at 115-16; Garwood Dep. at 58-61. 125. N 12528. 126. New York Times, 3/20/87, at A-10, col. 4. 127. N 10298. 128. N 22715. 129. Poindexter Dep., 5/2/87, at 203. 130. Id. at 202. 131. North Test., Hearings, 100-7, Part I, 7/7/87, at 92. 132. Artiano Dep. at 58-59. 133. Id. at 44-45. 134. Id. at 45; Fischer Dep. at 6. 135. Fischer Dep. at 9; Artiano Dep. at 46-50. 136. Fischer Dep. at 159. 137. Artiano Dep. at 59. 138. Conrad Dep., 6/10/87, at 179-80. 139. Channell Dep., 9/1/87, at 155-59. 140. Gomez Dep. at 61-64. 141. Artiano Dep., at 64-72, 78-90; Fischer Dep., at 35- 38; 97-104, 111-119. 142. Fischer Dep., at 104-05. 143. R. Miller Dep., 8/21/87, at 358-62. 144. Regan Test., Hearings? 100-10, 7/30/87, at 58; 7/31/ 87, at 116. 145. Fischer Dep. at 48. 146. Godson Dep. at 53-70; R. Miller Dep., 8/20/87, 276-81; Slease Dep. at 20-36, 56-57. 147. RM 17211. 148. Godson Dep. at 9, 40, 47-85; R. Miller Dep., 87, at 276-81; Slease Dep. at 20-36, 56-57. 149. Godson Dep., at 89-96; Hirtle Dep., at 27-48. 150. R. Miller Dep., 6/23/87, at 38. 151. North Test., Hearings, 100-7, 58-59. 152. 153. 154. 31/86, 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. Part at 8/20/ II, 7/13/87, at R. Miller Dep., 8/20/87, at 226-28. Id., at 228; Gomez Dep., at 88-89. Letter from Adam Goodman to Spitz Channell, 3/ reproduced as part of Channell Dep. Ex. 1. Channell Dep. Ex. 1, No. A36004. R. Miller Dep., 6/23/87, at 5-8. Id., at 9-14. Id., at 14-15. McLaughlin Dep. at 122-30. S. McMahon Dep. at 50-54. Id. at 23-24. RM 1-88. RM 3. R. Miller Dep., 8/20/87, at 236-37. 103 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 NSC Staff Involvement In Criminal Investigations And Prosecutions During the period covered by the Boland Amend- ment, federal law enforcement agencies conducted in- vestigations that touched upon various aspects of the secret Contra support operation. Concerned that these investigations, if pursued, would expose the NSC staff's covert operations, North and Poindexter react- ed by contacting the agencies involved. They sought to monitor investigations and, in some cases, to delay or impede their progress by suggesting that national security was at stake. Confronted with such assertions from White House officials involved with the nation's security, law enforcement agencies understandably cooperated with the NSC staff by delaying some in- vestigations, arranging to move a convicted former foreign official whom North was afraid would dis- close facts about the Contras to a minimum security prison, and giving Poindexter and North information about other investigations. The Committees are aware of seven such episodes, three involving the United States Customs Service and four involving the Department of Justice. They represent an integral part of the NSC staff's efforts to keep its operations even from those with legitimate law enforcement interests. North and the Customs Service Maule Aircraft Corporation In the summer of 1986, the United States Customs Service, following up on a CBS news report, began an investigation into allegations that Maule Aircraft Corporation of Macon, Georgia, had shipped four aircraft into Central America to support the Contras in possible violation of U.S. export control laws.' In August 1986, the Commissioner of the U.S. Cus- toms Service, William von Raab, was approached by North, who told him that Customs agents in Georgia were giving Maule Aircraft Corporation a hard time.2 North said the Maule Corporation shipped aircraft such as "Piper Cubs" down south. North also said that Maule was "a close friend of the President." Commissioner von Raab told North he would look into the Customs Service investigation and assigned the matter to William Rosenblatt, Assistant Commis- sioner for Enforcement.3 Rosenblatt contacted North, who told Rosenblatt that the people involved in the sale and export of the four Maule aircraft were "good guys" and had done nothing illega1.4 North insisted that the aircraft were simply "super Piper Cubs" and were exported only to a Central American country, where they were used to supply the Contras with medical and humanitarian supplies.3 Rosenblatt explained that in order to verify the legality of the transactions, Customs needed cer- tain documents and photographs of the aircraft, which North promised to produce. In exchange, Ro- senblatt agreed to postpone issuance of subpoenas. Over the course of the next several weeks, Rosenb- latt continued to contact North periodically to request the promised documentation,6 which North led him to believe would be forthcoming "momentarily." Be- cause of North's promises, Rosenblatt told the agent in charge to suspend issuing a grand jury subpoena for Maule, although the agent asserted that the Maule officials were "stone-walling" him.7 In the interim, Rosenblatt found himself dealing with North on two other matters, one involving a Customs informant named Joseph Kelso and another involving Southern Air Transport's role in the Hasenfus aircraft, where North asked Customs to narrow a subpoena so as not to expose other sensitive operations (see Chapter 18). On November 10, Rosenblatt met with Commis- sioner von Raab to discuss North's assertions that the Customs investigation could compromise national se- curity, including an effort to obtain the release of the hostages.9 At that meeting, von Raab advised Ro- senblatt to speak with Robert Kimmitt, General Counsel to the Treasury Department, about his inabil- ity to obtain the Maule and SAT records. Rosenblatt scheduled that meeting for the afternoon of Novem- ber 17.9 On the morning of November 17, Rosenblatt called North to attempt again to get the promised docu- ments on Maule Aircraft. To Rosenblatt's surprise, North indicated that he had the documents and would send them right over. When they arrived, however, Rosenblatt was quite disappointed. They did not in- clude purchase orders, photographs, or other docu- ments sufficient to dispose of the Customs inquiry. That afternoon, Rosenblatt met with Kimmitt and re- lated the entire episode involving Maule and SAT.' ? 105 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 At that point, the investigation resumed, 6 weeks after it had been halted at North's request. While Rosenblatt testified he never mentioned the Kimmitt or von Raab meetings to North and he had no contact with North after November 17," North's notes suggest that Rosenblatt did brief him on these matters after November 17. A note dated "19 Nov. 86" reads: ?Bill Rosenblatt ?Joe Ladow - P/M Maule ?Letter from Justice ?Talk to Commissioner next week ?Talked to Kimmitt re relationship ?Profs w/C-123 military configuration required so- journ ?Names in document - La dodge needed advice on how to handle ?Call Von Raab' 2 Kelso Another matter on which Customs had dealings with North involved Joseph Kelso. Kelso was on probation after a conviction for illegally exporting arms to Iraq. In 1986, he approached Customs under an alias and offered to work as an informant.' 3 In the spring of 1986, Kelso, accompanied by a Customs informant, traveled to Costa Rica to gather information on an alleged counterfeiting and drug ring that supposedly included corrupt DEA agents." Kelso and the informant had not notified the U.S. Embassy or Costa Rican authorities of their investiga- tion, and Kelso was detained and questioned by the Costa Rican authorities and DEA agents as to what he was doing in the country." Kelso was then taken to John Hull's farm." Hull reported the incident to North and Owen in a letter." At the same time, Tambs complained to Customs about their sending informants into Costa Rica without notifying the Em- bassy. After returning to the United States, Kelso, who faced charges of violating his probation, turned over tape recordings of his activities to Customs, and claimed that, apart from his trip for Customs, he was working for the intelligence community." In or about September 1986, Rosenblatt called North to find out if Kelso was working for the intelligence community." North, who was already aware of Kelso's visit to Costa Rica, suggested that Rosenblatt allow Owen, whom Rosenblatt did not know, to listen to Kelso's tapes to verify his claims. Rosenblatt agreed on the assumption that Owen was part of the NSC staff, or otherwise assisting North.2? After receiving the Kelso tapes from Rosenblatt in October, Owen made two trips to Central America where he met with DEA agents. Although Owen was purporting to investigate Kelso's status, he never communicated further with Rosenblatt, and Rosenb- 106 latt concluded from this silence that Kelso had not been working for the intelligence community." Miami Neutrality Investigation In connection with another investigation, this one conducted by the Office of the United States Attor- ney for the Southern District of Florida, North and Poindexter were able to obtain information concern- ing the vulnerability of the Enterprise. The Roots of the Investigation On July 21, 1985, the Miami Herald published an article by reporters Martha Honey and Tony Avir- gan. In that article, a mercenary for Civilian Military Assistance (CMA) named Steven Carr, who was then imprisoned in Costa Rica, spoke of an arms shipment from Fort Lauderdale to a Central American location. The article caught the attention of the FBI in the Southern District of Florida, which opened an investi- gation into Carr's allegations and alerted FBI head- quarters in Washington, D.C., as required in any matter involving the Neutrality Act.22 Garcia Allegations In December 1985, an individual named Jesus Garcia was convicted in the Southern District of Florida on charges of possessing an unlicensed ma- chine gun. 2 3 While Garcia was awaiting sentence, he offered through his attorney to provide federal authorities with information relating to paramilitary plots in Cen- tral America. As a result of that offer, he was inter- viewed on January 7, 1986 by two FBI agents. He claimed that he had been set up on the machine gun charge by a person who supposedly worked for Tom Posey and the CMA, a pro-Contra paramilitary group. According to Garcia, Posey was attempting to neutralize him because of his knowledge of a CMA plot to assassinate Ambassador Lewis Tambs to col- lect a reward offered by a notorious drug kingpin in Central America. The assassination, Garcia told the FBI, would, as an added benefit, be blamed on the Sandinistas, thereby assisting the Contras' cause. Garcia also gave the FBI further details on the gun shipment reported earlier in the Miami Herald.24 The FBI agents and Jeffrey Feldman, the Assistant United States Attorney conducting the investigation, were all skeptical.25 Nevertheless, given the gravity of Garcia's allegations, the investigation continued. At the request of the FBI, embassy officials in Costa Rica interviewed Carr and other American mercenar- ies imprisoned in that country. Hotel records at the alleged site of a critical meeting seemed to confirm its occurrence. Flight plans and records suggested that the alleged arms shipment also could have oc- curred. 2 6 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 During this phase of the investigation, the FBI re- ceived allegations that North, Owen, and John Hull were involved in, or at least aware of, the gun run- ning plots.27 This information was not supplied by Garcia, but came through other sources." On March 14, 1986, an FBI agent and Feldman met with Anna Barnett, the Executive Assistant United States Attorney. While the FBI agent and Feldman were in Barnett's office discussing the investigation, United States Attorney Leon Kellner came in to in- quire whether anyone was aware of an alleged plot to assassinate Ambassador Tambs. According to Kellner, he had just received a call from someone at the De- partment of Justice in Washington who wanted infor- mation about the investigation." At or shortly after that meeting, it was decided that the FBI agents and Feldman would travel to New Orleans to interview Jack Terrell, a/k/a "Colonel Flaco," a former CMA mercenary who, they had been told, knew more de- tails of the conspiracy.3? Activity in Washington The FBI agents had been advising headquarters by telex throughout the early stages of the investigation and in early March had received a request from Oliver Revell, Executive Assistant Director of the FBI, for a detailed summary of their findings. Their report was forwarded to headquarters on March 20, 1986.3' Revell's inquiry was itself sparked by a request from Deputy Attorney General D. Lowell Jensen for an update on the investigation." Revell sent a sum- mary of the agents' report five pages in length, to Jensen. 3 3 Upon receiving the memorandum, Jensen met with Attorney General Meese to discuss the case. Jensen recalls that he and Meese decided that Admiral Poin- dexter, the National Security Adviser, should be briefed on the matter because of its international im- plications and the possibility of danger to an Ameri- can diplomat. Jensen was uncertain, however, wheth- er he or Meese initiated the proposal to brief Poin- dexter.34 Meese testified at his deposition that he did not recall discussing this matter with Jensen.35 Jensen also forwarded a copy of Revell's memoran- dum to Associate Attorney General Steven Trott, who forwarded it in turn to Deputy Assistant Attor- ney General Mark Richard. On the "buck slip" ac- companying the memorandum, Trott wrote: Please get on top of this. [Jensen] is giving a heads up to the N.S.C. He would like us to watch over it. Call Kellner, find out what is up, and advise him that decisions should be run by you." On another buck slip attached to the memorandum for his own record, Richard wrote, "3/26/86, spoke to Kellner?AUSA not back yet from [New Orle- ans]."37 Richard recalls speaking with Kellner about the case on several occasions over the next several months. Trott and Jensen also believe they spoke to Kellner about the case on a few occasions. Each of them specifies that he never attempted to impede or otherwise interfere in the investigation itself, and the Committees have no Lvidence that contradicts this." On March 26, 1986, Jensen went to the NSC and showed Poindexter a copy of Revell's memorandum. Jensen does not recall any discussion that may have taken place. Poindexter testified that he does not recall the briefing at all." Terrell and Costa Rica In New Orleans, Terrell provided the FBI agents and Feldman with additional information on the al- leged assassination plot and arms shipment. When pressed, however, Terrell admitted that most, and perhaps all, of his information was based on hearsay rather than on his direct participation or observa- tion.40 Feldman and the FBI agents traveled to Costa Rica on March 31, 1986, and reported to the U.S. Embas- sy. There they met with Tambs, who wanted to know the purpose of their visit. Feldman briefed Tambs thoroughly on their investigation and intentions. During that briefing, Feldman showed Tambs a chart he had drawn to illustrate the supposed conspiracy that had been described to him. The chart showed a pyramid of participants, with lines of involvement running up through John Hull and Robert Owen to Oliver North at the top.4' When he saw the chart, Tambs summoned "Thomas Castillo," who introduced himself to the investigators as a CIA station chief. Castillo provided them background information on Hull. According to Feldman, Castillo also spoke of North warmly as "the person who introduced me to the President of the United States last week."42 Over the course of the next two days, Feldman, the FBI agents, and various embassy personnel inter- viewed Steven Carr and several other imprisoned mercenaries. They attempted to set up an interview with Hull, who initially agreed and then declined to speak to them.43 Feldman was also told by an em- ployee at the U.S. Embassy that Hull had been con- tacted by the NSC about the investigation.44 North received a briefing from Owen on Feldman's visit. In a letter dated April 7, 1986, Owen identified each of the investigators who had appeared in Costa Rica, then wrote: According to [Castillo], Feldman looks to be wanting to build a career on this case. He even showed [Castillo] and the Ambassador a diagram with your name at the top, mine underneath, and 107 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 John's underneath mine, then a line connecting the various resistance groups in [a Central Ameri- can country.] Feldman stated they were looking at the "big picture" and not only looking at a possible viola- tion of the neutrality act, but at possible unau- thorized use of government funds. They went several times to the prison to question the five in jail. They tried to talk with John, but he was advised not to talk with them unless he had a lawyer present.4 5 April 4 Meeting Feldman met late on the afternoon of April 4, 1986, with Kellner and Barnett to discuss the results of his trip to Costa Rica. Also present were Larry Scharf (Special Counsel to the United States Attorney) and Richard Gregorie (Chief Assistant United States At- torney). Feldman explained to them that, while the assassi- nation plot seemed to be fading as a cause for concern or a vehicle for prosecution, the gun-running charges seemed to have some basis in fact. Others at the meeting believed, however, that Feldman was having a difficult time fitting a complex combination of facts, witnesses, and actors into a coherent theory of pros- ecution.46 At one point, the topic of the Boland Amendment was raised. Because no one in the room was familiar with the details of that legislation Barnett asked As- sistant United States Attorney David Liewant to locate it with the research computer.47 According to Liewant, when he arrived at Kellner's office with the printout, only Kellner, Bar- nett, and Feldman were present and Kellner was on the telephone talking to someone at the Department of Justice.48 According to Liewant, when Kellner hung up, he turned to Barnett, Feldman, and Liewant and said that the Department wanted them to "go slow" on the investigation. Liewant could tell from Kellner's expression and tone of voice that Kellner was disdainful of that suggestion and had no intention of actually slowing the investigation." If Liewant's account of this meeting is correct, the Department of Justice would appear to have been exerting improper influence to delay an investigation, albeit influence brushed aside by Kellner. But each of the other participants in the April 4 meeting deny that any such telephone conversation took place." Rich- ard, Trott, Jensen, and Meese also deny that any telephone call like that described by Liewant oc- curred or that anyone, to their knowledge, attempted to slow the investigation at any time.51 At the end of the meeting on April 4, Kellner asked Feldman to draft a memorandum pulling together the results of the investigation to date as well as Feld- man's approach to any possible prosecution." 108 The Meese Aside On April 12, Meese, along with Jensen and Revell, arrived in Miami to visit a number of FBI agents wounded in a shoot-out the day before. Kellner ac- companied Meese on his visits." During the day, Meese pulled him aside and asked him about the Garcia investigation. Kellner believes that he told Meese that there did not appear to be much substance to the assassination allegations, but that the gun-running investigation was continuing. Kellner testified that Meese neither stated nor implied that the investigation should be slowed or conducted in any other particular manner." Meese recalls asking Kellner about the matter, al- though he does not recall pulling Kellner aside to do so. Meese testified that he mentioned that case in particular because it had received attention by the press.55 Meese also denies that he attempted to affect the course of the investigation." The Feldman Memoranda On April 28, Feldman provided the first in what was to become a series of memorandums to Kellner. Both Feldman and Kellner felt that it was unsatisfac- tory.57 On May 14, Feldman therefore produced a more detailed memorandum, 20 pages in length. It reviewed the facts gathered to that time and conclud- ed that it was appropriate to issue grand jury subpoe- nas for various documents and witnesses. Feldman wrote: The Bureau believes that a grand jury is neces- sary for several reasons. First, it would dispel claims that the Department of Justice has not ag- gressively pursued this matter. Second, a grand jury would eliminate some of the deception they believe they have encountered during their inter- views with Jesus Garcia, Daniel Vasquez Sr., Ronald Boy, and Max Vargas. Finally, the grand jury would give the Department of Justice access to Costa Gun Shop's business records and CANAC's bank records. Within a few days, Kellner returned the memoran- dum to Feldman with the notation "I concur, we have sufficient evidence to institute a grand jury in- vestigation into the activities described herein."58 Kellner then convened a meeting in his office on May 20 to discuss the case. Present, once again, were Kellner, Barnett, Scharf, Gregorie, and Feldman. As the discussion progressed, Scharf and Gregorie set forth a number of reasons why they believed it pre- mature to issue grand jury subpoenas. Gregorie, at his deposition, summarized those reasons: Before you go into the grand jury, as I told Jeff, you have to have some idea where you're going and what you're looking for. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 Up until that time, he had some wild stories that were concocted by freelance newspaper reporters about mercenaries who were unreliable, individ- uals who had failed a polygraph, people who were unreliable, and we did not have a stage set of facts [sic], and I did not think it was appropri- ate to go into the grand jury with a bunch of people who we were later going to find out were totally lying and totally misled in a grand jury, going to confuse them. What I saw was a confused mess of facts that were leading in no particular direction, and had no form or substance to them." By the end of the meeting, a consensus developed that further interviews should be conducted before resorting to the grand jury. Feldman, who had re- quested authorization to go to the grand jury initially, acquiesced in the decision and agreed to have the FBI conduct the additional interviews.60 After Kellner changed his mind and concluded that grand jury subpoenas would be premature, he asked Feldman to redraft the May 14 memorandum to re- flect that conclusion. Feldman did so, and submitted a revised version to Kellner on May 22. Feldman did not change the original date on the revised memoran- dum.6' Kellner asked Scharf to review this new version, and Scharf made a number of changes. Most impor- tant, he included a reference to the Christic Institute litigation filed in the Southern District of Florida on May 30 and added to the conclusion a number of reasons why resort to a grand jury would be prema- ture. Scharf had these changes made on a word proc- essor, but did not change the original date or author. As a result, when Kellner submitted the memorandum to the Department on June 3, it still bore the date of May 14 even though it referred to an event that occurred on May 30. Feldman did not see this final version of his memorandum before Kellner sent it on to Washington.6 2 Further Investigation The FBI agents undertook the additional investiga- tion requested by Feldman. On July 31, 1986, they presented Feldman with a lengthy "prosecution memorandum" that included their most recent find- ings. Feldman, in turn, forwarded that report to Kellner on or about August 14.63 On August 29, 1986, Kellner told Feldman to sus- pend any further investigation on the matter until he (Kellner) returned from an impending trip to Wash- ington. According to Feldman, Kellner told him that "politics" were involved. Feldman found this state- ment surprising and disturbing, because it was the first, and only, time Kellner had indicated to him that such considerations were relevant. When Kellner re- turned from Washington shortly thereafter, he told Feldman to proceed." Kellner confirmed Feldman's version of this inci- dent. According to Kellner, shortly before he was to leave for Washington he received a letter from John Hull making serious allegations of impropriety by members of Senator Kerry's staff, who were also in- vestigating Garcia's allegations. Hull also had includ- ed affidavits from some of the imprisoned mercenaries retracting some of their prior statements regarding gun-running and Contra support. Kellner stated that he feared that he was being put into the middle of a political dispute, and wanted to talk to Mark Richard about the allegations before proceeding further. After that discussion, Kellner immediately authorized Feld- man to proceed. Both Feldman and Richard con- firmed this explanation.6 5 Meanwhile, Kellner had reviewed the prosecution report cursorily and forwarded it, in mid-August, to Richard Gregorie for his input. On October 6, the day after the Hasenfus crash, Gregorie responded to Kellner that he felt the case was ready to go to the grand jury.66 The prosecution memorandum then rested again with Kellner, who forwarded his own approval to Feldman in the first week in November? six months after Feldman had first suggested the need for a grand jury. The relative inactivity from mid- August to the first week in November was again frustrating to Feldman and the FBI agents, and was explained by Gregorie and Kellner as due to the gen- eral press of other matters.6 7 Upon receiving approval from Kellner, Feldman proceeded with the investigation. The Independent Counsel subsequently declined to take over the case and Feldman was continuing to investigate the matter at the time he was deposed by the Committees." Reward for a Friend In one episode, the NSC staff undertook to persuade the Department of Justice to "reward" someone char- acterized by North as a "friend" who had been con- victed of plotting to assassinate a Central American leader. In that episode, the NSC staffs motive appears to have been a desire to prevent disclosure of certain questionable activities. According to a North PROF to Poindexter, the "friend" was an official in a Central American coun- try with whom North, the U.S. Ambassador, General Gorman, and Dewey Clarridge arranged for bases for the Contras as well as overall logistics, training and support. 69 This official and other plotters were indicted prior to 1986 for conspiracy to assassinate a Central Ameri- can leader.7? Pursuant to a plea agreement, the offi- cial pleaded guilty to two felony counts which car- ried a significant maximum sentence; and he was later 109 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I] V v 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 sentenced to two shorter, though still significant, prison terms to run concurrently." At the sentencing hearing, U.S. military officials assigned to the State Department testified on behalf of the official. The court provided that the official could be immediately eligible for parole if so determined by the Parole Commission and recommended he serve his sentence at a minimum security institution. Mean- while, Assistant Secretary of State Elliott Abrams promised the official's government that he would look into the case.72 In a September 17, 1986 PROF message to Poin- dexter, North noted that the official was under the impression he would serve only a matter of days or weeks at the minimum security institution and then be released.73 North was concerned that once the offi- cial realized he was really going to serve a long sentence, "he will break his longstanding silence about the Nic[araguan] Resistance and other sensitive operations."74 North noted the next morning he would meet with Oliver Revell, Steven Trott, and Elliott Abrams to explore the possibility of a pardon, clemency, deportation, or sentence reduction. The ob- jective of this exercise, as North put it, was "to keep [the official] from feeling like he was lied to in legal process and start spilling the beans."75 Admiral Poin- dexter responded: "You may advise all concerned that the President will want to be as helpful as possible to settle this matter." 7 6 Representatives of different agencies of the Admin- istration met to discuss the request for leniency. Deputy Assistant Attorney General Mark Richard at- tended a meeting where Defense Department repre- sentatives argued on the official's behalf. Richard con- cluded their reasons were not sufficiently specific.77 No one ever gave a detailed account of what the official had actually done for the United States to deserve leniency. He was always simply described as a "friend of the United States."78 The State Depart- ment agreed with the Department of Justice that the official was a terrorist and should be punished. The CIA did not express an opinion.79 At a subsequent meeting in North's office on Sep- tember 24, 1986, North tried to convince Trott, Revell, C/CATF (CIA) and James Michel, Deputy Assistant Secretary of State, that the official was only tangentially involved in the assassination plot and de- served leniency.8? Revell disagreed. North asked them to consider recommending a minimum security correctional institution rather than the federal prison to which the official had been assigned, despite the court's recommendation, by the Bureau of Prisons.8' In early October, North tried again with the De- partment of Justice, this time with help from General Gorman and Dewey Clarridge. Also at this meeting were Mark Richard (filling in for Trott), Revell, and Elliott Abrams.82 North, Gorman and Clarridge all argued for leniency for the official, explaining only that the official was a "friend of the government" 110 who was "always ready to assist us" and "was helpful in accommodating our military."'" Abrams agreed that the U.S. should do what it could for the official, thereby reversing the State Department's earlier posi- tion.84 According to Richard, he offered to meet with others in the Department and determine whether the Department would oppose the transfer of the offi- cial to the minimum security institution. North's contemporaneous account of that meeting portrayed the Justice Department as more committed to assisting the official. In a PROF note to Poin- dexter, North indicated that, after the last co-con- spirator was convicted and sentenced, the Department of Justice would have the defense attorney file a motion to reduce the sentence to time served and arrange to have General Gorman brief the court in camera on the equities. North said Trott and Revell believed this should result in the release and deporta- tion of the official. North suggested that the official's attorney should be discreetly briefed to mollify the concerns of those involved that the official "will start singing songs nobody wants to hear."85 Richard soon determined that neither Trott nor Kellner had any objection to redesignating the official to the minimum security institution, as contemplated in the original court's recommendation and made the appropriate arrangements with the Bureau of Pris- ons.8 6 The Fake Prince As explained briefly in Chapter 4, an individual named Kevin Kattke contacted North in March or April 1985 about a Saudi "prince" who proposed do- nating to the Contras approximately $14 million in proceeds derived from the sale of the "prince's" oil. North referred the "prince" to Richard Miller. Miller and the "prince" met regularly over the course of the next several months. The "prince" sought Miller's help in marketing the oil, agreeing to pay Miller $1 million of the profits earned. Miller kept North regu- larly apprised of his dealings with the "prince", which eventually also included both a proposed gold trans- action and assistance in freeing the hostages held in Lebanon.87 Indeed, Miller saw himself as "an agent working on [North's] behalf" in connection with these activities.88 Yet while North was attempting to develop the "prince" as an asset in both his Iran and Contra initiatives, the FBI was investigating the "prince" for bank fraud. From the start, Miller had misgivings about the bona fides of the "prince." He did library research without much success in an effort to establish the "prince's" authenticity. According to Miller, North told him that the CIA had confirmed both the "prince's" identity and the veracity of the "prince's" information about the hostages." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 Early in their relationship, the "prince" told Miller that he had information about the hostages in Leba- non that would be useful to U.S. efforts to locate and extricate the hostages. At North's suggestion, Miller related this information to the Hostage Location Task Force, representatives of which met with and inter- viewed the "prince" in Houston. Miller continued to inform North of the hostage-related information con- veyed by the "prince."" In July 1985, North asked a DEA agent (Agent 1)?who was detailed to North in connection with hostage release efforts?to accompany Miller and the "prince" to England to assist the "prince's" entry into the country, if necessary. Agent 1 agreed, and North arranged for payment of his travel expenses." The three men stayed in London for five or six days. Based on discussions with the "prince" about the situation in the Middle East, Agent 1 concluded that it would be worthwhile to develop the "prince" as a source in the hostage location effort." In August 1985, the DEA agents embarked on fur- ther activities with the "prince." At North's request, they traveled to Geneva from Cyprus to help the "prince" obtain travel papers after his passport had allegedly been stolen. Even with the cooperation of Ambassador Faith Whittlesey, Agent 1 was unsuc- cessful in obtaining a U.S. passport for the "prince." A week later, however, Agent 1 obtained travel papers for the "prince" issued by another country. Agent 1 remained with the "prince" in Europe for some time thereafter, and paid the "prince's" ex- penses.? 3 At North's request, Secord met Agent 1 and the "prince" in Geneva in September 1985. After meeting the "prince," Secord expressed to Agent 1 concerns about the "prince's" bona fides." Meanwhile, during the spring and summer of 1985, the "prince" developed legal problems in the United States. In late spring, the "prince" cashed a $250,000 check at William Penn Bank in Philadelphia, which was returned for insufficient funds. This event result- ed in a referral to the FBI's Philadelphia field office for bank fraud charges against the "prince." In con- nection with the fraud investigation, the FBI's Wash- ington field office was asked to interview both North and Miller.? 5 An FBI agent interviewed North on July 18, 1985. According to the agent, North said that he had re- ferred the "prince" to Miller because it was inadvis- able (and potentially unlawful) for an NSC staff person to meet with an individual who planned to contribute funds to the Contras. North further in- formed the agent that the "prince's" interest in donat- ing to the Contras was discussed by North personally with the President and with Robert McFarlane." North "confidentially" advised the agent that the NSC staff had maintained indirect contact with the "prince" because of the Contras' desperate need for funds.? 7 North specifically requested that attempts by the FBI to interview the "prince" be held in abeyance until after the week of July 22, 1985, because the Congress was expected to approve funding for the Contras that week. After being pressed by the FBI agent, North "backed down" on this request, al- though he expressed his view that FBI contact with the "prince" prior to the NSC's determination of the "prince's" true intentions likely would eliminate any possibility that the "prince" would aid the Contras. On his departure from North's office, the agent was introduced by North to Adolfo Calero, whom North called the "George Washington of Nicaragua"." After the North interview, the FBI agent attempted to contact Miller, who did not return several of the agent's telephone calls. North called the agent on July 30, 1985, in apparent response to the agent's attempt to reach Miller. North told the agent that Miller and the "prince" were in Europe arranging a transfer of funds from the "prince" to the Contras." On August 27, the FBI agent finally interviewed Miller, who outlined the history of his contacts with the "prince." Miller mentioned that he knew North, but did not disclose anything to the agent about Nica- ragua. In October, Miller was interviewed again by the FBI. During this session, he pledged complete cooperation with the fraud investigation.'" During the course of the grand jury investigation of the "prince," North called the FBI's Oliver Revell once again to express concern that Miller might be questioned about confidential governmental matters. North told Revell that Miller was a consultant to the NSC and the State Department on the hostage situa- tion, but did not mention Miller's efforts on behalf of the Contras. At North's request, Revell called the Assistant United States Attorney who was handling the "prince's" prosecution in Philadelphia. Revell re- lated the concern expressed by North, and was as- sured by the prosecutor that, if Miller testified, he would not be questioned about any hostage-related activities.1?1 According to Miller, he spent approximately $370,000 on the activities involving the "prince." North was aware of and approved these expenditures. On at least three occasions?two of which occurred after Miller agreed to cooperate fully in the investiga- tion of the "prince"?Miller sent travelers checks to the "prince" in Europe.'" Although the "prince" requested these payments?which totalled $32,500?at least $15,000 was used to finance the DEA hostage rescue operations. North approved all such pay- ments.1? 5 These expenditures, however, did not result in monetary loss for Miller. He complained to North of the money that the "prince" had cost him, and North told Miller to take reimbursement for these costs from Contra assistance funds that he had transferred to 111 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ..? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 Miller's company by Carl "Spitz" Channell's tax- exempt organization.104 In the end, it was determined that the "prince" was neither a "prince," nor even a Saudi. He was an Iranian con man, who pleaded guilty to bank fraud charges on the eve of his trial. He now is incarcerated in a federal penitentiary in Texas."5 Instigation of Investigations North attempted to exploit his contacts with the FBI to attempt to instigate or intensify investigations of people and organizations perceived as threats to the Enterprise. He was ultimately assisted in this effort by Richard Secord and Glenn Robinette. In early 1986, Secord had been the target of allega- tions that he was running guns and drugs between Central America and the United States. In May 1986, these allegations blossomed into a lawsuit filed in United States District Court for the Southern District of Florida. The lead plaintiffs in the action were re- porters Martha Honey and Tony Avirgan, who were represented by the Christie Institute. The defendants included Secord, Thomas Clines, Theodore Shackley, and John Hull.' ?6 At some point after the lawsuit was filed, North again contacted Oliver Revell, this time to suggest that the federal government ought to investigate the plaintiffs because he thought they were probably being funded or supported by the Sandinistas. Revell told him that the FBI did not engage in that type of investigation. 07 On May 9, the FBI interviewed North about al- leged measures taken against him. North claimed that his car had been vandalized, he had been followed, and his dog had been poisoned. North also claimed a fake bomb device had been left in his mailbox. He had not kept the device, however, for the FBI to analyze. North told the FBI that he had written down the license number of the car that was used to follow him, but, after several requests from the FBI, he failed to provide it, claiming he lost the number.'" The FBI checked with the local police regarding the fake bomb device placed in North's mailbox. North had told them he discarded it before it could be examined. The FBI concluded it was probably a prank rather than a threat. On June 3, 1986, North met with FBI agents to discuss an investigation they had been conducting into allegations by North that he was the target of politi- cally motivated vandalism and harassment, perhaps by foreign intelligence sources. At this meeting, North expressed his displeasure about the FBI's alleged lack of effort in the investigation. In particular, he com- plained that the FBI had never contacted an NSC staffer who supposedly was the source of allegations linking North to drug traffic, had not investigated Daniel Sheehan of the Christic Institute, had not interviewed a reporter who claimed North had threat- 112 ened him, had not examined allegations made by Sen- ator Kerry against North, and had not attempted to interview Senator Durenberger and Representative Hamilton to determine the sources for allegations made against North about which they had raised questions.'" Despite these complaints, the FBI ulti- mately closed its investigation after concluding that none of North's complaints could be traced to foreign intelligence sources." ? North ultimately hit on a better formula, however, with Secord's assistance. In March 1986, Secord had retained Glenn Robinette, a security consultant and former CIA officer, to conduct a private investigation of some of the individuals ultimately involved in the Honey and Avirgan lawsuit.' " One of the people Secord singled out for such treatment was Jack Ter- rell, also known as "Colonel Flaco." Terrell had at one time been a pro-Contra mercenary associated with Tom Posey and CMA. He ultimately became disillusioned with the Contras, however, and began to cooperate with the plaintiffs in the lawsuit. He threat- ened to testify that North had helped provide secret funding to the Contras and that he, Terrell, had used CMA as a cover from which to carry out CIA-spon- sored assassinations."2 In mid-1986, the FBI received information from a classified source that pro-Sandinista individuals might have been contemplating an assassination of President Reagan. The FBI suspected that Terrell might be involved and disseminated this information to the CIA, Secret Service, State Department, Department of Justice, and NSC. " 3 Shortly thereafter, on July 15, 1986, Revell re- ceived a call from North, who indicated that he knew a person familiar with Terrell's activities and would make his contact available for debriefing.114 The FBI met that evening with Robinette, North's contact, who told them he had met Terrell on July 11 while posing as an attorney exploring the possibility of col- laborating with Terrell on a book, movie, and televi- sion program. Robinette, who was in daily contact with Terrell, offered to assist the FBI in gaining infor- mation about him." 5 On July 22, 1986, FBI agents interviewed North. He told them he had heard of Terrell eighteen months earlier when a Contra intelligence officer complained of Terrell's brutality.'" North claimed he suggested at the time of that incident that local officials should expel Terrell. North stated that he had heard that Terrell had tried to import guns into a Central American country and had claimed to be for- merly with U.S. Army Special Forces and the CIA. The FBI agents asked North about Secord and Robinette. North said Secord ran an import-export business and was a consultant to the Defense Depart- ment and emphasized Secord did not work for him. He said Robinette was a security consultant hired by Secord to investigate Terrell. North acknowledged he Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 met with Robinette prior to sending him to the FBI and that Robinette gave him copies of the Terrell manuscript and the other materials Robinette shared with the FBI. North stated that neither he nor his staff was responsible for arming, funding, or adminis- tering Contra programs and denied he was involved with covert operations being run from the U.S."7 The FBI decided to watch Terrell with Robinette's help. Although Robinette refused to wear a recording device, he reported back to the FBI after he met with Terrell. Shortly thereafter, Terrell went to Miami at the same time President Reagan visited Miami. Agents observed him there and concluded he was not a threat to the President. The FBI then terminated this investigation.' 18 Summary These seven episodes collectively show how the NSC staff, and North in particular, tried to prevent expo- sure of the Enterprise by law enforcement agencies. We do not mean to impugn the integrity of the law enforcement officials involved. Suggestions that na- tional security could be compromised, coming from NSC aides, inevitably were given weight by law en- forcement officials and led them on occasion to pro- vide information to the NSC staff and to delay inves- tigations. The fault lies with the members of the NSC staff who tried to compromise the independence of law enforcement agencies by misusing claims of na- tional security. 113 77-026 0 - 87 - 5 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 Chapter 5 1. Rosenblatt Dep., 9/25/87, at 7. 2. von Raab believes that his first contact with North occurred a few months before this conversation. According to von Raab, he received a telephone call from General Singlaub who inquired about a helicopter, the "Lady Ellen," that Customs was detaining enroute to a Central American country. When von Raab informed Singlaub that the helicopter needed a license before it could be released, Singlaub indicated that he would obtain one. Singlaub then suggested that von Raab call North about the matter. When von Raab did so, North told him that the individuals in- volved with the helicopter were "good guys." Ultimately, Customs issued the appropriate license and released the helicopter. William von Raab, Int., Tower, 2/11/87, N36038-36041. 3. Id. 4. Rosenblatt Dep., 9/25/87, at 16. Rosenblatt testified that, "to the best of [his] recollection," North did not men- tion any involvement of Richard Secord with the aircraft in question. Rosenblatt Dep., 9/25/87, at 13. A North note dated "27 Aug," raises questions because of the following entry: "Bill Rosenblatt - Customs - DOJ observed CBS film - Secord involved - DOJ asked Customs to look into [this?] - Agent preparing to subpoena Maule records - If this is for a "right organization" - 2 to 4 have already gone - Joe Tost/ Justice - U.S. Attorney on this - Need docs on who air planes went to and what was on them - Foreign Assets Control." North Notebook, 8/27/86, Q2369. 5. Rosenblatt Dep., 9/25/87, at 12. 6. Id., at 17-21. 7. Id., at 16-17. 8. Id., at 90-93. 9. Id., at 96-99. 10. Id., at 32, 99. 11. Id., at 35. 12. North Notebook, 11/19/86, Q2634. The entry relating to the "C-123" may refer to a requirement that the Hasenfus air plane have a "sojourn permit" before it left the United States. "Ladodge" may be a reference to Larry LaDodge, the Customs agent in charge of the Kelso matter. 13. Rosenblatt Dep., 9/25/87, at 51. 14. Id., at 48-49. 15. Id. 16. Id. 17. Id., at 60-62. 18. Id, at 54-57. 19. Id., at 55-56. 20. Id, at 57-58, 62-63. North was not questioned on this matter. 21. Id, at 62-69. 22. Currier Dep., 5/5/87, at 6-7. 23. Id, at 8-9, 11; Feldman Dep., 4/30/87, at 5, 8-9. 24. Currier Dep., 5/5/87, at 12-14; Feldman Dep., 4/30/ 87, at 12-15. "CMA" originally stood for "Civilian Military Assistance." In April 1986, it was changed to "Civilian Materiel Assistance." Posey Dep., 4/23/87, at 7. 25. Kiszynski Dep., 5/5/87, at 11-12; Currier Dep., 5/5/ 87, at 12-14; Feldman Dep., 4/30/87, at 16. A polygraph examination conducted on January 14 did nothing to bolster Garcia's credibility. The test was "inconclusive" on wheth- er Garcia was telling the truth about a key meeting where the assassination plot was supposedly discussed, and labelled him "deceptive" on his allegations about Posey's involve- 114 ment. Currier Dep., 5/5/87, at 14; Kiszynski Dep., 5/5/87, at 14; Feldman Dep., 4/30/87, at 17-18. In his sworn testi- mony to the Committees, Posey vigorously denied Garcia's allegations. Posey Dep., 4/23/87, at 72, 77, 84-85, 89. 26. Currier Dep., 5/5/87, at 16; Feldman Dep., 4/30/87, at 21-22. 27. Allegations about North's own involvement in Contra resupply efforts had been reported in the press as early as the summer of 1985. See, e.g. "Private Sources Are Used to Skirt Ban on Contra Aid," Miami Herald, June 24, 1985, at 1A; "Nicaraguan Rebels Getting Advice from White House on Operations," New York Times, August 8, 1985, at Al. 28. Currier Dep., 5/5/87, at 16-18; Kiszynski Dep., 5/5/ 87, at 13-14. 29. Feldman Dep., 4/30/87, at 26; Kellner Dep., 4/30/87, at 7. The Committees have not been able to establish with any certainty the trigger for this inquiry from Washington. Kellner believes the call came from Mark Richard, Deputy Assistant Attorney General for the Criminal Division, and had been sparked by a letter from Garcia's wife that had found its way to Richard's desk. Richard, on the other hand, does not recall being aware of the investigation until some time later in March, when he received a "buck slip" on the matter from Steven Trott, then Assistant Attorney General for he Criminal Division. Kellner Dep., 4/30/87, at 7-8; Richard Dep., 8/19/87, at 53-54. 30. Feldman Dep., 4/30/87, at 26-27, 37. Garcia's sen- tencing proceeding had been scheduled for March 19, 1986. On March 18, Feldman filed a motion to continue this proceeding for 30 days, alleging that the day before, "at approximately 4:30 p.m., the United States Attorneys Office for the Southern District of Florida was requested by the Department of Justice to seek a continuance of the sentenc- ing hearing." J19348. No one is quite certain, however, who made or even who received this request. Kellner Dep., 4/ 30/87, at 9-11; Feldman Dep., 4/30/87, at 31-32; Richard Dep., 8/19/87, at 71-73. 31. Currier Dep., 5/5/87, at 38-40; Kiszynski Dep., 5/5/ 87, at 21-22. 32. Jensen Dep., 7/6/87, at 48-49. 33. Id., at 48; Ex. EM73. Because the investigation re- mains an open matter, the memorandum's contents are clas- sified in their entirety. 34. Jensen Dep., 7/6/87, at 54. Jensen, Trott, and Richard all contend that the sensitive nature of the investigation, its international overtones, and the possible danger to Ambas- sador Tambs made an NSC briefing advisable. They also concur that the level of supervision exercised by the De- partment of Justice was consistent with the nature of the investigation. Jensen Dep., 7/6/87, at 48, 53, 55; Trott Dep., 7/2/87, at 87; Richard Dep., 8/19/87, at 87. Jensen ex- plained that he briefed only the NSC on this matter because Revell's memorandum, which remains classified, indicated that the CIA and the State Department were already being briefed. Jensen Dep., 7/6/87, at 55-57. At his deposition, Meese could not think of anything about the case that merited a special briefing of the NSC. Meese Dep., 7/8/87, at 227. 35. Meese Dep., 7/8/87, at 221. 36. Ex. EM73. 37. Ex. EM73. 38. Richard Dep., 8/19/87, at 68-70, 87, 92-93; Trott Dep., 7/2/87, at 9; Jensen Dep., 7/6/87, at 57-59. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 39. Jensen Dep., 7/6/87, at 60-61; Poindexter Test., 7/21/ 87, at 180-81. 40. Feldman Dep., 4/30/87, at 37-38. 41. Id., at 47-50. 42. Id., at 56-59. 43. Id., at 56-59. Although Hull told Feldman he had not spoken to anyone at the embassy before he cancelled the interview, Kirt Kotula, an embassy official, told Feldman that he had, in fact, spoken to Hull and advised him of his right to counsel. Feldman Dep. 4/30/87, at 58-61. 44. Feldman Dep., 4/30/87, at 60-61. 45. Exhibit TC15. Castillo has testified that he never discussed the investigation with Owen. Castillo Test., 5/29/ 87, at 158, 192, 197 (Executive Session). He was uncertain whether he had ever discussed the investigation with North. Castillo Test., 5/29/87, 154-58 (Executive Session). North's notes suggest that he was advised of the investigation by Castillo. In an entry dated "31 Mar 86," North wrote: "1700?call from [Thomas [Castillo?]] * * * - Asst. U.S. Attorney/2 FBI Resident Agent - Rene Corbo - Terrell (Flaco) - CMA - Guns to [a Central American location]. North Notebook, 3/31/86, Q 2078. 46. Feldman Dep., 4/30/87, at 68-71; Barnett Dep., 7/17/ 87, at 27-31; Scharf Dep., 7/17/87, at 31; Gregorie Dep., 7/ 17/87, at 12-15. 47. Barnett Dep., 7/17/87, at 33-34. 48. Testimony by all the other participants in the meeting indicates that Scharf and Gregorie were also in Kellner's of- fice when Liewant arrived. Scharf Dep., 7/17/87, at 15-17; Gregorie Dep., 7/17/87, at 15-20; Kellner Dep., 4/30/87, at 17-20; Feldman Dep., 4/30/87, at 68-70; Barnett Dep., 7/ 17/87, at 38-41. 49. Liewant Dep., 6/2/87, at 9-14. 50. Barnett Dep., 7/17/87, at 38-41; Scharf Dep., 7/17/ 87, at 15-17; Gregorie Dep., 7/17/87, at 15-20; Kellner Dep., 4/30/87, at 17-20; Feldman Dep., 4/30/87, at 68-70. 51. Richard Dep., 8/19/87, at 92-93; Trott Dep., 7/2/87, at 9; Jensen Dep., 7/6/87, at 58-59; Meese Dep., 7/8/87, at 222. Nor do the incomplete telephone records available to the Committees reflect any calls from the Department of Justice to Kellner on the afternoon of April 4. Because the federal government uses a separate network, "FTS," for intra-governmental telephone calls, commercial toll records are not useful. The General Services Administration, which maintains and monitors the FTS network, routinely records information for only 20% of the calls made on the network. A review of these records for April 1986 reveals a call on April ,4 from the Office of the Deputy Attorney General to the Office of the United States Attorney for the Southern District of Florida. The call took place at 11:33 a.m. and lasted only 1 minute. It was, therefore, too early and too brief to be the call described by Liewant, J20977-J21016. This evidence is not, of course, conclusive, since the call described by Liewant could have originated in Miami or could have been among the 80 percent originating at the Department of Justice but not recorded. 52. Feldman Dep., 4/30/87, at 69. 53. Kellner Dep., 4/30/87, at 25-27. There are conflicting accounts as to who rode in what cars with whom. Compare Kellner Dep., 4/30/87, at 26-27; Jensen Dep., 7/6/87, at 63- 64; Meese Dep., 7/8/87, at 225. 54. Kellner Dep., 4/30/87, at 28-33. 55. The Miami News had run a story the day before describing certain aspects of the investigation. See "U.S. Probes Reports of Smuggling for Nicaraguan Rebels," The Miami News, 4/11/86, at 1; Feldman Dep., 4/30/87, at 70. 56. Meese Dep., 7/8/87, at 219-22. 57. Feldman Dep., 4/30/87, at 76-77. 58. Id., at 78-80, J19450. 59. Gregorie Dep., 7/17/87, at 31-33. 60. Feldman Dep., 4/30/87, at 81-83; Kellner Dep., 4/30/ 87, at 46. 61. Feldman Dep., 4/30/87; Kellner Dep., 4/30/87, at 47. 62. Feldman Dep., 4/30/87, at 92-95; Scharf Dep., 7/17/ 87, at 53-58; Kellner Dep., 4/30/87, at 47-49. This last version, including Scharf s changes, was ultimately leaked to the news media. Feldman Dep., 4/30/87, at 96-98. 63. Feldman Dep., 4/30/87, at 102-03; Currier Dep., 5/5/ 87, at 47-48; Kiszynski Dep., 5/5/87, at 31-33. 64. Feldman Dep., 4/30/87, at 104-09. 65. Feldman Dep., 4/30/87, at 104-09; Kellner Dep., 4/ 30/87, at 57-70; Richard Dep., 8/19/87, at 87-90. 66. Gregorie Dep., 7/17/87, at 39; Feldman Dep., 4/30/ 87, at 115. The Hasenfus crash took place on October 5, 1986. 67. Feldman Dep., 4/30/87, at 108-10; Currier Dep., 5/5/ 87, at 49; Kellner Dep., 4/30/87, at 116-17; Gregorie Dep., 7/17/87, at 44. 68. Feldman Dep., 4/30/87, at 110. 69. North PROF Note to Poindexter, 9/17/86, N12602. 70. Memorandum from John L. Martin to William Weld, 9/30/86, J4627-28. 71. Id. 72. Draft State Dept. cable from Deputy Assistant Secre- tary James Michel to Legal Attache in a Central American country, 9/24/86, J4618-21. 73. North PROF Note to Poindexter, 9/17/86, N12602. 74. Id. 75. Id. 76. Poindexter PROF Note to North, 9/17/86, N12604. 77. Richard Dep., 8/19/87, at 122, 126, 132. 78. Id., at 132. 79. Id., at 121-23. 80. Trott Dep., 7/2/87, at 78. 81. Richard Dep., 8/19/87, at 126-28. 82. Id., at 124. 83. Id., at 126-27. Gorman, however, testified that there was discussion that the official may start to talk and reveal sensitive matters the U.S. would prefer remain secret. Gorman maintained he "was prepared to believe that the official might engage in all kinds of outrageous representa- tions." In Gorman's view, however, these sensitive matters did not pertain to questionable Contra-support activities. Memorandum (5/19/87) of Interview (4/16/87) with Gorman, at 12-14. 84. Richard Dep., 8/19/87, at 127. 85. North PROF Note to Poindexter, 9/18/86, N12603. 86. Richard Dep., 8/19/87, at 129-30. 87. R. Miller Dep., 8/21/87, at 381-90. 88. North 's notes demonstrate the regularity with which Miller spoke with North about the "prince." These notes refer to the "prince" by his code name, "Jewell." (See e.g., North Notebook, Q1798, Q1858, Q1930.) R. Miller Dep., 8/ 20/87, at 98-99. 89. R. Miller Dep., 8/21/87, at 390-93. 90. Id., at 377-78. 91. Id., at 393-94; Agent 1 Dep., 8/12/87, at 102-03, 112. 92. Agent I Dep., 8/12/87, at 105-06. 115 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 93. Id., at 106-10. 94. Id., at 114-16. 95. James Kramarsic Int. 96. McFarlane flatly denied that North had discussed the "prince" with him. McFarlane Test., 5/11/87, at 95-96. 97. Kramarsic Int., Exhibit 0LN264. 98. Kramarsic Int., Exhibit 0LN264. 99. Kramarsic Int., Ex. 0LN265. According to Miller, he unsuccessfully had attempted to contact the FBI agent when he learned of the investigation from North. R. Miller Dep., 8/21/87, at 396-97. 100. Kramarsic Int.; FB2715-20. 101. Revell Dep., 7/15/87, at 83-89; Nicholas Harbist Int., 6/4/87. 102. A portion of these payments was used by DEA agents with whom the "prince" was traveling. R. Miller Dep., 8/21/87, at 378-79. 103. R. Miller Dep., 8/21/87, at 405-06. 104. Id., at 406-07; see Chapter 4. 105. Nicholas Harbist Int., 6/4/87. 106. Amended Complaint, Avirgan, et al. v. Hull, et al., No. 86-1146 (S.D., Fla., filed Oct. 3, 1986). 107. Revell Dep., 7/15/87, at 36. 108. FBI Teletype, 5/16/86, from Washington Field Office to Intelligence Division, FBI Headquarters, at 1-2, FB2983-86. 116 109. FBI Teletype, June 11, 1986, from Washington Field Office to Intelligence Division, FBI Headquarters, at 3-5, FB 2977-82. 110. FBI teletype, June 11, 1986, from Washington Field Office to Intelligence Division, FBI Headquarters, FB 2977- 82. 111. Robinette Dep., 1/17/87, at 5-7. 112. Terrell had been interviewed by Assistant United States Attorney Jeffrey Feldman in connection with the investigation being conducted into alleged violations of the Neutrality Act and an alleged plot to assassinate Ambassa- dor Lewis Tambs. FBI Form 302, Subj: interview of Ter- rell, dated 7/16/86. Of Terrell's allegations about Posey and the plot to assassinate Tambs, Posey said Terrell "is full of bull." Posey Dep., 4/23/87, at 89. 113. Revell Dep., 7/15/87, at 25-28. 114. Revell Dep., 7/15/87, at 26. 115. Robinette Int., 6/15/87, at 13-14. FBI 302 Report, 7/ 16/86. See also WFO 2 488-1 and 199C-4773. 116. FBI form 302, Subj: Interview of Oliver North, dated 7/22/86, FB3256-58. 117. FBI form 302, Subj: Interview of Oliver North, dated 7/22/86, FB3256-58. 118. Revell Dep., 7/15/86, at 27, 32. , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Keeping "USG Fingerprints" Off The Contra Operation: 1984-1985 In October 1984, the President signed into law a ver- sion of the Boland Amendment barring the Central Intelligence Agency, the Department of Defense, and "any other agency or entity of the United States in- volved in intelligence activities" from providing sup- port to Contra military activities. Explaining the stat- ute on the floor of the House of Representatives im- mediately before its passage, Representative Edward P. Boland, then Chairman of the House Permanent Select Committee on Intelligence, was clear about the legislation's intent: the provision "ends U.S. support for the war in Nicaragua." National Security Advis- er Robert C. McFarlane acknowledged that intent: "the Boland Amendment governed our actions," he told these Committees.2 Although Congress eventual- ly approved humanitarian aid for the Contras and authorized intelligence sharing, the full prohibition on lethal support remained in effect until October 1986. Despite the Boland Amendment's prohibition, U.S. support for the Nicaraguan Resistance continued. As set forth fully in Chapters 2 and 3, members of the National Security Council staff?with help from offi- cials of other Government agencies?supervised a covert operation supporting the Contras. They pro- vided weapons and military intelligence to the Resist- ance and resupplied troops inside Nicaragua, using funds raised from foreign countries, private citizens, and ultimately the Iranian arms sales. They did so despite the unambiguous intent of Congress that the U.S. Government, including the NSC staff, could not aid the Contras' military effort. Secrecy, therefore, was vital to the success of the Contra operation. Disclosure of U.S. support, Oliver North wrote to John Poindexter in May 1986, "could well become a political embarrassment for the Presi- dent and you." 3 Moreover, disclosure would surely doom the project. Poindexter told these Committees: "It was very likely if it became obvious what we were doing that Members of Congress would have maybe tightened it [the law] up. I didn't want that to happen." 4 * North's term used in two PROF notes to Poindexter dealing with the possible disclosure of the U.S. Government link to the Contra operation. [Exhibits OLN-131 and OLN-307', Hearings, 100-7, Part III.] But just as secrecy was vital to the operation's success, even limited success jeopardized that secrecy. As the Contras continued to purchase supplies and equipment despite the cut-off of aid, Congress and the media inquired, inevitably, about the sources of Re- sistance support and funding. Officials involved in the Contra support operation took every precaution to ensure that the project re- mained secret. They withheld the facts from some Administration officials who spoke out frequently on U.S. policy in Central America, forcing them to mis- lead Congress and the American people. They dis- couraged reporters from pursuing the link between the NSC staff and the Contras. And they responded to direct inquiries with half truths and false state- ments. 1983-1984: Suspicions, and the "Casey Accords" Even before the full-prohibition Boland Amendment was enacted in October 1984, Members of Congress were concerned that the Administration was not pro- viding sufficient information about the covert pro- gram in support of the Nicaraguan Resistance. In April 1983, Senator Daniel Moynihan, Vice- Chairman of the Senate Select Committee on Intelli- gence, spoke of a "crisis of confidence" between Con- gress and the intelligence agencies running the oper- ation.5 A year later, Committee Chairman Barry Goldwater rebuked the CIA in the wake of the rev- elations related to Nicaragua harbor mining. He wrote to CIA Director William Casey: "[W]e were not given the information we were entitled to receive." 6 Expressing the sense of many in Congress, Goldwater said at an Intelligence Committee hearing: "We cannot play guessing games with the intelligence com- munity if the relationship between legislative and ex- ecutive branches is to work." 7 After the mining incident became public in April 1984, Director Casey was called before an extraordi- nary secret session of the Senate-60 Members were present?to explain the failure to consult adequately ahead of time. The Director apologized at the session, and promised a new spirit of cooperation.5 The prom- ise would soon be formalized in what became known 117 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I _ Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 as the "Casey Accords," an agreement between the CIA and the Senate Intelligence Committee on con- sultation guidelines for covert operations. Under the agreement, the CIA would share explanatory material outlining the exact nature, goals, and risks of the covert operation. The CIA would also give prior notice of any "significant, anticipated intelligence ac- tivity," even if the planned activity was part of an ongoing covert operation.9 The accords reflected the recognition that coopera- tion and forthrightness on covert activities were es- sential in the relationship between the Executive and Congress. But the subsequent actions of Casey and members of the NSC staff did not reflect that recogni- tion. 1984: Testimony Before Congress on Third-Country Assistance In December 1983, the President signed into law leg- islation limiting funding for the Contras in fiscal year 1984 to $24 million.' ? The limit was the result of a compromise between the House, which hoped to cur- tail support for the Contras, and the Senate, which favored continuing the aid. Explaining the compro- mise on the floor of the House, Representative Boland said the $24 million, which would likely run out by June 1984, represented a "cap on funding from what- ever source." Representative J. Kenneth Robinson, the ranking Republican on the House Intelligence Committee, said that the $24 million compromise meant "no additional funding could be made avail- able" for the Nicaraguan Resistance "unless additional authorization and/or appropriations are approved by both Houses."12 The Administration, however, sought funding for the Contras beyond the $24 million appropriation. On several occasions in 1984, officials tried to obtain aid for the Contras from third-country sources. Those attempts occurred as early as February, when the Administration began to suspect that Congress was not likely to approve supplemental funding for the Contras when the $24 million ran out." Shortly thereafter, McFarlane sought to obtain equipment, materiel and training for the Contras from Coun- try 1.14 In a March 27, 1984, memo, CIA Director Casey urged McFarlane to proceed with his plans to obtain aid from Country 1, and told him that the CIA was working along a second track to obtain assistance from that Country. Casey added in the memo that the CIA also was exploring "the procurement of assist- ance from [Country 6]." That country had "indicat- ed" that it might make "some equipment and training available" to the Contras." Country 1 rejected McFarlane's approach, and the advance to Country 6 was called off, in part because of the revelations in April relating to the Nicaraguan harbor mining." 118 As McFarlane testified, those revelations left a "zero probability" that Congress would provide sup- plemental funding for the Contras, "and no amount of wringing our hands was going to change that."17 In May or June, the National Security Adviser obtained a $1 million-a-month donation from Country 2, and informed the President, who expressed "satisfaction and pleasure" with the gift. McFarlane testified that he also shared the news with the Vice President." McFarlane informed the President of the donation using a notecard. He rejected the option of telling the President about the gift at a morning briefing because "there could be . . . as many as ten people in the room [and] I simply didn't know for sure who would be there." 9 In order to further ensure that the new Contra funding remained secret, McFarlane did not share de- tails of the gift with the Secretaries of State or De- fense. McFarlane, who acknowledged that he regard- ed the Country 2 contribution as a secret to be closely held, testified he told them in vague terms that the Contras "had been provided for through the end of the year."2? Neither Secretary of State Shultz nor Secretary of Defense Weinberger recall receiving any information on third-country funding until later.2' McFarlane also instructed North not to share news of the new funding with anyone; indeed, according to North, McFarlane never told him which country had contributed.22 North, in turn, instructed Contra leader Adolfo Calero: "never let agency [CIA] know of amt, source, or even availability [of the funds]. . . . No one in our govt. can be aware. . . . Your organiza- tion must not be fully aware."" Stories about the third-country contacts soon began appearing in the media. In mid-April 1984, The Wash- ington Post quoted anonymous sources speculating that third countries might be persuaded to provide money for the Contras.24 Administration officials were quoted in the story as flatly denying that the United States would approach foreign countries for assistance." In an article 4 days later discussing up- coming U.S.-Israeli talks on Israeli assistance to Cen- tral American countries, The Washington Post quoted State Department spokesman John Hughes as saying, "The United States has no intention of using third countries to finance covert action in Central Amer- ica."" Although Hughes was not aware, his denial came at a time when the CIA and NSC staff were continuing their attempts to obtain third-country sup- port. Prompted by the reports, the House Permanent Select Committee on Intelligence requested an ap- pearance on May 2 by CIA Director Casey and Ken- neth W. Dam, then Deputy Secretary of State. The testimony occurred about 5 weeks after Casey had sent the memorandum to McFarlane outlining the CIA's efforts to obtain lethal assistance for the Con- tras from Country 1 and Country 6 and indicating Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Casey's awareness of McFarlane's attempt to obtain assistance from Country 1. Coming only days after he had pledged to be fully candid with Congress, Casey's testimony was inconsistent with his memorandums: STOKES: . . . There has been some talk in the media with reference to [Country 1] or [Country 2] being alternative funding sources. What can you tell us about that? CASEY: Well, there has been a lot of discussion. We have not been involved in that at all. FOWLER: Who has? CASEY: I do not know.27 * FOWLER: . . . Is any element of our Govern- ment approaching any element of another Gov- ernment to obtain aid for the Contras? CASEY: No, not to my knowledge.28 Kenneth Dam acknowledged to the Committees that "there have been conversations with [Country 1]" about aid to the Contras and explained that those talks had led nowhere." He also said that there had been no "high level" approach to Country 2.30 Asked about Administration activities, Dam denied that the U.S. Government was approaching other countries for assistance: FOWLER: . . . Is the Administration actively looking for help, either in funding or in tactical aid to our [Contra] operation? DAM: . . . We are not making approaches to other Governments. So it is clear?you know, when you say 'actively' I do not know what is going on in terms of people's minds or conversa- tions among people within the executive branch. We do not have a program of approaching other governments for support, and we are not doing so. FOWLER: . . . We want to know whether or not in light of serious questions about the Con- gress' willingness to continue this funding, whether or not our Government in all of its ramifications is looking for help, both in funding and the possibility of some tactical or strategic or geopolitical?whatever you want to call it?help to our operations and policy in Nicaragua. DAM: All I can do is answer precisely, and that is what I am trying to do. We have no program of approaching other Governments. We are not currently approaching other Governments on this subject. I am not going to tell you we will not sometime in the future. We do not see this as a realistic approach. We do not see this as a solu- tion, and I think that is a very precise answer." Dam's denials accurately reflected State Department policy but not Administration activities. There is no evidence that Dam was aware of the Casey and McFarlane third-country efforts or that he did not make his statements in good faith. However, Casey, who knew at least about the approaches to Countries 1 and 6, did not correct Dam's statements. With the help of the Country 2 donation, the Con- tras survived beyond the summer of 1984, when their Congressionally approved $24 million allotment had been exhausted. The donated funds began to flow in July, and by September 4 the Contras had received $3 million.32 By then, Oliver North also had called on Richard Secord to purchase weapons for the Con- tras.3 3 On September 9, two major newspapers, The New York Times and the Miami Herald, published reports suggesting that third countries and private U.S. citi- zens had replaced the CIA in providing aid to the Contras.34 The reports prompted another Congres- sional inquiry. Three days after the stories appeared, the House Intelligence Committee called officials from the CIA and the State Department to appear before it. Members assumed that these officials? Dewey Clarridge, the CIA's Latin American Division Chief, and Ambassador Anthony Langhorne Motley, Assistant Secretary of State for Inter-American Af- fairs?would know whether the reports were true or false.35 Clarridge told the Members that the CIA believed the Contras had been receiving about $1 million per month3 6?precisely what Country 2 had provided. He added, however, "We know of no place or no country that has supplied any funds in any real amount."37 Motley, who had not been informed of the contribution from Country 2, testified: FOWLER: Are we, is the United States of America, soliciting help for the Contras? MOTLEY: No. No. FOWLER: In other countries? MOTLEY: No. FOWLER: Are we encouraging other countries to participate? MOTLEY: No, no, and that's a very good point. FOWLER: Are we under any negotiations or discussions with any other countries to aid these efforts? MOTLEY: No.3 8 Motley explained the "decision" made on this issue by senior Administration officials. As the $24 million Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 119 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 was running out, he said, the Administration decided that even though third-country solicitation was still "technically" permitted, a "feeling of mistrust" exist- ed, and "in that context it was decided that we would not encourage and that we would not facilitate either other governments or in private groups within the United States. And to my knowledge, that has been honored." 3 9 Committee member Wyche Fowler, Jr., responded that he had "a hard time believing . . . that our government does not know" how the Contras were surviving.40 Indeed, the President, the Vice Presi- dent, and the National Security Adviser knew that Country 2 had made a substantial donation to the Contras. Early 1985: The Second Country 2 Contribution In February 1985, the Administration obtained an ad- ditional donation from Country 2. A $5 million depos- it was made on February 27, 1985; by the end of March 1985, the amount totaled $24 million, bringing the total donation from that country to about $32 million.4' Again, officials took steps to ensure that the funding remained secret. McFarlane withheld information about the new do- nation from two likely recipients of Congressional inquiries on the subject of U.S. support for the Con- tras: Secretary of State Shultz and CIA Director Casey.42 The President did not tell Shultz either, even though he briefed the Secretary on his meeting with the donor country's head of state shortly after that meeting.43 Shultz testified: "I don't think he [the President] is out to deceive me."44 (Secretary of De- fense Weinberger, along with the Chairman of the Joint Chiefs of Staff, found out about the donation independently.45) About Shultz, McFarlane testified that he "shared virtually everything?I think indeed everything?with the Secretary of State that I would learn of rel- evance."'" Asked whether the reason he did not tell Secretary Shultz was "for his benefit, not for yours," McFarlane said yes.47 McFarlane further explained: "I am guessing that it [not telling Shultz] was prob- ably out of concern for further dissemination and compromise of that relationship, and damage and em- barrassment."'" State Department and CIA officials had been frequently questioned about the sources of Contra funding in 1984. And McFarlane's decision not to tell Secretary Shultz about the donation came shortly after The Washington Post publicized corre- spondence between Representative Joseph P. Addab- bo, the former Chairman of the Defense Subcommit- tee of the House Appropriations Committee, and the State Department. In a December 11, 1984, letter, Addabbo had asked Shultz whether some countries receiving U.S. foreign assistance had diverted some of 120 those funds to the Contras. The State Department replied negatively one month later, and the corre- spondence was the subject of an article on Janu- ary 23.49 Like McFarlane, North took action in February 1985 to prevent disclosure of U.S. Government activi- ties in support of the Contras. In a letter addressed to Calero about the new large donation, North revealed his intention to conceal facts from Congress: Please do not in any way make anyone aware of the deposit. Too much is becoming known by too many people. We need to make sure that this new financing does not become known. The Congress must believe that there continues to be an urgent need for funding.5? Within weeks of the new donation, Assistant Secre- tary Motley was called to testify before the Senate Committee on Foreign Relations. On March 26, 1985, Senator Christopher Dodd asked about "a number of rumors or news reports around this town about how the Administration might go about its funding of the Contras in Nicaragua. There have been suggestions that it would be done through private groups or through funneling funds through friendly third na- tions, or possibly through a new category of assist- ance and asking the Congress to fund the program openly." Motley replied that the Boland Amendment prohibited "any U.S. assistance whether direct or in- direct, which to us would infer also soliciting and/or encouraging third countries; and we have refrained from doing that because of the prohibition."5' Senator Dodd pursued the matter further: DODD: Well, that aside, looking at these resolu- tions, there are always clever ways of discover- ing something that may have been omitted. All I am asking from you is, and from the Administra- tion more directly, is whether or not we can have an assurance that there will be no indirect efforts made to finance the Contra operation through third party nations or through other ve- hicles within the foreign aid authorization to fi- nance this operation, that you will proceed pursu- ant to the resolution as adopted on the continuing resolution. MOTLEY: I think that was one thing that was loud and clear with us when I started. I told you that we understand what it means, direct and indirect, including third party. We take it to the letter of the law at its most liberal interpretation. And I can assure you that we have done it in the past. You want my assurances that we will con- tinue to do it in the future, and if you feel that is necessary, I will so give it to you. DODD: We have that assurance, then. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 MOTLEY: That is right.52 After Senator Dodd referred to the availability of possible loopholes, Ambassador Motley responded: We are going to continue to comply with the law. I am not looking for any loopholes. . . . Nobody is trying to play games with you or any other Member of Congress. That resolution [the Boland Amendment] stands, and it will continue to stand; and it says no direct or indirect. And that is pretty plain English; it does not have to be written by any bright, young lawyers. And we are going to continue to comply with that.53 Again, Motley was not informed that the Adminis- tration had obtained the donation from Country 2, that the National Security Adviser and the CIA had sought assistance from other countries, or that the NSC staff had begun to supervise the covert Contra operation out of its offices. Casey Briefing of Senate Intelligence Committee In late 1984 and early 1985, North sent CIA intelli- gence information to the Contras through Robert Owen.54 The CIA Chief of the Central American Task Force (C/CATF), who ordinarily passed that information to North, denied to these Committees that he knew intelligence was being transmitted by North via Owen to the Contras.55 On April 17, 1985, CIA Director Casey, accompanied by Deputy Secre- tary of State Dam, briefed the Senate Intelligence Committee on intelligence operations in Nicaragua. Casey told Committee members that, apart from intel- ligence which might jeopardize the lives of Ameri- cans, "we've kept out of any intelligence exchange . . . . We haven't been providing intelligence."56 Prior to the date of the briefing, North had ob- tained Richard Secord's assistance to purchase weap- ons for the Contras with the funds donated from Country 2. North testified that Casey suggested Secord for this purpose.57 However, Casey assured the Members that "over the past year, we strictly honored in practice and in spirit the Congressionally mandated restrictions on military aid to the Con- tras."58 He testified: CASEY: [Wle have carefully kept away from anything which would suggest involvement in their activities which have been carried on quite effectively and with considerable success in get- ting support and getting weapons and getting am- munition on their own. They've gone into the international arms markets. We know that from lots of sources that they were buying things from other countries and bringing in ammunition and been raising money. But we don't have any idea as to the quantity, what they got in the pipeline or? CHAIRMAN: That's all I wanted to establish." Deflecting Media Inquiries By June 1985, reporters were close to establishing a link between the NSC staff and Contra support. A June 3 memo from North to Poindexter illustrates North's efforts to discourage reporters from pursuing the story. North boasted in the memo that at his request, Adolfo Calero told Alfonso Chardy of the Miami Herald "that if he (Chardi) [sic] printed any derogatory comments about the FDN or its funding sources that Chardi [sic] would never again be al- lowed to visit FDN bases or travel with their units." North added: "At no time did my name or an NSC connection arise during their discussion."" North and retired Major General John K. Singlaub had already devised a plan to divert press attention away from the NSC staff's Contra operation, which by then was being coordinated under North by Rich- ard Secord, Richard Gadd, and their employees. North encouraged Singlaub to court the media, realiz- ing that, as Singlaub put it, "If I [Singlaub] had high visibility, I might be the lightening rod and take the attention away from himself [North] and others who were involved in the covert side of support."' The plan seems to have had some success. Shortly after his discussion with North, Singlaub was the sub- ject of a long article in The Washington Post con- necting him to support for the Contras," and in the coming months, he would be featured in virtually all the major newspapers. Although North himself soon would be the subject of press reports, Secord was not mentioned in the media until mid-1986, and details of North's resupply operation were not revealed until the plane carrying Eugene Hasenfus was shot down in October 1986. June-August 1985: Press Reports on NSC Staff and Contra Support By April, third-country funding had not only sus- tained the Contras but had "allowed the growth of the Resistance from 9,500 personnel in June 1984 to over 16,000 today?all with arms," according to an April 11, 1985, memo from North to McFarlane." During May, according to a May 31 memo, "the Nicaraguan Resistance recorded significant advances in their struggle against the Sandinistas."64 In June, reporters first linked the Contras' success with North. By mid-August, most major news organi- zations had published or broadcast reports on this "influential and occasionally controversial character in the implementation of the Reagan Administration's foreign policy." 6 5 121 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 News stories in June 1985 explored the sources of Contra funding. On June 10, the Associated Press distributed an article by Robert Parry suggesting that the White House had lent support to private fundrais- ing efforts. The article named North as the White House contact for such efforts, which according to the report, revolved around John Singlaub.66 Two weeks later, the Miami Herald reported that the Administration "helped organize" and continued to support "supposedly spontaneous" private fundrais- ing efforts. The article quoted extensively from ousted Nicaraguan Democratic Force (FDN) leader Edgar Chamorro, who described a trip by North and a CIA officer to a Contra base in the spring of 1984. North and the CIA officer assured the rebels, according to the article, that the White House would "find a way" to keep the movement alive. Neither North nor the CIA officer specifically promised private aid, al- though "it was clear that was their intent," Chamorro was quoted as saying.67 In August, reports in The New York Times, The Washington Post, and other major newspapers assert- ed that White House support for the Contras involved more than fundraising. Oliver North had given the Contras "direct military advice" on rebel attacks, ex- ercising "tactical influence" on military operations, The New York Times reported. The newspaper re- ported that North had also "facilitated the supplying of logistical help" to the Contras, filling in where the CIA could no longer help. The information was at- tributed to anonymous "administration officials."69 Denials The day after this story appeared, President Reagan responded to the allegations. "[W]e're not violating any laws," the President said as he signed legislation providing $27 million in humanitarian aid for the Contras and authorizing the exchange of intelli- gence.69 In a statement released later that day, the President added that he would "continue to work with Congress to carry out the program as effectively as possible and take care that the law be faithfully executed." 7 ? The National Security Adviser made his first com- ments on the allegations about North in an interview with The Washington Post. In an August 11 article, McFarlane said he had told his staff to comply with the Boland Amendment. "We could not provide any support," he said, but he also stated that the NSC staff could and did maintain contact with the Con- tras.71 Summer and Fall August 1985: Congressional Inquiries In the third week of August, Representative Michael Barnes, Chairman of the Subcommittee on Western Hemisphere Affairs of the House Committee on For- 122 eign Affairs, and Representative Lee H. Hamilton, Chairman of the House Permanent Select Committee on Intelligence, separately wrote the President's Na- tional Security Adviser, inquiring into NSC support for the Contras." Representative Barnes' letter, dated August 16, cited press accounts as the cause of con- cern about NSC staff support for the Contras. The reports, Barnes wrote, "raise serious questions regard- ing the violation of the letter and spirit of U.S. law." The letter summarized the focus of his inquiry: Whether the NSC staff provided "tactical influence on rebel military operations;" whether the NSC staff was engaged in "facilitating contacts for prospective financial donors;" and whether the NSC staff was involved in "otherwise organizing and coordinating rebel efforts." Barnes made clear his view that such activities would violate the intent, if not the letter, of Congres- sional restrictions on aid to the Contras: "Congres- sional intent in passing the Boland Amendment was to distance the United States from the Nicaraguan rebel movement, while the Congress and the nation debated the appropriateness of our involvement in Nicaragua." The letter continued, "The press reports suggest that, despite congressional intent, during this period the U.S. provided direct support to the Nicaraguan rebels." Barnes' letter concluded with a request for all information and documents "pertaining to any contact between Lt. Col. North and Nicaraguan rebel leaders as of enactment of the Boland Amendment in Octo- ber, 1984." Representative Hamilton's letter also cited press ac- counts and expressed a concern about "actions that supported the military activity of the contras." He requested "a full report on the kinds of activities regarding the contras that the NSC carried out and what the legal justification is for such actions given the legislative prohibitions that existed last year and earlier this year." In addition to the requests from Representatives Hamilton and Barnes, two other inquiries were sent to McFarlane. On October 1, Senators David Duren- berger and Patrick J. Leahy, Chairman and Vice Chairman of the Senate Select Committee on Intelli- gence, sent a letter with specific questions, following up on a meeting with McFarlane." And on Octo- ber 21, Representative Richard J. Durbin wrote McFarlane asking him to respond to charges made in the media. 7 4 Responses to Congress: The McFarlane Letters As described fully in Chapter 3, the covert Contra support operation expanded substantially in the summer and fall of 1985. Until that point, North had arranged for funding, coordinated the purchase of arms, and passed military intelligence to the Contras. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Beginning with the July meeting at the Miami Airport hotel, North sought to broaden the project, attempt- ing to replicate the earlier CIA covert operation. The Enterprise took control of third-country funds and other money obtained with the help of the NSC staff, and began to set up its own air resupply operation to provide weapons and material to Resistance troops inside Nicaragua. On September 5, McFarlane sent the first of his responses to Congress. He wrote to Representative Hamilton: "I can state with deep personal conviction that at no time did I or any member of the National Security Council staff violate the letter or spirit" of Congressional restrictions on aid to the Contras. In denying allegations about NSC staff activities, the letter echoed the language of the Boland Amendment: I am most concerned . . . there be no misgivings as to the existence of any parallel efforts to pro- vide, directly or indirectly, support for military or paramilitary activities in Nicaragua. There has not been, nor will there be, any such activities by the NSC staff.75 This letter, drafted by McFarlane himself, served as the model for five additional letters prepared by North, signed by McFarlane, and sent in September and October in response to Congressional inquiries.76 In testimony before these Committees, McFarlane called these responses "too categorical."" He said: "I did not give as full an answer as I should have."78 North went further, acknowledging that statements in the letters were "false," and summarizing the re- sponses as "erroneous, misleading, evasive, and wrong." 7 9 McFarlane wrote to Hamilton that he made his categorical denials only after he "thoroughly exam- ined the facts and all matters which in any remote fashion could bear upon these charges."8? A review by the NSC staff did take place, but the actions taken in conjunction with that review leave it open to ques- tion. First Reaction: Conceal the Facts When the Barnes letter arrived, Poindexter, who was then the Deputy National Security Adviser, as- signed North to draft the response, noting on a memo he had received from a subordinate: "Barnes is really a trouble maker. We have good answers to all of this."' The "good answers," Poindexter acknowl- edged in testimony, involved concealing NSC staff activities supporting the Contras: Q: And when you suggested that he prepare the first draft of the response, was it your intention that Colonel North be able to answer that letter with finessing a description of his activities? A: That is exactly right. Q: That is why you designated him as the action officer? A: That is right, because my objective here again would have been to withhold information.82 McFarlane, meanwhile, had decided to draft the initial response himself. In preparation, he instructed Poindexter to assemble "records, files of all memoran- dums, papers, travel vouchers, and so forth" relating to the Congressional inquiries." The Committees un- covered no evidence to suggest that the officers who conducted the document search were aware of or attempted to conceal the full extent of NSC staff activities. The search, however, was conducted nar- rowly. The information policy officer assigned by Poindexter to conduct the search wrote the following in a memo presenting plans for the document search: [T]he search should be as narrowly focused as was the request. In this case, Congressman Barnes has focused on `. . . documents, pertaining to any contact between Lt. Col. North and Nica- raguan rebel leaders as of. . . October, 1984.' . . . Fishing expeditions in all files relating to Central America and/or Nicaragua are NOT necesssary to respond to the request.84 The officer ruled out a search of the files in North's office, explaining, "they are 'convenience files' gener- ally made up of drafts, and/or copies of documenta- tion in the institutional and Presidential Advisory files."85 North's files, in fact, included nonlog memos, many PROF notes, his notebooks, and letters to Calero, Owen, and others. Finally, the officer noted that appointment and tele- phone logs had become "favorite targets" of such Congressional inquiries, and suggested "[i]t may be in our interest to be terribly forthcoming and bury Mr. Barnes in logs of dates and/or names re meetings and telecons or perhaps to offer to do so putting him on notice that the logs give times and dates but no sub- stance." She recommended, however, "that for now we limit the search of appointment and telephone logs to 011ie," thus leaving the search to the main target of the inquiry. Under the recommendation, North would be asked to sample the logs and "give us a sense of what they consist of and of the potential relevance to the request." 8 6 Poindexter approved that recommendation, along with the other recommendation to begin a search of all Presidential and official NSC files. He also did not indicate any disagreement with the officer's statement that North's office files ought not be searched.87 Within a few days, some 50 relevant documents were identified, and 10 to 20 were deemed worthy of review. They were given to Commander Paul Thompson, the NSC's General Counsel. On or about August 26, Thompson gave the documents to McFar- 123 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 . .1. 1 ? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 lane, warning him that some warranted concern and raising the possibility of asserting executive privilege in response to the Barnes inquiry." The Six "Troubling" Memos McFarlane reviewed the documents and selected six memorandums which, despite the narrow focus of the search, "seemed to me to raise legitimate ques- tions about compliance with the law." He added: "[A]n objective reading would have taken passages in each of these memorandums to be either reflective of a past act that was not within the law or a recommen- dation that a future act be carried out that wouldn't be."99 A summary of the six documents, all memos from North to McFarlane, follows: Memo of December 4, 1984: "Assistance for the Nicaraguan Resistance." The memo 90 described a meeting between North and an official of Country 4, a totalitarian country, a meeting undertaken "in accord with prior understand- ing." 91 At the meeting, according to the memo, North at- tempted to convince the official to permit a sale of antiaircraft missiles and launchers to the Contras. The official had mistakenly believed that the weapons were intended for the Central American country listed on the end-user certificate. The memo shows North's efforts, only months after the most restrictive Boland Amendment went into effect, to obtain sophis- ticated weapons for the Contras. The memo also recounted a meeting with Singlaub, who described his efforts to solicit aid for the Contras from two other countries located in the Far East. North wrote, "If it is necessary for a USG official to verify Calero's bona fides, this can be arranged."92 Such an arrangement would constitute facilitation of a contribution to the Contras. Finally, the memo dis- cussed David Walker, a former British Special Air Services officer who, in a meeting with North, of- fered to conduct sabotage operations for the Resist- ance. "Unless otherwise directed," North wrote, "Walker will be introduced to Calero and efforts will be made to defray the cost of Walker's operations from other than Calero's limited assets."93 McFarlane testified that upon receiving this memo he believed that he asked Poindexter to investigate and "find out from Colonel North what had happened and how his actions squared with the law."94 The memo contains the notation: "Noted JP" in Poin- dexter's handwriting.95 Memo of February 6, 1985: "Nicaraguan Arms Shipment." The memo 96 noted that the Nicaraguan merchant ship, Monimbo, was about to pick up a load of arms for delivery to Nicaragua, a delivery that North 124 urged should be stopped. North noted, "if asked, Calero would be willing to finance the operation" to seize or sink the ship but does not have the personnel to do so. North suggested that foreign countries might be able to help.97 North added that if time did not permit a "special operation" to seize the ship, "Calero can quickly be provided with the maritime assets required to sink the vessel before it can reach port of Corinto." 98 North recommended "that you authorize Calero to be pro- vided with the information on Monimbo and ap- proached on the matter of seizing or sinking the ship." National Security Council records indicate that McFarlane saw this memo and did not approve or disapprove. McFarlane testified that he did not ap- prove.99 Admiral Poindexter wrote on the memo, "We need to take action to make sure ship does not arrive in Nicaragua." He attached a note saying, "Except for the prohibition of the intelligence com- munity doing anything to assist the Freedom Fighters I would readily recommend I bring this up at CPPG [Crisis Pre-Planning Group meeting] at 2:00 today. Of course we could discuss it from the standpoint of keeping the arms away from Nicaragua without any involvement of Calero and Freedom Fighters." 100 Memo of March 5, 1985: "[A Central American Country's] Aid to the Nicaraguan Resistance." The memo 101 requested McFarlane's signature on memorandums to senior Cabinet officers asking their views on increased U.S. aid to a Central American country. "The real purpose of your ?memo," North wrote, "is to find a way by which we can compensate [the country] for the extraordinary assistance they are providing to the Nicaraguan freedom fighters.',102 The attached memo did not include a reference to such a purpose. North attached to the memo for McFarlane false end-user certificates provided by the Central American country to cover nearly $8 million of munitions that were soon to be delivered to the FDN. The certificates, North wrote, "are a direct consequence of the informal liaison we have estab- lished with [an official of the Central American coun- try] and your meeting with him and [the country's] President." 103 The certificates were made out to Energy Resources International, a company owned by Albert Hakim and Secord. North added in the memo, "Once we have approv- al for at least some of what they have asked for, we can ensure that the right people in [the Central Amer- ican country] understand that we are able to provide results from their cooperation on the resistance issue." 104 North recommended that McFarlane sign and transmit the attached memo to the other Cabinet offi- cers. NSC records reflect that McFarlane approved the recommendation. However, McFarlane testified that aid was sought on its merits, and not to reward Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 the Central American country for helping the Con- tras.1?5 Memo of March 16, 1985: "Fallback Plan for the Nicaraguan Resistance." The memo 108 set out a plan to aid the Contras in the event that Congress did not do so. It included several recommendations. Among them: - The President publicly urge Americans to con- tribute funds for humanitarian aid to the Contras. McFarlane wrote in the margin, "Not yet."?7 - Creation of a tax-exempt corporation for dona- tions. McFarlane wrote "Yes."1?8 - "The current donors. . . be apprised of the plan and agree to provide additional $25-30M to the resistance for the purchase of arms and muni- tions." McFarlane wrote "doubtful."109 According to McFarlane, the term "current donors" referred to Country 2.110 Memo of April 11, 1985: "FDN Military Operations." In the memo,' 11 North described how the Contras spent the $24.5 million "made available since USG funding expired," making clear that the funds ob- tained by McFarlane went mostly for "arms, ammuni- tion, and other ordnance items." 112 North also wrote: Despite the lack of any internal staff organization . . . when the USG withdrew, the FDN has responded well to guidance on how to build a staff. Although there was a basic lack of familiar- ity with how to conduct guerrilla-type oper- ations, since July, all FDN commanders have been schooled in these techniques and all new recruits are now initiated in guerrilla warfare tac- tics before being committed to combat. In short, the FDN has well used the funds provided and has become an effective guerrilla army in less than a year. "3 North described Contra plans for "future oper- ations," including a further increase in troops, a spe- cial operations attack against the Sandinista Air Force, a ground military operation against a mine complex and, "the opening of a southern front . . . which will distract EPS units currently committed to the northern front."14 He continued: It is apparent that the $7M remaining will be insufficient to allow the resistance to advance beyond these limited objectives, unless there is a commitment for additional funds. The $14M which the USG may be able to provide will help to defray base camp, training, and support ex- penses but will not significantly affect combat operations until early Autumn due to lead-time requirements. Efforts should, therefore, be made to seek additional funds from the current donors ($15-20M) which will allow the force to grow to 30-35,000.115 North recommended "that the current donors be approached to provide $15-20M additional between now and June 1, 1985." 116 NSC records showed that McFarlane indicated no decision and returned the memo to the System IV files. McFarlane testified that he rejected North's recommendation and sought no further aid from Country 2. Memo of May 31, 1985: "The Nicaraguan Resistance's Near-Term Outlook." In the memo,' 17 North provided an update of Contra political and military activities. Among other things, he listed several important FDN military suc- cesses and concluded: "These operations were con- ducted in response to guidance that the resistance must cut Sandinista supply lines and reduce the effec- tiveness of the Sandinista forces on the northern fron- tier."118 North _concluded by noting, "[P]lans are un- derway to transition from current arrangements to a consultative capacity by the CIA for all political mat- ters and intelligence, once Congressional approval is granted on lifting Section 8066 restrictions [the Boland Amendment]."119 He added: "The only por- tion of current activity which will be sustained as it has since last June, will be the delivery of lethal supplies.'5120 North recommended that McFarlane brief the President on these matters.'21 NSC records do not indicate whether McFarlane approved this recommen- dation. Undiscovered Documents The memos Thompson presented to McFarlane in late August 1985 did not represent all the memos written by North to McFarlane demonstrating North's involvement in supporting the Contras. Be- cause it was limited by the information policy officer to official NSC and Presidential Advisory files, the search would not uncover "nonlog" memorandums. In one such memo, dated November 7, 1984, North made clear that he was attempting to pass intelligence information about Sandinista HIND helicopters to Calero.'22 Nor did the search turn up relevant logged memo- randums in which North indicated that he and Contra leaders had planned the timing of rebel military oper- ations. For example, a March 20, 1985, memo stated: In addition to the events depicted on the internal chronology at Tab A, other activities in the region continue as planned?including military 125 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I] 11 , . .1..1.. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 operations and political action. Like the chronol- ogy, these events are also timed to influence the vote: - planned travel by Calero, Cruz and Robelo; - various military resupply efforts timed to sup- port significantly increased military operations immediately after the vote (we expect major San- dinista crossborder attacks in this time frame? today's resupply. . . went well); and - special operations attacks against highly visible military targets in Nicaragua.' 23 McFarlane-North Alteration Discussions On August 28, McFarlane and North began a series of lengthy meetings to fashion a response to the Con- gressional inquiries. According to a chronology pre- pared by McFarlane, they met six times and spoke by phone four times between August 28 and September 12, the date of the response to Representative Barnes.'" Although both McFarlane and North ac- knowledged to the Committees that they discussed altering the documents, the two dispute the purpose of the meetings. McFarlane maintained that the meetings, together with the document review, constituted his investiga- tion into North's activities, an investigation, he said, that turned up no proof of illegal activities.125 For example, he asked North about allegations relating to fundraising. According to McFarlane, North respond- ed that he had not solicited or encouraged donations, that he merely told potential donors, "if you want to be helpful to the Contras, go to Miami, they're in the phone book they have an office, and do it your- selves."' 26 The two reviewed the documents and, according to McFarlane, North explained that his memos were being misinterpreted. For example, in one memo North wrote that the FDN "has responded well to guidance on how to build a staff," and that "all FDN commanders have been schooled" in guerrilla warfare tactics.127 McFarlane said North told him, contrary to any implication in the document, that the guidance came not from him but from retired military officers hired by the Contras.128 As McFarlane related the events, North offered to alter the documents and McFarlane gave him a tentative go-ahead. McFarlane testified: Well, as we went through them, he pointed out where my own interpretation was just not accu- rate . . . and he just said, you are misreading my intent, and I can make it reflect what I have said 126 if this is ambiguous to you, and I said all right, do that.129 North shortly returned with a sample alteration. McFarlane's testimony indicates that the document North had altered was "FDN Military Operations," dated April 11, 1985. The recommendation in the document, "that the current donors be approached to provide $15-20M additional between now and June 1, 1985" was replaced with a recommendation that "an effort must be made to persuade the Congress to support the Contras."13? North had asserted, accord- ing to McFarlane, that the problem with the docu- ments was one of interpretation and that the changes would be slight. McFarlane acknowledged that this alteration left the document "grossly at variance with the original text."131 McFarlane testified that he did not replace any original NSC documents with altered documents and did not instruct North to do so. He said he took with him when he resigned the pages North had altered and eventually destroyed them.132 North's version of events is substantially different. McFarlane, North testified, brought the selected doc- uments to his attention, "indicated that there were problems with them, and told me to fix them." This meant, he testified, that he was to "remove references to certain activities, certain undertakings on my behalf or his, and basically clean up the record."133 The documents, North acknowledged, "clearly indicated that there was a covert operation being conducted in support of the Nicaraguan Resistance."34 That is why, North testified, McFarlane instructed him to alter them: The documents, after all, demonstrated his [McFarlane's] knowledge and cognizance over what I was doing, and he didn't want that. He was cleaning up the historical record. He was trying to preserve the President from political damage. I don't blame him for that.135 North testified that he did not abide by McFarlane's instruction until shortly before his dismissal: "I saw towards the end of my tenure that this list still had not been cleaned up, and so I went and got the documents out of the system and started revising the documents."136 Although the record is inconclusive on what exact- ly McFarlane and North discussed at their meetings, it is undisputed that both the National Security Advis- er and one of his principal staff members considered altering NSC documents. They discussed this course after receiving requests from several Members of Congress for access to precisely those types of docu- ments. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Responses to Congress: The Denials Within days of his document review and discussions with North, McFarlane sent the first of his responses to Congress. In addition to the broad assurance that the NSC staff was complying with the "letter and the spirit" of the Boland Amendment, the responses con- tain specific denials of allegations that the NSC staff had provided fundraising or military support to the Nicaraguan resistance. Fundraising McFarlane's September 12 response to Representa- tive Barnes stated: "None of us has solicited funds, [or] facilitated contacts for prospective potential do- nors. . . ."137 In his October 7 letter, McFarlane replied as fol- lows to a written question from Representative Ham- ilton: Mr. Hamilton: The Nicaraguan freedom fighters, in the last two months, are reported by the U.S. Embassy, Tegucigalpa, to have received a large influx of funds and equipment with some esti- mates of their value reaching as high as $10 mil- lion or more. Do you know where they have obtained this assistance? Mr. McFarlane: No.138 In fact, according to his own testimony, McFarlane not only knew how the Contras obtained financial assistance, he personally facilitated the main donation to the Contras: Q: . . . I was referring to Country Two and the fact that the actual donors had, as I understand it, Country Two was the actual donors? A: Yes. Q: And that you had not only facilitated con- tacts, but you had facilitated the actual contribu- tion. A: I will accept that, yes.138 Furthermore, according to Assistant Secretary of State Gaston Sigur and North, McFarlane was aware of Sigur's efforts to obtain a donation from a Far Eastern country?efforts that took place while the responses to Congress were being prepared. North, of course, was aware of that approach. Indeed, on August 28, the day he and McFarlane had their first lengthy meeting to discuss the Congressional inquir- ies, North reassured an official from that country that the United States would be grateful if his country made a contribution to the Contras.14? The country responded with a $1 million gift."' Also, in his letter of September 12, Representative Hamilton asked: Has Colonel North been the focal point within the NSC staff for handling contacts with private fundraising groups, such as the World Anti-Com- munist League and the Council for World Free- dom headed by retired Major General John K. Singlaub? McFarlane replied, .6p,10.99142 In fact, however, North had been dealing with Singlaub on fundraising, as the December 4, 1984, North-to-McFarlane memo showed. As North told the Committees, he "certainly saw General Singlaub a lot related to support for the Nicaraguan Resistance."143 Military Assistance In his September 5 letter, McFarlane stated: At no time did we encourage military activities. Our emphasis on a political rather than a military solution to the situation was as close as we ever came to influencing the military aspect of their struggle.144 North was heavily involved in the military aspect of the Contra struggle. He testified that this statement was false.'" In addition to helping arm the Contras, and to providing intelligence and cash to Contra lead- ers, North also, beginning in the summer of 1985, coordinated the efforts to set up a resupply operation to provide lethal and nonlethal supplies to troops inside Nicaragua. Several weeks before the letters were drafted, North asked Secord to set up the oper- ation, and he called on Ambassador Lewis Tambs to facilitate the construction of an airfield for refueling resupply aircraft.'" Yet, McFarlane wrote to Repre- sentative Hamilton on October 7: Lieutenant Colonel North did not use his influ- ence to facilitate the movement of supplies to the resistance.147 North acknowledged that this statement was false.'" It is unclear whether McFarlane was fully aware of North's activities. McFarlane testified he was not.'" But the documents McFarlane reviewed and about which he was concerned shortly before drafting the first response to Congress showed that North repeat- edly attempted to influence the military aspect of the Contras' struggle. Furthermore, McFarlane specifically denied in his October 7 letter to Representative Hamilton that North had provided the Contras "tactical advice": The allegation that Lieutenant Colonel North of- fered the resistance tactical advice and direction is, as I indicated in my briefing, patently untrue.153 127 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 North acknowledged to the Committees that although he never "sat down in the battlefield and offered direct tactical advice . . . I certainly did have a number of discussions with the Resistance about mili- tary activities, yes, to include the broader strategy for the Southern front and an Atlantic front and an inter- nal front."5' And McFarlane testified: "I felt it was likely that an officer of the qualifications and excel- lence of Col. North, when he was down visiting in Central America, probably did extend advice."152 Indeed, McFarlane admitted in his testimony that he felt in 1985 that "it was likely" that North had gone "beyond the law" on giving military advice to the Contras.153 He testified: "But without certain evi- dence of it, not being able to disapprove it, I accepted that [the denials McFarlane said North gave him] as sufficient grounds for saying it as truth, and I believe that I was wrong to do so. But that is why I sent McFarlane maintained that he believed at the time that such advice was not the "central concern" of Congress. "It seemed to me that that was inconse- quential to the outcome of the conflict, and probably not in the eyes of Congress a serious matter," he said.'55 Representative Barnes' letter, however, shows that one of his main concerns was about re- ports that North had provided "'tactical influence' on rebel military operations."56 In addition, Representa- tive Hamilton, in his first letter, expressed an interest "in actions that supported the military activity of the contras."57 Each of the other letters from Congress asks McFarlane to respond to specific allegations about NSC military support for the Contras. In any case, McFarlane in his letters offered no such explana- tion, merely a flat denial. Finally, despite his assertion in his letters to Con- gress, McFarlane himself influenced the Contras' mili- tary struggle. The $32 million obtained with his help from Country 2 enabled the Resistance to purchase weapons to continue fighting. The April 11, 1985, memo from North describing how the funds were expended stated clearly that the donation was being used to purchase lethal supplies.'58 McFarlane's Meetings with Members The denials McFarlane made in his letters were repeated in face-to-face meetings with Members of Congress. On September 5, Senate Select Committee on Intelligence Chairman Durenberger and Vice Chairman Leahy questioned McFarlane in an hour- long private briefing. At the start of their meeting, McFarlane showed the two Senators a copy of the letter he would send to Representative Hamilton that day. McFarlane assured Senators Durenberger and Leahy that "no law had been broken," and that "there was no intent to circumvent restrictions Con- 128 gress placed on aid to the Nicaraguan Resistance." Asserting that he had grilled North on his involve- ment with supporters of the Resistance, McFarlane said he was confident that "[N]o NSC staff member either personally assisted the Resistance or solicited outside assistance on their behalf." Senator Leahy de- scribed the meeting in a letter written shortly thereaf- ter: Mr. McFarlane said that the officer [North] had frequently received calls from persons wishing to donate funds, and that he referred them to the Contra leaders themselves. He insisted that the officer never solicited funds, encouraged dona- tions or initiated contacts with potential donors. He further denied that the officer, in several per- sonal meetings with Contra leaders, both in Washington and in Central America, ever offered military advice. The officer's authorized role, Mr. McFarlane said, was to assure the Contras during the time of the Congressional aid cutoff of the President's continued moral support. . . .'69 McFarlane concluded by telling the Senators, "I can't believe everything everyone says, but I do believe 011ie." 160 After the session, Senator Durenberger told a re- porter that he felt McFarlane was candid about his knowledge, but that questions about U.S. Government support for the Contras remained: So we came away from the meeting feeling that from Bud McFarlane we're getting what he be- lieves to be the situation with regard to his staff. Are we satisfied that this sort of concludes the matter and that no one in any way involved was directing the effort? No, you can't be satisfied.'61 On September 10, McFarlane met with Representa- tive Hamilton and other Members of the House Intel- ligence Committee. As Representative Hamilton later summarized the meeting in a letter to a colleague, McFarlane told the Committee Members that Presi- dent Reagan had made clear that the entire executive branch had to comply with the Boland Amendment. McFarlane said he had conducted a thorough investi- gation into allegations made about the NSC staff and concluded that North had not "given military advice of any kind to the Contras," nor had he "solicited, accepted, transmitted or in any other way been in- volved with funds for the Contras. "162 The House Intelligence Committee Chairman ac- cepted the denials of the National Security Adviser. At the close of the session, Mr. Hamilton told McFar- lane, "I for one am willing to take you at your word."163 Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 McFarlane-Barnes Document Dispute In his first response to Representative Barnes on Sep- tember 12, McFarlane ignored the Congressman's re- quest for documents. A PROF note to Paul Thomp- son on September 20 indicated that McFarlane be- lieved he had successfully sidestepped the document issue: "Now that we have the Barnes letter behind us you can return the Contra papers to 011ie please.)9164 Ten days later, however, Representative Barnes re- newed his document request. In a letter to McFarlane dated September 30, 1985, the Congressman wrote: I am sure you understand that the pertinent docu- ments must be provided if the Committee is to be able to fulfill its obligation to adopt legislation governing the conduct of United States foreign policy and to oversee the implementation of that policy under the law.'65 Congressman Barnes went on to explain why he felt strongly about his Committee's need to review the documents: It may be helpful if I spell out more clearly the interest of the Committee. The Committee retains its concern about possible violations of federal law by members of the NSC staff. However, that is not the Committee's only?or even primary? concern, given that the enforcement of the law is an Executive Branch function. It is the Commit- tee's responsibility, however, to conduct over- sight of laws that limit the activities of the Exec- utive Branch under the Committee's jursidiction, and to reach judgments as to whether changes in the law are indicated by those activities. Even if the Committee determined that the activities of the NSC staff on this matter were entirely legal, the Committee might still determine that changes in the law were necessary. I am sure it is obvious to you that the Committee cannot make those judgments unless it has in its possession all infor- mation, including memorandums and other docu- ments, pertaining to any contact between the NSC staff and Nicaraguan rebel leaders. I would hereby renew my request for such information, both oral and documentary. '66 Thus, the Barnes letter of September 30 emphasized that Congress was entitled to know about the NSC's efforts to support the Contras, even if those efforts were legal. Once apprised of the facts, Congress would determine whether additional legislation was required, including closing any loophole in the Boland Amendment that the NSC staff might have claimed. Representative Barnes and McFarlane met at the White House on October 17. The day before the meeting, NSC General Counsel Paul Thompson pre- pared a memo for McFarlane suggesting that Repre- sentative Barnes should be told that the National Se- curity Adviser had no legal authority to turn over the documents. North's actions, Thompson wrote, were at the National Security Adviser's direction "in further- ance of the President's initiatives." Documents per- taining to North's actions in carrying out the Presi- dent's instructions "are internal and deliberative in nature and are furthermore not NSC agency docu- ments. As Presidential advisory papers, they fall under the dominion of the President and are no longer subject to your disposition."167 At the meeting with Congressman Barnes, McFar- lane, referring to a stack of documents on his desk, explained that a document search had been made and that McFarlane had selected documents relevant to Congressional inquiries. He told Congressman Barnes he would not permit the documents to leave his office but would allow the Congressman to read them there. McFarlane acknowledged that he made the offer knowing Representative Barnes would likely refuse it: Q: And I take it?it was part of your thinking that if a busy Congressman came down to your office and saw a substantial stack of documents, and you were having a short meeting [McFarlane had budgeted one hour for the session], it was very unlikely that he would ask to read through the documents from one end to the other? A: I think that is true, yes."8 Indeed, Representative Representative Barnes deemed the offer not to be serious. He understood McFarlane to imply that the documents on the desk were not all the docu- ments but only the ones McFarlane had concluded were "relevant." This, Barnes felt, "was not an ade- quate way to ascertain the truth of the allegations." Furthermore, Representative Barnes believed that prohibiting staff from reviewing the documents would result in an incomplete investigation: "[I]n my experi- ence the only way you can do a good investigation is to compare documents?one to another?and to ana- lyze these with staff who have the time and back- ground to work at putting them in context." McFar- lane's offer, therefore, "didn't seem like a serious pro- posal."169 On October 29, Representative Barnes wrote McFarlane again expressing his view that the proce- dures mandated by McFarlane were "inadequate."'" He requested that McFarlane turn the documents over to the House Intelligence Committee, thereby assuring that the classified materials would be appro- priately handled. Representative Barnes wrote: "I be- lieve that this proposal would surely resolve any con- cerns that the Administration might have about the security of the information, while at the same time fulfilling the responsibilities of the House."7' This 129 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 was the last correspondence between McFarlane and Representative Barnes on this issue. North, however, tried unsuccessfully to convince McFarlane to send one more letter?a response North maintained he would have preferred to send at the start.'" In the draft letter, McFarlane refused out- right to turn over documents claiming that they were "internal Presidential documents regarding sensitive relations with other governments."73 The executive branch, the letter said, "must abide by its commit- ments to other governments not to compromise sensi- tive information."174 The letter stated that disclosure of the documents sought by Barnes would "adversely effect the national security of the United States and endanger our citizens."' 7 5 McFarlane's 1986 Testimony In the wake of the November 1986 relevations and a full year after he left office, McFarlane testified before several panels investigating the Iran-Contra Affair: the Senate and House Intelligence Committees, the Senate and House Foreign Affairs Committees, and the President's Special Review Board (The Tower Board). Again, Members of Congress?and this time officials on the Tower Board staff as well? were unable to learn the crucial facts about the Gov- ernment's actions in support of the Nicaraguan Resist- ance. The former National Security Adviser acknowl- edged to the panels that North had told him in May 1986 about the diversion of Iranian arms sales funds to the Contras. That aspect of Administration support for the Resistance, by the time of McFarlane's De- cember 1986 testimony, had been revealed by the Attorney General. Beyond that, McFarlane withheld virtually all other relevant information in his posses- sion about U.S. support for the Contras during the period of Congressional restrictions. He concealed new information he learned of North's activities in 1986, and he repeated many of the inaccurate state- ments that he had made orally and in writing to Members of Congress while he was National Security Adviser. In his testimony before the Select Committees, McFarlane acknowledged that his remarks to investi- gating panels between December 1986 and February 1987, like his statements about U.S. support of the Resistance in 1984 and 1985, had been "clearly too categorical." 7 6 McFarlane's Testimony on North's Activities in 1986 On December 1, 1986, while he was testifying before the Senate Select Committee on Intelligence, McFarlane was asked whether, after his resignation, there were "any indications" about "North's involve- 130 ment in the funding [of the Contras] either directly or indirectly." McFarlane responded: Well, since leaving Government my only basis for knowing anything more about the issue is what I read in the press and the events that I described this morning about what I was told about the diversion of Iranian money in May of this year. So I have no personal basis for cor- roborating the press stories that I've seen that have alleged that Col. North has done various things to channel money and to advise and done business with arms merchants. I have no inde- pendent knowledge of that and I guess the only thing that I do know first hand from Col. North was what he told me about diversion of Iranian monies. I've described that this morning.'" In fact, despite his assertion that he had "no person- al basis for corroborating" allegations about North, and that "the only thing" he knew "first hand from Col. North" was the diversion, McFarlane had learned directly from North in 1986 about efforts to provide funds and weapons to the Resistance. Indeed, McFarlane had offered to assist. After his resignation, McFarlane communicated regularly with the NSC staff via a PROF machine he was permitted to keep in his home. PROF messages in 1986 show that North freely shared with McFarlane details of the NSC- coordinated Contra operation, despite North's strong desire to hold close information about the project. The following exchange between North and McFar- lane about efforts to obtain sophisticated Blowpipe missiles for the Resistance is illustrative. In late March, North wrote to McFarlane about efforts to obtain sophisticated surface-to-air missiles for the Contras: After the House vote on aid to the resistance, I plan to take a few days just to get re-acquainted w/ the family. Meanwhile, we are trying to find a way to get 10 BLOWPIPE launchers and 20 missiles from . . . thru the Short Bros. Rep. The V.P. from Short Bros. sought me out several mos. ago and I met w/ him . . . a few weeks ago . . . . Short Bros., the mfgr. of the BLOWPIPE, is willing to arrange the deal, conduct the train- ing and even send U.K. "tech reps" fwd if we can close the arrangement. Dick Secord has al- ready paid 10% down on the delivery and we have a [Central American country] EUC [end user certificate] which is acceptable to. . . .178 McFarlane replied about one week later: I've been thinking about the blowpipe problem and the Contras. Could you ask the CIA to iden- tify which countries the . . . have sold them to. I ought to have a contact in at least one of them. How are you coming on the loose ends for the Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 6 material transfer? Anything I can do? If for any reason, you need some mortars or other artil- lery?which I doubt?please let me know.'" In another message to McFarlane, dated April 21, 1986, North provided details on the resupply oper- ation. "So far," he wrote, "we have seven A/C [air- craft] working, having delivered over $37M in sup- plies and ordnance . . . ." In the message, North also discussed the need to obtain new funding for the Contras. "The resistance support acct is darned near broke," he wrote. "Any thoughts where we can put our hands on a quick $3-5M? Gaston [Sigur] is going back to his friends who have given $2M so far in hopes that we can bridge things again, but time is running out along w/ the money." Sigur recalled making no such approach in 1986.1" Demonstrating to McFarlane his operational control of the resupply program, North added that he had told Secord to sell "the ship first and then the a/c [aircraft] as a means of sustaining the effort." He then proposed to McFarlane that U.S. businessman Ross Perot be approached for funds. "As you know, we've never asked him for help in this regard, believing that he wd be inclined to talk about it," North wrote, an indication that he and McFarlane had discussed funding alternatives. "It may now be time to take that risk. Any thoughts?"181 The reference in the PROF to Richard Secord's involvement in the Contra operation is not the only such reference. In February 1986, North sent a PROF message to McFarlane in which he said that he had "asked JMP [Poindexter] for a session w/ you and Dick Secord as soon as possible after Dick returns tomorrow night from Eur[ope] where he is setting up an arms delivery for the Nic[araguan] resistance. A man of many talents ol' Secord i5."182 In his testimo- ny before the Select Committees, McFarlane specifi- cally acknowledged that he was aware in 1986 that "Secord was involved in helping the Contras."83 But on December 10, 1986, testifying before the House Intelligence Committee, McFarlane denied any such knowledge. Representative Brown asked: "Let me ask about Gen. Secord . . . . Were you aware of the fact that he had a role in the Contra supply operation?" McFarlane replied, "No sir."84 Testimony on Fundraising Activities As described above, McFarlane arranged for two large donations totalling about $32 million from Country 2, telling a high official of that country about U.S. concerns and the Contras' needs, and then pro- viding the bank account number when the country decided to donate funds. The first gift came in 1984 and the second in February and March 1985. In his testimony before Congress following the No- vember 1986 disclosures, McFarlane denied personal knowledge of the donations by Country 2. During McFarlane's testimony on December 8, 1986, before the House Foreign Affairs Committee, Representative Mel Levine asked: "There have been also press re- ports that" Country 2 has been "indirectly involved in financing the Contras. Are you aware of any such activities?" McFarlane replied: "I have seen the re- ports and I have heard that" Country 2 has contribut- ed. However, he said, "The concrete character of that is beyond my ken."185 Similarly, McFarlane testified at that session in re- sponse to a question from Representative Edward F. Feighan that he had "seen the reports that various countries have" donated funds to the Contras, includ- ing Country 2. He testified: "I have no idea of the extent of that or anything else."86 Acknowledging before the Select Committees that his testimony was "not as full an account as I could have given," McFarlane maintained nevertheless that his earlier testimony was "technically accurate."87 He told the Committees that even though he had facilitated the donations, he did not precisely know the extent of the contribution or the exact total of the deposits. However, such precision was scarcely the focus of the questions from the Members of Congress. Moreover, the April 11, 1985, North memo which McFarlane reviewed in connection with the summer 1985 Congressional inquiries, described in great detail the extent of the donation.'" Members of both the House and Senate Intelligence Committees specifically asked McFarlane if he still stood by his 1985 statement that there was no "official or unofficial" relationship involving any member of the NSC staff and fund-raising for the Nicaraguan Resistance.189 Despite his role in the two contribu- tions from Country 2, and despite the knowledge that North and Sigur said he had of Sigur's discussions with Country 3 about a possible donation?all of which occurred during his tenure as National Securi- ty Adviser?McFarlane stood by his statement: "I believe as I did then that that was true throughout my time and association with the NSC."9? On December 18, in his second appearance before the Senate Intelligence Committee following the No- vember disclosures, McFarlane acknowledged for the first time that he "believe[d]" Country 2 had donated funds. He knew of the donation, he testified, only because Secretary Weinberger told him: "I think that is the only one I ever heard about but I was told by the Secretary of Defense that there had been a contri- bution by [Country 2], and I don't know that I could put a date on it."'81 Six weeks after this testimony, McFarlane wrote the Chairman and Vice Chairman of the Senate Intel- ligence Committee to correct his statements. In his letter, he described the 1984 donation, maintaining, as he did before the Select Committees, that he had not solicited the gift. McFarlane did not mention the second contribution from Country 2. He wrote: "At no time from that moment [spring 1984] to this date, 131 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 have I ever sought, brokered or otherwise managed donations from anyone."19 2 Testimony on 1985 Activities As McFarlane acknowledged before these Commit- tees, the documents he gathered in response to the summer 1985 Congressional inquiries, "raise[d] legiti- mate questions about compliance with the law."193 In his testimony following the diversion disclosure, McFarlane not only withheld his concerns about the documents, but asserted that they proved that North had fully complied with the Boland Amendment. For example, on December 10, 1986, before the House Intelligence Committee, responding to ques- tions from Representative Dick Cheney, McFarlane testified that in the summer of 1985 he "went to considerable length to determine whether" North had violated the Boland Amendment. A document search, he said, "turned up two or three inches of paper, that reported on contacts that did occur between Colonel North and myself, indeed the President and Contra leaders." He continued: [F]rom the sum total of these documents, it was clear that the activities were to meet with Contra officials, civilian officials, tell them in so many words where we were, that we did not have Congressional support for military help, that we would try to get it, continue working with the Congress, that we couldn't provide it in the short term but we hoped that they would use the time until we could get it, to strengthen their political organization, bring in people like Cruz and others to develop a political program . . . but we couldn't do anything to help them194 McFarlane also told the Tower Board that "neither the documentary record nor interviews with Colonel North showed any evidence" that North had provid- ed military or fundraising support to the Contras.199 As noted above, the documents about which McFar- lane was concerned in August 1985 were not so in- nocuous. Summer 1985: Inquiry of the Intelligence Oversight Board The flood of press allegations about possible NSC violations of the Boland Amendment prompted no investigations by executive branch law enforcement agencies. Only one small executive oversight organi- zation, the Intelligence Oversight Board, responded to the widespread charges. In late August 1985, the Board conducted an inquiry into NSC staff activities. After a brief investigation by its counsel, Bretton G. Sciaroni, the Board concluded that Oliver North had not provided military or fundraising assistance to the Nicaraguan Resistance.19 6 132 Sciaroni began his inquiry with a 30 to 40 minute interview of Paul Thompson. Shortly before that interview, Thompson turned over to McFarlane the NSC file documents on North's activities. Those doc- uments included the six "troubling" memorandums that indicated, as Thompson later put it, that "if he [North] was in effect doing what was reflected in the documents, he was perhaps not aware of the con- straints of the . . . Boland Amendment."'" In his interview with Sciaroni, Thompson made no mention of North's activities as depicted in the memorandums. Indeed, he denied that North had provided "military support" to the Contras and asserted that North had limited himself to providing political encouragement and "moral support" while funds were unavailable.'" Although the Committees cannot be certain what Thompson knew directly of North's activities, it is clear that his denials cannot be squared with the memorandums he had given McFarlane. Furthermore, Thompson withheld from Sciaroni the six "troubling" memorandums included in the batch he gave McFarlane. During their meeting, Thompson provided Sciaroni an inch-thick pile of documents and told him he was producing "the rele- vant documents for my review," according to Sciar- oni. The only documents to which Sciaroni would not be permitted access, Thompson told him, were North's personal working files. Thompson also told Sciaroni that the pile of documents he was turning over were the same as those that had been "shown to the Hi11."199 Missing from the pile were many of the documents Thompson himself acknowledged raised questions about North's activities.2" Sciaroni's next investigative step was to talk with North. During a 5-minute discussion, North gave Sciaroni a "blanket denial" of charges that he was actively involved in aiding the Contras.2" Although North did not recall the conversation with Sciaroni, he was clear in his testimony that he had no intention of being candid with the Intelligence Oversight Board Counsel: "I am sure if he asked me" about supporting the Contras, "I denied it, because after all we viewed this to be a covert operation and he had absolutely no need to know the details of what I was doing.',202 Still, Sciaroni stressed in his testimony that he was justified in expecting cooperation from NSC staff offi- cers. Both Thompson and North, he said, "understood who I represented, the mandate of the Board to look into matters of legality, and the seriousness of the allegations that had been raised."2" His investigation was "an anomaly" in that he had no legal authority over the NSC staff, and therefore, Sciaroni said, he "was relying upon the good will of other officers at the White House.',204 Once again, however, North chose to conceal. This time, the object of his decep- tion was a board established by and operating within the executive branch, an entity privy to intelligence information and programs of the highest sensitivity. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Summary While exercising its responsibility to oversee the im- plementation of the law cutting off aid to the Nicara- guan Resistance, Congress tried repeatedly through 1984 and 1985 to learn how the Resistance was stay- ing alive and whether the U.S. Government was in- volved with the Contras' survival. The President, the Vice President, the National Security Adviser, and officials on the NSC staff were aware that a multimil- lion dollar donation from Country 2, facilitated by McFarlane, was largely responsible for the Contras' survival. North, Poindexter, and perhaps other high Administration officials, were aware that the NSC staff was directly providing lethal support to the Nic- araguan Resistance. McFarlane denied knowledge of North's activities, but documents he reviewed follow- ing Congressional inquiries show that North actively assisted the Contras' military effort. Yet Congressional inquiries on U.S. support for the Contras were invariably met with categorical denials. So too were inquiries made by the media. In both cases, the information sought related not to sensitive operational details, but to a controversial foreign policy issue. The question repeatedly asked was whether it was the policy and practice of the U.S. Government during this period to provide lethal sup- port to the rebels fighting in Nicaragua. It was to that question that Administration officials repeatedly re- sponded with denials. The record leaves no doubt that some of the offi- cials making these denials did so as part of a deliber- ate attempt to deceive Congress and the public. North, who testified, "I didn't want to show Congress a single word on this whole thing," admitted that the letters sent to Congress over McFarlane's signature were "false." In meetings with Members of Congress, McFarlane repeated the statements in the letters. He acknowledged in testimony before these Committees that he had been "too categorical." Poindexter testi- fied that his intent during this period was to "with- hold information." And it is difficult to reconcile CIA Director Casey's testimony in this period with his knowledge of the facts as demonstrated by the docu- mentary evidence, and with his pledge to the Senate Intelligence Committee that he would abide by a new spirit of cooperation. Other officials who denied the existence of U.S. support, including the State Department officials who testified before Congress in 1984 and 1985, and the press liaison of the NSC staff, were unaware of the truth, themselves victims of concealed information. As 1986 began, a new National Security Adviser was supervising the NSC staff, promoted from within. But the covert Contra operation continued, as did the overriding concern to keep the fact that the United States was providing lethal aid to the Contras secret from Congress and the American people. 133 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II V , . I .. I . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Chapter 6 1. Congressional Record, 10/10/84 at H11974. 2. McFarlane Test., Hearings, 100-7 Part II, at 203; see also 100-2 at 6, 20-22. 3. Ex. OLN-10, Hearings, 100-7, Part III. 4. Poindexter Test., Hearings, 100-8, at 61. 5. Congressional Record, 4/5/83 at S4109-S4110. 6. Letter of April 9, 1984, from Chairman Goldwater to Director Casey. 7. Transcript of 4/26/84 hearing, at 3. 8. U.S. Senate Report, 98-665, at 9-10. 9. C0619-00621. 10. Public Law 212, 98th Cong., and Public Law 215, 98th Cong. Fiscal year 1984 runs from October 1, 1983 through September 30, 1984. 11. Congressional Record, 11/18/83, at H10544. 12. Id. 13. Oliver North and Alton Keel wrote McFarlane in a February 7 memo that "Congressional resistance on this issue is formidable, to the degree that prospects for success are bleak even with a concerted effort." ("Additional Re- sources for Our Anti-Sandinista Program") 14. See Ch. 1. 15. Ex. 29, Hearings, 100-2, at 456-57. 16. See Chapter 2. 17. McFarlane Test., Hearings, 100-2, at 14. 18. McFarlane Test., Hearings, 100-2, at 18. See also Chapter 2. 19. McFarlane Test., Hearings, 100-2, at 18. 20. McFarlane Test., Hearings, 100-2, at 18, 24. 21. Shultz Test., Hearings, 100-9, at 4; Weinberger, Test., Hearings, 100-10, at 148-49. A second possible reason for the decison not to tell Shultz could be related to the opposition to third-country approach Shultz expressed at a June 24 NSPG meeting and on other occasions. See Shultz Test., Id. at 13-17. 22. North Test., Hearings, 100-7, Part I, at 75-76. 23. North Notebook, June 25, 1984, Q 0340. According to the notebook entry, North gave Calero at this time the code name "Barnaby." 24. Congress Due for Latin Pointers at Home, 4/17/84, The Washington Post, p. A16. 25. Id. 26. Israeli Technical Aid to El Salvador Part of Meetings Here, 4/21/84, The Washington Post p. A8. 27. HPSCI Hearings, 5/2/84, at 69-70. 28. Id. at 98. 29. Id. at 70. 30. Id. at 70. 31. Id. at 70-72. 32. Ex. APC-2, Hearings, 100-3. 33. See Chapter 3. Nicaragua Rebels Reported to Raise Millions in Gifts, 9/9/ 84, New York Times, Al; Private Aid Fuels Contras in Nicaragua, Miami Herald, 9/9/84, p 1A. 35. HPSCI Hearings, 9/12/84, at 17-18. Rep. Fowler asked Clarridge: "I assume that you would know" whether foreign governments had provided substantial financial as- sistance. Clarridge responded: "That's true." Motley said that if other countries had donated, "they would come to us and say, hey, you know, we might be able to help, but what do you think?" 36. Id. at 13. 134 37. Id. at 14. 38. Id. at 18-19. 39. Id. at 20. 40. Id. at 23. 41. Ex. APC-2, Hearings, 100-3. 42. McFarlane Test., Hearings, 100-2, at 24. 43. Shultz Test., Hearings, 100-10, at 147-48. 44. Id. 45. McFarlane Test., Hearings, 100-2, at 23-24. 46. Id., at 24. 47. Id., at 37. Adm. Poindexter displayed similar prior- ities. He tried to ensure that CIA Director Casey would not learn about North's Contra-support activities because, he testified, Casey was vulnerable to direct questions at Con- gressional hearings. 48. McFarlane Test., Hearings, 100-2, at 150. 49. Addabbo Letter to Shultz, December 11, 1984. Reply from W. Tapley Bennett, Assistant Secretary of State for Legislative and Inter Governmental Affairs, January 15, 1985. Contra Aid Disavowal Questioned: Addabbo Unsatisfied with Shultz Reply, The Washington Post, 1/23/85, p. A19. 50. Ex. RWO-3, Hearings, 100-2, at 780-82. A copy of this letter was found in North's safe; it appears to be a draft. Calero did not recall receiving it. North's request of Calero seems to have worked. Calero remained tight-lipped about the Contras' funding. On August 11, 1985, for example, The Washington Post reported that Calero "declined to reveal the sources of his funding since CIA financing dried up a year ago." Calero also denied that North had been involved in Contra weapon purchases. Rebel Leader Tells of Talks with US. 8/11/85 p. Al. 51. Senate Committee on Foreign Relations Hearing at 908. 52. Id. at 909-910. 53. Id. at 910. The following month, Ambassador Motley repeated his assurances to the Defense Subcommittee of the House Committee on Appropriations. (Hearings at 1092) 54. See Chapter 2. 55. C/CATF Test., Hearings, 100-11, at 86-90. 56. SSCI Full Committee Hearing on the President's Report on Nicaragua, 4/17/85 at 18. 57. North Test., Hearings, 100-7, Part I, at 116. 58. Hearing Transcript at 11. 59. Hearing Transcript at 18. 60. Memorandum from North to Poindexter, Press Revela- tions regarding North's Rule with Nicaraguan Resistance, 6/3/ 85. Chardy published his story in June, 2 weeks after the first report on Oliver North. In the memo North also ex- pressed his fear that NSC staffers were talking to reporters about the matter and recommended that Poindexter require NSC staff to take periodic polygraph examinations. [Ex. OLN-186, Hearings, 100-7, Vol. 3. 61. Singlaub Test., Hearings, 100-3, at 84. 62. Private Groups Step Up Aid to Contras, Washington Post, 5/3/85, p. A22. 63. Ex. 37, Hearings, 100-2, at 519. 64. Ex. 38, Hearings, 100-2, at 529. 65. Marine Plays Key Role on Foreign Policy, Washington Post, 8/11/85, p. 1. North had appeared once before in the press in connection with the Contras. On January 18, the Miami Herald reported that North had indirectly helped the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 rebels obtain SAM-7 missiles, one of which shot down a Sandinista helicopter the month before. North, according to the article, "suggested to private contra fund-raisers," in- cluding Jack Singlaub, "the possibility of steering the guer- rillas toward an arms market source" where they could purchase missiles and arrange for training. (US. Helped Contras Get Missiles, 1/18/85, Miami Herald, p. 1A.) 66. White House Reportedly Gave Advice to Contra Fund Raisers. AP Wire, 6/10/85. 67. US. Found to Skirt Ban on Aid to Contras. Miami Herald, 6/24/85, p. 1A. 68. Nicaraguan Rebels Getting Advice from White House on Operations. New York Times, 8/8/85, p. Al. 69. Weekly Compilation of Presidential Documents, 8/ 12/85, Vol. 21, No. 32 at 972. 70. Rebels Move Back Into Nicaragua, 8/9/85, The Wash- ington Post, p. Al. 71. McFarlane Aide Facilitates Policy. The Washington Post, 8/11/85, p. Al. 72. Ex. 40A, Hearings, 100-2, at 546 (Barnes letter); Ex. 41, Hearings, 100-2, at 559 (Hamilton letter). 73. Ex. 41D, Hearings, 100-2, at 581 (letter from Duren- berger and Leahy). 74. N3371. See also Ex. 41B, Hearings, 100-2, (2nd letter from Hamilton with specific questions). 75. Ex. 41A, Hearings, 100-2, at 560. 76. In a PROF message to North and Poindexter on September 3, McFarlane wrote: "I have sent you both sepa- rately a draft letter I have composed to answer Lee Hamil- ton's letter on 011ie's activities." [N3265] With minor changes, that draft became the letter sent to Hamilton 2 days later. McFarlane's PROF note also appears to indicate that he wanted to keep discussion of the responses to Con- gress limited. McFarlane wrote to North: "Please do not share either this note or the separate draft with anyone. . . . Please bring me any edits you have. 011ie, don't send me any PROF notes about H." PROF notes from North to McFarlane were routed through other NSC staff officers. Under Poindexter, North would be able to send PROF messages directly. 77. McFarlane Test., Hearings, 100-2, at 127. 78. McFarlane Test., Hearings, 100-2, at 215. 79. North Test., Hearings, 100-7, Part I, at 176-77. 80. Ex. 41A, Hearings, 100-2, at 560. 81. Ex. JMP-7a, Hearings, 100-8. 82. Poindexter Test., Hearings, 100-8, at 82-83. 83. McFarlane Test., Hearings, 100-2, at 73. 84. Memo to Poindexter, 8/20/85, subj: "Barnes Re- quest." N29803-4. 85. Id. 86. Id. 87. Id. 88. McFarlane Test., Hearings, 100-2, at 73. Thompson Deposition 3/9/87 at 36, 4/28/87 at 3, 10. 89. McFarlane Test., Hearings, 100-2, at 73. 90. Ex. 32, Hearings, 100-2, at 466. 91. Id, at 468. 92. Id., at 469. 93. Id, at 470. 94. McFarlane Test., Hearings, 100-2, at 30. 95. See version of memo numbered N44994-N44999. 96. Ex. 33, Hearings, 100-2, at 471. 97. Id., at 472. 98. Id. 99. McFarlane Test., Hearings, 100-2, at 31. 100. Ex. 33, Hearings, 100-2, at 475. 101. Ex. 35, Hearings, 100-2, at 492. 102. Id, at 494. 103. Id 104. Id., at 495. 105. McFarlane Test., Hearings, 100-2, at 109-11. 106. Ex. 36, Hearings, 100-2, at 510. 107. Id, at 512. 108. Id. 109. Id., at 513. 110. McFarlane Test., Hearings, 100-2, at 35. 111. Ex. 37, Hearings, 100-2, at 519. 112. Id., at 520. 113. Id., at 521. 114. Id. 115. Id 116. Id, at 522. 117. Ex. 38, Hearings, 100-2, at 529. 118. Id., at 530. 119. Id, at 532. 120. Id 121. Id 122. Ex. 31, Hearings, 100-2, at 463. 123. North Memo to McFarlane, "Timing and the Nicara- guan Resistance Vote," N40301. 124. Ex. 71, Hearings, 100-2, at 753. 125. McFarlane Test., Hearings, 100-2, at 73-76, 117-18. 126. Id., at 74. 127. Ex. 37, Hearings, 100-2, at 521. 128. McFarlane Test., Hearings, 100-2, at 74. 129. Id., at 75. 130. Id. 131. McFarlane Test., Hearings, 100-7, Part II, at 204. 132. McFarlane Test., Hearings, 100-2, at 75-76. Evidence indicates that another document was altered in 1985. An altered version of the document, "The Nicaraguan Resist- ance: Near-Term Outlook," dated May 31, 1985 (Ex. 38, Hearings, 100-2 at 529), was found by investigators. The altered version was also typed on stationery available only in 1985, indicating that it had been altered in 1985. In the major change, the following paragraph is deleted: In short, the political and military situation for the resist- ance now appears better than at any point in the last 12 months. Plans are underway to transition from current ar- rangements to a consultative capacity by the CIA for all political matters and intelligence, once Congressional ap- proval is granted on lifting Section 8066 restrictions. The only portion of current activity which will be sustained as it has since last June, will be the delivery of lethal supplies. It was replaced with: In short, the political and military situation for the resist- ance now appears better than at any point in the last 12 months. Plans are underway to transition from ad hoc ar- rangements to a consultative capacity by the CIA for all political matters and intelligence, once Congressional ap- proval is granted on lifting Section 8066 restrictions. (Ex. FH-6A, Hearings, 100-5). 133. North Test., Hearings, 100-7, Part I at 172. 134. Id, at 173. 135. Id., at 174. 136. Id 137. Ex. 40B, Hearings, 100-2, at 549. 135 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 138. Ex. 41C, Hearings, 100-2, at 579. 139. McFarlane Test., Hearings, 100-2, at 115-16. 140. North Test., Hearings, 100-7, Part I, at 79; Ex. 71, Hearings, 100-2, at 753; North's calendar. 141. For more detail, see Chapter 2. 142. Ex. 41C, Hearings, 100-2, at 576. 143. North Test., Hearings, 100-7, Part I, at 167. 144. Ex. 41A, Hearings, 100-2, at 561. 145. North Test., Hearings, 100-7, Part I, at 166. North also acknowledged that the following statement, in the Sep- tember 5 letter to Hamilton, was false: "We did not solicit funds or other support for military or paramilitary activities, either from Americans or other parties." 146. See Chapter 3. 147. Ex. 41C, Hearings, 100-2, at 572. 148. North Test., Hearings, 100-7, Part I, at 167. 149. McFarlane Test., Hearings, 100-7, Part II, at 203-05; 100-2 at 157-58. 150. Ex. 41C, Hearings, 100-2, at 572. 151. North Test., Hearings, 100-7, vol. 1 at 167. 152. McFarlane Test., Hearings, 100-2, at 75. 153. Id., at 165. 154. Id. 155. Id., at 75. 156. Ex. 40A, Hearings, 100-2, at 546. 157. Ex. 41, Hearings, 100-2, at 559. 158. Ex. 37, Hearings, 100-2, at 519. 159. Leahy, letter, "Dear Fellow Vermonter" (September 9, 1985), S001286. 160. Recollection of meeting in notes Durenberger shared with Independent Counsel investigators during interview, see: file with Senate Office (Doug Telly). Senate Intelli- gence Committee News Release, 9/5/85. 161. McFarlane Denies Illegal Ties to Contras, New York Times, 9/6/85. 162. Hamilton letter to Representative Leon Panetta, 9/18/85. 163. Memorandum of Interview with Steve Berry, then Associate Counsel, HPSCI, dated 10/15/87. 164. PROF, 9/20/85, "Subject: Contra Papers". 165. Ex. 40C, Hearings, 100-2, at 551. 166. Id., at 551-52. 167. Ex. 70, Hearings, 100-2, at 752. Around this time, McFarlane discussed the Barnes request with White House Counsel Fred Fielding. In addition to discussing executive privilege issues, McFarlane testified that he took the docu- ments gathered by the NSC staff to Fielding and told him that the documents were "extremely troubling in terms of interpretation of law." Fielding does not recall such a state- ment by McFarlane. [Fielding Interview] 168. McFarlane Test., Hearings, 100-2, at 119. 169. Memorandum of Interview of Barnes, dated 5/16/87. 170. Ex. 40D, Hearings, 100-2, Part I, at 553. 171. Id. 172. North Test., Hearings, 100-7, Part I, at 170-71. 173. Ex. 40E, Hearings, 100-2, at 558. 174. Id. 136 175. Id. 176. McFarlane Test., Hearings, 100-2, at 127. 177. SSCI Hearings, 12/1/86, at 148-49. 178. Ex. 45H, Hearings, 100-2, at 617-18. 179. Ex. 451, Hearings, 100-2, at 619. 180. Sigur Test., Hearings, 100-2, at 293. 181. Ex. 46, Hearings, 100-2, at 620. 182. Ex. 45F, Hearings, 100-2, at 614. 183. McFarlane Test., Hearings, 100-2, at 122. 184. HPSCI Hearing, 12/10/86, at 139. 185. Ex. 63, Hearings, 100-2, at 686-87. 186. Id. at 689. 187. McFarlane Test., Hearings, 100-2, at 86. 188. Ex. 37, Hearings, 100-2, at 519-25. 189. McFarlane made the statements in his 1985 letters to the Intelligence Committees. He wrote Hamilton on Octo- ber 7, 1985: "There is no official or unofficial relationship with any member of the NSC staff regarding fundraising for the Nicaraguan democratic opposition." (Ex. 41C, 100-2 at 576) "No one has been designated by the NSC or any other White House entity as official or unofficial contact for pri- vate or public or any other kind of fundraising for the Nicaraguan democratic resistance." (Ex. 41E, 100-2 at 584) 190. HPSCI, 12/10/86, at 111-112. At SSCI, 12/1/86 at 143 McFarlane testified that his earlier statement "remains the case." See also SSI 12/1 at 195. 191. SSCI 12/18/86, at 122-23. See also 139-40. The day before, Secretary Weinberger testified before the Senate Intelligence Committee that he had no recollection of dis- cussing with anyone third-country funding of the Con- tras. [SSCI, 12/17/86 at 67-71.] 192. Ex. 60, Hearings, 100-2, at 678. 193. McFarlane Test., Hearings, 100-2, at 73. 194. Ex. 75, Hearings, 100-2, at 762-63. See also SSI 12/1, at 146-47. 195. Tower 2/21/87, at 62-63. See also House Foreign Affairs Committee, December 8, 1986, at 10-11. 196. Ex. BGS 9, Hearings, 100-5. 197. Thompson Dep., 7/24/87 at 3. 198. Sciaroni Test., Hearings, 100-5, at 8-9. Sciaroni's notes of the interview are at Ex. 3, Hearings, 100-5. 199. Sciaroni Test., Hearings, 100-5, at 17. 200. Sciaroni Test., Hearings, 100-5, at 9-11. Thompson told the Committee that he did not recall precisely which document he gave Sciaroni. He maintained that it would have been inappropriate to turn over the documents he gave to McFarlane without a written request from the Intel- ligence Oversight Board. Although he acknowledged that the documents raised questions about North's activities, Thompson maintained that those questions were answered when North personally assured him that he was not in- volved in supporting Contra military activities or in solicit- ing funds. Thompson Dep., 7/24/87, at 38-41. 201. Sciaroni Test., Hearings, 100-5, at 11. 202. North Test., Hearings, 100-7, Part I, at 158. 203. Sciaroni Test., Hearings, 100-5, at 11. 204. Id., at 41. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 Keeping "USG Fingerprints" Off the Contra Operation: 1986 In 1986, the Contra support project finally achieved a degree of operational success. By mid-year, weapons and other material were being dropped to Resistance troops inside northern Nicaragua; by fall, similar air- drops were being made in the South. Congress had appropriated funds for the humanitarian needs of the Contras, it had authorized third-country solicitation for humanitarian aid, and it had allowed the CIA to provide intelligence to the Resistance. But Congress had maintained the prohibition on lethal support. Fol- lowing the pattern of 1984-1985, allegations in the media and independently obtained information prompted Congressional inquiries, which in turn were met with categorical denials by Administration offi- cials, some of whom knew the statements to be mis- leading and false. The expansion of the covert operation's activities in 1986 also created new problems for officials still seek- ing to maintain secrecy. In September, a new Costa Rican Government threatened to reveal the existence of the Santa Elena airfield, exposing the involvement of U.S. citizens and Government officials in providing support to the Contras. Administration officials mobi- lized quickly to squelch the threatened press confer- ence. Successful at first, the officials were unable to prevent disclosure by the Costa Rican Government three weeks later. Concerned that reporters might discover the link between the airfield and U.S. offi- cials, North immediately took steps to ensure that no "USG fingerprints" would be found on Santa Elena.' In October, the Sandinistas shot down an Enter- prise plane on a resupply mission (the Hasenfus flight). Administration officials, not all of whom knew the true facts, denied before Congress and to the media that the U.S. Government was involved in the Hasenfus flight. Even the President spoke out. With no protest from his National Security Adviser or others aware of the facts, the President told the American people: "[There is no government connec- tion with that at all."2 For most of 1986, efforts to determine whether the U.S. Government was providing lethal support to the *North's term, used in two PROF Notes to Poindexter dealing with the possible disclosure of the U.S. Government link to the Contra Operation. (Exhibits OLN-131 and OLN-307, Hearings, 100- 7, vol. 3.) Contras despite the legal restrictions were thwarted by the same techniques used in 1985. January to June 1986: Press Reports Through the first quarter of 1986, Congressional and media attention on the NSC staff's involvement with the Contras abated. In Washington, Congressional Committees had accepted the categorical denials the previous fall by the National Security Adviser. In Central America, the resupply project was not fully operational and Resistance activities slowed. A New York Times reporter in the region in January found the "Nicaraguan guerrillas . . . back in their camps;" in early March, the correspondent described the Re- sistance as being "in its worst military condition since its formation in 1982."3 By the end of March, the Contras' fortunes began to shift, and articles again appeared discussing the sources of Resistance funds and supplies.4 Some fo- cused on charges that the Contras had received lethal support from American mercenaries and funds from drug trafficking; others explored how the Contras were spending the $27 million appropriated by Con- gress in August, 1985, for humanitarian aid.3 By the end of April, North had reemerged as the focus of attention. The allegations in the new series of articles were almost always attributed to anonymous officials, and some of the details were incorrect. But the main charge?that U.S. Government officials had contin- ued to provide lethal aid to the Contras despite the Boland Amendment?was accurate. The renewed re- porting provided the context for a new round of Congressional inquiries that would begin at the end of June. Focus on North In an April 30, 1986, article headlined, "Colonel's Actions May Have Broken Contra Aid Ban," the Miami Herald provided what it called "the first glimpses at the inner workings of the well-oiled pri- vate contra support machine that?with White House encouragement?developed after Congress suspended contra aid." The article asserted that Oliver North 137 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 had arranged a meeting between a potential donor and a Contra fundraiser. It quoted "administration officials" as saying that "North acted repeatedly on behalf of the contras, especially in channelling poten- tial donors to the rebels." John Singlaub and Robert Owen were cited in the article as two "conservatives closely associated with the contras" who had frequent meetings with North. In the article, lain administra- tion official authorized to reply to queries" was quoted as saying that "Oliver North has not been involved in illegal activities."6 On June 8, the Miami Herald ran on page one the headline, "Despite Ban, U.S. Helping Contras." Quot- ing anonymous Administration and Resistance offi- cials, the article reported that the Reagan Administra- tion "continued secretly to assist anti-Sandinista rebels in finding weapons and plotting military strategy through a network of private operatives overseen by the National Security Council (NSC) and the CIA." According to the article, the system was supervised by North with "advice from" officers in the CIA Central American division. After enactment of the Boland Amendment, "private individuals were used as bridges between the administration and the rebels." The Administration "feels it has honored" Congres- sional restrictions "by channeling its involvement through private citizens." This belief was attributed to "two administration officials and a knowledgeable rebel leader."7 On June 22, the Miami Herald reported that the "controversial program to coordinate private aid to anti-Sandinista rebels through the National Security Council was approved by officials in the White House." This was attributed to "several current and former administration officials." The article went on to quote "one source," unidentified, as saying that McFarlane briefed Reagan on the proposal to aid the Contras and that the President verbally approved the plan. The Herald reported that McFarlane denied knowledge of any such plan to aid the Contras!' Concern for Secrecy As the Contra support operation expanded during 1986, the task of maintaining secrecy became more challenging. National Security Adviser John Poin- dexter, who admitted to the Committees, "I wanted to withhold information on the NSC operational ac- tivities in support of the Contras from most every- body," did what he could to conceal the NSC con- nection. North oversaw two of the most important NSC "accounts," but Poindexter kept North's title artifi- cially low because "we wanted to provide a signifi- cant amount of cover for Colonel North and his ac- tivities."" According to Poindexter, North's respon- sibilities warranted the title Special Assistant to the President, the third-level rank in the White House. Instead, he kept North as Deputy Director of Politi- 138 cal Military Affairs." "We didn't want to call public attention to Colonel North," Poindexter testified." In July, shortly after the renewal of Congressional inquiries, Poindexter tried further to downplay North's responsibilities. He apparently leaked to the Washington Times the story that North's position at the NSC staff was "precarious" and that "NSC soft liners" were maneuvering "to edge him out."" In a PROF Note sent the day the article appeared, Poin- dexter reassured North about his intentions: "I do not want you to leave and to be honest cannot afford to let you go."14 He told North to call two reporters at the Washington Times and "tell them to call off the dogs." Poindexter wrote: "Tell them on deep back- ground, off the record, not be published, that I just wanted to lower your visibility so you wouldn't be such a good target for the Libs [Liberals]."" Poindexter directed North not to put "things in writing about his operational activities, especially with regard to the support for the Contras."" North had stopped writing "logged" memorandums?docu- ments stored in the official NSC files?after Repre- sentative Barnes had sought access to such documents in the summer of 1985. North testified: "[W]e had . . . decided to take those kinds of documents out of the system altogether . . . so that outside knowledge would not necessarily be derived from having seen them."" Subsequent to the 1985 Congressional in- quiries, written communications about the Contra op- eration between North and his superiors were done exclusively using "non-logged" memorandums and the PROF system. North had assumed that PROF notes, after their use, were erased from computer memory and irretrievable.'8 Poindexter arranged for North to communicate with him directly, thereby preventing other NSC staff members from learning details of the Contra oper- ation. Ordinarily, PROF messages to the National Se- curity Adviser were channeled through other staff members. On August 31, 1985, two weeks after he had assigned North to draft the response to Repre- sentative Barnes, Poindexter sent North a message with the subject heading "Private Blank Check."" When North wanted to communicate with Poindexter directly, he sent a message in reply to the "Private Blank Check" note. Poindexter testified: "Otherwise . . . those messages were intercepted by the [NSC staff] Executive Secretary.'t20 Poindexter also stressed to North the need to avoid speaking of his secret operational activities with anyone, including other Administration officials. In May 1986, Poindexter learned that North had dis- cussed his plan to offer the Erria to the CIA for use in a covert activity with Ken deGraffenreid, Senior Director of Intelligence Programs at the NSC, the officer who maintained NSC documents of the high- est sensitivity. The Erria was a ship under North's control, purchased by the Enterprise for use in van- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 ous covert operations. In a PROF he titled "Be Cau- tious," Poindexter directed North to maintain absolute silence about his activities: I am afraid you are letting your operational role become too public. From now on I don't want you to talk to anybody else, including [CIA Di- rector] Casey, except me about any of your oper- ational roles. In fact you need to quietly generate a cover story that I have insisted that you stop.2' Poindexter testified that he was particularly con- cerned about keeping Casey ignorant of the operation because the CIA Director could be called to testify before Congressional Committees.22 Poindexter also kept the existence of the covert operation hidden from officials who did not ordinarily testify before Congress, such as former Chief of Staff Donald Regan. Poindexter explained: "Based on my feeling that if we were going to keep this up and avoid more restrictive legislation, that we simply had to limit the knowledge of the details to those that had absolutely the need to know. I simply didn't think that he [Regan] had an absolute need to know."23 In addition, Poindexter testified that he felt Regan "talked to the press too much. I was afraid he'd make a slip."24 Despite Poindexter's directive, North kept the CIA Director apprised of everything, according to his testimony. But North shared Poindexter's desire to conceal U.S. Government coordination of Contra support activities from Congress and the American public. He told these Committees: "I didn't want to show Congress a single word on this whole thing."25 In May, as Robert Dutton was brought in and the project became operational, North became concerned that the likelihood of disclosure was increasing. He described in a PROF to Poindexter "the urgent need to get the CIA back into the management of this program." He explained: The more money there is (and we will have a considerable amount in a few more days) the more visible the program becomes (airplanes, pilots, weapons, deliveries, etc.) and the more inquisitive will become people like Kerry, Barnes, Harkins, [sic] et al. While I care not a whit what they say about me, it could well become a political embarrassment for the Presi- dent and you. Some of this can be avoided simply by covering it with an authorized CIA program undertaken with the $15M.26 The next month, as airdrops became more frequent, North tried to ensure that resupply activities in Cen- tral America could not be traced back to him or other U.S. officials. On June 16, he informed Tomas Cas- tillo, a CIA Station Chief in Central America, that he had sent Rafael Quintero to Central America to facili- tate a supply drop to the FDN. "I do not think we ought to contemplate these operations without him being on the scene," North wrote via KL-43. "Too many things go wrong that then directly involve you and me in what should be deniable for both of us."27 Shortly after this message to Castillo, Karna Small, the press liaison for the NSC staff, asked North to comment on allegations that would be broadcast in a CBS News program, "West 57th Street." Small sent a note to North saying she had declined the show's request to speak with North, but that since it would include interviews with people making charges about North, she should call back with a comment. She remarked, "I can't just give them the 'bullshit' re- sponse."28 The segment aired on June 25. It charged that "the White House secretly directed a private aid network to arm the Contras when it was illegal for the White House to do that." The show focused on John Hull, suggesting that he played an important role in helping the Contras from his ranch in Costa Rica. It also alleged that Robert Owen acted as "the NSC repre- sentative" to the Contras and their supporters in Costa Rica. Describing Owen as "the bag man for 011ie North," the report charged that he carried $10,000 a month from the NSC to John Hull for use in purchasing lethal and nonlethal supplies for the Nicaraguan Resistance. The segment also reported: "The White House today quoted Colonel Oliver North as calling the private aid network 'nonsense.' The White House also said, quote, 'The President never approved any such plan' [to aid the Con- tras]".29 Two days after the show aired, North sent a PROF to Karna Small: I have just had a chance to watch the W57th piece. As far as I am concerned, it is the single most distorted piece of 'reporting' I have ever seen. . . . The only charges made about the NSC are made by people who are in jail, on their way to jail or just out of jail. If this is supposed to be credible, then I'll eat my shirt.3? North acknowledged in the PROF that he knew Robert Owen, but denied the inaccurate charge that Owen was "paid off" $50,000. North did not com- ment on the charge, the substance of which was accu- rate, that Owen delivered to Central America money provided by North. Nor did he comment on the gen- eral allegation that he was aiding the Contras. June 1986: New Congressional Inquiry On June 4, Representative Ron Coleman of Texas introduced a Resolution of Inquiry (H. Res. 485), directing the President to provide documents and in- formation about support for the Contras. In a public statement, the Resolution's author explained the need 139 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 "to get at the truth" behind the widely publicized allegations: "[D]isturbing new reports that our own government officials may have deliberately violated the law that prohibited any open or hidden U.S. as- sistance for military operations inside Nicaragua [sug- gest that there] may have been an intentional disre- gard for our own democratic process."31 In a statement inserted into the Congressional Record, the author of the Resolution explained the information sought from the Administration: My resolution of inquiry seeks answers and infor- mation on two central questions. Did Lieutenant Colonel North develop and implement a plan for Contra funding in the event that Congress did adopt the Boland Amendment? . . . Second, what was the degree of Lieutenant Colonel North's involvement with the Contra high command before, during, and after the Boland Amendment became the law of this land. Did he assure the Contra generals that the administration would find a way to ensure continued funding and as- sistance even in the event of a congressional ban? Did he, as alleged, provide regular tactical and logistical assistance to the Contra high command on a regular basis? Did Lieutenant Colonel North then implement a sham network of intermediaries to filter his continued advice to the Contra gener- als in direct violation of at least the spirit of the Boland language? 3 2 Representative Coleman said he introduced his Reso- lution "very reluctantly," adding: "No one can be allowed to operate above the law of this great coun- try?least of all those officials obligated to defend our Constitution." He concluded by stating that the Reso- lution "touches upon areas of concern that go far beyond the question of one's position relative to Contra aid. Rather, this course of action goes to ac- countability and ensuring that one branch of our Gov- ernment [does not] disregard . . . the other two."33 The Resolution of Inquiry directed the President to provide to the House information and documents in three areas: 1. Funds and Supplies: Information and documents on contacts between any NSC staff member and pri- vate individuals or representatives of foreign govern- ments relating to the provision of funds and supplies to the Contras.34 2. Military Activities: Information and documents on contacts between any NSC staff member and any member of the Nicaraguan Resistance relating to Contra military activities.35 3. Singlaub, Owen & Hull: Information and docu- ments on contacts between any NSC staff member and Robert W. Owen, Maj. Gen. John K. Singlaub, and John Hull." The Resolution was referred to the House Commit- tees on Intelligence, Foreign Affairs and Armed Serv- 140 ices. On June 25 and July 1, the Chairmen of the Foreign Affairs Committee and the Intelligence Com- mittee requested comments from the President on the Resolution. The Executive's Response On July 21, Poindexter wrote the Chairmen of the three Committees "in reply to your letter to the Presi- dent."37 Poindexter testified that he "probably" did not show the letter to the President, but discussed the issue with him "in general terms . . . . I probably told him about the Resolution of inquiry and told him that we were opposed to it. He agreed."38 In the one-page letter, Poindexter first stated the Administration's opposition to the resolution of in- quiry. He continued: Last fall, in an effort to cooperate with Chairman Barnes, my predecessor, Robert C. McFarlane, met with members of your committee and the House Foreign Affairs Committee. While I did not participate in these discussions, I understand that information on the specific issues raised in H. Res. 485, was provided to your Committee and that this information made it clear that the ac- tions of the National Security Council staff were in compliance with both the spirit and letter of the law regarding support of the Nicaraguan re- sistance. Thank you for the opportunity to comment on H. Res. 485. I have forwarded similar letters to Chairman Fascell and Chairman Aspin and sin- cerely hope that this matter can finally be put to rest.3 9 Insisting that the letter was technically accurate, Poindexter acknowledged to the Select Committees that the letter "clearly withholds information."40 By any standard the response was misleading. First, the National Security Adviser implied in the letter that he accepted the view that the Boland Amend- ment applied to the NSC staff, and that the NSC staff under his tenure was not providing covert lethal sup- port to the Contras. Poindexter referred explicitly to the information McFarlane had provided Congress that "made it clear that the actions of the National Security Council staff were in compliance with both the spirit and the letter" of the Boland Amendment. He did not disclose that he had authorized North to provide to the Contras precisely the kind of covert aid the Boland Amendment was intended to prohibit or that, as he put it, "We had been running this [Contra] operation on our own for a long period of time." 4 1 Asked how he could reconcile the statement that the NSC staff was complying with the "letter and spirit" of the Boland Amendment with the actions I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 North had taken and that he had approved, Poin- dexter testified: I felt that the Boland Amendment did not apply to the NSC staff and I felt that indeed we were complying with the letter and spirit of the Boland Amendment. Now, it doesn't say that we are not helping the Contras. We were.42 In addition, Poindexter's letter implied that he had no dispute in 1985 with the categorical denials McFarlane gave Congress on allegations about North's activities. In fact, however, Poindexter was aware that North had taken over coordination of Contra-support activities after enactment of the Boland Amendment." Moreoever, when the Barnes letter arrived at the NSC on August 17, 1985, it was Deputy National Security Adviser Poindexter who assigned North to draft the response, intending that North would conceal his true activities from Con- gress.44 As Poindexter himself put it before these Committees, he intended with his letter to say "that the questions had been addressed by Mr. McFarlane in the previous year." 45 But McFarlane's denials had misled Congress the previous year, as Poindexter's letter misled Congress in 1986. August 1986: North's Meeting with Members of Congress In response to the Resolution of Inquiry, the House Intelligence Committee sought to meet with North.46 On August 6, North met with 11 members of the House Intelligence Committee in the White House Situation Room.47 North began the session with a presentation about his activities. The description echoed closely McFarlane's letters the year before to Representatives Hamilton and Barnes: North's princi- pal mission was to coordinate contacts with the Con- tras; a main purpose of his job was to assess the viability of the Nicaraguan Resistance as a democratic organization; and he explained to Contra leaders the limitations on U.S. support as imposed by the Boland Amendment. According to a memorandum based on notes taken at the meeting, North said "that he did not in any way, nor at any time violate the spirit, principles or legal requirements of the Boland Amendment."48 In response to specific questions, North denied that he had raised funds for the Contras or offered them military advice. North told the Members that his rela- tionship with Robert Owen was "casual," that Owen never took guidance from him. He stated that he had not been in contact with John Singlaub at all in 1985 or 1986." By his own testimony, North lied to the Members of the Intelligence Committee at this meeting: A: . . . I will tell you right now, counsel, and all the Members here gathered, that I misled the Congress. I misled? Q: At that meeting? A: At that meeting. Q: Face to face? A: Face to face. Q: You made false statements to them about your activities in support of the Contras? A: I did." At the conclusion of the meeting, according to an observer, Representative Hamilton "expressed his ap- preciation for the good-faith effort that Admiral Poin- dexter had shown in arranging a meeting and indicat- ed his satisfaction in the responses received."' On August 12, Hamilton wrote Representative Coleman that the House Intelligence Committee would not move forward with the Resolution: "Based on our discussions and review of the evidence provided, it is my belief that the published press allegations cannot be proven." 2 Authority to Lie North conceded in his testimony that Poindexter did not give him specific prior authority to make false statements." Before meeting with the Members of the House Intelligence Committee, North expressed to his aide Robert Earl "concern . . . [about] what he was authorized to say" at the session." According to Earl, North tried to obtain guidance from Poindexter but could not reach him." Poindexter "was on leave, yes, out of the office" during this period, according to Earl, who testified: "My impression was that the leave was not accidental. The timing of the leave was just not a coincidence."6 In his testimony, Earl char- acterized his observation as follows: Q: So that your impression of it, your observa- tion of it, was that Colonel North had some in- formation to protect and that he was being left to figure out how to protect it on his own? A: I think that's a fair statement." North and Poindexter differ on whether North had general authority from the National Security Adviser to lie at the session. North testified that he was acting under such authority: "I went down to that oral meet- ing with the same kind of understanding that I had prepared those memos in 1985 and other communica- tions."" North added: "[Poindexter] did not specifi- cally go down and say, '011ie, lie to the Committee.' I told him what I had said afterwards, and he sent me a note saying, "Well done." 59 141 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 While Poindexter did send such a note, he claimed it did not indicate approval of North's lies. Poindexter acknowledged that North and he had a "general un- derstanding that he [North] was to withhold informa- tion about our involvement." But Poindexter told these Committees that he did not know North had lied at his meeting with the Intelligence Committee, and that he had not expected North would do so.6? The evidence is clear, however, that Poindexter knew North had misled the Members of Congress. Poindexter attached his "well done" message to a PROF Note summarizing the meeting. The summary was written by Bob Pearson, one of two NSC staffers besides North who had attended the August 8 meet- ing in the Situation Room, and sent to Poindexter who forwarded the PROF note to North. The mes- sage began by declaring, "Session was success," and went on to describe North's presentation as "thor- ough and convincing." Pearson wrote: In response to specific questions, 011ie covered the following points: ?contact with FDN and UNO aimed to foster viable, democratic political strategy for Nicara- guan opposition, gave no military advice, knew of no specific military operations. ?Singlaub--gave no advice, has had no contact in 20 months: Owen?never worked from OLN office, OLN had casual contact, never provided Owen guidance.6' Poindexter testified that "by reading the summary in this note, I didn't attach any great significance to it because I knew that the questions and answers would be very carefully crafted."62 Yet Pearson's PROF is clear that North told the Members he "gave no mili- tary advice" to the Resistance, that he had only "casual" contact with Owen and never "provided . . . guidance," and that he had "no contact" with Sing- laub for 20 months. Thus, even if Poindexter did not expressly author- ize North to lie, he was aware of North's misleading statements and made no effort to correct them. Nor did he reprimand North. On the contrary, Poindexter congratulated North on his performance and on his success at deflecting the inquiry. In his testimony, Poindexter acknowledged that he did not expect North to disclose the truth: I did think that he would withhold information and be evasive, frankly, in answering questions. My objective all along was to withhold from the Congress exactly what the NSC staff was doing in carrying out the President's policy . . . . I thought that Colonel North would withhold in- formation. There was no doubt about that in my mind.6 3 142 September 1986: The Santa Elena Airfield Soon after North had turned aside the Congressional inquiry, he learned of a new threat of exposure, this one involving the Santa Elena airfield in Costa Rica. It came just as Congress was taking steps to fund the Contras again. The airfield at Santa Elena had been built with the covert assistance of several U.S. Government offi- cials, including North, Tambs, and Castillo. Complet- ed in early 1986, the airfield was originally intended to serve as an abort base and refueling site for resup- ply aircraft, but never became a crucial element in the operation. The new Costa Rican Government that took office in May 1986, requested that the field not be used to aid the Contras. Ambassador Tambs agreed, and the operation relied on alternative means to drop supplies to Resistance troops inside Nicara- gua.6 4 North learned late Friday, September 5, that the Costa Rican Government planned a press conference about the airfield the next morning. Officials at the press conference, North was told, would reveal that Santa Elena had been used as part of an operation to resupply the Contras and that U.S. Government offi- cials were involved with the airfield. In response, North mobilized several government officials to pres- sure high Costa Rican officials to call off the press conference. North told a good deal of the story in a PROF sent the next day to Poindexter: "Last night at 2330 our Project Democracy rep. in Costa Rica called to advise" that the Arias Government would hold a press conference the next morning "announcing that an illegal support operation for the Contras had been taking place from an airfield in Costa Rica for over a year."65 North wrote that Secord and CIA Station Chief Tomas Castillo would be "predominantly men- tioned." From North's notebook it appears that he too was in danger of being mentioned at the press confer- ence. The first entry relating to the incident reads: "0005?call from [Castillo]?Security Minister plans to make public Udall role w/ Base West [Santa Elena airfield] and allege violation of C[osta] R[ican] law by Udall, Bacon, North, Secord, et al."66 North immediately arranged a conference call with Elliott Abrams and Louis Tambs. North claimed in his PROF note to Poindexter that the three officials agreed that North would call President Arias and make two threats: if the press conference proceeded as scheduled Arias would not be permitted to meet with President Reagan and he "w[ould] never see a nickel of the $80M that [Agency for International Development Director M. Peter] McPherson had promised him" the day before.67 North's notebook also reflected his intention to threaten a foreign gov- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 ernment if necessary to maintain secrecy. The entry reads: 0008 - Conf. . . . Call to Elliott Abrams and Amb Lew Tambs - Tell Arias: - Never set foot in W.H. - Never get 5 [cents] of $80M promised by McPherson.8 8 According to North's PROF Note to Poindexter, Abrams and another Government official passed "the same word" to President Arias." However, accord- ing to their testimony, neither North, Abrams, nor the other official called Arias.70 North testified that he falsified the facts in his PROF note to "protect" the other officials involved." He did not offer any expla- nation why he felt it necesary to hide the facts from Poindexter, who knew details of the resupply oper- ation, including the existence of the airfield. Ambassador Tambs did call President Arias. The purpose, he testified, was to "dissuade him from this press conference."72 Abrams recalled instructing Tambs before the call to President Arias that revela- tion of the airfield would put at risk Arias' upcoming meeting with President Reagan." Tambs testified that he merely told President Arias that it would not be prudent to hold the planned press conference in light of the pending case before the International Court of Justice. 7 4 In his PROF note, North assured Poindexter that steps had been taken to ensure that the NSC-coordi- nated Contra operation would not be linked to the airfield: "As a precaution the Project a/c [aircraft] were flown to [another base] last night and no project personnel remain on site at the field."78 The next day, Poindexter indicated his approval of North's actions. He wrote in a PROF: "Thanks, 011ie. You did the right thing, but let's try to keep it quiet."78 Airfield Revealed: Damage Control Although the initial news conference was cancelled, the Costa Rican Government announced the existence of the airfield three weeks later. On September 26, the Costa Rican Interior Minister told reporters that his government had discovered and shut down an airfield that had been used for resupplying the Contras, for trafficking drugs, or both. Secord and North were not mentioned, although the name of the Enterprise Pana- manian company that built the airfield, Udall Re- sources, Inc., was revealed, as was the pseudonym (Robert Olmstead) of William Haskell, the man who purchased the land.7 7 The airfield had not been used in the resupply oper- ation for several months, and the press conference had compromised its location and purpose. Nonethe- less, action was taken to ensure that the roles of U.S. officials and the Enterprise remained concealed. In a PROF note, North told Poindexter: "There are no USG fingerprints on any of the operation." Udall Resources, which North described as "a proprietary of Project Democracy," will "cease to exist by noon today." The company's resources?$48,000?were moved to another Panamanian account. And Udall's office in Panama "is now gone as are all files and paperwork." Olmstead, North added, "is not the name of the agent?Olmstead does not exist."78 In a second PROF note to Poindexter written that day, North blamed the failure to head off the press conference in part on the absence of Ambassador Tambs, who was on leave. North wrote that Tambs "put this thing back in its box two weeks ago when I called you in the middle of the night to threaten that Arias would not get in the door of the oval office if this came out."78 North's PROF continued with a lengthy slur directed against Costa Rican officials who exposed activities in their own country. North concluded the message: Believe we have taken all appropriate damage control measures to keep any USG fingerprints off this and with Elliott and [CIA Chief Castillo], have worked up appropriate "if asked" press guidance.8? The press guidance went to Poindexter for approv- al on September 30.8' The guidance, which according to the cover memo had been coordinated with Elliott Abrams, the CIA Chief of the Central American Task Force (C/CATF) and Richard Armitage, Assistant Secretary of Defense for International Security Af- fairs, consisted of answers to two likely questions. The first potential question and suggested answer were: [Question] Did U.S. personnel supervise con- struction of the airstrip in Northern Costa Rica? [Answer:] The U.S. Embassy in San Jose, Costa Rica, has reported that during the Administration of Former President Monge the Ministry of Public Security was offered the use of a site on the Santa Elena Peninsula which could be used as an extension of the civil guard training center at Murcielago. The site included a serviceable air- strip which could have supplemented the small one which is located near the training center. The offer was reportedly made by the owners of the property who had apparently decided to abandon plans for a tourism project. The Embas- sy has no information on the Ministry's decision concerning the offer.82 The answer concluded: "No U.S. Government funds were allocated or used in connection with this site nor were any U.S. Government personnel involved in its construction."83 The press guidance thus con- 143 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II 11 1 . 1 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 cealed the involvement in the airfield's construction of North, Tambs, and Castillo. The suggested answer in the press guidance to the second possible question was also misleading: [Question:] Was the airstrip intended for use by the Contras? [Answer:] The Government of Costa Rica has made clear its position that it will not permit the use of its territory for military action against neighboring states. The U.S. Government re- spects that position. In fact, the airfield had been used to help the Con- tras. The Costa Rican Government had already re- vealed that the airfield's purpose had been to help the Contras, to traffic drugs, or both. Among the officials who had helped prepare the guidance, Abrams and CIA Central American Task Force Chief acknowl- edged knowing that the airfield was intended to help the Contras and that U.S. citizens?if not Govern- ment officials?were involved.84 North and Poin- dexter, to whom the press guidance was sent for approval, knew the airfield was part of the covert operation to help the Resistance." The steps taken to keep reporters from finding "USG fingerprints" on the airfield were successful for the time being. Not until October 24 did evidence emerge suggesting ties between the airfield and the U.S. Government. That revelation would come from Eugene Hasenfus after he was shot down and cap- tured by the Sandinistas." The Hasenfus Downing On the morning of October 5, 1986, one of the air- craft belonging to the Enterprise left its operational base with 10,000 pounds of ammunition and gear for FDN forces inside northern Nicaragua. William Cooper was in command, Wallace "Buzz" Sawyer was the co-pilot, and a 17-year-old FDN fighter was handling radio communication with the troops on the ground. Also on board, as the "kicker" who would actually drop the supplies to forces waiting below, was Eugene Hasenfus. Within a few hours, the aircraft was reported miss- ing. Officials later learned that the plane had been hit by a Sandinista SAM-7 missile over Nicaraguan terri- tory. Three crew members were killed. Hasenfus sur- vived and was captured by the Sandinistas. The Sandinistas found in the wreckage, and showed reporters, an identification card issued to Hasenfus by the air force in the operational base's host country identifying him as an "adviser" in the "Grupo U.S.A." group at the base, and a business card be- longing to an official at the NHAO office in Washing- ton. They also found and displayed an ID card issued to Cooper by Southern Air Transport.87 144 The U.S. Government Connection The Hasenfus flight was part of the resupply oper- ation coordinated by North with the support and ap- proval of the President's National Security Adviser. North acknowledged in testimony about the flight: "I was the U.S. Government connection."" James Steele, a U.S. Military Group Commander in Central America; Lewis Tambs, the U.S. Ambassador to Costa Rica; and Tomas Castillo, a CIA Station Chief in Central America, all provided assistance to the secret operation to support the Contras. Yet, virtually every newspaper article on the incident in the days after the downing would quote senior Government officials, including the President himself, denying any U.S. Government connection with the flight. And within a week, high Government officials would offer the same categorical denials before Congressional Committees. The Initial Response When the Sandinistas shot down the Hasenfus plane, North was in West Germany negotiating with the Second Channel. He returned to Washington within 48 hours of the downing to help deflect inquir- ies about the flight, leaving Albert Hakim behind to complete his negotiations. Castillo, however, recognized immediately that the Hasenfus crash could lead to disclosure of the oper- ation. Before the downing was even confirmed, he wrote to Robert Dutton via KL-43: Situation requires we do necessary damage con- trol. Did this A/C [aircraft] have tail number? If so, is it the same one which refueled several times at . . . Please advise ASAP. If so, we will have to try to cover quickly as record of tail number could lead to very serious implication." Two days later, plans were made at a Restricted Interagency Group (RIG) meeting in which Abrams and CIA Central American Task Force Chief (Cl CATF) participated to ensure that the U.S. Govern- ment would not be implicated by the flight." A PROF from NSC staff member Vincent Cannistraro to Adm. Poindexter described decisions made at the meeting. Among them, Cannistraro wrote, "UNO to be asked to assume responsibility for flights and to assist families of Americans involved." Also, the group decided that press guidance would be prepared "which states no U.S.G. involvement or connection, but that we are generally aware of such support con- tracted by the Contras."91 A few days later The New York Times reported: "Nicaraguan rebels took full responsibility today for the flight of a military cargo plane that was downed over Nicaragua last week." A "senior Administration official" was quoted in the story as saying that the U.S. Government had asked the rebels to take respon- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 sibility. While denying that any such request was made, Bosco Matamoros, UNO's Washington-based spokesman, told the reporter, "There was no United States government connection."92 Similar denials by Administration officials would soon follow. North was not at the RIG meeting, but he testified that the guidance stating no U.S. Government connection was "not inconsistent with what we had prepared as the press line if such, if such an eventuality occurred."93 The Denials The President: There is no evidence the President knew of U.S. involvement in the Hasenfus flight. But the National Security Adviser and officials on the NSC staff did know. Also, the day of the downing, Felix Rodriguez called Col. Sam Watson in Vice President Bush's office, suggesting to him that North was involved with the flight." Donald Gregg, Assist- ant to Vice President Bush, earlier had been alerted to the possibility that North was linked to the resupply operation. Nevertheless, the President was permitted to deny any U.S. Government connection with the flight. In an exchange with reporters on October 8, the Presi- dent praised the efforts to keep the Contras armed, comparing resupply efforts to those of the "Abraham Lincoln Brigade in the Spanish Civil War." But when asked whether the Hasenfus plane had any connection with the American Government, the President re- plied, "Absolutely none." He told reporters: There is no government connection with that at all . . . We've been aware that there are private groups and private citizens that have been trying to help the Contras?to that extent?but we did not know the exact particulars of what they're doing.95 The Secretary of State: On October 7, Secretary Shultz told reporters that the Hasenfus aircraft was "hired by private people" who "had no connection with the U.S. Government at all."" He was quoted on two national network news programs that evening as saying, "The people involved were not from our military, not from any U.S. Government agency, CIA included."97 On October 10, Shultz reiterated this denial while at the Reykjavik Summit with the Presi- dent. Asked during a Today Show interview about Hasenfus' statements that he worked with CIA em- ployees on the resupply operation, Shultz said: [D]on't forget that this man is under arrest and is saying things under those conditions. I have said, on the basis of checking with both the Defense Department and the CIA, that I am informed by both those agencies that he is not an employee of theirs and they are not connected with this oper- ation.98 Secretary Shultz testified that the U.S. Government involvement with the Hasenfus flight was a "surprise" to him," and the record shows that two National Security Advisers frequently failed to confide in him or give him accurate information. Shultz said he based his denials on a "general understanding" that "there was no problem" with North's activities, be- cause Congressional inquiries into North's activities came up empty. Moreover, Abrams testified that he gave categorical assurances to Shultz that there was no U.S. Government involvement in the Hasenfus flight, and that neither North nor anybody else on the NSC staff was involved in the provision of lethal assistance to the Contras.1?? North claimed in testimony that Shultz "knew what I was doing" to support the Contras, citing a single instance where the Secretary at a reception "put his arm around my shoulder, and told me what a remark- able job I had done keeping the Nicaraguan Resist- ance alive."0' Shultz testified, however, that he merely told North that he appreciated North's work "to keep up the morale of these [the Contra] leaders. . . . But that was the sum and substance of it. To build on that remark this superstructure of implication is entirely unwarranted.',102 Assistant Secretary of State for Inter-American Af- fairs: Elliott Abrams was the primary spokesman for the Administration about the Hasenfus flight. His cat- egorical denials of U.S. involvement were not limited to the State Department; he did not hesitate to tell reporters that no Government agency was tied to the Hasenfus flight, including the NSC staff. Typical of his statements during this period were the following, made on the CNN Evans & Novak show which aired October 11: EVANS: "Mr. Secretary, can you give me cate- gorical assurance that Hasenfus was not under the control, the guidance, the direction, or what have you, of anybody connected with the Ameri- can government?" ABRAMS: "Absolutely. That would be illegal. We are barred from doing that, and we are not doing it. This was not in any sense a U.S. gov- ernment operation. NOVAK: "Now, when you say gave categorical assurance, we're not playing word games that are so common in Washington. You're not talking about the NCS [sic], or something else?" ABRAMS: "I am not playing games." NOVAK: "National Security Council?" ABRAMS: "No government agencies, none. "104 Abrams was no less categorical in denials to Con- gressional Committees. He testified three times during this period. On October 15, Abrams testified alone 145 77-026 0 - 87 - Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 before the House Foreign Affairs Subcommittee on Western Hemisphere Affairs. On October 10, he testi- fied before the Senate Foreign Relations Committee, and on October 14, before the House Intelligence Committee. On these two occasions, he was accompa- nied by Clair George, the CIA's Deputy Director for Operations; and the Chief of the CIA's Central Amer- ican Task Force. During the House Intelligence Committee appear- ance, the following exchange occurred: HAMILTON: ". . . Just to be clear, the United States Government has not done anything to fa- cilitate the activities of these private groups, is that a fair statement? We have not furnished money. We have not furnished arms. We have not furnished advice. We have not furnished lo- gistics." GEORGE: "Mr. Chairman, I cannot speak for the entire United States Government." HAMILTON: "Can you, Mr. Abrams?" ABRAMS: "Yes, to the extent of my knowledge that I feel to be complete, other than the general public encouragement that we like this kind of activity."105 As Abrams later acknowledged to these Commit- tees, this statement was "completely wrong.',106 Abrams testified that he was unaware that North was involved with the Hasenfus flight, insisting that he was just another person deceived by North.'" North, on the other hand, included Abrams with other officials who, he said, had tried to keep the Contra operation secret. He testified: "I am sure that others like Mr. McFarlane and Admiral Poindexter and Director Casey and Elliott Abrams and the Chief of the Central American Task Force and others were trying to weigh in their souls what would happen to those [involved in or assisting the operation] . . . if the American Government stood up and announced it."?8 Noting that Abrams had asked North to help raise money to retrieve the bodies of the dead crew- members, North said, "Why would he turn to me if he didn't know I was doing it?"" Abrams testified that he did not specifically call North to ask for such assistance, but that those issues merely "came up in the conversation.""? Moreover, Abrams maintained he had sufficient reason to believe North was not involved in the Hasenfus flight. He noted first that McFarlane had categorically denied to Congress that North was providing military support to the Contras. Abrams conceded that those denials were made a full year before the Hasenfus shoot- down, but said that based on his work with North in the Restricted Interagency Group (RIG) throughout 1986, he "had no reason whatsoever to believe that he was violating the law."111 146 North claimed, however, that his Contra-related ac- tivities were discussed at some RIG meetings.' 12 In his testimony, North specifically mentioned only one RIG meeting, initially asserting that Abrams attend- ed.1 North's notebook entry of that meeting, how- ever, indicates Abrams was not present. Nonetheless, North maintained that Abrams knew details of his Contra-support activities. An entry in North's note- book for April 25, 1986, suggests that North and Abrams discussed "support for S. front," the fact that the "air base [was] open in C[osta] R[ica]," and "100 BP's [Blowpipe missiles]."4 North testified that he did not specifically recall that conversation, "but do not deny that I discussed those [items listed in North's notebook] at various points in time with Mr. Abrams and others."' 13 (Abrams was not asked about this notebook entry.) Moreover, the third key member of the RIG, the CIA Chief of the Central American Task Force (Cl CATF), testified that he was "taken aback" by Abrams' categorical denials of North's involve- ment.' 16 While he insisted that he did not want "to impeach" Abrams' testimony, C/CATF told these Committees: "I thought he [Abrams] would have a broad brush understanding, as did a lot of other people, 011ie was in and around those things."7 Abrams argued in defense of his statements that he or someone on his staff had checked with other key agencies?the Central Intelligence Agency (CIA) and the Department of Defense (DOD)?and verified that no U.S. officials were involved with the Hasenfus flight."" In their testimonies, two key CIA offi- cials?the C/CATF and the Deputy Director for Op- erations?mentioned no call from Abrams' office, and testified they were surprised by Abrams' categorical denials.' 9 Similarly, Abrams noted that soon after the crash, while North was out of the country, he called an NSC staff officer and received assurances that the NSC staff was not involved in the Hasenfus flight.'" Abrams said the official "may have been Mr. Earl."121 Earl, however, was aware that the flight was part of "Democracy, Inc." and that North played an important role in that organization.'" (Earl was not asked about a call from Abrams.) During the period he was making his denials, Abrams spoke with North. But Abrams did not ask whether North was involved with the Hasenfus flight, despite the fact that Abrams, in his words, "knew that he [North] was monitoring" the private Contra sup- port network.'" Abrams said he did not ask North because "it was very clear that [confirming his in- volvement in the flight] would have been completely contradictory to what he had previously told me."1.24 North had a different explanation: "He didn't have to ask me. . . He knew."125 Finally, while testifying before the House Foreign Affairs Subcommittee on Western Hemisphere Affairs Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 on October 15, 1986, Abrams said that he did not believe anyone in the Government would know de- tails about the flight: KOSTMAYER: "You have not been told by our Government, if indeed our Government knows, who organized and who paid for this particular flight?" ABRAMS: "I wouldn't separate myself from the Government. We don't know." KOSTMAYER: "Do you think there is anyone in the Government who does know?" ABRAMS: "No, because we don't track this kind of activity."126 Asked to reconcile this response with the fact that he knew North monitored the Contra aid network, Abrams told these Committees: "To say that Col. North was the person who knew the most about the private benefactors?which I thought, and think to be the case?is not to say that he could tell you the name of every one of them and could tell you every- thing that every one of them was doing each day."27 CIA Deputy Director For Operations: Clair George, appearing with Abrams at two sessions before Congressional Committees, limited his denials to the Central Intelligence Agency. Typical of his remarks was the following from his opening statement before the House Intelligence Committee on October 14: First I would like to state categorically that the Central Intelligence Agency was not involved directly or indirectly in arranging, directing or facilitating resupply missions conducted by pri- vate individuals in support of the Nicarguan democratic resistance.'28 In fact, at least one CIA official was directly involved in providing lethal supplies to the Contras in 1986. George testified before these Committees that he was unaware of this fact when he testified at the Hasenfus hearing. Nonetheless, in his testimony before these Committees, George admitted that his earlier state- ment was "wrong", and he offered an apology.129 George acknowledged that he knew in October 1986, that the NSC staff was "participating in some way in supplying the Contras"3? but he allowed Abrams' categorical denials about the involvement of any U.S. officials to pass without comment. He ex- plained: I was surprised Abrams made that statement. It was so categorical. The question is, should I leap up and say, 'hold it, Elliott, what about?excuse me, all you members of HPSCI, but Elliott and I are now going to discuss what we know about'? and I didn't have the guts to do it.'" Saying he was "overly taken with trying to protect the Central Intelligence Agency," George expressed regret that he had not responded in some way to Abrams' categorical denials.'32 CIA Central American Task Force Chief: The C/CATF told these Committees he was aware that the categorical denials about any U.S. involvement in the Hasenfus flight were wrong. Asked whether he had "any doubt" who ran the Hasenfus flight, he said, "No."33 However, testifying before the House Intel- ligence Committee on October 14, the C/CATF said: "We know what the airplanes are by type. We knew, for example there were two C-123s and C-7 cargos . . . . We knew in some cases much less frequently that they were flying down . . . into southern Nicaragua for the purposes of resupply, but as to who was flying the flights and who was behind them, we do not know:9134 The C/CATF maintained before these Committees that his statement was not false because he did not know exactly who was behind the flights: A: "I want to make one thing very, very clear. I don't lie and I don't provide false answers, and if I'm put in a situation that is undeniable, I will find some way to avoid lying. . . . I didn't know who was flying those flights." Q: "Or who was behind them, is what you said?" A: "You could have put me on a rack and I couldn't have told you who the pilots were, who was managing them. I at that time suspected, but didn't know that General Secord was involved with them. I had no idea where the money was coming from. . . . It is not a lie."35 Generally, the C/CATF remained "uniquely silent," as he put it, during the hearings on the Hasen- fus flight where he was a supporting witness: "I spoke when spoken to."36 He told these Committees that he had decided that, as the junior official on a panel with Abrams and George, he would not speak up first: I could have been more forthcoming, but I frank- ly was not going to be the first person to step up and do that. . . . So long as others who knew the details, as much as I, who knew more than I, were keeping their silence on this, I was going to keep my silence. . . . I was a member of the administration team. I wasn't going to break ranks with the team. . . . My frame of mind was to protect, was to be a member of the team.'" The C/CATF told the Committees that he was "trou- bled" by his failure to speak out, but added, "There is not a lot I can do about it."38 147 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 Abrams' Brunei Testimony In addition to denying any U.S. role in the Hasenfus flight, Elliott Abrams denied on several occasions that the U.S. Government actions had sought third-coun- try funding for the Contras. His statements were made despite his previous involvement in soliciting funds from the Government of Brunei. In testimony before Congressional Committees in late 1986, Abrams repeatedly deflected questions about the Con- tras' funding, giving responses which were, in his word, "misleading."139 In an October 10 open hearing of the Senate For- eign Relations Committee, Senator Kerry asked Abrams whether Country 2 had provided assistance to the Resistance. Abrams replied: "I think I can say that while I have been Assistant Secretary, which is about 15 months, we have not received a dime from a foreign government, not a dime, from any foreign government." Asked whether the Contras had re- ceived funds, Abrams said: "I don't know. But not that I am aware of and not through us." He added at the hearing that if the Contras had approached a foreign government, "I think I would know about it.?140 Appearing before the House Intelligence Commit- tee on October 14, 1986, together with Clair George, Abrams again denied that third countries had aided the Contras: ABRAMS: "I can only speak on that question for the last fifteen months when I have been in this job, and that story about [Country 2], to my knowledge is false. I personally cannot tell you about pre-1985, but in 1985-1986, when I have been around, no." CHAIRMAN: "Is it also false with respect to other governments as well?" ABRAMS: "Yes, it is also false."4' Before these Committees, Abrams testified that he did not know about the Country 2 or Country 3 contributions. Although he had personally solicited Brunei, that country's donation had not been received at the time of his testimony, and therefore he ex- plained it was technically true that the Contras had not received assistance from Brunei. Furthermore, Abrams testified that Brunei had been promised confi- dentiality, and "I did not believe I was authorized to . . . reveal that solicitation."1.42 On November 25, 1986, Abrams testified together with the CIA's C/CATF before the Senate Select Committee on Intelligence shortly after Attorney General Meese's press conference disclosing the di- version of funds from the Iran arms sales to the Con- tras. He was again asked about reports of third-coun- try funding: 148 BRADLEY: ". . . Did either one of you have any knowledge or indication that the contras were receiving funds from . . . Mid-Eastern sources?" ABRAMS: "No." C/CATF: "No." BRADLEY: "Did either one of you ever discuss the problems of fundraising?" ABRAMS: "Let me add to that, Senator. I spoke to Dick Murphy, Assistant Secretary of State for Near Eastern Affairs, probably in the course of the summer, to ask him if he thought I could raise any money from Middle Eastern sources. He was rather discouraging as to whether we would be able to do it, and so we never tried. . . ." BRADLEY: "Now, you did not discuss with anyone else in the Executive Branch the possibili- ty of receiving funds from . . . any . . . Middle Eastern source?" ABRAMS: "That's correct. I never?once I had that conversation with him, that was the end of it."1.43 Again, Abrams maintained that this testimony was literally correct because Brunei was not a Mid-East- ern country.144 In his Senate Intelligence Committee appearance, Abrams was also asked whether he dis- cussed third-country funding with members of the NSC staff: BRADLEY: "Did either one of you ever discuss the problems of fund raising by the Contras with members of the NSC staff?" ABRAMS: "Well, yes. I mean, I think?I can't remember a specific day, but certainly the ques- tion?the fact, which now appears to be slightly mysterious, that they never had any money, we discussed?you know, it came up all the time, because they were always running out of every- thing. So the question came up, sure." BRADLEY: ". . . So let me ask it again. Did either one of you ever discuss the problems of fund raising by the Contras with members of the NSC staff?" ABRAMS: "No, I can't remember." BRADLEY: "Well, you would say gee, they got a lot of problems, they don't have any money. Then you would just sit there and say, what are we going to do? They don't have any money. You never said, you know, maybe we could get the money this way?" , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 ABRAMS: "No. Other than the conversation I have?other than the Middle Eastern thing which I recounted to you. We're not?you know, we're not in the fundraising business. . . ." BRADLEY: "Were you completely ignorant of all fundraising activities by the Contras?" ABRAMS: "No. Certainly not in the?I knew for?I mean?I don't think I knew anything that wasn't?I am trying to think if I knew anything that wasn't in the newspaper, that is, I knew certainly that Singlaub was raising money for the Contras. I knew that others were raising money for the Contras. I mean, using the Contras in a very general sense. For example, Friends of the Americas raises money for medical relief and things like that. I knew that was happening. I didn't know what Singlaub was raising or how or what he did with it when he got it. I was, until today, fairly confident that there was no foreign government contributing to this. But I knew nothing, still don't know anything about the mechanisms by which money was transferred from private groups that have been raising it, to the Contras."145 Abrams maintained before the Select Committees that these statements were "technically correct" be- cause he was asked about "fundraising by the Con- tras" and the Brunei solicitation was fundraising by the United States for the Contras.146 However, in his exchange with Senator Bradley, when asked whether he was ignorant of all fundraising "by the Contras," Abrams did not limit his responses to his knowledge of fundraising by the Contras. He specifically men- tioned fundraising for the Contras by John Singlaub and by the group, Friends of the Americas. Finally, in his Senate Select Committee testimony, Abrams distanced the State Department from Contra- related fundraising. He stated: "We don't engage?I mean the State Department's function in this has not been to raise money, other than to try to raise it from Congress."147 In his testimony before these Committees, Abrams acknowledged that he intended to prevent the Mem- bers of Congress from learning about the solicitation of Brunei: Q: In fact, your approach on November 25 . . . was that unless the Senators asked you exactly the right question, using exactly the right words, they weren't going to get the right answers. Wasn't that the approach? A: That is exactly the correct description of what I did on that date. . . Q: And, as you have said. . . it would have been a very easy thing to have stopped the whole shooting match by simply saying Senators you are now getting into an area that I am not au- thorized to discuss? A: It would have been relatively easy. It would have been the right thing to do. . . . Q: And so unless the Senators knew the facts in advance so they could frame their question in exactly the right words, they wouldn't find out and they didn't find out. Isn't that what hap- pened? A: Correct. That is exactly what happened.'" Abrams testified that after his November 25 testi- mony, he realized that he had "failed to disclose the solicitation of Brunei," and asked for permission to "go back and tell the Committee there had indeed been another solicitation." Abrams attempted to reach Senator Bradley, who had posed the question, to ex- plain that there had, in fact, been a solicitation which he had failed to mention in this testimony. Failing to reach Bradley, he conveyed the message to a member of the Senator's staff. When Abrams appeared again before the Senate Intelligence Committee on Decem- ber 8, he was asked to explain his answers to the Committee as a whole. Shown a transcript of his earlier statements, Abrams admitted they were mis- leading but attempted to defend them as technically accurate. After a recess, Abrams apologized to the Members, having been advised by Senator Boren to do so.149 He made no similar effort to correct his testimony in October before the Senate Foreign Relations Com- mittee or the House Intelligence Committee. Conclusion Throughout the period of Congressional restrictions on lethal aid to the Contras, Administration officials were asked repeatedly whether the U.S. Government was in any way providing such support. In every instance, officials responded to the inquiries with eva- sive answers or categorical denials. Some of these officials made their statements as part of a deliberate attempt to conceal what they knew about U.S. Gov- ernment support for the Nicaraguan Resistance. These Committees found no direct evidence sug- gesting that the President was a knowing participant in the effort to deceive Congress and the American public. But the President's actions and statements con- tributed to the deception. Congressional Committees overseeing the imple- mentation of the Boland Amendment repeatedly sought to determine how the Contras were being funded. The President knew that Country 2 had pro- vided substantial sums of money to the Resistance; he had personally discussed such a contribution with the leader of that country. But knowledge of this contri- 149 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 bution was not widely shared within the Administra- tion. Indeed, high-ranking State Department officials were permitted on several occasions to testify to Con- gress that it was not the policy of the United States to facilitate or encourage third-country donations, and that the Administration had not in fact done so. In one instance, following the enactment of the full pro- hibition Boland Amendment in October 1984, Ambas- sador Motley testified that "soliciting" or "encourag- ing" third country donations would violate the law. In October 1986, the President denied that the U.S. Government had any connection with the Hasenfus flight, depicting it as part of a "private" operation. According to Poindexter the President "understood that the Contras were being supported and that we were involved in?generally involved in coordinating the effort."5? These Committees found no evidence suggesting that the President knew his statements about the flight were false. He merely echoed the denials made the day before by State Department officials.'51 The National Security Adviser and others who knew the President's remarks were false appear to have made no effort to ensure that the President's statements were accurate and his knowledge com- plete. Poindexter testified he was too busy with the Reykjavik summit to correct the public record."2 Reasons for the Deception North endeavored to explain the need for the decep- tion by arguing that he was forced to weigh "the differences between lives and lies." He told the Com- mittees: [t]he revelations of the actual details of this activ- ity . . . would have cost the lives of those with whom I was working, would have jeopardized the governments which had assisted us, would have jeopardized the lives of the Americans who in some cases were flying flights over Nicaragua, would have put at great risk those inside Nicara- gua and in Eastern Europe and other places where people were working hard to keep them alive. . . .153 North's justification for his decision to deceive does not withstand analysis. Congress is routinely briefed on covert operations where lives are at risk. Beyond that, Congress publicly debated and then approved 150 the support of the Contras prior to enactment of the Boland prohibition. Operational details that would have put at risk the personnel conducting those oper- ations were not publicly revealed. The same is true for the Congressionally approved operation in support of the Contras currently underway. Even in 1985 and 1986, Congress was not asking about operational details such as drop-zone coordi- nates or flight paths. Members of Congress simply wanted to know whether it was true that the U.S. Government was providing lethal support to the Nic- araguan Resistance. Indeed, North testified that his efforts were known widely outside the United States, even by this Coun- try's enemies: "Izvestia knew it . . . . My name had been in the newspapers in Moscow, all over Daniel Ortega's newscasts. Radio Havana was broadcasting it."154 Moreover, it was important to the success of the resupply operation that friendly countries in Cen- tral America knew that the U.S. Government support for the Contras was continuing so that they would not drive the Contras out of their countries. Only the American people and the Congress were kept in the dark. Had they known, it would not have been lives at risk but the NSC staffs secret operation itself. Poindexter told these Committees he believed during his tenure in the White House that disclosure of the NSC staff operation would have almost surely triggered tighter restrictions on aid to the Contras."5 McFarlane testified that disclosure of the "troubling" documents on North's activities which he had gath- ered in response to a Congressional inquiry "would be an extremely torturous, conflicting, disagreeable out- come and that I hoped we didn't come to that."56 North's contemporaneous actions and words pro- vide clear evidence that the reasons for the deception had more to do with the political risk to the operation than to the physical risk to operation personnel. The record is clear that North's actions after the revela- tion of the Santa Elena airfield were motivated by a desire to prevent the discovery of "USG finger- prints," in his words, on the airfield. In addition, in a May 1986, PROF note to Poin- dexter, North warned that Members of Congress were bound to become "more inquisitive" as the Contra operation's level of activity increased. He wrote: "While I care not a whit what they say about me, it could well become a political embarassment for the President and you." '57 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 Chapter 7 1. Exhibits OLN-131 and OLN-307, Hearings, 100-7, Part 2. Weekly Compilation of Presidential Documents, No. 41 at 1349. 3. Most Contras Reported to Pull Out of Nicaragua, 1/30/86, New York Times, Nicaragua Rebels, In Retreat, Viewed as a Reduced Threat, 3/6/86, New York Times Al. 4. On March 20, for example, the Washington Post re- ported that the Contras had "mounted a series of raids against mostly economic targets in the northern Nicaraguan mountains in the past 10 days as debate quickened in Wash- ington over military aid for their sagging guerilla war." [Washington Post, 3/20/86, Contras Step Up Raids As US. Debate Waxes, p. 6]. 5. See Group's Aid to Contras Probed, The Boston Globe, 4/11/86, p 1; Cocaine, Gun Charges Probed, by the Associat- ed Press in Washington Post, 4/11/86, p. A6; Inquiry Re- ported Into Contra Arms, AP story, the New York Times, p A3; Top 'Contras' Under Scrutiny For Corruption, Chris- tian Science Monitor, 4/11/86; Reagan Asked About Allega- tions, The Washington Post, 4/13/86 p. A38; 11 Miami Banks Ordered to Open Files in Probe of Contra Spending, 5/ 9/86, Miami Herald, p. 1; Similar articles on May 9 in The New York Times, The Baltimore Sun and other papers. 6. Colonel's Actions May Have Broken Contra Aid Ban, Miami Herald, 4/30/86, p. 8. 7. Despite Ban, US. Helping Contras, 6/8/86, Miami Herald, p. 1A; the charges were echoed in an Associated Press story which ran on June 11 in The Washington Post under the headline, US. Abetted Contra Aid During Ban. 8. White House OKd Contra Aid Plan, Sources Say, Miami Herald, 6/22/86 p. 26A. 9. Poindexter Test., Hearings, 100-8, at 95. 10. Poindexter Test., Hearings, 100-8, at 42. 11. Poindexter Test., Hearings, 100-8, at 42. 12. Poindexter Test., Hearings, 100-8, at 42. 13. Going After North, Washington Times, 7/15/86. A PROF Note sent that day to North strongly suggests that Poindexter leaked the story. Poindexter wrote in the PROF: "I just wanted to lower your visibility." And he gave North the name of two Washington Times reporters, suggesting that North call them to straighten the matter out. N12568. See also Ex. OLN- 295 and N12569. 14. PROF Note, 7/15/86 [N12568]. On July 19, 1986, the Miami Herald quoted a "senior administration official" saying that North would be reassigned and would no longer handle Contra matters. 15. PROF Note 7/15/86 [N12568]. 16. Poindexter Test., Hearings, 100-8, at 48. 17. North Test., Hearings, 100-7, Part I, at 174. McFar- lane denied that he gave such instructions to North. McFar- lane Test., Hearings, 100-7, Part I, at 204. 18. North Test., Hearings, 100-7, Part I, at 27. 19. Ex. JMP-7, Hearings, 100-8. 20. Poindexter, Hearings, 100-8, at 196. McFarlane had not arranged for North to communicate with him directly using the PROF system. 21. Ex. OLN-191, Hearings, 100-7, Part III. 22. Poindexter Test., Hearings, 100-8, at 43, 48, 60. 23. Poindexter Dep., 5/2/87, at 208. 24. Id. 25. North Test., Hearings, 100-7, Part I, at 87. 26. Ex. OLN-10, Hearings, 100-7, Part III. "Kerry, Barnes, Harkins" referred to Senator John Kerry, Repre- sentative Barnes and Representative (now Senator), Tom Harkin. 27. Ex. OLN-89, Hearings, 100-7, Part III. 28. PROF Note from Small to North, date unknown [N17526] . 29. Transcript of Broadcast. 30. PROF Note, 6/27/86 [N4951]. 31. Text of statement. On June 21, Coleman gave the weekly Democratic radio address. 32. Congressional Record, June 25, 1986, p. E2264. 33. Id. 34. The resolution reads: "A complete list and description of any contact or other communication between Lieutenant Colonel Oliver L. North or any other member of the staff of the National Security Council and any private individual or any representative of a foreign government concerning the provision to the Nicaraguan resistance of any funding or other assistance from any source other than the United States Government (including assistance by any private group or individual or by any foreign government); and any document prepared by or in the possession of any member of the staff of the National Security Council concerning the provision of any such assistance, specifically including any document concerning any discussion of or involvement in private fund-raising activities on behalf of the Nicaraguan resistance by any member of the staff of the National Secu- rity Council." 35. The resolution reads: "A complete list and discription [sic] of and any document concerning any contact or other communication, directly or through intermediaries, since July 28, 1983, between Lieutenant Colonel Oliver L. North or any other member of the staff of the National Security Council and any member or representative of the Nicara- guan resistance, including any communications concerning the military strategy or tactics, coordination of the activi- ties, or the military equipment or training needs of the Nicaraguan resistance." 36. The resolution reads: "A complete list and discription [sic] of and any document concerning any contacts or other communication since July 28, 1983, between Lieutenant Colonel Oliver L. North or any other member of the staff of the National Security Council and Robert W. Owen (who has served as a consultant to the Nicaraguan Humani- tarian Assistance Office), Major General John K. Singlaub (United States Army, retired), John Hull (a United States citizen operating a ranch in northern Costa Rica)." 37. Ex. JMP-14, Hearings, 100-8. 38. Poindexter Test., Hearings, 100-8 at 102. 39. Ex. JMP-14, Hearings, 100-8. 40. Poindexter Test., Hearings, 100-8 at 96. 41. Poindexter Test., Hearings, 100-8 at 53. 42. Poindexter Test., Hearings, 100-8 at 88. 43. Poindexter Test., Hearings, 100-8 at 73-70. See also Chapters 2 and 3. 44. Poindexter Test., Hearings, 100-8 at 83. 45. Poindexter Test., Hearings, 100-8 at 94. 46. On July 30, the House Armed Services Committee reported H. Res. 485 unfavorably. "Unlike the usual prac- tice of the House in a resolution of inquiry," the report 151 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 explained "rather than requesting him [the President] to produce the specified materials, this resolution directs the production of information." This, the report said, "could place the President in an untenable position concerning compliance if the resolution were agreed to in its present form." (Rept. 99-724) As a result, the other two Committees to which it had been referred-Foreign Affairs and Intelli- gence-were no longer compelled to report the measure within 14 days. Nevertheless, the resolution was still pend- ing under the rules of ordinary legislation, and Committee members wanted to give it full consideration. They deemed it necessary to meet with Oliver North. 47. In attendance at the 8:30 a.m. meeting with North were Chairman Hamilton, Representatives McCurdy, Kas- tenmeier, Daniel, Roe, Stump, Ireland, Hyde, Cheney, Liv- ingston, and McEwen; Bob Pearson and Ron Sable of the NSC staff; and Tom Latimer and Steve Berry of Committee staff. 48. Ex. OLN-127, Hearings, 100-7. 49. Ex. OLN-126 and OLN-127, Hearings, 100-7. The Committee members came to the meeting believing that official Administration policy held that the NSC staff was covered by the Boland Amendment. The former National Security Adviser had told the House Intelligence Commit- tee as much the year before, and the current National Secu- rity Adviser had indicated by his letter that the interpreta- tion stood. North, in his statements to the Members, said nothing to the contrary. He stated that he had always acted in compliance with the letter and the spirit of the Boland Amendment. During the session, he admitted undertaking only those actions clearly permitted by all officials of the Executive Branch. He denied activities that Members who believed the Boland Amendment applied to the NSC would have interpreted as illegal. 50. North Test., Hearings, 100-7, at 176. 51. Ex. OLN-127, Hearings, 100-7. 52. Letter from Hamilton to Coleman, 8/12/86. 53. North Test., Hearings, 100-7, at 177-178. 54. Earl Dep., 5/22/87 at 102. 55. Earl Dep., 5/22/87, at 105-08. 56. Earl Dep., 5/22/87 at 106-07. 57. Earl Dep., 5/22/87 at 107. Poindexter testified: "Obvi- ously with hindsight, it would have been prudent to have sat down and talked to him about that [the meeting with the Members of Congress] before he did it to provide more detailed guidance, but that was not the manner in which I was manning and directing Colonel North at the time." Poindexter Test., Hearings, 100-8 at 152. 58. North Test., Hearings, 100-7, at 178. 59. North Test., Hearings, 100-7, at 178. 60. Poindexter Test., Hearings, 100-8 at 152-156. 61. Ex. OLN-128, Hearings, 100-7. 62. Poindexter Test., Hearings, 100-8 at 104. 63. Poindexter Test., Hearings, 100-8 at 152. 64. See Chapter 2. 65. Ex. LAT-6, Hearings, 100-3. 66. Q2392. 67. Ex. LAT-6, Hearings. 68. North Notebooks, 9/6/86 [Q2392]. North's notebook also indicates that the C/CATF was aware of the threat- ened press conference. 69. Ex. LAT-6, Hearings, 100-3. 70. North Test., Hearings, 100-7, at 86-87; Abrams Test., Hearings, 100-5 at 24-26. 152 71. North Test., Hearings, 100-7, at 86-87. 72. Tambs Test., Hearings, 100-3, at 383. 73. Abrams Test., Hearings, 100-5 at 25. 74. Tambs Test., Hearings, 100-3 at 383. 75. Ex. LAT-6, Hearings, 100-3. 76. PROF Note, 9/7/86 [N12159]. 77. Costa Rica Closes Airstrip Near Nicaragua Border, The New York Times, 9/25/86, p. 13. 78. Ex. OLN-307, Hearings, 100-7. 79. Ex. OLN-131, Hearings, 100-7. 80. Id. 81. Ex. OLN-132, Hearings, 100-7, Part III. The memo- randum was "nonlog," meaning it had not been entered into the official NSC filing system. Poindexter had earlier direct- ed North not to put in writing matters relating to the Contra operation. 82. Ex. OLN-132, Hearings, 100-7, Part III. 83. Id. 84. Abrams Test., Hearings, 100-5, at 20, 24-26; C/CATF Test., Hearings, 100-11 at 95-98. 85. See Chapter 2. 86. Hasenfus Refers to Secret Airstrip, The New York Times 10/24/86 p. 7; Downed Airman Tells Predicament, Los Angeles Times, 10/25/86 p. 1. 87. Crash Survivor Described as Adviser in El Salvador, The Washington Post, 10/8/86. 88. North Test., Hearings, 100-7, at 179. 89. KL-43 Message, RD00492. 90. The meeting was described in a PROF from Cannis- traro to Poindexter: Ex. OLN-133, Hearings, 100-7. 91. Ex. OLN-133. Hearings, 100-7. On October 9 the following entry appears in North's notebook: "Call C/ CATF, Cruz, Calero [about] press release. The A/C was providing humanitarian supplies to UNO fighters." 92. Contras Take Responsibility for the Support Flight, The New York Times, 10/14/86, P. A9. 93. North Test., Hearings, 100-7 at 179. 94. Ex. OLN-99, Hearings, 100-7. 95. Weekly Compilation of Presidential Documents, Vol. 22, #41, at 1348-9; See also Elaborate System Supplies Con- tras, Los Angeles Times, 10/9/86 p. 1; Reagan on Downed Plane: Like Lincoln Brigade, New York Times, 10/9/86, p. A8 96. Reagan Administration Denies US. Link to Plane, Washington Post, 10/8/86, p. Al; Downed Plane Not Ours, Shultz Says, Los Angeles Times, 10/8/86, P. 1. 97. Transcripts of news shows in "Radio-TV Defense Dialog." 98. Id. 99. Shultz Test., Hearings, 100-9 at 204. 100. Abrams Test., Hearings, 100-5 at 65-67. 101. North Test., Hearings, 100-7, at 149. 102. Shultz Test., Hearings, 100-9 at 202. 103. Ex. EA-25, Hearings, 100-5. 104. Id. 105. Ex. EA-28, Hearings, 100-5. 106. Abrams Test., Hearings, 100-5 at 65. 107. Abrams Test., Hearings, 100-5 at 63-69. 108. North Test., Hearings, 100-7, at 180-181. 109. North Test., Hearings, 100-7, at 165. 110. Abrams Test., Hearings, 100-5 at 64-65. 111. Abrams Test., Hearings, 100-5 at 65-68. 112. North Test., Hearings, 100-7, at 88. 113. North Test., Hearings, 100-7, at 88. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 114. Ex. OLN-94, Hearings, 100-7. 115. North Test., Hearings, 100-7, at 156. 116. C/CATF Test., Hearings, 100-11 at 157. 117. C/CATF Test., Hearings, 100-11, at 156-157. 118. Abrams Test., Hearings, 100-5 at 63. 119. C/CATF Test., Hearings, 100-11 at 156-157; George Test., Hearings, 100-11 at 165. 120. Abrams Test., Hearings, 100-5 at 63-64. 121. Abrams Test., Hearings, 100-5 at 64. 122. Earl Dep., 5/22/87, at 149-50, 169-70. 123. Abrams Test., Hearings, 100-5 at 64. 124. Abrams Test., Hearings, 100-5 at 65. 125. North Test., Hearings, 100-7, at 179-80. 126. Transcript at 33. 127. Abrams Test., Hearings, 100-5 at 66. 128. Transcript at p. 4. Similar denials were issued by CIA spokeswoman Kathy Pherson to reporters. For exam- ple, on October 10 the Los Angeles Times quoted her as saying, "We didn't have anything to do with the guy [Ha- senfus]. We didn't have anything to do with the plane. And we can say that, instead of our usual "No comment," be- cause a plane that flies in and drops supplies would violate congressional restrictions. We have not and will not violate congressional restrictions." Downed Flier Claims CIA Ties, Los Angeles Times, 10/10/86. 129. George Test., Hearings, 100-11 at 216. 130. George Test., Hearings, 100-11 at 217. 131. George Test., Hearings, 100-11 at 217. 132. George Test., Hearings, 100-11 at 219-221. 133. C/CATF Test., Hearings, 100-11 at 120. 134. Transcript at 20-21. 135. C/CATF Test., Hearings, 100-11 at 121-122. 136. C/CATF Test., Hearings, 100-11 at 120. 137. C/CATF Test., Hearings, 100-11 at 122. 138. C/CATF Test., Hearings, 100-11 at 121, 132-133. 139. Abrams Test., Hearings, 100-5 at 74. 140. Ex. EA-29, Hearings, 100-5. 141. Ex. EA-28, Hearings, 100-5. 142. Abrams Test., Hearings, 100-5 at 85-86. 143. Ex. EA-30, Hearings, 100-5. 144. Abrams Test., Hearings, 100-5 at 72. 145. Ex. EA-30, Hearings, 100-5. 146. Abrams Test., Hearings, 100-5 at 73. 147. Ex. EA-30, Hearings, 100-5. 148. Abrams Test., Hearings, 100-5 at 74-75. 149. Abrams Test., Hearings, 100-5 at 77-79, 94, 146-149. 150. Poindexter Test., Hearings, 100-8 at 89. 151. Assistant Secretary Abrams testified that he had given Secretary Shultz categorical assurances of no U.S. Govern- ment involvement in the Hasenfus flight. (See fn. 100.) Abrams' explanation for his denials is discussed above. 152. Poindexter Test., at 160-61. 153. North Test., Hearings, 100-7, at 335. 154. North Test., Hearings, 100-7 at 119. 155. Poindexter Test., Hearings, 100-8 at 61. 156. McFarlane Tesi., Hearings, 100-2 at 118. 157. Ex. OLN-10, Hearings, 100-7. 153 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part III The Arms Sales to Iran Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 U.S.-Iran Relations and the Hostages in Lebanon For many Americans, the most surprising and alarm- ing aspect of the Iran-Contra Affair was President Reagan's decision to sell arms to Iran. Only a few years before, that nation had humiliated the United States. From November 1979 to January 1981, Iran held American diplomats hostage, while Iranian mobs in the streets of Tehran chanted slogans calling for the death of President Carter and the destruction of U.S. interests throughout the Middle East. Since November 14, 1979, first in response to the hostage crisis and then because of the Iran-Iraq war, the United States had embargoed the sale of arms to Iran. Moreover, it had been the policy of the United States since December 1983 to pressure other govern- ments, through "Operation Staunch," to stop the sale of arms to Iran in order to help bring an early end to the Iran-Iraq war. The United States also opposed the transfer of arms to Iran because of its involvement in terrorist activi- ties. Following repeated attacks against Americans and U.S. interests in Lebanon, the Secretary of State officially placed Iran on a list of countries -supporting terrorism. Reagan Administration policy on terrorism was well known and was clearly stated by the Presi- dent: "We make no concessions. We make no deals." Why did the Reagan Administration make a com- plete about-face on both of these publicly stated poli- cies?to sell no arms to Iran and to make no conces- sions to terrorists? The background of recent U.S. policy toward Iran and of the seizure of American hostages in Lebanon provides a context in which to assess those policy reversals. No Regional Guarantees Partly in reaction to the war in Vietnam, the United States in 1969 began to shift to a worldwide policy of no longer directly guaranteeing the security of its regional allies. Instead, the United States would work with its friends to ensure ? that they had the military capability to defend themselves against inter- nal subversion or external threat. Under the Nixon Doctrine, the United States looked to regional powers, such as Iran, to serve as guardians of Ameri- can interests in distant corners of the world. Iran's armed forces, under Shah Mohammed Reza Pahlavi, served as a deterrent to regional aggression in this conception of American policy. "Iran," Presi- dent Carter declared during a 1977 trip to Tehran, "because of the great leadership of the Shah, is an island of stability in one of the more troubled areas of the world."2 Equipped with the latest American weaponry and backed by a 350,000-man army, Iran had become America's policeman in the Gulf. The Shah relished the role and his power. "Nobody can overthrow me," he once boasted, "I have the support of 700,000 troops, all the workers, and most of the people. I have the power."3 The Shah's power proved illusory. Growing pro- tests by students, leftists, and, most importantly, Muslim religious opponents led in February 1979 to the Shah's overthrow and his replacement by a Shiite Muslim religious leader, Ayatollah Khomeini, who had been forced into exile in 1964, first to Iraq and then to France. The new regime was contemptuous of both the United States?the "Great Satan"?and the West. Fiery Shiite clerics accused the United States of imperialism and the murder of thousands during the Shah's rule. America's fortunes in Iran had crumbled. If any doubt remained about the nature of the new regime, it was removed on November 4, 1979, when youthful Iranian militants?the Revolutionary Guards?stormed the U.S. Embassy in Tehran and took 66 American diplomats hostage. The hostage crisis lasted 444 days. It helped to drive one President from office and to elect another who pledged that America would not be so humiliated again.4 Arms Sales to Iran In response to the Embassy seizure, the United States on November 14, 1979, embargoed all arms shipments to Iran as part of a general embargo on trade and financial transactions. Ten months later, however, the invasion of Iran by Iraq, on September 22, 1980, raised the question of who might ultimately be pun- ished by this punitive measure. The prospect of an Iranian defeat and an increase in Soviet influence in the region was of concern. 157 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II , . I 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 Figure 8-1. Map of Iran . AZARBAYJAN-E KHAVARI h-ye h la) 0 Tabriz Ardebil ? iveh AZARBAYJAN-E A 0 Raskt BAKHTARI1 _' AlSahlibild 0 ?li GILAN e Zang's N. ? c KORDESTAN ZANJAN ClaIVII! MAZANDARAN Sari? S e ...al. f TEHRAN ' ' SEMNAN anandal o I to...'?` i OTelatin -1.;:, ? HAMADN Ernarnshahr cL MARKAZi 1-? 0 6."'..*gorranitibJr. Arak ?Raskin LOS TAN r ESFAHAN iLion Esfahan ham( ? - DezfOl aShahr-e Kord ( \ , ? CHAHANMAHALL I HO ESTAN 's:, VA BAKHHIARI ....i..... MirkL. 4--; 0 .?-? \ CZel Yazd 1-- ????.., 0 soNsWi" is. rli-ii4 ( \ ....- - -1 Bandwe / BOVIR ;HMADI KhOmeyM .VA KOHKILUYEH Ab? -.4- International boundary Province boundary National capital Province capital 158 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 Iran's armed forces were in disarray; the officer corps and enlisted ranks had been decimated by gov- ernment purges and desertions. Iran's military arsenal was also in poor shape. Modern aircraft, armor, and naval vessels purchased by the Shah had been left unattended during the 24-month revolution and were badly in need of spare parts and maintenance. Adding to Tehran's vulnerability was the fact that most of the weaponry in the Shah's arsenal was of American man- ufacture, and the U.S. embargo prevented resupply. National Security Council (NSC) and Central Intelli- gence Agency (CIA) analysts concluded that the Ayatollah Khomeini was ill-prepared to meet Iraq in a modern war. Against this background, the Reagan Administra- tion's Senior Interdepartmental Group (SIG) con- vened on July 21, 1981, to discuss U.S. policy toward Iran. SIG members concluded "that U.S. efforts to discourage third country transfers of non-U.S. origin arms would have only a marginal effect on the con- duct and outcome of the war, but could increase opportunities for the Soviets to take advantage of Iran's security concerns and to persuade Iran to accept Soviet military assistance."5 While no agency representative argued in favor of U.S. action to en- courage an increase in arms supply to Iran, some expressed concern that a rigid U.S. policy against all arms transfers to Iran would not serve overall U.S. interests. The Joint Chiefs of Staff, however, strongly op- posed arms sales to Iran, which they believed would represent a profound shift in U.S. policy that "would be perceived by the moderate Arab states as an action directly counter to their interests." Similarly, they felt that any li]mprovement in the Iranian arms supply would intensify the war with Iraq" and possi- bly spill over into neighboring states. Administration policy against arms sales to Iran remained firm. Despite the U.S. embargo, Iran obtained weapons and military support services on the thriving world arms market. Oil was often the medium of exchange in elaborate barter deals, and Persian Gulf trade became an irresistible lure for international arms mer- chants. The Reagan Administration listed no fewer than 41 countries that had provided Iran with weap- ons since the start of the war.7 As a result, by the spring of 1983, the tide in the Gulf war had turned in favor of Iran. A steady supply of munitions, artillery, and ground-to-air and ground- to-ground missiles had enabled the more numerous Iranian armed forces and Revolutionary Guards to expel Iraqi forces, seize and retain some small pieces of Iraqi territory, and shell the major city of Basra and the capital city, Baghdad. Once thought by West- ern analysts to be on the verge of collapse, Iran had rebounded from its earlier battlefield setbacks. Operation Staunch At this point the Administration decided to initiate Operation Staunch, a plan seeking the cooperation of other governments in an arms sales embargo against ? Iran. On December 14, 1983, the State Department instructed its Embassies in countries believed to be involved in arms trade with Tehran to urge their host governments to "stop transferring arms to Iran be- cause of the broader interests of the international community in achieving a negotiated end to the Iran- Iraq war." Within the U.S. Government, authorities increased surveillance of shipments of American equipment and spare parts destined (usually through intermediaries) for Iran. Between January 1984 and January 1987, the State Department sent more than 400 cables to Amer- ican overseas missions urging compliance with Oper- ation Staunch. Secretary Shultz personally urged member governments to work within the European Community to reduce the flow of materiel to Iran. Reports persisted that Israel still actively supplied the Iranian military despite U.S. efforts to stop arms sales through Operation Staunch. Other reports hinted that U.S. and Israeli representatives met regularly to discuss Tehran's war needs. Widespread reports, par- ticularly from the Middle East, also suggested that the United States was violating its own arms prohibitions. The effectiveness of Operation Staunch was uncer- tain, but Iran's military potential clearly grew. The U.S. Government repeatedly and publicly reaf- firmed its commitment to lessening the flow of arma- ments to Tehran. A typical public statement from the State Department, dated May 1985, noted that: "The U.S. does not permit U.S. arms and munitions to be shipped to either belligerent and has discouraged all free-world arms shipments to Iran because, unlike Iraq, Iran is adamantly opposed to negotiations or a mediated end to the conflict." Iran's Support of Terrorism The long-suppressed Shiite community in Lebanon, with close religious and familial ties to Iran, had found inspiration in the rule of the Ayatollah Kho- meini. In the aftermath of the Israeli invasion of Leba- non in June 1982, some Shiite groups in Lebanon used political kidnappings and terrorism against Americans and American institutions as retaliation against per- ceived U.S. support for the Israeli invasion and occu- pation of their country. The United States became aware in July 1982 that Iran was supporting groups in Lebanon, such as Islamic Jihad and the Hizballah (Party of God), that were suspected of terrorism. United States Marines had been sent to Lebanon briefly in August and September 1982 to supervise the withdrawal of forces of the Palestine Liberation Or- ganization (PLO) from Beirut and returned to Leba- 159 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 non soon thereafter in the aftermath of the Sabra and Shatila massacres. The purpose of the U.S. presence in Beirut was to help support the Government of Lebanon in its efforts to restore stability and its au- thority throughout Lebanon. The U.S. troops came to be perceived in Lebanon as a partisan militia, howev- er, working on behalf of the Maronite-and-Christian- controlled government. A series of bold attacks followed against Americans and American interests throughout Lebanon. The U.S. Embassy in Beirut was destroyed in April 1983, killing 63, including 17 Americans. A suicide bombing on October 23, 1983, killed 241 Marines in their bar- racks in Beirut. This incident was followed in Decem- ber by a series of bombing attacks against the U.S. and French Embassies in Kuwait. The 17 men who were apprehended in the Kuwait attack were tried and sentenced to prison. The release of these "Da'wa prisoners" (as they came to be known after a pro- Khomeini party with supporters in several countries) became a key demand of the Hizballah as attacks against U.S. targets and the taking of American hos- tages continued in Lebanon. The Hizballah, a loosely structured movement cen- tered on the Shiite clans of the Bekaa Valley, emerged as a principal opponent of the United States and the Western presence in Lebanon. The use of force?particularly terrorism?against Western inter- ests in Lebanon was viewed by the more militant members of Hizballah as religiously sanctioned. From the outset, U.S. intelligence recognized that the Hizballah was composed of competing political elements, not all of whom were controlled by Iran. But frustration mounted within the Administration in the aftermath of the Marine barracks bombing, the Kuwait Embassy attack, and the assassination on Jan- uary 11, 1984, of the President of the American Uni- versity in Beirut, Malcolm Kerr. On January 20, 1984, the Secretary of State desig- nated Iran a sponsor of international terrorism. This decision was followed 4 days later by the announce- ment that Iran would be subjected to U.S. Govern- ment regulations limiting the export of U.S. military equipment to "countries that have repeatedly provid- ed support for acts of international terrorism."9 The State Department assured Congress that "[t]he ques- tion of further controls under this rubric is currently under active review at senior levels of the Adminis- tration."" The Department announced these addi- tional measures based upon what it termed convincing evidence of a broad Iranian policy furthering terror- ism beyond its borders, including public statements by Iranian officials supporting those acts. 160 Hostage-Taking Begins The hostage-taking that was to propel the Iran- Contra Affair began 6 weeks later. Three Americans were seized in Beirut in 1984: Jeremy Levin, Beirut Bureau Chief for the Cable News Network, on March 7; William Buckley, CIA's Chief of Station, on March 14; and the Reverend Benjamin Weir, a Presbyterian minister who had lived in the Lebanese capital for 30 years, on May 8, 1984. Buckley's capture was of special concern for CIA Director Casey. It was suspected at the time?and later confirmed?that Buckley was being tortured, and Casey wanted to spare no effort to get him back. Citing a continuing pattern of Iranian support for terrorism, the State Department imposed new restric- tions in September 1984 on the export to Iran of aircraft, spare parts for aircraft, and high-powered outboard motors. The Department also banned all other goods and technology to Iran intended for a "military end-use or end-user." The Administration staked out an increasingly tough public position on dealing with terrorists. Speaking in New York on October 25, 1984, Secre- tary Shultz called for "swift and sure measures" against terrorists, both to prevent attacks and to re- taliate for them: "[Me cannot allow ourselves to become the Hamlet of nations, worrying endlessly over whether and how to respond," he said." Yet the hostage-taking continued. Four Americans were seized in 1985: Father Lawrence Martin Jenco, Director of Catholic Relief Services in Beirut, on January 8; Terry Anderson, chief Middle East corre- spondent for the Associated Press, on March 16; David Jacobsen, Director of the American University Hospital, on May 28; and Thomas P. Sutherland, Dean of the American University's School of Agri- culture, on June 9. Throughout this period, the only positive develop- ment on the hostages came on February 13, when Jeremy Levin gained his freedom. It remains uncer- tain whether he escaped from, or was released by, his captors after nearly 11 months of confinement. Around the time that Levin was freed, the NSC, with the Joint Chiefs of Staff, created an interagency Hos- tage Location Task Force. On June 14, 1985, Shiite terrorists struck again, hijacking TWA flight 847 and murdering one of its passengers, Navy diver Robert Stetham. National Se- curity Adviser Robert McFarlane publicly stated: "It is my purpose to remind terrorists and to keep them on notice that no act of violence against Americans will go without a response." 2 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 The President spoke on the same subject on June 30, 1985, "The United States gives terrorists no re- wards and no guarantees. We make no concessions. We make no deals."" leader. Seven months later he authorized the direct sale of arms to Iran. These were strong and unambiguous words from the President and a senior American official. Yet a few weeks later, President Reagan authorized Israel to sell TOW antitank missiles to the government of the Ayatollah Khomeini, the Hizballah's spiritual 161 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 . .. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 Chapter 8 1. The New York Times, July 1, 1985, at A10. 2. President Jimmy Carter, remarks (Dec. 31, 1977), in: Public Papers of the Presidents of the United States, Book II, 2221 (1978). 3. The Washington Post (Mar. 6, 1978); U.S. News & World Report (June 26, 1978). 4. There have been allegations that officials of the 1980 Reagan campaign?in order to prevent a pre-election an- nouncement by President Carter (an "October Surprise")? met with Iranian intermediaries and agreed to ship arms to Iran in exchange for a post-election release of hostages. Reagan campaign aides were, in fact, approached by indi- viduals who claimed to be Iranian intermediaries about po- tential release of hostages, as were other campaign staffs. The Committees were told that the approaches were reject- ed and have found no credible evidence to suggest that any discussions were held or agreements reached on delaying release of hostages or arranging an early arms-for-hostages deal. 5. L. Paul Bremer, III, Executive Secretary, Department of State to Richard V. Allen, White House, Memorandum, Subj. Iran SIG Meeting of July 21, 1981, 8125833, S (Sept. 23, 1981), N33299. 162 6. Paul F. Gorman, Lieut. Gen., Assist. to the Chairman, JCS, Memorandum for Mr. L. Paul Bremer, III, Special Assistant to the Secretary and Executive Secretary, Depart- ment of State, Subj.: US Arms Transfer Policy Toward Iran, S, CM 1041-81 (Sept. 3,1981), N33300. 7. The New York Times, Apr. 11, 1987, at 2. 8. U.S. Government. Department of State. "Iran-Iraq War," Gist (May, 1985). 9. 15 C.F.R. Section 385.4(d). 10. Developments In The Middle East, July, 1984: Hear- ings before the Subcomm. on Europe and the Middle East of the House Comm. on Foreign Affairs, 98th Cong., 2d Sess., 52 (July 25, 1984). 11. George Shultz, speech, "Terrorism and the Modern World," delivered at the Park Avenue Synagogue in Man- hattan (Oct. 25, 1984); see The New York Times, at A 12 (Oct. 26, 1984); "Shultz Says U.S. Should Use Force Against Terrorism," The New York Times, at Al (Oct. 12, 1984). 12. Developments In The Middle East, June, 1985: Hear- ings Before the Subcomm. on Europe and the Middle East of the House Comm. on Foreign Affairs, 99th Cong., 1st Sess., 22 (June 19, 1985). 13. The New York Times, July 1, 1985, at A10. , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 The Iran Arms Sales: The Beginning In August 1985, the President decided that the United States would allow arms sales to Iran. The decision represented a reversal of U.S. policy against selling arms to Iran and, as it later turned out, against making concessions for the return of hostages. Yet it was made so casually that it was not written down, the President did not recall it 15 months later, and the Secretaries of State and Defense were not even told of it at the time. The President's decision triggered a series of arms transactions with Iran that continued for 15 months. At the initial transaction, the Iranians established a pattern of dealing that never changed: Iran would agree to get the hostages freed in return for arms; once the arms arrived, the Iranians would demand still more weapons; only after another arms shipment would a single hostage?not a group, as promised?be freed. But, instead of breaking off the transactions, the Americans continued to accede to the Iranian de- mands. What follows is the story of how the arms sales began. The Actors Take Their Places Long before the President made his decision, the indi- viduals and circumstances that propelled the sales were at work in Washington, Jerusalem, and Tehran. Since the fall of 1984, the National Security Coun- cil (NSC) staff had been pressing other Government agencies to develop a plan for opening a relationship with Iran and moderating that government's anti- American stance. The State Department and the De- fense Department opposed the notion, and while the Central Intelligence Agency (CIA) was favorably in- clined, officials there said renewed relations hinged on the release of seven U.S. hostages held by the pro- Iranian Hizballah in Lebanon and on a pledge by Iran to stop terrorist activities. In Jerusalem, officials were eager for better rela- tions with Iran, for two very pragmatic reasons: com- mercial and diplomatic. Israel had friendly relations with Iran under the Shah. Despite revolutionary Iran's vow to destroy Israel, the Israelis regarded Iraq as a greater threat to their security than Iran. Israel's goal was to create conditions for the resumption of commercial and diplomatic relations with a post-Kho- meini regime. Tehran had its own agenda. Rhetoric notwithstand- ing?the United States was considered "The Great Satan" and Israel a blasphemy?Tehran wanted modern tanks and high-technology antitank and anti- aircraft missiles to counter Iraq's Soviet-made fighter planes and modern tanks. It needed spare parts to maintain the arsenal of weapons that the Shah had purchased from the United States. The unlikely catalyst for bringing these disparate parties together was Manucher Ghorbanifar?a re- sourceful Iranian merchant living in Paris who under- stood the intersection of interests and saw how the American hostages could be used as an incentive for the sale of missiles to Iran. Ghorbanifar Since fleeing Ilan in 1979, Ghorbanifar had sought to make a career as a broker through whom Western governments could develop contact with Iran. By 1984, Ghorbanifar was well known to U.S. intelli- gence services, and details of his activities filled a thick file in the CIA's Operations Directorate. The CIA viewed Ghorbanifar with particular disfavor, but that did little to discourage the Iranian from trying to interest U.S. intelligence agencies in various schemes, all of which would financially benefit him. His CIA file describes Ghorbanifar as an Iranian businessman and self-proclaimed "wheeler dealer" who, prior to the 1979 revolution, had been the man- aging director of an Israeli-connected Iranian shipping company. According to rumors, Ghorbanifar also was an informant for SAVAK, the Shah's intelligence service, and had a relationship with Israeli intelli- gence; but those relationships have never been con- firmed. Ghorbanifar's business permitted him to travel out- side Iran, and, following the revolution, he chose Paris as his base of operations, particularly after he and his brothers, Ali and Reza, were implicated in an abortive July 9, 1980, coup attempt in Iran. Ghorbani- far apparently developed his own intelligence net- work and endeavored to sell his services to various Western governments. Ghorbanifar became a CIA re- porting source in January 1980. Described by the 163 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Agency as a "rumormonger of occasional usefulness," Ghorbanifar lasted as a source only until September 1981, when the Agency decided he was concerned solely with advancing his financial interests.' Information generated by Ghorbanifar continued to reach the CIA, however, both directly and through other intelligence agencies. In January 1984, Ghor- banifar contacted U.S. Army Intelligence in West Germany with tales of "Iranian terrorist organiza- tions, plans, and activities." 2 In mid-March, a CIA officer met with Ghorbanifar in Frankfurt to explore the data Ghorbanifar was offering. At that meeting, Ghorbanifar indicated he had information on the kid- napping, in Beirut, of CIA Chief of Station William Buckley. He identified an Iranian official (the Second Iranian), who would play a key role in the arms-for- hostages transactions a year later, as the "individual responsible" for the kidnapping.3 He also described an Iranian plot to assassinate U.S. Presidential candi- dates.4 A CIA-administered polygraph examination of Ghorbanifar on this information indicated he was lying. Ghorbanifar gave no satisfactory explanation for the results.3 Undeterred, he again approached the CIA in June 1984, this time trying to broker a meet- ing between the U.S. Government and another Irani- an official (the First Iranian).6 The First Iranian was also to be a key player in the arms-for-hostages trans- actions of 1985 and 1986. According to Ghorbanifar, the First Iranian was favorably disposed towards the United States.7 Again, Ghorbanifar was polygraphed, and again, the examination indicated he was lying.8 This time, the CIA responded by publishing, on July 25, 1984, a rarely issued "Fabricator Notice," warning Agency personnel and other U.S. intelligence and law enforce- ment agencies that Ghorbanifar "should be regarded as an intelligence fabricator and a nuisance." 9 Ghorbanifar Proposes to Ransom the Hostages Ghorbanifar continued to seek a relationship with the U.S. Government. His first chance came in No- vember 1984 when he met Theodore Shackley, a former Associate Deputy Director for Operations of the CIA who had retired from the Agency in 1978. On behalf of his "risk management" firm, Research Associates, Inc., Shackley maintained contact with the former head of the Shah's SAVAK Counterespio- nage Department VIII, General Manucher Hashemi. At the suggestion of Hashemi, Shackley traveled to Hamburg, West Germany, where he met with a group of Iranians, including Ghorbanifar, the First Iranian and a Dr. Shahabadi, chief of the Iranian purchasing office in Hamburg and purportedly a friend of Saudi entrepreneur and arms dealer Adnan Khashoggi. At one meeting, on November 20, Ghor- banifar told Shackley that for a price he could ar- range for the release of U.S. hostages in Lebanon 164 through his Iranian contacts. Ghorbanifar said he re- quired a response on the "ransom deal" by December 7. Ghorbanifar added that he would not work with the CIA because the Agency was "unreasonable and unprofessional." 10 Upon his return to the United States, Shackley sent a memorandum about his meet- ings with Ghorbanifar to Lt. Gen. Vernon Walters, Ambassador-at-Large in the State Department and a former Deputy Director of the CIA." Walters referred the memorandum to Hugh Montgomery, Director of Intelligence and Research in the State Department. Montgomery, in turn, passed the Shack- ley memorandum to Ambassador Robert B. Oakley, head of the State Department's counterterrorism ef- forts, and Assistant Secretary of State for Near East- ern Affairs Richard W. Murphy. Oakley and Murphy regarded the hostage ransom proposal as a "scam," and on December 11, 1984, Montgomery told Shack- ley that the State Department was not interested in pursuing the Ghorbanifar ransom proposal." Ghorbanifar Tries Again Ghorbanifar still did not give up. Having failed with the CIA, the Army, and the State Department, he found another and ultimately more fruitful channel into the U.S. Government through Israel. A New York businessman, Roy Furmark, served as the con- tact point. Furmark had previously worked for Adnan Khashoggi, and was a friend of CIA Director William Casey. Furmark also knew Cyrus Hashemi, a natural- ized U.S. citizen of Iranian extraction whom Furmark tried to interest in a number of business ventures." In January 1985, Furmark and Ghorbanifar met while Furmark was in Europe to discuss business opportuni- ties in Iran." Furmark later introduced Ghorbanifar to Hashemi and Khashoggi." Ghorbanifar, at this time, was look- ing for sophisticated weapons for Iran, and Khashoggi suggested that Ghorbanifar try to develop access to the United States and its weapons through Israel. Sometime later, Khashoggi put Ghorbanifar and Ha- shemi in touch with an Israeli group: Al Schwimmer, an adviser to then Israeli Prime Minister Shimon Peres, and Ya'accov Nimrodi, an Israeli businessman with government service background." Both Kha- shoggi and Hashemi saw the potential for huge profits if Ghorbanifar were to become the conduit for U.S. arms to Iran and gain control of trade between the United States and Iran." At Khashoggi's initiative members of the Israeli team met with Hashemi and Ghorbanifar in London, Geneva, and Israel in early spring. Weapons sales to Iran were discussed but the meetings produced noth- ing concrete." In late April, Ghorbanifar proposed to one of the Israelis that he be permitted to purchase U.S.-manufactured TOW antitank missiles from Israel, and, in return, he would obtain the release of CIA Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Beirut Chief of Station Buckley, then a hostage in Lebanon.' 9 Ledeen Gets Involved At about that same time, NSC consultant Michael Ledeen was trying to persuade National Security Ad- viser Robert McFarlane to use him as an informal channel to get intelligence on Iran from Israel, using his close personal relationships with several high- ranking Israeli officials.2? In March 1985, Ledeen met in Europe with a senior official from a western Euro- pean nation who told Ledeen that the United States could play a significant role in Iran. The foreign offi- cial recommended that the United States contact Israel because the Israelis had the best intelligence resources on Iran.21 Upon his return to the United States in early April, Ledeen proposed to McFarlane that he be authorized to meet with Israeli Prime Min- ister Peres and other Israeli officials to explore poten- tial Israeli-U.S. cooperation on Iran.22 Although the NSC staff told McFarlane that "none of us feel Mike should be our primary channel for working the Iran issue with foreign governments," 23 they were im- pressed with Ledeen's access to Prime Minister Peres, and therefore recommended that Ledeen informally meet with the Israelis to express interest in developing "a more serious and coordinated strategy for dealing with the Iranian succession crisis."24 McFarlane agreed. Ledeen traveled to Israel in early May.25 On May 3 he met with Prime Minister Peres and then with a former senior official of the Israel Defense Forces." During the meetings, Ledeen said he was acting on McFarlane's behalf, although in a private rather than official capacity, and expressed interest in sharing in- telligence on Iran. According to Ledeen, the Ameri- cans held hostage in Lebanon were not discussed at these meetings in early May.27 An Israeli official, however, recalls Ledeen's telling him about offers by various Iranians to help get the hostages released." According to Ledeen, the Prime Minister asked him to advise McFarlane that Israel wanted to sell artil- lery shells or pieces to Iran but would do so only if it received U.S. approval. 2 9 The NSC Reconsiders Iran Policy When he returned to the United States, Ledeen told NSC staff member Donald Fortier that the Israelis were interested in working with the United States on Iran. At the time, Fortier was working closely with CIA National Intelligence Officer for the Near East and South Asia, Graham Fuller, who was updating the Special National Intelligence Estimate (SNIE) on Iran at McFarlane's request.3? A SNIE represents the U.S. intelligence community's short-term assessment of a given country or situation in response to a specific need. Both the SNIE circulated on May 20 and a memo submitted by Fuller three days earlier to CIA Director Casey, included a recommendation of arms sales through an ally as one of a number of options for pursuing an opening to Iran." The NSC staff concluded that Israel should be that country, al- though FOrtier continued to question whether Ledeen was the appropriate intermediary through which the United States should deal with Israel.32 On June 3, 1985, McFarlane approved a second Ledeen trip to Israe1,33 but Ledeen's return to Israel was delayed when Secretary of State George P. Shultz protested Ledeen's earlier trip.34 Shultz had heard from the U.S. Ambassador to Israel that Ledeen had been in Israel talking to Israeli officials about obtaining intelligence on Iran, without notice to the U.S. Embassy.35 Shultz complained to McFarlane that neither he nor the U.S. Ambassador to Israel had been informed of the trip, and pointed out that Israel and the United States had differing interests in Iran. He also questioned the wisdom of relying upon Israeli intelligence about Iran." McFarlane told Shultz that Ledeen had taken the May trip "on his own hook." He also said he was "turning [the Iran initiative] off entirely."37 In fact, McFarlane told Ledeen to post- pone, not cancel, the trip." Major policy changes call for consultation with the Secretaries of State and Defense and an opportunity for the President to consider their views. McFarlane thus began the established process of interdepartmen- tal policy formulation. He had earlier requested the CIA to prepare the updated SNIE on Iran, and in June he asked members of his staff to prepare a draft National Security Decision Directive (NSDD). An NSDD is a Presidential directive establishing policy in a particular area. It is the result of an analytical process, including discussions among the interested parties. Fortier and Howard Teicher of the NSC staff sub- mitted the draft NSDD to McFarlane on June 11, and on June 17, McFarlane circulated this draft to Secre- tary Shultz, Secretary of Defense Caspar W. Wein- berger, and CIA Director Casey. The draft NSDD recommended, among other things, that anti-Kho- meini factions in Iran should be supported, and that U.S. allies and friendly states should be encouraged to "help Iran meet its import requirements . . . includ[ing] provision of selected military equip- ment."" To bolster the NSC's analysis, McFarlane cited the CIA's earlier intelligence estimate that had recommended such arms sales, and warned of the Soviet threat to Iran.4? Only Casey endorsed the draft NSDD.41 Secretary Weinberger wrote on the transmittal note accompany- ing the draft, "This is almost too absurd to comment on. . . . It's like asking Quadaffi to Washington for a cozy chat."42 Weinberger's response to the National Security Adviser was less sarcastic but unambiguously negative.43 Secretary Shultz's response was also nega- 165 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 1 II .1 .1 . 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 tive. He criticized the idea of relaxing the arms em- bargo against Iran, warned against the danger of strengthening Iran, and disagreed with the notion that Iran was in danger of falling into Soviet hands.44 During the same period, the President was sharply critical of Iran. In a speech to the American Bar Association on July 8, 1985, the President declared Iran to be part of a "confederation of terrorist states . . . a new international version of Murder Incorpo- rated." He added, "Let me make it plain to the assas- sins in Beirut and their accomplices that America will never make concessions to terrorists."45 The Discussions Continue While the Secretaries of State and Defense were opposing any relaxation of the arms boycott of Iran, Israel was receiving different signals from the NSC staff. Ledeen testified that McFarlane had authorized him to tell Prime Minister Peres that Israel could engage in a one-time arms sale to Iran of artillery shells or pieces, "but just that and nothing else."'" One of the Israeli participants reported to another Israeli participant, however, that the authorization conveyed by Ledeen from McFarlane was for a trans- fer of TOW missiles.47 By early June, the Israelis were considering a trans- action linking the sale of TOWs to the release of the American hostages." However, the Israelis were un- willing to proceed without evidence of a clear, ex- press, and binding consent by the U.S. Government to the proposed transaction.49 On June 19, Ghorbanifar, accompanied by Fur- mark, met in Israel with the Israeli team. Ghorbanifar proposed that the Israelis sell 100 TOWs to Iran through him. He also agreed to set up a meeting with an Iranian officia1.5? The Israelis reported these developments to McFar- lane. In late June, according to McFarlane's testimo- ny, David Kimche, the Director General of the Israeli Foreign Ministry, became involved in the project. Kimche had an established relationship with McFar- lane and Ledeen." While in Washington for another purpose in early July, he briefed McFarlane on the ongoing contacts of Israeli and Iranian officials, and the Iranians' interest in establishing contact with the United States.52 Kimche recommended that the dis- cussions with the Iranians continue. McFarlane told Secretary Weinberger about the meeting, and Wein- berger's military assistant, Lt. Gen. Colin Powell, re- called that McFarlane discussed both the sale of arms to Iran and the hostages." On July 8, 1985, members of the Israeli team met in Hamburg with Ghorbanifar, Khashoggi, Khashoggi's son-in-law, and the First Iranian. Before the meeting, Ghorbanifar told the Israelis that the sale of 100 TOWs was essential to enhance his credibility with Iran, and claimed that the sale would be followed by the release of the American hostages.54 166 Ghorbanifar described the First Iranian as a politi- cally powerful individual in his own right, with close personal connections to Khomeini, and a leader of one of Iran's revolutionary organizations.55 At the meetings, the First Iranian spoke of the need for a party who could act as a bridge between Iran and the United States, of the threat of Soviet influ- ence in Iran, and of the risks he had taken in meeting with Israel in order to promote an epening with the United States. The participants also discussed missiles and hostages." The First Iranian promised to present a comprehensive written proposal within a week. Shortly after that meeting, according to Ledeen's testimony, Schwimmer flew to Washington and met with Ledeen on July 11, 1985. He briefed Ledeen on Ghorbanifar's proposal to obtain the release of the American hostages in exchange for TOW missiles.57 Ledeen then wrote McFarlane, "The situation [con- cerning Iran] has fundamentally changed for the better."58 On July 13, he briefed McFarlane orally on the Israeli talks with the Iranians." After meeting with Ledeen, McFarlane cabled Sec- retary Shultz with a summary of the proposal con- veyed by Israel: The short term dimension concerns the seven hostages; the long term dimension involves the establishment of a private dialogue with Iranian officials on the broader relations. . . . They [the Iranians] sought specifically the delivery from Israel of 100 TOW missiles. McFarlane recommended to Shultz that the United States go forward with a tentative show of interest, although his admonition proved to be prophetic: Then one has to consider where this might lead in terms of our being asked to up the ante on more and more arms and where that could con- ceivably lead. . . .61 Shultz responded to the proposal with caution, rec- ommending that "we should make a tentative show of interest without commitment." 62 In the meantime, Israel awaited the United States' response on whether it was authorized to sell the TOWs. The President Is Informed McFarlane decided to take the matter to President Reagan, even though the President was in the hospital recuperating from surgery. By this time, the release of the hostages had become an immediate concern to the President. He had met with the hostage families for the first time in late June, and had been moved by the experience. On July 3, he had attended a National Security Planning Group meeting to discuss the hos- tages, and had come away frustrated at the lack of alternatives. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 McFarlane met with the President at the hospital on July 18. Donald Regan, the White House Chief of Staff, was present." What was discussed at this meet- ing is not clear: Apparently no one took notes. Regan did not recall any mention of arms at the meeting,83? and McFarlane's accounts have varied: More than a year later, on November 21, 1986, McFarlane wrote in a PROF note to Poindexter that the President "was all for letting the Israelis do anything they wanted at the very first briefing in the hospital."'" But during the public hearings McFarlane stated that the Presi- dent's position was that no U.S. owned items from the United [S]tates [could be] proper[ly] shipped at that time." This left open the possibility that the Israelis were free to ship from Israel Israeli-owned TOWs that had been acquired from the United States." McFarlane testified that the Israelis were informed that the President was unwilling to allow the United States to supply arms directly to Iran." Ledeen testi- fied, however, that, in accordance with McFarlane's instructions, he informed the Israelis that the Presi- dent approved "in principle" the sale of TOWs by Israel subject to further review of the details." But Israeli Defense Minister Yitzhak Rabin would not proceed unless he received assurances that the Secretary of State knew of the plan and that the President unequivocally approved. The Israelis were concerned that the initiative could become public; and without specific American approval, Israel would be the target of criticism. In the meantime, the Israelis had received the First Iranian's written proposal, dated July 16, 1985, which was passed on to Ledeen. The proposal was general, promising a more concrete plan in the near future. It contained no commitment for the release of the hostages." The Israelis insisted on meeting with Ghorbanifar to secure a commitment for the release of the Ameri- can hostages in return for the shipment of 100 TOWs.7? The meeting took place in Israel on July 25. Ghorbanifar stressed the need for the 100 TOWs and, for the first time, mentioned spare parts for antiair- craft missiles." He also said that the Iranians needed other weapons as well. Ghorbanifar stated that the weapons would not only strengthen his and the First Iranian's credibility in Iran, but also win the support of the military. The Israelis told Ghorbanifar that they could recommend that their government supply the missiles only if secrecy would be maintained and the hostages released. Ghorbanifar stated that within 2 to 3 weeks of delivery of the missiles, the hostages would be released, although he warned that the Irani- ans might want to keep a few of the hostages for leverage.72 On July 28, the Israelis briefed Ledeen on the meeting with Ghorbanifar, and on the Israeli deci- sion not to proceed unless U.S. authorization was more unequivocal. Ledeen reportedly said the Israelis had already received sufficient authorization from the response that the President had given in the hospital. But the Israelis were insistent on confirmation." The Israeli Arms Sales Are Authorized On August 2, according to McFarlane's testimony, Kimche flew to Washington to meet with McFarlane and to obtain the specific U.S. position on Israel's sale of the TOWs. The meetings occurred on August 2 and 3. McFarlane made no memorandum of the meet- ings, and recollections differ. All agree, however, that the Israelis asked for permission to sell 100 TOWs, and that McFarlane agreed to present the issue to the President.74 The White House log records an August 6 meeting between McFarlane and the President, the Vice Presi- dent, Secretaries Shultz and Weinberger, and Regan. McFarlane reported that the Iranians wanted a dia- logue with the United States and 100 TOWs from Israel in return for which four hostages would be released." McFarlane also said that the United States would be able to deny any connection to or knowl- edge of the sale, a suggestion the Secretary of State regarded as untenable." Secretary Shultz told the President that it "was a very bad idea," and that despite the talk of better relations, "we were just falling into the arms-for-hostages business and we shouldn't do it." 7 7 Secretary Weinberger also opposed the sale. He and Secretary Shultz argued that the initiative would not work, and that the sale would contradict the U.S. efforts to persuade other countries to observe the embargo.78 None of the witnesses recalls the Vice President's position, and there is no evidence that Casey was consulted by the NSC staff at this stage. McFarlane, according to Ledeen, directed that Casey and the CIA not be informed for fear that the CIA might leak.79 Chief of Staff Regan testified that the President told McFarlane to "go slow" at the August meeting and to "make sure we know who we are dealing with before we get too far into this." 80 According to all the participants, the President announced no decision at the meeting. Several days later, the President telephoned McFar- lane and, according to McFarlane, authorized the Is- raelis to proceed with the sale in modest quantities of "TOW missiles or other military spares" that would be replenished by the United States. The President stipulated that the sales not affect the balance of the Iran-Iraq war, not be used for terrorist purposes, and not include such major items as aircraft.81 McFarlane told Poindexter about the conversation, but Poin- dexter did not recall its contents.82 Regan recalled that the President appeared upset when he learned in September that TOWs had been shipped. The President, in his Tower Board interview, origi- nally confirmed that he had authorized the sale, but later stated that he had no actual recollection one way or another." No documents record the decision. 167 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II .1 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 The Tower Board concluded that the President most likely approved the Israeli sales before they oc- curred. The evidence supports that conclusion. The Israelis expressly sought the President's approval of the Israeli sales and confirmation that the Secretary of State had been consulted. By McFarlane's own admis- sion, he told the Israelis that they were authorized to sell the TOW5."4 McFarlane had no motive to ap- prove a sale of missiles to Iran if the President had not authorized it. Moreover, Ledeen testified that McFarlane told him of the President's decision." McFarlane also contemporaneously reported the President's approval to Kimche." The President's decision on the arms sale conveyed by McFarlane to the Israelis committed the United States to the policy unsuccessfully advocated in the draft NSDD?the sale of weapons by an American ally to Iran. Preparations for the Delivery In early August, the Israelis began to make the necessary arrangements to obtain the 100 TOWs through the Israeli Ministry of Defense." Ghorbani- far, in the meantime, was meeting with Khashoggi in Spain to arrange financing for the initial TOW pur- chase. The Israeli Ministry of Defense was unwilling to supply. the TOWs until payment had been deposit- ed. Iran, on the other hand, was unwilling to pay until the missiles were delivered. Ghorbanifar asked Khashoggi to "bridge" this gap by lending him $1 million, which Ghorbanifar could then deposit with the Israelis and repay upon payment by Iran. Kha- shoggi agreed." On August 7, Khashoggi ordered the transfer of $1 million into an Israeli intermediary's account." Back in Washington, McFarlane asked Ledeen to coordinate with the Israelis on the release of the hostages in Lebanon." Preparation for the TOW shipment continued in Israel. On August 12, the Israelis decided to deliver the TOWs to Iran by chartering a "neutral," non- Israeli DC-8 aircraft. Still unresolved at this time, however, was the price to be charged by the Israelis to Ghorbanifar for the missiles and the price to be paid by them to the Israeli Ministry of Defense for the TOWs. After considerable bargaining, Ghorbani- far agreed to pay $10,000 per missile, $2,000 less than he was receiving from the Iranian Government. The Israelis did not agree on the price the Ministry of Defense would receive until after the missiles were delivered to Iran. The Ministry of Defense wanted $12,000 per missile, which it calculated to be the replacement cost per missile. The Israeli intermediar- ies maintained that they could only pay $6,000 per missile, because the remainder of what they received from Ghorbanifar was required for heavy shipping costs and other substantial expenses.9? The Ministry of Defense eventually received $3 million from an 168 Israeli intermediary for the 504 TOWs in March 1986.9' Israel Ships 96 TOWs But No Hostage Is Released On August 19, Ghorbanifar returned to Israel where he met with the Israeli team. Ghorbanifar ad- vised that he had made payments in Iran but he was not certain how many hostages would be released. As for CIA Station Chief Buckley, Ghorbanifar said that the Iranians recognized his "special value" and, there- fore, would return him last.92 That same day, the DC-8 transport aircraft arrived in Israel, and was loaded with 96 (rather than 100) TOW missiles." In the early morning hours of August 20, the plane left Israel bound for Iran, with Ghorbanifar on board. The TOWs were then delivered and the aircraft re- turned to Israel late that same day.94 But no hostages were released. Ghorbanifar had an explanation: contrary to his plan, delivery of the mis- siles was taken by the Commander of the Iranian Revolutionary Guards rather than by the Iranian fac- tion for whom they were intended.95 Still, Ghorbani- far remained hopeful that he could produce the hos- tages. With McFarlane's assent, Ledeen met with Kimche in London on August 20 to discuss ways to bring the hostages out of Lebanon." From London, Ledeen flew to California, where the President was vacationing, to brief McFarlane on his meeting with Kimche and to obtain McFarlane's authorization for a meeting in Europe with Ghorbani- far and the Israelis.97 On August 22, McFarlane ap- proved another trip to Europe for Ledeen." On August 30, McFarlane arranged for the State Depart- ment to provide NSC staff member Oliver L. North with a passport in the name of William P. Goode for use in "a sensitive operation in Europe in connection with our hostages in Lebanon." 99 On August 27, the Government of Iran transferred $1,217,410 to Ghor- banifar's Swiss account. On August 29, Ghorbanifar repaid Khashoggi the $1 million loaned by Khashoggi on August 7."0? Khashoggi told the Israelis that, be- cause he had been repaid for the first loan, he would agree to loan $4 million to permit Ghorbanifar to purchase an additional 400 TOWs from the Israe- lis.'" 400 More TOWs for 1 Hostage On September 4 and 5, Ledeen met in Paris with Ghorbanifar and members of the Israeli team. Since no hostages had been released despite the delivery of the 96 TOWs on August 20, severe arguments oc- curred at the meeting.'" Ghorbanifar indicated that one hostage would be released provided the Israelis sold Iran an additional 400 TOW missiles. We are satisfied from our review of all the evidence that the President was informed and approved of the transac- Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 tion in the hope that the hostages would be released. The second shipment was approved by Prime Minis- ter Peres and Defense Minister Rabin on September 9.103 On September 10, Khashoggi ordered the trans- fer of $4 million into an Israeli intermediary's account to finance Ghorbanifar's purchase of the 400 TOWs."4 The money reached the Israeli account on September 13 and Ghorbanifar repaid Khashoggi that $4 million the following day.'" The aircraft used to transport the second shipment of TOWs to Iran arrived in Israel on September 14. The DC-8 was loaded with 408 missiles (bringing the total of TOWs shipped to 504), and, early the next morning, it flew to Tabriz to make delivery. On board was Ghorbanifar's Iranian assistant, Mahadi Shahista. Tabriz, rather than Tehran, was used as the Iranian delivery point to prevent this shipment from falling into the hands of the Revolutionary Guards.1?6 The Iranians made it clear that this was an arms- for-one-hostage bargain. They gave McFarlane the choice of any hostage other than Buckley.'" Ghor- banifar told the Israelis that Buckley was too ill to be released.'" In fact, Buckley had died in June of a pulmonary condition brought on by prolonged inter- rogation, torture, and mistreatment. On September 15, American hostage Reverend Benjamin Weir was released near the U.S. Embassy in Beirut.1?9 On September 17, the Israeli intermediary's account received an additional $290,000 from Ghorbanifar for the expense of transporting the 504 TOWs to Iran,' '? and on September 18, Iran transferred $5 million to Ghorbanifar's Swiss account for the additional TOWs. Despite the fact that all the TOWs were delivered, only one hostage had been produced, not the group that Ghorbanifar originally had promised. Still, the President continued to receive optimistic reports on the initiative. However, no other hostages were re- leased for the 504 TOWs. NSC Staff Limits Distribution of Intelligence At the NSC, North was charged with making the necessary arrangements in the event that any hostages were released as the result of the September 15 TOW delivery. North had been briefed on the initiative ear- lier."' On September 12, North contacted Director Casey for assistance in obtaining intelligence on Ghorbanifar (who was then using an alias) and the Second Iranian. Casey put North in touch with CIA's National Intelli- gence Officer for Counter-Terrorism, Charles Allen, who arranged for intelligence support.'12 At McFar- lane's instruction, North told Allen to distribute the intelligence only to McFarlane, Vice Admiral A. S. Moreau, Jr. of the Joint Chiefs of Staff, Casey, and North."3 Secretaries Shultz and Weinberger were not to receive the intelligence. (Weinberger later found out about?and demanded?this intelligence.) Denied access to the intelligence, the State Depart- ment was not told of the Israeli TOW shipment, was not advised of the linkage of Weir's release to arms shipments, and was not informed of the President's decision or the U.S. Government's involvement. Replenishment McFarlane assured the Israelis that the TOWs shipped to Iran would be replenished at a price to be determined. But, McFarlane emphasized, the linkage between the Israeli sale to Iran and the U.S. sale to Israel could not be obvious."4 On September 19, Ledeen sent a message to McFarlane regarding replenishment of Israeli TOW stocks in September: "Issue of replacements: The people who sold the soap for us want to replenish their supply." "5 The Initiative Continues: The Ante Is Upped Despite Ghorbanifar's failure to secure the release of the four or five hostages originally promised, dis- cussions of further arms deals continued. In late Sep- tember, Ghorbanifar met with members of the Israeli team and Ledeen in Paris. This time, Ghorbanifar asked for antiaircraft missiles, including a new HAWK missile to attack high-flying aircraft. (The HAWKs do not have that capability, but apparently none of the participants was aware of this.) Ledeen reportedly consented to a HAWK transaction with Iran, but demanded that the hostages be released."6 Ledeen recalls that McFarlane approved the sale of HAWKs before November, but Ledeen could not recall when."7 Nor could he recall this Paris meet- ing."8 In the meantime, North had received information that another U.S. hostage, allegedly Buckley, would be released between October 3 and 5.1" However, the Islamic Jihad in Lebanon announced, on October 3, that it planned to execute Buckley. North asked Ledeen to arrange for Ghorbanifar to come immedi- ately to the United States to discuss the hostages. On October 8, Ghorbanifar arrived in Washington, ac- companied by Schwimmer and Nimrodi, and met with Ledeen at the Old Executive Office Building.120 At the meeting, Ledeen reportedly stated that the trading of arms for U.S. hostages was a bad idea that should be stopped. Ghorbanifar agreed."' Nonethe- less, the Iranian continued to press for a variety of weapons for Iran.122 At a subsequent meeting with North and McFar- lane, Ledeen maintains that he again expressed his reluctance to be involved with this arms-for-hostages arrangement; preferring to pursue a strategic, not an arms, relationship with Iran.'" McFarlane, on the 169 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 other hand, has stated that Ledeen was the person who communicated the most outrageous arms propos- als to him, and that he, McFarlane, is the one who was "consistently against arms-for-hostages." 124 Ledeen kept his reports ora1,122 and there is no writ- ten record from the fall of 1985 in which Ledeen or McFarlane protest arms sales. Whatever McFarlane's and Ledeen's own views may have been, arms were the currency for the Iran initiative, and McFarlane authorized Ledeen to go to Geneva in late October for a meeting that was to strike the deal for the Israeli HAWK shipment in November.126 Meeting in Europe, October 1985 According to Ledeen, the purpose of the late Octo- ber meeting was not to strike an arms-for-hostages deal with the Iranians, but rather to approach the U.S.-Iranian initiative from the strategic, geopolitical perspective. Ledeen testified that he and the First Iranian discussed ways to improve U.S./Iranian rela- tions without trading arms for hostages. In fact, Ledeen maintained that like himself, this Iranian was "vociferously opposed to what had been done in pro- viding weapons to the Iranian regime over the course of the past couple of months, said that all we could achieve by sending arms to Iran was to strengthen the Khomeini regime, which was the opposite of what he thought we were about."27 It was Ledeen's belief that "so long as the Iranians are able to obtain weap- ons from the United States as a result of [a] dialogue with us, they will say anything and they will do anything in order to continue to get these weapons, and so long as that pipeline of weapons functions, we will never be able to evaluate their real inten- tions."128 Ledeen stated that upon his return from Europe, he reported to McFarlane that the First Iranian thought he could have his people occupy "key positions in the 170 [Iranian] government" if the United States would help by providing a quantity of "small arms and training." By other accounts, however, such political discus- sions are not all that transpired at the late October meeting. According to one of the Israeli intermediar- ies, the Iranian official emphasized that efforts must be continued for the release of the four remaining hostages in exchange for arms, particularly HAWK missiles. Also according to the Israeli intermediary, Ledeen was pressing, on behalf of the U.S. President, for all four hostages to be released as soon as possible and all at once, and he promised that following their release the U.S. would assist Iran as far as it could.' 29 This appears to have been the last meeting among Iranian, Israeli, and American representatives before the shipment of HAWK missiles to Iran in late No- vember 1985. The Lessons of the First Arms Shipment The August-September 1985 TOW transaction set the pattern for the entire Iran initiative: ?A promise by the Iranians to release the hostages in exchange for an agreed quantity of weapons. ?The breach of that promise after delivery of the weapons. ?The delivery of more weapons in response to new demands by the Iranians. ?The release of a single hostage as an enticement to further arms transfers. The lesson to Iran was unmistakable: All U.S. posi- tions and principles were negotiable, and breaches by Iran went unpunished. Whatever Iran did, the U.S. could be brought back to the arms bargaining table by the promise of another hostage. , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Chapter 9 1. CIA Background Report on Manucher Ghorbanifar, C 1461 at 1462. 2. CIA Report, Army Intelligence and Security Com- mand (INSCOM) Report on Iranian Terrorism, 1/24/84, C 1434-35. 3. CIA cables on William Buckley, C 1502-12. 4. C 1507. 5. CIA cable on Ghorbanifar, 7/25/84, C 1463. 6. Memo to CIA Chief of the Near East Division on the First Iranian, 6/19/84, C 1479. 7. C 1479. 8. C 1461, 1463. 9. C 1463-64. 10. Report on American Hostages in Lebanon, 12/22/84, N 7451-56; Shackley Int., 2/27/87, at 5-7. 11. N 7451-56. 12. Montgomery Int., 3/4/87. 13. Furmark Dep., 7/22/87, at 18-19. In May 1984, Fed- eral criminal charges were filed against Cyrus Hashemi and his brothers, Reza and Jamshid, among others, for alleged arms export control violations. Ultimately, Hashemi ar- ranged with the U.S. Customs Service to run a sting oper- ation that resulted in the April 22, 1986, indictment of 17 individuals in the Southern District of New York on charges that they had engaged in an illegal scheme to smug- gle $2.5 billion in U.S. made weapons to Iran. Until his death, apparently of natural causes, in July 1986, Hashemi was to be the primary prosecution witness at the trial of that case. CIA Memo on Cyrus Hashemi, C 9059-61. 14. Furmark Dep., 7/22/87, at 22-23. 15. Id. at 36-38. 16. Furmark Dep., 7/22/87, at 52-55. Furmark places Khashoggi's introduction of Ghorbanifar to Schwimmer and Nimrodi in June. 17. Furmark Dep., 7/22/87, at 53. 18. Israeli Historical Chronology. Classified information from the Israeli Chronologies is used in this Report pursu- ant to specific agreement between the Government of Israel and the Committees. See, Appendix, "Organization and Conduct of the Committees' Investigation." 19. Id. 20. Ledeen Dep., 3/11/87, at 9-11. 21. Id. 22. Id. at 13-15. 23. PROF Note from Donald Fortier to McFarlane on Iran, 5/28/85, N16390. 24. Id; PROF Note from Fortier to McFarlane on Ledeen and Iran, 4/9/85, N 16390-91; PROF Note from McFarlane to Fortier on Ledeen and Iran, 4/9/85, N 15306. 25. Ledeen Dep., 3/11/87, at 14, 16. 26. Id. at 16-20. 27. Id at 17-19; Ledeen Dep., 6/19/87, at 40-43. 28. Israeli Historical Chronology. 29. Ledeen Dep., 3/11/87, at 17-19; Ledeen Dep., 6/19/ 87, at 40-43. 30. N 16394. 31. Graham Fuller Memo, 5/17/85, to Casey: Subj: Irani- an Policy, D 570-75. 32. N 16394. 33. N 4113. 34. Ledeen Dep., 6/19/87, at 44. 35. Ex. GPS B. 36. Ex. GPS 5. 37. Ex. GPS 6. 38. Ledeen Dep., 6/19/87, at 45. 39. McFarlane Memo, 6/17/85, to Shultz and Weinberg- er: Subj: U.S. Policy Toward Iran, N 53467. 40. Ex. CWW 4. 41. Casey Memo, 7/18/85, to McFarlane: Subj: Draft NSDD re U.S. Policy Toward Iran, N 7583. 42. Ex. CWW 4; Weinberger, 7/31/87, at 86. 43. Ex. CWW 5. 44. Ex. GPS 7; Shultz Test., 7/23/87, at 64. 45. President Reagan's Speech to American Bar Associa- tion, 7/8/85. 46. Tower at B-6. 47. Israeli Historical Chronology. 48. Id In early June 1985, Khashoggi advised the Israelis that Khashoggi would deal directly with Ghorbanifar and the Israelis, to the exclusion of Hashemi. Israeli Historical Chronology. When, in June, Khashoggi excluded Hashemi, Hashemi reacted by trying to market Ghorbanifar to the CIA, through one of Director Casey's close friends, John Shaheen. On or about June 16, 1985, Shaheen called Casey and relayed a message from Hashemi offering to set up a meet- ing in Europe with a high-ranking Iranian official to discuss Iran's interest in acquiring U.S. TOW missiles and Iran's ability to help obtain the release of American hostages held in Lebanon. Before talking to Casey, Shaheen had dismissed part of Hashemi's proposal, telling him, "no weapons, no Da'was." Casey Memo, 6/17/85, to CIA Chief of the Near East Division: Subj: Release of the Hostages, C 8965-66. Hashemi had tried to deal with Casey before without success. However, this time, Casey agreed to Shaheen's proposition, and directed the Chief of the Near East Divi- sion of the CIA's Operations Directorate to pursue the matter. The State Department was told that Casey was "very anxious to move ahead on a proposal" for a meeting with an Iranian representative; but, as outlined in a memo- randum to Under Secretary of State Michael Armacost, the proposal made no mention of any arms sales. By June 24, Armacost had approved a plan by which a meeting would be set up between foreign intermediaries and the Iranian contact to be produced by Hashemi. Richard Murphy Memo, 6/22/85, to Armacost: Subj: Possible Iranian Con- tact, S 3812-13. In early July, Hashemi identified his Iranian contacts as the Second Iranian, described by Hashemi as Deputy Prime Minister of Iran, and Manucher Ghorbanifar, described by Hashemi as a ranking Iranian intelligence officer. CIA Memo for the Record, 7/9/85, Subj: John Shaheen and Hashemi, C 9082-84. The CIA recognized the Second Irani- an as a significant Iranian official and Ghorbanifar as a "fabricator" with whom it did not wish to do business. The Agency suspected a scam but was nonetheless prepared to pursue a meeting between foreign intermediaries and the Second Iranian. Efforts in that regard continued through July and August. CIA Cable on Possible Contacts with Iranian Government Reps., 7/85, C 1475-77; CIA Memo for the Record on Hashemi, 7/23/85, C 9072; CIA Cable, 7/85, C 9073; CIA Cable re the Second Iranian Meeting, C 9074; CIA Memo for the Record on Hashemi, 7/15/85, C 9075- 171 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 76; CIA Memo for the Record on Hashemi, 7/15/85, C 9077-78; CIA Memo for the Record on Hashemi, 7/23/85, C 9079; S 3812-16. However, no meeting with the Second Iranian occurred at that time. C 9059-60; George Test., Hearings, 100-11, at 191-192; Former Chief/NE (CIA) Dep., 4/28/87, at 26-53. 49. Israeli Historical Chronology. 50. Id. 51. McFarlane Test., Hearings, 100-2, at 43. 52. Id. at 43-44. 53. Powell Dep., 7/19/87, at 5-7. 54. Israeli Historical Chronology. 55. Id. 56. Id. 57. Ledeen Dep., 6/19/87, at 51. Approximately 2 months prior to the meeting with Schwimmer, Shackley told Ledeen about a meeting Shackley had had with an "Iranian in Europe" who offered to "arrange the Ransom of Buckley and possibly other American hostages." Shackley also gave Ledeen a memorandum describing the proposal, N 7452-56. Although Shackley was describing his meeting with Ghor- banifar in November 1984, see pp. 6-8, and the memoran- dum mentions Ghorbanifar by name, Ledeen testified that he passed the memorandum on to North without reading it and that he had never heard of Ghorbanifar before meeting with Schwimmer on July 11. Ledeen Dep., 3/11/87, at 28- 30. 58. Note to McFarlane from Wilma Hall, his secretary, on Schwimmer and Ledeen, 7/11/85, N 10579. 59. Ledeen also gave McFarlane a document written by Khashoggi that advocated an overture toward Iran. 60. Ex. GPS 9. 61. Id. 62. Ex. GPS 10. 63. McFarlane Test., Hearings, 100-2 at 45-47. Regan Test., Hearings, 100-10, at 6. 63a. Regan Test., Hearings, 100-10, at 6. 64. Ex. 59. 65. McFarlane Test., Hearings, 100-2, at 46. 66. Id. 67. Id. 68. Ledeen Dep., 9/10/87, at 27-28. 69. Israeli Historical Chronology. 70. Id. 71. Id. 72. Id. 73. Id. 74. McFarlane Test., Hearings, 100-2, at 48-49; Israeli Historical Chronology. 75. Shultz Test., Hearings, 100-9, at 27. 76. Id. 77. Id. 78. Weinberger Test., Hearings, 100-10, at 131-32. 79. Ledeen Dep., 6/19/87, at 74. 80. Regan Test., Hearings,100-10, at 12. 81. McFarlane Test., 5/11/87, at 114-21. 82. Poindexter Test., 7/15/87, at 38. 83. Tower at B-19, 20. 83a. McFarlane Test., Hearings, 100-2, at 49. 84. Ledeen Dep., 6/19/87, at 58-61. 85. McFarlane Test., Hearings, 100-2, at 50. 86. Israeli Historical Chronology. 87. Furmark Dep., 7/22/87, at 73-76. 88. Israeli Financial Chronology. 172 89. Ledeen Dep., 6/19/87, at 66; Ledeen Dep., 6/19/87, at 61-65. 90. Israeli Historical Chronology. 91. Id. 92. Buckley died in June 1985 after long interrogation and torture. But the U.S. Government believed that he was still alive as late as the fall of 1985, and was seeking his release. 93. The TOWs were packed in pallets of 12 missiles each, and no unpacked missiles were shipped for safety reasons. Israeli Historical Chronology. 94. Id. The Tower Board Report states that the first shipment by the Israelis of 100 TOWs occurred August 30, 1985. See Tower at B-26. The Board's source for that date is not apparent from the text of the Report. The August 20 date from the Israeli Chronology appears accurate given the context of related events. 95. Id. at 27. 96. Ledeen Dep., 3/11/87, at 52; Ledeen Dep., 6/19/87, at 66-68. 97. Ledeen Dep., 3/11/87, at 52-53. 98. PROF Note by McFarlane on Ledeen, 8/22/85, N 17790. 99. Tower at B-25; see also North Memo to McFarlane: Subj: Fake Passport for North, N 6412-13. Ledeen has testi- fied that to his knowledge, this was North's first involve- ment in and knowledge of the Iran initiative. See Ledeen, Tower Int. (1) at 46 and (2) at 74; Ledeen Dep., 6/19/87, at 72. 100. Israeli Historical Chronology. Only the $1 million repayment figure is derived from the Israeli Chronology. 101. Id. 102. Id. 103. Id. 104. Israeli Historical Chronology; Israeli Financial Chro- nology. 105. Israeli Financial Chronology. 106. Israeli Historical Chronology. 107. McFarlane Test., 5/11/87, at 122-23. 108. Israeli Historical Chronology. 109. Id. 110. Israeli Financial Chronology. The Tower Report's analysis of this transaction differs from that provided by the .Israelis. According to Tower, Ghorbanifar initiated the transaction with a $4 million check to Khashoggi. Kha- shoggi transferred $4 million to the Israeli account on Sep- tember 14. The Iranians transferred $5 million to Ghorbani- far's Swiss account on September 18. Ghorbanifar then noti- fied Khashoggi to negotiate the $4 million check. Ghorbani- far paid later an additional $250,000 to the Israeli account for "additional eight TOW missiles." Tower at B-176-77. 111. North Test., Hearings, 100-7, Part II, at 25, 48. 112. Charles Allen, National Intelligence Officer, Memo Subj: Initiative to Secure Release of American Hostages, 10/7/85, I 0644; Allen Dep., 4/21/87, at 49-58. 113. Charles Allen, Tower Int. at 6. Within the CIA, Allen testified that the intelligence reports were provided to DDO Clair George. Allen Dep., 4/21/87, at 77-79. George denies receiving the material generated prior to the Finding. George Test., 8/5/87, at 277. 114. McFarlane Test., Hearings, 100-2, at 49. 115. N 16502; Ledeen Dep., 3/11/87, at 59-60; Ledeen Dep., 6/19/87, at 68-80. 116. Israeli Historical Chronology. 117. Ledeen Dep., 9/10/87, at 17. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 i Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 118. Id. at 16-17. 119. I 0645. 120. Ledeen Dep., 6/19/87, at 81. Ledeen disputes the representation in Charles Allen's memorandum, I 0644-46, linking the October 8 meeting to the threat on Buckley's life by the Islamic Jihad. Ledeen says there was no expectation of hostage releases in early October. See Ledeen Dep., 6/ 22/87, at 132-39. 121. Ledeen Dep., 6/19/87, at 83-84; Ledeen Dep., 6/22/ 87, at 181-83. 122. Id. at 81. 123. Ledeen Dep., 3/11/87, at 71-78; Ledeen Dep., 6/19/ 87, at 81-88. 124. McFarlane letter published in Wall Street Journal, 8/ 14/87. 125. Ledeen Dep., 9/10/87, at 15. 126. Ledeen Dep., 3/11/87, at 78-82. 127. Ledeen Dep., 3/11/87, at 81-82. 128. Id. at 83, 78. 129. Israeli Historical Chronology. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 173 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Arms to Iran: A Shipment of HAWKs Ends in Failure An Israeli-American plan to sell HAWK missiles to Iran in exchange for American hostages crystallized in November 1985. The plan?which grew out of the late October meeting in Geneva among Michael Ledeen and Iranian and Israeli officials and interme- diaries?ultimately led to a shipment of 18 HAWK antiaircraft missiles by a CIA airplane from Israel to Tehran on November 24 and 25. As the plan evolved, National Security Adviser Robert McFarlane had contacts with senior Israeli officials, brought aspects of the plan to the attention of the President, Chief of Staff Donald Regan, and the Secretary of State, and gave Oliver North increasing responsibility for over- seeing the plan's implementation. The planning and execution of the operation did not proceed smoothly, and in the end, no hostages were released. Ledeen Brings Home a Plan NSC consultant Michael Ledeen returned to Wash- ington from the Geneva meeting at the end of Octo- ber 1985. He told North and McFarlane of the Na- tional Security Council Staff of the proposal by Man- ucher Ghorbanifar and the other Iranians that the United States provide specified missiles in return for the release of U.S. hostages in Lebanon. On October 30, 1985, Ledeen first met alone with North and then with both North and McFarlane.' In the first meet- ing, Ledeen said that the "First Iranian," a highly placed Iranian official who acted as a go-between in the arms sales negotiations, "wants to be U.S. ally? has support in Tehran." Ledeen spelled out the Irani- ans' demands for securing the American hostages' freedom. He told North that, "to get hostages out," the Iranians wanted a "blanket order" of 150 HAWK missiles, 200 Sidewinder missiles, and 30 to 50 Phoe- nix missiles. The proposal contemplated that the hos- tages would be released in three groups, with separate arms deliveries to Iran to occur before the second and third releases. Ledeen raised the unresolved problem of U.S. replenishment of the 500 TOWs withdrawn from Israeli reserves and shipped to Iran in August and September 1985 prior to the release of hostage Benjamin Weir. Ledeen said Israeli Defense Minister Yitzhak Rabin was "complaining about" the United States' failure to make good on its promise to replace those items.2 North and Ledeen met with McFarlane later that day to continue the discussion. Ledeen, claiming that improved U.S.-Iranian relations could follow an agreement, advocated cooperation with the Israelis "to bring out credible military and political leaders" in Iran. McFarlane expressed skepticism even about the existence of moderate elements in Iran, let alone their ability to come to power. Nevertheless, he did not oppose renewing arms shipments to Iran. McFar- lane instructed North and Ledeen that "not one single item" of armaments should be shipped to Iran without the release of "live Americans."3 McFarlane, Deputy National Security Adviser John Poindexter, and other senior American officials often repeated this instruc- tion over the next several months, but it was consist- ently disregarded. Ledeen's meeting with the First Iranian in Geneva led to meetings between the Americans and Israelis in early November 1985. The Iranians had significantly increased their demands for weapons. Moreover, the Israelis still sought replenishment of the TO`,Vs they had sold to Iran. On November 8, David Kimche, the Director Gen- eral of the Israeli Foreign Ministry, met in Washing- ton with McFarlane, North, and Ledeen.4 This was one of a series of meetings that McFarlane had with Kimche in the fall of 1985.5 Ledeen arranged this session in the hope of keeping the Iran initiative moving: I asked Kimche to talk to McFarlane because I was convinced that McFarlane was getting ready to resign, and was in a bad psychological state and was planning to abandon the entire Iranian initiative. I urged to Kimche to talk to McFar- lane to ask him, first, not to resign; and second, not to abandon the political initiative with regard to Iran.6 North-Nir Dialogue Begins North and Amiram Nir, the Israeli Prime Minister's Adviser on Combatting Terrorism, met in Washington on November 14.7 Although they apparently did not discuss arms sales to Iran, they did set the foundation 175 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 for a variety of future Israeli-U.S. covert operations. North jotted notes indicating that this operation could require at least a million dollars a month "for near term and probably mid-term rqmts [requirements]." North's notes list several unanswered questions: ? How to pay for ? How to raise $ . . . ? Use Israelis as conduit? ? Go direct? ? Have Israelis do all work w/U.S. pay? ? Set up joint/Israeli cover op 8 On November 19, North and Nir discussed two code-named covert operations, "T.H. 1," the one they had discussed on November 14, and "T.H. 2." North's notes reflect that the second operation would also require a source of "op[erational] funds."9 In mid- November, North did not have answers to the fund- ing question. But, according to North, within a few months, he and Nir had solved the problem: they would use the Iran arms sales profits." Planning for the privately funded joint covert activities began. McFarlane Briefs CIA On November 14, after a regular weekly meeting attended by Director of Central Intelligence William Casey, his deputy, John N. McMahon, and Poin- dexter, McFarlane told Casey of "the Israeli plan to move arms to certain elements of the Iranian military who are prepared to overthrow the government." McMahon said McFarlane provided this information casually as the meeting was breaking up. Casey relat- ed this information to McMahon on the drive back to Langley." McMahon recalled that this information left him with the impression that the NSC staff was merely monitoring an ongoing Israeli effort." McFarlane Gives Rabin the Go-Ahead The following day, Israeli Defense Minister Rabin met with McFarlane at the White House and told him that Israel was about to make another arms shipment to Iran and would need replenishment from the United States." Rabin wanted "to reconfirm that the President of the United States still endorsed this con- cept of Israel negotiating these arms sales." McFar- lane replied that the President's authorization for Israel to sell arms to Iran subject to replenishment by the United States was still in effect, and that this was "based upon recent questions and reaffirmation by the President that I had received."" Rabin also sought reassurance that the matter was indeed a joint project between the United States and Israel. McFarlane re- plied that while the United States supported Israel's 176 activities, it was going along with Israel on this matter.'6 Rabin raised the still unresolved question of the U.S. commitment to replenish the 504 TOW missiles sent to Iran in August and September. McFarlane replied that he was aware of the difficulties and that within two weeks he would be sending North to Israel to find a technical means of achieving the re- placement. '7 McFarlane Briefs the President McFarlane told the President about the developing plans for the HAWK transaction shortly before they left on November 17 for a summit meeting with Soviet leaders in Geneva. Regan, who was present, said it was: Must a momentary conversation, which was not a detailed briefing to the President, that there [is] something up between Israel and Iran. [McFar- lane said] [i]t might lead to our getting some of our hostages out, and we were hopeful. . . .18 McFarlane did not stress that what he and Rabin saw as Ghorbanifar's unreliability was adding to the risks of the operation. Instead, McFarlane merely made "a passing reference here or there" about these concerns, and did not discuss them at length with the President at the time." The President's reaction was "cross your fingers or hope for the best, and keep me in- formed."26 The November HAWK Shipment By the third week of November, the Israeli interme- diaries and the Americans believed they had reached an agreement with Ghorbanifar on a plan that would gain release of all the hostages by Thanksgiving. The plan was, in essence, a straight swap: U.S.-made mis- siles in Israeli stocks would be sold to Iran in ex- change for American hostages. As the exchange date approached, many details remained unresolved. They were only hammered out in separate and frantic long- distance negotiations among the Israeli intermediaries and Ghorbanifar, Ghorbanifar and his contacts in the Iranian Government, and Israeli Government officials and NSC officials. How Many Missiles? One critical component of the plan was unsettled until the eleventh hour?the number and type of mis- siles that the Israelis would ship to Iran. As evidenced by their late October proposal, the Iranians wanted to purchase immediately hundreds of millions of dollars worth of sophisticated U.S.-made missile systems for use in their war with Iraq. The Israelis were con- cerned about depleting their stocks. The Americans, who had not found a solution to the replenishment Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 requirements arising out of the August and September missile shipments, sought an agreement involving smaller quantities of missiles shipped over time. The middlemen in the transaction?Ghorbanifar and Al Schwimmer and Yaacov Nimrodi, Israeli arms dealers also involved in the negotiations?had substantial monetary incentives to negotiate a deal in which large quantities of weapons and money would change hands. By Sunday, November 17, the planners had decided on an initial shipment of 80 HAWK missiles.2' This shipment was to be just the start of a much larger, phased transaction. On November 18, North called Schwimmer, who was in direct contact with Ghorbanifar. They dis- cussed a sale of 600 HAWKs to Iran in groups of 100 spread out over the next 3 or 4 days. Schwimmer told North that the first shipment of 100 missiles had been "approved" in Tel Aviv and that it was to be fol- lowed by the release of five "boxes," the code name for the American hostages.22 After the call, North wrote in his Notebook: "Schwimmer to P/U [pick up] HAWKs in U.S."23 That day, an Israeli official told Prime Minister Shimon Peres that the Americans were willing for 500 HAWK missiles to be supplied, but it was proposed that Israel supply 80 HAWKs.24 There is other evidence of plans for a very large weapons shipment to Iran: In mid-November a Euro- pean broker sought an air carrier to transport immedi- ately 10 planeloads of armaments in long crates from the capital of Country 15 to Tehran.25 An airline owned by the CIA became aware of the shipment." This CIA airline proprietary learned that "[t]he cargo is declared to be medicine but is in reality ammunition etc." 27 When this same proprietary was called in about 10 days later by CIA officials to move HAWK missiles, the company's manager concluded that the cargo was the same as what the European broker had offered earlier.28 By November 20, the plan?as reported by North to Poindexter?had moved away from one involving 500 to 600 HAWKs toward one that included these components: First, 80 HAWKs from Israeli stocks were to be moved to Iran on Friday, November 22, on three planes spaced apart by 2 hour intervals. After the planes were launched, but before they landed in Iran, five American and possibly one French hostage would be released. After the hostages were freed, 40 more HAWKs would be moved to Iran. The United States would replenish Israel's stocks promptly by sale at a mutually agreed price." North's notes from the same day confirm that the initial delivery was to be 80 items, but indicate a key difference from what he had reported to Poindexter: the American hostages would not to be freed all at once in advance of the arrival of any HAWKs, but rather would be released sequentially after each ship- ment. After referring to the total of 80 HAWKs, North wrote: ?One 27-2 27-3 26-1 6+1 French 3? This notation appears to mean that 2 hostages were to be released after a first shipment of 27 missiles, 3 hostages were to be released after a second shipment of the same amount, and 1 hostage would be released after a third shipment of the remaining 26 items. In fact, within a few days, an initial load of HAWKs arrived in Tehran without any prior hostage release. McFarlane's instruction not to ship weapons with- out the prior release of the hostages thus was not followed. From this point on, the Iranians would always insist on sequential delivery of weapons, fol- lowed by the release of hostages. On November 20, North wrote in his notebook: "120 HAWKs = 1) 5 Amcits, 2) Guarantee that no more." 31 North's notes also suggest that although the initial shipment quantity had been reduced from 600 HAWKs, additional arms shipments to Iran were con- templated after the shipment of 120 HAWKs. Follow- ing a description of the sequence of delivery for the first 80 HAWKs and the hostage releases, North wrote: "After-40 more HAWKs, 200 SW [Sidewind- er] missiles, 1900 TOWs." 32 McFarlane Puts North in Charge While McFarlane was at the Geneva summit with the President, North became immersed in the details of the HAWK transaction. North testified that he was "thrown into this on the night of November 17," in almost simultaneous telephone calls from Rabin and McFarlane.33 Rabin told North that the plan called for Israel to move 80 HAWK missiles by November 20. He said that Israel was unwilling to commence the shipment without satisfactory arrangements for re- plenishment by the United States.34 According to North's notes, McFarlane told North to solve Rabin's replenishment problem, and "to keep orders under $14M" each?the threshold figure for reporting for- eign military sales to Congress." After the calls from McFarlane and Rabin, North "flew up immediately [to New York] to talk with Mr. Rabin." In New York, he met with officials of the Israeli Ministry of Defense Procurement Mission, who wanted to ar- range replenishment sales to Israel of 508 TOWs and 120 HAWK missiles.36 The next day, North or Poindexter asked Lt. Gen. Colin Powell, then military assistant to Secretary of Defense Casper Weinberger, about the availability and price of HAWKs and TOWs, and the legality and method of transferring such missiles. The requester initially sought information on a proposed transfer of 500 HAWKs, but, in accordance with the evolving plan, soon cut the number to 120. Powell understood 177 77-026 0 - 87 - 7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 that the ultimate destination of the weapons would be Iran and that Israel was acting as an intermediary." After receiving this request, Powell contacted Noel Koch, Principal Deputy Assistant Secretary of De- fense for International Security Affairs, who in turn asked Henry Gaffney, Director of Plans, Defense Se- curity Assistance Agency (DSAA), to find out how many HAWKs were available for immediate transfer. DSAA is the entity within the Department of De- fense that is primarily responsible for arms sales to other governments. Koch asked Gaffney to prepare a Point Paper examining the requirements for notifica- tion of Congress and whether the ultimate destination of the weapons might be concealed.38 Gaffney testified that he understood from his supe- riors that the Point Paper should cast a negative view of the transaction to reflect Secretary Weinberger's presumed opposition to arms transfers to Iran." He completed his paper, entitled "HAWK Missiles for Iran," on November 22 or 23 and submitted it to Powell. Powell testified that he gave the paper to Secretary Weinberger,4? who did not, however, recall receiving it.4 Gaffney's Point Paper included important informa- tion about the price and availability of HAWKs: 164 missiles were available for foreign sale at that time; the missiles cost the United States approximately $300,000 per unit; and replacement cost would be as much as $437,700 per unit. Transportation and admin- istration charges would have to be added. Seventy- nine of the missiles were available for immediate ship- ment. This state of the inventory may be one reason why the number of HAWKs planned for immediate shipment from Israel to Iran?and therefore the number which the United States would have to quick- ly replenish?was set at 80. Gaffney's Point Paper also described political drawbacks of a weapons trans- fer to Iran.42 Gaffney testified that under the Arms Export Con- trol Act, Iran was not an eligible country for direct sales from the United States, and that, in his view, even if Iran were to become eligible, the contemplat- ed sales of HAWKs could not be made directly or indirectly (through Israel or otherwise) unless the President notified Congress. In addition, Gaffney tes- tified that if the transfer were to be made by Israel, U.S.-Israeli agreements require advance, written U.S. consent. U.S. law mandates that the President cannot give that consent without certain conditions being met in advance, including obtaining assurance from Iran that it would use the weapons only for self- defense and would comply with U.S. restrictions on retransfer to another country. These were conditions that Iran could not or would not meet.43 178 McFarlane Informs the President and the Secretary of State While they were still in Geneva, McFarlane updat- ed the President and Chief of Staff Donald Regan on the status of the HAWK shipment and the anticipated hostage release.44 McFarlane informed them that the Israelis were about to ship the weapons, and ex- pressed hope" that the hostages would come out by the end of the week." McFarlane specifically told the President that Israel was about to deliver 80 HAWK missiles to Iran via a warehouse in Country 15, and that Israel wanted the United States to re- place those missiles.47 McFarlane testified that he simply told the Presi- dent that the Israelis were about to act, but did not ask for specific approval: [T]he President provided the authority in early August for Israel to undertake, to sell arms to Iran, and to then come to the United States for replenishment, to buy new ones. That didn't re- quire then the Israelis to come back to us on each occasion and get new approval.48 The President asked McFarlane to arrange a meeting at which the President and his top advisers would review the initiative after the summit." At about the same time, McFarlane also told Secre- tary of State George Shultz of the impending arms- for-hostages swap." McFarlane called Secretary Shultz by secure phone "out of the blue, about a hostages release and arms sales to Iran." 51 McFar- lane explained that Israel was about to ship 100 HAWKs to Iran through Country 15, that the ship- ment would occur only if the hostages were released, and that the United States would sell replacements to Israel." Secretary Shultz understood it as "a straight- out arms-for-hostages deal." He expressed his opposi- tion, and rebuked McFarlane for not informing him about it earlier: "I told him I hoped that the hostages would get out, but I was against it, and I was upset that he was telling me about it as it was just about to start so there was no way I could do anything about it." 53 When asked about Secretary Shultz' account, McFarlane testified: "I don't recall it that way." 54 Even as McFarlane was filling in Shultz on the broad outline of the plan, his NSC subordinates took steps to keep the Department of State hierarchy in the dark about the complex diplomatic problems caused by the operation. For instance, Secretary Shultz was not told of the back-channel communica- tions and actions of State Department officials, taken at the behest of CIA and NSC officials, to support the HAWK shipment.85 North Recruits Secord As McFarlane had explained to the President and Secretary Shultz, the plan was to move 80 HAWKs Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 from Tel Aviv to the capital of Country 15, transfer them to other planes, and then ship them on to Iran. The planners chose this circuitous routing because direct flights from Israel to Iran would draw attention given the poor relations between Israel and Iran.56 Because the cargo was arms, special clearances had to be obtained from the government of Country 15. As the pilot who ultimately flew the HAWKs to Iran stated: Everybody can fly [in Europe] without clear- ances unless you have . . . sensitive stuff like arms aboard, and then you have to have diplo- matic clearance.57 A problem developed on November 18: The gov- ernment of Country 15 was unwilling to grant the special clearances. On that day, North asked Richard Secord?his confederate in the covert operation sup- porting the Contras?to fly to Country 15 to "see what he could do to straighten out the mess."58 Secord said this was when he learned of the Iran arms initiative." North explained the secret operation to Secord, indicating that it had been sanctioned by the United States, that it had run into difficulties in Coun- try 15, and that there was "quite a bit of urgency" to get Secord to go there. According to Secord, North "knew that we had?my organization had had exten- sive deals with the armament [industry]" in Europe and "wondered if I could arrange for this transship- ment."66 The next day, North gave Secord a letter on White House stationery, signed by North "for" McFarlane, stating Your discrete [sic] assistance is again required in support of our national interests. At the earliest opportunity, please proceed to [the capital of Country 15] and other locations as necessary in order to arrange for the transfer of sensitive ma- teriel being shipped from Israel. As in the past, you should exercise great caution that this activity does not become public knowl- edge. You should ensure that only those whose discretion is guaranteed are involved." McFarlane testified he was not aware that North was providing this letter to Secord, and that his per- mission was not sought to send it out." Secord arrived in Country 15 on November 20.63 He and his associate Thomas Clines, who Secord said "had really been handling all of the matters for the Enterprise" in Europe, together started "to work the problem . . . through our colleagues in the armament industry . . .9964 Million-Dollar Deposit to Lake Resources On November 18?the same day that he brought Secord into the deal?North began to arrange for a $1-million transfer from Israeli intermediaries to the account of Lake Resources,65 a Panamanian company controlled by Secord and referred to by North as "our Swiss Co[mpany]."66 Lake Resources and its account at Credit Suisse in Geneva had been estab- lished by North and Secord in May 1985 "to receive monies in support of the covert operations."67 Prior to this deposit, which was made on November 20,68 Secord and North had used the company exclusively for supporting the Contras. The purpose for this $1-million deposit is unclear. North and Secord testified that the payment was for chartering planes to move the 80 HAWKS to Iran." The Israeli Historical Chronology affirms this expla- nation.70 North and Secord, however, were unable to explain why they were asking for transportation ex- penses on November 18 when, according to Secord, his original assignment was only to help obtain land- ing clearances for planes already chartered by Schwimmer.7' It was not until November 22, when Schwimmer's charter unexpectedly fell through, that Secord's role was expanded." At that time, the amount Secord expected to pay for chartering planes was less than $1 million.73 Some evidence suggests that Secord made, or con- templated making, expenditures in Country 15. One of the persons with whom Secord was working, an offi- cer of a European arms company, reportedly attempt- ed to bribe an official of the government of Country 15 to obtain the necessary clearances,74 and there are references to Secord having spent substantial sums in Country 15.75 However, bank records do not show any such payments out of the Lake Resources ac- count. Whatever the initial purpose of the deposit, the Committees have ascertained its use. Secord used ap- proximately $150,000 to pay for air charters relating to the HAWK shipment, and the remaining $850,000 was spent to support the Contras and to make profit distributions to Secord and his business associates, Albert Hakim and Thomas Clines.76 North testified that in early 1986 he told the Israelis that the money had been used "for the purpose of the Contras" and that they acquiesced.77 The first "diversion" to the Contras of money received in connection with the Iranian arms sales had occurred. Confusion in Country 15 The plan to ship the HAWKs through Country 15 faced collapse because the government there refused to grant the necessary clearances. Upon arriving in Country 15, Secord and his associates?the European businessman and Clines?tried to overcome this prob- lem.78 All three were fully aware that the cargo to be moved was HAWK missiles." Because their efforts were outside normal diplomatic channels and in con- tradiction to stated U.S. policy, they were not well- received by the government of Country 15.80 179 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II , ...I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 The European businessman may have tried to solve the problem even before Secord arrived. The Deputy Chief of Mission of the U.S. Embassy in Country 15 recalled learning on November 23 that about one week earlier the European businessman had ap- proached an official of Country 15 and offered what the official considered to be a bribe to assist in the transit of a shipment involving the United States, Israel, and Iran.8' If this approach occurred around November 16, as the evidence suggests, then it draws into question Secord's testimony that he was not brought in until November 18. On November 20, the European businessman called an official of Country 15's Foreign Ministry and ex- pressed the hope that the Foreign Ministry would grant permission for two aircraft carrying weapons from Israel for Iran to transit the country. To the official, the businessman appeared to be "acting as a broker for the arms deal." The European businessman referred to an "American general," presumably Secord, involved in the undertaking. The foreign gov- ernment was disturbed by the businessman's approach, and the next day another official asked the American Embassy for "information about this strange case." The Embassy, unaware that the U.S. Government supported this shipment of weapons to Iran, told the Foreign Ministry that the shipment was not author- ized by the United States and was contrary to U.S. Government policy strongly opposing arms sales to Iran.8 2 Contributing to the confusion of the government of Country 15 was another incident on November 21. "Anonymous people claiming to 'represent the Ameri- can administration'" attempted to intercept the coun- try's Foreign Minister and Prime Minister at the air- port of the capital of Country 15 following their return from the European Economic Summit in Brus- sels." A CIA cable reporting this incident stated that this approach, while unsuccessful, was "particularly upsetting" to the foreign government because it "aroused both attention and suspicion."84 North Updates Poindexter As the operation faltered on November 20, North reported to Poindexter and portrayed a mission well under control. He made no mention of the obstacles faced in Country 15: The Israelis will deliver 80 Mod HAWKS to [the capital of Country 151 at noon on Friday 22 Nov. These 80 will be loaded aboard three chartered aircraft, owned by a proprietary which will take off at two hour intervals for Tabriz, [Iran]. The aircraft will file for overflight through the [cap- ital of Country 16] FIR enroute to Tabriz [from Country 15]. Appropriate arrangements have been made with the proper. . . [Country 16] air control personnel. Once the aircraft have been launched, their departure will be confirmed by 180 Ashghari [a pseudonym for Ghorbanifar] who will call [the Second Iranian official] who will call [an Iranian in Damascus] who will direct [another Iranian in Beirut] to collect the five rpt five Amcits [American citizen hostages] from Hizballah and deliver them to the U.S. Embassy. There is also the possibility that they will hand over the French hostage who is very ill. There is a requirement for 40 additional weaps of the same nomenclature for a total requirement of 120. $18M in payment for the first 80 has been deposited in the appropriate account. No acft will land in Tabriz until the AMCITS have been de- livered to the embassy. The Iranians have also asked to order additional items in the future and have been told that they will be considered after this activity has succeeded. All transfer arrange- ments have been made by Dick Secord, who deserves a medal for his extraordinary short notice efforts. Replenishment arrangements are being made through the MOD [Israeli Ministry of Defense] purchasing office in NYC. There is, to say the least, considerable anxiety that we will somehow delay on their plan to purchase 120 of these weapons in the next few days. IAW [in accord- ance with] your instructions I have told their agent that we will sell them 120 items at a price that they can meet. I have further told them that we will make no effort to move on their purchase LOA [Letter of Offer and Acceptance] request until we have all five AMCITS safely delivered. In short, the pressure is on them." This PROF message is clear evidence that North in- formed Poindexter in detail of the HAWK transac- tion?including the involvement of Secord and the replenishment arrangements?well in advance of the shipment. North Asks the CIA for Assistance Secord and the European businessman were unable to budge the government of Country 15. With only hours left before an Israeli plane carrying 80 HAWKs was to depart for the capital of Country 15, North urgently sought assistance from McFarlane, the CIA, and the State Department. North called McFarlane on the evening of November 21; they discussed whether McFarlane should call Country 15's Prime Minister or Foreign Minister in the morning.88a Informed by Secord of the difficulties in Country 15, North immediately asked CIA official Duane Clarridge to assist in obtaining clearances for the plane going there." Clarridge said Secord should contact the CIA Chief in Country 15, whose name North then relayed to Secord.87 At the same time, Clarridge sent "flash" cables instructing the CIA Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Chief in Country 15 and his deputy to report immedi- ately to the office for a "special assignment."88 The next morning, November 22, Secord, using his Copp pseudonym, called the CIA Chief and said that he urgently needed clearance for an El Al charter flight scheduled to leave Tel Aviv in 20 minutes and fly to the capital of Country 15. Secord urged the CIA Chief to call an official of Country 15 and em- phasize the urgency of obtaining the clearance. At this point, the CIA Chief suggested enlisting the help of the Deputy Chief of Mission at the U.S. Embassy in Country 15.89 North Brings State Into the Operation At about this time, North pressed to involve the U.S. Embassy directly in the efforts to obtain the clearances. North accurately told Robert B. Oakley, then Director of the Office of Counterterrorism and Emergency Planning at the Department of State, that Israel had encountered problems obtaining clearances in Country 15 for a transshipment of HAWK missiles for Iran. In contrast, North falsely told Oakley that he had learned of the shipment when "'one of his people' went to an arms warehouse [in Country 15] to obtain arms for the Nicaraguan Resistance, and learned that the Israelis had been obtaining arms from the same source for shipment to Iran." In any event, Oakley gave North permission to tell the Embassy in Country 15 that the State Department was "aware" of the unfolding operation and that the Embassy "could request clearances." 90 Thereafter, the CIA Chief was instructed to insure that if the Deputy Chief of Mis- sion felt compelled to communicate with the State Department, he should use only the CIA channel." The NSC also involved Oakley and the State De- partment in another capacity. On November 21, Oakley notified the CIA's counterrorism component that "information from the NSC indicated that one or more U.S. hostages would soon be released in Leba- non." Oakley reported that a team was departing for Wiesbaden, West Germany, to await the arrival of the hostages. The team arrived in Wiesbaden the follow- ing day, and remained there until November 27.92 On November 22, Oakley reported to Secretary Shultz (who had returned from Geneva) and others at the State Department "that the hostages would be released that afternoon in exchange for 120 HAWKs at $250,000 each?worth $30 million in all." Secretary Shultz and his advisers, Deputy Secretary John C. Whitehead and Undersecretary Michael Armacost, shared their apprehension about the endeavor. The Secretary, who "regarded it as a $30 million weapons payoff," told his deputies: "Bud [McFarlane] says he's cleared with the President."93 The next day, Secretary Shultz was told that no hostage had been released and that the deal had col- lapsed.94 That was false. The operation was still being actively pursued, and the movement of 18 HAWKs was yet to occur. Jumbo Jet Departs for Country 15 Transit Point Although the clearance for landing in Country 15 had not been authorized on the morning of November 22, the El Al 747 carrying the 80 HAWK missiles was ordered to take off for that country's capital. As the plane neared its "go?no go point," frantic efforts were underway to change the country's government's position. Clarridge cabled the CIA Chief in Country 15 and ordered him to "pull out all the stops" to solve the problem.95 Secord called an official in Country 15's foreign ministry, who said that the gov- ernment had decided to withhold permission based upon the U.S. Embassy's previous statement that the United States did not concur in the shipment." Hoping to reverse this position, the Deputy Chief of Mission made hurried phone calls attempting to summon the Country 15 Foreign Minister out of a cabinet meeting; and Secord told the CIA Chief that "McFarlane was being pulled out of [a] meeting with [the] Pope" to call the Foreign Minister.97 All these efforts were in vain. By early afternoon, Secord, who was in radio contact with the El Al plane,98 telephoned North and informed him that the government of Country 15 had refused permission. He said the aircraft had been ordered back to Tel Aviv.93 North and Clarridge Bring in a CIA Airline Due to the delays, the El Al plane, which the Israelis had reserved for this operation for only a limited time, was no longer available.'" Clarridge, North, and Secord scrambled to find other ways to transport the HAWK missiles to Iran. Within hours, Clarridge met with the Chief of the CIA's air branch and told him "we [have] a very sensitive mission in the Middle East and we need a 747 aircraft right away." The branch chief could not locate such a large aircraft on short notice, but suggested that a CIA airline proprietary might be able to move the cargo.'" At 4 p.m. on November 22, an air branch official called the CIA project officer for the proprie- tary, and asked whether its Boeing 707 cargo planes were available to move 80 pieces of "sensitive hi priority cargo" from Tel Aviv to the capital of Coun- try 15. The project officer reported that at least one of the airline proprietary's planes was available.'" Clarridge's actions resulting in the involvement of the air proprietary were at North's request and with the authority of CIA Associate Deputy Director of Operations, Edward Juchniewicz. "3 Juchniewicz spoke with both Clarridge and North on November 22, and told them he had no objection to giving 181 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I V Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Secord the commercial name of the airline proprie- tary to charter the necessary flights.'" Over the next 48 hours, Clarridge and CIA air branch personnel closely managed the proprietary's flight activities in support of this covert operation.'" Before the oper- ation was over, the proprietary's project officer also became directly involved in coordinating matters.'" Clarridge Brings in Another CIA Chief Even as the problems in Country 15 remained unre- solved, Clarridge, on the evening of November 22, moved to obtain clearances from another country, Country 16, for overflight rights into Iran.'" Clar- ridge cabled the CIA Chief in Country 16 proposing that he ask Government authorities for "overflight clearances for three commercial DC-8 aircraft (or similar aircraft) flying on a chartered basis from [Country 15] to Tabriz and then retracing their route." Clarridge explained that this was "a National Security Council initiative and has the highest level of USG [United States Government] interest." The CIA Chief was to explain that "the purpose of the flight is humanitarian in nature and is in response to terrorist acts." Clarridge specifically instructed that the U.S. Ambassador to Country 16 "should not be in- formed." 108 Schwimmer's DC-8 Charter Falls Through On the evening of November 22, Schwimmer called North to say the charter of the DC-8s for the Country 15-to-Iran leg of the mission had fallen through. In a PROF note to Poindexter, North updat- ed the situation as of 7:00 p.m.: Unbelievable as it may seem, I have just talked to Schwimmer, in TA [Tel Aviv,] who advises that they have released their DC-8s in spite of my call to DK [David Kimche] instructing that they be put on hold until we could iron out the clearance problem in [the capital of Country 15]. Schwim- mer released them to save $ and now does not think that they can be re-chartered before Monday. ?9 Within minutes of Schwimmer's call, North and Secord discussed a substitute method of transporting the missiles from Country 15 to Iran. Secord suggest- ed that the European businessman's company try to find some planes."? North wrote to Poindexter that Secord would solve the problem by diverting a plane from the Contra operation to the Iran operation: Advised Copp of lack of p/u [pick up] A/C [aircraft]. He has advised that we can use one of our LAKE Resources A/C which was at [the capital of Country 15] to p/u a load of ammo for UNO [United Nicaraguan Opposition]. He will have the a/c repainted tonight and put into serv- ice nit [no later than] noon Sat so that we can at 182 least get this thing moving. So help me I have never seen anything so screwed up in my life. Will meet with Calero tonite to advise that the ammo will be several days late in arriving. Too bad, this was to be our first direct flight to the resistance field . . . inside Nicaragua. The ammo was already palletized w/ parachutes attached. Maybe we can do it on Weds. or Thurs. More as it becomes available. One hell of an operation.1' In fact, it appears that Lake Resources had no planes at this time. Nevertheless, this PROF note reveals that North was beginning to meld the two operations he was overseeing and to recognize that the Lake Resources enterprise could operate in a variety of settings. Over the next 12 hours, Secord and others tried to hire a cargo carrier for the Country 15-to-Iran leg. They unsuccessfully sought to convince officials of a European national airline to take on the assign- ment."3 By the morning of November 23, Secord had identified an aircraft to make the flight,"4 but this plane was never used. Clarridge's Office Becomes the Command Post By November 23, Clarridge's office at Langley had become the command post for coordinating the HAWK transport. North was there most of the day.115 Also present and assisting were the CIA air branch chief, an intelligence officer, and Charles E. Allen.'" Numerous problems with aircraft and flight clearances continued to crop up. As the situation de- teriorated, Clarridge sent cables to the far-flung CIA stations involved, and North stayed in continuous contact with Secord in Country 15 and Schwimmer in Israel. Clarridge's superiors, specifically Juchniewicz and McMahon, were aware of at least some aspects of the activity being directed from Clarridge's office. Juch- niewicz's office received all of the cables being sent to and from Clarridge on the operation."7 In a memo- randum for the record written 2 weeks later, McMa- hon stated: On Saturday, 23 November 1985, Ed Juch- niewicz asked me if I was aware of all the activi- ty transpiring on the effort to get the hostages out. He showed me a cable to [the capital of Country 15] asking that we pass a message to the [Deputy Chief of Mission] from the Deputy As- sistant to the President for National Security Af- fairs [Poindexter]. The message assured the [Deputy Chief of Mission] that only the Secre- tary of State and Ambassador Oakley were aware of the operation. I told Juchniewicz that I was unaware of the specifics of the operation but due Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 to the sensitivity of the operation, it was appro- priate that we pass correspondence between the NSC and the ambassadors overseas, but only communications, that we could not be involved without a Finding."8 McMahon testified that he did not know then that the CIA's airline proprietary had been brought into the operation."9 Allen also learned that day of the CIA role in the operation. North called him in the morning and asked him to deliver to Clarridge intelligence data on the Iran initiative. Allen showed the materials to Clar- ridge, who told him that North "had requested some assistance in obtaining a name of a reliable charter airline," that he was considering using the Agency's airline proprietary, and that he was trying to obtain landing and transit clearances in Country 15.120 The Oil-Drilling Equipment Cover Story During the planning of the HAWK missile ship- ment, the Israeli and American participants agreed to keep the true nature of the operation secret. They would use a false "story line" that the cargo to Iran was oil-drilling equipment."' Several American offi- cials who knew of the operation were advised of this cover story but understood that it was false and knew that the cargo was missiles. At the time, the President and Regan knew that the cargo comprised HAWK missiles and were specifical- ly told of the false story before the shipment was made, presumably by McFarlane. Regan testified: "I recall that that was to have been a cover story if discovered, it was to have been said that these were oil-drilling parts. 9'122 The government of Country 15 also was aware that the clearances being sought by Secord and others were for moving missiles through its capital and into Iran as part of an effort to gain the release of Ameri- can hostages. Secord understood that both the Prime Minister and Foreign Minister were informed. Indeed, Secord testified that it was not possible to ship HAWKs through the foreign capital without the host country knowing, because special handling of the weapons was required at the airport."3 North claims he used the cover story when he brought Clarridge and Allen into the operation. As he later testified, "I lied to the CIA because that was the convention that we had worked out with the Israelis, that no one else was to know."124 Allen testified that North "stated emphatically" that the cargo was oil- drilling equipment, but that he (Allen) had "serious doubts" about whether this was true."3 If Clarridge did not know the contents of the cargo at the start, he soon learned it. In Country 15, late in the morning of November 23, Secord gave the CIA Chief a full accounting of the mission. Their meeting occurred in a car in a hotel parking lot. Secord re- vealed his identity, explained he was formally associ- ated with the NSC, and specifically told the officer that the planned flight would contain HAWK missiles being sent to Iran in exchange for hostages.'26 The CIA Chief testified that he returned to his office and sent two cables to Clarridge through the "Eyes Only" privacy channel he was using on the HAWK project. The first cable contained a general report, mentioning the discussion with Secord but not setting forth the substance of the conversation.127 The second cable reported that the flights would con- tain HAWK missiles sent to secure the release of the hostages.128 The Committees' investigation did not locate this cable. But the CIA Chiefs subsequent tes- timony about its existence was corroborated in testi- mony by the CIA Deputy Chief '29 and by the Deputy Chief of Mission?who at the time either read the cable or was told about it by the CIA Chief.13? In addition, the CIA communicator, who transmitted the cable from Country 15, vividly recalls being shocked when he read the message and learned that the United States was sending arms to Iran."' Clarridge received additional information that re- vealed that the cargo was HAWKs: North testified that shortly after the shipment occurred, if not before, he had told Clarridge the true nature of the cargo.132 Moreover, on November 23, Allen showed Clarridge a report that, according to Allen, would cause "one [to] think that this initiative had involved arms in the past."33 Allen suspected that the November ship- ment also involved arms and "couldn't help but be- lieve that [Clarridge] suspected that. Particularly he could see the [report] as clearly as I, and he leafed through [its contents] . . . I left the folder with him and then picked it up later."34 After the shipment, Clarridge received additional information that made clear that the cargo was missiles."5 Clarridge insisted in testimony before these Com- mittees that he had no recollection of having learned that the cargo was missiles prior to early 1986.136 This testimony conformed to the false story certain Administration officials put out in November 1986 when they were trying to conceal the advance knowl- edge in the U.S. Government of the shipment of HAWK missiles. The Committees are troubled by the fact that the cable informing Clarridge of Secord's detailed ac- count of the operation, and an earlier cable Clarridge sent to the CIA Chief at the outset of the oper- ation,'" are inexplicably missing from an otherwise complete set of 78 cables sent by CIA officials during the operation.138 Country 15 Routing is Abandoned By the afternoon of November 23, the plan to transship the missiles through Country 15 was aban- doned. The previous evening, McFarlane had called the country's Foreign Minister and believed he had received a "green light" for the flights."9 However, 183 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? II V . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 the foreign government still insisted that the United States provide a diplomatic note setting forth the nature of the cargo and the shipping route, and stat- ing that the release of American hostages was the purpose of the shipment.'" The foreign government wanted this documentation because it saw the oper- ation as "so directly in conflict with known U.S. policy and [its own] policy."141 The American plan- ners balked,'" apparently out of a concern about creating a formal paper record of the true nature of the operation. Later that day, the Deputy Chief of Mission, on instructions from Poindexter, handed the Foreign Minister a terse diplomatic note stating that the U.S. Embassy "expresses regret that the Govern- ment of [Country 15] was unable to fulfill the request of the Government of the United States for the hu- manitarian mission."43 Clarridge cabled the CIA Chief in the capital of Country 15 that in light of the diplomatic message, "it is obvious . . . that we are closing down [the Country 15] aspect of this oper- ation.9,144 As the Country 15 transit plan was falling through, North and Clarridge sought a substitute transit point. Clarridge cabled the CIA Chief in the capital of an- other country, Country 18, to request assistance in obtaining landing rights in that country for "5 sorties" by a CIA airline proprietary 707 airplane between Tel Aviv and Tabriz, the first to occur "in the next 12 hours or so . . . and likely result in the release of the hostages."145 Meanwhile, still on November 23, Israeli military personnel began to load the HAWKs into the CIA proprietary airplane at the Tel Aviv airport. If they had not already been told, the proprietary's crew sur- mised from the appearance of the crates that their cargo was missiles and reported this to the airline manager.146 Later that day, the participants decided to move the shipment directly from Tel Aviv to Iran, without transiting a third country. Under the new plan, one of the proprietary's planes would make a series of flights to move the 80 HAWKs.147 After dismissing one route, the planners selected a shorter?but more dan- gerous?route across Country 16.148 But obtaining overflight clearances from Country 16 remained a problem, so Clarridge once again cabled the CIA Chief there.'" Several hours later, the CIA Chief replied that the Government of Country 16 was sup- portive, but needed "some idea of what the aircraft would carry as presumably they would not be empty."'" Late that night, Clarridge sent two more increasingly urgent cables to the CIA Chief in Coun- try 16. In conformity with the cover story, these cables told the CIA Chief to advise the government of Country 16 that "the aircraft are carrying sophisti- cated spare parts for the oil industry" and that the five flights would be spread over a number of days.151 184 North and Clarridge, working with Schwimmer, continued to coordinate the flight activity on Sunday, November 24. At the last minute, they decided that, at least on the first sortie, the plane should land at a transit point in another country, Country 17, to dis- guise the fact that the shipment was moving from Israel to Iran.152 While this decision was being made, the CIA Chief in Country 16 informed Clarridge that the government there had approved the five over- flights, but that "incoming flight cannot come directly from [Country 17]."153 CIA Airline Proprietary Moves the Missiles On November 24, the CIA proprietary aircraft car- rying 18 HAWK missiles flew from Tel Aviv to the transit point in Country 17. Because Schwimmer had sent the plane without a cargo manifest, the pilot lacked the documentation required by customs offi- cials at the transit point, who wanted to inspect the cargo.'" Simultaneously, Schwimmer and the propri- etary manager, along with North and Clarridge, fran- tically discussed how to solve this. While there is evidence to the contrary, it seems the pilot simply talked his way out of the problem.155 After getting out of the transit point in Country 17, the pilot ran into trouble while flying over Country 16. According to the airline manager's report, nothing was prepared for overflight in [Country 16] and [the pilot] had again to talk his way through. Since they [the Country 16 ground con- trollers] repeatedly insisted on a diplomatic clear- ance number, he made one up which was not accepted after long negotiations and then he fili- bustered one hour and 30 min his way through [Country 16], using different altitudes, positions and estimates that he told [Country 16's] Military with whom he was obviously in radio con- tact . . . However, radar realized his off-positions which gave additional reason for arguments and time delays.'56 Cables the next day from the CIA Chief in Country 16 to Clarridge suggested several reasons why the pilot encountered these difficulties. For example, the destination of the plane was changed at the last minute from Tabriz to Tehran, which "provoked query" from Country 16 because it did not square with the clearance request.'" Other discrepancies caused outright anger: [An official of Country 16 was] quite upset over multiple flight plans received, fact first flight came directly from [the transit point in Country 17] and did not request clearance beforehand and conflicting stories about plane's cargo. [The CIA , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Chief] told [the official] it was oil industry spare parts, telex from carrier stated medical supplies and the pilot told ground controllers he was car- rying military equipment. . . . Bottom line is that [the government of Country 16] still wants to assist but has developed a little cynicism about our interaction with them on the matter.'" Ironically, the pilot reportedly told the flight control- lers the true nature of the cargo even while Clarridge was spreading the cover story to high level officials of Country 16.169 The only part of the operation that went smoothly was the flight into Tehran. The Second Iranian Offi- cial and Ghorbanifar, who were in Geneva, passed word to officials in Tehran to prepare to receive the plane. The plane landed in Tehran early in the morn- ing.160 After an encounter with a military officer who apparently was unaware of the operation, "a civilian with a submachine gun on his back" arrived at the aircraft."' The pilot understood that this person was a member of the Iranian Revolutionary Guard. He instructed the pilot not to disclose to anyone at the airport that the flight had originated in Israel, arranged for the unloading of the plane by military personnel, and got the crew to a hotel? formerly the Sheraton?in downtown Tehran.162 Fourteen hours later, after a warm send-off that included caviar, the plane departed Tehran at 12:15 p.m. E.S.T., on Monday, November 25.163 The air- line proprietary crew expected they would return shortly with more missiles and told the Iranian at the airport, "Don't worry, we [will] come back.99164 However, the airline manager radioed them after they were airborne and instructed them not to return to Israel.162 Problems surfacing in both Washington and Iran put an end to the CIA proprietary airline's role. Within a few days, Secord, using funds from the Lake Resources account, wired a $127,700 payment to the proprietary.166 Aftermath of the HAWK Flight The Failure Sinks In On November 25, with the Americans still enter- taining the hope that one or more hostages might be released, senior White House and CIA officials were informed about the weekend's activities. Poindexter told the President at his regular 9:30 a.m. briefing that a shipment of arms to Iran had just taken place.'" At 7 a.m. that morning at CIA headquarters, Edward Juchniewicz told McMahon that Secord and "those guys" at the NSC had "used our proprietary to send over some oil supplies" to Iran. McMahon's reaction was anger: I said goddam it, I told you not to get involved. And he [Juchniewicz] said, we're not involved. They came to us and we said no. And they asked if we knew the name of a secure airline and we gave them the name of our proprietary. I said, for Christ's sake, we can't do that without a Finding.168 McMahon said that at the time he accepted Juch- niewicz's report that the cargo had been oil-drilling equipment: "[M]y focus was that we had done some- thing wrong . . . and I didn't care what was on that airplane." McMahon's view was that any use of the CIA airline proprietary at the direction of CIA but without a Presidential Finding was illegal.' 68a Shortly after talking to Juchniewicz, McMahon went to Deputy Director for Operations Clair George's office where several staffers were discussing the weekend's activities. McMahon told them "that they weren't going to do anything more until we got a Finding."169 That same morning, North sent word to Schwimmer that the operation was to be put on hold.179 McMahon also moved quickly to contact CIA Gen- eral Counsel Stanley Sporkin on the matter of the airline proprietary's activity." McMahon testified that "during the day I called Sporkin several times and I told him that I wanted a Finding and I wanted it retroactive to cover that flight."172 Sporkin re- called that McMahon simply asked him to look into the legal aspects of the activity, but did not declare that a Finding was necessary.'" Late in the day, two officers from the Operations Directorate, an air branch officer and his group chief, were directed to brief Sporkin on the proprietary's flight.'" The CIA officials most involved in the op- eration?Clarridge, Allen, and the chief of the air branch?were not selected to do the briefing. At Sporkin's request, his deputy, J. Edwin Dietel, sat in on the briefing.175 The participants' accounts of the briefing of Spor- kin differed significantly. The air branch subordinate officer said that the meeting lasted about 45 minutes and that he and his superior explained to the lawyers that the airline proprietary?acting at the direction of the NSC staff and with the approval of Juch- niewicz?had moved some cargo from Israel to Iran. He testified that as of November 25, he knew nothing about the cargo other than its weight and dimensions and that that was the only information about the cargo that was discussed at the briefing. He recalled that the lawyers exhibited no curiosity about the nature of the cargo and that there was no mention that the cargo was either oil-drilling equipment or military equipment. He also testified that nothing was said to indicate that the proprietary's flight was relat- ed to an effort to free hostages.176 185 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 The CIA group chief said he did not even know of the activity being scrutinized until that morning. He stated in an interview that he and the subordinate explained that a CIA proprietary plane, acting in a strictly commercial capacity, had carried "commercial cargo" into Iran. The subject- of weapons being aboard the plane did not arise, he said. He added that at this point he understood that the cargo might have been farm equipment and that the shipment was not part of an NSC staff operation. '77 Notwithstanding these divergent accounts from of- ficials of the Operations Directorate, it is clear that the briefers told Sporkin that missiles had been trans- ported, and the shipment was part of an effort to free the hostages. Sporkin testified: "What they told me indicated an involvement in a shipment of arms to Iran."78 Sporkin's deputy, Deitel, specifically re- called that the briefers said the cargo was missiles.'79 Sporkin testified that the briefers probably specified the exact type of missiles being shipped.'" During the briefing, Sporkin tentatively concluded that a covert action Finding was necessary to author- ize the previous activity."' He stated that there should be no more flights to move the rest of the cargo in Israel until the matter could be looked into further.'82 After the briefers left, two senior staff attorneys, whom Sporkin had enlisted earlier and who were waiting for the briefing to end, were called into the room. Sporkin related to them that a shipment of "military equipment or missiles" from Israel to Iran had just occurred and that more flights were contem- plated.' 8 3 ? Sporkin then dictated a draft Finding that author- ized the CIA to assist in "efforts being made by private parties" to obtain the release of hostages through the provision of "certain foreign materiel and munitions" to the Government of Iran. The draft stated that Congress would not be notified of the operation "until such time as [the President] may direct otherwise" and that the Finding "ratifies all actions taken by U.S. Government officials in further- ance of this effort."84 Sporkin directed one of the lawyers, Bernard Makowka, to stay late and work on the Finding.'85 Later that night, Sporkin informed McMahon "that a Finding would be required, not so much from the airlift standpoint, but from our in- volvement in influencing foreign government officials to assist the mission."86 Sporkin aryl his deputies met on the morning of November 26, and worked up a final draft of the Finding.'" In its entirety, the Find- ing stated: Finding Pursuant to Section 662 of The Foreign Assistance Act of 1961, As Amended, Concerning Operations Undertaken by the Central Intelligence Agency in Foreign Countries, Other Than Those Intended Solely for the Purpose of Intelligence Col- lection. 186 I have been briefed on the efforts being made by private parties to obtain the release of Americans held hostage in the Middle East, and hereby find that the following operations in foreign countries (including all support necessary to such oper- ations) are important to the national security of the United States. Because of the extreme sensi- tivity of these operations, in the exercise of the President's constitutional authorities, I direct the Director of Central Intelligence not to brief the Congress of the United States, as provided for in Section 501 of the National Security Act of 1947, as amended, until such time as I may direct oth- erwise. SCOPE: Hostage Rescue?Middle East DESCRIPTION The provision of assistance by the Central Intelli- gence Agency to private parties in their attempt to obtain the release of Americans held hostage in the Middle East. Such assistance is to include the provision of transportation, communications, and other necessary support. As part of these efforts certain foreign materiel and munitions may be provided to the Government of Iran which is taking steps to facilitate the release of the American hostages. All prior actions taken by U.S. Government offi- cials in furtherance of this effort are hereby rati- fied.188 The draft Finding referred to no objective of opening a diplomatic channel with Iran. Yet, this was the justification for the arms deals that the Administration offered after they were exposed in November 1986. Rather, the Finding depicted a straight swap of arms for hostages. Sporkin sent the proposed Finding to Casey on November 26.189 That morning, Clair George phoned North to tell him that Sporkin had deter- mined a Finding was necessary.'" Later that day, after Casey called McFarlane and Regan "to ascertain that indeed this had Presidential approval and to get assurances that a Finding would be so signed," Casey, who agreed a Finding was needed,'" delivered the text to Poindexter.192 Poindexter did not immediately present it to the President. Over the next several days, Casey, McMahon, and George made repeated inquir- ies to Poindexter and other "NSC personnel" and "continuously receive[d] reassurances of the Presi- dent's intent to sign the Finding."93 The President Renews His Approval On the day the CIA sent the proposed Finding to the White House, November 26, the President author- ized continuing the arms-for-hostages transaction.'" Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 North's notes indicate that he was so informed by Poindexter at an hour-long meeting: 0940-1050. Mtg w/JMP. RR directed op[eration] to proceed. If Israelis want to provide diff model, then we will replenish. We will exercise mgt over movmt if yr side cannot do. Must have one of our people in on all activities.195 Later that day, North related to an Israeli official that the Americans wanted to carry on even if the supply of additional arms was needed and even if the weapons had to come from the United States."6 But events not within the control of the American side prevented immediate progress in accord with the re- newed authorization of the President. The Iranians Feel Cheated After midnight on November 26, Allen learned that officials in Iran were upset that the wrong model of HAWKs had been delivered.'" The Iranians also complained through Ghorbanifar that the missiles had Israeli markings, which "the Iranians took to be a prov[o]cation." '98 On November 25 or 26, Ghorbanifar, "on the very edge of hysteria," called NSC consultant Michael Ledeen, and said "the most horrible thing had hap- pened. . . . [T]hese missiles had arrived and they were the wrong missile."199 Ghorbanifar gave Ledeen an urgent message from the Prime Minister of Iran for President Reagan: "We have done everything we said we were going to do, and you are now cheating us, and you must act quickly to remedy this situation." Ledeen conveyed this to Poindexter.20? At this point, North dispatched Secord to Israel. During meetings with Kimche and Schwimmer, Secord quickly deduced the source of Iran's displeas- ure: according to him, Schwimmer and Nimrodi had promised Ghorbanifar that the missiles being provided could shoot down high-flying Soviet reconnaissance planes and Iraqi bombers. The I-HAWK missiles that were provided, like all HAWKs, had no such capabil- ity.2" The Iranians were insisting that "these embar- rassing missiles" be removed from Tehran.202 Money Flows Back and Forth In advance of the HAWK shipment, on November 22, Iran made two transfers?one of $24.72 million, the other of $20 million?to bank accounts in Switzer- land to which Ghorbanifar had access.203 Iran appar- ently understood that the larger transfer was its pur- chase price for 80 HAWKs, at a unit cost of approxi- mately $300,000.204 On November 22, Ghorbanifar transferred to an Israeli intermediary's account $18 million and $6 mil- lion.205 According to an Israeli intermediary, the $18 million was the purchase price paid by Ghorbanifar for 80 HAWKs and the $6 million was to be held in trust by the Israeli intermediary at Ghorbanifar's re- quest. Later, it was to be paid back to Ghorbanifar, with Ghorbanifar intending to keep $1 million for himself and use the remainder for payments to certain Iranians.206 North was aware of the $18 million de- posit. On November 20, he wrote in his notebook: "18M Deposited Covers 80H 225K." 207 Around the time that the Israeli intermediary re- ceived these funds from Ghorbanifar, he transferred $1 million to Lake Resources on North's demand.208 On November 22, the Israeli intermediary paid the Israeli Ministry of Defense $11.2 million for the 80 HAWKs at a price of $140,000 per missile.209 Thus, the Israeli intermediary had received from Ghorbani- far $11.8 million more than his total payments to Israel and Lake Resources. According to the Israeli intermediary as reported in the Israeli Financial Chro- nology, $6 million of this residual was held in trust by the Israeli intermediary for Ghorbanifar and the re- maining $5.8 million was to cover shipping and other expenses for the rest of the operation.2" The Chro- nology indicates that Ledeen and North agreed with the Israeli intermediary that this money be kept in the Israeli intermediary's account for these purposes.211 Israel intended to purchase replacement HAWKs with the sum received from the Israeli intermediary. It was doubtful whether the amount received? $140,000 per missile?would be enough to purchase replacements at standard U.S. prices. On November 19, North and the head of the Israeli Procurement Mission in New York discussed replenishment, and North's notes of the conversation refer to a price of "$220K/230K each for Hawks." 212 However, Poin- dexter had instructed North, and North had told the Israelis, "that we will sell them [Israel]" replacement HAWKs "at a price that they can meet." 213 When the HAWK deal collapsed in late November, the Israelis and Ghorbanifar reversed the flow of funds. On November 27, the Israeli Ministry of De- fense returned $8.17 million to the Israeli interme- diary. This was $3.03 million less than the Israelis had paid to the Ministry of Defense. The difference, ac- cording to the Israeli Chronology, represented the prorated charge for the 18 missiles delivered to Iran at $140,000 per item and a deduction of $510,000 for expenses incurred by the Ministry of Defense in the HAWK transaction and in previous transactions.2" Also on November 27, the Israeli intermediary transferred to Ghorbanifar the sum of $18.6 million. This represented a prorated refund of Iran's purchase price for the 62 HAWKs that had not been deliv- ered.2" Thus, at the end of November 1985, the Israelis held more than $5 million in residuals from the failed transaction, most of which was repaid to Ghorbanifar by the Israeli intermediary and to the Israeli Ministry of Defense after Iran returned 17 HAWKs to Israel in early 1986.2" 187 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Conclusion The shipment of HAWKs to Iran was bad policy, badly planned and badly executed. In contradiction to its frequently emphasized public policy concerning the Iran-Iraq war and nations that support terrorism, the United States had approved the sale of arms to Iran. The United States had agreed to a sequential release of hostages following successive deliveries of weapons; thereafter, this departure from policy became the norm. This precedent, established in No- vember 1985, gave the Iranians reason to believe that the United States would retreat in the future from its demand for the release of hostages prior to any weap- ons shipments. 188 The planning and execution of the operation were also flawed. By the time the U.S. Government became directly involved, official disclaimers by un- witting State Department officials had already com- plicated the foreign relations aspect of the project. And the mission itself jeopardized the security of the CIA airline proprietary's operation.21 7 Finally, the cover story that was used by certain NSC and CIA officials in November 1986 was first employed in November 1985 for purposes of oper- ational security. The President, Secretary Shultz, McFarlane, Poindexter, North, and various CIA offi- cials, however, were fully aware in November 1985 that Israel was shipping HAWKs to Iran?not oil- drilling equipment?with U.S. approval and assistance to obtain the release of the American hostages. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Chapter 10 1. North Notebook, 10/30/85, Ex. CG-40, Hearings, 100- 11. 2. Id. 3. Id. 4. McFarlane Calendar, 11/8/85, MF000856-57; Ledeen Dep., 6/22/87, at 231. 5. McFarlane Test., Hearings, 100-2, at 97. 6. Ledeen Dep., 6/22/87, at 231. 7. North Calendar, 11/14/85, N329. 8. North Notes, 11/14/85, Ex. OLN-69A, Hearings, 100-7, Part III. 9. North Notes, 11/19/85, Ex. OLN-69A, Hearings, 100-7, Part III. 10. North Test., Executive Session, 7/9/87, at 6-10. 11. McMahon, Memorandum for the Record, 11/15/85, C4510. 12. McMahon Dep., 6/1/87, at 90. 13. Id. 14. McFarlane Test., Hearings, 100-2, at 97, 100. Accord- ing to the Israeli Historical Chronology, Rabin did not discuss with McFarlane during this visit that Israel was planning another arms shipment to Iran. 15. Id. at 51-52, 100. 16. Israeli Historical Chronology. According to the Israe- lis, in a telephone conversation on November 21, Rabin stressed to McFarlane that if the Iranian project were not viewed as a joint U.S.-Israel operation, Israel would not undertake it alone. Id. 17. Israeli Historical Chronology; see also McFarlane Test., Hearings, 100-2, at 97. 18. Regan Test., Hearings, 100-10, at 12. 19. McFarlane Test., Hearings, 100-2, at 51-52. 20. McFarlane Tower Int., 2/19/87, at 41. 21. North Notebook, 11/17/85, Ex. OLN-69A, Hearings, 100-7, Part III. 22. North Notebook, 11/18/87, Ex. OLN-69A, Hearings, 100-7, Part III. 23. North Notebook, 11/18/85, Ex. OLN-69A, Hearings, 100-7, Part III. According to the Israelis, Israel approved only a shipment of 80 HAWKs. Israeli Historical Chronolo- gy. 24. Israeli Financial Chronology. On November 19, North and the head of the Israeli Procurement Mission in New York discussed a sale by the United States to Israel of 600 of the Pentagon's most advanced version of the HAWK missile, presumably to replenish a similar number of HAWKs to be shipped by Israel to Iran. North Notebook, 11/19/85, Ex. OLN-69A, Hearings, 100-7, Part III. 25. Airline Proprietary Manager Memorandum, 11/21/85, C9706; Airline Proprietary Manager Dep., 6/11/87, at 71- 74. 26. Airline Proprietary Manager Memorandum, 11/21/85, C9706; Airline Proprietary Manager Memorandum, 11/30/ 85, C6522-C6529, at 6; Airline Proprietary Manager Dep., 6/11/87, at 71. 27. Airline Proprietary Manager Memorandum, 11/21/85, C9706. 28. Airline Proprietary Manager Dep. at 80; Airline Pro- prietary Manager Memorandum, 11/30/85, C6522-C6529 at 1, 6. 29. PROF Note from North to Poindexter, 11/20/85, Ex. JMP-17, Hearings, 100-8. 30. North Notebook, 11/20/85, Ex. JMP-84, Hearings, 100-8. 31. Id. 32. Id. 33. North Test., Hearings, 100-7, Part I, at 51, 59; North Notebook, 11/17/85, Ex. OLN-69A, Hearings, 100-7, Part 34. Id. 35. Id. The Arms Export Control Act bars the President from authorizing a transfer of any "major defense equip- ment valued (in terms of its original acquisition cost) at $14,000,000 or more" unless he submits an unclassified report on the sale to the Speaker of the House and the Senate Committee on Foreign Relations. 22 U.S.C. Section 2753(d). 36. North Test., Hearings, 100-7, Part I, at 51. 37. Powell Dep., 6/19/87, at 15-19. 38. Gaffney Test., Hearings, 100-6, at 133-39; Ex. DOD 1, 3, 5, Hearings, 100-6. Gaffney's notes of November 18-19 also indicate that the United States had shipped 100 HAWKs to Israel 2 weeks previously. In fact, on Novem- ber 21, 1985, an Israeli ship, Zim Houston, took on 100 HAWKs and other weapons in New Jersey and sailed for Israel. Those HAWKs were transferred pursuant to a Letter of Offer and Acceptance between the United States and Israel entered into in 1982. (Validated Shipper's Export Declaration and attachments, 11/6/85, U.S. Customs, N.Y., N.Y. S2045659). 39. Gaffney Test., Hearings, 100-6, at 112. 40. Powell Dep., 6/19/87, at 32-33. 41. Weinberger Dep., 6/17/87, at 22-23, Ex. CWW-9. 42. Ex. DOD-5, Hearings, 100-6. Gaffney's paper provid- ed as follows: The modalities for sale to Iran present formida- ble difficulties: Iran is not currently certified for sales, including indirectly as a third country, per Sec. 3 of the AECA. Congress must be notified of all sales of $14 million or more, whether it is a direct sale or indirect to a third country. The notice must be unclassified (except for some details), and the sale cannot take place until 30 days after the notice. The 30 days can be waived for direct sales, but the third country transfer has no such provision, and notice must still be given in any case. Thus, even if the missiles were laundered through Israel, Congress would have to be noti- fied. It is conceivable that the sale could be broken into 3 or 4 packages, in order to evade Congres- sional notice. While there is no explicit injunction against splitting up such a sale (subject to check . . .), the spirit and the practice of the law is against that, and all Administrations have observed this scrupulously. Ex. DOD-5, Hearings, 100-6. 43. Gaffney Test., Hearings, 100-6, at 61-64. 44. McFarlane Test., Hearings, 100-2 at 102; Regan Test., Hearings, 100-10, at 13. 189 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 45. In retrospect, McFarlane quantified his hope for re- lease of the hostages at no more than a 20 percent probabili- ty. McFarlane Test., Hearings, 100-2, at 102. Even this would have been too optimistic. A CIA polygraph test of Ghorbanifar 2 months later "indicated that he knew ahead of time that the hostages would not be released and deliber- ately tried to deceive us. . . ." Memorandum for the Record, Subject: Manucher Ghorbanifar Polygraph Exami- nation, C6090. 46. McFarlane Test., Hearings, 100-2, at 102. 47. Regan Test., Hearings, 100-10, at 13. 48. McFarlane Test., Hearings, 100-2, at 261. 49. McFarlane Test., Hearings, 100-2, at 55. This meeting occurred on December 7. 50. McFarlane Test., Hearings, 100-2, at 102. 51. Shultz Test., Hearings, 100-9, at 28. 52. Id. at 28; Charles Hill Notes, 11/18/85, Cooper Ex. CJC-17 , Hearings, 100-6. 53. Shultz Test., Hearings, 100-9, at 28-29. 54. McFarlane Test., Hearings, 100-2, at 102. 55. Shultz Test., Hearings, 100-9, at 29. 56. North told Poindexter a few days later that direct flights would "compromise origins and risk eventual uncov- ering of many operational details." North PROF message to Poindexter, 11/22/85 (19:27:15) Ex. OLN-45, Hearings, 100- 7, Part III. Historically, weapons shipments to Iran from Israel during the last decade had been disguised by moving them through other countries. A purpose for disguising such flights is to prevent the Iraqis from intercepting them. Airline Proprietary Manager Dep., 6/11/87, at 24-27. 57. CIA Air Proprietary Pilot Dep., 6/25/87, at 77. 58. North Test., Hearings, 100-7, Part I, at 51. 59. Secord Dep., 6/10/87, at 85-86. 60. Secord Test., Hearings, 100-1, at 79-80. 61. Letter from McFarlane to Secord, 11/19/85, Ex. 1, Hearings, 100-1, at 415. 62. McFarlane Test., Hearings, 100-2, at 209. 63. Secord Dep., 6/10/87, at 83-84. 64. Secord Test., Hearings, 100-1, at 80. 65. North Notebook, 11/18/85, Ex. OLN-69A, Hearings, 100-7, Part III. 66. North to Poindexter PROF Note, 11/22/85, (19:27:15) Ex. OLN-45, Hearings, 100-7, Part III. 67. North Test., Hearings, 100-7, Part I, at 58; Panamani- an Public Instrument, 5/14/85, H679. 68. CSF Ledger for Lake Resources, H986. 69. Secord Test., Hearings, 100-1, at 83, 87-88; North Test., Hearings, 100-7, Part I, at 54. 70. Israeli Historical Chronology. 71. Secord Test., Hearings, 100-1, at 80; Secord Dep., 6/ 10/87, at 89. 72. Secord Dep., 6/10/87, at 87-88; Secord Test., Hear- ings, 100-1, at 88. 73. On November 22, Secord arranged a charter for sev- eral fights between Tel Aviv and Country 15 at a total cost of $60,000, plus fuel, landing, and handling costs. These flights never occurred. Airline Proprietary Manager's Memorandum Re: Mission TLV/THR, 11/30/85, C6522; Airline Proprietary Manager Dep., 6/11/87, at 65-66. Secord ultimately paid $127,700 to the CIA airline proprie- tary, which flew two planes to Tel Aviv and one to Tehran via Country 17. Airline Proprietary Receipt Records, 11/ 29/85 and 12/3/85, C6567 and C6573. 74. DCM Dep., 5/27/87, at 24-25. 190 75. After the flight to Tehran, Secord?who was then in Paris?remarked to the manager of the proprietary airline that he had "to go back to [the capital of Country 15] to save $225,000." Airline Proprietary Manager Dep., 6/11/87, at 148, 171. An entry in North's notebook states "Dick Copp?Spent 750K in [Country 15]." North Notebook, 11/ 24/85, Ex. OLN-69A, Hearings, 100-7, Part III. 76. Financial Chronology, Accounting Workpaper. In ad- dition to the $127,700 paid to the CIA air proprietary, Secord spent $21,983 on chartering a private jet to attend meetings related to the operation. 77. North Test., Hearings, 100-7, Part I, at 56. 78. Secord Dep., 6/10/87, at 88-89. 79. Secord Dep., 6/10/87, at 99. 80. CIA cables after the operation was over explained that these were the reasons for the poor reception. CIA Cables, capital of Country 15 to Headquarters, 11/26/85 and 11/27/85, C5794-95 and C5796-97. 81. DCM Dep., 5/27/87, at 24-25. 82. Cable from American Embassy in Country 15 to De- partment of State Headquarters, 11/22/85, S000304. 83. CIA Cable, capital of Country 15 to Headquarters, 11/23/85, C5758-59. 84. Id. 85. PROF Note, North to Poindexter, 11/20/85, 21:27:39, Ex. JMP-17, Hearings, 100-8. 85a. North Notebook: 11/21/85, Ex. OLN-69A, Hearings, 100-7, Part III. 86. North Notebook, 11/21/85, Ex. OLN-69A, Hearings, 100-7, Part III; Clarridge Dep., 4/27/87, at 7-8. 87. North Notebook, 11/21/85, Ex. OLN-69A, Hearings, 100-7, Part III. 88. CIA Cables, Headquarters to capital of Country 15, 11/22/85, Ex. DRC-1-1 and 1-2, Hearings, 100-11. 89. CIA Cable, capital of Country 15 to Headquarters, 11/22/85, Ex. DRC-1-4, Hearings, 100-9. 90. Oakley Affidavit, 7/2/87, Ex. GPS-55., Hearings, 100- 9. 91. CIA Cable, Headquarters to capital of the Country 15, 11/22/85, Ex. DRC1-5, Hearings, 100-11. 92. Letter from John A. Rizzo to Paul Barbadoro, 7/17/ 87, C10123. 93. Shultz Tower Test., 1/22/87, at 28. 94. Shultz Test., Hearings, 100-9, at 29. 95. CIA Cable, Headquarters to capital of Country 15, 11/22/85, Ex. DRC-1-6, Hearings, 100-11. 96. CIA Cable, capital of Country 15 to Headquarters, 11/22/85, Ex. DRC 1-7, Hearings, 100-11. 97. Id. 98. CIA Cable, capital of Country 15 to Headquarters, 11/22/85, Ex. DRC-1-8, Hearings, 100-11. 99. North Notebook, 11/22/85 (incorrectly dated 11/21/ 85), Ex. OLN-69A, Hearings, 100-7, Part III. 100. PROF Note, North to Poindexter, 11/22/85 (19:27:15), Ex. OLN-45, Hearings, 100-7, Part III. 101. CIA air branch chief Dep., 6/19/87, at 19-22. 102. Handwritten Notes of CIA Airline Proprietary Project Officer, 11/22/85, C6535-C6538. 103. Clarridge Dep., 4/27/87, at 59-60. 104. Juchniewicz Dep., 4/23/87, at 8-19. 105. CIA air branch chief Dep., 6/19/87, at 22-31. 106. Airline Proprietary Project Officer Dep., 6/12/87, at 69 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 107. North had incorrectly reported to Poindexter two days earlier that this matter had already been taken care of. North PROF message to Poindexter, 11/20/85 (21:27:39), Ex. JMP 17, Hearings, 100-8. 108. CIA Cable, Headquarters to capital of Country 16, 11/22/85, Ex. OLN-61, Hearings, 100-7, Part III. 109. PROF Note, North to Poindexter, 11/22/85 (19:27:15), Ex. OLN-45, Hearings, 100-7, Part III. 110. North Notebook, 11/22/85, Ex. OLN-69A, Hearings, 100-7, Part III. 111. PROF Note, North to Poindexter, 11/22/85 (19:27:15), Ex. OLN-45, Hearings, 100-7, Part III. 113. CIA Cable, capital of Country 15 to Headquarters, 11/23/85, Ex. DRC 1-19, Hearings, 100-11. 114. CIA Cable, capital of Country 15 to Headquarters, 11/23/85, C5742. 115. North Test., Hearings, 100-7, Part I, at 60. 116. CIA air branch chief Dep., 6/19/87, at 21-25. 117. The cable routings reflect that the copies of cables were sent to office of the Directorate of Operations. 118. Memorandum for the Record, Subject: NSC Mission, John N. McMahon, 12/7/85, Ex. DRC-12, Hearings, 100-11. 119. McMahon Dep., 6/1/87, at 104. 120. Allen Dep., 4/21/87, at 157-61. 121. North Test., Hearings, 100-7, Part I, at 38. 122. Regan Test., Hearings, 100-10, at 24. 123. Secord Dep., 6/10/87, at 100-01. 124. North Test., Hearings, 100-7, Part I, at 38. 125. Allen Dep., 4/21/87, at 161, 165, 176-77. 126. CIA Chief in Country 15 Dep., 4/13/87, at 19-21. 127. CIA Cable, capital of Country 15 to Headquarters, 11/23/85, Ex. DRC 1-19, Hearings, 100-11. 128. CIA Chief in Country 15 Dep., 4/13/87, at 25-28. 129. Deputy CIA Chief in Country 15 Dep., 7/15/87, at 30-35. In addition, CIA records confirm that a cable of which no copy can be found was sent at this time and assigned a unique file number. 130. DCM Dep., 5/27/87, at 34-37. 131. CIA Communicator Dep., 7/13/87, at 66-68. 132. North Test., Hearings, 100-7, Part I, at 63, 70. 133. Allen Dep., 7/2/87, at 674. 134. Id. at 676. 135. North Test., Hearings, 100-7, Part I, at 38; Allen Dep., 4/21/87, at 167-68; Clarridge Test., Hearings, 100-11, at 7, 20-21. 136. Clarridge Test., Hearings, 100-11, at 8, 20-21. 137. The first cable that the CIA Chief in Country 15 sent to Headquarters on this matter stated it was a reply to Cable 625103. CIA Cable, capital of Country 15 to Head- quarters, 11/22/85, Ex. DRC 1-3, Hearings, 100-11. No cable having this number was located. 138. The Committees have been informed that copies of privacy channel cables are ordinarily sent to the office of the Deputy Director for Operations. CIA officials have searched for the missing cables, and they were unable to locate them or account for the fact that they are missing. The Committees have also been informed that officers as- signed to the office of the Deputy Director for Operations do not have a recollection of seeing the missing cables. 139. PROF Note, North to Poindexter, 11/22/85 (19:27:15), Ex. OLN-45, Hearings, 100-7, Part III; CIA Cable from capital of Country 15 to Headquarters, 11/26/ 85, C5794-95. 140. DCM Dep., 5/27/87, at 10, 20-21; CIA Chief in Country 15 Dep., 4/13/87, at 16, 22. 141. CIA Cable from capital of Country 15 to Headquar- ters, 11/26/85, C5794-95. 142. DCM Dep., 5/27/87, at 22-24. 143. Id. at 24; Diplomatic Note from U.S. Embassy in Country 15 to Ministry of Foreign Affairs, 11/23/85, Ex. GPS-14, Hearings, 100-9. 144. CIA Cable, Headquarters to capital of Country 15, 11/23/85, Ex. DRC 1-29, Hearings, 100-11. 145. CIA Cable, Headquarters to capital of Country 18, 11/23/85, Ex. OLN-62, Hearings, 100-7, Part III. 146. Airline Proprietary Pilot Dep., 6/25/87, at 49-50, 64, 141; Airline Proprietary Manager Dep., 6/11/87, at 108-09. In fact, the crew immediately surmised it was a large arma- ment cargo which the airline proprietary had learned a few days earlier was being moved from the capital of Country 15 to Iran under a cover story that it was medicine. Airline Proprietary Manager Dep., 6/11/87, at 71-77. Two days later, the proprietary's project officer told the CIA's air branch chief that the crew believed that the cargo was missiles and had joked that "we should be firing them at Iran rather than flying them into Iran." Airline Proprietary Project Officer Dep., 6/12/87, at 48-49. The air branch chief testified that he did not know the cargo was missiles until months later. CIA air branch chief Dep., 6/19/87, at 43-44. 147. Airline Proprietary Manager Memorandum, 11/30/ 85, Re: Mission TLV/THR, C6523-24 (hereinafter "Airline Proprietary Manager's Report"), at 2-3. The Americans de- cided it was too dangerous to fly the other plane into Iran because it was registered in the United States. The plane which was used was registered in another western hemi- sphere country. Schwimmer argued the U.S. plane could be used safely by painting a false registration on its tail or by flying it in a formation with the other plane so as to dis- guise it from radar operators. The airline proprietary man- ager reported to CIA that Schwimmer "must be crazy" and rejected these proposals. Id. at 3; Airline Proprietary Project Officer Dep., 6/12/87, at 37-38; Airline Proprietary Manager Dep., 6/11/87, at 116-19. 148. Airline Proprietary Pilot Dep., 6/25/87, at 40-42, 48. 149. CIA Cable, Headquarters to capital of Country 16, 11/23/85, C5749. 150. CIA Cable, capital of Country 16 to Headquarters, 11/23/85, C5759. 151. CIA Cable, Headquarters to capital of Country 16, 11/24/85, C5763; CIA Cable, Headquarters to capital of Country 16, 11/24/85, C5764. 152. Airline Proprietary Manager Dep., 6/11/87, at 138- 39. 153. CIA Cable, capital of Country 16 to Headquarters, 11/24/85, C5767. 154. Airline Proprietary Pilot Dep., 6/25/87, at 56-57, 70 71; Airline Proprietary Manager's Report at 4. 155. Airline Proprietary Project Officer Dep., 6/12/87, 41-42. 156. Airline Proprietary Manager's Report, at 4. 157. CIA Cable, capital of Country 16 to Headquarters, 11/25/85, C5774. 158. CIA Cable, capital of Country 16 to Headquarters, 11/25/85, C5775. 159. The pilot denied that he had any serious problems with the overflight of Country 16 and insisted he did not 191 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 and would never tell ground controllers he was carrying arms. Airline Proprietary Pilot Dep., 6/25/87, at 78-79. 160. Airline Proprietary Pilot Dep., 6/25/87, at 96. 161. Airline Proprietary Manager Report, at 4. 162. Airline Proprietary Pilot Dep., 6/25/87, at 99-100. 163. Airline Proprietary Manager's Report at 6; Airline Proprietary Pilot Dep., 6/25/87, at 121. According to the Israeli Historical Chronology, the Iranians were displeased with the missiles prior to the departure of the plane, and the Iranian Prime Minister impounded the aircraft, crew, and missiles. According to this account, an Israeli intermediary personally interceded to persuade the Iranians to release the crew and plane. Israeli Historical Chronology. 164. Airline Proprietary Pilot Dep., 6/25/87, at 116. The pilot, believing he probably would be back the next day, ordered a carpet from a rug merchant and arranged to have it put on what he thought would be the next flight. Id., 113- 14. 165. Id. at 122-23. 166. Airline Proprietary Receipt Records, 11/29/85 and 12/3/85, CIIN 2561 and 2567. 167. Poindexter Test., Hearings, 100-8, at 124; Poindexter Notes, 11/25/85, Ex. JMP-19, Hearings, 100-8. 168. McMahon Dep., 6/1/87, at 95. 168?. Id., at 97-101. 169. Id., at 95-96, 103. 170. North Notebook, 11/25/85, Ex. OLN-69A, Hearings, 100-7, Part III. 171. Memorandum for the Record, 12/7/85, John N. McMahon, Ex. DRC-12, Hearings, 100-11. 172. McMahon Dep., 6/1/87, at 96. 173. Sporkin Test., Hearings, 100-6, at 116-19. 174. Group Chief Interview Report, 6/1/87. 175. Dietel Dep., 6/5/87, at 4. 176. CIA air branch subordinate Dep., 6/5/87, at 16, 134- 46; CIA air branch Interview Report, 6/1/87. 177. Group Chief Interview Report, 6/1/87. 178. Sporkin Test., Senate Select Committee on Intelli- gence, 12/3/86, at 9. 179. Dietel Dep., 6/5/87, at 6. 180. Sporkin Test., Hearings, 100-6, at 128. 181. Sporkin Test., Hearings, 100-6, at 118. 182. CIA air branch subordinate Dep., 6/5/87, at 142-43. 183. Makowka Dep., 5/15/87, at 25-28. 184. Transcription of Sporkin's secretary's shorthand notes of 11/25/85, Ex. SS-1, Hearings, 100-6; Sporkin Test., Hearings, 100-6, at 13-14. 185. Makowka Dep., 5/15/87, at 31-32. 186. McMahon Memorandum for the Record, Ex. DRC- 12, Hearings, 100-11. 187. Makowka Dep., 5/15/87, at 33. 188. Finding, undated, CIIN 103. 189. Note for the Director from Stanley Sporkin, 11/26/ 85, Ex. SS-2, Hearings, 100-6. 190. North Notebook, 11/26/85 (misdated 10/26/85) Ex. OLN-47, Hearings, 100-7, Part III. North had already heard through Clarridge of McMahon's angry reaction. Just after midnight on November 26, North wrote: "Call from Clar- ridge?summoned in by Clair [George]/McMahon?Vhis 192 is criminal.'?Told Agency was 'freight forwarder' by Dewey." North Notebook, 11/26/85 (misdated 10/25/85). Clarridge testified: "I specifically don't remember this tele- phone call and it [North's note] is inaccurate." Clarridge Test., Hearings, 100-11, at 19. 191. McMahon Dep., 6/1/87, at 122. 192. McMahon Memorandum for the Record, Ex. DRC- 12, Hearings, 100-11; Memorandum from Casey to Poin- dexter, 11/26/85, Ex. JMP-18, Hearings, 100-8. 193. McMahon Memorandum for the Record, Ex. DRC- 12, Hearings, 100-11; McMahon Dep., 6/1/87, at 107-08. 194. North Test., Hearings, 100-7, Part I, at 66. 195. North Notebook, 11/26/85, Ex. OLN-69A, Hearings, 100-7, Part III. 196. Israeli Historical Chronology. 197. Allen Dep., 4/21/87, at 168. 198. Ledeen Dep., 3/11/85, at 95. 199. Ledeen Dep., 6/19/87, at 100. 200. Ledeen Dep., 3/11/87, at 86-87. 201. According to the Israeli Historical Chronology, the promises regarding the capability of the missiles were made by Ghorbanifar, not the Israelis. 202. Secord Test., Hearings, 100-1, at 83-85. 203. Tower Review Board Report at B-179. On Novem- ber 25, Iran made a third transfer of $20 million (Id.) The purpose of the two $20 million transfers is unclear, but $40 million is the amount which Ghorbanifar had available for proposed weapons purchases in late 1985 and early 1986. 204. Israeli Financial Chronology. 205. Israeli Financial Chronology. On November 20, North reported to Poindexter that "$18M in payment for the first 80 has been deposited in the appropriate account." (North PROF Note to Poindexter, 11/20/85 (21:27:39)) 206. Israeli Financial Chronology. 207. North Notebook, 11/20/85, Ex. JMP-84, Hearings, 100-8. 208. Israeli Financial Chronology. The $1 million transfer actually preceded the intermediary's receipt of funds from Ghorbanifar. 209. Id. 210. Id. 211. Id. 212. North Notebook, 11/19/85, Ex. OLN-69A, Hearings, 100-7, Part III. 213. PROF Note, North to Poindexter, 11/20/85 (21:27:39), Ex. JMP-17, Hearings, 100-8. 214. Israeli Financial Chronology. 215. Israeli Financial Chronology. The Israeli interme- diary claims that during this same period he paid an addi- tional $700,000 to various other Iranians and $88,752 to defray expenses incurred during the operation. Israeli Finan- cial Chronology. 216. Id. 217. Airline Proprietary Project Officer Dep., 6/12/87, at 102-05. The manager of the airline was furious: "I was really upset that I was put in this situation where I risk the clandestine layout of the whole company just for a stupid flight like that." Airline Proprietary Manager Dep., 6/11/ 87, at 46. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Clearing Hurdles: The President Approves A New Plan The difficulties with the November 1985 HAWK shipment and the failure to secure the release of more hostages did not end the arms-to-Iran initiative. Having already traveled down the path of bargaining for the hostages' lives, the President and his NSC staff were reluctant to turn back. North quickly began to plan another arms deal, and the President signed the Finding that Stanley Sporkin prepared immediately after the HAWK shipment. North claimed repeatedly in December that reversing course would cause the radical captors to kill the hostages. North had another motivation for continuing the arms deals. As he explained to Israeli officials in early December, he wanted to divert profits to benefit the Contras he was supporting in Nicaragua. In December 1985 and January 1986, the Secretar- ies of State and Defense argued aggressively to the President against trying to trade arms for hostages. Among other things, they asserted that this initiative was illegal and contrary to longstanding U.S. public policy against providing arms to terrorist states and bargaining with terrorists. Secretary Weinberger and Secretary Shultz' argu- ments, together with a first-hand assessment by McFarlane that the Iranian intermediary was the "most despicable man" he had ever encountered, caused the initiative to lose momentum in December. However, in early January the Israelis approached Poindexter?who had replaced McFarlane as National Security Adviser?with a new plan that Poindexter and North quickly embraced. The President decided to go forward. He signed an expanded Finding and directed that the covert activity not be reported to Congress. Unlike the 1985 transactions, the President decided that the weapons for Iran would now come directly from U.S. stocks. The NSC staff took charge of the initiative, relegating the Israelis to a secondary role. Secord was designated as the agent of the U.S. Gov- ernment in the future transactions. This created the opportunity to generate profits on the arms sales that the Enterprise could use for its other covert projects?including support of the Contras. The Players Change John Poindexter?soon to be elevated to National Se- curity Adviser?and Oliver North met on November 27, 1985, to devise a new plan. Poindexter directed North to have Richard Secord or Israeli official David Kimche deliver a message to soothe the Irani- ans' feeling of having been cheated because the HAWKs delivered three days earlier did not meet their expectation. North and Poindexter also discussed a "change of team" on the operation. North's notes of the meeting indicate that the United States was pre- pared to deliver 120 items (probably a new version of HAWKs) in exchange for all the hostages after the first delivery and a commitment by Iran of no future terrorism.' The change in team included removing Michael Ledeen, the NSC terrorism consultant, as an interme- diary. When Ledeen gave Poindexter the message that the Iranians felt cheated, Poindexter told him, "We're going to take you off this thing for awhile because we need somebody with more technical ex- pertise."2 This was the last time Ledeen spoke to Poindexter on the Iran initiative, "since from the time [Poindexter] became National Security Adviser, [Ledeen] was unable to get an appointment with him." 3 In late November, Secord, Iranian go-between Ghorbanifar, Kimche, and Israeli arms dealers Al Schwimmer and Yaacov Nimrodi met in Paris.4 Ac- cording to notes North took when Secord briefed him on the meeting, Ghorbanifar was "angry," apparently because the Iranians wanted "something to deal w[ith] Soviet Recon[naisancer ?such as Phoenix or Har- poon missiles?rather than the HAWKs that were delivered.5 Ghorbanifar advanced a set of proposals that "blatantly" called for the swapping of arms for hostages.6 The first proposal, as later related to North by Secord, provided for a phased exchange of 3200 TOW missiles for hostages: 600 TOWs = 1 release H ? 6 hrs later = 2000 TOWs = 3 release H+ 23 hrs = 600 TOWs -= 1 release7 The other options were variations in which other armaments?such as Maverick air-to-surface missiles, 193 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ....1 .. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Dragon surface-to-surface missiles, Improved-HAWK missiles, spares for F-4 air planes, ground artillery, and bombs?would be substituted for some or all of the TOWs. Ghorbanifar's proposal also contemplated arms deliveries beyond the initial swap.9 The Paris group agreed to meet with U.S. representatives in London on December 6 to pursue these proposals.9 North Looks for Weapons During the first few days of December, North had separate meetings with Assistant Secretary of Defense Richard L. Armitage and Israeli Ministry of Defense officials.' ? The purpose of these sessions was to estab- lish liaison between the Pentagon and the Israelis and to identify methods of obtaining weapons to ship to the Iranians or to replenish Israeli stocks following Israeli shipments." One of the Israeli officials met Armitage at the Pentagon on December 2." Armi- tage testified that he could not recall whether he met with the official or what they discussed." Armitage testified that he warned North of resistance to the plan within the Defense Department, noting that Sec- retary Weinberger would be "appalled" if he knew North was dealing with Iranians." Nonetheless, after this meeting, Armitage asked Dr. Henry Gaffney, Di- rector of Plans, Defense Security Assistance Agency (DSAA), to prepare a paper on I-HAWKs and I- TOWs and directed Glenn A. Rudd, Deputy Director of DSAA, to prepare a paper on the legal methods for transferring TOW and HAWK missiles to Iran." Rudd's two-page paper, entitled "Possibility for Leaks," discussed legal methods of selling HAWKs and TOWs to Iran and outlined the inherent risks of Congressional disclosure or discovery by the security assistance community. Rudd concluded there was no way to transfer the weapons, whether directly to Iran or through Israel to Iran, under the Arms Export Control Act without notifying Congress; nor, he said, was there any way to prevent the security assistance community of bureaucrats, diplomats, and arms manu- facturers and dealers from learning of the transfers." When he received Rudd's paper, Armitage instruct- ed Rudd to treat the matter as very confidential and destroy all drafts. Armitage kept the sole copy in his personal office safe.'7 When Armitage briefed Wein- berger prior to a December 7, 1985, meeting at the White House, they reviewed "all the arguments that I [Armitage] had laid out, plus the legal arguments which I had mentioned in passing, and that he had absorbed." '8* *Weinberger did not recall such a meeting, but did not dispute that it had occurred. Weinberger Test., Hearings, 100-10, at 97. In any event, at the White House meeting on December 7, he was well-prepared to attack the plan on a variety of legal and policy grounds. 194 North Lays Out A Plan On December 4, North wrote a PROF message to Poindexter setting out the current situation and pro- posing a new arms-for-hostages transaction. He de- scribed the "extraordinary distrust" the Iranians de- veloped because Schwimmer and Ledeen had prom- ised that the missiles shipped in November could fly high enough to stop Soviet reconnaissance flights. He said, "None of us [Kimche, Meron, Secord] have any illusions about the cast of characters we are dealing with on the other side. They are a primitive, unso- phisticated group who are extraordinarily distrustful of the West in general and the Israelis/U.S. in particu- lar."19 While acknowledging "a high degree of risk" in continuing the operation, North emphasized, "we are now so far down the road that stopping what has been started could have even more serious repercus- sions." He exhorted Poindexter to press on in a way that suggested the United States was already subject to Iranian extortion: If we do not at least make one more try at this point, we stand a good chance of condemning some or all [of the hostages] to death and a renewed wave of Islamic Jihad terrorism. While the risks of proceeding are significant, the risks of not trying one last time are even greater.2? North outlined the proposal slated for the upcom- ing meeting in London. He said the "package" would comprise deliveries from Israel of "50 I HAWKs w/ PIP (product improvement package) and 3300 basic TOWs" and reported that the Iranians had already deposited $41 million to pay for these items and that this sum was "now under our control."2' The sched- ule that North laid out made plain that this would be an unadulterated swap of arms for hostages: H-hr: 1 707 w/300 TOWs = 1 AMCIT H+ 10hrs: 1 707 (same A/C) w/300 TOWs = 1 AMCIT H+16hrs: 1 747 w/50 HAWKs & 400 TOWS =- 2 AMCITs H+20hrs: 1 707 w/300 TOWs = 1 AMCIT H+24hrs: 1 747 w/2000 TOWs = French Hos- tage22 As it had been previously, the schedule was set up so that the Americans had to deliver weapons before the Iranians would produce any hostages. North also reported to Poindexter that "replenish- ing Israeli stocks" is "probably the most delicate issue." He proposed that the Israelis purchase replace- ments with cash, rather than with Foreign Military Sales credits. However, he ignored the legal question about third-country transfers under the Arms Export Control Act. Lastly, North told Poindexter that be- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 sides themselves, only National Security Adviser Robert McFarlane and Duane Clarridge of the CIA had a complete understanding of the full plan.23 Clar- ridge has denied that he and North discussed this plan, and said that the appearance of his name in North's PROF message is probably due to North's "tendency to use my name with McFarlane and Poin- dexter because if I said it was a good idea, then they tended to think it was a good idea."24 The following day, North put the proposal into an unsigned, unaddressed memorandum. This memoran- dum made clear that all 3,300 TOWs and all 50 Im- proved HAWK missiles would come from Israel's "prepositioned war reserve."25 North's memorandum proposed not only that Congress not be notified about the operation and replenishment, but also that there be a cover story to explain why Israel needed to buy weapons: The Israelis have identified a means of transfer- ring the Iranian provided funds to an Israeli De- fense Force (IDF) account, which will be used for purchasing items not necessarily covered by FMS. They will have to purchase the replenish- ment items from the U.S. in FMS transaction from U.S. stocks. Both the number of weapons and the size of the cash transfer could draw at- tention. If a single transaction is more than $14.9 M, we would normally have to notify Con- gress. The Israelis are prepared to justify the large quantity and urgency based on damage caused to the equipment in storage.26 Although the Finding CIA Counsel Stanley Sporkin drafted in November contemplated delayed Congres- sional notification, North's proposal represented an entirely different approach: structuring the transaction so as to evade Congressional reporting altogether. As North was putting together his plan for a new arms-for-hostages deal, the CIA stood by to provide support for more flights into Iran. In the days after the HAWK shipment, Clarridge and CIA stations in Countries 16 and 18 exchanged numerous cables relat- ing to clearances for anticipated flights from Israel to Iran transiting at Country 18 and overflying Country 16.27 On November 27, Clarridge told the stations that the "operation is still on but we have encoun- tered delays" and that "whatever was supposed to happen after the first sortie did not happen and we are regrouping." 2 8 On December 3, he reported to them: "We are still regrouping. Key meetings of prin- cipals will take place this weekend with earliest possi- ble aircraft deployments sometime mid to late week of December 8."29 Clarridge left the United States on other business in early December. However, before leaving he told his deputy to expect another flight to Iran on a project being run by the NSC for which the CIA would be asked to obtain clearances.30 (For an organizational chart of the CIA in 1985, see Figure 11-1.) The President Signs a Finding McFarlane returned to his office on December 3 for the first time after the Geneva summit. He had al- ready told the President of his decision to resign, and he tendered his resignation the following day." On December 3 and 4, McFarlane had several lengthy meetings with Poindexter. However, he does not recall any discussion of the status of the covert action Finding3 2?which CIA Director William Casey had delivered to Poindexter with a recommendation that the President sign it and about which McMahon had been anxiously pestering Poindexter for days.33 On December 5, in one of his first acts as National Security Adviser, Poindexter presented the Finding to the President at his daily national security briefing. The President signed it.34 Poindexter's notes of his daily briefing of the President refer to the Finding.35 Chief of Staff Donald Regan was present at this brief- ing, but testified that he has no recollection of the Finding or the President's signing it: I have racked my brains since I've read about it in the press, that you have had testimony to that effect. I've checked with my members of the staff, the White House staff who were working with me at the time, as to whether they remem- ber it. No one can remember seeing that docu- ment.3 6 Poindexter testified that he was never happy with the Finding because it failed to mention any objec- tives other than trading arms for hostages. He said he submitted it to the President without the staffing and review that normally accompanies a Finding. In fact, other than Casey and McMahon?who both urged that the Finding be signed?Poindexter did not recall discussing it with anyone else.37* *McMahon recalled that Sporkin told him he was going to con- sult with the Department of Justice and the White House counsel before finalizing the Finding. (McMahon Dep., 9/2/87, at 52) North testified that he believed that Meese had "seen and ap- proved" this Finding before it was signed. However, he based this not on personal knowledge but on his understanding that "[alit Findings are reviewed by the Attorney General." (North Test., Hearings, 100-7, Part I, at 71-72) Both Poindexter and Meese testi- fied that Meese was not consulted. (Poindexter Test., Hearings, 100- 8, at 125; Meese Test., Hearings, 100-9, at 8-9). 195 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 CD o) Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 National Intelligence Council General Counsel Inspector General Office of Legislative Liaison 1 Figure 11-1. Organization Chart of the Central Intelligence Agency. DIRECTOR OF CENTRAL INTELLIGENCE I DEPUTY DIRECTOR OF CENTRAL INTELLIGENCE 1 EXECUTIVE DIRECTOR Public Affairs Office Comptroller DIRECTOR OF INTELLIGENCE COMMUNITY STAFF DEPUTY DIRECTOR FOR OPERATIONS I DEPUTY DIRECTOR FOR SCIENCE &TECHNOLOGY I Office of Research & Development Office of Development & Engineering Foreign Broadcast Information Service Office of SIGINT Operations Office of 4_ Technical Service ,_1National Photographic Interpretation Center April 1985 Source: Fact Book on Intelligence, Central Intelligence Agency. DEPUTY DIRECTOR FOR INTELLIGENCE Office of Soviet Analysis Office of European Analysis Office of Near Eastern & South Asian Analysis Office of East Asian Analysis Office of African & Latin American Analysis Office of Scientific & Weapons Research Office of Global Issues Office of Imagery Analysis Office of Current Production & Analytic Support Office of Central Reference 1 DEPUTY DIRECTOR FOR ADMINISTRATION 1 Office of Medical Services Office of Security Office of Training & Education Office of Finance Office of Logistics Office of I Information Services Office of Information Technology Office of Communications Office of Personnel ?EEO 1- H H 1- H H H 1- I- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Poindexter testified that, to him, the primary signifi- cance of the Finding was its retroactivity?a feature that was highly unusual, if not unique.* He said, "There really wasn't a forward-looking aspect to the Finding."38 However, at the time that the Finding was signed, Poindexter was considering the detailed plan that North had presented for further arms sales, and this was the subject of a meeting two days later with the NSC principals. The original of the signed Finding was kept in Paul Thompson's safe at the NSC.38 Contrary to normal practice, the CIA and other agencies were not given a copy. Indeed, no copies were made. McMahon said that he knew of no other occasion when this oc- curred.4? When the Iran initiative was unraveling almost a year later, Poindexter destroyed this Finding. He be- lieved that if the Finding came to light it would cause "significant political embarrassment" to the President because it would reinforce the emerging picture that the United States had traded arms for hostages.'" In addition, the Finding was evidence of the Administra- tion's contemporaneous knowledge of the HAWK shipment, a fact that Poindexter, Casey, North, and others sought to conceal in November 1986. Poindexter Briefs Shultz The same day the President signed the Finding, Poindexter briefed Secretary of State George Shultz by telephone on the status of the Iran initiative. The briefing?Shultz's first from Poindexter on the sub- ject?was not complete: Poindexter did not even men- tion the Finding. Not knowing he was hearing only part of the story, Shultz commented at the time to an aide, "he [Poindexter] told me more than I had known before of what went on in the latter half of 1985 and I felt this was a good thing and we were off to a good start."42 Shultz told Poindexter that the Iran initiative was a "very bad idea"" and that "[w]e are signaling to Iran that they can kidnap people for profit." 4 4 That same day, December 5, CIA Deputy Director John McMahon convened a meeting with several top CIA officials, including Robert Gates, Edward Juch- niewicz, and Chief of the Near East Division (C/NE). McMahon said that a meeting with the President was slated for the weekend to "take stock" of U.S. efforts to free hostages and expand ties with Iran. He re- quested that various facts relating to Iran's military strength and the status of the Iran-Iraq war be pulled together. Someone at the meeting reviewed what had * Poindexter testified that he could recall only "one or possibly two other findings that had a retroactive nature to them. I, frankly, was always uncomfortable with that, because I thought it didn't particulary make a lot of sense." (Poindexter Test., Hearings, 100-8 at 18) In Executive Session, Poindexter testified that after further thought, he could not recall any other retroactive Findings. (Poin- dexter Test., Executive Session, 8/6/87, at p. already happened, including the November 24 ship- ment and the preparation and signing of the Finding, and the planning for more shipments, including North's chartering of planes and his upcoming trip to London for more talks." North Raises Contra Diversion with Israelis On the day after the President signed the Finding, December 6, North remarked during a meeting with Israeli officials that the United States wanted to use profits from the upcoming arms sale to Iran to fund U.S. activity in Nicaragua. The meeting, which was held in New York, concerned replenishment of Israeli TOWs. One of the Israeli officials made handwritten notes of this meeting on December 12, 1985. Accord- ing to these notes, the Israelis were told by North that not only did the United States have no budget to pay for the 504 TOW missiles (and planned on the Israeli Government's receiving this money from the Israeli intermediaries), but that in the future the United States wanted to generate profits from this transaction in order to finance part of its activity in Nicaragua. According to the Israeli Historical Chro- nology, North had a position paper with him at the meeting that he said was to be presented to the Presi- dent at a meeting the following day.48** North testified that he recalled no such conversa- tion, though he could not rule it out: My recollection was that the first time it [the diversion] was specifically addressed was during a [later] meeting with Ghorbanifar. It may well have come up before, but I don't recall it.47 North testified that his "clearest recollection" was that the notion of using the residuals for the Contras was first suggested by Ghorbanifar in January 1986.48 North flew from New York to London on Decem- ber 6 and met with Secord, Ghorbanifar, Kimche, Schwimmer, and Nimrodi to discuss the 50-HAWK, 3,300-TOW proposal that North had previously pre- sented to Poindexter." Ghorbanifar acknowledged that the Iranians were having increasing difficulty maintaining control over the Hizballah captors and pressed vigorously for a quick renewal of arms ship- ments.8? The President and His Advisers Review the Initiative While North was moving full-steam ahead in the negotiations, the President and his top national securi- ty advisers debated the Iranian initiative at an infor- *4' Two of the Israeli officials at the December 6 meeting, who did not take notes, did not recall the remarks of North recorded by the other Israeli official in his notes. Israeli Historical Chronology. 197 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 mal meeting on the morning of Saturday, December 7, in the White House residence. Present were the President, Secretaries Shultz and Weinberger, McMa- hon (sitting in for Casey, who was out of town), McFarlane, Poindexter, and Regan.5' According to McFarlane, the purpose of the meeting was "to review what has taken place since the President's approval of August and the negative viewpoints of the Secretaries of State and Defense to the effect that we hadn't achieved our purpose, and [that the initia- tive] was degenerating into an arms for hostage ar- rangement."52 The discussion that ensued "was now more specific than it had been in August, and it was about a specific plan" to trade weapons for hos- tages.53 Secretary Shultz, Secretary Weinberger, and Regan all voiced strong opposition to the initiative. Secre- tary Shultz advanced multiple policy reasons for not pursuing it. His "talking points" for the session stated that the initiative would "negate the whole policy" of not making "deals with terrorists"; that he doubted it would buy the United States influence with moderates in Iran; that it would undoubtedly become public and "badly shakeir moderate Arabs when they learned that the United States was "breaking our commitment to them and helping the radicals in Tehran fight their fellow Arab Iraq"; and that U.S. allies would be "shocked if they knew we were helping Iran in spite of our protestations to the contrary."54 Secretary Weinberger also forcefully voiced oppo- sition, including on legal grounds. He said the pro- posed arms deal would violate both the U.S. embargo against the shipment of arms to Iran and the restric- tions on third-country transfers of U.S.-provided arms in the Arms Export Control Act. He later testified: "[T]here was no way in which this kind of a transfer could be made if that particular Act governed."55 Secretary Weinberger also pressed many of the ar- guments made by the Secretary of State: I ran through a whole group [of specific objec- tions] and raised every point that occurred to me, including the fact that we were at the same time asking other countries not to make sales of weap- ons to Iran, that there was no one of any reliabil- ity or, indeed, any sense with whom we could deal in Iran and the government, and that we would not have any bargain carried out, that if we were trying to help get hostages released, why there would be a real worry that the matter would not be held in any way confidential, that we would be subjected to blackmail, so to speak, by people who did know it in Iran and else- where, and that we had no interest whatsoever in helping Iran in any military way, even a minor way, and that in every way it was a policy that we should not engage in and most likely would not be successful.56 198 Secretary Weinberger told the President that the initi- ative "wouldn't accomplish anything, and that they [the Iranians] would undoubtedly continue to milk us."57 McMahon argued that the long-range rationale of the arms transactions?to bring about a more mod- erate regime in Iran?was unfounded. I said that I was unaware of any moderates in Iran, that most of the moderates had been slaugh- tered by Khomeini, that whatever arms we give to these so-called moderates they will end up supporting the present Khomeini regime and they would go to the front and be used against the Iraqis and that would be bad." McMahon "was convinced that all of this was an arms for hostage arrangement, no matter what you called it. . . ."33 There is evidence that McMahon also argued that Ghorbanifar was unreliable.60 The President, along with McFarlane and Poin- dexter, spoke in favor of continuing the initiative.6" According to Secretary Shultz: The President, I felt, was somewhat on the fence but rather annoyed at me and Secretary Wein- berger because I felt that he sort of?he was very concerned about the hostages, as well as very much interested in the Iran Initiative.62 Secretary Shultz testified that the President was "fully engaged" in the conversation and frustrated with the situation.63 In response to Weinberger's legal objections, Shultz recalls that the President responded: "'Well, the American people will never forgive me if I fail to get these hostages out over this legal question,' or some- thing like that." Weinberger replied: "'[B]ut visiting hours are Thursday', or some such statement."64" The participants left the meeting with different views about whether the initiative would proceed. According to Poindexter, the President wanted to pursue every means of trying to get the hostages back.65 But McFarlane recalled that the President, with disappointment and frustration, approved the po- sition of no more arms sales to Iran, at least pending the London meeting." McMahon said that no deci- sion was made, and that the President left the meeting to do his Saturday afternoon radio broadcast, telling his advisers to "talk more on this and see what ought to be done."67 Secretary Weinberger testified that he believed the initiative had been put to rest once and for all. Indeed, he returned to the Pentagon after the *Casey was also in favor of continuing the initiative at this point, according to Poindexter. Poindexter Test., Hearings, 100-8, at 25. **Shultz testified that this "banter" between the President and Secretary Weinberger did not have the tone of the President advo- cating violating the law, but rather "was the kind of statement that I am sure we all make sometimes when we are frustrated." Shultz Test., Hearings, 100-9, at 32. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 meeting and told his military aide that "this baby had been strangled in its cradle, that it was finished."'" And Secretary Shultz "wasn't sure" where things stood after the meeting, but believed that he and Secretary Weinberger had prevailed.69 A striking aspect of the December 7 meeting was what was not discussed: According to McMahon and Weinberger, neither the November shipment of HAWK missiles, nor the Finding that was signed just two days earlier, came up.70 Despite varying impressions of the meeting, the President directed McFarlane to go to London to meet with Ghorbanifar and others. Poindexter testi- fied that the purpose was to "check out" the Israeli channel to Iran so that the President could have first- hand information on which to base a decision."* McFarlane testified that his purpose was to stress to Ghorbanifar that the United States was open to politi- cal discourse with Iran but no arms sales." But there is evidence of a more specific purpose: McFarlane was to try to talk Ghorbanifar into arranging a release of the hostages outside the framework of an arms deal, or at least before any more arms deliveries." Poindexter proposed at one point during the meeting that McFarlane also have authority, if the Iranians rejected this approach, to inquire whether the British Government would perform the replenishment sales to Israel that Weinberger had argued the United States could not make.74 There is no evidence that such an approach was made. McFarlane Meets Ghorbanifar in London On December 8, McFarlane joined Kimche, Secord, North, Nimrodi, and Ghorbanifar in London." McFarlane presented an agenda that focused on a political opening with Iran and on areas of possible common interests between the United States and Iran. In contrast, Ghorbanifar wanted to talk only about specified numbers of TOW missiles for each hos- tage.76 Ghorbanifar explained that the Iranians were very angry over receiving the wrong kind of HAWK missiles. McFarlane responded: "[G]o pound sand, that is too bad."77 McFarlane was "revolted" by the bargaining and found Ghorbanifar to be a "borderline moron." 7 8 North's view of the meeting was slightly different. He thought McFarlane was telling Ghorbanifar that there could be no more arms sales until after the hostages were released, not that McFarlane was pre- cluding arms sales.79 Once again, as the initiative began to come apart, North raised the specter of the death of the hostages in retaliation for a U.S. decision to break off the negotiations. In a memorandum to *In fact, the United States already had substantial first-hand in- formation on Ghorbanifar from both CIA officials and Ledeen. McFarlane and Poindexter, he wrote: "[A]ll it would take for the hostages to be killed is for Tehran to 'stop saying no' [to the captors]."" McFarlane, North, and Secord flew back to Wash- ington together on December 9. On the way back, McFarlane said he was very unhappy with Ghorbani- far's arms-for-hostages pitch. He viewed Ghorbanifar as a businessman interested only in profit and "one of the most despicable characters he had ever met."" North was unhappy with McFarlane's negative re- action" and that day wrote an "eyes only" memoran- dum to McFarlane and Poindexter entitled "Next Steps." In it, North reviewed options that he saw as necessary "[i]f we are to prevent the death or more of the hostages in the near future."'" After reviewing the problems of Ghorbanifar's untrustworthiness, Schwimmer's arrangement of previous deals that an- gered the Iranians and left Israel with inadequate funds for replenishment, and the United States' "lack of operational control over transactions with Ghor- banifar," North initially set out four options: the arms- for-hostage swap discussed in London, an Israeli de- livery of 4.00 to 500 TOWs to Iran to restore "good faith," a military raid, and "do nothing." North sum- marily rejected the "do nothing" approach: Very dangerous since U.S. has, in fact, pursued earlier Presidential decision to play along with Gorbanifahr's plan. U.S. reversal now in mid- stream could ignite Iranian fire?hostages would be our minimum losses." North testified that Casey shared his view that termi- nating the negotiations would lead to the death of the hostages. 8 5 At the end of the memo, North described a "fifth option": the United States would directly sell arms to Iran, acting pursuant to a Presidential Finding and using Secord as an operational "conduit."'" The Iran initiative was restructured over the next few weeks to closely resemble this "fifth option." Moreover, using the Enterprise as a conduit for the arms sales pro- ceeds facilitated the diversion of funds to the Contras that North had mentioned to the Israelis only a few days earlier.** McFarlane Briefs the President on the London Meeting On December 10, McFarlane briefed the President on the London meeting. Also present were Casey, **On the same day that North prepared this "Next Steps" memo- randum, he also met with the General Counsel of the CIA, Stanley Sporkin. (North Calendar, 12/9/85, N336) Sporkin recalls that McMahon was to attend this meeting as well and that the purpose was to discuss McMahon's desire that the CIA's role in the Iran initiative be eliminated or reduced. Sporkin Test., Hearings, 100-6, at 127-128. 199 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Poindexter, North, and Regan.87* McFarlane empha- sized that Ghorbanifar lacked integrity and that the initiative was unlikely to bear fruit if he remained the channel to the Iranians." At the same time, McFar- lane or North said that abandoning the initiative would risk the lives of the hostages." The President seemed influenced by this concern." No decision was reached about the future of the initiative, and again there were differing perceptions about what would happen. The President continued to hope that its continuation might lead to freedom for the hostages. McFarlane recalled that the Presi- dent asked, [W]hy couldn't we continue to let Israel manage this program, and was expressing and searching for, I think understandably, ways to keep alive the hope for getting the hostages back, and it is quite true that the President was profoundly con- cerned for the hostages." Casey left the meeting with "the idea that the Presi- dent had not entirely given up on encouraging the Israelis to carry on with the Iranians."82 I suspect he would be willing to run the risk and take the heat in the future if this will lead to springing the hostages. It appears that Bud [McFarlane] has the action." Poindexter testified that the President was disappoint- ed that Ghorbanifar appeared to be so unreliable, but was reluctant to abandon the project." In contrast, State Department officials were left with the impres- sion that the initiative was dead. Under Secretary of State Michael Armacost reported to Shultz, who was in Europe, that "Bud's recommendation, upon return- ing from his latest discussions, was to drop the enter- prise. That has now been agreed."88 Late that evening, Clarridge's deputy, who was the acting Chief of the CIA's European Division in Clar- ridge's absence, cabled CIA stations in Countries 16 and 18 to inform them that there would be no more flights, at least in the short run. He wrote: As late as last night the negotiating was still going on. We have just received word now that the deal is apparently all off. Don't know why yet or whether there is a possibility that it will revive in the future. . . . [F]or now it looks like we are standing down." Poindexter to North: Keep Trying Following the briefing, Poindexter had the clear im- pression that the President wanted to continue the program, and he moved to put it "on a sounder foot- Some of the participants place Weinberger at this meeting, but he has no recollection of it. 200 ing."87 Casey too was "a very strong advocate of proceeding."88 Poindexter told North to continue his efforts to keep the Iran initiative moving forward." This involved at least three steps: first, preparing a fully staffed and more comprehensive covert action Finding; second, substituting a new team?to be lead by North and Israeli Amiram Nir?to replace Ledeen, Schwimmer, and Nimrodi; and third, finding a legal way to sell arms to Iran. On this last point, Poin- dexter asked North to work with "the appropriate people at CIA and in [Attorney General] Ed Meese's office, if not Ed Meese himself.99100 The CIA Evaluates Ghorbanifar Ledeen, with North's approval, aggressively urged the CIA to establish an intelligence relationship with Ghorbanifar. In early December, Ledeen met with the CIA's Duane Clarridge and Charles Allen. He told Allen the history of the Iran initiative, including the HAWK missile debacle. He then explained why he believed Ghorbanifar had contacts that could help the CIA gain insights into the Iranian regime and assist its counterterrorism efforts. Ledeen said Ghor- banifar was "a good fellow who is a lot of fun" and "praised [him] to the hilt."1?1** Allen passed the information to the CIA's Near East Division for eval- uation.102 After meeting with Ghorbanifar in mid-December in Switzerland, Ledeen met with Casey on December 19 and repeated his arguments for dealing with the Iranian. Casey reacted favorably but indicated a need to clear up the controversy over Ghorbanifar's poor record with the CIA.'" Casey called Deputy Director for Operations Clair George and instructed him to arrange a new evalua- tion of Ghorbanifar.'" On December 22, the Chief of the Iran branch at the CIA interviewed Ghorbani- far at Ledeen's home. Ledeen and Allen were there and North showed up near the end. Ledeen told the Chief of the Iran branch that Ghorbanifar is "a won- derful man . . . almost too good to be true." The conversation focused on terrorism and leading person- alities in Iran.108 The Chief of the Iran branch reported to his CIA superiors that he was "only further convinced of the untruthfulness or lack of trust that we could put in Mr. Ghorbanifar." They decided that Ghorbanifar should be given a polygraph test, and Ghorbanifar agreed.1" After hearing the briefing on Ghorbanifar, Casey sent the President an "eyes only" letter stating that one of the ongoing initiatives to free the hostages was a plan involving Ghorbanifar. Casey wrote of **At this time, Ledeen also outlined Ghorbanifar's proposal for an anti-Libyan "sting" operation in which the assassination of a leading opponent of Qadhafi would be staged and later revealed to be faked. Ledeen Dep., 6/22/87, at 167, 172-74. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Ghorbanifar: "He has 3 or 4 scenarios he would like to play out." ?7 The decision to consider continued reliance on Ghorbanifar was remarkable. Previously, Agency offi- cials had found his information so marked by deceit, lies, and self-serving proclamations that it had issued a "burn notice" warning the U.S. intelligence communi- ty that he could not be trusted and should not be dealt with.'" Moreover, the information Ghorbanifar was providing was almost impossible to corroborate. He alone was explaining the Iranian position on the hostage issue. The last deal he had helped arrange, the November HAWK shipment, had been a com- plete disaster. Acceleration of the Initiative: January 1986 Israelis Add a New Element to the Negotiations: The Southern Lebanon Army Prisoners In mid-December, 1985, Amiram Nir, adviser to the Prime Minister of Israel, became involved in the Iran operation; he later became the liaison to the Ameri- cans and Ghorbanifar. Nir, who reportedly was un- aware of the secret Iranian arms deals prior to this time, had spent the last month exploring whether American hostages in Lebanon would be released if the Southern Lebanon Army freed Shiite prisoners. Nir proposed to his superiors that he discreetly get the reaction of the Americans to a hostage release initiative along these lines.'03 After being briefed on the U.S.-Israeli Iran oper- ation, Nir began work on a plan linking that operation with his own plan. He presented to high-ranking Is- raeli officials a proposal that included: (1) a direct sale of TOWs out of Israeli arsenals to Iran and the simul- taneous release of American hostages; (2) a purchase by Israel from the United States of replacement arms, using the proceeds from the Iran sale; (3) exerting Israeli influence to obtain the release of prisoners held by the Southern Lebanon Army; (4) the handling of all logistics by the Israelis to enable the Americans to deny any involvement; and (5) the construction of a convincing cover story to explain the release of the hostages and the prisoners."? Nir then went to London in late December to meet, for the first time, with Ghorbanifar and one of the Israeli intermediar- ies. The three hammered out a detailed?but tenta- tive?plan embodying these elements. The Israeli Government authorized Nir to present this plan to the United States but made clear that the transaction could occur only with U.S. agreement to the entire concept and that Israel would assist in whatever way the Americans requested, but not play a leading role.''' Nir Comes to Washington On January 2, 1986, Nir flew to Washington to meet with Poindexter and North at the request of Prime Minister Peres."2 In an opening meeting with North in a hotel, Nir said that he had an idea about how to improve the progress of the Iranian oper- ation. 113 Nir met later that morning with Poindexter, North, and Don Fortier, Poindexter's deputy, and laid out his plan."4 The central features of the proposal were recorded by Poindexter in his notes: the Israelis would ship to Iran 4,000 "unimproved TOWs"; after the delivery of the first 500, all five American hos- tages would be released; simultaneously the Southern Lebanon Army would release "20-30 Hizballah pris- oners who don't have blood on their hands."' " If the American hostages were released, Israel would ship to Iran the other 3,500 TOWs and Iran would "con- firm" its agreement for "no more hostages [and] terror."116 Under the plan, the United States would replace the TOWs only if the hostages were released. If the hostages were not released, replenishment was not required and Israel would have lost 500 TOWs. If they were freed, then the United States would replace the 4,000 TOWs, plus the 500 TOWs the Israelis had shipped in 1985." 7 Rapid replacement of the TOWs was of particular concern to Nir. He emphasized that the number of TOWs would decrease Israel's arsenal when tension with Syria increased the urgency to keep Israel's arse- nal at full strength. To address Israel's concerns about readiness, Nir called for the United States to "preposi- tion" substitute TOWs near Israel as soon as possible in case a sudden need for them occurred. Thereafter, the United States was to proceed with "regular steady replacement" of the TOWs by sale to Israel. The Israelis also wanted a U.S. commitment that, if the operation were exposed, the United States would say it knew of the operation and did not object.'" Nir and North Discuss Use of Residuals Nir's proposal included another feature: generating profits that could be diverted to other covert projects. This was not a new concept: Nir and North had talked generally about joint covert operations in No- vember, and North had told other Israelis in Decem- ber that the United States wanted to use profits from the arms sale under discussion at that time to finance U.S. activities in Nicaragua. Poindexter recalled that at either the January 2 meeting or another meeting with Nir a few days later, "[t]here also was a very brief, general discussion about some other cooperative activities." North? who talked alone with Nir several times during the first days of January?testified to a more specific dis- cussion about uses for the "residuals": 201 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 [I ....1 . 1 . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 I recall that we met New Year's day or the day after . . . and it was his [Nir's] proposal at that point to use the profits by the arrangement they envisioned, selling Israeli TOWs at a profit, re- plenishing them with part of that money, using part of that money for other operations. . . . I do not believe he mentioned contras at that meeting, but my recollection is we began to talk in early January about other joint U.S.-Israeli, and in some cases unilateral Israeli operations of a cer- tain kind. . . .120 A New Finding Is Prepared Poindexter realized from the start that if the United States embraced the Nir proposal for revitalizing the Iranian initiative, a new covert action Finding would be essential. In notes that he wrote on a flight to join the President in California immediately after the Janu- ary 2 meeting he jotted: "Covert Finding?already pregnant for 500."121 Poindexter testified that the "500" was a reference to the TOWs that Israel had already shipped to Iran with U.S. approval but with- out a Finding.122 On the same day that Nir advanced his new pro- posal, North contacted Sporkin to set in motion the drafting of a new covert action Finding to authorize the activity. North told Sporkin he wanted a more expansive Finding than the one Sporkin prepared in November. He said it should "cover certain other activities, that there was a broader concept to the relationship that was being considered with A first draft of the new Finding, prepared by a CIA staff lawyer who was told nothing of the No- vember Finding,124 did not mention the objective of gaining the release of American hostages. It did au- thorize shipment of arms to Iran. This draft included the standard provision calling for the Director of Central Intelligence to report the activity to the Intel- ligence Committees of Congress.125 On January 3, Sporkin edited the draft Finding, making several significant changes. First, he put the provision calling for Congressional notification in brackets, and above it inserted new language directing that the Director instead "refrain from reporting . . . until I [the President] otherwise direct." Sporkin made this change to present squarely to the President the alternatives on notification. Sporkin also changed the description section of the Finding. He apparently sent this draft to North during the day on January 3.126 The draft contained no references to hostages. North asked Sporkin to meet with him that night to work on the Finding. Before agreeing to this, Sporkin tracked down Casey?who was vacationing in Flori- da?and asked if he should do so. Casey told Sporkin that he knew nothing about what was going on, but that Sporkin should meet North and keep Casey in- 127 202 At the meeting, North showed Sporkin another draft of the Finding.'" The preamble of the North draft included only the nonnotification alternative, a modification that Poindexter, and?North assumed? the President, approved.'" Among other changes were inclusion of a reference to "third parties" and a reference to "USG" (U.S. Government)?rather than just the CIA?as the entity authorized by the Finding to act.'" Sporkin understood "third parties" to refer "to the people that were working with Iran, Ghor- banifar," as well as the Israelis who, Sporkin learned, were involved in the initiative in November."' The North draft, like the Sporkin draft, contained no ref- erence to the central quid pro quo for the arms sales?the hostages. Later that evening or the following day, North called Casey, and Casey's reaction to the renewed initiative was positive. North then reported to Poin- dexter that Casey "thought the Finding was good and that this is probably the only approach that will work."32 The next day, North drafted a cover memorandum for Poindexter to send to the President with the Find- ing. North wrote JIM Nir had proposed a plan "by which the U.S. and Israel can act in concert to bring about a more moderate government in Iran." He said that under the plan, this goal was to be achieved by providing "military materiel, expertise and intelli- gence" to "Western-oriented Iranian factions." Pro- viding such items to moderates would enable them to come to power by "demonstrat[ing] their credibility in defending Iran against Iraq and in deterring Soviet intervention," North said.133 North's draft cover memorandum described the role to be played by the United States under the plan: As described by the Prime Minister's emissary [Nir], the only requirement the Israelis have is an assurance that they will be allowed to purchase U.S. replenishments for the stocks that they sell to Iran. Since the Israeli sales are technically a violation of our Arms Export Control Act em- bargo for Iran, a Presidential Covert Action Finding is required in order for us to allow the Israeli sales to proceed and for our subsequent replenishment sales.134 North's memorandum thus makes plain that he under- stood that, without a Finding, the sale of U.S.-made weapons by Israel to Iran would violate the Arms Export Control Act. The memorandum also stated that if the plan were approved and the Finding signed, Israel would "uni- laterally" commence delivery of TOW missiles to Iran in January, the United States would replenish Israeli stocks in less than 30 days, and five American hostages in Beirut would be released.'" The memo- randum made no reference to Nies proposal regard- ing release of dozens of prisoners held by the South- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 em Lebanon Army, nor to the plan to use profits for other covert operations. On Sunday, January 5, North, Sporkin, and Casey met at Casey's home to discuss the new plan and the draft Finding. Casey read the draft Finding along with a draft cover memorandum and voiced his ap- prova1.136 Sporkin, however, felt uncomfortable about omitting the hostage release objective from the Finding and raised this concern with Casey. Accord- ing to Sporkin, North explained to Casey that the State Department did not want this in the Finding because it would create an appearance of a "hostage- for-arms shipment" and therefore would not "look right." Sporkin argued that the hostage release aspect of the Finding was a "very important element" that "ought to be in there." Casey agreed.'" Apparently around this time, North also revised the cover memorandum to the President. He deleted the statement that the contemplated Israeli sales were a "technical violation" of the Arms Export Control Act and included a sentence expressly recommending that "you exercise your constitutional p[r]erogative to withhold notification of the Finding to the Congres- sional oversight committees until such time that you deem it to be appropriate."138 On Monday, January 6, North hand-carried the draft Finding and cover memorandum to Attorney General Meese for his review. North discussed it with the Attorney General and his deputy, D. Lowell Jensen. Attorney General Meese approved the Find- ing and the "procedures we were using," according to North.139 Attorney General Meese does not recall the meeting, but is "satisfied that it took place.',140 Jensen testified that North presented the papers for "informational" purposes only, and that the Attorney General was not asked for, and did not offer, any opinion.14 The President and Advisers Consider the New Proposal At the morning national security briefing on Janu- ary 6, Poindexter told the President of the Nir pro- posal.'" The Vice President, Regan, and Don For- tier were also present.'" The President "indicat[ed] he was in general agreement" with the proposal and decided there would be a full NSC meeting the fol- lowing day on the proposal and the Finding. Poin- dexter presented the President with the January 6 draft of the Finding at this briefing. Poindexter did not intend that it be signed at this point because it had not yet been "fully staffed" and discussed among the President's national security advisers. But the Presi- dent, not realizing that the Finding was only a pro- posal for discussion, read it and signed it, reflecting his agreement.144 ? Secretary of State Shultz, in fact, had argued at the December 7 meeting against any arms-for-hostages trade. At the full NSC meeting on January 7 were the President, the Vice President, Secretaries Shultz and Weinberger, Attorney General Meese, Casey, Poin- dexter, and Regan.'" While Secretaries Weinberger and Shultz continued to object strenuously, all others favored the plan or were neutral.'" Secretary Wein- berger, who said he had no advance knowledge about the subject, found it to be "very much a re-run" of the December meeting, except that now the President decided to go forward with the plan: I made the same points, George Shultz made the same points. Bill Casey felt that there would be an intelligence gain, and there was also talk of the hostages as one of the motivating factors, . . . but the responses of the President seemed to me to indicate he had changed his view and had now decided he wanted to do this.147 There is no record that the Vice President expressed any views. At the meeting, Attorney General Meese provided a legal opinion that the arms sales could be done legally with Israel making the sales and the United States replenishing Israel's stocks.'" Secretary Wein- berger again objected that the proposed transaction would violate the Arms Export Control Act; the At- torney General responded that there were mecha- nisms outside the AECA through which the operation could proceed legally, including "the President's in- herent powers as Commander in Chief, the President's ability to conduct foreign policy. . . ."149 Meese referred to a 1981 written legal opinion by Attorney General William French Smith stating that the CIA could legally sell to third countries weapons obtained from the Defense Department under the Economy Act. On this authority, he "concurred with the view of Director Casey that it would be legal for the Presi- dent to authorize arms transfers pursuant to the Na- tional Security Act."156 Secretary Shultz felt that it was very clear that the President wanted to go forward with the plan. To the Secretary of State, the lack of opposition "almost seemed unreal," and he left the meeting "puzzled, distressed."5' What Secretary Shultz did not know was that the President had signed a Finding on Janu- ary 6. That act, an indication of the President's re- solve, was not mentioned. North Proceeds With Plans for Replenishment That day, North called Nir in Israel and said that the United States was prepared to proceed with Nir's plan, subject to certain conditions. North said that both the President and Secretary Weinberger had agreed to the plan. North gave Nir this encoded mes- sage: 203 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 1. Joshua [President Reagan] has approved pro- ceeding as we had hoped. 2. Joshua and Samuel [Secretary Weinberger] have also agreed on method one [replenishment by sale, as opposed to "method two," replenish- ment by prepositioning]. 3. Following additional conditions apply to Albert [Code name for operation?]. A. Resupply should be as routine as possi- ble to prevent disclosure on our side. May take longer than two months. However, Albert says if crisis arises Joshua promises that we will deliver all required by Galaxie [apparently C 5A cargo plane] in less than eighteen hours. B. Joshua also wants both your govt and ours to stay with no comment if operation is disclosed. 4. If these conditions are acceptable to the Banana [Israel] th[e]n Oranges [U.S.] are ready to proceed.152 Neither of the "additional conditions" proposed by the U.S. side dealt with the substance of the oper- ation. North's notes reflect that the purpose for "rou- tine" resupply spread over a period of months was to enable the purchases by Israel to be broken "into lots of less than Cong[ressional] limit" and to avoid "rais- ing eyebrows."153 The "no comment" proposal would enable the United States?even after the oper- ation was publicly exposed?to avoid acknowledging its central role. Nir and North also discussed terms for replenish- ment sales.'" By this time, the Chief of the Israeli Procurement Mission in New York and Noel Koch, Principal Deputy Assistant Secretary of Defense for International Security Affairs, had been designated as the Israeli and American contacts for hammering out the details.155 Nir told North that Israel could not use the money the Iranians had paid for the 504 TOWs shipped in 1985 to buy replacements because this money was not available. On this point, North's notes state: "Regarding the first 504, it was agreed that the $ was used for other purposes."156 Over the next few days, Nir told North that Israel could pay only $5,000-$5,500 per missile and that the Depart- ment of Defense, using a replacement cost figure, was demanding that Israel pay more.'" On January 9, Nir and North discussed how to use the money Iran would pay for the TOWs. North jotted the following calculation: $10M total 2.5 to Ops 1.5 to Gorba $6M avail for 4500'59 204 The note indicates that Israel was to receive $10,000 per TOW from Iran, or $10 million for the first 1,000 TOWs. From this sum, $2.5 million was to be divert- ed to "Ops,"159 which North testified were the joint Israeli-U.S. covert operations previously discussed with Nir.16? Another $1.5 million was to go to Ghor- banifar. The remaining $6 million would be available to pay the United States for the replacement TOWs. If this scheme were followed for each of the four planned shipments of 1,000 TOWs, $10 million would go for other covert operations and Israel would have $24 million to spend on replacement TOWs?enough to purchase 4,000 missiles at $6,000 each, or 4,500 missiles at a price of $5,333 each. The next day, January 10, Koch and North con- ferred about replacement of the Israeli TOWs. North's notes reflect that one option they considered was selling Israel Improved TOWs "at cos[t]."161 The reference to Improved TOWs is significant be- cause Israel was planning to send basic TOWs to Iran. Thus, the proposed transaction would substan- tially upgrade Israel's arsenal at no cost to that coun- try. The possibility that this might be an objective of the operation had caused some CIA lawyers discom- fort.162 After this conversation, Koch queried DOD Deputy Director Rudd about TOW prices. He appar- ently asked if it would be possible to ship 4,000 Basic TOWs to Israel or Iran for $12 million, or at a price of $3,000 per TOW. Rudd later told Koch that while this quantity was available, the lowest price at which basic TOWs had previously been sold was $6,800 per missile.163 In addition to the price, Koch was concerned about secrecy and Congressional notification. He knew that if the total value of the purchase exceeded $14 mil- lion, a Congressional notification would be required. Rudd told Koch a notification that the Israelis were buying 4,000 basic TOWs would be tantamount to announcing that the missiles were intended for an- other purchaser; informed persons would know the Israelis would have no use for more basic TOWs than it already had.164 Rudd counseled that the best way to get missiles secretly from the Defense Department to Iran would be to "go black"?that is, make it a covert operation with Defense selling the missiles to the CIA under an Economy Act transfer and the CIA transferring them to Iran pursuant to an intelligence Finding. Koch conveyed this conclusion to North and Weinberger's military aide, Lt. Gen. Colin Powell.'" "Going black" appeared to overcome two difficulties in the replenishment issue: (1) maintaining secrecy and avoiding Congressional notification, and (2) avoiding the strictures of the AECA. On January 12, Koch met the head of the Israeli Procurement Mission at National Airport in Washing- ton to continue negotiations on price. Koch reported Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 on this meeting to North and to Powell, who suggest- ed that Koch meet with Secretary Weinberger. Koch met with the Secretary the next day. He described the Secretary as "generally agitated over this" and be- lieved "this thing . . . was a very foolish undertak- ing." Koch commented to Secretary Weinberger, "Do we have a legal problem with this? Is somebody going to go to jail?' and [the Secretary's] response was in the affirmative. But I did not take that serious- ly."166 In a subsequent conversation with Koch, North ap- parently expressed a hope that the matter could be solved and the initial steps of the operation finished in time for the President to refer to the freeing of the hostages in his State of the Union message later in January. North jotted in his notes: "Try to get results by State of Union."167 Legal Problems Identified With Replenishment Approach While North continued to work with the Israelis on the replenishment problem, CIA lawyers were raising legal objections. One prepared a memorandum for Sporkin identifying the restrictions and various notifi- cation requirements that the Arms Export Control Act and Foreign Assistance Act placed on third-coun- try transfers.188 The lawyers concluded that weapons that had earlier been acquired from the United States under either of these acts could not be sold to Iran without "U.S. consent, notice to Congress, and the eligibility of the third country recipient for U.S. aid."189 Because the planners had determined there would be no notice and because Iran's terrorist activi- ties rendered it ineligible, the Israeli sale/U.S. replen- ishment approach was not feasible."? However, the lawyers concluded that a sale of weapons from DOD stocks to the CIA under the Economy Act, followed by a CIA sale to Israel or Iran, would be legal. A Presidential Finding would be required.'" Ghorbanifar Fails Polygraph Ghorbanifar returned to Washington in January for his new polygraph. The examination was conducted at the CIA on January 11 and lasted five hours."2 The CIA polygraph operator concluded that Ghor- banifar lied on 13 of 15 items on which he was ques- tioned."3 According to George, "The only questions he passed were his name and his nationality."174 After the test, a CIA officer reported in a memo- randum to Casey, McMahon, and Clair George: "Ghorbanifar is a fabricator who has deliberately de- ceived the U.S. Government concerning his informa- tion and activities. It is recommended that the Agency have no dealing whatsoever with Ghorbani- far."'" Afterwards, Ghorbanifar showed up at Le- deen's house "furious" and "hurting" because the questioning was more expansive than he had expected and because he claimed to be physically injured by the examination techniques.176 The following day, the Chief of the CIA's Iran branch briefed George and the Chief of the Near East Division (C/NE) on the negative results. They in- structed him to have no further contact with Ghor- banifar or Ledeen."7 George viewed the polygraph results as confirming his view of Ghorbanifar and declared to Casey that the Operations Directorate would have nothing more to do with the Iranian. He told North of this decision on January 13.178 A few days later, the Operations Directorate disseminated a notice saying the CIA would do no more business with Ghorbanifar.179 Ghorbanifar's polygraph failure, however, did noth- ing to squelch his relationship with Casey and the NSC staff. Indeed, North?who "wanted" Ghorbani- far to pass180?had braced himself for a negative result. He told Ledeen beforehand that the CIA would make sure Ghorbanifar flunked because they did not want to work with him.181 Casey, notwith- standing Clair George's advice to terminate the Ghor- banifar relationship, found a way to deal with Ghor- banifar outside the normal Operations Directorate headed by George. Casey ordered Charles Allen, who was the CIA's senior antiterrorism analyst, to meet with Ghorbanifar "to determine and make a record of all the information that he possessed on terrorism, especially that relating to Iranian terrorism?just take another look at this individual."82 In George's view, Allen virtually became the case officer for Ghorbani- far.'" To George, there could not have been a "better mismatch" between Allen?who had no expe- rience managing an agent?and Ghorbanifar?who was especially "complex" and difficult to control.'" Allen spent five hours with Ghorbanifar at Le- deen's home on January 13 "to assess Subject's access to Iranian Government leaders" and to obtain infor- mation from him on terrorists. Ghorbanifar set out several areas in which he wished to work with the U.S. Government and the CIA, including the ongoing White House effort to gain the release of the hostages in Lebanon; the blunting of Iranian-, Libyan-, and Syrian-sponsored terrorism; and assisting in the over- throw of Qadhafi.183 Allen thought some of Ghor- banifar's specific proposals worth pursuing, but he considered several of them outlandish, not worthy of exploration, and "very, very filled with hyperbo- le."188 During this session, Ghorbanifar told Allen that funds generated through the projects he was discuss- ing could be used for "011ie's boys in Central Amer- ica."87 Allen recorded this remark in his handwrit- ten notes of the meeting as "can fund Contras."88 He did not, however, refer to it in his memorandum to Casey and others on the session.189 He later ex- plained that at the time he did not "consider it impor- tant or even relevant to my particular mission," that 205 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 . L... 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 he did not discuss it with anyone else, and that he "promptly forgot it."195 On January 14, Allen briefed Casey on his session with Ghorbanifar. He told Casey that Ghorbanifar was "very hard to pin down," "very flamboyant," "very clever, cunning." Indeed, Allen called him a "con man," to which Casey jokingly responded: "Maybe this is a con man's con man then." For the moment, Allen said, he was given no further assign- ment concerning Ghorbanifar.'91 Restructuring the Deal In mid-January, the plan for the operation was re- structured in two significant respects. First, weapons to be shipped to Iran would come from U.S.?not Israeli?stocks. Second, at the direction of Poindexter, Casey, and North, Richard Secord was brought into the operation as a "commercial cut-out": a conduit for the money to be paid by Iran to the United States for the missiles. This latter change enabled the "diver- sion" of funds to support the Contras, which had already begun in November with the use of a part of the Israelis' $1 million deposit to Lake Resources, to continue in a more direct manner. A one-page, unsigned memorandum dated January 13, 1986, updated Casey on the "TOW for Hostage deal." The memorandum shows that legal obstacles and the high cost of Improved TOW missiles were pushing the planners toward transforming the deal into one in which the Iranians would receive basic TOWs sold by DOD to CIA under the Economy Act. After a review of the problems with other meth- ods, the memorandum stated: Therefore they want to use the second option under which CIA would buy 4,000 basic TOWs from DOD for $21 million. As far as Defense is concerned these purchases would be for general CIA uses. . . . The money for the Iranian ac- count would be transferred to the Israelis. The Israelis would transfer that money to a CIA ac- count to pay for this purchase of the Tows from DoD, the shippers would move the Tows to the Israelis who would then move them on to the Iranians.192 North met with Ledeen and Ghorbanifar that evening to discuss the plan. Ghorbanifar proposed that he would buy the TOWs from the United States?rather than from Israel?for $10,500 each. He said this was the same price he had paid the Israelis for the 504 TOWs in 1985. Ghorbanifar stated that he had "officially offered" the same rate to the Israelis for this deal, but that they now were asking for differ- ent terms. Ghorbanifar said that he had $4.0 million for the 4,000 TOWs, and that out of that sum he expected to receive?or at least wanted?$500,000. Ghorbanifar also explained that the total deal, negoti- ated with Nir before Christmas, called for the Israeli- 206 U.S. side to provide 4,000 TOWs, the release of 100 Hizballah prisoners held by the Southern Lebanon Army, and intelligence.193 After this meeting, North called Koch and raised the idea of designating Secord as the person to whom the United States would sell the TOWs. North's notes suggest that DOD would sell missiles directly to Secord with no involvement of the CIA and that Secord would deliver the TOWs to the Israelis.'" On the morning of January 14, North received a call back from Koch who expressed concern about how Secretary Weinberger would react to using Secord. North's notes of the call state: "Secretary will blanch." 95 Both Poindexter and Casey, however, approved Se- cord's pivotal role in the operation. According to Secord, Poindexter invited him to the White House, told him the President had approved a renewed arms transaction with Iran, and asked for his assistance."6 On January 14, Casey told North, according to North's notes, that "Secord Op [is] 0.K."127 North met with Poindexter that evening. They dis- cussed inserting Secord into the transaction as an "agent for the CIA. . . ."198 Under this arrangement, the Iranians would receive missiles from Israeli stocks; and Secord, acting as an agent for the CIA, would simultaneously buy basic TOW missiles from DOD and sell and ship them to Israel as replace- ments. The CIA would not actively participate in the operation. Poindexter directed North to discuss this approach with Casey.122 This plan called for the pri- vate North/Secord enterprise in lieu of the CIA. The CIA would have a role in name only. The Economy Act authorized intergovernmental transfers of weap- ons, but would not permit DOD to sell directly to Secord unless he were designated an "agent" of the CIA. The barrier to the plan was Secretary Weinberger. Although Casey was on board, Secretary Weinberger continued to raise objections both to the plan and to Secord's involvement. In a PROF message to Poin- dexter on January 15, North wrote: Casey believes that Cap [Weinberger] will contin- ue to create roadblocks until he is told by you that the President wants this to move NOW and that Cap will have to make it work. Casey points out that we have now gone through three differ- ent methodologies in an effort to satisfy Cap's concerns and that no matter what we do there is always a new objection. As far as Casey is con- cerned our earlier method of having Copp [Secord] deal directly with the DoD as a pur- chasing agent was fine. He did not see any par- ticular problem w/ making Copp an agent for the CIA in this endeavor but he is concerned that Cap will find some new objection unless he is told to proceed.20? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 In the same PROF message, North indicated that the "most recent proposal" to use Secord as an agent for the CIA depended on the Israelis' agreeing to pay a higher price than they were then offering the United States. The message suggests that North, knowing that Ghorbanifar was willing to pay $10,000 a TOW to the Israelis, was seeking to have more of the residual profit flow to the American side rather than to Schwimmer and Nimrodi. Minutes after writing this PROF message, North met with Sporkin to discuss Secord's role."' Sporkin interrupted this meeting to telephone one of his staff lawyers, George Clarke, to discuss whether there would be any "problems or reporting requirements" with the North/Poindexter proposal to use Secord as an "agent" of the CIA but to otherwise leave the CIA out of the operation.202 North came on the line to exhort Clarke to endorse this approach.203 Ac- cording to a "memorandum for the record" written by Clarke, the conversation went as follows: 1. At approximately 1420 hours today I received a secure line telephone call from the General Counsel. He wanted to discuss whether I saw any problems or reporting requirements with a proposal to have DoD provide weapons to a CIA "agent" who would pay for the weapons with money supplied by a friendly third country. The agent would then supply the weapons to the intended recipient country. The agent would have no connection with CIA other than to act as a "middle man" with our authority. 2. I told the General Counsel that I would feel more comfortable if CIA were directly involved in the activity and that it would be essential that we act in furtherance of a traditional covert action objective. . . . 3. Despite repeated urgings to concur in vari- ations that would have DoD provide the weap- ons without other than token CIA involvement, I did not do so. . . .203a Sporkin recalled an "argument with one of my people" about whether there was a way to structure the transaction without the CIA's getting involved. "The answer was no way.19 2 0 4 After this meeting, Sporkin prepared a paper for Casey. He advised that the "preferred way to handle the proposal" was for the CIA to take control of the materiel through an Economy Act transfer from DOD before it was moved to the Middle East. Spor- kin wrote that he could find no precedent for the purchase of materiel from DOD by someone acting as a CIA "agent," where the CIA had no other role in the transaction. Sporkin's paper did not address whether the CIA, after acquiring the arms from DOD, could deal with an intermediary, such as Secord, rather than directly with the foreign country recipient.205 One of Sporkin's main concerns was the question of notifying Congress: The key issue in this entire matter revolves around whether or not there will be reports made to Congress. Each of the Acts involved?the Foreign Assistance Act, the Arms Export Con- trol Act, and indeed the National Security Act as amended?have certain reporting provisions in them. While the National Security Act provides for a certain limited reporting procedure, it is my view that there may be other ways of making a suitable report by exercise of the President's con- stitutional prerogatives. One such possibility would be not to report the activity until after it has been successfully con- cluded and to brief only the chairman and rank- ing minority members of the two Oversight Com- mittees. This would maximize the security of the mission and reduce the possibility of its prema- ture disclosure.206 Later that afternoon, North spoke again with Sporkin, who urged that the "final proposal" be "run by" the Attorney Genera1.207 At 2:30 p.m. that day, North received a call from Nir. The conversation again focused on the financial aspects of the transaction. North's notes refer to a 25 percent cut to be paid to "other Iranians" and a 15 percent cut to "accountant," the code name for Schwimmer. Most significantly, the two discussed Se- cord's receiving more for the TOWs than he would have to pay to DOD. North wrote: "7500 each to Copp. 5300 each to DOD.'9208 Using these figures, and assuming that the deal would involve 4,000 TOWs, Secord would receive $8.8 million over his cost of buying the missiles from DOD. The next day, January 16, North continued to try to find a way to start the part of the operation that would lead to the release of the American hostages, namely, the shipment of 1,000 TOWs to Iran. At Poindexter's request, North first contacted McFarlane to find out what the understanding had been on re- plenishment of the first 504 TOWs, an issue that con- tinued to be a sticking point for Israel. McFarlane replied that the United States had undertaken to sell, over time, "requisite TOWs to replace the TOWs that they sent for Weir."2" In his notes of this phone call, North wrote: "The objection in law [is] based on Arms Export Control Act."2" North passed this in- formation to Poindexter, along with an explanation that replenishment had been blocked because the Is- raelis lacked sufficient funds to purchase Improved- TOWs and because bureaucratic problems had pre- vented a purchase of basic TOWs.2" North came up with a modified plan to get the operation moving. He proposed to Poindexter that Nir deal directly with Ghorbanifar and receive $10 207 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II ',I ..? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 million for the first 1,000 TOWs to be shipped by Israel. Schwimmer and the Iranian officials would be "cut-out" from the expected profits, and a much larger sum would be available to Nir for replenish- ment or other uses. North also proposed that Secord purchase 504 TOWs from the United States and ship them to Israel as replenishment for the 1985 transac- tions.21 2 That same afternoon, Poindexter convened in his office a meeting of senior administration officials to discuss the structuring of the transaction, the continu- ing objections of Secretary Weinberger, and the pro- posed Finding.2" Present were Secretary Weinberg- er, Casey, Attorney General Meese, Sporkin, and pos- sibly North.2 14* The Attorney General said Israel should not ship weapons out of its stocks and recom- mended that the United States instead sell directly to the Iranians. Restructuring the operation in this way, he explained, would avoid the restrictions of the Arms Export Control Act, including Congressional reporting requirements.21 5 Sporkin recalled that no decision was made at the meeting and that Secretary Weinberger wanted addi- tional time to examine the revised structure of the plan: [A]s we were breaking up, the Secretary of De- fense said that I want to review all this. I want to have my lawyers look at it and to see if that analysis is correct. And so the meeting broke up without there being any decision made. The next day, I received a call from the Direc- tor?I think it was the next day?in which he said that he received a call from the?from the Secretary of Defense, who said that his people have looked it over and they agree with the analysis and they have signed off on the project.21 6 Secretary Weinberger was unable to recall, or find anyone at the Defense Department who had per- formed, any such legal review. President Signs A New Finding Poindexter now arranged to get the President to sign the Finding. At the January 17, 1986 national security briefing attended by the President, the Vice President, Regan, Poindexter, and Fortier, Poindexter discussed the plans and referred to a new cover memorandum. The President did not read the memo- randum, but he signed the Finding. To indicate the President's decision, Poindexter wrote "RR per JMP" ? Poindexter recalled that Shultz was also present. Poindexter Test., Hearings, 100-8, at 35. Shultz testified that he was not, Shultz Test., Hearings, 100-9, at 33, and Sporkin testified that he was told Shultz had been invited but could not make it. Sporkin Test., Hearings, 100-6, at 149. Weinberger had no recollection of attend- ing this meeting. Weinberger Test., Hearings, 100-10, at 141. 208 on the approval line of the memorandum. At the bottom of the memorandum, he also wrote: "Presi- dent was briefed verbally from this paper. VP, Don Regan and Don Fortier were present."217 The January 17 Finding was almost identical to the draft Finding presented to the President on January 6. The only change was the insertion of the words "third parties" in the list of entities to be assisted by the CIA.218 The Committees have received from NSC files a copy of the January 6 version of the Finding that bears Sporlcin's handwritten insertion of this phrase.2" Sporkin testified that this change was made merely to make the first paragraph of the Find- ing symmetrical with the second, which already con- tained a reference to "third parties." He said that the term did not refer to Secord but to Ghorbanifar and other Iranian intermediaries.2 2 The cover memorandum, which North prepared and Poindexter signed, contained the same summary of the Nir proposal that North had included in his January 4 draft cover memorandum. However, the new memorandum stated that for legal reasons the operation should not be conducted as Nir proposed and should instead proceed with sales of arms from the CIA through an agent directly to Iran. Following the advice Attorney General Meese had provided the previous day, the memorandum stated: We have researched the legal problems of Israel's selling U.S. manufactured arms to Iran. Because of the requirement in U.S. law for recipients of U.S. arms to notify the U.S. government of trans- fers to third countries, I do not recommend that you agree with the specific details of the Israeli plan. The memorandum outlined the new plan to make direct sales from the CIA to Iran through Secord, who was identified only as "an authorized agent": The objectives of the Israeli plan could be met if the CIA, using an authorized agent as neces- sary, purchased arms from the Department of Defense under the Economy Act and then trans- ferred them to Iran directly after receiving ap- propriate payment from Iran. This new method was to accomplish the 4,000-TOW transaction that Nir had originally proposed. The memorandum stated: Therefore it is proposed that Israel make the necessary arrangements for the sale of 4000 TOW weapons to Iran. Sufficient funds to cover the sale would be transferred to an agent of the CIA. The CIA would then purchase the weapons from the Department of Defense and deliver the weap- ons to Iran through the agent. If all the hostages are not released after the first shipment of 1000 weapons, further transfers would cease.221 Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 As was the case with North's earlier draft, the cover memorandum to the President from Poindexter stated that "[t]he Israelis are very concerned [about] Iran's deteriorating position in the war with Iraq" and "believe it is essential that [Israel] act to at least preserve a balance of power in the region." In fact, Secretaries Weinberger and Shultz and Deputy Direc- tor McMahon all subsequently testified that this as- sessment of the state of the Iran-Iraq conflict was contrary to U.S. intelligence estimates. Secretary Weinberger stated: I certainly did not have the view that Iraq was winning or anything of that kind. Quite to the contrary. As a matter of fact, it was basically Iraqi military strategy not to pursue any kind of decisive military end. . Secretary Shultz said that while there was an intelli- gence estimate in mid-1985 suggesting that the Iranian position was deteriorating, he and others in the State Department had objected to it and by early 1986 there was a "reassessment" to the effect that Iran was viewed as "very much the aggressive country in the war."223 McMahon made the same point: "I don't have the vaguest idea where Poindexter got the idea that the Iraqis were about to take over Tehran. It just wasn't in the cards. 9,224 The cover memorandum also gave the President a lineup of the varying positions of his advisers on the proposed operation: You have discussed the general outlines of the Israeli plan with Secretaries Shultz and Wein- berger, Attorney General Meese and Director Casey. The Secretaries do not recommend you proceed with this plan. Attorney General Meese and Director Casey believe the short-term and long-term objectives of the plan warrant the policy risks involved and recommend you ap- prove the attached Finding.226 Defense Secretary Weinberger testified to the Com- mittees that he was unaware that a Finding had been signed.226 However, he recalled that around January 18, Poindexter told him the President had decided to sell 4,000 TOW missiles to Iran and instructed him to make the missiles available.227 Secretary of State Shultz testified he was unaware even of the Presidential decision to sell the weapons. He recalled a luncheon with the President's other top advisers on January 17, during which he expressed opposition to what he thought was still an unap- proved plan to sell weapons to Iran.228 According to the Tower Board, in his diary entry for January 17, 1986, the President wrote: "I agreed to sell TOWs to Iran."226 Conclusion With the signing of the Finding, the Administration was embarked on an arms-for-hostages initiative with Iran in which the United States?not Israel?would play the lead role. The President set this course over the continued objections of his Secretaries of Defense and State, and notwithstanding the CIA's renewed determination that the Iranian intermediary, Ghorban- ifar, could not be trusted. In a change from the 1985 arms deals, Poindexter, Casey, and North had structured the transactions planned for 1986 in a manner that would leave the United States in possession and control of the large "residuals" that would flow from the sales. Secord and the Lake Resources Enterprise were established as a conduit for the money paid for the missiles by Iran. North and Nir had several ideas about how these profits would be used. Foremost in North's mind was the potential for diversions to the Contra effort. 209 77-026 0 - 87 - 8 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I . I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Chapter 11 1. North Notebook, 11/27/85 (misdated 10/27/85), Q1357. 2. Ledeen Dep., 6/19/87, at 112. 3. Id. at 112. 4. Secord Test., Hearings, 100-1, at 90. 5. North Notebook, 12/1/85, Q1360-Q1361. 6. Secord Test., Hearings, 100-1, at 90. 7. North Notebook, 12/1/85, Q1361. 8. Id. 9. Secord Test., Hearings, 100-1, at 90. 10. Israeli Historical Chronology; North Notebook, 12/2/ 85, Q1367. 11. Israeli Historical Chronology, to the extent the pas- sage refers to replenishment of Israeli stocks. 12. Id. 13. Armitage Dep., 7/22/85, at 169, 173. 14. Id. at 174. 15. Gaffney Test., Hearings, 100-6, at 65-67; Extract from Gaffney Work Diary, Ex. DOD-8, Hearings, 100-6; Gaff- ney-Rudd Dep., 6/22/87, at 2-7. 16. "Prospects for Immediate Shipment of I-HAWK and I-TOW missiles," Ex. DOD-9, Hearings, 100-6. 17. Gaffney-Rudd Dep., 6/22/87, at 19. 18. Armitage Dep., 7/22/87, at 207. 19. PROF Note, North to Poindexter, 12/4/85 (02:02:55), Ex. JMP-21, Hearings, 100-8. 20. Id. 21. Id. 22. Id. 23. Id. 24. Clarridge Test., Hearings, 100-11, at 22. 25. Unsigned Paper, "Special Project Re Iran," 12/5/85, Hearings, Ex. OLN-49, 100-7, Part III. 26. Id. (emphasis added). 27. CIA Cables between Headquarters and CIA Chiefs in Countries 16 and 18, C5774-5814. 28. CIA Cable from headquarters to CIA Chief in Coun- try 16, C5805; CIA Cable from headquarters to CIA Chiefs in Countries 16 and 18, C5810. 29. CIA Cable from Headquarters to CIA Chiefs in Countries 16 and 18, 12/3/85, C5812. 30. CIA Deputy Chief, Europe, Interview Report, 8/26/ 87. 31. McFarlane Test., Hearings, 100-2, at 55, 104-05. 32. Id. at 105. 33. Poindexter Test., Hearings, 100-8, at 18, 123. 34. Id. at 17-18, 123-25. 35. Poindexter Handwritten Note, 12/5/85, Ex. JMP-20, Hearings, 100-8. 36. Regan Test., Hearings, 100-10, at 13-14. 37. Poindexter Test., Hearings, 100-8, at 17-18, 125. 38. Id. at 273. 39. Id. at 19. 40. McMahon Dep., 6/1/87, at 109. 41. Poindexter Test., Hearings, 100-8, at 18-21. 42. Shultz Test., Hearings, 100-9, at 7. 43. Id. at 7. 44. Shultz Tower Int., 1/22/87, at 29. 45. Memorandum for the Record by McMahon's Special Assistant, 11/28/86 (reconstruction of notes from 12/5/85 meeting), 10396-97. 46. Israeli Historical Chronology. 210 47. North Test., Hearings, 100-7, Part I, at 295. 48. North Test., Hearings, 100-7, Part I, at 106, 294-95. 49. Secord Test., Hearings, 100-1, at 91. 50. North Notebook, 12/6/85, Q1377. 51. The Vice President was not present. 52. McFarlane Test., Hearings, 100-2, at 55. 53. Weinberger Test., Hearings, 100-10, at 135-36. 54. Shultz Talking Points, 12/7/85, Ex. GPS-16, Hearings, 100-9. 55. Weinberger Test., Hearings, 100-10, at 137. 56. Id. at 136. 57. Weinberger Tower Int., 1/14/87, at 11. 58. McMahon Dep., 6/1/87, at 124. 59. Id. at 127. 60. Allen Dep., 4/21/87, at 169. 61. Shultz Iran Chronology, Ex. GPS-B at 3, Hearings, 100-9. 62. Shultz Test., Hearings, 100-9, at 31. 63. Id. at 31-32. 64. Id. at 32. 65. Poindexter Test., Hearings, 100-8, at 25. 66. McFarlane Test., Hearings, 100-2, at 56. 67. McMahon Dep., 6/1/87, at 125. 68. Weinberger Test., Hearings, 100-10, at 137. 69. Shultz Test., Hearings, 100-9, at 32. 70. McMahon Dep., 6/1/87, at 127-28; Weinberger Test., Hearings, 100-10, at 138. 71. Poindexter Test., Hearings, 100-8, at 26. 72. McFarlane Test., Hearings, 100-2, at 56. 73. Shultz Iran Chronology, Ex. GPS-B at 3, Hearings, 100-9. 74. Id. 75. McFarlane Test., Hearings, 100-2, at 56-57; Secord Test., Hearings, 100-1 at 92. 76. McFarlane Test., Hearings, 100-2 at 57. 77. Id. at 103. 78. Id. at 57, 180. 79. Memorandum from North to McFarlane and Poin- dexter, 12/9/85, Ex. OLN-51, Hearings, 100-7, Part III. 80. Id. 81. Secord Test., Hearings, 100-1, at 92-93. 82. Allen Dep., 4/24/87, at 255. 83. Memorandum from North to McFarlane and Poin- dexter, 12/9/85, Ex. OLN-51, Hearings, 100-7, Part III. 84. Id. (emphasis in original). 85. North Test., Hearings, 100-7, Part I, at 285. 86. Memorandum from North to McFarlane and Poin- dexter, 12/9/85, Ex. OLN-51, Hearings, 100-7. 87. North Test., Hearings, 100-7, Part I, at 282; Memoran- dum from Casey to Deputy Director of Central Intelli- gence, 12/10/85, Ex. CG-47, Hearings, 100-11; Regan Test., Hearings, 100-10, at 14. 88. Id.; Memorandum from Casey to Deputy Director of Central Intelligence, 12/10/85, Ex. CG-47, Hearings, 100- 11; Poindexter Test., Hearings, 100-8, at 29-30. 89. Id.; McFarlane Test., Hearings, 100-2, at 57; Poin- dexter Test., Hearings, 100-8, at 26-27. 90. Memorandum from Casey to Deputy Director of Cen- tral Intelligence, 12/10/85, Ex. CG-47, Hearings, 100-11. 91. McFarlane Test., Hearings, 100-2, at 59. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 92. Memorandum from Casey to Deputy Director of Cen- tral Intelligence, 12/10/85, Ex. CG-47, Hearings, 100-11. 93. Id. 94. Poindexter Test., Hearings, 100-8, at 335. 95. State Department Cable, from Armacost to Shultz, 12/11/85, Ex. GPS-17, Hearings, 100-9. 96. CIA Cable, Headquarters to CIA Chiefs in Countries 16 and 18, 12/11/85, Ex. OLN-69, Hearings, 100-7 Part III. 97. Poindexter Test., Hearings, 100-8, at 127-28. 98. North Test., Hearings, 100-7, Part I, at 285. 99. Id.; Poindexter Test., Hearings, 100-8, at 128. 100. Poindexter Test., Hearings, 100-8, at 127-28. 101. Allen Memo. for Record, 12/18/85, Ex. CG-45, Hearings, 100-11; Allen Dep., 4/24/87, at 229; Ledeen Dep., 6/22/87, at 166-80, 248-50. 102. Allen Dep., 4/24/87, at 288-89. 103. Ledeen Dep., 6/19/87, at 114; Ledeen Dep., 6/22/ 87, at 187-88, 246. 104. Clair George Test., Hearings, 100-11, at 210. 105. Memorandum for Director of Central Intelligence from Chief, Iran branch, Subject: Meeting with Michael Ledeen/Manuchehr Ghorbanifar, Ex. CG-49, Hearings, 100- 11. 106. Clair George Test., Hearings, 100-11, at 210. 107. Letter from Casey to the President, 12/23/85, C4852-53. 108. CIA Fabricator Notice on Ghorbanifar, 7/25/84, C1462-64. 109. Israeli Historical Chronology. 110. Id. 111. Id. 112. Poindexter Handwritten Notes, 1/2/86, Ex. JMP-23, Hearings, 100-8. 113. Israeli Historical Chronology. 114. Id.; Poindexter Test., Hearings, 100-8, at 27-29. 115. Poindexter Handwritten Notes, 1/2/86, Ex. JMP-23, Hearings, 100-8. 116. Id. 117. Id. 118. Id. 119. Poindexter Test., Hearings, 100-8, at 57. 120. North Test., Hearings, 100-7, Part I, at 296. The Israeli Chronologies do not corroborate this version. 121. Poindexter Handwritten Note, 1/2/86, Ex. JMP-23, Hearings, 100-8. 122. Poindexter Test., Hearings, 100-8, at 130. 123. Sporkin Test., Hearings, 100-6, at 129. 124. Roseman Dep., 6/10/87, at 8-9, 18. 125. Draft Covert Action Finding, 1/2/86, Ex. SS-6, Hearings, 100-6. 126. Draft Covert Action Finding (Sporkin-redraft), 1/3/ 86, Ex. SS-8, Hearings, 100-6; Sporkin Test., Hearings, 100-6, at 133-134. 127. Id. at 135-136. 128. Id. at 136. 129. Id.; North Test., Hearings, 100-7, Part I, at 289; Draft Covert Action Finding (North redraft), 1/3/86, Ex. SS-9, Hearings, 100-6. 130. Id. 131. Sporkin Test., Hearings, 100-6, at 136. 132. Memorandum from North to Poindexter, Subject: Covert Action Finding on Iran, 1/4/86, Ex. OLN-52, Hear- ings, 100-7, Part III. 133. Unsigned Memorandum for the President from Poin- dexter, prepared by North, undated, Ex. OLN-52, Hearings, 100-7, Part III. 134. Id. 135. Id. 136. Sporkin Test., Hearings, 100-6, at 139-142. 137. Id. at 142-144. 138. Unsigned Memorandum for the President from Poin- dexter, Prepared by North, undated, N1323-25 139. North Test., Hearings, 100-7, Part I, at 289; North Calendar, 1/6/86, N11822; Jensen Dep., 7/6/87, at 19-33. 140. Meese Test., Hearings, 100-9, at 196. 141. Jensen Dep., 7/6/87, at 27. 142. Poindexter Test., Hearings, 100-8, at 30. 143. NSC Meeting Chronology, unsigned and undated, N7718. 144. Poindexter Test., Hearings, 100-8, at 30. 145. NSC Meeting Chronology, unsigned and undated, N7718. 146. Shultz Test., Hearings, 100-9, at 33. 147. Weinberger Test., Hearings, 100-10, at 138-40. 148. Poindexter Test., Hearings, 100-8, at 31. 149. Weinberger Test., Hearings, 100-10, at 139. 150. Meese Test., Hearings, 100-9, at 197. 151. Shultz Test., Hearings, 100-9, at 33. 152. North Notebook, 1/7/86, Ex. OLN-69A, Hearings, 100-7, Part III. 153. Id. 154. Id. 155. Id. 156. Id. The Israeli Historical Chronology does not sup- port this note. 157. North Notebook, 1/9/86, Ex. OLN-69A, Hearings, 100-7, Part III; Israeli Historical Chronology. 158. North Notebook, 1/9/86, Ex. OLN-69A, Hearings, 100-7, Part III. 159. Id. 160. North Exec. Sess. Test., 7/9/87, at 10. 161. North Notebook, 1/10/86, OLN-69A, Hearings, 100- 7, Part III. 162. Memorandum for the Record, George W. Clarke, 1/ 15/86, Ex. SS-17, Hearings, 100-6. 163. Koch Test., Hearings, 100-6, at 71-72; Rudd Dep., 6/ 16/87, at 16-19. 164. Koch Test., Hearings, 100-6, at 72. 165. Id. at 72-73. 166. Id. at 74-77. Weinberger did not recall such a discus- sion. 167. North Notebook, 1/13/86, Ex. OLN-69A, Hearings, 100-7, Part III. 168. CIA Legal Staff Memorandum, Subject: Third Country Transfer of Equipment Provided Under the For- eign Assistance or Arms Export Control Acts, Ex. SS-20, Hearings, 100-6. 169. CIA Legal Staff Memorandum, Subject: Proposed Iran Finding, 1/7/86, Ex. SS-13, Hearings, 100-6. 170. Id. 171. Id. 172. CIA Memorandum on Ghorbanifar Polygraph, 1/13/ 86 (incorrectly dated '85), C6092-95. 173. Id. 174. George Test., Hearings, 100-11, at 159. 211 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H 1 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 175. Routing and Record Sheet from Chief of the Near East Division of the CIA to various CIA officials, 1/13/86, C6089. 176. Ledeen Dep., 6/22/87, at 260-61. 177. Chief of CIA Iran branch Int., 4/13/87. 178. North Notebook, 1/13/86, Ex. OLN-69A, Hearings, 100-7, Part III; George Test., Exec. Sess., Hearings, 100-11, at 159-60. 179. Id. at 160. 180. George Test., Exec. Sess., Hearings, 100-11, at 159. 181. Ledeen Dep., 3/11/87, at 100-01. 182. Allen Dep., 4/24/87, at 312. 183. George Test., Exec. Sess., Hearings, 100-11, at 161. 184. Id. 185. Allen Memorandum for the Record, 1/29/86, Ex. CG-51, Hearings, 100-11. 186. Allen Dep., 4/24/87, at 324-35. 187. Memorandum for Carroll L. Hauver from Charles E. Allen, February 13, 1987, C184-85. 188. Allen Handwritten Notes of Meeting with Ghorbani- far, 1/13/86, C180. 189. Allen Memorandum for the Record, 1/29/86, Ex. CG-51, Hearings, 100-11. 190. Allen Dep., 6/4/87, at 323-27. 191. Id. at 339-40. 192. Unsigned Memorandum, 1/13/86, Ex. OLN-55, Hearings, 100-7, Part III. 193. North Notebook, 1/13/86, Ex. OLN-69A, Hearings, 100-7, Part III. 194. North Notebook, 1/13/86, Ex. OLN-69A, Hearings, 100-7, Part III. 195. North Notebook, 1/14/86, Ex. OLN-69A, Hearings, 100-7, Part III. 196. Secord Test., Hearings, 100-1, at 96-97. 197. North Notebook, 1/14/86, Ex. OLN-69A, Hearings, 100-7, Part III. 198. Id. 199. Id. 200. North PROF, 1/15/86, 13:02:18, Ex. OLN-57, Hear- ings, 100-7, Part III. 201. Sporkin Calendar, 1/15/86, C1780; North Calendar, 1/15/86, N11824. 202. Memorandum for the Record, George Clarke, 1/15/ 86 (1440 Hours) Ex. SS-17, Hearings, 100-6. 203. Id.; Clarke Dep., 6/3/87, at 66-67. 212 203a. Ex. SS-17. 204. Sporkin Test., Senate Select Committee on Intelli- gence, 12/3/86, at 77. 205. Talking Points prepared for Casey by Sporkin, 1/15/ 86, Ex. SS-16, Hearings, 100-6. 206. Sporkin Talking Points for Casey, 1/15/86, Hearings, Ex. SS-16, Hearings, 100-6. 207. North Notebook, 1/15/86, Ex. OLN-69A, Hearings, 100-7, Part III. 208. North Notebook, 1/15/86, Ex. OLN-69A, Hearings, 100-7, Part HI. 209. North Notebook, 1/16/85 (misdated 1/15/86), Ex. OLN-69A, Hearings, 100-7, Part III. 210. Id. 211. PROF Note, North to Poindexter, 1/16/86 (13:39:54), Ex. OLN-57, Hearings, 100 7, Part III. 212. Id. 213. Sporkin Test., Hearings, 100-6, at 149; Poindexter Test., Hearings, 100-8, at 35; PROF Note, North to Poin- dexter, 1/15/86 (18:37:47), Ex. OLN-57, Hearings, 100-7, Part III. 214. NSC Meeting Chronology, N7718; Poindexter Test., Hearings, 100-8, at 35. 215. Poindexter Test., Hearings, 100-8, at 128. 216. Sporkin Test., Hearings, 100-6, at 149-50. 217. Memorandum for the President from Poindexter, 1/ 17/86, Subject: Covert Action Finding Regarding Iran, Ex. JMP-28, Hearings, 100-8; Iran Finding, 1/17/86, Hearings, Ex. JMP-29D, Hearings, 100-8. 218. Iran Finding, 1/17/86, Hearings, Ex. JMP-29D, Hearings, 100-8. 219. Iran Finding, 1/6/86 (Draft with Sporkin handwrit- ten edits), Ex. SS-15, Hearings, 100-8. 220. Sporkin Test., Hearings, 100-6, at 153. 221. Memorandum for the President from Poindexter, 1/ 17/86, Ex. JMP-28, Hearings, 100-8. 222. Weinberger Test., Hearings, 100-10 at 146. 223. Shultz Test., Hearings, 100-9 at 159. 224. McMahon Dep., 9/2/87 at 68. 225. Memorandum for the President from Poindexter, 1/ 17/86, Ex. JMP-28, Hearings, 100-8. 226. Weinberger Test., Hearings, 100-10, at 242. 227. Weinberger Test., Hearings, 100-10, at 381-383. 228. Shultz Test., Hearings, 100-9, at 187-188. 229. Tower Report at III-12. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Arms Sales to Iran: The United States Takes Control The President's decision to sign the Finding on Friday, January 17, 1986, marked the beginning of U.S. control over the Iran arms sales initiative. In November 1985, the United States had acted as a necessary and supporting player to the Israeli plan to ship weapons; the January 17 Finding established that weapons from U.S. stocks would be transported and sold under U.S. control. The Finding also brought the Central Intelligence Agency (CIA) into the initiative in a more substantial way than it had been in the prior shipment. Yet de- spite the Finding, the CIA would continue to play only a supporting role to the National Security Coun- cil (NSC)-sponsored initiative. While providing logis- tic and technical support?and a mechanism for get- ting the weapons from the Department of Defense (DOD) under the Economy Act?the CIA deferred to the NSC staff in evaluating the reliability of the intermediaries and the likelihood of success of the initiative. Over the next few months, negotiations among the Iranian representatives, the intermediary, and the American officials continued. The pattern established in the 1985 sales would continue. In February, the United States sold 1,000 TOW missiles to Iran and no hostages were released. Instead, the Iranians insisted on the sale of HAWK spare parts and the United States agreed. Although the arms sales were a failure in achieving the goals set forth in the Finding, they were success- ful in another way. The Iranians were willing to pay substantially more for the military goods than they cost, and part of the excess filled the bank account of the Enterprise. As North testified, the possibility of using these profits to aid the Contras provided addi- tional incentive to pursue the Iranian initiative. The Finding Is Implemented On January 18, CIA General Counsel Stanley Spor- kin, CIA Deputy Director for Operations Clair George, and the CIA Deputy Chief of the Near East Division (DC/NE) met in the White House Situation Room with National Security Adviser John Poin- dexter, Oliver North, and Richard Secord to define the Agency's responsibilities. Poindexter and North told the CIA representatives that the Finding had been signed and discussed with them the CIA's role in the arms sales initiative. The CIA's "point man," DC/ NE, was to arrange for the Agency to acquire 4,000 TOW missiles from the DOD for sale to Iran. He was also instructed to establish a CIA account through which funds could be delivered to the Department of Defense for purchase of the missiles.' Although the Finding was directed to the CIA, the Agency's re- sponsibilities as outlined at the meeting put it in a role of lending logistic support for the NSC staff, which would be principally conducting the negotiations. DC/NE recalled that the group discussed a provi- sion in the Finding that instructed the CIA Director not to notify Congress of the covert activity: I think Admiral Poindexter did say that this was a very sensitive undertaking . . . and that the President felt very strongly that the Congress would not be notified until a later date. I took that later date to mean after the hostages were released . . . that after the delivery of the first shipment of TOWs the hostages would be re- leased, meaning all of the American hostages in Lebanon. So we were looking at this . . . as a fairly short-termed thing.2 At the January 18 meeting, George met Secord for the first time when Secord was introduced as a con- sultant to the NSC.3 George knew of Secord's past association with Edwin Wilson, the former CIA offi- cer who was then serving time in a Federal prison for a variety of offenses. George was concerned about Secord's involvement and following the January 18 meeting advised Director Casey of his opinion.4 George cautioned Casey: "If they are going to ship arms to Iran for hostages . . . don't use Secord."5 George expressed even greater disapproval when he discovered that Iranian intermediary Manucher Ghorbanifar was to be involved. The exact point at which George became aware of Ghorbanifar's role in the Iran initiative is unknown, although he implied in testimony that he knew either as a result of, or short- ly following, the January 18 meeting. Shortly after Ghorbanifar failed a CIA polygraph test on January 213 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 11, 1986, George issued a "field notice"* to senior CIA officials in Europe instructing them to avoid dealing with Ghorbanifar. Only a few days later while in the White House, George was "given the Finding to which, surprise, surprise, the guy I am going to be dealing with or supporting the National Security Council to deal with, is Ghorbanifar."6 Prior to the signing of the January 17 Finding, George advised North of Ghorbanifar's polygraph test results. He also recalled warning Casey against dealing with Ghorbanifar, but "before I could go through one more fight about Mr. Ghorbanifar, [the CIA] received a Presidential order which . . . ended up meaning we were dealing with Mr. Ghorbanifar." Eventually, Casey designated Charles Allen to over- see Ghorbanifar's activities.7 North told the CIA officers that the arms sales were imminent. DC/NE moved quickly to implement the plan: on January 20, he instructed the CIA Direc- tor of Finance to designate a Swiss bank account that could be used immediately for a large deposit. The finance officer identified a Swiss account number, which DC/NE later forwarded to the NSC. A "clean," or unused, account was originally requested to avoid commingling funds from the sale of TOWs with those used for other Agency purposes. Because the Agency's finance officers needed several days to open a clean account, DC/NE decided to use an existing CIA account customarily available for large transactions. 8 DC/NE told his finance officers to expect a deposit of $30 million. He based this figure on an estimate he had received from DOD of approximately $6,000 per TOW and indicated that the deposit would come from a "private source." DC/NE asked North for a contact at DOD with whom he could arrange to obtain the TOWs. North told DC/NE to contact Secretary Weinberger's mili- tary aide, then-Maj. Gen. Colin Powell. When DC/ NE telephoned Powell several days later, the general explained that he was aware of the sensitivity of the operation, knew where the weapons were to be deliv- ered, and knew the covert activity was supported by a Finding. Powell named Lt. Gen. Vincent M. Russo as the CIA's contact at Russo told DC/NE originally that the price would be around $6,000 per TOW, a price with which North had problems. DC/NE recalled North's reac- tion to that figure: The initial price was precisely?it was Russo tell- ing me it was going to be something around 6,000 per. And I recall telling North that and he recalled?it doesn't make any difference to me [DC/NE] whether they charge three or six or *A "field notice" is a fabricator warning issued to specific CIA stations, as opposed to a "burn notice," which receives world-wide CIA distribution. 214 nine?I recall North saying, 'well, that is too high, they must be giving you a brand new mis- sile replacement cost figure, and they should be charging for the oldest model TOW in stock. We don't care if these things in fact work real well. Tell the Army that we want the oldest thing they can find in the warehouse.' So I went back to Russo and said, let me make clear that we don't need the very best, latest thing right off the fac- tory line. The eventual price was approximately $3,400 per TOW, including freight costs." North's attitude that he did not "care if these things in fact work real well" is inconsistent with the goals of opening a broader initiative with Iran and freeing the hostages. Demonstrably antiquated or unworkable merchandise most likely would promote distrust; indeed, the controversy over the November 1985 HAWK shipment had been caused in part by the Iranians' claim that the 18 HAWKs did not meet their expectations. DC/NE next directed a CIA logistics officer to coordinate through the Defense Department for the TOW purchases. DC/NE told the officer that the weapons transfer was a direct arms-for-hostages ex- change that would occur soon. The officer stated that the proposed price of the TOWs?$6,000 each?was a reasonable cost for the improved version of the mis- sile. Upon contacting Russo, however, he learned that the CIA could obtain the basic TOW, the oldest one in the Army's stocks, for approximately $3,400 per missile.' 2 On January 20, North noted: "Price must be firm for Defense [Department]?Must be less than 6K." Under the figure showing 4,504 TOWs, North jotted, "Nir knows 10K upper limit?Dick [Secord] arrange w/Nir"." The notes suggest that Nir and North had agreed that the TOWs sold to Iran must not exceed $10,000 per unit but that the CIA would not pay more than the original DOD price of $6,000 per TOW. In the plan to sell 1,000 of the missiles to Iran in February, North and Nir were expecting to obtain $4 million above the cost of the missiles. When North learned he could obtain the basic TOW for substan- tially less, the anticipated profit for the Enterprise increased. The Army Executes the Tasking On January 18, Powell telephoned Gen. Maxwell R. Thurman, Vice Chief of Staff of the Army, with a secret, "close hold" assignment for the Army: to pre- pare 4,000 basic TOW missiles to be shipped to the CIA." Within a week, the number was increased to 4,508 to cover the 508 missiles" Israel had shipped in September that McFarlane had agreed to replenish. Thurman, who was not told the ultimate destination Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 of the missiles or the purpose of the shipment, dele- gated the responsibility down the chain of com- mand" and ultimately to Maj. Christopher Simp- son.' 7 The instructions were to maintain a degree of secre- cy unusual even for weapon transfers to the CIA: no notes; communications only by secure telephone or face to face; and the number of people privy to the operation kept to a minimum. The imposition of such extraordinary secrecy led the Army to bypass its normal system for interagency transfers, with that sys- tem's safeguards against underpricing, depleting stock- piles, and affecting defense readiness." Even though the secrecy guidelines were strictly observed, an ap- parently accidental error in the price became crucial. By inadvertently using the wrong stock number for the TOW, the Army underpriced the missile and cre- ated a price differential broad enough to generate a significant surplus of funds for the Enterprise. Pricing the TOW Missiles Simpson went directly to the TOW Project Manag- er at the Army Missile Command at Redstone Arse- nal in Huntsville, Alabama. Powell had been asked to provide a "basic," or "vanilla," TOW?one that had not been manufactured since 1975. The basic TOW, however, had experienced mechanical problems that required the Army to make design modifications." The TOW Deputy Project Manager informed Simp- son he had sufficient basic TOWs to meet the order but that the TOWs needed the safety modification, which would add to the expense.2? Simpson set about pricing the TOWs in what seemed to be a logical manner?he checked the Army's catalogue of inventoried items, complete with national stock numbers and prices. Simpson found the price to be $3,169 for a basic TOW, to which he estimated an additional $300 for the safety modifica- tion?a total of $3,469 per missile. Simpson quoted that price to the CIA.21 There were, however, eight different models of TOWs listed in the catalogue. Unknown to Simpson, when safety modifications became a required feature, the Army created a new stock number for the basic TOW with the modification and a corresponding new, and much higher, price. Using the correct stock number, the Army should have provided the CIA a cost of $8,435 per missile.22 Although Simpson's testimony is inconsistent on the question of whether he was aware that the Army catalogue price for the basic TOW with modifications was $8,435, there are indications that some officials in the Army became aware of the erroneous price. The original paperwork providing for the transfer of the TOWs from their storage depot carried the correct price, $8,435, not the $3,469 price that Simpson had computed. As the TOWs traveled from the depot to Redstone Arsenal, the price was dropped from the accompanying documentation. By the time the CIA received the first shipment of missiles, the receipt reflected Simpson's price of $3,469. Indeed, while the transfer documents accompanying the first and third shipments from the Army and the CIA carried the Simpson price, the receipts for the second shipment did not reflect any price. Testimony from Army offi- cials about the changing prices in these documents has been inconsistent and inconclusive. Amid the pricing confusion, the CIA received a better missile than it had bargained for. While the Army had basic TOWs in stock, it did not have sufficient parts to perform the safety modification. It tried to sell the CIA a more expensive and later version of the TOW, the improved TOW, or "I- TOW," which did not require modification. However, the CIA would not pay more than the quoted price of $3,469. As a result, the Army had to alter the TOW package, selling the I-TOW launch motor with the basic TOW warhead, which produced a superior product.2 3 Army officials included in these pricing decisions have denied any intent to lower the price of the TOWs, and the Committees have found no evidence to the contrary. What is apparent, however, is that in fulfilling the CIA request for TOWs in early 1986, the Army bypassed its usual method of obtaining, pricing, and transferring weapons. The emphasis on keeping the transaction secret, even from those involved in the process, led to a significant pricing error, one that North exploited to the advantage of the Enterprise. Without this pricing error, there would have been a much smaller difference between the $10,000 per TOW Ghorbanifar was willing to pay and the actual cost of the TOWs?and the diverted profits to the Enterprise would have been minimal. The London Meeting Armed with a low, firm price for the TOWs, North, Secord, and Amiram Nir, an adviser to Israeli Prime Minister Shimon Peres, met with Ghorbanifar in London on January 22, their first meeting follow- ing the President's approval of the Finding. North expressed reservations about the operation, explaining that the United States desired a more moderate Irani- an regime, a cessation of terrorism by Iran, and the return of the American hostages. In his notes of that date, North recorded a plan that included, in addition to TOWs and intelligence, the release of Hizballah prisoners held by the Southern Lebanon Army for hostages: Phase I A-Provide small piece of Intel B-Iranian Govt will release $40M C-$10M sent to (blank) D-1000 TOWs, Basic Intel Package, 215 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Hizb[allah] Prisoners from [Southern Lebanon Army] -= hostage release.24 North testified that he was dissatisfied with the notion of selling weapons to Iran until this meeting with Ghorbanifar.25 North's stated reluctance is in- consistent with the testimony of Sporkin and others, who described North as a strong advocate for the plan and a leader in getting it adopted by the Presi- dent." Nevertheless, according to North, the induce- ment that caused him to embrace the plan was a suggestion by Ghorbanifar to divert profits from the arms sales to the Contra forces. North described his conversation with Ghorbanifar during a lull in the London meetings: Mr. Ghorbanifar took me into the bathroom and Mr. Ghorbanifar suggested several incentives to make that February [TOW] transaction work, and the attractive incentive for me was the one he made that residuals could flow to support the Nicaraguan resistance. He made it point blank and he made it by my understanding with the full knowledge and acquiescence and support, if not the original idea of the Israeli intelligence serv- ices, the Israeli Government . . . I think you have seen it in my messages to my superiors, I was not entirely comfortable with the arrangements that had been worked in the summer of 1985 and in the autumn and winter of 1985. I made it very clear. I was after all the person who had the responsibility for coordinating our counterterror- ist policy. I had written for the President's words, "We will not make concessions to terror- ists." For the very first time in January, the whole idea of using U.S. weapons or U.S.-origin weapons or Israeli weapons that had been manu- factured in the United States was made more palatable. I must confess to you that I thought using the Ayatollah's money to support the Nica- raguan resistance was the right idea and I must confess to you that I advocated that.27 The tape recording of that meeting does not reflect the private conversation which North described. In- stead, it reveals that Ghorbanifar discussed assisting the Contras openly, in the presence of North, Nir, and Secord: GHORBANIFAR: "I think this is now, 011ie, the best chance because we never would have found such a good time, we never get such good money out of this. [Laughingly] We do every- thing. We do hostages free of charge; we do all terrorists free of charge; Central America for you free of charge; American business free of charge; [First Iranian Official] visit. Everything free." NORTH: "I would like to see, . . . some point this, uh, idea, and maybe, y'know, if there is some future opportunity for Central America. 216 You know that there is a lot of Libyan, a lot of Libyan and Iranian activity with the Nicara- guans." 2 8 McFarlane had been disgusted with Ghorbanifar's direct linkage of hostages to arms in the December 1985 London meeting. The trading was even more explicit in January 1986. The tape reflects that Ghor- banifar demanded that 100 prisoners held by the Southern Lebanon Army be released as part of the quid pro quo for the American hostages. When Nir explained that the Southern Lebanon Army held fewer than 50 prisoners, Ghorbanifar demanded that 50 be released even if more prisoners had to be taken in order to release that number." Poindexter declared that he first learned of the pos- sibility of diverting arms sales proceeds from North in early February 1986. He said that following North's meetings in London, North briefed him on progress being made domestically by CIA and DOD in pro- curing TOW missiles. Poindexter recalled North casu- ally mentioning, "Admiral, I think I have found a way that we can provide some funds to the democrat- ic resistance [Contras] through funds that will accrue from the sale of arms to the Iranians." Poindexter claimed that he considered the diversion to be "a very good idea" that he approved orally after only a few minutes conversation.30 Poindexter stated that the diversion was merely an implementation of the President's policy and a deci- sion Poindexter had authority to make without con- sulting the President. Nevertheless, Poindexter admit- ted knowing that public revelation of the diversion's approval by him would result in his leaving the Ad- ministration, although he said that he "probably un- derestimated" the effect public knowledge of the op- eration would eventually have on the Administra- tion." Poindexter stated that he made the diversion decision without consulting the President in order to give the President "deniability." He acknowledged, however, that he had never acted that way before and that he had a reputation for keeping his superiors informed.3 2 What had begun as an initiative to obtain the re- lease of the American hostages had now assumed a second, inherently conflicting goal. The Finding set forth a policy of selling weapons in order to obtain the release of hostages and to secure an opening to Iran. Use of the arms sales to aid the Contras created an incentive to charge the highest price the Iranians would pay while selling the least expensive equip- ment, a policy unlikely to win Iranian confidence or the hostages' freedom. On January 24, North prepared a sophisticated "no- tional timeline" for Poindexter under the name "Oper- ation Recovery," which proposed the transfer of TOW missiles and intelligence information to Iran in exchange for the release of the American hostages. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 "Operation Recovery" reflected the ambitions of the planners who recently met in London. An agreement was reached that the TOWs were to be shipped to Iran in four increments of 1,000 missiles, with an additional 508 TOWs delivered to Israel as replenish- ment for that country's stocks. On February 8, the Southern Lebanon Army was to release 25 Hizballah prisoners after Iran received the first 1,000 TOWs. On February 9, "all U.S. Hostages [were to be] released to the U.S./British or Swiss Embassy" and "a second group of Hizballah [was to be] released by [the South- ern Lebanon Army]." The following day, as prepara- tions were underway to deliver the second increment of TOWs to Iran, Hizballah was to release certain other hostages. The notional timeline also made refer- ence to another ambition of the planners: "February 11, Khomeini steps down." Following this sequential release of prisoners for arms, the United States would deliver the final two increments of missiles. The last deliveries were to be in exchange for hostages of other nationalities and the recovery of hostage Wil- liam Buckley's remains.33 Logistical arrangements for the TOW shipment soon began to materialize: North communicated with DC/NE about DOD pricing, and Secord evaluated technical requirements for the Southern Air Transport 707s for transporting the arms to Israel. On January 27, North received confirmation of a TOW price from DC/NE which covered the shipment of 1,000 TOW missiles: "$3,469 per item for all units?load out cost: for all costs: $3,700,000."34 On the evening of January 29 in the Old Executive Office Building, North held his first meeting of indi- viduals involved in the Iran initiative: Noel Koch of DOD, Allen and DC/NE of CIA, and Richard Secord. DC/NE had thought he was the sole CIA contact in the NSC operation, but he learned at the meeting that another CIA officer, Allen, was already involved. The discussion turned to logistical require- ments. The CIA was responsible for transporting the TOWs from domestic storage facilities to Kelly Air Force Base in Texas, where Secord would accept delivery and fly them via Southern Air Transport in two separate shipments to Israel. Secord would ar- range for Southern Air Transport personnel to fly the cargoes on Israeli chartered aircraft from Tel Aviv to Bandar Abbas, Iran, as originally agreed with the Government of Iran." Both North and Secord described Secord's role as a "commercial cut-out." As North testified, Secord: . . . negotiat[ed] prices, delivery schedules, ar- rangements, and General Secord then became the person who went back and paid the Government of the United States, through the CIA, exactly what the Government of the United States wanted for the commodities that it provided . . . General Secord was an outside entity who had been established as an outside entity many, many months before in order to support the Nicaraguan resistance.3 6 DC/NE agreed with using Secord as the cut-out because "I wasn't particularly anxious for an Israeli Government entity to know what my account was." But DC/NE said that he did not know that using the "cut-out" created an opportunity for siphoning funds to unrelated projects.37 The February Shipment In the delivery schedule agreed upon in the London meeting, North noted, "10 days from money - move TOWs." The same schedule indicated that a deposit of $10 million would occur on January 29.38 The deposit was not made, and on January 31, DC/NE and Secord met with North to develop another sched- ule based on an anticipated bank transfer to the CIA account on February 4.38 However, on that day, North jotted in his notes, "Gorba going to bank to make transaction tomorrow," indicating another delay in the transaction.4? On February 10, $1,850,000 was wire-transferred to the CIA Swiss account from the Enterprise's Credit Suisse account, Lake Resources. The following day, another $1,850,000 was wire-transferred to the CIA account "by the order of one of our clients" without further explanation or identification. CIA headquar- ters then arranged through the Treasury Department to pay $3,700,000 to DOD for 1,000 TOW missiles.'" On February 13, North sent a PROF note advising Poindexter of the transfer of 1,000 TOWs to Kelly Air Force Base. He also discussed the final arrange- ments for delivering arms in exchange for American hostages, who were expected to be released on Febru- ary 23: Operation RESCUE is now under way. 1000 items are currently enroute from Anniston Ala- bama. Copp is enroute to Ben Gurion Apt [air- port] to conduct final briefing for his flight crews who arrived today and commenced fam flights on the two Israelis 707s. All 1000 items will lift off from Kelly AFB at 1400 on Saturday. 500 will be delivered to Bandar Abbas to arrive at dawn on Monday. The meeting we had wanted to pass the second set of intel has now been slipped to Weds by Gorba. ** Second 500 will go to Bandar Abbas on Friday vice Thurs. ** If all goes according to plan, [the Southern Lebanon Army] will release 25 Hizballah shortly after ** hopefully on Friday. This will keep our schedule for releasing the Americans on for Sunday, Feb. 23. Something to pray for at church that day.42 The PROF note reviewed two aspects of the plan: first, that there would be a shipment of weapons to Iran prior to the release of any hostages; and second, 217 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 that part of the plan included the release of 25 Hizbal- lah prisoners held by the Southern Lebanon Army. Possession of the 1,000 TOWs was transferred from DOD to CIA once DOD received notice that CIA had the money to cover the cost of the TOWs. Thereafter, on February 15 and 16, separate flights of Southern Air Transport aircraft departed Kelly Air Force Base, each carrying 500 TOWs to Tel Aviv. Upon arriving in Israel, the cargo was unloaded from the planes and stored by Israeli military officials for transshipping to Iran. On February 17, the first Israeli charter plane delivered 500 TOWs to Bandar Abbas. Before departing Iran, the aircraft was loaded with 17 I-HAWK missiles which had been rejected by Iranian Defense officials following the November 1985 ship- ment. The Israeli aircraft returned on the next day to Tel Aviv.4 3 That day, Secord transmitted a KL-43 message to North describing the delivery and noting a recent conversation with Ghorbanifar. North quickly pre- pared a memorandum for Poindexter: MEMORANDUM FOR JOHN M. POIN- DEXTER FROM: OLIVER L. NORTH SUBJECT: Operation Recovery The following is text of encrypted message from Copp at 0830 this morning: Aircraft returned safely to Ben Gurion this morn- ing at 0730 EST. Seventeen missiles aboard. Gorba called one hour ago. [The Second Iranian Official] will head Iranian side of meeting in Ger- many along with five others. Iranians will pro- vide all names after we give names and titles to them through Gorba. . . Iranians have asked for second delivery of 500 TOWs on Friday a.m. They say they will release all hostages, if repeat, if intelligence is good. They say we will get hostages Friday or Saturday. They envision a future meeting in Iran with us to consider next steps while we are delivering balance of TOWs (3,000). Gorba repeatedly stressed need for good current intelligence. . . .They want focus on cur- rent fighting. We have already rejected embassy as meeting site. . . . . . . Based on the above, the CIA (Clarridge) has been asked to produce documents identifying Adams as DIA [Defense Intelligence Agency] to avoid having Copp use his own passport. To date, CIA has refused to provide him with any alias documentation. Albert Hakim is VP of one of the European companies set up to handle aid to resistance movements. He is fluent in farsi and 218 would need one time alias documentation as a DIA official. It is recognized that there is a significant problem with the intelligence issue in general. However, we appear to be much closer to a solution than earlier believed. [The Second Iranian Official's] attendance at the Frankfurt meeting tends to sup- port our hope that this whole endeavor can suc- ceed this week, if we appear to be forthcoming. RECOMMENDATION That you urge Director Casey to provide [intelli- gence] on Thursday in Frankfurt.44 Based on his meetings with Ghorbanifar, DC/NE understood that upon the delivery of 1,000 TOWs to Iran, all American hostages would be released. Ses- sions with Iranian delegates would follow, and these could lead to a strategic U.S.-Iran meeting in a neu- tral location. After the strategic meeting, the remain- ing 3,000 TOWs would be delivered.45 All of these arrangements had been made using Ghorbanifar as the interlocutor. Despite having shipped 18 HAWK mis- siles and 1,004 TOWs, North and Secord had yet to meet an Iranian official. Rather, they had relied solely on Ghorbanifar to present the Iranian demands and to convey the U.S. response. The American understand- ing?that delivery of 1,000 TOWs would cause the release of all the hostages?was contrary to the advice of the CIA professionals. As Clair George later told these Committees: "Under no conditions would the Government of Iran ever allow all the hostages to be released . . . because the only leverage that those who held the hostages have is the hostages, so why would they give them up.?4 6 The First Frankfurt Meeting On February 19, 1986, the U.S. delegation arrived in Frankfurt, West Germany, for what was to be its first opportunity to meet with a representative of the Iranian Government. When the Second Iranian Offi- cial failed to appear, Ghorbanifar began to offer ex- cuses for his absence. Nevertheless, North decided to return to the United States until the Second Iranian Official arrived in Frankfurt.47 Albert Hakim, Secord's associate, had joined the U.S. delegation from Geneva. Earlier in February, Secord had told Hakim that his translating skills would be required at a meeting with Ghorbanifar and an Iranian Government official. Hakim said that Ghorbanifar, when he learned of Hakim's participa- tion, objected violently and branded Hakim "an enemy of the State.? Hakim said he eventually joined the meeting in disguise and under the name "Ibrahim Ibrahim" without Ghorbanifar knowing his true iden- tity.4 8 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 On the return trip to the United States from the aborted Frankfurt meeting, North announced that Hakim would be the translator because he distrusted Ghorbanifar. When DC/NE objected to the use of so many "outsiders" for a covert activity, North pro- fessed his trust in both Secord and Hakim and attested to their expertise. DC/NE later ordered a name trace on Hakim, which revealed allegations of illegal for- eign sales of U.S. equipment.4 9 The Meeting With An Iranian Official On February 25, the Second Iranian Official arrived in Frankfurt at the Airport Sheraton Hotel and the U.S. delegation promptly returned for the meeting. The first session with him "was a disaster."5? Hakim said the discussion began to deteriorate when Ghor- banifar misled both the Iranian and the Americans in his translation of conversation. After several minutes of discussion, Hakim knew that the two sides were on "different frequencies," with little hope of successful- ly communicating. Ghorbanifar tried to placate both sides, even though their objectives were entirely dif- ferent.51 DC/NE similarly noticed the different expectations each side had brought to the meeting. While the Second Iranian Official pressed for the purchase of a specific missile, North argued for an arrangement to gain the release of hostages: [T]he Iranian said . . .`Mr. Ghorbanifar has told me that you promised to deliver a lot of Phoenix missiles.' The Phoenix is an air-to-air missile. I had never heard that before, that Phoenix missiles had ever been raised. Colonel North said that he had never heard anything about Phoenix mis- siles.? 2 The delegations met again the following day in the Second Iranian Official's hotel suite at the Sheraton. The Iranian continued to argue for the purchase of Phoenix missiles, advising the Americans that if Phoe- nix missiles were made available, "then we will start on the hostages . . . you might not get them all immediately, but we will at least start on it." The parties eventually agreed that the delivery of 1,000 TOWs would be immediately followed by the release of "a couple of hostages." The remaining hostages would be released after a meeting among high-level officials at Kish Island off the coast of Iran. When the hostage "problem" was resolved, the United States would deliver the remaining 3,000 TOWs.53 Following the Frankfurt meeting, the Second Irani- an Official asked Hakim to advise the President of the United States that "money was no problem" if certain weapons would be sold through him to Iran. Hakim attributed this bribe offer to the Iranian's ignorance that the accepted custom of "baksheesh," or kick- backs, in Iran did not apply in the United States. Hakim said that he and Secord found the offer of "baksheesh" to President Reagan to be quite amusing, but Hakim could not recall conveying the message to any Government official because Hakim never took the offer seriously.54 With their first meeting with the Second Iranian Official behind them, certain members of the NSC staff felt they had established formal communications with Iran. This line of communication consisted of the Second Iranian Official as the representative of Iran's government and Ghorbanifar as the intermediary for the two governments. Nir remained an active partici- pant in the first channel proceedings, particularly in monitoring Ghorbanifar's activities. The Second Installment Of TOWs Is Delivered On February 27, North and DC/NE met with Casey, Poindexter, and George at the Old Executive Office Building to report on the meeting with the Second Iranian Official. They anticipated the immi- nent release of as many as two hostages and arrange- ment for a strategic Iran-U.S. conference. Ghorbani- far's unreliability, which had been noted by the Second Iranian Official as well as the Americans in Frankfurt, was discussed. DC/NE noted that Hakim telephoned the Iranian following the Frankfurt meet- ing in an attempt to exclude Ghorbanifar from future negotiations.? 5 DC/NE later complained to George about using Secord and Hakim as U.S. negotiators. DC/NE rec- ommended replacing Hakim as a translator with George Cave, a former CIA officer still on contract with the Agency and whose knowledge of Iran and command of the Farsi language were well-known. In a second effort to remove "outsiders" from political negotiations, DC/NE urged George to propose that Secord be eliminated from any future meetings with Iranian officials.5 6 Also on February 27, Israeli charter aircraft deliv- ered the second load of 500 TOW missiles from Tel Aviv to Bandar Abbas. Again, Secord coordinated the flight using a Southern Air Transport crew.57 In a KL-43 message, Secord discussed a meeting he at- tended with Hakim, Ghorbanifar, and the Second Ira- nian Official after all other Frankfurt participants had departed. Secord revealed that, once again, a ship- ment of weapons would not gain the release of any hostages. Instead, a new condition?the meeting at Kish Island?would first have to be met: Met with Nir and Gorba this a.m. . . . Subse- quently I met with the [Second Iranian Official] for about one hour. . . . the [Second Iranian Official] emphasized need for quick meeting at Kish and said he would possibly, repeat, possibly surprise us by getting some hostages released 219 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 before meeting. . . . [S]uggest you make con- tingency plan to accommodate early release (i.e., as early as Sunday). So, bottom line is on to Kish ASAP to seize the potential opening now cre- ated. Regards, Richard.58 North reported on his Frankfurt meeting with the Second Iranian Official to McFarlane, who had re- mained interested in the arms sales initiative following his departure from the National Security Council in December 1985. McFarlane had agreed earlier to meet with Iranian Government officials at a designat- ed location, possibly Kish Island. First, North as- sessed the meeting: Just returned last night from mtg w/[Second Ira- nian Official] in Frankfurt. If nothing else the meeting serves to emphasize the need for direct contact with these people rather than continue the process by which we deal through interme- diaries like Gorbanifahr. . . . Throughout the session, Gorbanifahr intentional- ly distorted much of the translation and had to be corrected by our man on occasions so numerous that [Second Iranian Official] finally had Albert translate both ways. Assessment of mtg & agree- ment we reached as follows:?[Second Iranian Official] has authority to make his own decisions on matters of great import.?He does not have to check back w/Tehran on decisions take.?The govt. of Iran is terrified of a new Soviet threat.? They are seeking a rapprochment but are tilled w/fear & mistrust.?All hostages will be released during rpt during the next meeting.?They want next mtg urgently and have suggested Qeshm Is. off Bandar Abbas.?They are less interested in Iran/Iraq war than we originally believed.? They want technical advice more than arms or intelligence.?Tech advice shd be on commercial & military maintenance?not mil tactics?They committed to end anti-U.S. terrorism.?They noted the problems of working thru intermediar- ies & prefer dir. contact-[the Second Iranian Offi- cial] noted that this was USG/GOI contact in more than 5yrs. Vy important?[the Second Ira- nian Official] recognizes risks to both sides - noted need for secrecy.?[the Second Iranian Of- ficial] stressed that there were new Soy. moves/ threats that we were unaware of. While all of this could be so much smoke, I believe that we may well be on the verge of a major breakthrough? not only on the hostages/terrorism but on the relationship as a whole. We need only to go to this meeting which has no agenda other than to listen to each other to release the hostages and start the process. Have briefed both JMP and Casey?neither very enthusiastic despite [DC/ NE] North summary along lines above. Believe that you shd be chartered to go early next wk or 220 maybe this weekend?but don't know how to make this happen. Have not told JMP that this note is being sent. Help. Pls call on secure yr earliest convenience. Warm, but fatigued regards, North.59 McFarlane replied: Roger 011ie. Well done?if the world only knew how many times you have kept a semblance of integrity and gumption to US policy, they would make you Secretary of State. But they can't know and would complain if they did?such is the state of democracy in the late 20th century. But the mission was terribly promising. As you know I do not hold Gorbanifar in high regard and so am particularly glad to hear of [the Second Iranian Official's] apparent author- ity . .60 That evening, North sent a message to McFarlane detailing his success in winning support for the con- tinuation of the initiative: NOTE FROM: OLIVER NORTH Subject: Exchanges Since the missive of this morning, met w/Casey, JMP, [DC/NE], Clair George and all have now agreed to press on. Believe we are indeed headed in the right direction. Just finished lengthy ses- sions w/JMP he indicated that he has passed substance to you and has given me dates that you are not avail. Will endeavor to sched. mtg so that these do not conflict but noted to JMP that it was their call as to date of mtg. Just rec'd msg fm Secord via secure device we are using. [Second Iranian Offi- cial] has again reaffirmed that once we have set a date we shall have a very pleasant surprise. Dick [Secord] & I believe that they may be preparing to release one of the hostages early. Dick also indicated that yr counterpart at the mtg wd be Rafsanfani. Nice crowd you run with! God will- ing Shultz will buy onto this tomorrow when JMP brief him. With the grace of the good Lord and a little more hard work we will very soon have five AMCITS [American Citizens] home and be on our way to a much more positive relationship than one which barters TOWs for lives. I value our friendship and confidence very highly and did not mean to infer that you had revealed these exchanges. By asking that you not indicate some to JMP I was only informing that I had not told him anything of it so as not to compromise myself at a point in time when he needs to be absolutely certain that this can work. He is, as Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 only you can know, under tremendous pressure on this matter and very concerned that it go according to plan. My part in this was easy com- pared to his. I only had to deal with our enemies. He has to deal with the cabinet. Many thanks for yr trust. Warm regards, North." McFarlane's reply records his impressions of the Cabinet level response to the initiative: No sweat GI. I just sent a separate note about not sharing with John because I had forgotten to put it in the other note. And I fully understand the narrow path he is trying to walk between those who want to go balls out for the wrong reasons (Regan) and those who don't want to do it at all (GPS and Cap). So play it any way you must. . . .62 As these messages make plain, within one month of the Finding's approval, the assumption behind that document had been discarded. The memorandum to the President accompanying the Finding had stated that the initiative was to terminate if the United States delivered 500 TOWs and no hostages were released. Yet, North and his colleagues continued to develop contact with the Iranian and hoped to meet on Kish Island while Americans were still held hostage. In February, it was apparent that the hostage prob- lem would not be resolved quickly. In mid-February, the United States had shipped 500 TOWs to Iran. The Second Iranian Official, however, did not attend the first scheduled meeting. Several days later, when he did meet with the Americans, he promised to release hostages only after a meeting among high-level offi- cials at some unspecified time in the future. On that promise alone, the United States immediately sent an additional 500 TOWs to Iran. The American participants could attribute the fail- ure to obtain the release of any hostages after the November 1985 HAWK transaction to the Iranians' apparent anger over the outdated missiles they re- ceived. No similar justification could explain the lack of action by the Iranians after they received 1,000 TOWs. The Americans kept their part of the bargain and shipped the weapons; the Iranians broke their promise and delivered no hostages. Instead, the United States received only another promise, not of hostages, but of another meeting. The Diversion Continues The sale of the 1,000 TOWs was successful in one respect. The "attractive incentive" that North had seen in the arms sales materialized?profits to be used for the Contras. The February TOW shipment had generated a $10 million payment to Secord. After Secord paid $3.7 million to the CIA's Swiss account, North discussed the use of residuals with Secord: "I described for General Secord the purposes to which I thought that money ought to be applied . . . . There were points in time when we discussed these activities. I had to tell him what the government was going to charge for various commodities, but ultimately the decision (pric- ing) was his."63 North said that the purpose of the residuals was "to sustain the Iranian operation, to support the Nicaraguan resistance, to continue other activities which the Israelis very clearly wanted, and so did we, and to pay for a replacement for the original Israeli TOWs shipped in 1985."64 The Janu- ary 17 Finding, however, made no mention of support to the Contras or of other intelligence activities as goals of the covert action. North said that residuals intended for the Contras were a small segment of a larger, comprehensive covert activity support plan. The decision on how to apply the residuals was stated by North: ". . . residu- als from those transactions would be applied to sup- port the Nicaraguan Resistance with the authority that I got from my superiors, Admiral Poindexter, with the concurrence of William J. Casey and, I thought at the time, the President of the United States."" Those superiors, according to North, also approved the use of Iranian arms sales proceeds to compensate Secord: The arrangement that I made with General Secord starting in 1984 recognized that those who were supporting our effort were certainly deserving of just and fair and reasonable compen- sation . . . . It was clearly indicated [by] Mr. McFarlane and Admiral Poindexter and in fact almost drawn up by Director Casey, how these would be outside the U.S. Government, and that I told them right from the very beginning that those things that he (Secord) did deserved fair and just compensation.66 Poindexter recalled no such authorization. Al- though he felt that Secord was deserving of "reasona- ble compensation," Poindexter testified that the sub- ject "never came up." Poindexter was unaware of any particular profits Secord and others realized from the arms sales.67 North left further definition of "fair and just com- pensation" up to Secord. He claimed that he did not review the records of the Enterprise, rarely knew how much money had actually been transferred for the Contras, and never knew how much of the profits had gone to Secord and Hakim." Secord and Poin- dexter also testified that they were unaware of Hakim's method of controlling the accounts." The Initiative Continues Even though the sale of 1,000 TOWs had not pro- duced a single hostage, the initiative went forward. But Nir became concerned that he would be excluded 221 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 V Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 from further meetings and that Israeli interests would be ignored. Within days after the meeting with the Second Iranian Official in Frankfurt, Israeli Prime Minister Peres wrote to President Reagan summariz- ing the results of the Frankfurt meeting and discussing the next steps.7? The February decision to supply U.S. intelligence information to the Iranian delegation concerned CIA officials. The NSC staff forwarded to the CIA the Iranians' request for a map depicting Iraqi battle posi- tions at its border with Iran. When CIA Deputy Di- rector John McMahon learned of this request, he cabled Casey who was traveling overseas: 1. A new dimension has been added to this pro- gram as a result of meeting held in London be- tween North and Ghorbanifar. We have been asked to provide a map depicting the order of battle on the Iran/Iraq border showing units. Troops, tanks, and what have you. . . 3. Everyone here at Headquarters advises against this operation not only because we feel the prin- cipal involved is a liar and has a record of deceit, but, secondly, we would be aiding and abetting the wrong people. I met with Poindexter this afternoon to appeal his direction that we provide this intelligence, pointing out not only the fragili- ty in the ability of the principal to deliver, but also the fact that we were tilting in a direction which could cause the Iranians to have a success- ful offense against the Iraqis with cataclysmic results. I noted that providing defensive missiles was one thing but when we provide intelligence in the order of battle, we are giving the Iranians the wherewithal for offensive action. 4. Poindexter did not dispute our rationale or our analysis, but insisted that it was an opportunity that should be explored. He felt that by doing it in steps the most we could lose if it did not reach fulfillment would be 1,000 TOWs and a map of order of battle which is perishable anyway. 6. I have read the signed Finding dated 17 Janu- ary 1986 which gives us the authority to do what the NSC is now asking. Hence, in spite of our counsel to the contrary, we are proceeding to follow out orders as so authorized in the find- ing.71 Casey did not order McMahon to do otherwise. Once again, concerns voiced by career officials at the CIA were brushed aside and the intelligence was pro- vided. As the Americans prepared for the trip to Kish Island, North received discouraging signals from Iran 222 through Secord and Hakim. The Iranians were stall- ing on the meeting while pushing again for the pur- chase of Phoenix missiles. North's notebook on March 2 reflected, "Meeting w/Secord & Albert [Hakim]. Albert talked to [the Second Iranian Official] . . . situation is not right for meeting in Kish . . . [the Second Iranian Official] wants Phoenix [missiles]." North's response was, once again, to direct Nir to contact Ghorbanifar and urge him to "pull out all stops." 7 2 By early March, career officials at the CIA were pressing their doubts that Ghorbanifar and his princi- pals could deliver on their promises to free the hos- tages. Iran had not demonstrated any ability to gain release of hostages since early September 1985, nearly six months earlier. On March 7, DC/NE expressed his doubts in a memorandum to his supervisor, the Chief of the Near East Division in the Operation Directorate: Ghorbanifar insisted on another meeting after which the Keesh Island matter will be set. North is prepared to stonewall in Paris. There will be no more "slices of salami" handed out. However, our other friend, NEER [sic], will also be present. We sense strongly . . . that he is unilat- erally providing additional arms as an incentive to the Keesh Island. I have briefed Ed Juch- niewicz on the above. I tried to get into McMa- hon, but he did not have time. I will be back Saturday PM and will give you a ring. What we may be facing is evidence that [the Second Iranian Official] does not have the authority in Tehran to make it work.73 [Emphasis added.] Cave Joins the Team By March 5, the CIA prevailed in its bid to have intelligence professional George Cave replace Hakim as the interpreter. At CIA Headquarters that day, Cave was briefed by DC/NE, George, and Allen. DC/NE asked Cave if he would travel to Tehran to translate during a meeting with the Iranian Speaker of Parliament, Rafsanjani. Cave had prior experience with Ghorbanifar and had been involved in the 1984 decision to issue a worldwide "burn notice" on him. Cave was appalled that a sensitive operation would depend so heavily on a man with a long record of self-serving lies and distortions. Cave was equally concerned that the Israelis had such a prominent role in the affair, because Israeli and American goals in the region were not always compatible.74 Nevertheless, Cave agreed to participate. He con- sidered the initiative to be a high-risk operation and strongly recommended against the CIA involving "serving officers" in the operation. Cave noted that, as an annuitant, he avoided jeopardizing his career should the operation fail. Cave quickly replaced DC/ NE as the CIA's operational "point man," reporting Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 on his activities to DC/NE and "in many cases direct- ly to Director Casey."75 North, DC/NE, and Cave flew to Paris on March 7 to meet with Ghorbanifar and Nir. Ghorbanifar told the Americans that the Second Iranian Official's inter- nal political position had not been improved by the Frankfurt meeting. Upon examining their military stockpiles, Iranian military representatives felt that they needed no additional TOWs; instead, they wanted the Americans to sell them 240 types of spare parts to repair the HAWK missiles in Iran's stocks. Nir encouraged the U.S. delegation to pursue this avenue, contending that such a sale would result in the release of all American hostages.76 Before con- cluding the Paris meeting, Ghorbanifar told the Americans that the Kish Island site was unacceptable to the Iranians, who would agree only to meet in Tehran.77 The altered meeting site created further delays. North's notes of the Paris meeting reflect fear that his channel to Iran might be seriously flawed. He commented that all prior effort focused on the pur- chase of arms rather than political change and that "we cannot verify that there is anyone else in G.O.Ir [Iran] aware or even interested in talking to USG."78 In spite of these concerns, North continued to pursue the plan. In a report for Casey after the Paris meeting, Cave addressed several points raised by Ghorbanifar during the meeting. The last paragraph set forth Ghorbani- far's suggestion to divert profits from the sale of arms to Iran to aid the Contras: "He also proposed that we use profits from these deals and others to fund [other operations]. We could do the same with Nicara- gua."79 Charles Allen read Cave's memorandum, but dismissed the statement as a typically expansive remark by Ghorbanifar.8? Yet, this was not the first time that Allen had learned that Ghorbanifar was attempting to use North's interest in the Contras to "sweeten the pot" for the Americans. During a meet- ing between Allen and Ghorbanifar in January, 1986, Ghorbanifar had mentioned the possibility of using monies generated from various projects to aid "011ie's boys in Central America."81 New Doubts About Ghorbanifar Several PROF notes between North and McFar- lane indicated North's frustration following his Paris meeting with Ghorbanifar: Per request from your old friend Gorba, met w/ him in Paris on Saturday. He started w/a long speech re how we were trying to cut him out. How important he is to the process and how he cd deliver on the hostages if only we could sweeten the pot w/some little tidbits?like some arms, etc. After his speech I allowed as how he was not getting the message, but that I wd reiter- ate: ?The hostages are a serious impediment to seri- ous govt-to-govt discussions and this must be re- solved before we can discuss any further transac- tions.?We remain ready to go to Kish or any- where else to discuss issues of mutual concern as long as the hostages are going to be released during or before this meeting. In a late-night response, McFarlane offered his opinion on continuing with Ghorbanifar: Gorba is basically a self-serving mischief maker. Of course the trouble is that as far as we know, so is the entire lot of those we are dealing with . . . . But it is going to take some time to get a feel for just who the players are on the contem- porary scene in Teheran. So the sooner we get started the better.83 North's return PROF reveals that he was not opti- mistic that the initiative had reached Iranian officials who cared about anything other than arms sales and personal financial gain: In re the Gorba prob: He is aware of the Kish mtg and is basically carrying our water on the mtg since he is still the only access we have to the Iranian political leadership. It wd be useful, I believe, for you to talk w/George Cave, the Agency's Iran expert. He shares our concern that we may be dealing only w/those who have an interest in arms sales and their own personal fi- nancial gain and believes the "Russians are coming" approach is about the only way to broaden the perspective.84 The NSC staff had advocated arms sales as a way of creating an opening with Iran as well as obtaining the release of the hostages. By mid-March, though, arms sales by the United States had produced no hostages. Further, NSC staff members were not even sure they were dealing with anyone who was interest- ed in a broader initiative. Allen had also recommended continuing to work with Ghorbanifar on terrorism issues "regardless of whether we find his information at this stage credi- ble."85 Despite this concern, Allen argued that Ghor- banifar was the only channel available to Iran 86 Secord commented that a new channel should be sought because the Ghorbanifar channel was "obvi- ously flawed."87 Cave's view of Ghorbanifar re- mained unchanged: The Israelis, particularly Nir, insisted on Ghor- banifar, for one thing. I was at the other end, insisting he couldn't be trusted. There were other people that felt you had to keep him in . . . because he would blow the whole thing. He was 223 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 investing a lot of money in this operation, so that he had to be kept in it. I was more concerned that, knowing Ghorbanifar, that Ghorbanifar worked for Ghorbanifar, period, which is basical- ly what we found when we got to Tehran.88 Ghorbanifar realized that the meeting between the Americans and the Second Iranian Official had ren- dered him superfluous. After the Frankfurt meeting in late February, Hakim had called the Iranian official to recommend that Ghorbanifar be bypassed in further negotiations. As a result, at the early March meeting in Paris, Ghorbanifar had continually emphasized to the Americans that he was essential, a position he would continually restate. To placate Ghorbanifar, North invited him to Washington in late March. In a telephone call several days prior to Ghorbanifar's arrival, Nir told Allen of Ghorbanifar's concerns and advised that any attempt to eliminate Ghorbanifar from the negotiations was "unwise . . . because of the hold that [Ghorbanifar] has over the [Second Iranian Official]."89 While Nir was promoting Ghorbanifar to the CIA, Nir and North were discussing how to divide up the profits from the sale of HAWK spare parts. An entry in North's notebooks related a conversation with Nir: "price data on 240 . . . timing per acquisition . . . need to know residuals on?price per unit ($6068), price in Aaron's place, how much is left for use by Israelis."90 "Aaron" was the code name for DOD official Noel Koch; "Aaron's place" was, presumably, the Pentagon. The conversation reflects the Israelis' desire to know how much of the residuals would be available to finance the Israelis' purchase of the 504 replacement TOWs.9' Ghorbanifar Visits Washington On April 2, 1986, Ghorbanifar and an Israeli official met in London to discuss financial arrangements for shipping the HAWK spare parts.92 Ghorbanifar flew to Washington the next day and met with the CIA Chief of the Near East Division (C/NE)* Cave, and North at a hotel in Herndon, Virginia. They discussed the availability of the HAWK spare parts on the list that Ghorbanifar had earlier supplied. CIA logistics personnel then attempted to locate the items, many of which were not in production or not available. C/NE remembered Ghorbanifar saying that the Ira- nians had agreed to release all American hostages as soon as the U.S. delegation arrived in Tehran. Based on Ghorbanifar's prior performance, the CIA officers were skeptical." Two days later, Cave drove Ghor- banifar to Dulles International Airport outside Wash- ington. During the drive, Cave reminded Ghorbanifar that all hostages had to be released before any of the *DC/NE was promoted in May 1986 and thereafter continued to participate in only a support role. 224 HAWK spare parts would be delivered. Cave said that Ghorbanifar "took the statement under advise- ment."94 Cave's report after the meeting shows that despite his contempt for Ghorbanifar, he hoped that the Ira- nian might yet deliver: we discussed the schedule in some detail. we proposed arriving about 7-8 days after the money is deposited. this would give us time to have the plane load of spares positioned in europe. we then haggled for hours about what was included and what would be negotiated in tehran. we stuck to our position that once the release takes place we would order plane to launch and it should arrive in bandar abbas with 8 hours. it would then turn around and bring in the rest of the spares. we are tentavilye [sic] committed to deliver the $3,000 volswagons [sic] [3,000 TOWs] about 30 days later. gorba pressed for new addi- tions . . . gorba kept' insisting that we bring some of spares with us and we kept insisting that we wouldn't although a small sample is an option. 6. possibly the best indication that we might be getting somewhere is that towards the end, gorba began discussing his cut. goode [North] told him that he could add on whatever he thinks right for his cut to the final price, he said that he had spent 300,000 dollars already to grease the skids etc. it would appear that he now feels that the deal is entering its final stages. 8. gorba claims that the iranian side is devot- ing considerable time to this. the whole thing is being masterminded by rafsenjani behind the scenes . . .95 Following the April meeting with Ghorbanifar, North and Nir continued to discuss the arms sales and the use of the residuals. On April 7, North received an update on Nir's most recent contact with the Second Iranian Official and Ghorbanifar. Without fur- ther explanation, North jotted in his notebook on that date, "Merchant [Ghorbanifar] needs $1.5M from HAWKs." Nir commented that the Second Iranian Official did not trust Ghorbanifar and trusted the United States even less. Nir was still concerned that he might be left out of the negotiations. North noted: "Nir very upset that Israel might be 'cut out' of the Iran trip . . . very bad blood if cut out . . . If this deal falls through Israel will sell HAWK parts to finance (illegible)"." Israel remained concerned about how the replenishment of the 504 TOWs would be financed. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Planning The Tehran Mission During March and April, U.S. planners considered dispatching an advance U.S. party to meet with Irani- an officials equivalent to NSC staff representatives. Specifically, Casey, Poindexter, and others contem- plated Cave and North traveling with Ghorbanifar to Iran in advance of the McFarlane visit. Even before the meeting had been moved from Kish Island to Tehran, Cave believed that an advance trip was a practical step. He pointed out, "With all my Iranian experience and my distrust for Ghorbanifar, I thought there was an awful lot of personal risk in us going in [to Tehran without an advance trip]."97 Secord later reflected that a trip without advance work was a mistake: It was strongly recommended by three of us? Nir, myself, and North?were all recommending that a preparatory meeting take place. There was, after all, as far as I knew, no agenda agreed to for this meeting (McFarlane's), and so it seemed to me at least?and I think to the others?to be not well organized. In fact, I have been to many, many international meetings, and I don't think I have ever been to one where there wasn't some preparatory work done in advance. However, the position was taken that there would be no ad- vance preparatory meeting, that the terms and conditions that had been agreed to in Frankfurt were sufficient . . . and that the Iranian side would simply have to deal with that, and so there was no advance meeting and that was a big mis- take.9 8 Poindexter ruled out the possibility of an advance trip by North and others, claiming "that was more dangerous and that if we had a more senior person there with the group that there was less risk to the whole group."99 According to North, Poindexter's view was echoed by Director Casey, who argued: This advance trip is so hidden, we are going to use non-U.S. Government assets throughout, Eu- ropean or Middle Eastern airlines, no U.S. Air registration, air flights. You might never be heard from again. The Government might disavow the whole thing. '?? North's Diversion Memorandum Around April 4, 1986, North prepared an extensive report for Poindexter entitled "Release of American Hostages in Beirut."?' In the memorandum, North summarized the Iran initiative, beginning with a June 1985 meeting between certain "private American and Israeli citizens." Under the report's subheading, "Cur- rent Situation," North detailed the agreement reached at the most recent meeting between Ghorbanifar and U.S. officials: Subject to Presidential approval, it was agreed to proceed as follows: ?By Monday, April 7, the Iranian Government will transfer $17 million to an Israeli account in Switzerland. The Israelis will, in turn, transfer to a private U.S. corporation account in Switzerland the sum of $15 million. ?On Tuesday, April 8 (or as soon as the transac- tions are verified), the private U.S. corporation will transfer $3.651 million to a CIA account in Swizterland. CIA will then transfer this sum to a covert Department of the Army account in the U.S. ?On Wednesday, April 9, the CIA will com- mence procuring $3.651 million worth of HAWK missile parts (240 separate line items) and trans- ferring these parts to [a CIA storage facility]. This process is estimated to take seven working days. ? 2 The "Current Situation" section included a timetable that placed McFarlane and his team of negotiators in Tehran on April 19 to meet with Rafsanjani. It also forecast that all of the American hostages would be released sometime following sequential arms deliveries to Iran. ? 3 Under a second subheading, "Discussion," North listed nine points to be discussed with the Iranian Government through Ghorbanifar. The ninth topic follows: ?The residual funds from this transaction are allocated as follows: - $2 million will be used to purchase replacement TOWs for the original 508 sold by Israel to Iran for the release of Benjamin Weir. This is the only way that we have found to meet our commitment to replenish these stocks. -$12 million will be used to purchase critically needed supplies for the Nicaraguan Democratic Resistance Forces. This materiel is essential to cover shortages in resistance inventories resulting from their current offensives and Sandinista counter-attacks and to 'bridge' the period be- tween now and when Congressionally-approved lethal assistance (beyond the $25 million in 'de- fensive' arms) can be delivered.'" The last page of the report contained a recommen- dation that the President approve the plan: That the President approve the structure depict- ed above under "Current Situation" and the Terms of Reference at Tab A. Approve--- Disapprove--- 225 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II V I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 North transmitted a PROF message on April 7 to McFarlane stating that North had prepared the memorandum at Poindexter's request for "our boss": Met last week w/ Gorba to finalize arrangements for a mtg in Iran and release of hostages on or about 19 Apr. This was based on word that he had to deposit not less than $15M in appropriate acct. by close of banking tomorrow . . . Per re- quest of JMP have prepared a paper for our boss which lays out arrangements. Gorba indicated that yr counterpart in the T. mtg wd be Rafsan- jani. If all this comes to pass it shd be one hell of a show.10 5 During her testimony, Fawn Hall, North's secre- tary, expressed familiarity with the early April memo- randum. She recalled typing it as North stood behind her and dictated.'" She also believed that one of the drafts of this memorandum was edited by Poindexter and returned to her for typing correction.'" She testified that Poindexter never suggested that the memorandum was improper in any fashion nor did he ever suggest the outlined policy not be pursued.'" Further, Hall stated that her understanding of the phrase "our boss" in the April 7 PROF referred to President Reagan."9 Poindexter testified that he did not recall seeing any memorandums discussing the diversion of funds to the Contras until the day before he resigned in late November 1986.110 In testifying about the diversion of funds, North stated that he believed his superiors had approved all his actions during the Iran initiative. He said that he may have written as many as five or six memoran- dums in which he asked for the President's approval for the diversion of profits from the sale of weapons to Iran. North explained that each of the memoran- dums was prepared for Presidential approval when a proposed sale of weapons to Iran neared its final stage. "1 Even though North said he prepared "diversion" memorandums for five or six transactions, there were only three successful shipments of arms during the initiative: "It is my recollection I sent each one up the line, and that on the three where I had approval to proceed, I thought that I had received authority from the President." North stressed that, unlike other mem- orandums he had submitted for Presidential approval, he never saw a memorandum about diversion reflect- ing the President's initials in the "Approval" space. He denied receiving instructions from Poindexter to discontinue the drafting of such memorandums.' 12 North initially said that he could not recall Poin- dexter specifically asking him to prepare a "diver- sion" memorandum for the President's approval."3 When shown his April 7 PROF message to McFar- lane, however, North remembered that Poindexter re- quested drafting of the April memorandum about di- version. North also said that the words, "our boss," 226 used in the PROF message was his phrase for the President.' " Poindexter's recollection differed sharply. He said that North first discussed with him the idea of using the proceeds of the arms sales to support the Contras in late January or early February 1986. He could not remember ever receiving a written memorandum call- ing for the President's approval and never directed North to prepare such a memorandum."5 According to Poindexter, he directed North to put nothing in writing about the diversion,'" a direction North denied receiving.117 Poindexter admitted leading North to believe that the President had approved the plan, but he denied ever discussing it with the Presi- dent. Poindexter testified that his decision not to tell North that he had hidden the diversion from the President was risky in light of his "plausible deniabi- lity" plan. Without Poindexter's knowledge, North told both McFarlane and Casey about the diversion. North's associate, Robert Earl, also knew. Not know- ing of Poindexter's supposed plan to give the Presi- dent "plausible deniability," any of them may have spoken to the President about the diverted funding for the Contras. "8 The diversion to the Contras was not the only use of funds that North had in mind in April. On April 15, he received a call from Nir about joint covert operations to be conducted by the Americans and the Israelis. According to North, the operations?named TH-1 and TH-2?were to be financed out of the pro- ceeds of the arms sales. None of them progressed beyond the planning stages, but North was prepared to dedicate funds from the Enterprise to those covert operations." 9 Complications Around April 22, 1986, CIA officers reviewed in- formation noting that Ghorbanifar complained bitterly of his arrest by Swiss police. Ghorbanifar had alleged- ly funded a transaction that violated certain U.S. Fed- eral laws and was coordinated by Cyrus Hashemi, an Iranian arms dealer.'" This incident was the first these CIA officers knew of a U.S. Customs "sting" operation targeting a group of individuals who had allegedly attempted to sell U.S. arms to Iran. Allen avoided discussing the subject with Ghorbanifar. However, Allen believed that the arrest would have little effect on the NSC operation: This was a separate activity. It was viewed as Mr. Ghorbanifar perhaps being involved in an- other financial deal. It appeared that he had other deals under way with a variety of elements. So the fact that he might have been involved in some form of arms transaction with Cyrus Ha- shemi certainly was not beyond question and we were not surprised.' 2 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Pricing the HAWK Parts Near the end of April, the CIA received authority from the NSC staff to forward 508 TOWs to Israel to replenish stock sent in 1985 to Iran. George Cave recalled that CIA costs for procurement, packaging, security, and transportation of the missiles, plus simi- lar expenses for the 240 HAWK spare parts, boosted the Defense Department price to $6 million instead of the $4 million originally quoted by the CIA logistics office. Cave maintained that North was solely respon- sible for forwarding the DOD cost of the shipment to Nir. However, he denied knowing of North's involve- ment in suggesting a price to be charged Ghorbanifar or the Iranian Government. '22 Cave denied knowing of pricing specifics for the 240 spare parts until after the Tehran trip, even though he routinely reviewed all reports regarding the initiative. Beginning in early April, it was report- ed that the Iranians were supposed to pay nearly five times the amount CIA was to receive for the 240 spare parts. On three separate occasions prior to the Tehran trip, reports reviewed by Cave specifically indicated that the Government of Iran was to pay Ghorbanifar $22,471,000 for "spare parts," for which the CIA later received approximately $4,500,000.'23 Yet Cave claimed that he was unaware that the trans- action would yield a huge profit for the middlemen? Ghorbanifar and Secord.'24 New Demands In late April and early May, Allen continued to com- municate with Ghorbanifar to gauge any changes in Iran's position on the long-promised meeting in Tehran. Following the February delivery of 1,000 TOWs, the Second Iranian Official had promised that the hostages would be released if the Americans agreed to a meeting with top-level Iranian officials. By mid-April, the requirement of a sale of HAWK spare parts was added. On April 14, Ghorbanifar called Allen with new demands. In that conversation, Ghorbanifar relayed an Iranian proposal for the se- quential release of hostages following the arrival of the Americans in Tehran and the delivery of the spare parts. The Iranians were withdrawing their original promise to release the American hostages upon the arrival of the American delegation and instead de- manded additional arms sales. During his conversation with Allen, Ghorbanifar recommended that North reject the Iranian proposal.125 The following day, Allen prepared a memorandum outlining what he perceived to be obstacles in the initiative and his own recommendations. Allen recog- nized that unless the United States was willing to provide additional weapons, it had no alternative but to wait, a decision that would lead to "additional hostages and threat of exposure." He cautioned, "Every day that passes, raises the risk of embarrassing disclosures." Allen also suggested "sweetening the pot" by an act of U.S. omission, that is, permitting the Israelis to become an arms supplier to Iran, a position the Israelis were "anxious" to take because "they would like to see Iran prevail." 126 Allen recognized that without a sweetener, the Iranians had little moti- vation to fulfill their bargain to release the hostages. Poindexter responded sharply to the new Iranian proposal, purporting to communicate the President's own frustrations with the operation. In a PROF mes- sage to North written shortly before a meeting in Frankfurt among North, Cave, Nir, Ghorbanifar, and the Second Iranian Official, Poindexter issued North specific instructions: You may go ahead and go [to the meeting in Frankfurt], but I want several points made clear to them. There are not to be any parts delivered until all the hostages are free in accordance with the plan that you layed (sic) out for me before. None of this half shipment before any are re- leased crap. It is either all or nothing. Also you may tell them that the President is getting very annoyed at their continual stalling. He will not agree to any more changes in the plan. Either they agree finally on the arrangements that have been discussed or we are going to permanently cut off all contact. If they really want to save their asses from the Soviets, they should get on board. I am beginning to suspect that [the Second Iranian Official] doesn't have such authority.'" Poindexter later sent a similar note to McFarlane, who was still awaiting his trip to Tehran: Here is the update we discussed on Saturday. [The Second Iranian Official] wants all of the parts delivered before the hostages are released. I have told 011ie that we can not do that. ? The sequence has to be 1) meeting; 2) release of hos- tages; 3) delivery of HAWK parts. The President is getting quite discouraged by this effort. This will be our last attempt to make a deal with the Iranians. Next step is a Frankfurt meeting with Gorba, [The Second Iranian Official], North and Cave. Sorry for the uncertainty.128 McFarlane agreed: "Roger John. Your firmness against the recurrent attempts to up the ante is cor- rect. Wait them out; they will come around. I will be flexible."29 The Israelis also came to believe that the Ghorbani- far channel might be doomed. Secord conveyed this message to North: "I talked to Adam [Nir] this a.m. He [is] quite pessimistic re Gorba/[Second Iranian Official] cabal. He know[s] time is nearly over."30 In mid-April, North wrote in his notebooks that he had received "1st acknowledgement that Iranians are 227 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 committed."31 While this encouraged North, it sug- gested that the American demands would not be met. In light of Poindexter's concern that the Second Irani- an Official might lack sufficient authority, the Ameri- cans could not be certain that the Iranian delegation would be able to secure the release of the hostages. Allen's April 15 memorandum noted that one of Ghorbanifar's efforts to have the Americans "sweeten the pot" for Iran included the sale to Iran of two U.S.-made radar systems. Even though the radars were a subject of prior negotiations, North had treat- ed them as separate from the spare parts sale. In a PROF note on April 29, North sought Poindexter's approval to sell the radars during the upcoming Frankfurt meeting. In the process, North pressured Poindexter for an immediate decision on this addition- al concession to the Iranian demands.' 3 2 On May 2, Nir telephoned Allen to discuss his most recent contact with Ghorbanifar. Nir stated that he had advised Ghorbanifar of the U.S. desire to proceed to Tehran without a preliminary meeting. Nir told Allen that in his opinion it was essential for both sides to have complete assurance regarding the "terms of the arrangements" prior to the primary meeting.133 With no advance meeting, the Americans would have to rely even more heavily upon Ghorbanifar as an intermediary. In contrast to North, Allen was pessimistic about progress made by the Second Iranian Official and Ghorbanifar toward the release of American hostages. In a formal memorandum to Casey on May 5, Allen detailed his interpretation of events in Iran: 1. [Most recent information] suggests that the White House initiative to secure release of Amer- ican hostages in Lebanon remains dead in the water. We surmise . . . that [the Second Iranian Official] is unable to provide the assurances and to make the arrangements demanded by our side. Ghorbanifar has not deposited the funds neces- sary to move the spare parts. 2. We believe that the Iranian government has not been able to convince the holders of the hostages to release them to Iranian custody. This belief is fortified by the experience of [another government]. Ghorbanifar's failure to deposit the necessary funds indicates that he has doubts about [the Second Iranian Official's] ability to obtain the release of the hostages. Ghorbanifar is in a bind and he knows that once he deposits the money he cannot get it back. He also is aware that we have insisted that the spare parts will [be] delivered eight hours after the release of the hos- tages and only after the release of the 134hos- tages. Allen's memo must have been alarming. He ques- tioned whether the Iranian Government had the abili- ty to convince those who held the hostages to release 228 them. In doing so, he cited the experience of another government. Although it is clear that U.S. officials were increasingly concerned with the Iranian govern- ment's inability to release the hostages, there is no indication that this concern was communicated to the President. The State Department Hears Rumors While North and CIA operatives were wrestling with details of the meetings and hostage exchange, other U.S. Government officials were conferring about the broader goals and policy. On February 28, Poindexter had briefed Secretary of State George Shultz on the hostage situation. Poindexter told Shultz that the Iranians "wanted a high-level meeting, and if there were a proper high-level meeting discuss- ing our future relationships, that would be the occa- sion in which the hostages would be released."35 Poindexter said that the White House had selected Robert McFarlane to conduct the high-level meet- ing.'" Secretary Shultz responded that although the Iranian position "sounds almost too good to be true," he would favor the meeting, providing McFarlane acted under written instructions. Secretary Shultz was subsequently shown such written instructions (or "terms of reference"), which he "thought were fine" because they mentioned arms sales as only a future prospect, in the event of a new relationship between the United States and Iran, an "end to the Iran-Iraq war and an end to terrorism coming from Iran and so on.""37 Poindexter did not inform Secretary Shultz that the agenda for the proposed meeting between McFarlane and the Iranians would include current deliveries of U.S. arms; and the written instructions reinforced Secretary Shultz's view that the meeting would in- clude no such agenda.'" Poindexter also did not tell the Secretary that only one day before their conversa- tion the United States had completed a shipment of 1,000 TOWs to Iran. By March 11, Poindexter called Secretary Shultz and told him that the proposed high-level meeting "was off" as was the Iran initiative itself.139 Yet, an event in London among a group of international arms dealers 2 months later showed that the meeting and the initiative were very much "on" and that Poin- dexter had been less than truthful with the Secretary. In early May, Saudi businessman Adnan Kha- shoggi, Nir and Ghorbanifar met with Tiny Row- lands, a British entrepreneur, and sought to enlist him in a plan to sell arms and other materials to Iran, a plan they maintained had been endorsed by the U.S. Government. According to Rowlands, Nir described a program to transfer large amounts of grain, military spare parts, and weapons to Iran. Nir proposed that Rowland's company, Lonrho, serve as an umbrella for managing future sales to Iran. Khashoggi exhibit- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 ed receipts of large-scale transfers of cash to Swiss banks, indicating that large amounts of money were involved in the transaction. Moreover, in attempting to recruit Rowlands, Nir and Khashoggi told him that not only were a number of businessmen already in- volved in the deals, but also that the sales "had been cleared with the White House" and that Poindexter was the "point man." Rowlands learned that "only four people in the U.S. Government are knowledgea- ble about the plan [and that] the State Department [had] been cut out.9,140 Following this meeting, Rowlands reported what had transpired to a U.S. Embassy official in London, and Ambassador Charles H. Price was promptly in- formed. The Ambassador reported the incident to Under Secretary of State Michael Armacost, and later briefed Poindexter by secure phone in Tokyo, where Poindexter was attending the economic summit.'" Poindexter acknowledged "a shred of truth" in Nir's allegation of White House involvement in the plan but contended that the involvement was minimal and that, in effect, Nir was "up to his own games." Poin- dexter told Ambassador Price that the U.S. Govern- ment had become involved the previous year when it "caught the Israelis red-handed delivering arms to Iran." He maintained that the story Price had heard was "all out of perspective" and advised that Row- lands be told to stay out of the plan. Poindexter assured Ambassador Price that he would "put things back the way they should be."142 The same day, Secretary Shultz, who was also at- tending the economic summit, received a cable from Armacost which detailed the Rowlands information. Shultz "expressed strong opposition on legal and moral grounds, as well as concern for the President" and the potential damage to his credibility that would result from exposure of the plan.'" Upon receiving the cable, Shultz immediately sought out Poindexter. Unable to find him, he con- fronted White House Chief of Staff Donald Regan and objected strongly to any such plan going toward.'" Regan expressed alarm and promised to raise the matter with the President.'" When Secre- tary Shultz found Poindexter, Poindexter denied any U.S. Government involvement in the deal, saying, "We are not dealing with these people. This is not our deal." Poindexter further said he had informed Ambassador Price that there was "only a smidgen of truth" in the report he had heard from Tiny Row- lands.'" Regan later reported to Secretary Shultz that the President became upset when learning of the matter. As a result, the Secretary concluded that whatever transaction had been discussed with Row- lands, "this is not our deal," meaning that "the repre- sentations [that] this is something that has been explic- itly endorsed by the U.S. Government were wrong.,,147 When Poindexter denied to Secretary Shultz that the United States was selling arms to Iran, he avoided telling the Secretary of State that McFarlane's pro- posed meeting with "high level" Iranians had been rescheduled for Tehran. Neither did he mention that plans for the meeting were rather well-advanced, nor that it would include a shipment of HAWK spare parts.148 On the same day that Armacost cabled Secretary Shultz, Poindexter sent a PROF message to North, informing him of Ambassador Price's phone call about the Rowland-Nir-Ghorbanifar-Khashoggi meet- ing. Poindexter blasted Nir, telling North, "We really can't trust those SOB's.1,149 In his reply to Poindexter, North agreed, "We cannot trust anyone in this game." North recalled that he had briefed Poindexter a year before on efforts to get Rowlands involved. At that time, Rowlands had reported back to Casey that the entire matter "smelled very badly." '5? North then informed Poin- dexter that the story he had heard from Ambassador Price was "the one made up by Nir to cover the transaction" and that it had been reported to North a few weeks before by Clair George. North concluded, as a result of the disclosure by Ambassador Price, that the "bottom line" was that "this typifies the need to proceed urgently to conclude this phase of the oper- ation before there are further revelations. We all know that this has gone on too long and we do not seem to have any means of expediting the process short of going to Iran."181 As these events occurred, North was preparing to meet Ghorbanifar in London. On May 5, 1986, the day after Poindexter told Secretary Shultz there was no truth to the report from the U.S. Embassy in London, Poindexter ordered North not to let anyone know he was going to London and not to have any contact with the U.S. Embassy there.152 In reply to a May 17 PROF note from North questioning whether Secretaries Shultz and Weinberger and Director Casey should be involved in a "quiet meeting" with the President and McFarlane before McFarlane's trip to Tehran, Poindexter stated that he did not want such a meeting.153 By that decision, Poindexter en- sured that Secretary Shultz would remain in the dark about the Tehran mission, and that McFarlane would fly to Iran for an expected high-level meeting with the Iranians without any consultation with the Secre- tary of State. Another Meeting In London On May 6, North, Nir, Cave, and Ghorbanifar met at the Churchill Hotel, London. The meeting focused on pricing of the spare parts shipment. Cave denied discussing the issue, noting that North, Nir, and Ghorbanifar were always careful to exclude him from such conversations.'" In discussing the upcoming meetings in Tehran, Ghorbanifar named Iranian Government representa- 229 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 tives whom the Second Iranian Official said would meet the American delegation: Prime Minister Musavi, Speaker Rafsanjani, and President Khameni, with a possible visit by the Imam's son, Ahmed 155Kho- meini. Cave had his first telephone conversation with the Second Iranian Official while he was in London. He described a "major snag" that arose regarding the sequence of the spare parts delivery. The Second Ira- nian Official was allegedly adamant that all the parts be delivered simultaneously with the arrival of McFarlane in Tehran. The Second Iranian Official finally agreed that when the American delegation ar- rived in Tehran with as many spare parts as the aircraft could hold, an Iranian delegation would be dispatched to Lebanon to barter for the release of the hostages. When the hostages were released, the re- maining spare parts were to be delivered. An Israeli present during the meeting later confirmed this agree- ment.' 5 6 Once again, the American position had slipped. Poindexter's firm resolve only weeks earlier to refuse to deliver any parts until the hostages were released had eroded. The Iranians were insisting on complete delivery and the American negotiators began to 157relent. North recorded many details of the London negoti- ation, and his notes reflect the pricing of both the spare parts and the radars. The first set of figures came from pricing suggestions by Nir, North, and Ghorbanifar: Total cost of 236 parts 235 Items 209 fully supported 14 partially supported 5 not avail 5 can't I.D. 2 never (illegible)/disc(ontinued) 225 delivered Cost = $13,415,876.00 Radars = $9,652,500.00 Packing/Handling = $433,725.00 Misc. xport(radars) = 37,500 C-141 to Eur.(Radars) $104,300.00 $23,663,911.00168 The second set of figures reflected the DOD cost of the same materials: RADARS 230 $6,177,600 for two radars 22,884 testing/eval 100,000 P/C/H/I 78,000 trans via C-141 $6,299,984 COST $6,3 240 PARTS. 4,182,923.40 P/C/H 146,000 Trans 8,000 $4,377,426 TOWs $1,762,252 Trans 7,500 Overrun 241,011 $2,010,763 Grand Total to CIA $12,688,173.00166 Cave Becomes Concerned About Pricing Several days following the London meeting, Cave received information that he claimed was the first time he had heard of price manipulation by Ghorbani- far. Cave recalled his shock when he learned of Ghorbanifar's exorbitant price. Concerned that such pricing could jeopardize the operation, Cave ap- proached North. Cave said that North expressed alarm at the price and may have indicated that he would speak to Nir about it.160 According to Cave, Ghorbanifar's pricing of the May shipment was confusing. During the May meet- ing in London, Ghorbanifar complained about having spent $1 million of his own money to support the NSC operation. This complaint, coupled with CIA's knowledge of Ghorbanifar's legal concerns following his arrest and probable loss of funds through the U.S. Customs "sting" operation, caused some CIA partici- pants to conclude that Ghorbanifar was simply trying to raise as much money as possible from the transac- tion.161 C/NE rationalized that the price of the radars, an additional $6.2 million, could have account- ed for the inflated figure. According to their testimo- ny, neither C/NE, Cave, nor Allen associated the inflated price with an effort by North and others to obtain profits in support of Contra activities. During March and April the intelligence informa- tion gathered on the initiative was available to a re- stricted group at the CIA. Cave routinely examined the information, which was controlled by National Intelligence Officer Charles Allen. Casey, Gates, Clair George, C/NE, and the Chief/Iran Branch were among others to whom the intelligence reports were disseminated.162 At least three reports showed that the Iranians were paying an exorbitant price for the spare parts. Information showed an attempt by the Second Iranian Official and Ghorbanifar to raise $21 million to purchase the two radars and over $20 mil- lion for the spare parts. Seven highly placed CIA officials thus had access to information that showed a huge mark up in the price of the spare parts and radar shipments. Yet all of them denied suspecting a diver- sion of funds until much later. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 The Meeting Is Set By May 6, North told Poindexter that he had achieved what Poindexter demanded?all hostages would be released before the parts were delivered. He reported this to Poindexter in a hopeful PROF note: I believe we have succeeded. Deposit being made tomorrow (today is a bank holiday in Switzer- land). Release of hostages set for 19 May in se- quence you have specified. Specific date to be determined by how quickly we can assemble req- uisite parts. Thank God?he answers prayers. V/R, North.163 Following the London meeting, North and North's deputy, Robert Earl, met with Clair George, C/NE, and Cave of the CIA to review the status of the initiative. From that meeting, North produced a memorandum setting forth the unresolved issues. The memo specifically noted that Clair George "wanted to ensure that Secretary Weinberger, Casey, and Sec- retary Shultz would all be briefed on the project."64 As a first step in moving the HAWK parts, Secord was to receive $15 million in Iranian funds. Only then would Secord transfer Enterprise funds to the CIA and begin acquiring parts. But Ghorbanifar had diffi- culty in transferring the money. Instead of receiving $15 million in deposit, Secord had to settle for $10 million as the first step. Secord sent a KL-43 message to North on May 14: 1. We have just received 10M in the lake via a contorted process but our lawyer says it is good and he is now moving it out of the lake to an- other acct. Still no sign of the remaining 5M but I assume it is enroute. 2. I will advise Adam ASAP. On May 12, C/NE had advised the CIA Office of Finance that they should expect a deposit of $13 million to the CIA account in Switzerland. The de- posit would allow the CIA to purchase the 240 HAWK spare parts and two radars from DOD.'" Two days later, C/NE changed the amount the Office of Finance should expect to $10 million. Final- ly, on May 16, 1986, the CIA Swiss account received a deposit of $6.5 million from "Hyde Park Square."67 C/NE advised North of the deposit and recalled North's comments: "Yes, 6.5. is in and the remaining 6.5 is going to come later [for the radars]."168 Iranian funds were never sent for the radars. Additionally, C/NE was not certain of ar- rangements to pay for the 508 TOWs and had as- sumed that the Israeli Government handled that ex- pense in a separate transaction."9 The National Security Planning Group Meeting Also on May 16, Poindexter and North attended a National Security Planning Group meeting chaired by the President. They discussed solicting financial sup- port from third countries to support the Nicaraguan Resistance. Poindexter recalled that Secretary of State Shultz said that Congress would probably not renew funding for the Contras as early as Administration officials had hoped. To develop "bridge funding" for the Contras, Poindexter asked Secretary Shultz to prepare a list of countries for the President to consid- er for solicitation.170 Following the meeting, Poindexter received a PROF message from North declaring, "There is now $6M available to the resistance forces." 171 This mes- sage was sent the same day one of the Enterprise's Swiss accounts received a deposit toward the pur- chase of spare parts. Poindexter testified that he un- derstood the $6 million had come from the diver- sion;172 however, the National Security Adviser claimed he did not tell the President of the sudden availability of "bridge funds." Generally, according to Poindexter, when opportunities arose for him to dis- cuss the diversion with President Reagan, he avoided doing so in order to permit the President to be able to deny knowledge of the issue. Poindexter claimed that he never volunteered to the President that diverted funds were available to "bridge" the Contra financial requirements.173 Final Planning for Tehran With the 1-week delay in receiving the deposit from Ghorbanifar, participants in the initiative adjust- ed their schedules. North notified Poindexter on May 17 of travel plans for the Americans going to Tel Aviv and Tehran. Additionally, he requested a mili- tary aircraft for the trip to Israel and a last-minute meeting among McFarlane, the President, Casey, Shultz, and Weinberger."4 Poindexter opposed both ideas: I have problems with this plan. An A/C request is too closely linked to what is happening. I don't see how we can use a military A/C. Why do you have to stay so long in Israel? I had in mind you would travel separately, rdvu[rendezvous] in Israel at a covert location, and proceed to Iran. I don't want a meeting with RR, Shultz, and Wein- berger.175 North's reply was a comprehensive schedule of events that detailed the American travel itinerary with the commercial delivery of military materials for Iran. Even though the delegation's flight arrange- ments were later altered, the military arms were shipped as noted below: 231 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 . .11.1.. 1, .. I...... - Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Thursday: May 22 1000 - 240 items + 508 TOWs moved. . . to Kelly AFB by CIA 1100 - Commercial 707 (#1) arrives Kelly to load most of 240 items 1700 - Commercial 707 (#1) Dep Kelly for Israel w/bulk of 240 items aboard Friday: May 23 1400 - Commercial 707 (#2) Dep Kelly AFB w/ 508 TOWs for IDF [Israeli Defense Force] enr Israel 1400 - Commercial 707 (# 1) Arr Israel w/bulk of 240 items; commence xfr to IAF 707s prior to commencement of Sabbath Saturday: May 24 1700 - Commercial 707 (#2) Arrives w/508 TOWs & remainder of 240 items; com- plete xfr of 240 items to IAF 707s after sunset (end of Sabbath) 2200 - bulk of 240 items transloaded fm Commer- cial 707 (#2) to IAF 707 (#B)1" The final travel itinerary was eventually outlined by North. After Poindexter asked North to consider using a CIA proprietary for a segment of the flight to Israel, North responded that he would make arrange- ments that did not include military aircraft. His final recommendation included the use of a Democracy, Inc. aircraft to fly the delegation to Rhein Main, Germany.1" On May 22, a Southern Air Transport 707 airplane delivered 13 pallets of HAWK missile spare parts to Israel. The following day, Southern Air Transport flight crews arrived in Israel for the trips to Tehran.' 7 8 On May 24, a second 707 arrived in Israel with 508 TOW missiles to replace the Israeli arms issued to Iran in 1985. After an examination by Israeli Defense Force personnel, the weapons were judged to be in "poor condition" and were rejected.'" One pallet of HAWK parts and the Tehran delegation departed on May 25 aboard a disguised Israeli Government air- craft. Another Israeli plane loaded with the remaining 12 pallets of HAWK spare parts was ready for imme- diate departure to Tehran.18? U.S. War Readiness Suffers The CIA obtained the 13 pallets of HAWK missile spare parts using much the same procedures employed to obtain the TOWs a few months earlier. Once again, the usual method of dealing with CIA requests for weapons from DOD was ignored. Bypassing the system in February created a large enough pricing error to make the diversion of excess profits feasible. Bypassing the system in obtaining the HAWK spare 232 parts was equally serious, this time affecting U.S. war readiness. When the Army received from the CIA the list of HAWK spare parts the Iranians were demanding, Major Simpson began to fill the order. But the Irani- ans had prepared the list using outdated documents and obsolete stock numbers, making it difficult for the Army to identify the parts; indeed, HAWK Project officials could not identify 11 of the items on the list. Out of 148 items, only 99 existed in the Army's stocks in sufficient quantities such that the transfer to Iran would have no readiness impact.18' In the case of 15 items, Army stocks would be completely deplet- ed if the Army provided all quantities requested. Sup- plying 11 items would have depleted more than half the available stocks.' 8 2 Simpson was able to adjust the quantities on many of the items requested. On April 23, however, he instructed his subordinates to ship all of the items on the revised list.183 Readiness impact remained critical for 10 to 12 of the parts.'" The parts were ordered to be shipped even though U.S. HAWK missile bat- teries would be deficient if they were needed.185 The availability of one part was particularly acute. The Iranians had requested a quantity of one particu- lar part used in the HAWK radar. If the part fails, the system does not work; if there are no replacements, the system remains useless.186 The Army had only a limited supply of this part. Shipping the parts would put the readiness impact in the "high risk" category. Simpson protested to his superiors that the Army's stock of this part could not be depleted. The CIA insisted on delivery, and all of the parts were shipped.'" U.S. readiness was thus adversely affect- ed.188 Conclusion The President's decision to sign the Finding in mid- January 1986 carried with it a decision not to notify Congress of the covert operation. As the participants recalled, the scheme contemplated a quick sale of weapons and an immediate release of all the hostages. Indeed, the memorandum accompanying the Presiden- tial Finding provided that the initiative would be closed down if the hostages were not released after the first 1,000 TOWs were sold.'89 By the end of May, the Americans had seen one pledge after another evaporate. When the first sales took place in mid-February they were not followed by a hostage release. Iran was subsequently rewarded with the promise of the sale of HAWK parts, but the Americans insisted that all the hostages first had to be released. That American demand was abandoned as well, however, as the McFarlane delegation prepared for their trip to Tehran in an airplane containing a quantity of HAWK spare parts. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 While freedom for American hostages had not ma- terialized, a funding mechanism to support various clandestine programs was flourishing. By the time McFarlane and North were preparing for their jour- ney to Tehran, part of the profits obtained from the sale to Iran of both the TOW missiles and the HAWK spare parts had been diverted to support the Nicaraguan Resistance movement. The remainder of the profits were stored in secret Swiss bank accounts to support "off-the-shelf" clandestine operations. 233 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 II ..1 I 4141 P Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Chapter 12 1. DC/NE Dep., 4/22/87, at 74-75 2. Id., at 82. 3. George Test., Hearings 100-11, 8/6/87, at 102. 4. Id., at 109. 5. Id., at 110. 6. Id., at 146. 7. Id., at 154. 8. DC/NE Dep., 4/22/87, at 83. 9. Id. CIA finance officers noted that deposits to the CIA accounts always originated from the Department of the Treasury or other Federal agencies. The officers claimed that, to their knowledge, the financial process established for the Iran initiative marked the first occasion in which funds were accepted by the Agency from a private source. Interview, CIA Finance Officers, 3/26/87. 10. DC/NE Dep., 4/22/87, at 84. 11. Id., at 102-103. 12. Interview with CIA logistic officer, 6/15/87. 13. North, Personal Notes, 1/21/86. 14. Thurman Dep., 6/12/87, at 6. 15. The United States thought that Israel had shipped 508 TOWs the previous September. Because of packing require- ments, only 504 had actually been shipped. 16. Thurman Dep., 6/12/87, at 11-12. 17. McDonald Dep., 8/14/87, at 30. 18. Id., at 11. 19. Simpson Dep., 6/1/87, at 70-71. 20. Id., at 70, 73. 21. Id., at 74. 22. Coward Dep., 8/10/87, at 13, 21. Simpson Dep., at 10. 23. Simpson Dep., 6/1/87, at 90-93, 97-99. 24. North, Personal Notes, 1/22/86. 25. North Test., Hearings, 100-7, Part I, 7/8/87, at 107. 26. Sporkin Test., Hearings, 100-6, 6/24/87, at 140-142. 27. North Test., Hearings, 100-7, Part I at 106-107. 28. Oliver North Tape Recording, 1/22/86. 29. Id. 30. Poindexter Test., Hearings, 100-8, 7/20/87, at 36. 31. Poindexter Dep., 5/2/87, at 179-80. 32. Id. See Chapter 15 for a full description of the Diver- sion. 33. Ex. DRC-15, Hearings, 100-11. 34. North Personal Notes, 1/27/86. 35. DC/NE Dep., 4/22/87, at 91-92. 36. North Test., Hearings, 100-7, Part I, 7/8/87, at 113-14. 37. DC/NE Dep., 4/22/87, at 104. 38. North, Personal Notes, 1/22/86. 39. Id., 1/31/86. 40. Id., 2/5/86. 41. Interview with CIA Finance Officers, 3/17/87. 42. North PROF Note, 2/13/86. 43. Secord Test., Hearings, 100-1, 5/7/87, at 106. 44. N9884, 2/18/86. 45. DC/NE Dep., 4/22/87, at 110. 46. George Test., Hearings, 100-11, 8/6/87, at 70-71. 47. DC/NE Dep., 4/22/87, at 111. 48. Hakim Test., Hearings, 100-5, 4/3/87, at 225. 49. DC/NE Dep., 4/22/87, at 93-97. North testified that Hakim was used in February as an interpreter for the Frankfurt meetings because the CIA had no Farsi transla- tors available. North Test., Hearings, 100-7, Part II, 234 7/10/87, at 4. Secord stated that the only Farsi translator available from the CIA was a female employee, who would have been unacceptable to the Iranians because of her gender. Secord Test., Hearings, 100-1, 5/7/87, at 107. During the meeting in Frankfurt, a former CIA operative and Farsi interpreter, George Cave, was in Europe. Cave stated that he could have been available to translate for the meeting in a matter of hours had his Agency received such a request from the NSC. Cave Dep., 9/29/87, at 2. Following the February 24 meeting in Frankfurt, North told McFarlane in a PROF message that he had turned to Hakim after the CIA had refused to provide an interpreter; the decision to use Hakim as a translator developed: "Be- cause CIA would not provide a translator for the sessions, we used Albert Hakim, an AMCIT (American Citizen) who runs the European operation for our Nicaraguan resistance support activity. DC/NE accompanied so that I would have someone along who would provide an 'objective' ac- count." (North PROF, 2/22/86). 50. DC/NE Dep., 4/22/87, at 115. 51. Hakim Test., Hearings, 100-5, 6/3/87, at 226-27. 52. DC/NE Dep., 4/22/87, at 113. 53. Id. 54. Hakim Test., Hearings, 100-5, 6/3/87, at 287-89. 55. DC/NE Dep., 4/22/87, at 119-21. 56. Id., at 93-94. 57. Secord Test., Hearings, 100-1, 5/7/87, at 109. 58. Secord KL-43, 2/27/86, to North, Subj: "Meeting at Kish Island." 59. North PROF, 2/27/86 8:54 a.m. 60. McFarlane PROF, 2/27/86, 4:02 p.m. 61. North PROF, 2/27/86, 8:11 p.m. 62. McFarlane PROF, 2/27/86, 9:37 p.m. 63. North Test., Hearings, 100-7, Part I, 7/8/87, at 113- 114. 64. Id. 65. North Test., Hearings, 100-7, Part I, 7/8/87, at 115. 66. Id., at 116-17. 67. Poindexter Test., Hearings, 100-8, 7/21/87, at 150. 68. North Test., Hearings, 100-7, Part I, 7/8/87, at 117-18. 69. Secord Test., Hearings, 100-1, 5/6/87, at 154-58. 70. J7431, 2/28/86. 71. CIA Cable, 1/25/86, McMahon to Casey. 72. North, Personal Notes, 3/2/86. 73. DC/NE Interoffice Memo, 3/7/86, to C/NE: Subj: "NSC Operation." 74. Cave Int., 4/15/87. 75. Cave Dep., 9/29/87, at 5. 76. DC/NE Dep., 4/22/87, at 125. 77. Secord Test., Hearings, 100-1, 5/6/87, at 111. 78. North, Personal Notes, 3/7/86. 79. Cave Memo, undated, to DC/NE: Subj: "Results of Ghorbanifar Meeting". 80. Allen Dep., 4/24/87, at 407 08. 81. Allen Memo., 2/13/87. 82. North PROF, 3/10/86, 9:10 p.m. 83. McFarlane PROF, 3/10/86, 10:14 P.M. 84. North PROF, 3/11/86, 7:23 A.M. 85. Allen Memo., 3/21/86: Subj: "Conversation with Sub- ject." 86. Id. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 87. Secord Test., Hearings, 100-1, 5/6/87, at 111. 88. Cave Dep., 4/17/87 at 36. 89. Allen Memo., 4/2/86: Subj: "Conversation with Sub- ject." 90. North, Personal Notes, 3/28/86. 91. Israeli Financial Chronology. 92. Israeli Historical Chronology. 93. DC/NE Dep., 4/22/86, at 136-39. 94. Cave Dep., 4/17/87, at 52. 95. Cave Memorandum, 4/3/86 to C/NE: Subj: "Meeting with Gorba 3 April." 96. North, Personal Notes, 4/7/86. 97. Cave Dep., 4/17/87, at 42. 98. Secord Test., Hearings, 100-1, 5/6/87, at 122. 99. Poindexter Test., Hearings, 100-8, 7/21/87, at 178. 100. North Test., Hearings, 100-7, Part I, 7/8/87, at 136. 101. North Test., Hearings, 100-7, Part I, 7/7/87, at 14. 102. North Memo, undated, to Poindexter, Subj: "Release of American Hostages in Beirut," N28835. 103. Id. 104. Id. 105. North PROF, 4/7/86. 106. Hall Test., Hearings, 100-5, 6/8/87, at 79. 107. Id. 108. Id., at 115. 109. Id., at 114. 110. Poindexter Test., Hearings, 100-8, 7/20/87, at 45. 111. North Test., Hearings, 100-7, Part I, 7/7/87, at 11. 112. Id., at 12-13. 113. Id., at 13. 114. Id., at 13-14. 115. Poindexter Dep., 5/7/87, at 188. 116. Poindexter Test., Hearings, 100-8, 7/20/87, at 47-48. 117. North Test., Hearings, 100-7, Part I, 7/10/87, at 299- 300. 118. Poindexter Test., Hearings, 100-8, 7/21/87, at 182-83. 119. North, Personal Notes, 4/15/86. 120. Cyrus Hashemi is discussed in greater detail in Chap- ter 9. 121. Allen Dep., 4/24/87, at 422. 122. Cave Dep., 4/17/87, at 54-55. 123. Information indicated that Iran was to pay $21.5 million for the purchase of two U.S. radars. DOD's price for the radar units, accurately noted in North's notes, was approximately $6.3 million. However, since Iranian funding for the radars failed to materialize, the Enterprise missed an opportunity for a second $18 million profit. 124. Cave Dep., 9/29/87, at 83-88. 125. Allen Memo., 4/16/86, Subj: "Conversation with Subject." 126. Allen Memo., 4/27/86, Subj: "Conversation with Subject." 127. Poindexter PROF, 4/16/86. 128. Poindexter PROF, 4/22/86. 129. McFarlane PROF, 4/22/86. 130. Secord KL-43, 4/21/86, to North. 131. North, Personal Notes, 4/22/86. 132. As North wrote to Poindexter in the PROF message: "We are seeing increasing evidence of Libyan efforts to buy the hostages and other signs of increasing disarray inside Lebanon. Further, there is increasing indication of seepage around the edge of our hostage project. Bottom line: [the Second Iranian Official] knows this and wants to proceed quickly with a release." North PROF, 4/29/86. 133. Allen Memorandum for the Record, 5/5/86. 134. Allen Interoffice Memo, 5/5/86, to DCl/DDCI: Subj: "Comments on the Ghorbanifar Operation." 135. Shultz Test., Hearings, 100-9, 7/23/87, at 18. 136. Id. 137. Id., at 19. 138. Id. 139. Id., at 20; Ex. GPS-B 140. Ex. GPS-20. 141. Shultz Test., Hearings, 100-9, at 189-90. 142. Ex. JMP-43, Poindexter Dep., 5/7/87. 143. Ex. GPS-20, Hearings, Vol. 100-9, 7/24/87. 144. Shultz Test., Hearings, 100-9, 7/23/87, at 21-22. 145. Id., Ex-GPS-8. 146. Shultz Test., Hearings, 100-9, 7/23/87, at 70. 147. Id., at 22-23. 148. Id., at 24. 149. Ex. JMP-42, Hearings, 100-8. 150. Id. 151. Id. 152. Ex. GPS-21, Hearings, 100-8, 7/23/87. 153. Ex. GPS-25, Hearings, 100-8, 7/23/87, at 26. 154. Cave Dep., 9/29/87, at 88. 155. Cave Dep., 4/17/87, at 63. 156. Israeli Historical Chronology. 157. The second area in which the United States resolved not to give in to additional Iranian demands concerned the HAWK radars. The radars were separately offered for sale during the negotiations because of a technical quirk involv- ing the Department of State. The radars, valued at approxi- mately $6.3 million by DOD, had been purchased by the Government of Iran during the Shah's reign. Having been undelivered prior to the fall of the Shah, the radars re- mained in a Pennsylvania warehouse, under State Depart- ment control, as property to be negotiated between the U.S. and Iran. The Iranian Government was unaware that the NSC intended to sell Iran radars previously paid for by the Shah. Again acting through DOD, the CIA managed to obtain permission to purchase the radars without the State Department knowing of the true customer's identity. Even though an avenue to purchase the radars had been opened, the CIA eventually discontinued its efforts when Iranian funding failed to materialize. (DC/NE Dep., at 148) 158. North, Personal Notes, 5/6/86. 159. North, Personal Notes, 5/6/86. 160. Cave Dep., 4/17/87, at 66-68. 161. Id 162. Cave Dep., 9/29/87, at 82-83. 163. North PROF, 5/6/86. 164. NSC Document, 5/9/86. 165. Secord KL-43, 5/14/86, to North. The Enterprise received the remaining $5 million on May 16, 1986. 166. DC/NE Dep. 4/22/87, at 149-50. 167. Int., CIA Finance Officers, 4/29/87. 168. DC/NE Dep. 4/22/87, at 150. 169. Id, at 151. 170. Poindexter Test., Hearings, 100-8, 7/20/87, at 66. 171. Ex. JMP-51, Hearings, 100-8, 7/20/87, at 66. 172. Poindexter Test., Hearings, 100-8, 7/15/87, at 65. 173. Id, at 66. 174. North PROF Note, 5/17/86. 175. Poindexter PROF Note, 5/19/86. 176. North PROF Note, 5/19/86. 177. North PROF Note, 5/20/86. 235 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 178. Israeli Chronology. 179. Those 508 TOWs would remain, however, in Israel even though the Israelis never accepted them into their military stocks. They were eventually shipped to Iran in late October 1986 in exchange for the release of Jacobsen. Secord Test., Hearings, 100-1, 5/6/87, at 124. 180. Id. 181. DOA Inspector General Report, 2/5/87, at 43. 182. Id., at 43. 183. Simpson Dep., 6/1/87, at 63. 184. Id., at 53. 185. In April, the CIA asked the Army for two HAWK radars. The Army viewed the request as distinct from the request for HAWK spare parts for one major reason: the request for the parts came from the White House; the re- quest for the radars came only from the CIA. As a result, the Army handled the request through the usual proce- dures. The results were dramatically different. The Army de- termined that they had insufficient information to make a competent legal review and that, regarding three of the line item repair parts requested along with the radars, to supply everything requested would entirely deplete available stocks. The Army General Counsel was notified, and she recommended that the Secretary of the Army decline to transfer the items. 186. Chapman Dep., 8/10/87, at 10-11. 187. Simpson Dep., 6/1/87, at 64-65. 188. Administration statements of record do not agree with this conclusion regarding the adverse readiness impact of the HAWK parts transfer. The Department of Army Inspector General's Report, for example, concluded: "The sale of HAWK ground support equipment repair parts to the CIA did not reduce the readiness of U.S. Army air defense forces." [DOA Inspector General Report, 2/5/87, at 45.] A careful reading of the Report, however, suggests Army investigators may have been unaware of the actual status of Army stocks regarding one critical common use 236 part used in the HAWK radar. Moreover, while one Army official involved in the process testified that there was "some discussion" with Army investigators about the readi- ness impact of the HAWKs, he told the Committees "they didn't ask as many detailed or probing questions as we've had [during the deposition] today. . . ." [Chapman Dep., 8/10/87, at 21.] When Admiral Crowe learned of the transfers in mid- 1986, he did examine the readiness question, but confined his review to the TOWs, not the HAWK repair parts, because he "really didn't feel that the HAWK parts were going to be that crucial or critical one way or another." [Crowe Dep., 6/18/87, at 18.] Upon being apprised of HAWK repair part readiness data in his deposition, Crowe conceded those data had not been brought to his attention, and had they been, it would have been "a rather significant finding." [Id., at 38.] General John A. Wickham, Jr., then- Chief of Staff of the Army, testified that had he known the facts as presented to him during his deposition, it would have concerned him, adding, "And that is the kind of thing that we would have gone to Will Taft about it and said, look, we've got a requirement here you've laid on us, but now we have some serious implications and we recommend strongly against it. [Wickham Dep., 8/14/87, at 46.] Finally, Secretary Weinberger testified publicly that there was no adverse readiness impact from the arm sales to Iran, but his testimony was confined solely to TOWs. When first asked about readiness, the Secretary testified: "We had a very, very large stocks of those old obsolete TOW mis- siles . . . so that there would not be any appreciable effect on our readiness." [Weinberger Test., Hearings, 100-10, at 399-400.] Later in his testimony Weinberger referred to the TOWs as "obsolete weapons . . . our stocks were perfectly sufficient," [Id., at 219], but he never addressed himself to the question of readiness vis-a-vis the HAWK repair parts transfer. 189. Ex. OLN-60, Hearings, 100-7, Part III. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 Deadlock in Tehran The Presidentially approved McFarlane mission to Tehran in the spring of 1986, was intended to crown a 9-month effort to free the hostages and establish a dialogue with Iran. McFarlane likened the mission to Henry Kissinger's historic secret meeting with Pre- mier Chou En-lai that paved the way to U.S.-China reconciliation.' Eight years after an Iranian Prime Minister, Mehdi Bazargan, was dismissed for meeting with President Carter's National Security Adviser, McFarlane was to meet with Speaker Rafsanjani, Prime Minister Musavi, and President Khamenei, the three most powerful leaders in Iran under Ayatollah Khomeini.2 What is more, McFarlane believed that the hostages were to be released upon his arrival and that the HAWK parts were not to be delivered until the hostages were safe. Hopeful of success, North arranged logistical support for the return of the hos- tages and prepared a press kit for the White House.3 North added his own flourish: He ordered a choco- late cake from an Israeli baker as a gift for the Irani- ans.4 The Iranians had very different ideas?centering on arms and Da'wa prisoners. As a result, the Tehran mission ended in acrimonious confrontation with the hostages still in captivity. Preparing for the Mission The American delegation consisted of McFarlane, North, former CIA official George Cave, then-NSC staff member Howard Teicher, Amiram Nir, adviser to the Israeli Prime Minister on combatting terrorism, and a CIA communicator who was to remain on the plane and forward messages via secure means to Poin- dexter in Washington and Secord in Tel Aviv. McFarlane included Nir at the request of the Israelis who viewed this as a joint U.S.-Israeli operation. All members of the delegation used aliases and Nir passed himself off as an American.6 The delegation took one pallet of HAWK parts with them in the aircraft. The remaining 11 pallets of parts were left in Israel with Secord, who was poised to deliver them upon the release of the hostages.6 The Tehran trip was both an extraordinarily heroic and a very foolish mission for McFarlane and his companions. As the immediate predecessor of the Na- tional Security Adviser, McFarlane knew many of the Nation's most sensitive secrets. North was privy to some of them as well, as was Teicher. Yet, the plan called for them to go to Tehran under false passports and pseudonyms without even safe conduct docu- ments from the Iranian Government. Ghorbanifar and the Second Iranian arranged the visit. Ghorbanifar was a private citizen and the Second Iranian, was, according to Ghorbanifar, the person responsible for the kidnapping of CIA agent William Buckley.7 The Iranian government had demonstrated during the U.S. Embassy seizure that it could not prevent the holding of diplomats as hostages by its Revolutionary Guards. The State Department was unaware of the mission because Poindexter had told Shultz back in March that a proposed high-level meeting between McFar- lane and the Iranians had been cancelled, never in- forming Shultz that it had been rescheduled.8 Fur- ther, Poindexter had rejected North's suggestion that Shultz, Poindexter, and McFarlane meet before the trip.3 And friendly governments with embassies in Iran were not alerted. McFarlane and his party were, in effect, on their own in Tehran?even subject to legitimate arrest for entering under false passports and with missile parts. Moreover, the plan contemplated that after the hos- tages were freed, McFarlane and the delegation would remain in Tehran until the promised HAWK parts were delivered." The former National Security Adviser and ranking members of the NSC staff were, in effect, to substitute themselves for the hostages. In fact, the delegation had cause for concern during the negotiations when the Iranians repeatedly delayed re- fueling the aircraft." The original plan for the mis- sion entailed less risk. It called for the meeting to be on Kish Island within reach of U.S. naval forces." Even some of the proponents of the Iran initiative thought the mission to Tehran was premature. Secord testified that there should have been a preliminary meeting between McFarlane and the Iranians to pre- pare a realistic agenda for Tehran; 13 he believed that misunderstandings were creating false expectations on both sides. Nir also favored a preliminary meeting." Cave believed that he and North should have under- taken a preliminary mission to Tehran before McFar- lane went." Poindexter testified that he considered a 237 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 preliminary mission to be too dangerous and thus ruled it out.' 6 Even the timing of the trip was wrong. As North and McFarlane soon discovered, the trip took place during a holy period in the Islamic calendar, and Muslim officials were not fully available. The Iranian officials had to fast throughout the negotiations." Arrival in Tehran The mission arrived in Tehran on the morning of May 25 and the first signs of failure were evident almost immediately. McFarlane expected to be greet- ed at the airport by Speaker Rafsanjani or some other high official. The Americans waited more than an hour, but no one showed up to greet them." Then, only Ghorbanifar and the Second Iranian arrived." McFarlane described his reactions in a cable he sent soon after arrival: It may be best for us to try to picture what it would be like if after nuclear attack, a surviving tailor became Vice President; a recent grad stu- dent became Secretary of State; and a bookie became the interlocutor for all discourse with foreign countries. While the principals are a cut above this level of qualification, the incompe- tence of the Iranian government to do business requires a rethinking on our part of why there have been so many frustrating failure[s] to deliver on their part.2? As events proved, however, the Iranians were tough, competent negotiators. Under the pre-Tehran timetable, no HAWK parts? including the pallet on the plane?were to be deliv- ered until the hostages were freed.2' But even before the American delegation left the airport, the Iranians had removed the pallet.22 The Iranians were never- theless disappointed, for the Second Iranian had told his superiors that at least 50 percent?not merely 1 out of 12 pallets2 3-of the parts would be delivered. The Misunderstanding The McFarlane delegation went from the airport to the Independence Hotel (the Hilton in pre-Revolution days), where the entire top floor was assigned to them.24 In 4 days of talks, virtually the only points on which the Americans and the Iranians could agree were generalities such as the United States' accept- ance of the Iranian Revolution and Iran's sovereignty, and common fear of the Soviet Union, including their intervention in Afghanistan. On concrete issues such as the hostages and arms sales, the parties were poles apart. In accordance with his instructions and the agree- ment that he believed had been made with the Irani- ans in Frankfurt, McFarlane insisted that the hostages be released before the HAWK parts were delivered. 238 The Iranians took the opposite position: The HAWK parts had to be delivered first and then the release of the hostages would be negotiated. The Iranians main- tained that they had not agreed in Frankfurt to a release of the hostages upon the arrival of the McFar- lane delegation.25 Yet Poindexter had rejected the Iranian position before the President authorized the mission and had so instructed McFarlane: [The Iranian official] wants all the HAWK parts delivered before the hostages are released. I have told 011ie that we cannot do that. The sequence has to be (1) meeting; (2) release of hostages; (3) delivery of HAWK parts. The President is get- ting quite discouraged by this effort. This will be our last attempt to make a deal with the Irani- ans. 2 6 The Americans made contemporaneous notes and reports of the discussions that provide a full account of what happened at Tehran. The key points are sum- marized here. Days 1 and 2?Marking Time For the first 2 days, May 25 and 26, no high-level Iranian official appeared. The Second Iranian and other "third and fourth level officials" in the Prime Minister's office represented Iran.27 With no Iranian decisionmaker present, the discussions consisted mainly of exchanges of platitudes, a "diatribe" by the Iranians against the Americans for not bringing "enough" HAWK parts, and protests by McFarlane about the Iranians' failure to produce the hostages." Ghorbanifar tried to reassure the U.S. delegation that the hostages would be released," but the Americans had lost confidence in his promises. McFarlane's anger flared. McFarlane regarded the meeting with low-level Iranians as a waste of time and a degrading breach of protocol. He stated that he had come to "meet with Ministers." The Second Iranian promised to produce an official at the sub-Minister level but McFarlane was still dissatisfied, saying: As I am a Minister, I expect to meet with deci- sion-makers. Otherwise, you can work with my staff. 3 True to his word, McFarlane withdrew from the discussion and left the staff to meet with the Iranians, including the Prime Minister's designee, a member of the Majlis and foreign affairs adviser to Rafsanjani (the "Adviser") who arrived at 9:30 p.m. on the second day and became the leader of the Iranian delegation. Because the Adviser had not attended any prior meetings, North reiterated the U.S. position: If your government can cause the release of the Americans held in Beirut 10 hours after they are released, aircraft will arrive with the HAWK Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 missile parts. Within 10 days of deposit [of money], two radars will be delivered. After that delivery, we would like to have our logistics and technical experts sit down with your experts to make a good determination of what is needed." If the initial discussions hinted at the misunder- standing about the terms of the meeting, the Second Iranian made it unambiguous. He rebuffed North's request for a meeting between McFarlane and minis- ters, saying "We did not agree to such meetings for McFarlane."32 He added that McFarlane would meet with no higher official than the Adviser; and the Adviser stressed to North that the immediate delivery of the HAWK parts and other arms was crucial to the success of the mission: There is a $2.5 billion deal . . . we want TOWs, especially with technicians. Easier to operate than MILAN. We would appreciate your advice on F/14 phoenix and harpoon missiles.33 He stated that the: Iman has said we are ready to establish relations with all the world except Israel. But you have to remove the obstacles. . . . Speed up what has been agreed. . . . A few 747's can carry a lot in one day. We would be very pleased to discuss our specific needs.34 From the first discussions with the Iranians in De- cember, the Americans had described the hostages as the "obstacles" to better relations. Now the Iranians borrowed the term. In their view, the failure of the United States to ship the rest of the HAWK parts and to sell more arms were the obstacles both to a mean- ingful dialogue and to the release of the hostages. The different meanings that each side gave to the word obstacles symbolized their different objectives; for the Iranians it meant arms, for the Americans, the other hostages. As the discussions with the Adviser and his colleagues ended on the second day, North said he would urge McFarlane to meet the Adviser the next day.3 5 North reported to McFarlane that evening. In a message sent to Poindexter that night describing the day's events, McFarlane, relying on North's assess- ment, stated that the Adviser was "a considerable cut above the Bush Leaguers we had been dealing with." He went on to assure Poindexter that: . . . with regard to the hostages, we have and will continue to make clear that their release is the sine qua non to any further steps between us and if that has not happened by tomorrow night, they are aware that we will leave and that the balance of the shipment will not be delivered.36 The Final Days?McFarlane Remains Firm For the American delegation and the Iranian repre- sentatives, May 27 was a long day. The discussions, termed "marathon" by Cave, lasted from 10 a.m. until 2:10 a.m. on May 28. They began with North, Cave, and Teicher holding a preliminary meeting with the Adviser and the other Iranians. The Adviser deliv- ered bad news about the hostages: Our messenger in Beirut is in touch with those holding the hostages by special means. They made heavy conditions. They asked for Israel to withdraw from?the Golan Heights and South Lebanon. Lahad must return to East Beirut, the prisoners in Kuwait must be freed, and all the expeses paid for hostage taking. They do not want money from the U.S. Iran must pay this money.37 The Adviser, held out hope, however, particularly if the HAWK parts were delivered. He told North that the Iranians were negotiating to scale down the captors' demands. However, "only a portion of the 240 spare parts had been delivered. The rest should come. This is an important misunderstanding."38 McFarlane then met with the Adviser, one on one, for 3 hours. He sent a message to Poindexter immedi- ately afterward that included the following: He [the Adviser] reported that Hizballah had made several preconditions to the release: (1) Israeli withdrawal from the Golan; (2) Israeli withdrawal from Southern Lebanon; (3) Lahad movement into East Beirut; and (4) someone (un- defined) to pay the bills the hostages have accu- mulated. How's that for Chutzpa. . . . He hur- riedly added [before I unloaded on him] that these demands are not acceptable and we are negotiating with them and believe that the only real problem is when you deliver the items [the HAWK parts and the radar] we have requested. * * * * * I then carefully recounted . . . that he [the Presi- dent] had only reluctantly agreed to this meeting under a very clear and precise understanding of the arrangements. I then went over in detail what those arrangements were: 1. the U.S. would send a high-level delegation to Tehran. They would bring with them a portion of the items they had requested and paid for (which we had done); 2. upon our arrival, they had agreed to secure the release of the hostages promptly, upon release of the hostages to our custody, we would call for- ward the balance of items that had been paid for 239 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 and those that had not been paid for would be dispatched as soon as payment had been received. * * * * * At this point he became somewhat agitated want- ing to know just who had agreed to these terms. (I fingered Gorba and the Second Iranian). He stated that these were not the terms as he under- stood them. The basic difference was that they expected all deliveries to occur before any release took place. He was obviously concerned over the very real possibility that his people (Gorba and the Second Iranian) had misled him and asked for a break to confer with his colleagues. I agreed noting that I had to leave tonight. (Actually I don't have to leave tonight but recognizing that we have been here for three working days and they have not produced I wanted to try to build a little fire under them. . . . ) I tend to think we should hold firm on our inten- tion to leave and in fact do so unless we have word of release in the next six or seven hours. I can imagine circumstances in which if they said tonight that they guarantee the release at a pre- cise hour tomorrow. We would stand by but not agree to any change in the terms or call the aircraft forward. My judgment is that they are in a state of great upset, schizophrenic over their wish to get more from the deal but sobered to the fact that their interlocutors may have misled them. We are stay- ing entirely at arms length while this plays out. We should hear something from them before long.3 9 McFarlane's threat to leave had its intended effect. Several hours later, the Adviser reported that the Hizballah had dropped all their demands except for the release of the Da'wa terrorists held prisoner in Kuwait: The only remaining problem is Kuwait. We agreed to try to get a promise from you that they would be released in the future.4? The request for U.S. intervention with Kuwait flew in the face of U.S. policy. The Da'wa had been con- victed in Kuwait for a number of terrorist acts, in- cluding the bombing of the U.S. Embassy. Kuwait had stood up to threats of reprisal from Da'was for imprisoning the terrorists, and the U.S. had supported 240 Kuwait. The United States wanted other countries to follow Kuwait's example. American policy was clear: Terrorists should be punished?not freed, as the Irani- ans were now asking. Accordingly, McFarlane offered no hope of U.S. intervention with Kuwait on behalf of the convicted Da'wa prisoners, saying that U.S. policy was to re- spect the judicial policies of other nations.41 McFarlane adhered to his instructions. The Adviser then tried to cajole McFarlane to send the other HAWK parts prior to any hostage release: Since the plane is loaded why not let it come. You would leave happy. The President would be happy. We have no guilt based on our under- standing of the agreement. We are surprised now that it has been changed. Let the agreement be carried out. The hostages will be freed very quickly. Your President's word will be honored. If the plane arrives before tomorrow morning, the hostages will be freed by noon. We do not wish to see our agreement fail at this final stage.4 2 McFarlane responded, "We delivered hundreds of weapons. You can release the hostages, advise us, and we will deliver the weapons."43 Given McFarlane's firmness, the Adviser suggested another way of break- ing the impasse: the U.S. and Iranian representatives should meet without McFarlane to try to formulate an agreement on the hostages and HAWK parts, which could be presented to both sides. McFarlane consented with the caveat that "staff agreements must be approved by our leaders."44 The NSC staff and the Iranians met for several hours until near midnight. The group hammered out a proposal that provided that Secord's aircraft with the remaining HAWK parts would take off for Tehran but turn around in midflight if the hostages were not released by morning: (1) The United States Government will cause a 707 aircraft to launch from a neutral site at 0100 in the morning to arrive in Tehran, Iran at 1000 on the morning of May 28 the seventh day of Khordad. This aircraft will contain the remainder of the HAWK missile parts purchased and paid for by the Government of Iran, a portion of which was delivered on May 24. (2) The Iranian Government, having recognized the plight of the hostages in the Lebanon, and in the spirit of humanitarian assistance, agrees to cause the release and safe return of the living American hostages and the return of the body of the deceased American and that this release will be completed not later than 0400 Tehran time. (3) It is further agreed by both sides that if by 0400 Tehran time, the hostages are not safely in Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 the hands of U.S. authorities the aircraft with the HAWK missile parts will be turned around and will not land in Iran and the U.S. delegation will depart Tehran immediately. If, however, the hos- tages are released at 0400, as indicated above, the U.S. delegation will remain in Tehran until 1200 Noon on May 28, 1986. (4) The Government of the United States com- mits to deliver to Bandar Abbas, Iran, two phase one IHIPIR radar sets, fully compatible with the HAWK missile system now in the possession of the Iranian government. This delivery to take place after the arrival of the hostages in U.S. custody and within ten days after the receipt of payment through existing financial channels for these radar systems. It is further agreed that the government of the United States will make every effort to locate and identify those items from the original list of 240 parts which were not immedi- ately available, and to provide those available as soon as possible after payment is received and the hostages are in U.S. custody. (5) Both Governments agree to a continuation of a political dialogue to be conducted in secrecy until such time as both sides agree to make such a dialogue public. It is agreed by both sides that this dialogue shall include discussions on the Soviet threat to Iran, the situation in Afghanistan, Nicaragua, and other political topics as many be mutually agreed. Both sides agree in advance that these discussions will include consideration of further defense needs of Iran. (6) Both Governments recognize that the lack of a clear channel of communications has contribut- ed to misunderstanding and confusion in the past and agree that this problem is best resolved by having the United States provide a secure chan- nel of communications between our two govern- ments by placing a secure satellite communica- tions team, and appropriate equipment secretly in Tehran. The Government of Iran agrees that the U.S. communicators will be accorded normal dip- lomatic privileges and immunity on an informal basis and without attribution.45 The Adviser pressed North for concessions on the Da'wa. North, more flexible than McFarlane, pro- posed a statement such as: The U.S. will make every effort through and with international organizations, private individ- uals, religious organizations and other third par- ties in a humanitarian effort to achieve the release of and just and fair treatment for Shi'ites held in confinement as soon as possible.46 The Iranians had another problem. The Adviser said that Iran could not arrange the release of the hostages by 4 a.m. He pleaded with McFarlane for more time. McFarlane was in no mood to compro- mise. However, he gave the Adviser until 6:30 a.m. to arrange for the release of the hostages. If the Iranians did not guarantee their freedom by then, the U.S. delegation would leave Tehran.47 Departure Prior to the 6:30 a.m. deadline, the Second Iranian returned to the hotel with an eleventh-hour compro- mise. He offered to release two hostages immediately and two more after the HAWK parts were delivered. McFarlane refused, strictly observing his instructions that all the hostages had to be released before any parts could be delivered." Eager to keep the Iran initiative alive, North rec- ommended that McFarlane accept the two-hostage compromise. He testified that McFarlane overruled him, and that he "saluted smartly and carried it out."" McFarlane testified that North was so deter- mined to accept a compromise that, while McFarlane was asleep, North violated McFarlane's orders and directed Secord to send the plane from Israel with the remaining HAWK parts.5? Upon awakening, McFar- lane ordered the plane, midway in its voyage, to return to Israel.51 North denied this allegation, and contended that McFarlane had approved sending the plane subject to its recal1.52 Secord testified that it was always part of the plan to send the plane." Cave testified that he was unaware that the plane had taken off.54 In any event, the 6:30 a.m. deadline passed without any indication that any hostages had been released. The Iranians made last-minute efforts to sell the compromise and obtain the HAWK parts. At 8 a.m., just before the delegation left the hotel, the Adviser arrived and repeated the two-hostage proposal. McFarlane rejected it out of hand: "You are not keeping the agreement. We are leaving."55 Even at the Tehran airport, the Second Iranian tried to persuade McFarlane to change his mind. But there was no reprieve. McFarlane had come to Tehran with instructions and on the understanding that no more HAWK parts would be delivered unless all of the hostages were freed. He had expected the hostages' release upon his arrival. He had allowed the Iranians to temporize for 3 days. He once again re- jected the last-minute compromise and ordered the plane airborne. As McFarlane left, he asked the Second Iranian to tell his "superiors that this was the fourth time that they had failed to honor an agree- ment. The lack of trust will endure for a long time." 5 6 The plane left Tehran at 8:55 a.m. and landed in Tel Aviv several hours later. During the layover there, North consoled McFarlane with the news that the efforts with Iran had produced one benefit: some of the proceeds of the arms sales were being used for 241 77-026 0 - 87 - 9 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 HI.......... Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 the Contras.57 McFarlane assumed that Poindexter had approved this use of the money,58 and that, be- cause of the magnitude of the decision, it was not something that Poindexter would have undertaken on his own authority." McFarlane testified that he, therefore, never raised the "diversion" with Poin- dexter or the President when he reported on the trip. 6 0 Why the Tehran Mission Failed The participants had different explanations for why the Tehran mission failed. Secord testified that McFarlane, who had demonstrated firmness, was re- sponsible for the failure by insisting on release of all the hostages: But as far as I know and this will surprise some people I guess, but as far as I know, there was no Iranian agreement to produce all the hostages at the time of the meeting in Tehran . . . I don't know how exactly that expectation got into McFarlane's head.'" Hakim, who had been the interpreter at Frankfurt, agreed: I cannot recall any time that was spoken that all hostages would be released. That must have been [a] misconception by someone at sometime some- where.8 2 McFarlane testified that he was "surprised" at Se- cord's statement: "[I]n talking to my own staff at the time, Colonel North and others, all of them recon- firmed, yes, we do expect and have all along the complete release of the hostages." 63 And North's messages and reports to Poindexter before the Tehran mission confirm that the President and Poindexter shared that understanding." Indeed, in conveying the 242 President's approval for the mission, Poindexter made clear to North that he would tolerate no more back- ing down on the conditions. He wrote North more than a month before the trip: You may go ahead and go, but I want several points made clear to them [the Iranians]. There are not to be any parts delivered until all the hostages are free in accordance with the plan that you layed out for me before. None of this half shipment before any are released crap. It is either all or nothing. Also you may tell them that the President is getting very annoyed at their contin- ued stalling. 6 5 North and Cave blamed the misunderstanding, and the consequent failure of the mission, on Ghorbanifar. North testified that "it turns out that the Iranians did not" agree to the release of all the hostages, even though Ghorbanifar said they had." In his report on the trip, Cave stated that Ghorbanifar was a "dishon- est interlocutor," who "gave each side a different picture of the structure of the deal." But Cave was confident that greed would overcome the problems, and he favored continuing the initiative: "Since both Gorba and the Second Iranian stood to make a lot of money out of the deal, they presumably will work hard to bring it off."87 Based on long experience with Iranians, Cave was not wholly optimistic. He detected in the Tehran dis- cussions a new dimension to the problem. He con- cluded that the Kuwaitis held the key to the impasse, and that the American hostages would not be released until Kuwait released the Da'wa prisoners." He grounded his conclusion on the independence of the hostage-holders in Lebanon." Until then, he believed that the Hizballah would not release all the hos- tages.7? The Iran initiative now threatened to move from an arms-for-hostage exchange to an arms-and- prisoners-for-hostages trade. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 Chapter 13 1. The Washington Post, 11/13/86, at A21. 2. Memorandum of Conversation with Ghorbanifar, 4/16/86, C 9419. 3. N 12537. 4. Teicher, Tower Board Test., 12/19/86, at 10. 5. Cave, Tower Board Test., 1/5/87, at 11. 6. Secord Test., 5/6/87, at 74-75. 7. CIA Cables on Ghorbanifar, C 1502-15. 8. Shultz Test., 7/23/87, at 20, 26; Ex. GPS-B. 9. Ex. OLN 193. 10. 7/22/86 Memorandum from North to Poindexter, Subject: Hostage Recovery Plan, N 1495 at N 1503. 11. Cave Int., 9/29/87, at 15. McFarlane and North testi- fied that their own safety was a secondary consideration. Aware that Buckley had been tortured for information, McFarlane, as a precaution, took along prescription medi- cine in case he was seized. Casey told North that he should be prepared to take his own life if he traveled to Tehran. North Test., 7/8/87, at 93. However, Cave testified that he himself did not have a poison pill and that he knew of no one else in the delegation who was issued one. Cave Int., 9/29/87, at 20. 12. Secord Test., 5/6/87, at 62-63. 13. Secord Test., 5/6/87, at 70-71. 14. Id. 15. Cave Dep., 4/17/87, at 41-42. 16. Poindexter Dep., 5/2/87, at 224-25. 17. Cave Int., 9/2/87, at 11-12. 18. Message from McFarlane to Poindexter, 5/27/86, N 1334-36. 19. Id. 20. Id. 21. N 1495 at N 1503. 22. Cave Int., 9/29/87, at 14. 23. Memorandum of 5/25/86 Conversations with Iranian Officials, N 49463 at 49467. 24. Cave Memorandum Concerning the Tehran Trip, N 1271. 25. 5/27/86 Message from McFarlane to Poindexter, N 1337-39. 26. Ex. 46-A. 27. N 1334. 28. N 1334. 29. N 1335. 30. Memorandum of 5/26/86 Conversations with Iranian Officials, N49468-70. 31. Memorandum of 5/26/86 Conversations with Iranian Officials, N 49471-78 at N 49472. 32. Id. 33. Id. at N 49477. 34. Id. 35. Id. at N 49477. 36. N 1334 at N 1335. 37. Memorandum of 5/27/86, Conversations with Iranian Officials, N 49479. 38. Id. 39. 5/27/86, Message from McFarlane to Poindexter, N 1337 at N 1338. 40. Memorandum of 5/27/86 Conversations with Iranian Officials, N 49481. 41. Id. at N 49482. 42. Id. 43. Id. 44. Id. 45. N 1490-92. 46. N 49485. Cave's memorandum of the meeting states that North insisted during the negotiations that "the United States would not interfere in the internal affairs of Kuwait." However, the memorandum further notes that North stated that the U.S. was prepared to seek the assistance of interna- tional organizations such as the Red Cross to better the conditions of the Shiite prisoners. N 1483 at N 1485. 47. N 1483 at N 1485. 48. Id. at N 1486. 49. North Test., 7/10/87, at 36-38. 50. McFarlane Test., 5/12/87, at 79. 51. Id. 52. North Test., 7/9/87, at 113-15. 53. Secord Test., 5/6/87, at 77. 54. Cave Dep., 4/17/87, at 85-86. 55. N 49487. 56. N 49487. 57. McFarlane Test., 5/12/87, at 161. 58. McFarlane Test., 5/12/87, at 165. 59. McFarlane Test., 5/14/87, at 4. 60. McFarlane Test., 5/12/87, at 162. 61. Secord Test., 5/6/87, at 76. 62. Hakim Test., 6/4/87, at 84. 63. McFarlane Test., 5/12/87, at 161. 64. Ex. OLN 279; N 1495. 65. Ex. OLN 276. 66. North Test., 7/9/87, 110-111. 67. N 1483 at N 1487. 68. Cave Int., 9/29/87, at 21-22. 69. Id. 70. Id. 243 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 "Taken to the Cleaners": The Iran Initiative Continues* The United States had taken a firm position in Tehran. Although offered two hostages, McFarlane had refused to deliver the remaining HAWK parts unless all the hostages were released first. But this was to be the last show of toughness by the United States: just 2 months later, the United States delivered the same HAWK parts after obtaining the release of only one hostage. The Iran initiative continued until public reaction following its exposure in November 1986 forced its cancellation. Before then, some of the players had changed: a new channel to Iran (the "Second Chan- nen' with a new Iranian emissary was found; Nir was cut out of the negotiations; and Secord and Hakim took his place. More missiles were sent to Iran, where they went to the radical Revolutionary Guard. But fundamental problems remained, and the Second Channel turned out to represent the same Iranian leaders as did the First Channel. In the end, the United States secured the release of another hos- tage but three more were seized, at least one allegedly at the instigation of one of the Iranians with whom the U.S. negotiators had dealt earlier. Despite this, however, the U.S. negotiators agreed not only to se- quential release of the hostages but also to seeking the freedom of the convicted Da'wa terrorists from prison in Kuwait. The Bartering Continues The deadlock in Tehran did not end Manucher Ghor- banifar's role as an intermediary. A strange interde- pendence had developed among the parties: Iran still wanted the remaining HAWK parts and other high technology weapons from the United States; the United States wanted the hostages; Israel wanted direct or indirect relations with Iran; and Ghorbanifar wanted to be paid. Ghorbanifar had borrowed $15 million from Saudi entrepreneur Adnan Khashoggi to finance the HAWK parts shipment and Khashoggi, in turn, had borrowed the money from his financiers. But only one pallet of HAWK parts had been delivered in *"Our guys . . . they got taken to the cleaners." Secretary of State, George P. Shultz, testifying at the public hearings, 7/23/87, at 184. Tehran and Iran refused to pay. Ghorbanifar could repay his debt to Khashoggi only by inducing the United States to ship the rest of the parts. Only days after the Tehran mission ended, Ghor- banifar was on the phone with an Israeli official seek- ing a meeting. Ghorbanifar blamed the failure of the Tehran trip on internal rivalries within the Iranian Government and complained about Robert McFar- lane's refusal to accept the offer to release two hos- tages for the HAWK parts. The Israeli official restat- ed the U.S. position: there could be no further discus- sions unless .all the hostages were released first.2 Shortly afterward, CIA consultant George Cave -was in communication with the Second Iranian, who also wanted the remaining HAWK parts delivered. The Second Iranian claimed that Iran controlled the hostages and that if all the parts were delivered, two hostages would be released. When the HAWK radars were delivered, the two remaining hostages would be freed.3 The parts, however, would have to be deliv- ered first and the hostages would follow?the mirror image of the U.S. position. Cave rejected this proposi- tion?all the hostages would have to be released before any of the parts could be delivered.4 The par- ties remained far apart. Iran Discovers the Overcharge By the end of June, Iran had raised another reason for refusing to pay Ghorbanifar and release the hostages: The Iranians had obtained a "[m]icrofiche of factory prices" that "does not compare w/ prices charged."5 On June 30, Cave spoke by telephone to the Second Iranian who complained that the Iranians had a microfiche price list showing the true price of the HAWK parts and that they had been overcharged by 600 percent.6 The same day, Ghorbanifar called CIA official Charles Allen and told him that while he was being blamed for the overcharge, his markup was only 41 percent.7 The sensitivity of the Iranians to overcharging had been known to the Americans for some time. In a December 4, 1985 PROF note to John Poindexter, Oliver North warned that the Iranians were unlikely to release the hostages in a "single transaction" be- cause they had been "'scammed' so many times in the 245 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 11 I . .1 I 6 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 past that the attitude of distrust is very high on their part."8 Trying for an Independence Day Present Since the Iranians' complaints rested on the micro- fiche list, Cave asked for proof of the overcharge. In the meantime, Ghorbanifar and an Israeli official at- tempted to keep the initiative alive. The Israeli hoped to gain the release of at least one hostage in time for the July 4 Independence Day celebration of the Statue of Liberty's 100th anniversary.9 Ghorbanifar told the Israeli that he could deliver" and, on July 2, Amiram Nir, adviser to Israeli Prime Minister Shimon Peres on combatting terrorism, called North and pre- dicted the release of an American hostage in time for the celebration." North immediately dispatched an interagency team to Wiesbaden. But when the release did not occur, Poindexter criticized North for falsely raising expectations and North, in frustration, let it be known to Nir that he would not take any more calls from him until further notice.12 In July, North received a copy of a letter purport- edly from Ghorbanifar to the Second Iranian." The letter, dated July 8, complained that the Iranians had missed an opportunity by failing to release a hostage in time for the July 4 celebration. Using statistics of deaths in America from a variety of causes, the letter warned that Americans would lose interest in the hostages and, consequently, the Iranians would lose their leverage.14 The letter concluded by proposing two alternative arms-for-hostages transactions. As a third option, it recommended that if the Iranians were not serious about pursuing such transactions with the United States, they should terminate the whole matter imme- diately. In this fashion, it stated, ". . . we can pretend nothing happened, as if no camel arrived and no camel left.' "15 On July 26, Ghorbanifar and the Israelis registered a success: Reverend Lawrence Jenco was released. The Israeli intermediary had forced the issue, telling Ghorbanifar after the July 4 disappointment that the initiative was over unless a hostage was released. Shortly thereafter, Ghorbanifar announced that Jenco would be freed." Although welcome, the release of Father Jenco generated confusion and concern; it was unclear what Ghorbanifar had promised to gain his release. The next day North and Cave met in Frankfurt with Ghorbanifar and an Israeli official to clarify mat- ters. Ghorbanifar described the arrangements he had made with the Iranians to obtain the release of Rev. Jenco. These included the sequential release of the hostages and the delivery of arms to Iran. Ghorbani- far also told the group that, on his own accord, he had promised the Iranians that if they could prove the 246 claim that they had been overcharged by $10 million for the HAWK spare parts, the United States would make up for it by giving Iran 1,000 free TOWs." In a July 29 memorandum to Poindexter, North set forth Ghorbanifar's 6-step plan for the sequential re- lease of the hostages in exchange for the remaining HAWK parts, 2 HAWK radars and 1,000 TOWs. Step 1: One hostage released and $4M to Ghor- banifar for items removed from the aircraft in Tehran during the May visit (Ghorbanifar re- ceived the $4M on July 28) Step 2: Remainder of 240 parts plus full quota of electron tubes (item 24 on Iranian parts list) and 500 TOWs delivered to Iran. Step 3: Second hostage released and Ghorbanifar paid for remainder of 240 parts. Step 4: 500 TOWs and 1 HIPAR [HAWK] radar delivered. Step 5: Third hostage released and Ghorbanifar paid for one radar. Step 6: Meeting in Tehran to discuss future fol- lowed by release of the last hostage and delivery of second HIPAR radar. We believe that the mixture of HAWK parts and TOWs was designed to satisfy both the military and the Revolutionary Guards in Iran." The proposed terms left the United States in an awkward position. McFarlane had withdrawn his del- egation from Tehran when the Iranians had failed to produce all four remaining hostages in exchange for the 12 pallets of HAWK spares sitting on the ground in Israel. They had also discussed the HIPAR radars in Tehran but they, too, were to be delivered only after the radars were paid for and all of the hostages were released. Poindexter had described the problem to McFar- lane in a July 26 note: "Gorga (sic) has cooked up a story that if Iran would make a humanitarian gesture then the United States would deliver the rest of the parts. Of course, we have not agreed to any such plan."19 Poindexter recognized, however, that the re- lease of Jenco left the United States with a very real dilemma: "[t]he problem is that if the parts aren't delivered, Gorba will convince [his Tehran contact] that we welched on the deal."2? North repeatedly warned that one of the hostages might be killed if the HAWK parts were not deliv- ered. In his July 29 memorandum to Poindexter, North predicted that "[it is entirely possible that if nothing is received, [the Second Iranian] will be killed by his opponents in Tehran, Ghorbanifar will be killed by his creditors . . . and one American hostage Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 will probably be killed in order to demonstrate dis- pleasure."2 1 North recommended that Poindexter brief the President and "obtain his approval for having the 240 HAWK missile parts shipped from Israel to Iran as soon as possible, followed by a meeting with the Iranians in Europe."22 Poindexter noted on the memorandum: "7/30/86 President approved."23 The decision in Tehran not to ship the parts unless all the hostages were released first had been reversed. On August 4, 1986, the HAWK parts were flown into Iran. Secord provided the crew and Israel provided the airplane.24 The Da'wa Prisoners The Adviser, the member of the Iranian Parliament who met with the McFarlane delegation, had told McFarlane and North in Tehran that the freeing of the Da'wa prisoners in Kuwait was essential to the release of all the United States hostages. The demand was taken seriously and North closely monitored the status of the Da'wa prisoners. North saw signs of hope, both that the captors of the Americans would relent on this condition and that Kuwait might, on its own, release the Da'wa prisoners. After the release of Rev. Jenco, North wrote to Poindexter that "[a]lthough the Da'wa 17 in Kuwait continue to be mentioned as the ultimate demand on the part of the hostage-holders, . . . we have not seen reference to this issue since our meeting in Tehran."25 On August 5, North discussed the Da'wa prisoners at a meeting of the Operations Sub-Group of the Terror- ist Incident Working Group. The participants specu- lated that Kuwait might "releas[e] the Da'wa 17 and [about] the conditions that would lead to that action (Le., protected borders with Iran)."26 Crowe Is Apprised At a meeting of the Terrorist Incident Working Group (TIWG) chaired by North in late June or early July, an allusion was made to the Iranian arms sales. One of the members of the TIWG was Lt. General John Moellering, then-Special Assistant to Admiral William J. Crowe, Jr., Chairman of the Joint Chiefs of Staff. The Joint Chiefs had not been in- formed of the sales and Moellering was perplexed by the reference to arms sales.27 Later, Assistant Secre- tary of Defense Richard L. Armitage, who had been at the TIWG meeting, briefly explained the Iranian arms sales to Moellering." Moellering relayed what he had learned from Ar- mitage to Admiral Crowe, a 40-year veteran who served in World War II, Korea and Vietnam." Crowe, though Chairman of the Joint Chiefs, had not been consulted or informed about the decision to ship weapons to Iran, or the McFarlane mission to Tehran.3? Crowe was "startled" by the "nature of the transaction" because it was "contrary to our policy."31 Crowe confronted Defense Secretary Weinberger and asked him to explain why the Joint Chiefs of Staff had been excluded from the decisionmaking process.32 Weinberger offered no defense of the initi- ative. Instead, he merely told Crowe that the decision had been made by the Commander in Chief; that "he (the President) can do what he wants to do;"33 and that "consultation with others below the Commander in Chief level would not have perhaps been very fruitful."24 For the first time, at Crowe's direction, the military focused on the effect that the previous sales to Iran had had on the strategic balance in the Middle East and the defense capability of the United States. Given Iran's avowed hostility to the United States, and to U.S. allies in the region, such a study by military experts should have been completed before any sales were authorized. The obsession with secrecy and the desire to avoid possible criticism led to the conceal- ment of the sales not only from Congress but from the President's principal military advisers. Only after determining how the TOWs were actually being de- ployed was Crowe able to conclude that the arms sales did not significantly affect United States military interests.35 The Vice President Is Briefed At North's request, Nir briefed Vice President George Bush during his visit to Jerusalem on July 29, shortly before the HAWK parts shipment. Craig Fuller, the Vice President's Chief of Staff, was present and prepared a memorandum of the meeting. According to Fuller, Nir "described the details of the efforts from last year through the current period to gain the release of the United States hostages."36 Nir stated that one of the open issues was whether to agree to a sequential release of the hostages or to remain insistent on the prior release of all before any weapons were delivered.37 Nir described the initiative as "having two layers? tactical and strategic." The tactical layer was an effort "to get the hostages out." The strategic layer was designed "to build better contact with Iran and to insure we are better prepared when a change (in leadership) occurs."38 Nir told the Vice President that Iran was using the retention of the hostages as leverage: "the reason for the [Iranians] delay [in re- leasing the hostages] is to squeeze as much as possible as long as they have assets."" But the Iranians were, Nir stated, arranging to release one hostage with an- other to follow. In return, the Iranians wanted HAWK spare parts and TOWs. Nir then framed the issues awaiting decision: 247 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 V Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Should we accept sequencing? What are alterna- tives to sequencing? They fear if they give us all hostages they won't get anything from us. If we do want to move along these lines we'd have to move quickly. It would be a matter still of sever- al weeks not several days, in part because they have to move the hostages every time one is released . . . . It is important that we have assets there 2 to 3 years out when the change occurs. We have no choice other than to proceed.4? Nir also told the Vice President that "we are dealing with the most radical elements." The Vice President did not comment except to thank Nir "for having pursued this effort despite doubts and reservations throughout the process."4' A New Deal in London The August 4 delivery of the HAWK parts did not satisfy the Iranians. They continued to protest the high price of the HAWK parts. Moreover, to gain the release of Father Jenco, Ghorbanifar had promised the Second Iranian that the United States would pro- vide 1,000 TOWs in addition to the HAWK parts if a hostage was freed. Shortly before the HAWK parts were sent to Iran, North and Nir discussed the next steps in the initia- tive. North noted that he would instruct Cave to explain to the Second Iranian that some of the terms that Ghorbanifar had promised had not been author- ized by the United States. North planned to ask Cave to convey the United States recognition of the Irani- ans' unhappiness.42 At the same time, Cave was to note that, "if there is no payment" to Ghorbanifar, the United States would have to stop selling arms because "those who loaned the merchant (Ghorbani- far) the money will make the whole thing public."'" To address these unresolved issues, North planned a meeting with the Iranians in Europe.44 On August 8, in what proved to be North's last face-to-face meeting with Ghorbanifar, North, Nir, and Ghorbanifar met in London. The meeting pro- duced a plan, which North described in his note- books: Proposed next step: 1. 40 Tubes [HAWK Radar Parts] 500 TOWs 2. [Hostage] 3. 500+ HP[HAWK Radar] 137 missing items 4. [Hostage] 5. Meeting 6. Remaining for disc: ?[Hostage] ?HP ?[William] Buckley location ?Pay us $15.5 M for 1000 TOWs 248 177 missing units 40 Tubes 2 HPs45 Although North apparently agreed to the proposal, he told Ghorbanifar that it was subject to approval in Washington." The plan incorporated the principle of sequential delivery of hostages and arms?a position the United States had rejected since November 1985. North's notes of the London meeting suggest one reason, attributed to the Speaker of the Iranian Parlia- ment Rafsanjani, for accepting the sequential process: "'If all the Americans are released at once, everyone knows that a deal was made w/ Iran.' "47 But this does not explain why arms deliveries had to intervene between each release.48 In fact, North never opposed sequential delivery of arms and the release of the hostages. He recommended it as early as December 4 in a PROF note to Poindexter, and he was disappoint- ed when McFarlane did not accept the two hostage deal in Tehran.49 The Microfiche Arrives The dispute about overcharging remained unresolved. By August 6, the Israelis had received the microfiche list from Iran.5? It consisted of pages showing prices as of November 1, 1985, and was authentic.5' The Iranians had clear evidence that they had been grossly overcharged. But North never considered a refund, even though the Enterprise had more than enough money to mollify the Iranians. North had no intention of eliminating the markup on future shipments. At North's instruction, Robert Earl, North's National Se- curity Council colleague, was calculating prices on possible future shipments using a 3.7 multiplier against cost. 52 North's solution to Iran's complaint was to ask the CIA to prepare a phony price list to justify the prices charged Iran." According to Allen, this effort failed because the CIA's Office of Technical Services proved incapable of preparing a credible forged list.54 As a further complicating factor, when the Iranians inspected the HAWK parts shipped in August, they rejected many of the parts and found the shipment incomplete. By August 20, Iran had identified 177 items that it had originally ordered and had not been included in the shipment. Iran had also determined that 63 of the items that had been sent were defective and asked that they be returned.55 Ghorbanifar was thus left in difficult straits; pur- sued on the one hand by his creditors and criticized, on the other, by Iran for participating in a scam. Ghorbanifar complained hysterically to Allen." Even after Iran paid Ghorbanifar $5 million for the HAWK parts it received on August 4, Ghorbanifar claimed he was still $10 million short of meeting his obligations to his creditors. From North's point of view, an alter- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 native to Ghorbanifar, with all his financial problems, was needed. The Search for a New Channel Ghorbanifar had never been a popular emissary with the Americans. McFarlane in December 1985 had, according to Secord, found him "one of the most despicable characters [he] had ever met . . . . "57 After the February meeting in Frankfurt, North complained that Ghorbanifar had deliberately distort- ed the translations.58 The CIA's Deputy Chief of the Near East Division soon to become Chief of that division (C/NE), said that Ghorbanifar had "lied to both sides" to get them to the Frankfurt negotia- tion." When George Cave joined the Iran initiative, he was "a little bit horrified" when he was informed of Ghorbanifar's involvement.80 On February 27, North wrote of the need to "get Gorba out of the long range picture ASAP."81 By the time of the Tehran meeting in May therefore, Ghorbanifar was in jeopardy. When the Americans attributed the failure of the McFarlane mission to Ghorbanifar's misrepresentations to both sides, his re- placement was certain. Shortly after the Tehran breakdown, Poindexter au- thorized North to seek a new opening to Iran for continued negotiations?a "Second Channel." 6 2 Hakim testified that he believed that the idea for a second channel originated with his associate, Richard Secord." Hakim took the lead in finding the appro- priate contacts while keeping North and Secord in- formed.84 Hakim thus had the opportunity to promote his business interests and to serve both his newly adopted country, the United States, and his native country, Iran." Hakim estimated the trade market between the United States and Iran to be worth $15 billion." He hoped that his role in renewing relations between the two countries would win him a part of this market. Hakim and Secord intended to use part of the surplus from the Iranian sales to invest for their own benefit in commercial opportunities in Iran." Hakim contacted an Iranian expatriate (the "First Contact") whom he had employed in the past. At least twice in 1983 Hakim had brought the First Con- tact to the attention of the CIA as a possible source of information, but the CIA did not use him." The First Contact came to the United States to meet with Hakim and Cave, on July 10 and 11. The meetings focused on the First Contact's connections in Iran and how the trade door to Iran might be opened. He was also tested by a private polygraph examiner." Hakim and Cave told the First Contact that the U.S. Government wanted to resume trade to re-estab- lish relations with Iran and that they planned to "cap- italize" on this trade by using their contacts in the U.S. Government. Hakim told the First Contact that he would pursue the Iranian-American trade market no matter what "we" (the United States) finally de- cided. 7 The First Contact made it clear that he expected to be paid for his work. In Cave's presence, Hakim as- sured him that "if anything goes through" he would realize a "good commission."" The demand for re- muneration was no surprise to Hakim. Transactions in the Middle East frequently call for "baksheesh"?a payoff to intermediaries. He had made such payoffs in the past.72 Hakim would draw the money for bak- sheesh from the profits of the arms deals with Iran.'" With the promise of a payoff, the First Contact turned to a fellow Iranian businessman (the "Second Contact") with direct connections to the Iranian Gov- ernment. How many others helped open the new channel is unclear. But, by the time it was in use, Hakim had obligated for payoffs an indefinite portion of $2 million set aside for such expenses from the Iran profits.7 4 The Second Channel's Debut The First and Second Contacts quickly found another avenue into Iran. North first got reports that an emis- sary from the "Second Channel" had been identified in late July. By July 31, the emissary's relationship to a leading Iranian official had been verified.75 On August 19, North learned that the emissary would meet with Secord and Hakim in Brussels, Belgium.'" The meeting occurred on August 25. Both the First and Second Contacts were present. Thereafter, the First and Second Contacts ordinarily did not attend the meetings between the Americans and the emis- sary. The emissary ("the Relative") was an Iranian, who had distinguished himself in the ranks of the Iranian Revolutionary Guard Corps in the war with Iraq. The Relative impressed Secord. In a message to North after the Brussels meeting, Secord described the discussions as a "comprehensive tour de force" covering matters ranging from Soviet activities to the conduct of the Iran-Iraq war. Arms, however, re- mained the currency for dealing with Iran. The Rela- tive recited an extensive list of weapons that "[t]hey badly need[ed]," including "air defense items, armor spares, TOWs, gun barrels, helo spares, and tactical intelligence." Secord responded that "all things [would be] negotiable if we can clear the hostage matter quickly." 7 7 The Relative knew of the efforts of Ghorbanifar and his contacts. He described Ghorbanifar as a "crook," but promised not to interfere in that channel. He offered to help Ghorbanifar win the release of more hostages. Secord reported to North on August 26, "[m]y judgment is that we have opened up a new and probably much better channel into Iran."78 249 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Two Trains Running Ghorbanifar was not immediately dropped. North and the CIA still pressed for the approval of the deal that North, Nir, and Cave had negotiated with Ghorbani- far in London on August 8. On September 2, North submitted a memorandum to Poindexter reviewing the initiatives under way to free the hostages. Ghor- banifar, the Relative, and some efforts by another country were all mentioned. In his memorandum," North summarized the terms proposed at the London meeting with Ghorbanifar. Deliver 500 TOWs and the 39 electron tubes for the HAWK system previously requested. [Hostage] released. Deliver 500 TOWs and one of the HAWK radars previously requested. [Hostage] released. Meeting in Tehran to discuss broadened relation- ship, Soviet intelligence, etc. Deliver remaining radar and 100 TOWs while we are in Tehran. [Hostage] released and Buckley's body deliv- ered.80 North favored the plan and asserted that others in the CIA did also: "[The] CIA concurs that [the Second Iranian]-Ghorbanifar connection is the only proven means by which we have been able to effect the release of any of the hostages."8' Having posed the question on sequential release to Poindexter, North then worked for a quick response. In a PROF note dated September 3, he advised McFarlane that "[w]e still have no response fm (sic) JMP re proceeding w/ the sequential release proposal outlined to you some time back. Have now undertak- en to have Casey raise same w/ JMP tomorrow at thr (sic) weekly meeting. The things one must do to get action."82 North's notebooks also show a meeting with Poindexter on September 4, in which the entry appears: "Go/No Go on sequential deliveries."'" The entry mentioned the need to talk to "Joshua," North's code name for President Reagan." On September 8, North updated his September 2 memorandum to Poindexter. North noted that enough HAWK spare parts had been located to "entice the Iranians to proceed with the sequential release pattern proposed in the London meetings." According to North's notes dated that same day, Cave reported to North that the Second Iranian was "rabid" for the arrival of additional HAWK parts,85 and Charles Allen called North to say that Casey planned to call Poindexter and that Deputy CIA Director Robert Gates was "supportive."8 6 250 At that point, news from Iran caused a change in plans and a reevaluation of Ghorbanifar's influence: North told Poindexter of a telephone conversation in which the Second Iranian told Cave that his "boss" in the Iranian Government approved of the planned meeting between the Relative and the Americans. North added that the Second Iranian's prompt trans- mission of the Prime Minister's approval was inter- preted by the CIA as "confirmation that Rafsanjani may be moving to take control of the entire process of the United States relationship and the hostages."87 Second Channel Out Front On September 9,88 Poindexter met with President Reagan. The Second Channel was on the agenda.89 Another American, Frank Reed, had been kidnapped that day, and North worried that the incident might scuttle the initiative.90 He expressed concern in his notebook that "Paul" would stop everything." After Poindexter's meeting with the President, North told Allen that Poindexter had given him "new guidance" on the hostage issue. North was to contin- ue working to develop the Second Channel, and Ghorbanifar was to be eliminated from all future ship- ments, "if at all possible."92 In a memorandum to Director Casey, which was also sent to Gates, Allen observed that, to banish Ghorbanifar, North would have to raise "a minimum of $4 Ghorbani- far was not to be abandoned altogether, however. North was instructed that "[i]f there is no other chan- nel for financing future arms shipments, then Ghoban- ifar (sic) will be used as a last resort."94 Allen said North was "greatly relieved" by the guidance.95 Poindexter's instructions evidenced a strong commit- ment to continuing the Iran initiative?even the flawed Ghorbanifar could continue as a backup if the Second Channel failed. Secord/Hakim Ascending The opening of the Second Channel reversed roles for Secord-Hakim and Israel. The Israelis had devel- oped the Ghorbanifar channel and they had assured the Americans that they knew how to deal with Ghorbanifar.96 Even after the United States had taken over the initiative in January 1986, Nir had taken the risk?considerable for an Israeli?of accom- panying McFarlane and North to Tehran.97 Secord called the initiative a "joint venture" between the United States and Israel.98 Secord and Hakim had had little to do with the negotiations with the First Channel. According to Secord, his relationship with Ghorbanifar, whom he had met in the aftermath of the November 1985 HAWK fiasco, withered when Secord told him in an "acid" conversation in February that Ghorbanifar was going to recommend that Ghorbanifar be "terminat- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 ed." Secord said that Ghorbanifar "took it the wrong way."" After the February 25 and 26 meetings in Frank- furt, Secord was reduced to a behind-the-scenes advis- er and logistician. Hakim's role was even smaller. Persona non grata to the Iranians, Hakim had to use a pseudonym, Ibrahim Ibrahamian?and wig?to serve as an interpreter at the Frankfurt meetings.'" All this changed with the opening of the Second Channel. Hakim, not the Israelis, developed the Second Channel. From August through November, Hakim and Secord were at all meetings with the Relative. Secord acted as a negotiator for the United States, presenting?and sometimes formulating?the views of the United States and offering military guid- ance to the Iranians. On one key occasion, North left Hakim, a private citizen, by himself to complete nego- tiations on behalf of the United States.' ?' Nir Suspects Initially unaware of the dialogue with the Relative, Nir had continued to promote a new meeting between the Second Iranian and North. On August 24, he called North to urge a meeting as soon as possible."2 By late August, however, Ghorbanifar had advised Nir that the Americans were seeking a new channel into Iran and that at least one meeting had already occurred between the new contact and the United States. Nir decided to come to Washington and press the Ghorbanifar channel personally. In a September 3 PROF note, North wrote to McFarlane that Nir was arriving the following week, and "will raise enough hell to move it [the Ghorbanifar proposal] if it hasn't all fallen apart by then." ? 3 North prepared "Talking Points" for Poindexter's September 10 meeting with Nir. At the meeting, among other things, Poindexter told Nir that the United States would continue seeking the release of the hostages held in Lebanon; that the United States developed the Second Channel; that the Second Channel was connected with Speaker Rafsanjani; and that the President had approved proceeding with a meeting with the Rafsanjani representative.'" Nir left the United States on September 15. Before departing, he met again with Poindexter and North."5 North's notes indicate that Nir stated that Ghorbanifar was trying to finance a deal large enough to entice the Iranians into gaining the release of all the hostages simultaneously. Two days after he left, Nir reported to North that Ghorbanifar was having little luck financing the deal. Appeals to the Second Iranian for the release of the hostages were likewise unsuccessful.' 06 On the heels of his first meeting with the Relative, Secord learned from the Relative that an independent TOW transaction involving Iran might be under way. Secord reported this to North on August 27."7 In his message, Secord warned North that "our groups (sic) credibility with the Iranians is at stake here."'" He added that the Relative was worried that this TOW transaction would "thwart a new beginning on the relationship with USG." ? 9 Hakim advised Allen that Ghorbanifar and Kha- shoggi were likely involved in the transaction."? At North's request, Allen reported the matter to United States Customs.' " Concerns about this independent transaction are reflected in North's notebooks as late as October 22.112 In "Great Satan's" Parlor North's notes show that, throughout the Nir visit, he was preparing for the Relative to visit Washing- ton." 3 North complained about the CIA's resistance to arranging the visit and urged Poindexter to "call Casey and tell him to get on with moving the guy [the Relative] in so that we don't embarass (sic) the hell out of ourselves w/ Rafsanjani.99114 At another point, he complained of yet another delay: Why Dick [Secord] can do something in 5 min. (sic) that the CIA cannot do in two days is beyond me?but he does." Secord summarized for North the Relative's proba- ble agenda in the upcoming meetings. He predicted that the Relative and "his group are attaching more importance to a long-term relationship than to any short-term quick fix, such as a few thousand TOWs." But Secord warned that the Relative would "have a list of needed items and will no doubt suggest some kind of shipment to clear the hostage matter and to firmly establish direct USG to GOI transactions and to eliminate the Gorbas and [the Second Iranian]." Secord also expected that the Relative would ask for intelligence information and a means of securely re- ceiving more intelligence." 6 To get the relationship off to a good start, there- fore, Secord said "the CIA must deliver the goods [intelligence] and come up with suitcase secure phone device." 7 Secord arranged for the Relative to be flown to Washington for a 2-day visit on September 19. The first day the Relative met with North, Secord, and Cave in North's office in the Old Executive Office Building. Hakim attended part of the meeting. On the second day, the group met at the headquarters of Stanford Technology Trading Group International in Vienna, Virginia." 8 Secord's forecast of the Relative's agenda was cor- rect. Each side assured the other that its objective was a long-term relationship and a common defense against Soviet aggression. But arms, hostages, the Da'wa?and a new subject, the status of Iraq's Presi- dent, Saddam Hussein?dominated the discussion. The key points of those meetings follow. 251 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Arms: The Relative brought an extensive arms "wish list." It included previously requested items, such as HAWK spare parts and radars, and many other items, including offensive weapons, critical to their war effort. To operate the equipment, Iran also could use "minimum levels of technological assist- ance" from the United States.119 North reviewed the list and told the Relative that, "in principle, to the extent that the items are available either here or elsewhere, there isn't a particular prob- lem.,,120 North singled out only the request for 10,000 175 RAP rounds as "not a reasonable request." He counseled patience: The President had authorized only the shipment of defensive arms, and, even if the new weapons were approved, the wait would be long since "most of these items would have to come by ship . . . . [T]hey are very big and heavy and only a few could come by aircraft.'1121 North promised, however, that the TOWs and HAWK spares would be shipped as soon as the hostage issue was re- 122 On the cost of weapons, North explained that Ghorbanifar had to be charged the market price, not cost. He suggested that, once the "obstacles" of the hostages were removed, the price to Iran could be reduced. In the meantime, North urged that Iran pay Ghorbanifar what it owed him to keep him and his financiers quiet.123 Hostages: North pressed for the release of all the hostages, not only as a condition of arms sales but as the first step toward a normal relationship with Iran. According to Secord's notes, North said: With respect to the document we prepared in Teheran, you will note a considerable emphasis on hostages. We consider them to be an obstacle. An obstacle to the understanding of the Ameri- can people. The widespread perception here in America is that Iran is basically responsible for these hostages. The issue of hostages and terror- ism must be dealt with since it is a political obsta- cle. On the other hand, you should realize that 52,000 people in the United States died last year in automobile accidents and 130,000 died from lung cancer. Five United States hostages rarely make the newspapers or the television, but be- cause this is a democracy, if the President is found to be helping Iran with this obstacle still in the way, it would be very difficult to explain to our people.124 North reminded the Relative that the United States had to get the hostages "behind us" in order to ship weapons,125 and he reiterated, "We are prepared to continue to provide to Iran items which will help in her defense but wish to see the hostage issue behind us so that we can move forward."26 The Relative responded that he was "confident" the hostage issue "would be resolved."127 252 The Da'wa Prisoners: Less that two weeks before the meeting with the Relative, Allen had observed that "[m]ore and more, we suspect that some Hizbal- lah leaders would be willing to settle for the release of the [hostages] for Shia prisoners held by [the] the Southern Lebanese Army."123 Cave agreed with this analysis. He believed that the families of the Southern Lebanese Army prisoners might place enough pressure on the Hizballah to force an exchange of the American hostages for the Lahad prisoners.129 Despite these assessments, the Da'wa prisoners were discussed at the meeting with the Relative. North said the United States could not intervene in Kuwait.'" He predicted, however, that Kuwait would free the prisoners in phases "if the Govern- ment of Iran goes privately to Kuwait and promises them no terrorism."3' North said that the Kuwaiti position "seem[ed] reasonable" and advised the Irani- ans to approach Kuwait. Later, when the parties pre- pared a summary of the two days of meetings, North himself added "the point about the Da'wa hostages and Kuwait and Kuwait's desire for a guarantee against terrorism" to the list.132 Saddam Hussein: The Relative also sought to enlist the support of the United States in the removal of Iraq's president, Saddam Hussein. The Relative said the Gulf countries, friendly to the United States, should end their support for Hussein. North respond- ed that the United States could "make no commit- ment about getting rid of Hussein," even though "[w]e agree that there is a need for a non-hostile regime in Baghdad."33 The Relative was not satis- fied with this response. He returned to the issue the next day. He said that "he knows we can bring our influence to bear with certain friendly Arab nations and it is 'within the power of the Arab nations to get rid of Sadam (sic) Hussein.' "134 Other Issues: The Relative asked that the United States join Iran in trying to raise the price of oil.135 North did not address this proposal at the time but later he observed that the oil market was "naturally depressed."36 He also stated that the United States and Iran had "similar interests with respect to oil."37 The Relative said that the Second Iranian had "played a role" in the kidnapping of Frank Reed to put "additional pressure on the United States to send the next shipment [of weapons]."138 The Relative also stated that William Buckley "was not killed; . . . he died of natural causes; . . . he had three heart attacks."39 According to Cave, the Americans challenged the Relative's assertion that Buckley had died a natural death.'" They also ques- tioned the Relative on the complicity of the Revolu- tionary Guards in Buckley's interrogation and torture, but the Relative denied it. Cave nevertheless conclud- ed that the Revolutionary Guards had interrogated Buckley.141 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Joint Commission: The Relative proposed a joint commission of Iranians and Americans to develop the relationship between the countries, and North ap- pointed Secord, Cave, and himself as the American representatives.142 North also promised the Relative that President Reagan would signal his appreciation for Iran's with- holding of landing rights for a hijacked Pan American flight.'" The Intermediaries: The Second Contact accompa- nied the Relative to the United States. In the midst of the negotiations, he raised with Hakim the question of his compensation for participating in the opening of the Second Channel. Hakim returned to the room and, with North, Secord, Cave, and the Relative present "made sure" that the subject of "financial remuneration" for himself and the other Iranians "would not be forgotten.9,144 When the first day of talks had concluded, North and Hakim led the Relative from the Old Executive Office Building to the White House and conducted a guided tour.'" Hakim said the tour covered "every corner of the White House," including the Oval Office.'" During the tour, North paused before the portrait of President Theodore Roosevelt and told the Rela- tive of Roosevelt's arbitrating an end to the Russo- Japanese War of 1904-05, for which Roosevelt won the Nobel Peace Prize. He said that the United States would be willing to arbitrate an end to the Iran-Iraq conflict. North repeated the same theme in reports to Poindexter the following day during and after the talks: Talks going extremely well. They and we want to move quickly beyond the "obstacle" of the hostages. Sincerely believe that RR can be instru- mental in bringing about an end to Iran/Iraq war?a la Roosevelt w/ Russo-Japanese war in 1904. Anybody for RR getting the same prize?'47 You can brief RR that we seem to be headed in a vy positive direction on this matter and have hopes that the hostage resolution will lead to a significant role in ending the Iran/Iraq war.'" Preparations for Frankfurt At the Washington talks, the Relative had suggested another meeting. In the meantime, the Relative kept in touch with North through Secord and Hakim. North advised Poindexter in an October 2 memo- randum that the Relative reported that there was now an "internal consensus on how to proceed with regard to the hostages 'obstacle,'" and that, at the next meet- ing, he would bring one of the officials who had been involved in the discussions with McFarlane in Tehran.'" The Relative also asked for a "definitive sampling of intelligence."'" North said the Relative gave the intelligence a "higher priority . . . than any other assistance we could provide."151 He also re- ported that the Relative was bringing a Koran for the President. The memorandum recommended that: ?North be authorized to meet again with the Relative. ?The President inscribe a Bible with an appro- priate inscription from Galatians, 3:8 to be given to the Relative.152 ?Poindexter prohibit anyone other than North, Cave, and Secord from having contacts with Ira- nian intermediaries. ?The United States provide intelligence to Iran.153 North explained how intelligence could be provided without giving Iran an advantage in the war. He suggested that a "mix of factual and bogus informa- tion could be provided at this meeting which will satisfy their concerns about 'good faith' . . In conclusion, North observed that: A memo from you to the President has not been prepared for obvious reasons. It is hoped that between now and 3:00 p.m. Friday you will have an opportunity to privately discuss this with the President and obtain his approvals/signatures on the steps indicated above. '55 North did not explain the "obvious reasons" for not preparing a memorandum for the President. By giving the Iranians a Bible signed by the President, North provided Iran with proof that was used as evidence of the President's involvement. North reported to Poindexter that Nir and the Second Iranian were besieging North and Cave with phone calls inquiring about the status of the Second Iranian's request for the additional HAWK parts and TOWs discussed at the London meeting in August. North noted that, although Nir was in a "supporting role rather than acting as a primary source of con- trol" in the Second Channel, continued Israeli partici- pation was desirable for political and operational rea- sons.156 North recommended that Secord be sent to Israel to "ameliorate Nir's angst over his 'new status'."157 With Poindexter's approval, Secord met Nir on Oc- tober 5 in Israel. He delivered a letter from President Reagan to the Israeli Prime Minister thanking him for his efforts in furthering the Iran initiative and lauding Nir's work. Secord assured Nir that he would contin- ue to be consulted, and he conveyed the President's reaffirmation of his commitment to the Prime Minister 253 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II 41 4. ?4 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 that the Iran initiative continued to be a joint venture project.158 North's enthusiasm for the Second Chan- nel was shared by others. On October 3, Poindexter sent McFarlane a PROF note attributing much of the success with the Second Channel to McFarlane him- self and saying that a "group release" of the hostages was still the objective: Your trip to Tehran paid off. You did get through to the top. They are playing our line back to us. They are worried about Soviets, Af- ghanistan, and their economy. They realize that the hostages are obstacle (sic) to any productive relationship with us. They want to remove the obstacle. [The Relative has been in Beirut, says he has good news for Frankfort (sic). We shall see. Still insisting on group release. If this comes off may ask you to do a second round after the hostages are back. Keep your fingers crossed.159 McFarlane wrote a PROF note back to Poindexter the next day saying, "[i]f you think it would be of any value, I might be able to take a couple of months off and work on the problem. "160 This optimism continued even though more Ameri- cans were kidnapped in Lebanon shortly before the meeting with the Relative in Washington. Reed was seized on September 9, and Joseph Ciccipio was taken hostage three days later. In an attachment to his Oc- tober 2 memo, North attributed the Ciccipio kidnap- ping to the Second Iranian but blamed Reed's abduc- tion, which the Relative had fixed on the Second Iranian, on another group.161 And on October 21, just before the second set of October meetings in Germany, Edward Tracy was kidnapped. Chasing the Horizon Frankfurt, October 6-8 The U.S. negotiating position suffered dramatic ero- sion in Frankfurt. The concessions made included mainstay principles of American policy on the Middle East and terrorism. In his testimony, when questioned about these concessions, North asserted that he had "lied every time [he] met the Iranians."162 The meetings began on October 6. North, Secord, Hakim, and Cave represented the United States. The Relative appeared for the Iranians, along with a Rev- olutionary Guard intelligence officia1.163 The intelli- gence officer was not a new face for North, Secord, and Hakim. He had attended the first meeting with Ghorbanifar and the Second Iranian in Frankfurt on February 25-26, and was given a briefing there on U.S. intelligence by Secord. He had also participated in the negotiations with the McFarlane party in Tehe- ran in May. Because of his persistently negative positions and his insistence on concessions to Iran, the Americans called him "the monster."164 Hakim, for his part, saw 254 the man as "the engine" because he was the "heart" behind the Iran initiative.165 To Hakim, this man was the key to an agreement. In the negotiations, the Engine described himself as the "extraordinary representative of the cooperative that has been assigned to deal with the relationship with the United States"166 He made clear, however, that there was no unanimity within the Government of Iran on establishing a relationship with the United States. The agenda at Frankfurt was the familiar one: Arms and Intelligence: Speaking for the Americans, Secord told the Iranians that the President had ap- proved the transfer of HAWK parts, high-powered radars, 500 TOWs, and three pallets of free medical supplies.167 North went further by dropping the restriction against offensive weapons. The "only" limitation was that the sales not include items that would "allow or encourage" the Army or the Revolutionary Guards to seize Baghdad.168 The Relative had candidly admit- ted in Washington that he wanted artillery to make Iranian infantry attacks more successful.169 The only "problem" North cited with providing the howitzers and the 500 howitzer barrels requested in Washington was that the numbers involved would force the Americans to open a production line. Secord suggested that Iran go to a friendly third country for the artillery, and the United States would "look the other way."7? North assured the Iranians that ". . . all of this and more can be done, but we need to fireproof our President by removing the ob- stacle." North then provided the Iranians with what he described as "very sensitive intelligence . . ." North added that, "[i]f it ever became known that we have done this, we would be finished in terms of credibility as long as President Reagan is Presi- dent."171 Cave described the intelligence that he had brought172?some of which contained erroneous in- formation. '' Hostages: North and Secord said that only the hos- tages stood in the way of a great era of Iranian- American relations, a period that would include arms transfers involving the Foreign Military Sales Pro- gram from the United States to Iran and great finan- cial support for rebuilding the war-torn economy. The hostages were the "obstacles," the term used to describe them throughout the meetings. The Engine insisted that the Iranians did not hold the hostages and that, if they did, they would have resolved the problem as they had the Embassy hos- tages.174 Iran could not guarantee that the Lebanese would listen "100 percent" to Iranians on hostage matters, he said.175 The Engine added that there was no full agreement in Iran on the release of the hostages. He explained that his role was to ". . . gain the Iranian confidence and the Lebanese confidence." Turning to North, he Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 asked the Americans to "[p]lease, show me the way" to resolve the impasse.'" North responded that the Americans sympathized with the Iranians' problems in gaining the release of the hostages. Saddam Hussein: In Frankfurt, the Americans ac- cepted the Iranians' position on Hussein. Poindexter testified that the matter was not discussed with the President.'" The President told the Tower Board that the statements made by the American negotiators were "absolute fiction."178 North said that the United States sought peace in a way that "it becomes very evident to everybody that the guy who is causing the problem is Saddam Hus- sein." North said that Iran was no threat to the other countries in the region, and he repeated that Hussein prevented peace.'" The Engine asked North, "[D]o you really believe this?"18? North replied that he did and that the "inner circle of our Government knows that." North purported to convey the President's view of President Hussein: "Sadam Hussein is a [expletive]." Hakim, acting as interpreter, demurred at the harsh- ness of the expletive, but North urged a faithful trans- lation saying, "Go ahead. That's his [the President's] word, not mine."181 As the negotiations continued, North returned to the fate of President Hussein. He declared that "[w]e also recognize that Saddam Hussein must go," and North described how this could be accomplished.182 The Da'wa Prisoners: When the Engine asked North to "show me the way" to gain the confidence of the Lebanese captors and his fellow Iranian officials, North provided two quick answers: First, he said, "[1]et me give you some ammunition for your guns." Then he brought up the Da'wa prisoners.'" North said he recognized the desire of the Shi'ite captors to obtain the release of their "brethren who are held in Kuwait as convicted terrorists.'9184 He assured the Iranians, that, although the United States had told Kuwait that the Da'wa prisoners were "their business," the United States would not criticize Kuwait should Kuwait release them.'" The United States had recently conveyed this position to Kuwait, North added. Although a North notebook entry indi- cates that he and Poindexter had met with the Kuwai- ti Foreign Minister on October 3,188 the Committees have been unable to determine what was discussed. What is indisputable is that at various meetings with the Second Channel, representatives of Iran?a nation classified by the United States as a supporter of ter- rorism?North offered assistance in gaining the re- lease of Da'wa terrorists. Whether that assistance con- sisted of not protesting the release, or more, it was contrary to U.S. policy against terrorism. Thus, North claimed to the Iranians that the Ku- waiti position was "simple": Kuwait would release the prisoners over time in exchange for a promise from "somebody in authority" that there would be no more attacks on the Amir of Kuwait.'" Cave told the Committees that the Americans em- phasized that they distinguished between the Da'wa prisoners given relatively brief prison terms and those who received longer sentences. Cave said the Ameri- cans also made it clear that they would not intervene on behalf of the three Da'wa prisoners sentenced to death.188 The transcripts of the Frankfurt meetings do not show such distinctions, and North testified to none. Although the transcripts are not complete, they contain considerable discussion on the Da'wa. But even if the distinction was drawn, any intervention was against U.S. policy. Peace Broker: From time to time North discussed President Reagan's interest in resolving the Iran-Iraq war on "honorable" terms. North even created a fan- ciful meeting between himself and the President at Camp David in which he showed the President the Relative's arms list. According to North, President Reagan then ordered North to "[s]top coming in and looking like a gun merchant." At this point, he said, President Reagan struck the table and declared, "I want to end the war."189 As North presented the Bible inscribed by the President, he created another apocryphal session with the President. President Reagan was depicted as having returned from a weekend of prayer for guid- ance on whether to authorize North to tell the Irani- ans that "[w]e accept the Islamic Revolution." North said that the President gave him the passage that he later inscribed in the Bible with the observation: "This is a promise that God gave to Abraham. Who am Ito say that we should not do this?"18? Starting Points: North presented a handwritten list of seven points that he said the President had author- ized. 1. Iran provides funds for 500 TOWs and remain- der of HAWK parts. 2. Within 9 days we deliver [HAWK] parts and TOWs (500) plus medical supplies. 3. All American hostages released. 4. Iran provides funds for 1500 TOWs. 5. Within 9 days we will deliver: *1500 TOWs *Technical support for HAWKs *Updated intelligence on Iraq *Communications team 6. Iran will then: *Release [John] Pattis *Provide body of [William] Buckley *Provide copy of Buckley debrief 7. United States will then: 255 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 *Identify sources for other items on [the Rela- tive's arms] list. . . *Iran will then work to release other hos- tages.' 92 Counterpoints: The next day, the Engine responded with his own list: 1. The United States would establish a timetable for the delivery of the arms on the Relative's list, thus committing itself to providing offensive and defensive arms. 2. One hostage would then be released. 3. A timetable and a location would be estab- lished for the exchange of intelligence; and the United States and Iran would evaluate the Rus- sian, Afghanistan, and Iraq situation. 4. Iran would "only promise" to gain the release of the remaining two American hostages but this was to be linked to American progress on the Da'wa prisoners. The Engine made clear that the release of the Americans and the Da'was would have to "wash." "They would have to coincide or have some other logical correlation."193 5. Shipment of the eight items on the Relative's list would proceed based upon mutually agreed- upon priorities and quantities. Iran would try? but not promise?to locate and arrange the re- lease of the other two hostages. 6. The United States would contact Kuwait to make sure that there are no problems with the release of the Da'wa prisoners. 7. The United States and Iran would agree to work within the framework of the Hague settle- ment process to provide Iran with military items, such as F-14 spare parts, that Iran had paid for under the Shah's rule but that had been embar- goed after the Embassy seizure.'" By way of "clarification," the Engine added two other points to his list: John Pattis, a United States citizen, who had been arrested in Tehran as an al- leged spy, would not be considered in this round of discussions, and the status of the Shi'ite prisoners held by the Southern Lebanese Army in Lebanon would be left to the Lebanese themselves to resolve."5 Ambassador Extraordinaire The Engine presented his counterproposals to an anx- ious group. North had to return to Washington, and all parties were worried that their prolonged discus- sions might attract the attention of local authorities. As North prepared to leave, he told the Iranians that their differences were so great that Iran and the United States would "pass each other like ships in the 256 night."126 The Relative, in turn, accused the Ameri- cans of maintaining that they were pursuing long-term relations with Iran while focusing on the hostages as "the only thing that is being discussed."97 North was not prepared to give up and suggested to the group, "[W]hy don't you guys hold this discus- sion after I'm gone, OK?" He left his seven-point proposal behind, saying "[t]his list was given to me by the President of the United States of America. And there's no way on God's green earth that I'm going to violate my instructions. . . . That's the President's authorized list. That's all he authorized . . . . In fact, he told me 'don't give away more than you have to'?that is everything he authorized me to talk about."' 98 North then was gone. Secord, too, left to attend to business in Brussels. Cave also departed. North had said that, if by the time he reached Washington there was no acceptable proposal, he would report to Poin- dexter that the meeting was unsuccessful and that the Second Channel would have to be closed.'" Hakim testified that North left him to negotiate with the Iranians. 299 Q: Did you feel like you had been the Secretary of State for a day? A: I would not accept that position for any money in the world, sir. Q: Well, you had it better than the Secretary of State in some sense. You didn't have to get con- firmed; correct? A: I still believe that I have it better than the Secretary . . . . I can achieve more, too. Q: And if this initiative had succeeded, did you ever make any calculation as to how much you and General Secord would make? A: In what period of time, sir? Q: People tend to think in terms of three-to-five year plans. A: Many millions. Q: Did it bother you at all that here you?and I say it respectfully?a private citizen was left with this kind of task of negotiating an agreement in which if it succeeded, you stood to benefit very substantially? A: What bothered me was that we didn't have the competence within the government to do what I could do. That still bothers me.201 Hakim's negotiating guidelines were North's hand- written seven-point plan.202 This same sheet of paper also contained Secord's handwritten addition: "We understand S. Hussein must go?believe we can help Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 (after obstacles go) with diplomacy in the Arab world . . .?continued military pressure OK." Hakim completed the negotiations by the time North arrived in Washington. In his public testimony, Hakim stated that he would be "honored" if the agreement was known as the "Hakim Accords."203 The agreement's nine-point plan differed sharply from North's seven-points. Under his grant of immu- nity, Hakim produced the original version in Farsi. As translated by the Library of Congress, this version provides: 2 ? 4 1. Iran provides funds to Mr. Hakim for 500 TOWs and, if willing, Iranians will provide for the HAWK spare parts which remain from the previous agreement. 2. Nine working days from now the 500 TOWs and the HAWK spare parts (if accepted by Iran) and the gifted medicines will be delivered to Iran. 3. Before executing Item 4 below, Albert will provide the plan for the release of the Kuwaitis (17 persons). 4. 11/2 (1 definitely and the 2nd with all effective possible effort) American hostages in Lebanon, through the effort of Iran, will be released by the Lebanese. *5. Using the Letter of Credit method, (three to four days after delivery of shipment stipulated in Item 2) additional 500 TOWs (together with a maximum of 100 launchers), within four days after the execution of Item 4 above, will be deliv- ered to Iran. The method of Letter of Credit will be reviewed between Albert and [ .] by tomor- row night. Iran will pay the funds for 1500 TOWs (the 500 TOWs mentioned above plus an additional 1000 TOWs) and the 1000 TOWs will be delivered to Iran within nine days. 6. The United States will start with the technical support of the HAWKs (material and know- how), update of the military intelligence and maps, establishment and commissioning of the special communication link, and will prepare the chart related to the items (provided by Mr. [ ]) indicating price and delivery to Iran. t 7. Before the return of Mr. [ ] to Tehran, the subject of the Moslem prisoners (Shia) in Leba- * The Letter of Credit will be opened in favor of Mr. [ ] and he will make the money for the 500 TOWs available by using 80% of the Letter of Credit. t After discussion between Mr. Secord and Mr. [ ], it was agreed regarding the Moslem prisoners that the sentence (text) will be written in the following manner: [end of text].205 non and the manner of their release by the in- volved parties will be reviewed by Mr. Secord. 8. Iran will continue its effort for creating the grounds for the release of the rest of the hos- tages. 9. The steps for delivery of items referred to in the second part of Item 6 above will start. The Hakim Accords contain a number of conces- sions. These include the release of only 1 1/2 hostage; the delivery of 500 TOWs before any release and a promise to supply 1,000 more TOWs; technical sup- port for the HAWKs; updated intelligence; and prices for the other weapons Iran had listed. In negotiating the nine-point agreement, Hakim felt under intense pressure from North. In addition to the short deadline to complete the agreement, Hakim testified North also told him that the President wanted a hostage back by Election Day. 2 0 6 Transmission and Approval: Hakim testified that when Secord returned from Brussels he transmitted a translation of the nine-point plan to North by secure communications device.207 Hakim said he learned quickly from North that the President had approved the plan.2138 It was distributed on the same day to the CIA which noted on its copy: "[T]his is the first draft of nine points. There were subsequent refinements which are only available at the NSC."2" The only subsequent draft with "refinements" found by the Committees at the NSC is in an October 10, 1986, PROF note from North to Poindexter.21? Unlike the Hakim version, the PROF note plan in- cludes Hakim's price for the TOWs, and provides that only "some," not all, of the 17 Da'wa prisoners would be released: 1. They [the Iranians] pay $3.6m next week. 2. We deliver 500 TOWs (no HAWK parts) 9 daysafter (sic) payment. 3. Copp & Sam help prepare a plan for approach- ing the Kuwaitis to guarantee no more terrorism against the Amir and by which the Amir will use a religious occasion to release some of the Dawa. They will take this plan to the Hizballah as their idea (face saving gesture w/ the Hizb.) 4. Two hostages (if possible, but no less than one) released w/in four days of TOW delivery. If only one hostage released, whole process stops and we meet again. 5. Repeat funding and Delivery cycle as in steps 1 & 2 above. 6. We send tech support for HAWKs, update on Intel and secure comm team to Tehran and pro- vide location/availability of artillery items noted 257 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 on the original list provided by [the Relative] in Washington mtg. 7. Iran does utmost to secure release of remaining hostage(s).211 The plan represented a retreat for the United States. The Iranians' position on sequential deliveries had been accepted, and the plan did not expressly provide a mechanism for the release of all three of the remaining American hostages kidnapped before 1986. Iran had agreed to release only one hostage. Moreover, the U.S. position on the Da'wa prisoners was bargained away by promising to develop a plan for the release of some of the 17 prisoners. The United States had criticized allies who, fearing repris- als, had freed terrorists. It had cited Kuwait as an example of a nation with courage: a nation that, al- though small and vulnerable to terrorism, was none- theless willing to imprison terrorists. As the Secretary of State testified: "And here was little Kuwait, very vulnerable, standing up to it [terrorism]. So we have to support them. They are much more vulnerable than we. If they can stand up for it, dog-gone it, so should we."212 There were other concessions: a $2,400 reduction in price for each of the 500 TOW missiles; an agreement to prepare a list showing the price and delivery schedule of the items on the Relative's long weapons list; and an abandonment of the demand for the return of William Buckley's remains and the transcript of his interrogation. The fate of Pattis was left for another day. The Americans seized in September 1986 were not mentioned. Secretary Shultz said of the plan at the public hear- ings: "Our guys. . . they got taken to the clean- ers."213 Nevertheless, North reported to Poindexter that Cave and Secord had told him that his "donkey act" with the Iranians had had "quite an effect." He said that the Engine had confided to Secord that if he had returned to Iran "without the hope of further help. . . he would be sent back to the front. "214 In recommending that Poindexter approve the plan, North minimized his concessions. He asserted that the "[o]nly changes from my proposal is sequential nature of their plan and lack of mention of Buckley body & transcript of interrogation." The release of the Da'wa and the contemplated supply of artillery, he said, could be managed "w/o any great complications." He stated that Cave, Director Casey, and the Chief of the Near East Division all believed that the plan was the "best and fastest way to get two more out?probably within the next 14 days." He added, as the Division Chief had reported, "the situation in Lebanon is get- ting much worse and we may be getting close to the end of the line for any further movement."215 North concluded that the agreement was a bargain: the United States would get two more hostages out 258 for "nothing more than the two sets of 500 TOWs." As for the future, North recommended to Poindexter that "we shd push them to include the Buckley re- mains and transcript and then get on with it."216 Poindexter testified, "I discussed those with the Presi- dent, and he approved the ones that applied to the U.S. Government.217 Poindexter and North had different rationales for approving the concessions on the Da'was. North testi- fied that, sooner or later, Kuwait would release the prisoners "as sure as I'm sitting here"218 and so "the United States might as well get something for them."219 Poindexter maintained that since Secord, a private citizen, was to develop the plan to facilitate the re- lease of the Da'wa prisoners, his actions would not compromise U.S. policy against concessions to terror- ists.220 Poindexter held to this position even though Secord represented the United States in the negotia- tions and North had appointed him, with Poindexter's approval, to the joint U.S.-Iran commission suggested by the Relative.221 Cave stated that he understood that the United States approach to the Kuwaitis would be official but that the United States would not seek relief for the three Da'wa prisoners who had been sentenced to death.222 Whatever the rationale, any intervention to free the Da'wa prisoners conflicted with official U.S. policy, which was being publicly proclaimed at the very time the secret negotiations with the Second Channel were under way. In response to an article in Newsweek magazine speculating on a trade of Da'wa prisoners for the American hostages, the White House prepared a "press guidance" sheet dated October 14, which reiterated long-standing U.S. policy:223 The question is not whether we would seek the release of 3 or 17 prisoners. We will not negoti- ate the exchange of innocent Americans for the release from prison of tried and convicted mur- derers held in a third country, nor will we pres- sure other nations to do so. To make such con- cessions would jeopardize the safety of other American citizens and would only encourage more terrorism.224 Arms Transfer Preparations Shortly after the meeting in Frankfurt, North and Secord began to implement the nine-point plan. They advised Nir that the Iranians would deposit money for the shipment of the 500 TOWs. Secord also told Nir that the United States would charge significantly less for these TOWs than it had in the earlier transac- tions. This caused Nir concern. He warned Secord that the low price could cause Ghorbanifar or his financiers to protest and expose the operation. He Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 recommended charging the old price, so the excess could be used to pay Ghorbanifar's financiers.225 But the price quoted to the Second Channel was part of the deal for the hostages and could not be renegotiated. Instead, Nir and North discussed in- structing Secord to tell the Relative that the low price was an "undercharge" that would have to be increased on the next shipment.228 North, Secord, and an Israeli official met in Geneva on October 22 to iron out the details of the next arms shipment to Iran. They agreed that the 500 TOWs sent to Iran would be taken from the 508 sent to Israel in May and rejected as inadequate by the Israeli Defense Forces, and that the United States would supply Israel with another 500 replacement mis- siles.227 On October 27, the flight crew that Secord had retained arrived in Israel. The next day, an Israeli plane delivered the substitute 500 TOWs to Iran.228 Under step 4 of the nine-point plan, at least one hos- tage was to be released 4 days later. The switch of TOWs, which North approved, was not without risk. The Relative had already com- plained to North that the TOWs the United States had sent earlier had misfired in battle. Secord said in his testimony that he had heard the Iranians complain that the TOWs had gone "ballistic."228 Secord testified that he did not participate in the decision to switch the TOWs. Q: Do you think that was consistent with trying to build the moderate power base for the Iranians if you are sending them old weapons after . . . they've complained before about the quality of weapons? A: It may not have been, but that was the deci- sion that was taken by the Government. Q: Well, did the Government make the decision, our Government make the decision to allow the Israelis to make the switch? A: Oh, yes. Q: Did you participate in that decision? A: Not at al1.23? Arming the Guards As the Americans knew, both the Relative and the Engine were members of the Iranian Revolutionary Guards Corps. The Revolutionary Guard is the mili- tary arm of the most radical elements in Iran. As Cave explained, "they were the executive arm of the revolution."2" The Revolutionary Guard was com- peting with and trying to replace the regular Iranian Army.232 Early in the Iran initiative, the Americans were on notice that the weapons sent to Iran might go to the Revolutionary Guards. Ghorbanifar had, in fact, con- tended that the first shipment of TOWs in August of 1985 had been seized by the Guards when it arrived at Tehran.233 According to Cave, the Relative told the Ameri- cans that the February shipment of TOWs had gone to the Revolutionary Guards.234 In November, the Engine shared with North his hope to build an air wing for the Guard.235 Although the arms were sent to the Revolutionary Guard, the January Finding had a different purpose: to "facilitat[e] efforts by third parties and third coun- tries to establish contact with moderate elements within and outside of the Government of Iran . . (emphasis supplied). The goal approved by the Presi- dent was to supply arms to the moderate elements to assist them "in their effort to achieve a more pro- United States government in Iran by demonstrating their ability to obtain requisite resources to defend their country against Iraq and intervention by the Soviet Union." To the best of the Committees' information, the President was never told that the United States was arming the Revolutionary Guard. Cave stated that he recalled no discussion of whether arming the Guard was consistent with the Finding.238 In his last inter- view with the Committees, Cave still characterized the Second Channel as "middle roaders."237 Mainz Meeting North, Secord, Hakim, Cave, the Relative, and the Engine met in Mainz, Germany, south of Frankfurt, on October 29, 1986, to discuss the promised release of one or two hostages and the implementation of the rest of the nine points. The Mainz discussions began with ominous news. The Relative reported that dissension in Iran over the initiative had prompted students associated with a po- litical faction to publish "five million copies" of pam- phlets describing the McFarlane visit to Iran.238 Moreover, although the Hizballah was "basically under the control of the Iranian Government," a fac- tion of Hizballah radicals had published an account of the negotiations between the United States and Iran for distribution in Lebanon.238 These events almost prevented the Engine and Relative from coming to the meeting.240 The information in the leaflets and the Hizballah publication had not reached the United States. Secord later in the meeting observed that, "[I]f it was blown, it was only blown inside."241 The Relative then insisted that North tell him who in the U.S. Government supported the Iran initiative. North said the President, the Vice President, Poin- dexter, Casey, and Regan were in favor, and Secretar- ies Shultz and Weinberger opposed. "No one else 259 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 counts," and Congress would not be told "until we get the hostages out. ,9 242 North reaffirmed the nine-point plan, saying that he wanted to be able to "assure his boss that the plan he approved is indeed being carried out."243 North then provided the Iranians with a report on steps the United States had purportedly taken since the meeting in Frankfurt to implement the nine-point plan and to otherwise assist Iran. The Committees could not de- termine whether North's claims were factual. North told the Iranians that the United States had persuaded another Western government to terminate arms shipments to Iraq. The United States also alleg- edly had private discussions with certain Arab gov- ernments. When the Engine stated that an Arab gov- ernment had agreed to put pressure on Iraq, North said "That's us doing that."244 The Committees have no evidence that North's statement of U.S. pressure was true. North testified, though not with reference to this, that "I lied every time I met the Iranians."245 Hostages: North expressed bewilderment that the Iranians did not simply "exercis[e] every possible amount of leverage they've got to get those people out." He found this particularly confounding because 4. . . we agree that as soon as they're out, we can do all kinds of good things." North included on the list of "good things," foreign military sales contracts and the "formal relationship that McFarlane had held out in Teheran."246 "The big problem I've got," North said, "is the whole damn appearance of bartering over . . . bodies."247 In discussing the plan for the release of the hos- tages, North divulged to the Iranians classified materi- al of particular sensitivity.248 Arms, Intelligence, Assistance: The prospect of American military assistance to Iran if more hostages were released dominated the Mainz meetings. The Relative informed the Americans that Rafsanjani had taken a personal interest in restoring inoperable Phoe- nix missiles.249 The Relative held out the hostages as bait: "I'll tell you what I'll do. You send that techni- cian to help us with the Phoenixes, I will personally get the third guy out, and I could tell you where the rest of the guys are. I will learn where they are."25? The Phoenix was a complicated missile that re- quired several technicians to repair.251 The Ameri- cans expressed concern that if the United States sent technicians, their presence might be discovered by America's allies. North explained, "If there is a visible effort made by the United States Government when there's a long list of hostages being held in Lebanon, this President is going to get stoned by" U.S. allies. To this, Secord added: "[A]nd by his own people." 2 5 2 Secord told the Iranians that he had located the man "wl'o ran the HAWK system in Iran for Me,"263 and could provide them with technical assistance. But the hostages were the obstacle. Secord said ". . . [if] after Sunday we will still have at least one hostage 260 that we score or count against Iran?at least one. I think its highly unlikely that we would be allowed to send technicians into Iran, to Isfahan."254 On the other hand, "if he [an Iranian leader] just goes out tomorrow or the next day and grabs those three guys out of Lebanon, we'll go back in and rebuild his goddamn air force. I built it once, I'll go back in and build it again. That was my baby; I built that air force?four and half years on it."2" Secord estimated that, with his help, the Iranians would find in their own depots "a billion dollars worth of stuff they don't know they've got?in two weeks." 256 North added that if the Iranians were to get the hostages out, the United States would send them "a million" TOWs. In fact, he said, the United States would "open up an FMS [Foreign Military Sales] account and you'd get a better price on them."257 The Relative added a request for 22 Chinook heli- copters, then under embargo,259 reconnaissance cam- eras for the RF-4,259 and the return of $20 million which the Relative said had been adjudicated as be- longing to Iran but which the F.B.I. continued to hold.2 6 The Da'wa: North emphasized to the Iranians that he had "already started" on the Da'wa plan. He claimed that he had "already met with the Kuwaiti Foreign Minister, secretly. In my spare time between blowing up Nicaragua." 261 (North, in an aside to the American participants, stated that he had spent 7 days putting together a plan on the Da'wa.)26 2 However, when asked about the particulars of North's seven days of effort, Cave said he never heard about it. 26 3 The Interlocutors: Ghorbanifar was not the only Ira- nian intermediary demanding money. The Relative told Secord and Cave that he had received "ten calls from [the Second contact] asking where his money was."264 Secord responded that the financial straits of the Second Contact were "our responsibility; we'll take care of it."26 The discussion then turned to Albert Hakim. The Relative complained that Hakim was "trying to push this [the whole relationship] too fast.9926 6 Secord explained that "we have placed Albert [Hakim] under pressure on the hostages." He later returned to Hakim's defense by saying: Now, Albert told me at the beginning?he told all of us?he did not want to be involved in these political discussions. He said, 'I'm a businessman, I don't want to be involved in political discus- sions.' Because of his language capability and be- cause of his association with me?Sam [Cave] can't be everywhere all the time?we have to use Albert. He has not wanted to be in this role. And he's not comfortable in this role.297 Secord promised that "[a]s soon as the President tells us to move ahead, I'm sure that Sam and I can get the right people involved in this.9,268 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Secord's description of Hakim as a businessman and a reluctant participant in the Iran initiative contrasted with other explanations of Hakim's role. At the Wash- ington meeting, North had described Hakim as a "consultant to our government on Iranian affairs from time to time."269 In Mainz, just a short time before Secord made his remarks, North told the Relative that Hakim was a "consultant" who worked for North "in the President's office," that he held this position for 4 or 5 years and that he handled North's Farsi translations.27? Joint Commission: As the United States shifted from the First Channel to the Second, there were strong indications that, notwithstanding the change, the United States was dealing with the same political con- sortium in Iran. This was confirmed at Mainz, when the Relative explained the composition of the Iranian factions sup- porting the initiative. The Relative said, "[w]hen [the First Channel] raised the issue of establishing relations with the United States he [Rafsanjani, to whom the Second Channel reported] was in favor of it, but for his own politics he decided to get all the groups involved and give them a role to play."271 The Rela- tive observed that this politically astute maneuver by the Iranian official meant that if the initiative "would be a failure and all parties are involved so there would not be an internal war."272 The Relative then announced the Iranian member- ship on the "joint commission." The appointees were the Engine, a participant in meetings held under the auspices of both channels; the Adviser, who negotiat- ed with McFarlane in Tehran; a member of the Irani- an Parliament, the Majlis; and the Second Iranian,273 the primary Iranian official in the First Channel and the man who the Relative had said was responsible for Reed's kidnapping.274 The Americans did not object even though the composition of the Commis- sion, including the Second Iranian, "really blew our minds."276 The Commission membership demonstrat- ed to the Americans the true breadth of the political union with which they had been dealing all along. Saddam Hussein: The removal of Iraqi President Hussein from power remained on the Iranian list. Secord said that "we" would talk to another country in the region.276 He added, "It's going to take a lot of talk, a lot of talk."277 The Release of Jacobsen When the negotiators in Mainz disbanded, North re- ported to Poindexter through Lt. Col. Robert Earl. Earl advised Poindexter that the Relative "assures us we will get 2 of 3 US hostages held by Hizballah in next few days?probably Fri or Sat but NLT [not later than] Sunday."278 North proposed that he and Secord go to Lebanon to coordinate the release of the hostages and to brief the American Ambassador on both the third hostage and the "remaining three . . . when we get info from Rafsanjani on loca- tions . . . ." North also wanted to arrange to pick up a Soviet tank that Iran had promised.279 So that the President would get credit for the re- lease, North urged that the President announce the hostages' release "after the AMCITS are in USG hands" but "before CNN knows it has happened." North hoped that under this arrangement, President Reagan would be "seen to have influenced the action . . . ./9280 North voiced the same thought to Poindexter via Earl in a PROF note: "This is the damnedest oper- ation I have ever seen. Pis let me go on to other things. Wd very much like to give RR two hostages that he can take credit for and stop worrying about these other things.1,281 Secord reported to North that Hakim had spoken to the Engine and that the Iranians were caucusing on a statement to be made by Speaker Rafsanjani. The initiative was in doubt, but the Engine gave it an "80 percent chance." At the same time, the Engine report- ed that a second hostage would soon be released and asked for another "500 TOWs ASAP." Secord added that he did not know whether the second hostage and the 500 TOWs were linked.282 On Sunday, November 2, two days before the mid- term elections, David Jacobsen was released. Exposure The next day, the initiative was exposed. The source was neither Ghorbanifar nor his financiers, who had made earlier threats to do so, but the Lebanese maga- zine, Al-Shiraa. It had picked up the story that had been circulating in the Hizballah broadsides. On No- vember 4, Rafsanjani addressed the Iranian Parliament and acknowledged that an American delegation had visited Tehran. After the speech, the Relative con- veyed to North that the Iranians still wished to con- tinue the initiative. The Americans also wished to continue. Howard Teicher of the NSC staff wrote to Poindexter that the revelation of the initiative "coming on the heels of high-level Iranian visits to Damascus, are the clearest possible signals we could receive that the succession struggle is underway and United States-Iranian rela- tions are likely to play an important role in the strug- gle." He advised that ". . . we must not let this opportunity to assess the consequences in Iran of these revelations slip through our fingers." He then "strongly urge[d] [Poindexter] to discuss our options with Shultz and Casey. At a minimum, we need to determine how best, other than parts, etc., to signal the Iranians in a productive manner."283 North continued to seek the release of another hos- tage in return for concessions on the Da'wa. North's notebooks show entries about his desire to resolve 261 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 quickly the "Kuwaiti United States Da'wa problems and the hostages."284 North's notebooks reflect his belief that the goal of securing the release of the hostages justified the initia- tive, and that the public would approve once the facts were out. Noting this, he wrote his conclusion and included a notable misstep: "Ultimately on side of angles [sic]."285 Taking Stock in Geneva On November 8, 1986, Cave, North, Secord, and Hakim met with the Engine in Geneva.256 By now, each side had its own acute problems. The Engine worried that Ghorbanifar, whom the Iranians now suspected of being an Israeli agent, might cause trouble. He asked Cave's advice on how to "appease" him.257 North, on the other hand, stated that the burgeoning publicity surrounding the initiative made it all the more imperative that the hostages be re- leased. North assured the Iranians he was "here at the order of the President and we still have the same objectives as explained in Washington and Frank- furt."255 The Engine made it clear that the freeing of the Da'wa prisoners was a prerequisite to the release of the "other two hostages." Once the Da'wa prison- ers were released, there would be "no problem" with the two hostages.289 The Americans responded that "we had done all that was humanly possible by talking dsirectly (sic) to the Kuwaitis . . ."290 The Americans concluded by strongly recommending that the Iranians send a dele- gation to Kuwait with the assurance that it would be "warmly received."291 Release of the hostages had, from the beginning, been linked to arms sales. Now it was officially linked to the Da'wa as wel1,292 even though the Iranians had receded from their demand that all the prisoners be released. North wrote in his notebooks that the Engine said that if "some" of the Da'wa prisoners were released, "then something may be possible."293 On November 9, North and Secord met with Nir. They told Nir that the Lake Resources account had been closed because some of the Iranian funds had become "mixed" with funds for Nicaragua. North's notes of this meeting show that Nir told North and Secord that Ghorbanifar was asserting that the United States was spending Iranian money in Nicaragua.294 When North returned from Geneva, he briefly acted, at Hakim's suggestion, as a ghostwriter for Rafsanjani. The Iranians were contemplating making a public statement in the light of the exposure of the initiative in Iran. On November 11, Hakim asked North to "create something for Rafsanjani to say."295 North drafted a statement that he sent Hakim by KL- 43 computer to be transmitted to the Engine. North added instructions that the statement be issued "from Iran." He said that it would "help with the Kuwaiti situation on which we are now working."296 262 In North's proposed statement, Iran proclaimed "the enduring reality of its Islamic Revolution," its interest in peace, and "His Holiness297 the Imam['s] . . . gracious[ ] command[ ] that acts of terrorism are not acceptable to advance the aims of the Islamic Revolution." North asked that the Engine "carry this message for me as a personal favor for the cause we both believe in . . . ."298 The Circle Opens The Secretary of State testified that he did not re- ceive confirmation of the arms sales that had been reported in Al-Shiraa until November 10, when he attended a meeting in the Oval Office with the Presi- dent and principals of the NSC. He feared the arms sales would continue. He saw the Administration's statement?that the arms embargo would remain in effect "as long as Iran advocates the use of terror- ism"?as a license to ship arms to Iran by pretending that it was no longer supporting terrorism.299 On November 14, a day after the President's tele- vised speech on the issue, Secretary Shultz, at his regular weekly meeting with the President, urged him not to sell any more arms to Iran. The President did not commit himself. Shultz then tried another ap- proach. The next day, he submitted a proposal to Chief of Staff Regan permitting the State Department to take control of U.S./Iran policy. This would have given State the authority to block further sales. Regan said he favored this step, but the President was un- willing to adopt it.30? Shultz appeared on "Face the Nation," a televised news program, on November 16. He acknowledged that, while he opposed further arms sales to Iran, he did not have authority to speak for the Administra- tion. Not until the diversion of money to the Contras was discovered and Poindexter's resignation was re- quested did the President agree on November 24 that the State Department should assume control of the Iran initiative.301 In the meantime, North pursued it. His notebooks show continued discussions about the Da'wa prisoners and other aspects of the initiative. One note stated his intention to seek the support of the American-Israel Public Affairs Committee (AIPAC) to attempt to quiet growing concern among Congressional Demo- crats about the arms sales.302 The Committees have no information that North did contact AIPAC. North called Nir on November 23 and informed him that he had been interviewed by Attorney Gener- al Meese. North said that Meese had asked him about the diversion of some of the Iran arms money to Nicaragua. North then asked Nir to have Israel accept responsibility for the plan but Nir rejected the request. North's notes quote Nir as saying: "I cannot back this story."303 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 The Finale In early December, Cave asked Hakim to set up an- other meeting with a representative of the Second Channel. Hakim did so and, on December 12, Under Secretary of State Michael Armacost and Director Casey met to discuss ground rules for the meeting. They agreed that the Iranians would be informed that the channel would, henceforth, be used only for intel- ligence purposes between the two countries. In a memorandum to Casey that day, Allen warned that the Second Channel would effectively shut it down if limited in this manner. Allen argued that it was "imperative" to change the ground rules to permit exchanges "broader than intelligence."304 The following day, Casey met alone with Regan and succeeded in reversing the ground rules. Under the new decision, the Second Channel could be used for policy purposes as well as intelligence ex- changes.305 Secretary Shultz learned of this change only after the fact. He observed: "Nothing ever gets settled in this town." 3 6 The meeting with the Engine took place in Frank- furt on December 13. Before the meeting Cave told Charles Dunbar, the State Department representative and a Farsi speaker, that Hakim would attend only if his attorney was also present. Cave declined the con- dition and Hakim left. Dunbar reported to his superi- ors that, "[i]t is just as well that Hakim is out of the circle. The last thing we need is another five per- center involved." 3 7 Once the meeting was underway, the Engine told Cave and Dunbar that, despite the press revelations, Iran was ready to proceed within the "already estab- lished framework." He noted that "[m]uch had been accomplished by North, Secord, and Cave."308 He then proceeded to lay out the four issues on Iran's agenda. The first was the Iran-Iraq war. The Engine said that Iran had "some ideas" on this topic but that the "key and non-negotiable demand . . . is that Saddam 'and his organization' must go."3" The second issue was the delivery to Iran of all Iranian-purchased military equipment held by the United States. The Engine said that senior Depart- ment of Defense officials had admitted that these goods belonged to Iran, and the Iranians wanted them.3'? Third, the Engine asked for the new weapons that had been "promised" by the United States. He listed 1500 TOWs and 100 launchers as the items prom- ised.3" Fourth was the Da'wa prisoners in Kuwait whom the Engine described as "an important issue for the Lebanese." As he had in Geneva, the Engine said that if the Da'wa prisoners were released, the Lebanese would "be more flexible" on the hostages. He prom- ised that, in this event, Iran would apply "whatever limited influence it has."312 (Cave later told State Department Official Charles Dunbar that he believed that Poindexter had met recently with the Foreign Minister of Kuwait and had urged the release of the Da'wa prisoners.) The Engine brought up the nine-point plan, saying that five or six of the points had been executed. This was the first that Dunbar or the State Department had heard of the nine points, and Cave had to confirm to Dunbar that there was such a plan.313 Cave told the Committees that the State Department did not act on his invitation to brief Dunbar, and as a result, Dunbar was not well prepared for the meeting.314 When he spoke, Dunbar conveyed the new ground- rules for the Iranian-American dialogue. He told the Engine that arms from the United States would no longer be a part of the initiative, and the Engine, in a quiet and unemotional voice, responded that that "would bring us back to zero." He suggested that Dunbar must be mistaken and that he should return to Washington for a full briefing.315 When Dunbar told Secretary Shultz of the nine- point plan, the Secretary was shocked. He insisted on immediately telling the President about it in person.3'6 Poindexter testified that the President had approved the nine-point plan as it applied to the U.S. Govern- ment. Poindexter contends that the deal with Secord and Kuwait was private.317 North told Cave of the President's approval.318 Secretary Shultz testified, however, that when he told the President of the plan, the President gave no indication that he was familiar with it, but "reacted like he had been kicked in the belly." 3 1 9 Shultz continued: And I told the President the items on this agenda, including such things as doing something about the Dawa prisoners, which made me sick to my stomach that anybody would talk about that as something we could consider doing. And the President was astonished, and I have never seen him so mad. He is a very genial, pleasant man and doesn't?very easy going. But his jaws set and his eyes flashed, and both of us, I think felt the same way about it, and I think in that meeting I finally felt that the President under- stands that something is radically wrong here.32? The President's meeting with Secretary Shultz laid the Iran initiative to rest. The President authorized Shultz to tell Iran that the United States repudiated the nine-point plan and unequivocally rejected further arms sales. Further, Secretary Shultz sent a cable to Kuwait affirming strong U.S. support for Kuwait's refusal to yield on the Da'wa prisoners."' The Iran initiative was over. 263 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Chapter 14 1. The Second Channel comprised several persons who, together, provided an alternate route into the Government of Iran. No single individual constituted the Second Chan- nel as the term is used in this report. 2. Israeli Historical Chronology. 3. Cave Memorandum of 6/23/86 telephone conversation with the Second Iranian, N 2402. 4. Id. 5. North Notebook, 6/23/86, Q 2229. 6. C 200. 7. Handwritten notes of 6/30/86 telephone conversations with Iranian officials, N 2399. 8. Ex. OLN 48. 9. Israeli Historical Chronology. 10. Id. 11. North Notes, Q 2243. According to the Israeli Chro- nology, Nir expressed doubts to North as to whether the Iranians would effect the release. 12. Allen Dep., 6/29/87, at 476. 13. Cave Int., 9/29/86, at 46-47. 14. Ghorbanifar Letter, July 8, 1986, to the Second Irani- an, N 2395. 15. Id. 16. Israeli Historical Chronology. 17. Id. 18. Ex. JMP 56, 19. Poindexter PROF, 7/26/86, to McFarlane, N 12577. 20. Id. 21. Ex. JMP 56. 22. Id. 23. Id. 24. Israeli Historical Chronology. 25. Ex. JMP 56. 26. Memorandum of OSG/TIWG Meeting, 8/5/86, N 3903. 27. Crowe Dep., 6/18/87, at 4. 28. Id. 29. Id. at 5. 30. Weinberger Test., 7/31/87, at 132. 31. Crowe Dep., 6/18/87, at 30-31. 32. Id. at 7. 33. Crowe Dep., 6/18/87, at 8. 34. Weinberger Test., 7/31/87, at 132-33. 35. Crowe Int., 4/10/87, at 4-5. 36. Craig Fuller notes, 8/6/86, N 2560-62. 37. Id. 38. Id. 39. Id. at N 2561. 40. Id. at N 2562. 41. Id. 42. North Notes, Q 2314. 43. Id. 44. N 44488. 45. North Notes, Q 2339, Q 2340. 46. Israeli Historical Chronology. 47. North Notes, Q 2339. 48. Cave noted on August 15 a conversation with Nir in which Nir raised terms similar to those discussed in London. Cave's notes added, however, that 309 Lebanese Shi'ites were also to be released, C 9516. 49. North PROF, 12/4/85, to Poindexter, N 9910. 50. Israeli Historical Chronology. 264 51. Allen Dep., 9/23/87, at 7-8; Cave Dep., 4/17/87, at 106-07. 52. Earl Dep., 5/2/87, at 33-38. 53. Cave Dep., 4/17/87, at 244. 54. Allen Dep., 9/23/87, at 7-8. 55. North Notes, Q 2349-51. 56. Allen Dep., 6/29/87, at 533. 57. Secord Test., Hearings, 100-1, 5/6/87, at 93. 58. PROF Note from North to McFarlane, 2/17/86 8:54:13, N 12119-20. 59. Tower Int. of C/NE, 1/5/87, at 19. 60. Tower Int. of Cave, 1/5/87, at 5. 61. PROF Note from North to McFarlane, 2/27/86 20:22:22, N 12121. 62. North Test., 7/10/87, at 125-126. 63. Hakim Test., 6/4/87, at 2. 64. Id. at 3. 65. Hakim Test., Hearings, 100-5, 6/3/87, at 195. 66. Hakim Test., Hearings, 100-5, 6/4/87, at 285. 67. Hakim Test., 6/4/87, at 122-23; Nightline Interview, 7/9/87. 68. CIA Cables, C 9926-27; C 9928; C 9929. 69. The First Contact was not "vetted" by the CIA in the usual manner. Instead of being subjected to a CIA-con- trolled polygraph, the First Contact was tested by a private polygraph company. Wilt Int., 6/22/87, at 2-5. The examin- er stated that the test, which was arranged by Hakim and performed on July 14, was inadequate because the informa- tion which Hakim provided for the test was insufficiently precise to establish the accuracy of the test. Id. Cave stated that one reason the CIA did not itself perform the poly- graph was because the Iran initiative was "an NSC oper- ation." Cave Int., 9/29/87, at 35. 70. Memo of CIA meeting with the First Contact, 7/10/ 86, N 2396. 71. Memo of CIA meeting with First Contact, 7/11/86, N 2398. 72. Hakim Test., 6/4/87, at 90-91. North said that he, too, knew "well the meaning of the term baksheesh . . . and that it is a long established tradition in that part of the world." North understood that, to open a new channel, Hakim would have to satisfy the demands for baksheesh. "Mr. Hakim made it clear that there was a necessity to compen- sate those engaged in the activity." North, 7/10/87, at 125- 26. 73. Hakim Dep., 5/31/87, at 34-35. 74. Hakim Dep., 5/31/87, at 32-35. 75. North Notes, Q 2307. 76. North Notes, Q 2345. 77. Secure telephone message to Secord, 8/26/86, N 2801-02. 78. Id. at N 2802. 79. Memorandum from North to Poindexter: Subj: "Next Steps with Iran," 9/2/86, J 5968-70. 80. Id. at J 5969. 81. Id. at J 5970. 82. PROF Note from North to McFarlane, 9/3/86 20:12:50, N 12156. 83. North Notes, Q 2388. 84. Id. 85. North Notes, Q 2395. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 86. Id. 87. Memorandum from North to Poindexter: Subj: Sup- plement to Next Steps with Iran, N 2809. 88. Tower B-152. 89. Id. 90. CIA Memo to Casey from Allen on American Hos- tages, 9/10/86, C 9517. 91. The reference to "Paul" is unclear. North's code lists show that at one time David Kimche was referred to as "Paul." Later North himself held this code name. 92. C 9517. 93. Id.; Allen Dep., 6/29/87, at 567. 94. C 9517. 95. Id. 96. Tower Int. of C/NE, 1/5/87, at 20. 97. The magnitude of the risk later became clear when the Relative told Cave that the Iranians knew throughout the Tehran meeting that Nir was an Israeli. Cave Int., 9/29/ 87, at 17. 98. Secord Test., Hearings, 100-1, 5/6/87, at 99. 99. Secord Test., Hearings, 100-1, 5/6/87, at 105. 100. Hakim Test., Hearings, 100-5, at 225. 101. Hakim Test., 6/4/87, at 164, 166-67. 102. North Notes, Q 2364. 103. PROF Note from North to McFarlane, 9/3/86 20:12:50, N 12156. 104. Israeli Historical Chronology. Memorandum to Poin- dexter from North on Meeting with Nir, 9/9/86, N 44515- 16. 105. Id. 106. North Notes, Q 2413. 107. Secure telephone message from Secord, N 2799-800. 108. Id. 109. Id. 110. Memorandum for the Record by Allen: Subj: "TOW sales to Iran," J 5957. Ill. /d. 112. North Notes, Q 2558. 113. North Notes, Q 2397, Q 2404, Q 2407-08. 114. PROF Note from North to Poindexter, 9/17/86 07:56:26, N 18046. 115. PROF Note from North to Poindexter, 9/17/86 12:59:11, J 6094. 116. Secure telephone message to North from Secord, 9/17/86, N 2923. 117. Id. 118. Hakim Test., 6/4/87, at 34. 119. Memoranda of conversations of 9/19/86 meetings, N 2842-59 at N 2853-57. 120. Id. at N 2853. 121. Id. at N 2857. 122. Id. at N 2856. 123. Id. at N 2849. 124. Id. at N 2848. 125. Id. at N 2849. 126. Id. at N 2849. 127. Id. at N 2850. 128. Memorandum to Poindexter from Allen on hostages, 9/8/86, N 2811. 129. Cave Int., 9/29/87, at 23. 130. Memoranda of conversations of 9/19/86 meetings, at N 2856. 131. Id. 132. Id. at N 2858. 133. Id. at N 2848. 134. Id. at N 2858. 135. Id. at N 2843. 136. Id. at N 2852. 137. Id. 138. Notes of 9/19/86 meeting, N 2861. 139. Memoranda of conversations of 9/19/86, at N 2852. Although the United States had long before concluded that Buckley was dead and, in earlier meetings with Ghorbani- far, had sought the return of his body, the Relative added a new dimension. He stated that Buckley had been subjected to a "debriefing" by his captors and that a transcript of the interrogation was held by the Iranians. It allegedly ran to over 400 pages and contained 200 to 300 "sensitive names." Other than trying to assess the damage such a transcript might cause, the CIA never systematically attempted to determine whether these assertions were true. Cave Int., 9/ 29/87, at 76-78. Neither the Committees nor the CIA have any evidence that a transcript of the debriefing exists. 140. Cave Int., 9/29/87, at 73-74. 141. Id. at 75-76. 142. N 2862. 143. N 2850-61. 144. Hakim Test., 6/4/87, at 35-36. 145. Hakim Test., 6/4/87, at 8. 146. Id. at 8-9. 147. PROF Note, 9/22/86 8:37:02, N 12608. 148. PROF Note from North to Poindexter, 9/22/86 9:22:57, N 18059-60. 149. Memorandum to Poindexter from North: Subj: "Next Steps With Iran," 10/2/86, N 2816-18. 150. Id. at N 2817. 151. Id. 152. "And the Scripture, foreseeing that God would justi- fy the Gentiles by faith, preached the gospel beforehand to Abraham, saying, 'All the nations shall be blessed in you.'" N 2825. 153. Memorandum to Poindexter from North: Subj: "Next Steps with Iran," 10/2/86, N 2816-18. 154. Id. at N 2817. 155. Id. 156. Id. 157. Id. at N 2817. 158. Israeli Historical Chronology. 159. PROF Note from Poindexter to McFarlane, 10/3/86 20:35:35, N 7503. 160. PROF Note, 10/4/86, N 12620. 161. N 2827. 162. North, 7/9/87, at 121. 163. N 2817. 164. Hakim Test., 6/4/87, at 48. 165. Hakim Dep., 5/31/87, at 87. 166. Transcript of Frankfurt meeting, C 312-24 at C 322. 167. Id. at C 358-71 at 364. 168. C 368. 169. Memorandum of 9/19-9/20 conversation with the Relative, N 286063 at N 2862. 170. Transcript of Frankfurt meeting, C 372-84 at C 380. 171. Id. at C 383. 172. Id. at C 384. 173. Kerr Int., 9/23/87, at 3-4. 174. Transcript of Frankfurt Meeting, C 375-76. 175. Id. at C 376. 176. Id. 265 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 177. Poindexter Test., 7/21/87, at 145. 178. Tower at III-18. 179. Transcript of Frankfurt Meeting, C 371. 180. Id. 181. Id. at 382. 182. Transcript of Frankfurt Meeting, C 400-10 at C 406. 183. The 17 Da'wa prisoners were convicted by the Ku- waiti government of conducting a series of large-scale ter- rorist attacks in Kuwait on December 12, 1983. Bombing attacks were carried out against the U.S. and French Em- bassies, a U.S. housing compound, an airline terminal, an oil facility, and a Kuwaiti government office. Six people were killed and 80 wounded. Congressional Research Service Issue Brief on Terrorism, 9/27/87, at 11; "America's For- gotten Hostages," Newsweek, 10/20/86, at 39, 47. 184. Transcript of Frankfurt Meeting, C 378. 185. Id. 186. North Notes, Q 2486. 187. Transcript of Frankfurt Meeting, C 378. 188. Cave Int., 9/29/87, at 60, 137-41. 189. Transcript of Frankfurt Meeting, C 375. 190. Id. at C 408. 191. Although the copy provided by Hakim omitted the last line of the first entry under point 7, Cave identified the list referred to therein as the arms list that the Relative brought to Washington, D.C. Cave Int., 9/29/87, at 142-43. 192. Ex. AH-22. 193. Transcript of Frankfurt meeting, C 10423-33 at C 10425. 194. Id. at C 409-10, C 10423-25. 195. Id. at C 10426. 196. Id. at C 10427. 197. Id. at C 10429. 198. Id. at C 10431-32. 199. Hakim Test., 6/4/87, at 166. 200. Id., at 164, 166-67. 201. Id., at 174-75. 202. Id., at 167. 203. Id., 6/5/87, at 67. Poindexter testified that he did not think it was "fair" to describe the plan as the "Hakim Accords." Poindexter Test., 7/21/87, at 144. 204. Hakim provided a translation of his own Farsi copy of the nine-point plan to the Committees. It differs in a couple of respects from the translation of the same Farsi document by the Library of Congress. One point at which the two documents differ is in point 4. The Library of Congress translation states that the "one and one-half" hos- tages are to be released three or four days after the delivery of the 500 TOWs to Iran. This, however, appears inconsist- ent with the requirement in both the Hakim and Library of Congress version of point 3 which provides that Hakim must produce a plan for the release of all of the 17 Da'wa prisoners before the hostages are to be released. 205. Ex. AH-22. 206. Hakim Dep., 5/31/87, at 202; Id., 5/23/87, at 83; Hakim Test., 6/4/87, at 159-63; Id., 6/5/87, at 119-20. 207. Hakim Test., 6/4/87, at 49. 208. Id. at 49. 209. C 9341. 210. PROF Note from North to Poindexter, 10/10/86 21:55:31, N 12176-77. The changes in the Hakim plan may have been negotiated by Secord upon his return to Frank- furt. Cave Int., 9/29/87, at 149-50. 211. N 12176. 266 212. Shultz Test., 7/23/87, at 160. 213. Id. at 184. 214. PROF Note from North to Poindexter, 10/10/86 21:55:31, N 18741-42. 215. Id. 216. Id. 217. Poindexter Test., 7/21/87, at 144. 218. North Test., 7/13/87, at 247. 219. Id. The Da'wa prisoners were sentenced to varying penalties ranging from imprisonment for a term of years, to death. Several prison terms for one group of prisoners will expire sometime this year. Cave Int., 9/29/87, at 152. The release of these prisoners, therefore, would follow Kuwaiti due process norms. 220. Poindexter Test., 7/15/87, at 174. 221. Memorandum of Washington meetings with the Rel- ative, N 2862. 222. Cave Int., 9/29/87, at 137-39. 223. Press Guidance regarding Newsweek article, "Amer- ica's Forgotten Hostages" N2832-35. 224. Id. at N 2833. 225. North Notes, Q 2558-59. 226. Id. at Q 2559. 227. Israeli Historical Chronology. 228. Id. 229. Secord Test., 5/8/87, at 311. 230. Id., at 121-22. 231. Cave Int., 9/29/87, at 64. 232. Cave likened the struggle between the Iranian Army and the Revolutionary Guards to replacement of the regular army by the Red Army during the Russian Revolution. Id. at 63, 64. 233. Ledeen Dep., 6/19/87, at 68-69. 234. Cave Int., 9/29/87, at 65-66. 235. North Notes, Q 2593. 236. Cave Int., 9/29/87, at 69-70. 237. Id. at 67. 238. The distribution of the leaflets was attributed to Mehdi Hashemi, a follower of Montazeri. An Associated Press report, carried on September 29, 1987 in the Washing- ton Times, stated that Hashemi had been executed after having been convicted of numerous crimes. 239. Transcript of Mainz meeting, C 255-72 at C 256. 240. Id. 241. Transcript of Mainz meeting, C 273-311 at 305. 242. Id. at 289. 243. Id. at 258. 244. Id. at 284. 245. North Test., 7/9/87, at 121. 246. Transcript of Mainz meeting, C 10451-71 at C 10458. 247. Id. 248. C 322, 323. 249. C 10455. The Iranians had been seeking Phoenix missiles through the Iran initiative since September 1985. Allen Dep., 4/21/87, at 67. 250. C 10439. 251. C 10456. 252. C 10462. 253. C 10468. 254. C 10437. 255. C 10465. 256. C 10466 257. C 10442. 258. C 10466. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 259. C 10454. 260. Allen Memorandum on Frankfurt meeting, 11/3/86, C 9519-23 at C 9522. 261. C 10462. 262. C 10463. 263. Cave Int., 9/29/87, at 163. 264. C 317. 265. C 317. 266. C 318. 267. C 320. 268. C 320. 269. N 2850. 270. C 292. 271. C 294. Cave agreed with this assessment when he stated that by the time of the February meeting in Frank- furt, the Iranian factions had agreed to act jointly in the overture to the Americans. Cave Int., 9/29/87, 169-70. 272. C 294. 273. N 9322-23. This memorandum bears Charles Allen's name but both Cave and Allen agree that Cave wrote it. Allen Int., 9/23/87, at 30-31; Cave Int., 9/29/87, at 166. 274. Cave explained that the Engine represented one group while the Second Iranian represented another. A third, Rafsanjani's group, was represented on the Commis- sion by the Majlis member and the Adviser. Cave Int., 9/ 29/87, at 169-70. 275. Id. at 67. 276. C 10445. 277. Id. 278. PROF Note from Earl to Poindexter, 10/29/86 22:23:43 N 18446. 279. Id 280. Id 281. PROF Note, 10/29/86; Tower at 172. 282. Secure telephone message from Secord to North, N 8084. 283. PROF Note, 11/4/86, 09:35:58, N 17560. 284. North Notes, Q 2609. 285. North Notes, Q 2596. 286. C 9480. 287. Cave notes on Geneva meeting, C 9526-29 at C 9527. 288. Id 289. Id. at C 9528. 290. Id North's notebooks for this period refer to a "6 step Kuwaiti plan." Q 2603. Cave did not know what the "6 step plan" comprised. Cave Int., 9/29/87, at 171-72. 291. C 9528. 292. The Engine claimed that the hostages were in the hands of the Jihad-i-Islami (or Islamic Jihad Organization or "IJO"), who were more responsive to Syria than to Iran. North Notebooks for November 8-10 period, Q 2605-06; C 9528. 293. North Notes, Q 2607. 294. North Notes, Q 2610. 295. North Notes, Q 2618. 296. Secure telephone message from North to Hakim, N 8090. 297. Cave said that Iranians do not apply the term "His Holiness" to the Imam. Cave Int., 9/29/87, at 83-84. 298. N 8090. 299. Shultz Test., 7/23/87, at 96-97. 300. Shultz Test., 7/23/87, at 105-07, 109. 301. Shultz Test., 7/23/87, at 109, 116-17. 302. North Notes, Q 2619. 303. North Notes, Q 2650; Israeli Historical Chronology. According to the Israeli Chronology, Nir was astonished by North's request and replied that Israel would not lie but would state only the truth, that Israel never transferred money to the Contras. 304. Memorandum from Allen to Casey on Terms of Reference for Cave/Dunbar discussions, 12/12/86, C 9532. 305. Shultz Test., 7/23/87, at 119. 306. Shultz Test., 7/23/87, at 122. 307. Memorandum of phone call from Dunbar in Frank- furt regarding "Iran Caper," S 3878-80 at S 3878. 308. Id. 309. Id 310. Id 311. Id. 312. Id 313. Shultz Test., 7/23/87, at 120. 314. Cave Int., 9/29/87, at 180. 315. S 3879-80. 316. Shultz Test., 7/23/87, at 11. 317. Poindexter Test., 7/21/87, at 144. 318. Cave Int., 9/29/87, at 182. 319. Shultz Test., 7/23/87, at 159. 320. Shultz Test., 7/23/87, at 11. 321. Shultz Test., 7/24/87, at 130-31; Ex. GPS-C. 267 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ...II ? , I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 The Diversion The term "diversion" entered the vocabulary of American history on November 25, 1986, when the media, covering Attorney General Edwin Meese's press conference, reported a "diversion of funds" for the Contras from the Iran arms sales. The diversion immediately became the focus of the public's atten- tion: Whose idea was it? Who approved it? When? Who knew of it? How much was diverted? The Committees were able to answer these ques- tions, but only partly, because of contradictions in the record, the destruction of evidence, and apparent for- getfulness by officials. Lt. Col. Oliver North, Vice Admiral John Poin- dexter, and Richard Secord all vigorously rejected the term diversion, because it implies that the arms sales proceeds were earmarked for the U.S. Govern- ment, and were misappropriated. To North, Poin- dexter, and Secord, providing assistance to the Con- tras was only one of a number of intended uses of those proceeds. North named several projects that he was planning to finance from the proceeds.' Indeed, Poindexter saw the generation of money for the Con- tras from the arms sales as no more exceptional than raising money from foreign countries, which the NSC staff had been doing with the President's approval for 18 months. Thus, for North, Poindexter, and Secord, the "diversion" was no diversion. But that was one of the few things upon which they agreed. Whose Idea? The generation of profits for covert uses from the sale of arms was not a novel idea when North first seized upon it. Sophisticated weapons bring premium prices in the international grey market for arms, and can thereby create slush funds for improper covert activi- ties that could not be financed through appropriated money. General John Singlaub had presented such a pro- posal in a memorandum to North and Director of Central Intelligence William J. Casey during 1985. The memorandum, prepared by Singlaub's associate, Barbara Studley, defined the "problem": With each passing year, Congress has become increasingly unpredictable and uncooperative re- garding the President's desire to support the cause of the Freedom Fighters despite growing Soviet oppression. The funds have not been forthcoming to supply sufficient arms necessary for the Freedom Fighters to win.2 The "objective" was "to create a conduit for main- taining a continuous flow of Soviet weapons and tech- nology, to be used by the United States in support of Freedom Fighters in Nicaragua, Angola, Cambodia, Ethiopia, etc." 3 The memorandum proposed a three-way trade in which the United States would provide high technol- ogy equipment to another country, that country would deliver from its stockpiles military equipment of equal value to a third country, and the third coun- try would export Soviet-compatible arms to a trading company at the direction of the United States. "The United States," the memorandum observed, would then be able to dispense the arms to "Freedom Fight- ers worldwide, mandating neither the consent or awareness of the Department of State or Congress." The memorandum diagrammed the plan (see Figure 15-1).4 North acknowledged receiving this memorandum, but dismissed its significance.5 * The Singlaub-Studley plan was not implemented, but the idea of using so- phisticated U. S. weapons to finance arms for anti- Communist insurgents was known to those working to support the Contras before any proceeds from U.S. sales of arms to Iran were first received. While Studley was developing her proposal, the Israelis were acting on a different plan. According to the Israelis, North proposed in early October 1985 using the excess funds from the TOW missile sales to support pragmatists in Iran.6 North testified, howev- er, only that he had reason to suspect that the Israelis were using excess funds for covert purposes.7 By the end of November 1985, the Enterprise re- ceived a portion of the arms sales proceeds. At North's request, the Israeli intermediaries paid the Lake Resources account $1 million from the proceeds of its August-September TOW shipments. According When Secretary Shultz was shown the Singlaub-Studley plan at the hearings, he responded that, "[t]his is not in line with what was agreed to in Philadelphia. This is a piece of junk and ought to be treated that way." Shultz Test., Hearings, 100-9, 7/23/87, at 192. 269 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H I 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 Figure 15-1. Exhibit JKS-6: 3 Way Trade to North and Secord, the money was to cover the Enterprise's expenses in arranging five shipments of HAWKs to Iran. But when the deliveries were halted after one shipment, the Enterprise held $800,000 in unexpended funds. North received the Israelis' per- mission to use the $800,000 for "whatever purpose we wanted," and he directed Secord to spend the money for the Contras.8 Thus, by early December, the notion that the Iran sales could be used as a vehicle for financing the Contras was firmly planted in North's mind. On De- cember 6, 1985, North remarked to Israeli Ministry of Defense officials that he needed money and that he intended to divert profits from future Iranian transac- tions to Nicaragua.8 * On December 9, North recom- mended to Poindexter that the United States take *One of the Israeli officials took contemporaneous notes of the meeting, recording North's comment. The two other Israeli offi- cials at the meeting (which dealt mainly with other matters) did not recall the comment by North. Israeli Historical Chronology. 270 control of the arms sales from Israel, and use "Secord as our conduit to control [Iranian intermediary] Ghor- banifar and the delivery operation." 10 This mecha- nism was adopted in the President's January 17, 1986, Finding, thereby avoiding the Arms Export Control Act requirement of Congressional notification for Israel to continue sales to Iran of the U.S. weapons. The mechanism allowed the CIA to sell arms to Iran directly or through a "third party," although it did not authorize or even mention the generation of profits. Nevertheless, by permitting the CIA to sell through a third party, the Finding created an opportunity for profits to be generated and placed in the hands of the third party?an opportunity that would not have ex- isted if the CIA sold the arms directly. So far as the record shows, this possibility was never suggested to the CIA attorneys who drafted the Finding, nor did Poindexter discuss it with the President in connection with the President's execution of the January 17 Find- ing. Approved For Release 29,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 In January 1986, the idea that excess money could be generated by arms sales to Iran surfaced in another way. The Israelis had been promised replenishment of the TOWs they shipped in August-September 1985, but the United States had delayed action on Israel's request. When National Security Adviser Robert McFarlane resigned, North found no agreement on the price Israel was to pay for the replacements. Some Israelis thought that McFarlane had agreed to replenish the TOWs for nothing. NSC consultant Mi- chael Ledeen had quoted a low price," even though certain U.S. Government officials wanted the full price for the more expensive, improved TOWs that Israel wanted. The price for those improved TOWs exceeded the proceeds remaining from Israel's sale of older model TOWs to Iran. According to North, Amiram Nir, the adviser to Israeli Prime Minister Shimon Peres, proposed in January 1986 that Israel use some of the profits from selling additional TOWs to pay for replenishment of the original 504 TOWs. '2 * When the United States decided in January to sell the additional TOWs through the Enterprise (not through Israel), North and Poindexter agreed that part of the profits would be set aside to pay for the replacement of Israel's previously shipped TOWs." Thus, the plan to divide up the proceeds of the U.S. arms sales to Iran was in place when the January 17 Finding was signed. North testified, however, that the proposal to sup- port the Contras from arms sales proceeds was first suggested by Ghorbanifar in late January 1986. He did not recall discussing the idea in December 1985 with Israeli Ministry of Defense officials, although he said the "subject may well have come up before [late January], but I don't recall it." 14 According to North, during a meeting abroad with Nir and Ghor- banifar relating to the February 1986 TOW shipment to Iran, "Ghorbanifar took me into the bathroom and . . . suggested several incentives to make that Febru- ary transaction work, and the attractive incentive for me was . . . that residuals could flow to support the Nicaraguan resistance." 15 The tape of the meeting shows that the idea of assisting the Contras was, in fact, discussed, not alone with North in the bathroom, but with the whole group present. This fact does not negate earlier con- sideration by North. Indeed, Ghorbanifar does not seem to have been referring to using the sales pro- ceeds, but rather to Iran's assisting U.S. interests in Central America in return for receiving U.S. military assistance: GHORBANIFAR: (Laughingly) *According to the Israeli Financial Chronology, it was North, not Nir, who made this proposal. And we do everything. We do with the hostages for free of charge; we do all terrorists free of charge; Central America for you free of charge; American business free of charge; [First Iranian Official] visit; . . . Everything we do. NORTH: I would like to see that, that at some point this idea . . . and maybe, y'know, if there is some future opportunity for Central America. You know that there is a lot of Libyan, a lot of Libyan and Iranian activity with the Nicara- guans. Regardless of its origin, North believed that using the funds from the arms sales for the Contras was a "neat idea," and he advocated it to Poindexter." He testified that he sought Poindexter's approval upon returning from the meeting with Ghorbanifar and Nir, and that Poindexter pondered the decision for at least several weeks." Poindexter testified, however, that he approved the diversion idea after thinking about it for only a few minutes.' 8 Who Else Knew ?a Study in Contradictions Presidential Knowledge Although both Poindexter and North testified that they never told the President about the diversion, the substance of their testimony diverges from there. Poindexter testified that he made "a very deliberate decision not to ask the President" about the diversion in order to "insulate [the President] from the decision and provide some future deniability for the President if it ever leaked out." Although Poindexter asserted that the President would have approved of the diver- sion as an "implementation" of his policies, he never- theless chose to protect the President from knowledge of the diversion because it was a "politically volatile issue." 19 Poindexter testified as to the success of his efforts to provide the President with "future deniabi- lity" of the diversion. When Poindexter was ques- tioned about the White House statement (issued the day after his initial hearing testimony) that the Presi- dent would not have authorized the diversion, Poin- dexter responded: "I understand that he [the Presi- dent] said that, and I would have expected him to say that. That is the whole idea of deniability." 20 Poindexter testified that he considered the diversion so controversial that he understood he would have to resign if it ever were exposed.2' Nevertheless, he also testified that, in approving the diversion, he did not consult Casey, a political expert who had managed the 1980 Reagan campaign, and that, only 2 months after taking office as National Security Adviser, he made this decision on his own. Poindexter had been 271 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 commended in the Navy for keeping his superiors informed." He testified that he had never before withheld information from any of his commanders in order to give them deniability." Moreover, McFar- lane, for whom Poindexter had worked for 2 years, assumed that Poindexter would have informed the President." Preempting a decision by the President to provide political deniability?which Poindexter tes- tified that he did?was totally uncharacteristic for a naval officer schooled in the chain of command. Poindexter testified at his deposition that "I told Colonel North repeatedly not to put anything in writ- ing on the transfer of funds to the Contras and not to talk to anybody about it." 25 * Poindexter could not recall any memorandum that referred to the diversion, stating that he was surprised on November 24, 1986, to learn that a written document showing the diver- sion had been found." He claimed that he never saw the early April diversion memorandum before then, although North's secretary Fawn Hall recalled that Poindexter had returned a draft of that memorandum with changes.27 ** Even when confronted with a PROF message, dated April 7, 1986, from North to McFarlane, which referred to the memorandum and stated that Poindexter had asked North to "lay out arrangements for our boss," Poindexter maintained that he never asked North to prepare the docu- ment." *** Consistent with this testimony, Poin- dexter did not recall North ever telling him in No- vember 1986 or any other time that all memorandums referring to the use of the arms sales proceeds to support the Contras had been destroyed." In essence, Poindexter's story on Presidential knowledge of the diversion was that he had con- structed a situation whereby only he and the Presi- dent would know whether the President had been advised of the diversion.30 In this regard, Poindexter testified that he never told North that the President was not privy to the diversion decision.3' In contrast, North testified that he always "assumed that the President was aware of [the diversion] and had, through my superiors, approved it." 32 North estimated that he prepared as many as five or six memorandums in final form referring to the use of the arms sales proceeds for the Contras. These memoran- dums went "up the line" to Poindexter and covered each actual or proposed arms transaction for which *In his public testimony?after North's public appearance?Poin- dexter attempted to retreat from this definitive statement in his deposition. He testified publicly that he did not recall telling North not to put anything in writing on the diversion. Poindexter Test., Hearings, 100-8, 7/15/87, at 44. ?*In his post-North public testimony, Poindexter softened this testimony somewhat by stating that "Lilt appears that it is possible that I saw one [diversion] memo. . . ." Poindexter Test., Hearings, 100-8, 7/17/87, at 135; 7/20/87 at 282. ?**He speculated, however, that North might have prepared such a memo in response to a request for an outline of the upcom- ing trip to Tehran in May. Poindexter Test., Hearings, 100-8, 7/15/ 87, at 44. 272 payment would be received.33 The use of proceeds was described in only one paragraph in each memo- randum. North's memorandums concluded with the recommendation that Poindexter brief the President to secure approval for the transfer and provided lines on which someone could indicate whether the trans- fer had been "approved" or "disapproved." 34 North further testified that he did not recall any instruction from Poindexter or anybody else not to write and send such memorandums, adding that "had I been given [such an instruction], I would have followed it." 35 Instead, North created records such as the sur- viving copies of the April diversion memorandum that called for Presidential briefings and approval.* North was unequivocal that the April 7 PROF mes- sage referred to the diversion memorandum prepared by him in early April 1986 and uncovered by the Justice Department in November." North also testi- fied that Poindexter had communicated approval either orally or in writing on at least three of the diversion memorandums, and that he believed that he "had received authority from the President." 37 Finally in this regard, he testified that early on No- vember 21, 1986, he assured Poindexter that all docu- ments referring to the use of proceeds for the Contras had been destroyed.38 North assumed without asking Poindexter explicitly that the President knew and approved of the diver- sion. North had worked under three National Securi- ty Advisers. Based on that experience, he concluded that a decision of this magnitude would be taken only with Presidential approval"?a view that McFarlane shared.4? North told Secord that he had conversations with the President about the irony that the Ayatollah's money was being used to support the Contras. Secord testified that North did not convey these conversa- tions "in a way that I took it as a joke." 41 North testified that he had no such conversation with the President, but told Secord otherwise in an effort to lift Secord's spirits.42 There is no evidence that North did tell the President about the diversion; according to White House records, he never met alone with the President. * In his first deposition before the Committees, James R. Rad- zimski, the NSC's System IV Control Officer in 1985 and through October 1986, recalled two such North memorandums to Poin- dexter discussing the diversion?one in late 1985, the other in mid- April 1986. Radzimski recalled also that the April memorandum attached a proposed memorandum from Poindexter to the Presi- dent. Radzimski Dep., 4/29/87, at 54-57, 68-74. The Committees directed an exhaustive search of White House files and computer entries, in which the FBI participated, but no evidence was found to corroborate Radzimski's testimony. Further, Radzimski's own document log did not support his recollection. Radzimski Dep., 8/ 11/87, Ex. 3. Accordingly, the Committees recalled Radzimski for further deposition, where he testified that there was a "distinct possibility" his recollection "is not completely accurate." Radzimski Dep., 8/11/87, at 33. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 North said that he continued until November 21, 1986, to assume that the President had approved the diversion. He testified that, on or about that day, he asked Poindexter directly, "does the President know?" He told me [the President] did not." 43 North testified that the President confirmed this lack of knowledge on November 25 when the President told him by telephone that, "I just didn't know." 44 Robert Earl, North's aide, testified that North had told him that the President had said "it is important that I not know." 45 Lt. Cmdr. Coy, the third office- mate, who was also present, did not recall any con- versation about the President's knowledge.46 Fawn Hall testified that North told her that the President had "called him an American hero" and said that "he [the President] just didn't know." 47 Except for the April memorandum, the memoran- dums that North claimed he sent Poindexter are gone. North testified that he destroyed them. Three drafts of the April memorandum were found in various loca- tions in North's files. They are identical except for the precise date of the Israeli September 1985 TOW ship- ment on the first page." Memorandums for the February, May, and October 1986 shipments, describing the use of the proceeds, do not exist. If they were prepared, they were destroyed. Casey's Knowledge Discrepancies about Casey's knowledge of the di- version also abound. Poindexter testified that he "pur- posely" did not discuss the subject with Casey." Poindexter's reasoning was that Casey frequently had to testify before Congress and he did not want to place Casey in a position of having to lie." Poin- dexter further testified that he had no indication that Casey was aware of the diversion aspect of the arms sales operation.6' North, on the other hand, testified that he "had consulted very carefully with Director Casey [about the diversion], and he . . . was very enthusiastic about the whole program." 52 He stated that he had told Casey of the plan to use the proceeds for the Contras before the fact, and that he had reviewed with Casey (probably in February 1986) at least one memo referring to the diversion before sending it "up the line" for Presidential approval." While still at the NSC, North made inconsistent statements about Casey's knowledge. He told Earl in the spring of 1986 that Casey knew." But on No- vember 23, when questioned by the Attorney Gener- al, North omitted Casey from the list of persons privy to the diversion. According to North, this omission occurred after Casey had suggested a "fall guy plan" in which North and, if necessary, Poindexter would take the blame." Another CIA official, Charles Allen, became aware as early as January or February 1986 of the possibility of a diversion. Allen effectively acted as Ghorbani- far's CIA case officer from their first meeting in Janu- ary 1986. Allen's notes record that, early in their relationship, Ghorbanifar told him that money could be generated from the arms sales to support the Con- tras and other activities. Allen found Ghorbanifar's statements so "far-fetched" and "trivial" that, al- though he recorded them in his notes, he did not report them to his superiors." * By the end of August, Allen had focused on the inflated pricing of the arms sold to Iran and the possi- bility that money might have been diverted to the Contras." Allen shared his concerns that same month with Richard Kerr, the CIA's Deputy Director of Intelligence, who had succeeded Robert Gates. Ac- cording to Kerr, Allen told him that the United States had overcharged Iran in the sale of HAWK parts and that the excess money had possibly been diverted to assist the Contras." Kerr said that, as best he could recall, Allen did not explain why he believed that funds might have been diverted to the Contras. Kerr told Allen to monitor the situation and keep him apprised of further developments. Kerr recalls that he recounted Allen's diversion speculation to Gates, who told Kerr that he also wanted to be kept informed about the matter. Kerr took no further steps." ** Allen remained "very troubled in September that the operation was to spin out of control." 60 On Sep- tember 9, he met with North following a meeting between North and Poindexter on the Iran initiative. North told Allen that the First Channel into Iran was to be shut down, and that the Second Channel had "flourish[ed] into full bloom." Allen was surprised by this information." He re- turned to the CIA "very nonplussed because I couldn't figure out why we would so abruptly shut down the first channel unless we had a very good plan for shutting it down in a way that Ghorbanifar and other creditors of Ghorbanifar would feel as- suaged . . . ." 62 Nevertheless, the next day Allen reported this conversation to Casey matter-of-factly and without comment, including a flat, unexplained observation that "[t]o cut Ghorbanifar out, 011ie will have to raise a minimum of $4 million." 63 On October 1, Allen took his worries to Gates. He told Gates that the Ghorbanifar channel was a "run- ning sore," and that he was concerned that the Iran initiative was "going to be exposed if something isn't done." 64 He also told Gates that "perhaps the money has been diverted to the contras." 65 According to *Later in the year, George Cave of the CIA grew suspicious when he learned that the Iranians were paying significantly more for the U.S. arms than the CIA was receiving, and heard specula- tion of a diversion to the Contras. Cave stated in his deposition that he did not report these concerns. Cave Dep., 4/17/87, at 158-59. **Gates told the CIA Inspector General that he could not recall the meeting in which Kerr apprised him of Allen's suspicions. Kerr Int., 9/23/87, at 6-7. 273 77-026 0 - 87 - 10 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 Allen, Gates was "deeply disturbed by that and asked me to brief the Director." 66 When Allen briefed Casey a week later, he found that Roy Furmark?a business associate of Saudi entrepreneur Adnan Kha- shoggi's and former client of Casey's?had been there before him. As discussed more fully in Chapter 18, Furmark and Casey met on October 7.67 Although Furmark knew of Ghorbanifar's speculation about the diver- sion, it is not clear that he shared this speculation with Casey. Furmark's testimony before the Senate Select Committee on Intelligence is somewhat incon- sistent on this point." North testified that Furmark had told Casey in early October about the speculation surrounding the diversion to the Contras." In any event, according to North, the meeting with Furmark triggered Casey to instruct North "that this whole thing was coming unravelled and that things ought to be 'cleaned up' . . ." In response, North testified that he "started cleaning things up"; he "started shredding documents in earnest after [this] discussion with Director Casey in early October "70 When Allen and Gates met with Casey on October 7, Casey did not mention that funds might have been diverted to the Contras.7' According to Gates, how- ever, "Allen shared his speculation with the Director about the possibility that some of the money was being diverted to the Contras. The Director told him to put all of that down on paper." 72 Allen's October 14 memorandum did not expressly allege that the profit from the arms deals might have gone to the Contras. Instead, the memorandum re- corded Ghorbanifar as stating that, "some of . . . [the] profit was redistributed to other projects of the US and of Israel." 73 At Casey's direction, Allen and Furmark met on October 16. However, it was not until a subsequent meeting on October 22 also at the CIA, among Allen, George Cave (also of the CIA), and Furmark that Furmark raised, for the first time with Allen, the possibility that funds might have been diverted to the Contras.74 Allen and Cave reported the substance of this latter meeting to Casey, who appeared "deeply disturbed" by what he was told.76 Allen and Cave then jointly prepared a memoran- dum for Casey to send to Poindexter. This memoran- dum referred to Ghorbanifar's accusation, which Fur- mark had repeated, that some of the "bulk of the original $15 million price tag was earmarked for Cen- tral America." 76 The memorandum "laid out starkly . . . that Ghorbanifar had made allegations of diver- sion of funds to the Contras." 77 Although Casey spoke to Poindexter by secure tele- phone about the October 22 meeting, the Allen-Cave 274 memorandum never reached Poindexter. According to Allen, the memorandum "fell into the wrong outbox," and was not discovered until November 25.72 Allen and Furmark met once more, on November 6. By this time, the publicity of the Iran initiative had occurred. The following day, Allen prepared a memorandum for Casey which reported, among other things, that Furmark had again alerted Allen to the link between the overcharges on the HAWK spare parts and the diversion." On this point, Allen con- cluded reassuringly that "much of what they know is speculation and cannot be proven." 80 At Furmark's request, Casey met with him again on November 24 at CIA headquarters. Furmark and Casey reviewed the finances of the Iran arms transac- tions, and established that the transactions had result- ed in excess money. Casey told Furmark that he did not know where the excess had gone." Before Casey suffered a stroke on December 15, 1986, he maintained that he had not known of the diversion prior to the Attorney General's press con- ference." He died on May 6, 1987. How Much Was Diverted? Even the amount of arms sales profits that were used, and that were intended to be used, for the Contras is the subject of contradictory testimony. The Commit- tees have concluded that at least $3.8 million of the $16.1 million in arms sales profits were used for Contra assistance." Poindexter testified that he be- lieved the entire surplus was used for that purpose." In contrast, North testified that the surpluses were to be used for a number of other covert projects, and that Secord and his partner, Albert Hakim were enti- tled to a fair profit." Secord and Hakim testified that no agreement exist- ed on how much of the money would be used for the Contras: it was within their discretion whether to accept or reject any request for expenditure by North. North and Poindexter were both surprised that the Enterprise still has more than $8 million. Poindexter was repeatedly told by North that Secord was losing money, and he assumed that all of the Enterprise's funds had been spent." Whatever the amount or expectations, the diversion did occur. Money generated by arms sales authorized by a Presidential Finding for only one covert pur- pose?the Iranian initiative?was used for a wholly different covert purpose?Contra support. Arms-for- hostages also became arms-for-Contras, a purpose that was not authorized by any Finding and that was pro- scribed by the Boland Amendment for appropriated funds. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 15 Chapter 15 1. North Test., Hearings, 100-7, Part I, 7/10/87, at 314-15. 2. Ex. JKS-6. 3. Id. 4. Id. 5. North Test., Hearings, 100-7, Part II, 7/13/87, at 73-74. 6. Israeli Historical Chronology. 7. North Test., Hearings, 100-7, Part I, 7/10/87, at 295-96. 8. Secord Test., Hearings, 100-1, 5/6/87, at 95-96. North Test., Hearings, 100-7, Part I, 7/7/87, at 55-56. According to the Israeli Chronologies, North and Secord told the Israelis only that the money was needed for shipping ex- penses. 9. Israeli Historical Chronology. 10. N 28749. 11. Koch Test., Hearings, 100-6, 6/23/87, at 70-71. 12. North Test., Hearings, 100-7, Part I, 7/8/87, at 106. 13. Id. at 113-14. 14. Id. at 295-96. 15. Id. at 106-07. 16. Id. at 107-08. 17. Id. at 298. 18. Poindexter Test., Hearings, 100-8, 7/15/87, at 36; Poindexter Dep., 5/2/87, at 71. 19. Poindexter Test., Hearings, 100-8, 7/15/87, at 37. 20. Id. at 169. 21. Id. 22. Ex. JMP-100. 23. Poindexter Dep., 6/18/87, at 448. 24. McFarlane Test., Hearings, 100-2, 5/11/87, at 68-69. 25. Poindexter Dep., 5/2/87, at 182 (emphasis added). 26. Poindexter Test., Hearings, 100-8, 7/15/87, at 44, 47; Poindexter Dep., 5/2/87, at 116, 178. 27. Hall Test., Hearings, 100-5, 6/8/87, at 477. 28. Poindexter Test., Hearings, 100-8, 7/15/87, at 44; Poindexter Dep., 5/2/87, at 188. 29. Poindexter Test., Hearings, 100-8, 7/16/87, at 116. 30. Poindexter Dep., 5/2/87, at 72. 31. Poindexter Test., Hearings, 100-8, 7/15/87, at 41. 32. North Test., Hearings, 100-7, Part I, 7/7/87, at 10. 33. Id. at 11-12. 34. Id. at 14-15. 35. Id. at 12. 36. Id. at 14. 37. Id. at 12. 38. Id. at 19. 39. Id. at 10. 40. McFarlane Test., Hearings, 100-2, 5/11/87, at 68-69. 41. Secord Test., Hearings, 100-1, 5/6/87, at 136-137. 42. North Test., Hearings, 100-7, Part I, 7/7/87, at 26-27. 43. Id. at 10. 44. Id. at 93. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 41. 56. 57. 58. 59. 60. 61. 62. 63. 64. Earl Dep., 5/22/87, at 145-47. Coy Dep., 3/26/87, at 79-80. Hall Test., Hearings, 100-5, 6/8/87, at 506-507. Exs. OLN-283A, OLN-283B, OLN-283C. Poindexter Dep., 5/2/87, at 173, 187. Poindexter Test., Hearings, 100-8, 7/15/87, at 43. Id. at 345-46. North Test., Hearings, 100-7, Part I, 7/9/87, at 240-41. Id. at 134, 249-50. Earl Dep., 5/2/87, at 37. North Test., Hearings, 100-7, Part II, 7/13/87, at 40- C 184-85. Allen Dep., 4/24/87, at 259. Kerr Int., 9/23/87, at 6. Id. Tower, at B-168. Allen Dep., 4/24/87, at 452. Id. at 453. C 9517. Tower, at B-168. 65. Id. 66. Id. 67. Furmark Dep., 7/22/87, 68. Furmark, SSCI Test., at 69. North Test., Hearings, 70. Id. 71. Tower, at B-168. 72. Gates, Tower Test., at 19. 73. N 10. 74. Furmark Dep., 7/22/87, at 141. 75. Allen, Tower Test., at 33. 76. 1196. 77. Tower, at B-169. 78. Id. at B-169-70. 79. C 9371. 80. I 9372. 81. Furmark Dep., 7/22/87, at 167-69. 82. Ex. EM-53. 83. See Chapter 22. 84. Poindexter Test., Hearings, 100-8, 85. North Test., Hearings, 100-7, Part see Chapter 22. 86. Poindexter Test., Hearings, 100-8, at 122. 70, 73. 100-7, Part I, 7/7/87, at 19. 7/16/87, at 105. I, 7/8/87, at 4-5; 7/20/87, at 260. 275 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 16 Summary: The Iran Initiative It was not a mistake for the President to seek an opening to Iran. Nor was it an error for the President to seek the release of kidnapped American citizens. What was wrong with the Iran initiative was the way in which the Administration tried to achieve these objectives. The Administration had pledged that the United States would not bargain with terrorists. This Nation would not make concessions in exchange for Ameri- can hostages, because such concessions could only encourage more kidnapping. Painful as the conse- quences might be, the Administration had recognized that the United States could not undermine its foreign policy to win the freedom of its captive citizens?for otherwise, the entire Nation would be held hostage. Similarly, the Administration had recognized that it was not in the Nation's interest to prolong the Persian Gulf War and strengthen the hand of the Ayatollah against Iraq. The Administration had therefore pledged that the United States would not arm either side, but would maintain a policy of strict neutrality, and would urge U.S. allies and friends to do the same. The Iran initiative broke both of these pledges and violated both of these policies. It is true, of course, that policies are subject to change. Foreign policy is not immutable. But when policies are thought ripe for change, established proc- esses exist in the U.S. Government for making in- formed judgments. These processes are not mere for- malities. They are intended to draw on the knowledge and expertise of accountable officials, and to produce reasoned determinations. In the Iran initiative, those processes were deliberately bypassed, and deception replaced consultation. The President undertook the arms initiative in 1985 against the advice of his own Secretaries of State and Defense, without obtaining the views of intelligence community professionals, and without adequate analy- sis. Secretary of State Shultz warned that the pro- posed initiative amounted to trading arms for hos- tages. Secretary of Defense Weinberger warned in 1985 that it violated the law. Both Cabinet officers rejected the notion that the United States could use the leverage of arms sales to open a new relationship with Iran. A draft National Security Decision Direc- tive proposing the new arms policy was dropped. And the Central Intelligence Agency warned that the proposed interlocutor of the new relationship, Man- ucher Ghorbanifar, was a talented fabricator. There was, in short, no adequate basis for reversing U.S. policy against arms sales to Iran or concessions to terrorists. Yet the plan proceeded. The manner in which the President made his deci- sion epitomized the larger problem. His decision was at once too casual and too influenced by emotional concern for the hostages. It constituted a major shift in U.S. policy, yet it was not recorded in any writing. Public knowledge of the original decision comes almost entirely from Robert McFarlane, whose recol- lection has fluctuated. Reasoned analysis was sacri- ficed for the sake of secrecy and deniability. The President's decision was therefore never fully exposed to the members of the National Security Council itself. Secretary Shultz, for example, argued against the proposed policy in December 1985 and January 1986 at three White House meetings, unaware that the President had signed Findings authorizing the arms sales prior to each of those meetings. Secretary Wein- berger believed during 1986 that the United States would ship no more than 500 TOWs unless and until all the hostages were released, unaware that the United States had in fact shipped 1,500 TOWs plus HAWK spare parts to obtain the release of just two hostages. The results in these circumstances were predictable. Indeed, given the manner in which the Iran initiative was conceived and conducted, there is no mystery in why it failed, only in why it continued, particularly when promise after promise was broken by the Irani- an side: ? At least four hostages were to be released in September 1985 after Israel shipped the 504 TOWs. But only one was. ? All of the hostages were to be released in November after Israel shipped the HAWK mis- siles. But none was. ? The Speaker of the Iranian Parliament, Hof- shan Rafsanjani, was to meet McFarlane during his Tehran trip. But Rafsanjani never appeared. 277 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 16 ? All of the hostages were to be released when the United States completed the delivery of the HAWK parts in 1986. But only one was. ? The Iranians were to release one hostage and to exert best efforts to release another after the United States shipped 500 more TOWs in Octo- ber 1986. But only one was released, while the Iranians demanded additional weapons before they made any effort to release a second. As Secretary Shultz testified, lo]ur guys, . . . they got taken to the cleaners." 1 Indeed, by the end of the initiative, the Administration had yielded to virtually every demand the Iranians had ever put on the table. Concessions that the Administration was unwilling even to consider in 1985, it made in 1986. No price seemed too high to North and Poindexter, not even promises to help overthrow the Government of Iraq or to pressure Kuwait into releasing the murderous Da'wa terrorists. And in the meantime, three more Americans were kidnapped in Lebanon. The record affords some explanation of why the Administration persisted?and capitulated?when the Iranians repeatedly reneged: the decisionmakers were moved by different objectives in hopeless conflict with one another. The goals of freedom for the American hostages and better relations with Iran re- quired that the United States create trust in Tehran. But generating surpluses for the Contras and other secret operations required that the United States over- charge the Iranians. Stinging the Ayatollah may have provided some ironic laughter in the Old Executive Office Building, as North testified, but it was no basis for building an improved relationship with Iran or for gaining release of the hostages. North boasted that, "I lied every time I met the Iranians." 2 But the Iranians North was so willing to deceive were the same people the Administration was depending on to foster a new relationship with Tehran. With these thoughts in mind, the Committees now examine the record in greater detail for the reasons that the President and his advisers continued the Iran initiative long after the handwriting was on the wall. The Attorney General's Advice Attorney General Edwin Meese advised the President that he did not have to notify Congress before selling arms to Iran.3 The Attorney General based this advice on an opinion of his predecessor, William French Smith, who concluded that the President could export arms pursuant to a Finding, without complying with the Arms Export Control Act.4 But Attorney General Smith's opinion explicitly stated that the President should notify the Intelligence Com- mittees before the arms were actually exported.5 Meese took this advice one step further and approved the sales without advance notification. 278 In taking this aggressive position, the Attorney General, out of concern for secrecy, did not consult with the Office of Legal Counsel in the Justice De- partment or with any of his aides. He did no research on legislative history, and his advice was not reduced to writing.6 The Attorney General appears to have done little more than to express his "concurrence with the CIA view." 7 The sale of arms pursuant to a Presidential Finding without prior notification to the Intelligence Commit- tees or Congress itself was, so far as the Committees can determine, unprecedented. The President was en- titled to more careful legal advice from the Attorney General before the President approved the sales. The Committees believe that sound analysis and judgment would have led Attorney General Meese, like his predecessor, to advise the President that the Intelli- gence Committees had to be notified.8 Had the Presi- dent been required to take this step, he may well not have proceeded with the sales, and the President and the country would have been spared serious embar- rassment. The Attorney General served as a member of the NSC by appointment of the President. There is only one reason to have an Attorney General on the NSC: to give the President independent and sound advice. That did not happen in the Iran Affair, and the Presi- dent was poorly served. The Hostage Objective In his address to the Nation on August 12, 1987, the President stated: [O]ur original initiative got all tangled up in the sale of arms, and the sale of arms got tangled up with the hostages . . . . I let my preoccupation with the hostages intrude into areas where it didn't belong. The record supports this candid self-criticism. Freeing the hostages was a primary objective for the President in the Iran initiative. It was foremost in his mind. Yet the President failed to see that, by pursuing this objective through the sale of arms, the Administration was violating its own basic principles, and putting all the cards in the terrorists' hands. The Administration, in effect, was creating an incentive for the Iranians to continue escalating their demands, and worse, to continue kidnapping Americans. The President seems to have been vulnerable to the pleas of the hostage families. His aides sought to keep those families from meeting with him. But this quar- antine ended in June 1985, when the President held the first of several meetings with the hostage families. Although the President was also undoubtedly inter- ested in promoting moderation of Iranian policies and opening a new relationship with that regime, his pri- mary focus throughout the venture was on the hos- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 16 tages. Indeed, North told the Attorney General in November 1986 that, with the President, "it always came back to the hostages." 9 And to be sure, from the very outset in the summer of 1985, the NSC staff stressed that the initiative could lead to the release of the hostages. Perhaps the best expression of the President's con- cern was his statement at the December 7, 1985, meeting with members of the NSC. There, as recalled by Secretary Shultz, the President brushed aside argu- ments that the arms sales might violate the Arms Export Control Act with the statement that "the American people will never forgive me if I fail to get these hostages out over this legal question." 10 The Iranians preyed on the President's vulnerability with threats to kill the hostages if the arms sales stopped. North's reports of these threats?which he may well have exaggerated?came at crucial mo- ments. For example, after McFarlane's trip to London in December 1985, McFarlane thought the initiative was dead. He discounted Ghorbanifar's warning that the Iranians might kill the hostages if the Americans refused to sell additional arms unless the hostages were first released. McFarlane's response was to rec- ommend against further dealings with Ghorbanifar. North, however, reported the threat to Washington and recommended more arms sales. The President directed that the initiative proceed. Eight months later, in August 1986, after the Irani- ans had reneged on additional promises, North warned again that the hostages might be killed if the United States did not deliver the remaining HAWK parts. With the suggestion that the blood of the hos- tages would be on his hands, the President ordered delivery of the remaining HAWK parts. Tragically, and ironically, the lives of the captive Americans had now become hostage to an initiative that was intended to free them. The United States was now providing arms not only to obtain the freedom of the hostages, but also to keep harm from befalling them. The President's concern for the hostages was trans- lated by North into political terms. For example, ac- cording to Noel Koch of the Defense Department, North told him in the fall of 1985 that the President was "driving [North] nuts" to get the hostages "out by Christmas." " Although North testified that he did not recall such a conversation with Koch or the President, he said that "it was clear that the President wanted as many hostages home, all of them home, as fast as possible." 12 Also, North wrote in his note- book that the hostages should be released in time for the President's 1986 State of the Union message.' 2a Then, North wrote of achieving a release in time for the President's July 4 appearance at the Statue of Liberty Centennial.' 2b And Hakim testified that, before he negotiated the infamous nine points, North told him that the President wanted the hostages home by election day." North admitted that he may have made this statement to Hakim, but said that the Presi- dent had never made any such statement to North." The Committees do not fault the President for his concern about the hostages. It is a testament to the values of this Nation that the leader of the greatest power on Earth would devote so much energy and thought to the fate of six citizens. But when funda- mental foreign policy decisions are sacrificed in the hope of freeing six hostages, then the Nation itself becomes the victim. Every American who travels abroad becomes a potential hostage, and U.S. policy can be dictated by hostage-takers. As the President himself now recognizes, emotion must never be allowed to substitute for judgment in the conduct of U.S. foreign policy. The stakes are simply too great. The Position of Israel Israel's sponsorship of the Iran initiative, and of Ghorbanifar as an intermediary, carried great weight with the President and his advisers. Israel has taken a strong stand against international terrorism; and Israe- li intelligence services are among the most respected in the world. McFarlane turned to Israel in the spring of 1985 for intelligence on Iran because of dissatisfac- tion with CIA capabilities. The Israelis strongly advocated the initiative, view- ing it as a joint U.S.-Israel operation, and were will- ing to give the United States deniability?so long as it did not subject them to criticism by Congress and the Secretary of State was fully informed. McFarlane and Poindexter discussed with the Israelis at various times in 1985 the Administration's view that, since Israel? and not the United States?was selling to Iran, U.S. policy was not being violated. Moreover, the Israelis made a particularly attrac- tive proposal in January 1986 when Nir told Poin- dexter that if the hostages were not released after the delivery of another 500 TOWs, Israel would bear that loss and the United States would not have to replen- ish the Israeli inventory. Even after this "no lose" proposition was rejected in favor of the United States selling to Iran through Secord, Amiram Nir continued to urge the initiative. Yet, the President was under no illusion that the interests of the United States and Israel were synony- mous. As early as June 1985, Secretary Shultz had pointed out to McFarlane that Israel had little to lose by promoting the initiative: it had no policy against arms sales to Iran, and, given the hostility of most of its neighbors, Israel was more willing to gamble on the prospect of changes in the Iranian Government. No foreign state can dictate the conduct of U.S. foreign policy. Superpowers make their own deci- sions. And the United States did so in this instance. Nevertheless, Israel's endorsement of the Iran initia- 279 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 16 tive cannot be ignored as a factor in its origin or in its continuation. The Contra Objective If Israel had its own interests in promoting the initia- tive, and if the President was preoccupied with the hostages in pursuing the initiative, North was ob- sessed with the Contras. From North's first substan- tive involvement with the arms sales in the fall of 1985, the initiative produced money for the Contras. Thus, the Israelis paid the Enterprise $1 million for the cost of delivering 120 HAWKs in November 1985. When only 18 were delivered at a cost of ap- proximately $200,000, the Enterprise had $800,000 left in the bank. With the Israelis' permission to use this money as the United States wished, North directed Secord to spend the $800,000 on Contra support. In late November 1985, Secord learned during his visit to Israel that the earlier TOW sales had generat- ed proceeds that Nimrodi and Schwimmer, the Israeli arms dealers, used for purposes other than purchasing the HAWKs. The idea was catching. One month later, on December 6, North told Israeli officials that the United States expected to generate a profit on future arms sales to be used in Nicaragua. After the Enterprise became the selling agent for the CIA in January 1986, North set prices to create a surplus for the Contras. He and Secord used a markup of more than 200 percent. And when the Tehran mission failed, North sought to cheer up McFarlane with the news that the arms sales had at least achieved some benefit?they were subsidizing the Contras. It is not necessary, however, to rely on inference for the effect of profits on North's recommendations to continue the weapons sales. North testified that when he was beginning to doubt the wisdom of the initiative in January 1986, he found the opportunity to support the Contras from the proceeds of future sales an "attractive incentive" to continue. North's promotion of the initiative continued to the end, as he drafted memorandums to Poindexter for the President, always recommending that the initiative proceed, warning that the hostages might be killed if it ended, and predicting ultimate success in retrieving the hostages if the United States stayed the course. There is no evidence that North ever saw or under- stood that gouging the Iranians on behalf of the Con- tras was at cross purposes with gaining freedom for the hostages. Arms-for-hostages and profits-for- 280 Contra-support were conflicting goals that could not be reconciled. The Profit Objective While North sought profits for the Contras (and other covert operations), Albert Hakim sought profits for himself. He made no secret of his personal motive to North or to George Cave of the CIA in promoting the Second Channel as a means of continuing the collapsing initiative. Above all, Hakim was a businessman. He candidly testified that he saw an opportunity to make a 3 percent piece of the annual $15 billion Iranian market if the Second Channel initiative succeeded. While Hakim saw no conflict between his personal interests and those of the United States, he negotiated the nine- point agreement as if basic principles were commod- ities open for trade. This unappointed diplomat was willing to bargain away the most fundamental pre- cepts of U.S. foreign policy to open the doors for business with Iran. The fault, however, does not lie with Hakim. He was left by North to negotiate the agreement; his plan was approved by North and Poindexter, and accord- ing to Poindexter, by the President (who was not told that Hakim had negotiated it); and his ulterior pur- poses were well known. Arms-for-profit thus entered the list of colliding objectives in the Iran initiative. Privatization of for- eign policy had its costs. * * * * * Too many drivers?and never the right ones? steering in too many different directions took the Iran initiative down the road to failure. In the end, there was no improved relationship with Iran, no lessening of its commitment to terrorism, and no fewer Ameri- can hostages. The Iran initiative succeeded only in replacing three American hostages with another three, arming Iran with 2,004 TOWs and more than 200 vital spare parts for HAWK missile batteries, improperly gener- ating funds for the Contras and other covert activities (although far less than North believed), producing profits for the Hakim-Secord Enterprise that in fact belonged to the U.S. taxpayers, leading certain NSC and CIA personnel to deceive representatives of their own Government, undermining U.S. credibility in the eyes of the world, damaging relations between the Executive and the Congress, and engulfing the Presi- dent in one of the worst credibility crises of any Administration in U.S. history. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 16 Chapter 16 1. Shultz Test., Hearings, 100-9, 7/23/87, at 72. 2. North Test., Hearings, 100-7, Part I, 7/9/87, at 231. 3. Poindexter Test., Hearings, 100-8, 7/15/87, at 31-33. 4. Id 5. Meese Test., Hearings, 100-9, 7/28/87, at 205. 6. Id., at 205-06. 7. Id., at 205. 8. See chapter 27. 9. Ex. EM-47, Hearings, 100-9. 10. Shultz Test., Hearings, 100-9, 7/23/87, at 31-32. 11. Koch Test., Hearings, 100-6, 6/23/87, at 69. 12. North Test., Hearings, 100-7, Part I, 7/10/87, at 287. 12a. North Notebook, 1/13/86, Q 1438. 12b. North notebook, 7/2/86, Q 2243. 13. Hakim Test., Hearings, 100-5, 6/4/87, at 292-93. 14. North Test., Hearings, 100-7, Part I, 7/10/87, at 287. 281 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I] Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part IV Exposure and Concealment Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 17 Exposure and Concealment: Introduction The covert operation to support the Contras had been functioning for over a year when, on October 5, 1986, one of the resupply planes was shot down in Nicara- gua with Eugene Hasenfus on board?and the secret program began to unravel. Administration officials denied both publicly and in testimony to Congress that the U.S. Government had any connection to the Hasenfus flight. Nonetheless, investigations were commenced by the FBI and the Customs Service, which, if continued uninterrupted, might have uncovered both the Contra and Iran covert actions and Secord's Swiss bank accounts. North and Poindexter moved promptly to delay and narrow those investigations. At about the same time, a threat of exposure came from a different quarter. Roy Furmark, a business associate of Saudi financier Adnan Khashoggi and a former client of CIA Director Casey, told Casey that Khashoggi and two Canadian investors had lost $10 million on the Iran arms sales. He warned Casey that the Canadians might sue for return of the $10 million, claiming that the money had been used by the U.S. Government for activity in Central America. Accord- ing to North, Casey advised him at about this time to destroy documents relating to the covert Contra sup- port operation. Then, on November 2, 1986, David Jacobsen was released from captivity in Lebanon?the last of the three Americans to be released as part of the Iran initiative. His release was announced and applauded by the White House on November 3, 1986. On the same day, a Lebanese magazine, Al-Shiraa, reported that the United States had sold arms to Iran, and that Robert McFarlane had visited Tehran. This report soon surfaced in the American press, evoking strong criticism from all quarters. The President was accused of making concessions to terrorists and of violating the law in selling arms to Iran. The Administration's first response to the disclo- sures was silence. Encouraged by Poindexter and others on the NSC staff, the President told his advis- ers that comment should be withheld so as not to jeopardize release of the hostages. Silence proved infeasible, however, and the Presi- dent was forced to comment. The President's first public statement was to assert that the press reports of arms sales to Iran had "no foundation." Shortly there- after, on November 13, 1986, the President conceded publicly that arms had been sold to Iran, but branded as "wildly false" the charge that he had traded arms for hostages.* The President also denied on Novem- ber 13, 1986 that the sales violated any laws. A preliminary Justice Department analysis written on or about November 13, 1986 concluded the sales were lawful because they were done pursuant to an Intelligence Finding signed by the President on Janu- ary 17, 1986. But the writer of the analysis was un- aware that the United States had been involved in shipments of U.S. arms by Israel in 1985 prior to any Finding. The President's advisers discussed the legal prob- lems raised by the pre-Finding Israeli shipments on November 18 and 19, 1986, while preparing for the President's press conference scheduled for the evening of November 19. When the President was asked about the pre-Finding shipments at his press conference, he denied that the United States was in any way involved. In fact, however, the United States had approved the 1985 Israeli shipments, and a CIA proprietary airline had actually carried a November 1985 ship- ment of HAWK missiles to Iran. Nonetheless, in the two days following the press conference, North and McFarlane prepared a false chronology, Poindexter and Casey gave misleading statements and testimony, respectively, to Congres- sional committees, and McFarlane gave a false state- ment to the Attorney General, denying in each case that the United States knowingly participated in the pre-Finding Israeli shipments. In the afternoon on No- vember 21, 1986, Poindexter destroyed a key docu- ment?a Presidential Finding?which would have ex- posed these statements as false. Not all Administration officials participated in this effort to rewrite history. Secretary Shultz argued re- peatedly for prompt and full disclosure of the facts. He warned the President directly on November 19 *The President maintains this position today. He stated in a recent interview that the Iran arms initiative "was not trading arms for hostages" (The New Republic, 10/26/87, at 10) despite his concession on March 4, 1987 (in response to the Tower Board findings) that "what began as a strategic opening to Iran deteriorat- ed in its implementation into trading arms for hostages." 285 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 17 and 20 that certain of his subordinates were giving out inaccurate information. Abraham Sofaer, Legal Adviser to the State Department, warned the White House and the Justice Department that a false story was being put forward regarding the November 1985 HAWKs shipment. Provided with this information, the Attorney General sought and received authority from the President to commence an inquiry on No- vember 21. Shortly after learning of the Attorney General's inquiry, both North and Poindexter destroyed docu- ments. North also altered documents relating to the NSC staffs Contra support operation, and he assured Poindexter that all documents relating to the use of proceeds from the Iran arms sales to support the Contras had been destroyed. Notwithstanding North's efforts, Justice Depart- ment investigators found a memorandum on Novem- ber 22 that referred to the diversion; and on Novem- ber 25, the Attorney General and the President made public the fact that arms sales proceeds had been used for the Contras. 286 The existence of the Enterprise, however, remained a secret until the public hearings of these Committees. North concealed the Enterprise?Secord's companies and Swiss bank accounts?even while admitting to the diversion. He falsely told the Attorney General on November 23, 1986 that the Iran arms sales pro- ceeds had gone directly from the Israelis into ac- counts set up by Contra leader Adolfo Calero, and omitted any reference to Secord's accounts in which the funds had actually been placed. The Attorney General repeated this incorrect account of the diver- sion to the public on November 25. The disclosures made by the Attorney General on November 25 precipitated the President's request for appointment of an Independent Counsel, the establish- ment of the Tower Board, an investigation by the Senate Select Committee on Intelligence, and the cre- ation of these Committees; and the secret "off-the- shelf' companies used in both the Iran and Contra covert operations were eventually exposed. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 18 October 1986 Exposure Threatened The Hasenfus Plane is Shot Down On October 5, 1986, a C-123 aircraft carrying ammu- nition, uniforms, and medicine for the Contras was shot down over Nicaragua.' One crew member, Eugene Hasenfus, survived and was captured by the Sandinistas. Documents on board the airplane con- nected it to Southern Air Transport (SAT), a former CIA proprietary charter airline based in Miami, Flori- da.2 The U.S. Government denied involvement, but sev- eral investigations by Government agencies, as well as the press, commenced shortly thereafter. A CIA Sta- tion Chief in Central America, Tomas Castillo, sent a secret message to Robert Dutton, Secord's top aide in the Contra resupply operation, alerting him that the "situation requires we do necessary damage control."3 North Tries to Slow the FBI Investigation of SAT Within days of the Hasenfus crash, FBI agents began interviewing SAT employees.4 They sought to determine whether arms or combatants had been sent from the United States to support insurrection in Nicaragua, in violation of the Neutrality Act. Before the FBI agents could obtain any subpoenas, North called FBI Executive Assistant Director Oliver Revell on October 8 and told him he was concerned about the SAT investigation.5 North assured Revell that SAT was not involved in illegal activities. North also indicated to Revell that SAT was involved in the arms sales to Iran. North had earlier told Revell about the Iran arms sales in late July 1986 during an Oper- ations Sub Group meeting.6 North told Revell that he did not know anything about the C-123 that was shot down.7 North said that SAT was still flying arms shipments to Iran, and those missions would inevita- bly be disclosed if SAT was investigated.8 Revell contacted the Miami FBI office and asked for a written briefing on the investigation,? but he did not slow it down. Instead, he obtained authority from Deputy Assistant Attorney General Mark Richard to begin an official investigation on October 10, 1986.10 North Tries to Slow the Customs Investigation of SAT The U.S. Customs Service also began an investiga- tion after the crash. Upon tracing the purchase of the C-123 to SAT, Customs agents served a broad admin- istrative subpoena on SAT." A full-scale investiga- tion would have revealed payments for both the Iran flights and for arms shipments to the Contras from the Enterprise's Lake Resources and Hyde Park Square accounts in Switzerland." In fact, during the May 1986 Tehran mission, the SAT crew stopped in a European country on their return flight, loaded arms, and flew them to a base in Central America for the Contra resupply operation. One wire transfer from Hyde Park Square paid for both missions.' On October 9, 1986, North called U.S. Customs Assistant Commissioner for Enforcement William Ro- senblatt and said he was concerned about the SAT subpoena. North told Rosenblatt that the SAT people were "good guys" who had done nothing illegal. North denied that the SAT airplane contained arms when it left the United States." Relying on North's assurances, Rosenblatt took steps to narrow the focus of the investigation to the airplane itself, and whether arms or ammunition were being exported without a license.1 5 On October 17, David Major, an FBI agent on assignment to the NSC, sent a PROF note to Alton Keel stating that the FBI investigation should be ending. The note continued: However, Customs is going after this case like a dog in heat. They have a task force investigating violations of (1) foreign asset laws (2) Nicaragua trade embargo and (3) illegal export laws. Treas- ury is running . . . hard on this investigation and will most likely trip over legal but very sensitive cover CIA operations not related to Nicaragua." In the same time period, North called Rosenblatt and again assured him that he had "double-checked" and there were no arms aboard the C-123 airplane." Ro- senblatt, who had by then received similar informa- tion from the Customs agent in charge of the investi- gation, told North once again that Customs was con- centrating the investigation on the airplane itself to 287 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? 11 ?.1 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 18 see whether special licensing requirements had been violated.' 8 After Customs served a new subpoena on SAT on October 29, Craig Coy, one of North's assistants, tele- phoned to tell Rosenblatt that he had spoken to North and that they were concerned about the Customs agents being "all over" SAT." Rosenblatt then called North, who asked why the Customs agents were at SAT, telling Rosenblatt, "We are right in the middle of a lot of sensitive business here, I am trying to get some packages [hostages] out of here. . . .99 20 Ro- senblatt told North that the investigation of the C-123 was going forward and other agencies were investi- gating as well. North told Rosenblatt to call Coy and tell him to take care of the other agencies, which Rosenblatt did." Rosenblatt took no steps, however, to terminate the Customs investigation, and he had no further contact with North regarding SAT.22 Poindexter Tries to Slow the Investigations Shortly thereafter, Poindexter called the Attorney General and asked him to delay the investigations of SAT by the FBI and Customs.23 According to the Attorney General, Poindexter told him that the SAT employees were needed for the Iran initiative.24 At- torney General Meese also mentioned the Customs investigation briefly to Treasury Secretary James Baker, but did not rePall discussing it any further with him thereafter.25 Meese told Associate Attorney Gen- eral Steven Trott to ask FBI Director Webster to delay the SAT investigation for 10 days." On Octo- ber 30, Trott called Webster and asked him to delay all nonurgent investigative activity regarding SAT,2 7 telling him that, without the delay, the investigation could compromise "sensitive hostage negotiations."28 FBI headquarters checked with their Miami office and was told the investigation could be delayed for 10 days. After more than 10 days had passed, Trott raised the matter with the Attorney General at the FBI's request, and several days later Attorney Gener- al Meese told him the FBI could proceed." House Committee Seeks independent Counsel to Investigate Hasenfus Crash On October 17, 13 days after the Hasenfus crash, a majority of the Democratic members of the House Judiciary Committee asked the Attorney General to appoint an Independent Counsel to investigate North, Casey, Poindexter, and others regarding their alleged involvement with the Contras.3? The request cited the Hasenfus crash and prior allegations by Senator John F. Kerry and others regarding activities by Ad- ministration officials in support of the Contras. The Attorney General referred the letter to the Criminal Division of the Justice Department, where it was in turn referred to the Public Integrity Section. 288 Once a request for an Independent Counsel is re- ceived from Congress, the Justice Department has 30 days to report back. The Justice Department's Public Integrity Section began by asking the other sections of the Justice Department, and the FBI and Customs, to identify any cases that might involve Administra- tion officials in the Contra operation." The Public Integrity Section learned that the Fraud Section was investigating allegations of improper use of humani- tarian aid through the Nicaraguan Humanitarian Aid Office program to provide weapons to the Contras." The Public Integrity Section also learned that the FBI and U.S. Attorney's office in Miami were investigat- ing claims that North, Robert Owen, and others were providing military aid to the Contras.33 Customs and FBI officials promised to provide syn- opses of pending cases. The FBI provided no infor- mation prior to the appointment of an Independent Counsel in December 1986.34 Customs wrote a letter on November 14, 1986, which did not mention North's requests to narrow subpoenas.35 Furmark Visits the CIA: Talk of "Diversion" While the investigations precipitated by the Hasenfus downing threatened to expose the covert Contra sup- port operation, another event in October 1986 threat- ened to expose the diversion: Roy Furmark, a busi- ness associate of Adnan Khashoggi warned the CIA that, unless certain investors in the Iran arms sales were repaid, they would publicly disclose what they knew of the arms sales and the use of arms sales proceeds for the Contras. Furmark?who was also a former law client of Director Casey?met with Casey, at Khashoggi's re- quest, on October 7 in Casey's office. Furmark said that Khashoggi and two Canadian investors had sup- plied financing for the Iran arms sales." They claimed to have lost their $10 million advance when the United States overcharged and then abandoned the First Iranian Channel in favor of dealing with the so-called Second Channe1.37 Khashoggi wanted Fur- mark to see if Casey could get the U.S. Government to make good on this loan. At their October 7 meeting, Furmark informed Casey of Khashoggi's role, discussed the financial problems that had arisen, and said that Khashoggi was under pressure from the two Canadians who had participated in the $10 million financing. Furmark warned Casey that Manucher Ghorbanifar?the initial go-between for the United States with the Iranians? was also upset and was threatening to tell members of the Senate Select Committee on Intelligence (SSCI) about the arms sales.38 When Casey suggested that the transaction sounded like an Israeli arrangement, Furmark told Casey that North was directing the dea1.3 9 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 18 Although Furmark had known for some time of Ghorbanifar's speculation that Iran arms sales pro- ceeds had been diverted to the Contras, it is not clear that he shared this speculation with Casey during their October 7 meeting. Before the SSCI, Furmark initially testified that he "probably alluded" to the possibility that some of the money might have gone to Nicaragua. He stated later, however, that he did not believe that he had referred to the names of any countries.40 North testified that Furmark had told Casey in early October about the speculation sur- rounding the diversion to the Contras.'" In the meantime, Charles Allen of the CIA had heard from North in early September that the First Channel was being shut down and that the Second Channel had "flourished into full bloom."'" Allen was disturbed by this news, "because I couldn't figure out why we would so abruptly shut down the first channel unless we had a very good plan for shutting it down in a way that Ghorbanifar and these creditors of Ghorbanifar would feel assuaged."'" Allen shared his concerns with Robert Gates of the CIA on Octo- ber 1. Gates, too, was disturbed and asked Allen to brief the CIA Director.44 Allen and Gates arrived in Casey's office together on October 7, after Furmark had departed. Allen told Casey of his misgivings. Casey rejoined that he had just met with Furmark, who had described Khashog- gi's financial problems with other investors whom Allen understood to be Canadian. Casey did not men- tion that funds might have been diverted to the Con- tras.4 5 In his appearance before the Tower Board, Gates recalled that "Allen shared his speculation with the Director about the possibility that some of the money was being diverted to the Contras. The Director told him [Allen] to put all of that down on paper." * A few days later, on October 9, North, back from the Frankfurt negotiations with the Iranians, briefed Casey and Gates on the status of the Iran initiative. It does not appear that, in the presence of Gates, Casey shared with North Allen's suspicions about the diver- sion to the Contras.** Allen's October 14 memorandum provided a lengthy account of the Iran initiative, including a brief summary of the recently concluded meetings in Frankfurt, the status of Ghorbanifar's financial situa- tion, and a summary of information that Ghorbanifar might expose. The memorandum did not expressly allege that the profit from the arms deals might have ? Gates, Tower Test., at 19. A week passed before Allen submit- ted the requested memorandum to Casey. ** Gates, Tower Test., at 22-23. Gates did take advantage of the opportunity presented by the meeting with North to ask whether the CIA was involved in private fundraising for the Contras. North responded that the Agency was "clean." In exonerating the CIA, North offered a "cryptic comment about Swiss accounts and the Contras." No one pursued the comment and the meeting conclud- ed. gone to the Contras; rather, it recorded Ghorbanifar as stating that, "some of. . . [the] profit was redistrib- uted to other projects of the US arifi of Israel."* Gates and Casey met with Poindexter the following day, October 15.46 Poindexter read Allen's memoran- dum.47 Although Poindexter acknowledged in his tes- tiony that the memorandum contained the news that Ghorbanifar or his financiers were saying that their money went to Central America, and although Poin- dexter and Casey met alone, Poindexter testified that he and Casey did not discuss the diversion. Casey simply recommended, according to Poindexter, that Poindexter seek the advice of White House Counsel with respect to disclosure of the initiative. Poindexter, however, did nothing because he did not trust the White House Counsel." After meeting with Poindexter, Gates and Casey directed Allen to meet with Furmark the next day, October 16.49 Allen met Furmark, and sent a memo- randum of the meeting to Casey. Allen's memoran- dum recited Furmark's account of the origins of the Iran arms transactions and Ghorbanifar's current fi- nancial condition. Furmark recommended that the United States consider yet another arms transaction to maintain credibility with the Iranians and to provide Ghorbanifar with enough capital to make a partial repayment to Khashoggi's creditors. As with Allen's October 14 memorandum, this memorandum con- tained no specific reference to a diversion of funds to the Contras. According to Allen, he wished to pro- tect himself from any indiscriminate use of the memo- randum.6? In his meeting with Allen on October 16, Furmark gave Allen a rundown of the transactions to date. He claimed the shipment of HAWK spare parts in May 1986 resulted in the release of U.S. hostage Father Lawrence Jenco." Furmark warned Allen that the Canadians would go public with the "back-channel" arms sales unless the United States shipped additional weapons through Ghorbanifar so that Khashoggi could be repaid." The meeting with Allen was cut short so that Fur- mark and Allen could join Casey and his wife on an airplane to New York. En route, Furmark and Casey again discussed the arms sales in general." Casey still did not acknowledge that the United States had any responsibility for the arms sales, but indicated he was working on the problem." Furmark suggested, as he had to Allen, that Casey promote another arms sale to 'N 10. Gates found the terseness of the Allen memorandum noteworthy. In testimony before the SSCI, Gates stated: "And in fact, in the [Allen] memorandum of six or seven or eight pages?I don't recall how long it is?single-spaced there is only one sentence that refers to possible diversion of funds . . . . There is no mention in the memorandum specifically of a diversion to the Contras. That reference to me was oral on the 1st [of October] and repeated again to the Director on the 7th." Gates apparently believed this news was relegated to such obscurity because it was based on "shaky stuff." Gates Test., SSCI, at 22, 34. 289 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I II Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 18 help Ghorbanifar financially. Casey was noncommit- tal, but promised to get back to Furmark.55 North's notebooks show that Furmark's recommen- dation to generate funds to pay Khashoggi's creditors received serious consideration. North wrote of a con- versation with Israeli official Amiram Nir on October 22: "Best way to recoup funds to pay off Furmark, et al is to overcharge on subsequent deliveries."58 On October 22, Charles Allen, George Cave, and Roy Furmark met in New York. In the course of that meeting, Furmark raised, for the rust time with Allen, the possibility that funds used to finance the arms sales might have been diverted to the Contras.57 Allen and Cave reported their discussion with Fur- mark to Casey, who appeared "deeply disturbed" by what he was told. Allen and Cave then jointly pre- pared a memorandum for Casey to send to Poin- dexter. Allen's testimony dated the Casey memoran- dum at October 23.58 This Allen-Cave memorandum set forth detailed ac- counts (attributed to Furmark) of the early stages of the Iran initiative and the financing of the HAWK spare parts transaction. It also referred to Ghorbani- far's accusation, which Furmark had repeated, that some of the "bulk of the original $15 million price tag was earmarked for Central America."58 The memo- randum "laid out starkly . . . that Ghorbanifar had made allegations of diversion of funds to the Con- tras,"" but it did not offer an assessment by Casey, Cave, Allen, or any other CIA official, of the accura- cy of Ghorbanifar's charges. Furthermore, as with the previous memorandums, the memorandum made no reference to Allen's own suspicions that the Ameri- cans had inflated the price and directed some of the money to the Contras. Although Casey spoke to Poindexter by secure tele- phone about the Allen-Cave briefing on the Furmark meeting, the memorandum never reached Poindexter. According to Allen, the memorandum "fell into the wrong outbox;" it was not discovered until November 25; and Casey was "deeply upset" when he discov- ered that he had not signed or sent it." Allen and Furmark met once more on November 6. By this time the feared publicity of the Iran initiative had occurred. Allen prepared a memorandum for Casey the following day, which reported that the Canadian investors?having been deprived of the threat of exposing the initiative?were now threaten- ing a lawsuit over their failure to be paid. The memo- randum also showed that Furmark again alerted Allen to the remaining trump card in the investors' deck: linking the overcharges on the HAWK spare parts to the diversion." Furmark also told Allen of his dis- covery that Secord was involved in both the arms sales and the Contra resupply operation." Allen reported to Casey that Furmark was most interested in prompting another arms deal so that Ghorbanifar could recoup his money, and that unhap- py investors could make some "nasty allegations 290 against the US Government and key officials" if the matter went unresolved. On the latter point, however, Allen added reassuringly that "much of what they know is speculation and cannot be proven."'" At Furmark's request, Casey met with him again on November 24 at CIA headquarters. Furmark and Casey reviewed the finances of the Iran arms transac- tions beginning in February 1986. This review estab- lished that the transactions had resulted in excess funds; Casey told Furmark that he did not know where that money had gone." In Furmark's presence, Casey unsuccessfully tried to reach the President's Chief of Staff, Donald Regan. He then called North and said "there's a guy here says you owe him $10 million . . . ." North reportedly responded: "[T]ell the man that the Iranians or the Israelis owe them the money." 6 6* Once Casey learned that Furmark and Ghorbanifar surmised that profits from the Iran arms sales had gone to the Contras, he advised North. North testified that this occurred in early October after the Hasenfus crash." According to North, the meeting with Fur- mark triggered Casey to instruct North "that this whole thing was coming unravelled and that things ought to be 'cleaned up' . . . ." In response, North testified, he "started cleaning things up;" he "started shredding documents in earnest after [this] discussion with Director Casey in early October . . . ."** The Travelers Check Ledger As set out in Chapter 2, North received from Contra leader Adolpho Calero a large number of travelers checks for distribution to Contra leaders and for a variety of other programs. North asserted that he maintained "meticulous records" of the receipt and disbursement of these checks in a ledger provided by Casey." Fawn Hall and Robert Owen testified to seeing North make entries in such a ledger." North destroyed this ledger, according to his testi- mony, at the direction of Casey to protect sensitive names and information. North told the Committees that Casey had instructed him sometime between Oc- tober 13 and November 4 to "'get rid of that book because the book has in it the names of everybody, the addresses of everybody. Just get rid of it and clean things up.' "7 * After the Attorney General announced the discovery of the diversion on November 25, 1986, Furmark called Casey after being subpoenaed by Congress. Casey told him to "just follow us." Fur- mark Dep., 7/22/87, at 170. ** North Test., Hearings, 100-7, Part I, 7/7/87, at 19. Notably, at a meeting with the Second Channel in Europe on October 29-30, attended by North, Cave, Secord, and Secord associate Albert Hakim, North stated that he did not care if Ghorbanifar was paid, but that "what I'm more interested in is that the people to whom he owes money get paid." Cave stated that Ghorbanifar owed those people "10 Million." C 298. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 18 North's explanation of why he destroyed the ledger is inconsistent with other of his actions. For example, North preserved his notebooks, which also recorded the names of those helping the Contras and included numerous references to payments made to them, as well as other highly sensitive and classified matters. When he was dismissed from the NSC staff, North took these notebooks with him and kept them in a nonsecure environment, at the same time that he was destroying the ledger which had been maintained in an NSC vaulted office. As a result of this destruction, no written record exists to verify North's testimony that checks he cashed for his personal use actually were reimburse- ments for his out-of-pocket expenses on behalf of the Contras.7' The Fall Guy Plan Throughout the events of the Iran-Contra Affair, de- ception was viewed as a necessary component. At the same time, according to North's testimony, Casey rec- ognized the need for an ultimate coverup in the event of public disclosure.* As far back as the early spring of 1984, North said he and Director Casey had discussed a "fall guy plan."72 Their discussion took place in the context of Congress' impending cutoff of U.S. aid for the Con- tras (the Boland Amendment). According to North, when "we eventually decided to pursue availing our- selves of offers from foreign governments [to fund the Contras], it was seen that there would need to be someone who could . . . take the fall" in the event of public disclosure. The idea was to provide North's superiors with "plausible deniability"?although in this instance, that term meant avoiding accountability to the U.S. Government rather than avoiding disclo- sure to U.S. adversaries.73 As North's operational role expanded to the Iran arms sales and the diversion of proceeds derived therefrom, he testified, he volunteered to be the "fall guy" for both the Contra support and the arms sales operations. In his words, "I'm not sure Director *As noted earlier, North's testimony attributing knowledge and statements to Casey after Casey's death should be viewed with caution, particularly insofar as such testimony, albeit under oath, tends to exculpate North. Casey ever said, 'It has to be you, 011ie.' It was probably 011ie saying, 'Well, when that [disclosure] happens, it will be me.' "74 North made no secret among his colleagues that he was to be a "scapegoat" or "fall guy" if the Iran or Contra support activities became public. He made this comment to at least Poindexter, Robert Earl (one of North's aides), and Owen.78 Disclosure of the arms sales in early November 1986 triggered discussions about implementing the fall guy plan. According to North, shortly after the initial November disclosures, Casey told him that he [North] might not be "big enough" to be the "fall guy." Casey indicated that "it's probably going to go higher," and he suggested that "Poindexter might have to be a fall guy."78 Although North did not recall a conversation with Poindexter about this spe- cific aspect of the plan for "plausible deniability," he did recall that he and Poindexter discussed in early November the likelihood that both of them would have to bear the blame.77 North testified that he previously had discussed both the fact and necessity of the "fall guy plan" with Poindexter and McFarlane (as well as with Casey), and that he did not recall any discussion with any- body about the legal propriety of this plan." Poin- dexter testified, however, that he "was not a party to any plan to make Colonel North or to make me, for that matter, a scapegoat."'" He nevertheless admitted that "[periodically] 011ie would indicate that he was 'willing to take the rap.' "80 McFarlane flatly denied that any "fall guy plan" ever existed." North testified that, but for the criminal investiga- tion of the Iran-Contra Affair, he was prepared to go through with the "plan, resign in disgrace, and take the heat for the President."82 (There is no evidence that the President was aware of or condoned the "fall guy" plan.) Nevertheless, when an Independent Coun- sel was appointed and North was the only person specifically named in the order of investigation, North, who by then had retained counsel, changed his mind and decided to protect himself.* North testified that he did not tell Casey or Poindexter of this change in attitude." * North testified that, "I never in my wildest dreams or night- mares envisioned that we would end up with criminal charges." North Test., Hearings, 100-7, Part I, 7/8/87, at 145; 7/13/87, at 41. 291 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 18 Chapter 18 1. See Chapter 6. 2. Id. See also, Bastion Dep., 2/13/87, at 7. 3. KL-43 message, 10/05/86, N 438. 4. Revell Dep., 6/11/87, at 60-61. 5. Id., at 61. 6. Id., at 49. 7. Id:, at 62. 8. Id 9. Id., at 63. 10. Id. 11. Id., at 68-69. 12. SAT Doc. Nos. 463, 1687, 1688, 1690, 1691, 1790. 13. Id. 14. Rosenblatt Dep., 9/25/87, at 85. 15. Id., at 86-88. 16. PROF note, 10/17/86, N 18297-98. 17. Rosenblatt Dep., 9/25/87, at 84-85. 18. Id., at 86. 19. Id., at 91. 20. Id., at 93. 21. Id. 22. Id., at 99. 23. Meese Dep., 7/8/87, at 41-44. 24. Id., at 44. 25. Id., at 41-43. 26. Trott Int., 5/11/87, at 1. 27. Memo to Clarke from Webster, 10/31/86, Ex. EM-14. 28. Id. 29. Memo to Weld from Martin, on Investigation of Southern Air Transport, 11/12/86, J 7738. 30. Ex. Em-13. 31. Ralph Martin Int., 5/14/87. 32. Id.; Memo from Martin to Weld, Ex. EM-63. 33. See also Chapter 5. 34. Jarrett Int., 4/23/87. 35. Letter from Rafael Lopez to Ralph Martin, 11/14/86, J 6956. 36. Furmark Dep., 7/22/87, at 122. Khashoggi and one of the Canadians have denied that the Canadians ever in- vested in the arms sales. Khashoggi Int., 5/15/87; Fraser Dep., 4/29/87, at 21, 25-26. 37. See Chapter 22. 38. Furmark Dep., 7/22/87, at 122-126. 39. Id., at 123-24. 40. Furmark, SSCI Test., at 70, 73-74. 41. North Test., Hearings, 100-7, Part I, 7/7/87, at 19. 42. Allen Dep., 4/24/87, at 443-44, 452. 292 43. Id., at 452-453. 44. Tower, at B-168. 45. Id. 46. Gates Dep., 7/31/87, at 19. 47. Poindexter Test., Hearings, 100-8, 7/15/87, at 55. 48. Id.; Poindexter Dep., 5/2/87, at 196-99. 49. Allen, Tower Test., at 32. 50. Allen Int., 9/23/87, at 28-29. 51. Memo from Allen to DCI, 10/17/86, Ex. EM-57, at 9. 52. Id., at 10. 53. Furmark Dep., 7/22/87, at 135. 54. Id. 55. Id., at 133-36. 56. North Notes, Q 2559. 57. Furmark Dep., 7/22/87, at 140-41. 58. Allen, Tower Test., at 33-34. 59. 1196. 60. Tower, at B-I69. 61. Id., at B-169-70. 62. Memo from Allen to DCI, 11/7/86, C 9371. 63. Ex. EM-57, at 6. 64. C 9372. 65. Furmark Dep., 7/22/87, at 167-69. 66. Id., at 168. 67. North Test., Hearings, 100-7, Part I, 7/7/87, at 19. 68. Id., at 132-35. 69. Hall Test., Hearings, 100-5, 6/8/87, at 482-83; Owen Test., Hearings, 100-2, 5/12/87, at 332-33. 70. North Test., Hearings, 100-7, Part I, 7/8/87, at 132- 35. 71. Id., at 133-34. 72. Id., Part II, 7/13/87, at 38-39. 73. Id., at 39. 74. Id., at 40. 75. E.g., North Test., Hearings, 100-7, Part I, 7/8/87, at 145; Id., 7/9/87, at 234; Owen Test., Hearings, 100-2, 5/19/ 87, at 366; Earl Dep., 5/22/87, at 149; Poindexter Dep., 6/ 17/87, at 243. 76. North Test., Hearings, 100-7, Part II, 7/13/87, at 40. 77. Id. 78. Id., at 40-41. 79. Poindexter Test., Hearings, 100-8, 7/16/87, at 120-21. 80. Poindexter Dep., 5/2/87, at 243. 81. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 205. 82. North Test., Hearings, 100-7, Part II, 7/13/87, at 41. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 November 1986: Concealment The Administration's Initial Response to the Arms Sales Disclosures The reports of U.S. arms sales to Iran in early No- vember 1986 generated conflict within the Govern- ment. Some officials, including Members of Congress and the Secretary of State, demanded prompt and full disclosure. Several individuals on the inside of the Administration, however, insisted on maintaining tight control of the information. The President, denying any arms-for-hostages trade, wanted to say no more than that. Members of the National Security Council (NSC) staff and the Director of Central Intelligence knew that the report from Beirut was only the tip of the iceberg. Accordingly, their first move was to ex- ploit the President's desire to protect the hostages through silence as a way of concealing the truth. The conflict manifested itself almost at once in an exchange between Secretary of State George Shultz and National Security Adviser John Poindexter short- ly after the news broke. The Shultz/Poindexter Cables The Secretary of State was largely without knowl- edge concerning the Iran initiative. Among other things, Secretary Shultz testified that he did not know prior to November 1986 that the United States had made direct sales of arms to Iran during 1986 or that the President had signed a Finding authorizing such sales. He did know, after the fact, that McFarlane had travelled to Tehran in May, but not that the McFar- lane mission had carried weapons with it, or that additional weapons had been delivered thereafter. Moreover, so far as the Secretary of State was ad- vised, the failed McFarlane mission had signaled an end to the Administration's effort to find an opening to Iran.' Thus, the report in Al-Shiraa was news to the Sec- retary of State. He was then in Europe and found himself peppered with questions from the press about the revelations in Beirut. The Secretary reported these questions in a cable to Poindexter, informing Poindexter that "[t]he big story the press is after is to establish that the U.S. violated its own policy by cutting a big secret arms deal with Iran in order to get our hostages released." Secretary Shultz further informed Poindexter that, "[i]n accordance with the agreed guidance," he had refused to answer any relat- ed questions, stating that all such inquiries should be directed to the White House.2 The Secretary went on to say that he had been "racking my brains all day to figure out a way to help turn this situation in the best possible direction." To this end, Secretary Shultz recommended that "the best way to proceed is to give the key facts to the public." In addition, apparently based on the arms shipment reported by Al-Shiraa, the Secretary sug- gested that "[w]e could make clear that this was a special, one-time operation based on humanitarian grounds and decided by the President within his Con- stitutional responsibility to act for the service of the national interest?and that our policies toward terror- ism and toward the Iran/Iraq war stand." 3 Poindexter, who knew the true facts, rejected Sec- retary Shultz's proposal. In a return cable Poindexter stated, "I do not believe that now is the time to give the facts to the public," although he asserted that "when we do lay out the facts that it will be well received since it is a good story." Poindexter advised Secretary Shultz that he had spoken that day with the Vice President, the Secretary of Defense, and the Director Casey, and that they all agreed that no state- ment should be made.4 Poindexter further advised Secretary Shultz that he had asked the NSC staff to prepare messages to U.S. allies explaining that U.S. policy toward the Iran-Iraq war had not changed, and that the Administration would not comment on the reported arms sales be- cause of potential danger to the hostages.5 The Administration did, however, issue a statement on November 4, asserting that "as long as Iran advo- cates the use of terrorism, the United States arms embargo will continue." This portion of the White House statement had been drafted by Poindexter, and implied that the United States had not sold arms to Iran!' When the Secretary of State subsequently re- viewed this statement, he found it "the kind of tricky and misleading statement that looks great on the sur- face, but then you start looking at it more carefully 293 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 and you see it is going in a different direction entire- ly." 7 The Public Denials Continue The issue of public comment on the arms sales was discussed during Poindexter's morning meetings with the President on November 6 and 7. The President agreed that "no comment" was the best policy given his hope, bolstered by Poindexter, that additional hos- tages would yet be freed. According to notes of the briefings taken by Rodney McDaniel of the NSC staff, the President said that "[n]o way can comment without further damage to chances of getting hostages out." 8 Accordingly, on November 6, at an unrelated bill- signing ceremony, the President stated in response to a reporter's question that, "the speculation, the com- menting and all, on [the Al-Shiraa] story" had "no foundation," although his comments fell short of an outright repudiation of that story. The President fur- ther stated that the speculation about arms transac- tions between the United States and Iran "is making it more difficult for us to get our other hostages free." 9 On November 7, McFarlane sent a PROF note to Poindexter complaining that he had heard that Chief of Staff Regan had spoken with the press and "laid the entire problem at [McFarlane's] feet." In reply, Poindexter told McFarlane that he had spoken to Regan that morning, and that Regan "agreed that he would keep his mouth shut." Poindexter concluded that "[w]e have a damned good story to tell when we are ready. Right now would be an absolutely stupid time for the Administration to say anything." 10 The November 10 Meeting at the White House Notwithstanding Poindexter's analysis, it soon became clear that the Administration's preference for total silence could not be sustained. Pressure was mounting in the public, the press, and in the Government itself for an explanation of what had happened. The Presi- dent would have to make a statement. On November 10, the President convened a meet- ing at the White House to establish guidelines for that statement. The Vice President, Secretary Shultz, Sec- retary Weinberger, Attorney General Meese, Casey, Regan, Poindexter and Alton Keel, then Deputy Na- tional Security Adviser attended." The President said there was a need for a public statement, but he instructed his advisers to "stay away from detail." 12 *N 7501, PROF from McFarlane to Poindexter, 11/7/86, 20:30:32. After voicing this complaint, McFarlane's note went on to set forth the so-called "truth" about the Iran initiative. But McFar- lane made no mention of the November 1985 HAWK shipment. See Section, "The NSC Staff's Chronologies," infra. 294 Keel and Regan made notes during the November 10 meeting; Secretary Weinberger wrote a subsequent memorandum; and Secretary Shultz dictated his recol- lections of the meeting to his Executive Assistant, Charles Hill. These records contain no material differ- ences. They all show that the meeting was marked by a number of misleading statements and significant omissions by Poindexter as he purported to lay out the facts of the Iran initiative. For example: ? Poindexter discussed only the January 17, 1986, Finding, omitting any mention of the earlier Finding signed by the President on December 5, 1985, or of the January 6, 1986, superseded Find- ing. ? Poindexter claimed, falsely, that the Iran initia- tive had begun when the United States stumbled upon an Israeli arms warehouse in Europe while attempting to learn whether the Israelis were shipping arms to Iran.* ? Poindexter asserted that the first 500 TOW missiles were shipped from Israel to Iran in August and September 1985, without U.S. per- mission, even though the Administration had ap- proved this shipment.** ? Poindexter stated that the total number of TOW missiles sold to Iran during the initiative was 1,000, when the actual number was 2,004. ? Poindexter indicated that the last 500 TOWs sent in October 1986, had been shipped by Israel rather than the United States. But in fact, Israel had acted at the NSC staff's request because the U.S. shipment was delayed, and the United States had replenished the Israeli TOWs within days after the shipment." In other words, as late as November 10, and in the presence of the President and senior Cabinet officers, Poindexter either was confused or purposely dissem- bled. Despite the fact that the President had opened the meeting by declaring the need for a public state- *Oakley Aff., 7/2/87; Ex. GPS-55. This same story had been told by North to Ambassador Oakley in November 1985 when North enlisted Oakley's aid in causing a U.S. Embassy in Europe to intercede with its host government to provide flight clearance for the HAWK shipment. It was repeated by North in a memorandum dated December 5, 1985, prior to the December 7 meeting of the President's top advisers. However, according to the evidence, the Iran initiative actually began and went forward through the efforts of McFarlane conducted to a considerable extent without informing the Secretary of State. When the Secretary of State heard the warehouse story at the November 10, 1986 meeting, he considered it "cock and bull." Shultz Test., Hearings, 100-9, 7/23/87, at 30. **McFarlane testified that the President approved the August- September 1985 shipments. McFarlane Test., Hearings, 100-2, 5/11/ 87, at 49. Based on all of the evidence, the Committees believe that the President did so. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 ment, Poindexter continued to argue that "no state- ment [is] needed, news has peaked, no hearings until Jan[uary], so [we] should not say anything." 14 As the group continued to discuss the proposed public response, Secretary Weinberger noted his sur- prise that more than 500 TOW missiles had been shipped. He said he had understood that no more than 500 TOWs would be sent unless all the hostages were released. Poindexter responded that it "just always came back to Pres[ident], he agreed to go for- ward." 18 In this connection, Secretary Shultz ex- pressed his amazement that he was not informed of the January Finding until November." When Poin- dexter told the group that the weapons shipped were in "minuscule" amounts, Secretary Shultz responded that "[i]t is ransom . . . [we] must not gild lily," and that he was "afraid of technically correct statements that are not fully descriptive." 17 The meeting concluded as it began, when, accord- ing to Regan's notes, the President had outlined the type of statement he wanted: We have not dealt directly w[ith] terrorists, no bargaining, no ransom. Some things we can't dis- cuss because of long-term consideration of people w[ith] whom we have been talking about the future of Iran.18 The President, Attorney General Meese and Casey all agreed that the statement would emphasize the strategic component of the arms sales and downplay efforts to release the hostages." Later that afternoon, Poindexter and Meese re- viewed a draft White House statement prepared by Casey.* This draft asserted that U.S. policy "has been and continues to be to restrain shipments of arms to either [Iran or Iraq] that could alter the balance or prolong the war . . . [and] not to reward hostage takers by meeting their demands." 20 Regan's notes of the review session indicate that certain information in the proposed statement was eliminated by unnamed NSC staffers due to ongoing conversations with the Iranians in Geneva, leading to the "possible release of 2 [hostages], maybe all 5." The notes further reflect that Poindexter obtained "sign offs" on the statement from Secretary Weinberger, Attorney General Meese, Casey, and the President. He was unable to contact Secretary Shultz, who was en route to South Amer- ica.21 Secretary Shultz received the draft statement during his trip and advised Poindexter that he object- ed to the portion that asserted there had been "unani- mous support for the President's decisions." 22 By cable, Secretary Shultz told Poindexter that this char- N 8995-96. Prior to this meeting, Poindexter and Casey ex- changed drafts of a proposed Presidential statement. Casey de- scribed Poindexter's draft as doing "little more than say we re- viewed the matter and discovered that we didn't break the law," stating that his own draft "says a little more." acterization was simply inaccurate; he had always supported the President, but he had opposed the policy. At Secretary Shultz's insistence, Poindexter changed the statement to read that there had been "unanimous support for the President" among his senior advisers." Secretary Shultz was not "altogeth- er comfortable" with this change, although he agreed to the statement as revised.24 Phase 2 of the Administration Response: Limited Disclosure Preparing for the President's Address to the Nation After November 10, the White House began prepar- ing a formal statement for the President to deliver personally to the Nation. This statement was dis- cussed at the daily national security briefing between Poindexter and the President, both of whom ex- pressed continued hope that more hostages would be released that coming weekend. They agreed that the President's upcoming statement would focus on the legality of the arms initiative and emphasize that the arms sales did not constitute ransom.25 On the same day, McFarlane sent a PROF message to Poindexter in which he stated that "the only way?the only way?the Administration can expect to come out of this with any element of credibility is for there to be some evidence that it was worth it to try to engage moderates in Iran." This required, ac- cording to McFarlane, a statement from Iran. He rec- ommended that the United States concentrate all ef- forts on convincing the Iranians to change their rhet- oric immediately. McFarlane told Poindexter that he had "drafted up some words and left them with 011ie to be sent to Iran." 26 McFarlane also produced and sent to Poindexter a draft statement for the President, focusing on the effort to open a political dialogue with Iranian moder- ates.27 Poindexter wrote back that he had reviewed the draft with North and that they had agreed there was a need to show the final product to George Cave of the CIA in order to "get an 'Iranian reaction' on it." 28 On November 12, the day before the President was to address the Nation, he presided over a national security briefing of Congressional leaders on the arms sales. The executive branch attendees included the Vice President, Secretary Shultz, Secretary Wein- berger, Attorney General Meese, Casey, Regan, Poin- dexter, and appropriate staff. Senate Leaders Robert Dole and Robert Byrd and House Majority Leader Jim Wright and Representative Dick Cheney repre- sented Congress. The President opened the meeting by stating that no laws were broken, no ransom paid for hostages, and no officials or agencies within the U.S. Government bypassed." 295 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 . .. I..... Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 Poindexter conducted the briefing itself. Once more, he omitted certain material facts and was af- firmatively misleading on others. Poindexter contin- ued to talk in terms of only one Finding, omitting any reference to the other two signed by the President. He continued to discuss the transfer of only 1,000 TOWs and 240 HAWKs parts, omitting any reference to the additional 1,004 TOWs or the November 1985 HAWK shipment. Moreover, Poindexter continued to intimate that the 1985 Israeli arms shipments to Iran had been without U.S. authorization or prior knowl- edge.30 At the morning security briefing the next day, No- vember 13, there was discussion of the elements of the President's upcoming statement, including that the arms shipments had not altered the balance in the Iran-Iraq war; that the arms sold were defensive in nature; and that there would be no additional ship- ments. There was discussion, too, of whether the total arms shipped to Iran would have fit in one 747 or C-5 cargo plane. The President also stated, according to notes of the meeting, that the Administration "should have gone public sooner." 31 Poindexter briefed reporters "on background" (not for attribution) the same day, November 13. Although Poindexter initially told the reporters that any ship- ments made prior to January 1986 were undertaken without any U.S. role "either condoning, winking, encouraging, or anything of that nature," he acknowl- edged later in the briefing that "there was one ship- ment that was made not by us, but by a third country prior to the signing of [the January 17 Finding]." Poindexter did not confirm that the shipment was made by Israel, but did state that the shipment was made in "our interests." When asked about the exist- ence of relevant Presidential Findings, Poindexter did not mention the Finding signed by the President in December 1985, but instead told reporters that the President "signed a document that has authorized this project" in January 1986.32 The President Addresses the Nation The President addressed the Nation on November 13. He disclosed that the diplomatic initiative with Iran had been underway for some 18 months. The purposes of this initiative, he said, were (1) to forge a new relationship with Iran, (2) to bring an honorable end to the Iran-Iraq war, (3) to eliminate state-spon- sored terrorism, and (4) as part of the new relation- ship, to attain the safe return of the American hos- tages held in Lebanon.33 The President stated that he had authorized "the transfer of small amounts of defensive weapons and spare parts. . . . These modest deliveries, taken togeth- er, could easily fit into a single cargo plane." He elaborated that the weapons shipped "could not, taken together, affect the outcome of the 6-year war be- tween Iran and Iraq nor could they affect in any way 296 the military balance between the two countries." He asserted that since the initiative had commenced, there had been no evidence of Iranian complicity in acts of terrorism against the United States. The Presi- dent also emphasized that the arms initiative was con- ducted in full compliance with the law, and that all appropriate Cabinet officers "were fully consulted." He attacked "the wildly speculative false stories about arms for hostages and alleged ransom payments." The President concluded by stating that "[w]e did not? repeat?did not trade weapons or anything else for hostages nor will we." 34 The President thus committed himself categorically to the proposition that there had been no trade of arms for the hostages and no violations of law. Cer- tain members of the NSC staff and of the CIA, in turn, committed themselves to creating a version of the facts for internal and public consumption that would sustain this proposition. Events Between November 13 and the November 19 News Conference The Secretary of State testified that, throughout the first weeks of November after the Beirut report, he believed that the President was being misled and mis- informed by his staff, particularly Poindexter. Secre- tary Shultz said he repeatedly argued to the President and Poindexter that nobody looking at the record would credit the assertion that the initiative did not involve arms-for-hostages, and that it was critical there be no tinkering with the facts. It was, the Secre- tary said, a "battle royal" to get out the truth." Secretary Shultz also pressed for a definitive state- ment that the United States would not under any circumstances sell any more arms to Iran. He met with the President on November 14 to urge that he make precisely that statement, and he repeated this recommendation in a draft paper delivered to Regan on November 15.36 But the statement was not made, nor was Secretary Shultz assured that the arms ship- ments would be halted. Consequently, when Secre- tary Shultz appeared on Face The Nation on Novem- ber 16 and expressed the view that the United States should not sell additional weapons to Iran, he felt constrained to answer in response to a question that he, the Secretary of State, did not have authority to speak for the Administration on this point." The next day the White House stated definitively that there would be no further arms sales to Iran. The White House also reaffirmed that the Secretary of State spoke for the Administration on matters of for- eign policy.38 Meanwhile, at the Attorney General's request, Charles J. Cooper, Assistant Attorney General for the Office of Legal Counsel, had been looking into the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 legal issues surrounding the Iranian arms sales.* On November 12, 1986, Cooper sent a legal memorandum to the Attorney General that concluded, among other things, that so long as there was a Finding pursuant to the Hughes-Ryan Amendment, the arms sales did not violate the law.39 In a meeting with Poindexter and Thompson that same day, Cooper had been shown only the January 17 Finding and had been left with the impression that this Finding predated any arms shipments to Iran.4? On November 17, Cooper received a draft chronol- ogy of events in the Iran initiative prepared by the NSC staff. In reviewing this chronology, Cooper learned for the first time that arms had been trans- ferred by Israel to Iran prior to the January 17, 1986, Finding.4' Cooper informed the Attorney General, who said that he, too, had been unaware of any arms shipped to Iran prior to the January Finding.42 On the following day, November 18, North re- ceived calls from Alton Keel, Deputy National Secu- rity Adviser, Poindexter, and Richard Armitage, As- sistant Secretary of Defense, all concerning the legal problems raised by the pre-Finding arms shipments to Iran. In the morning on November 18, an executive branch general counsels' meeting was held in the office of White House Counsel Peter Wallison. This meeting was attended by NSC general counsel Thompson, Cooper, CIA general counsel David Do- herty, and State Department Legal Adviser Abraham Sofaer. Sofaer and Wallison expressed concern at the meeting when Thompson refused to provide them with all of the facts surrounding the Iran arms sales. Sofaer pressed on this point, and Thompson replied that he was acting on instructions from Poindexter. He said that the Congressional leaders would be given all the information they needed to know, but that there was no need for the President's counsel or the State Department's Legal Adviser to know any more than Thompson was saying.'" Thompson asserted that, from a political standpoint, matters "seemed calm and the [Congressional Intelli- gence] Committees seem to be accepting the position of the White House." Sofaer did not accept this expla- nation and told Wallison that Thompson's refusal to give them a full briefing was "extremely serious." Wallison agreed and stayed behind at the end of the meeting to talk with Thompson. Later that day, Sofaer was notified that Poindexter would brief him and Undersecretary of State Michael Armacost at 6:00 p.m.44 At the 6:00 p.m. briefing, Poindexter laid out more of the facts to Sofaer and Armacost than Thompson ''Cooper Test., Hearings, 100-6, 6/25/87, at 227. Cooper had received this assignment from the Attorney General on November 7, and had been advised at the same time that his NSC point of contact would be Paul Thompson, the NSC's general counsel. Meese Dep., 7/8/87, at 53-54. had disclosed earlier in the day?but still not all of the facts. For example, Poindexter made no reference to the pre-January 17 Findings or to the November 1985 HAWK shipment. Sofaer left the meeting highly concerned that he still did not have the whole story.45 During the same day, November 18, Poindexter and Casey spoke by secure telephone. A transcript of their conversation indicates that they discussed meet- ing to prepare for their Congressional briefings and for Casey's scheduled November 21 testimony on Capitol Hill. Poindexter told Casey that the NSC staff had been "putting together all the chronologies and all the facts that we can lay our hands on . . . 46 With respect to the proposed preparation meeting, Casey asked whether Poindexter intended to have many people present, specifically mentioning "State" and "Defense." Poindexter responded, "I'd like to spend some time just the two of us. . . . Ed Meese indicated . . . he should want to be helpful and so he would like to be in at least one of the meetings." 47 Meanwhile, at North's request, McFarlane re- viewed the draft opening statement to be used by the President at the news conference scheduled for the next evening. According to McFarlane, the statement seemed "to be incomplete in a number of respects," and McFarlane sent suggested changes to Poindexter by PROFs computer. In the proposed changes, McFarlane denied United States approval of any pre- Finding shipments.48 Later the same day, November 19, McFarlane stopped at Poindexter's office to pick up a copy of the President's opening statement for the press confer- ence. With at least NSC staffer Howard Teicher and North present (Keel and Poindexter may also have been there), McFarlane told North that a problem remains over "the channeling of money to the Con- tras." There is no evidence that anyone overheard McFarlane's statement to North.49 The President's November 19 News Conference On November 19, the President vouched for facts that were wrong. In his nationally televised news conference, the President made the following asser- tions?all of which were incorrect: ? The President denied any involvement by a third country in the arms sales. When asked if he could explain the Israeli role, he replied, "No, because we, as I say, have had nothing to do with other countries or their shipment of arms or doing what they're doing." ? When asked whether he was saying that "the only shipments with which we were involved were the one or two that followed your January 297 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 17 Finding and that . . . there were no other shipments which the United States condoned," the President responded, "That's right. I'm saying nothing, but the missiles we sold . . . ." ? The President asserted that 1,000 TOW mis- siles were transferred (in fact, 2,004 were trans- ferred), and that the 1,000 transferred TOWs "didn't add to any offensive power on the part of Iran." ? The President stated that "everything that we sold [Iran] could be put in one cargo plane, and there would be plenty of room left over." In addition, the President repeated his assertion that the United States had not traded arms for hostages, relying on the distinction that the Iranian Govern- ment itself did not hold the hostages. Although the President denied any third-country involvement in the sales and said he could not explain the role of Israel, the Israeli role had been discussed prominently in the cover memorandum on the basis of which the President signed the January 17, 1986, Finding permitting the sales to go forward. Further, while the President also stated at his news conference that the United States had not been involved with or condoned any shipments prior to the January 1986 Finding, he told the Secretary of State that day that he had known of the November 1985 shipment of HAWK missiles to Iran by Israel.* After the press conference, Charles Cooper tele- phoned Paul Thompson to initiate a correction of the President's obvious misstatement that no third coun- try had been involved in the arms sales. Thompson assured Cooper that the NSC staff was already aware of this error and was planning to correct it." A correction was issued from the White House 20 min- utes later. Even this correction, however, left the record inaccurate. The correction conceded that a third country had been involved, but did not state that the United States had been involved in the sales by that country prior to the January 17, 1986, Find- ing.6 Commenting on the numerous errors at the press conference, Regan testified that Poindexter and his staff had spun so many stories in preparing the Presi- dent that "this sort of confused the Presidential mind as to what he could say and couldn't say and what he should say and shouldn't say." 52 The Secretary of State, who had watched the press conference, sought an immediate meeting with the President.63 *Shultz Test., Hearings, 100-9, 7/23/87, at 44; Ex. GPS-C. Ac- cording to contemporaneous notes made by Shultz's Executive Assistant, the President made this statement to Shultz on November 19, 1986 prior to the press conference. 298 The President and Secretary of State Meet on November 20 When he asked the President for a meeting, Secretary Shultz said that he could demonstrate that a number of facts had been misstated at the press conference." In Secretary Shultz's view, the President's skillfulness as a communicator was being exploited by the NSC staff for its own purposes?to spread inaccurate infor- mation.65 The Secretary and the President met on November 20. Donald Regan was also there. It was, Secretary Shultz testified, a "long, tough discussion. Not the kind of discussion I ever thought I would have with the President of the United States." 56 According to Secretary Shultz, he reviewed with the President the factual errors at the press confer- ence.* The President "corroborated" the facts con- cerning his approval of various arms shipments?in- cluding the November 1985 HAWK shipment." The President said, however, that "what he expected to have carried out was an effort to get an opening of a different kind to Iran and the arms and the hostages were ancillary to that, that was not his objective." 58 Shultz replied, "Well I recognize that, Mr. President, and that is a good objective, but that isn't the way it worked." 59 The Secretary also asserted that the President was being given wrong information, including "informa- lion that suggested that Iran was no longer practicing terrorism." 60 He testified that his message overall to the President was: "You have got to look at these facts." 61 The NSC Staff's Chronologies Information was in fact being prepared by the NSC staff in the form of "chronologies," documents setting forth key events relating to the Iran initiative in chronological order. The NSC staff had begun pre- paring a chronology shortly after the disclosure of the Iran arms sales. The chronology started out as a one- or two-page outline. As time passed, however, the chronology was transformed into a 17-page single- spaced document containing background information and rationales for the various events and decisions. Although a number of persons worked on the NSC staff chronologies, not all participated in falsifying the facts. That was the province of North, McFarlane, and Poindexter. North testified that the three had purposefully misrepresented significant events in the chronologies.62 *Shultz Test., Hearings, 100-9, 7/23/87, at 44. A paper prepared for Shultz's meeting with the President detailed the facts that were at odds with public statements from the White House. Ex. GPS-45; Sofaer Dep. at 58. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 Poindexter acknowledged only that he had instruct- ed North to omit any reference to the diversion.63 Otherwise, both Poindexter and McFarlane claimed that they tried to paint a true picture in the chronolo- gies, and that any failures were the result of faulty memory or, in the case of McFarlane, an effort to "gild" the facts.64 The record refutes this claim?for the "errors" in the chronologies were not simply in- correct dates or imperfect renditions of meetings, but wholesale distortions of key events. Moreover, it was McFarlane himself who supplied narratives containing the most extreme misrepresentations, with Poin- dexter's approval and North's assistance. The most glaring misrepresentations concerned the Israeli shipments made before the President's January 1986, Finding?the August-September 1985 shipments of 504 TOW missiles and the November 1985, ship- ment of 18 HAWK missiles from Israel to Iran. The initial versions of the chronology, prepared by North on November 7 included fairly accurate references to those shipments." McFarlane then sent a PROF mes- sage to Poindexter on November 7 suggesting that "[i]t might be useful to review what the truth is." But McFarlane's version was not the "truth": ? He asserted that the August-September TOW shipments occurred when the Israelis "went ahead on their own" after McFarlane had disap- proved; and ? He made no mention at all of the November 1985 HAWK shipment. 66 McFarlane's "truth" set the stage for what was to come. Subsequent versions of the chronology, on No- vember 12 and 13, picked up the theme of "no prior U.S. approval" of the 1985 Israeli shipments and claimed that the United States "acquiesced" in Israel's TOW shipment only after the release of hostage Ben- jamin Weir on September 14, 1985. No reference was made to any Presidential approval of those shipments or to any of the prior discussions between Israel and the United States from June through September; nor was there any reference to the November 1985 HAWK shipment.67 In the November 17, 5:00 p.m. edition of the chro- nology, the authors declared falsely that the United States was "not aware of the [August-September TOW] shipment at the time it was made." 68 Howev- er, this version of the chronology did contain an accurate reference to the November 1985 HAWK shipment, except that it was silent on the question of U.S. knowledge and approval.68 Then, three separate discussions occurred on No- vember 18, between North and Keel, Poindexter, and Armitage, concerning the legality of the 1985 sales.7? At 10:30 a.m., Keel and North reviewed the questions the President might be asked at the press conference on November 19. Two of the questions were, "Did Israeli shipments on our behalf violate the law?" and, "Did this violate the Arms Export Control Act?" At 5:30 p.m., North spoke to Poindexter, who referred to the pre-Finding period and told North that the "big issue then was legality." Then, at 6:00 p.m., Armitage called and told North that lawyers were asking him about the Israeli shipments in 1985 and wanted to know whether the United States knew about them.71 Following these conversations, another version of the chronology was drafted at 7:30 p.m. on Novem- ber 18. It denied prior U.S. knowledge of the August- September 1985 TOW shipments and expressly stated that the November 1985 HAWK shipment was not an "authorized" exception to U.S. policy. It also con- tained an augmented misrepresentation of the TOW shipments. It stated that: ? When informed by Israeli official David Kimche of a possible transfer of TOWs, the United States, via McFarlane, refused to acqui- esce in the transfer or to guarantee replacement of the TOWS. ? When the United States learned after the fact of the TOW transfers, a decision was made not "to expose this Israeli shipment," so that the United States could exploit the Israeli channel to Iran to further its own strategic initiative." Later in the evening on November 18, McFarlane sent Poindexter a lengthy PROF message suggesting deletions to the November 17 draft chronology and an insert relating principally to the 1985 shipments. He recommended that the chronology add that, after authorizing a "dialogue" with Iran in July 1985, the President rejected two separate Israeli proposals for arms transfers (one for a direct sale, the other for shipment by Israel), and, further, that "[w]e subse- quently learned in late August the Israelis had trans- ferred 508 TOW missiles to Iran." 73 North incorpo- rated McFarlane's insert virtually verbatim in the next versions of the chronology, prepared on November 19 at 11:00 a.m. and November 20 at 1:00 p.m. and 8:00 p.m.74 The final two editions included two additional mis- statements contributed by North: (1) that the Israelis "told us that they undertook the action, despite our objections, because they believed it to be in their strategic interests," and (2) that "[a]fter discussing this matter with the President, it was decided not to expose this Israeli delivery . . . As noted, the November 1985 HAWK shipment first appeared in a straightforward way in North's initial November 7 chronology." It next appeared in the November 17, 3:00 p.m. version of the chronolo- gy, where it was presented as an Israeli shipment of *The "decision not to expose" fabrication first appeared, as dis- cussed earlier, in the Nov. 18, 7:30 p.m. version of the chronology. It dropped out of the Nov. 19, 11:00 a.m, edition, and reappeared in the Nov. 20 versions with a reference to the President. 299 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 11 ...1 . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 18 HAWKs which resulted from "urgent entreaties from the Iranians" and "raised U.S. concerns that we could well be creating misunderstandings in Tehran." 76 The 5:00 p.m. edition on November 17 kept the same description but added that "[t]hese mis- siles were subsequently returned to Israel in February 1986, with U.S. assistance."* On November 18, the chronology recited that the return of the HAWKs was "by mutual agreement of all three parties." 77 However, following the three conversations North had on November 18 with Alton Keel, Poindexter, and Richard Armitage regarding the legality of the 1985 shipments, the story began to change. On No- vember 18, the chronology asserted that the HAWK shipment was "not an authorized exception to [U.S.] policy," and was retrieved "as a consequence of U.S. intervention." 78 North conceded in his testimony that these changes in the chronology were an attempt to _deal with the Arms Export Control Act problems that had been brought to his attention in his earlier conversations.79 After McFarlane's lengthy PROF message of No- vember 18,80 the HAWK shipment reference disap- peared from the chronology and was replaced in its entirety with the precise language recommended by McFarlane?which made no reference to arms at all: Later in the fall, other transfers of equipment were made between Israel and Iran although some of the items were returned to Israel.8' The November 19, 11:00 a.m. edition of the chronolo- gy added that, in a December 1985 meeting with an Israeli official, McFarlane "made clear our strong ob- jection to the Israelis shipment of HAWK mis- siles." 82 On November 20, North and others turned to the proposed testimony that Casey was to give Congres- sional Intelligence Committees the next day. They faced the problem that a CIA proprietary airline had actually carried the HAWK missiles to Iran in No- vember 1985, but the President had denied U.S. in- volvement in that weapons shipment at his press con- ference the day before. Certain members of the NSC staff developed what Regan later termed a "cover story:" that the U.S. Government had been told by the Israelis that the November 1985 shipment carried by the proprietary was "oil drilling equipment," not arms. The "oil drilling equipment" cover story first ap- peared in the chronology on November 20 at 1:00 p.m., shortly before North, Poindexter, Casey, and others met to discuss Casey's testimony. It contained the following misstatements: 'N 9368. These statements were true as far as they went; but the chronology remained silent on whether the United States had ap- proved the shipment. 300 ? In mid-November 1985, the Israelis said they were nearing a breakthrough and asked a U.S. official for an airline that could discreetly deliver passengers and "cargo" to Iran. ? Since the United States "had expressed so much displeasure over the earlier TOW ship- ment," the Israelis assured the U.S. Government that the cargo was "oil drilling parts." Only then did the U.S. pass the name of a "proprietary" airline to haul the shipment. ? Not until January 1986 did the United States learn that "the Israelis, responding to urgent en- treaties from the Iranians, had used the proprie- tary aircraft to transport 18 HAWK missiles to Iran." ? The U.S. Government's "belated awareness" of this shipment "raised serious concerns that these deliveries were jeopardizing our objective of arranging a direct meeting with high-level Ira- nian officials." So Poindexter "noted our strin- gent objections to the HAWK missile shipment" to the Israelis and indicated that the United States would have to act to have them returned, as was done in February.83 Following the November 20 meeting to prepare Casey's testimony, and the subsequent objections to the proposed Casey testimony raised by the State Department, the cover story was amended?in what is believed to be the last version of the chronology? to delete all references to oil drilling equipment. The U.S. authorization of the November 1985 shipment, however, was still denied.84 The fictional accounts in the chronologies were not limited to the 1985 shipments. For example, the chro- nologies omitted the President's December 1985 Find- ing (which retroactively "authorized" the November shipment that the United States had supposedly ob- jected to); affirmatively misrepresented that there had been consultation with "all appropriate" or "relevant" Cabinet officers during the initiative; and baldly as- serted that all arms sales were "within the limits of established policy and in compliance with all U.S. law." All of this was not the result of any memory lapse. The consequences of this exercise in falsifying the facts were severe. As North testified, by creating an erroneous version of the facts in the chronologies, those responsible were "committing the President of the United States to a false story."88 On November 20 and 21, Poindexter and Casey would take further steps in the same direction. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 Casey and Poindexter Prepare for Congress On November 21, Casey was scheduled to testify before the House and Senate Intelligence Committees, and Poindexter was to brief delegatons of the same Committees. On November 20, a meeting was held in Poindexter's office to review a CIA draft of Casey's proposed testimony and coordinate it with Poin- dexter's upcoming briefing. In attendance were Casey, Attorney General Meese, Poindexter, North, Cooper, Thompson, and Robert Gates of the CIA.86 The CIA brought a proposed insert dealing with the November 1985 HAWK shipment. It said that the CIA had been told the shipment was oil drilling equipment.87 During discussion of the insert, North suggested changing it to say that "no one in the U.S. Govern- ment" knew at the time that the November 1985 shipment contained arms. According to Cooper, North also stated at the meeting that the United States had to force Iran to return the 18 HAWKs that Israel had delivered in November, after learning a few months after-the-fact that arms had been shipped.88 Both Meese and North made handwritten notes of North's points on the draft insert." North's version was accepted. The meeting lasted approximately 2 hours. Attor- ney General Meese had to leave early to make a speech that evening at West Point. After the meeting ended, Cooper was asked to come to White House Counsel Wallison's office. He went there with NSC general counsel Thompson. Wallison, Counsel to the President, strenuously objected to not having been included in the just-concluded meeting." During this session in Wallison's office, State De- partment Legal Adviser Abraham Sofaer telephoned Wallison, and indicated that there was a problem with Casey's proposed testimony. At Cooper's suggestion, Wallison returned Sofaer's call on a secure line. Sofaer advised Wallison that Secretary Shultz recalled a conversation with McFarlane in November 1985, in which McFarlane made specific reference to the ship- ment of HAWK missiles from Israel to Iran. Sofaer testified that he had also spoken with Deputy Attor- ney General Arnold Burns earlier in the day to ap- prise him of the discrepancy between Casey's draft testimony and Secretary Shultz's recollection. Burns told Sofaer that Attorney General Meese had been advised of this problem, and was aware of facts that would explain everything.* Wallison advised Cooper and Thompson of Sofaer's report. Cooper then asked Thompson to contact North and McFarlane to get the facts straight. Cooper reminded Thompson of North's statement at Sofaer Dep. at 38-41. Burns barely recalls the conversation, and Attorney General Meese has no recollection of talking to Burns about Sofaer's call. Meese Test., Hearings, 100-9, 7/28/87, at 221; Meese Dep., 7/8/87, at 70; Burns Int., 7/7/87. the meeting earlier in the day that no one in the U.S. Government knew that the November 1985 shipment contained arms. Thompson agreed to contact North and McFarlane.8' Cooper then returned to his office, spoke by tele- phone to Sofaer, and asked if Secretary Shultz was certain of his November 1985 conversation with McFarlane. Sofaer replied that the State Department had a contemporaneous note written by Secretary Shultz's Executive Assistant, Charles Hill, of a con- versation between McFarlane and Shultz on Novem- ber 18, 1985, which contained the word "HAWKS." Sofaer told Cooper that if Casey's testimony were given in its current form, "he [Sofaer] would leave the Government," to which Cooper replied, "We may all have to." 92 Cooper then telephoned Thompson, who said that North and McFarlane each stuck by his earlier story, that they had no contemporaneous knowledge that arms were shipped to Iran in November 1985. Cooper did not know who was right or wrong. Moreover, Sofaer told Cooper that if Casey testified that no one in the U.S. Government knew of the weapons ship- ment, Undersecretary Armacost would have to testify otherwise, 3 Cooper then placed a secure call to? Attorney Gen- eral Meese at West Point, and the two agreed that the problem language should be deleted from Casey's proposed testimony. Attorney General Meese agreed also with Cooper's suggestion that he return immedi- ately to Washington and take responsibility for "get- ting his arms around this. . . ." 94 Cooper next spoke directly to Poindexter (who al- ready had heard from Thompson), and Poindexter agreed that they would have to refrain from making the incorrect statement. Poindexter said he had at- tempted to discuss the issue with Casey, but that Casey was half-asleep when Poindexter called." Ac- cordingly, Cooper called CIA General Counsel David Doherty to advise him that the problem statement should be deleted. Doherty told Cooper that he al- ready had changed Casey's testimony in that regard.86 In his public testimony, North conceded that the oil drilling equipment cover story agreed to at the meet- ing on November 20, 1986, was false. He played down his role in preparing Casey's testimony, howev- er, and claimed that he acted promptly in a later private meeting with Casey to correct it. He testified that he corrected the proposed testimony even though "there are a lot of heroes walking around that have claimed credit" for causing the correction." Cooper's testimony conflicts with North's. Accord- ing to Cooper, it was North who pushed strongly for the oil drilling equipment cover story and the claim that "no one in the U.S. Government" knew that missiles rather than oil drilling equipment were being shipped in November 1985. A one-page draft insert in 301 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 North's handwriting corroborates Cooper's testimo- ny." So does the fact that the oil drilling equipment cover story was inserted into the NSC staffs chronol- ogy by North at 1:00 p.m. on November 20 shortly before the meeting with Casey." Moreover, what- ever efforts North made later to "correct" Casey's testimony, Casey told the oil drilling cover story to both Congressional Intelligence Committees the next day, modified so as to make it literally true but com- pletely misleading. The record makes clear that North, Poindexter, Casey, and others were engaged in a deliberate at- tempt to falsify the facts concerning the November 1985 HAWKs shipment. This point was illustrated in Donald Regan's testimony to the Committees. Regan testified that, although he was Chief of Staff, he was never consulted about the President's knowledge of the November 1985 shipment during the frantic effort to prepare a statement for Casey's testimony and Poindexter's Congressional briefing on what the U.S. Government knew.'" When asked at the hearing about the assertion that the U.S. Government believed that the November shipment contained oil drilling equipment?Regan dubbed that claim, "the cover story." 10' Poindexter, Casey, and the Intelligence Committees: November 21 November 21 was the day that Casey and Poindexter appeared before the Intelligence Committees of Con- gress?the event for which they had attempted to coordinate their statements on November 20. Their efforts continued on Friday morning, November 21, beset by the fact that their plan to present a well- orchestrated ."cover story" about the November 1985 HAWK shipment had broken down. At approximately 8:00 a.m., Cooper arrived at the CIA to ensure that the disputed language regarding the November HAWK shipment had been deleted from Casey's Congressional testimony. Cooper met with Casey. Casey accepted the revisions without comment.'" After the meeting, CIA Associate Gen- eral Counsel Jameson whispered to Cooper that during the November 1985 shipment, one of the pilots had radioed to the ground that the cargo was weap- ons.10 3 Poindexter was the first to brief members of the House and Senate Intelligence Committees. He relat- ed the cover story, not the actual facts. According to the memorandums of that meeting, Poindexter main- tained that: ? The United States only learned of the August- September 1985 TOW shipments after the fact, whereupon the President expressed both his dis- pleasure at the arms transfer and his appreciation 302 for the subsequent release of hostage Benjamin Weir. ? The United States did not learn until January 1986 that Israel had transferred 18 HAWK mis- siles to Iran in November 1985, and the United States persuaded the Iranians to return the mis- siles to Israel in February 1986. ? He (Poindexter) had learned only the day before that there may have been prior U.S. knowledge concerning the November 1985 ship- ment. ? Finally, Poindexter promised the Senate Intel- ligence Committee that he would check into the facts and report back.104 Poindexter attempted to explain away his false statements by claiming during the hearings that he had forgotten all about the November 1985 arms ship- ment at the time of this Congressional briefing.'" But Poindexter had been personally involved in this extraordinary shipment of HAWK missiles to Iran. North had written PROF notes and memorandums/ to Poindexter both before and after the November 1985 shipment explaining the problems in arranging it as well as the reason the Iranians had immediately rejected the HAWKs. Moreover, according to his testimony, on the first day that Poindexter served as National Security Adviser, December 5, 1985, he had obtained the President's signature on a Finding specif- ically designed to authorize, retroactively, and with- out notification to Congress, the U.S. Government's assistance with the November shipment and the at- tempted hostage trade?a Finding Poindexter de- stroyed only hours after he promised the Congres- sional Committees he would check into the facts and report back.1? 6 Casey testified next as part of a panel including Undersecretary of State Armacost and Assistant Sec- retary of Defense Armitage. In his opening statement, Casey testified that the CIA was asked in November 1985 to recommend a proprietary to transport "bulky cargo." The crew was told, he said, that the cargo consisted of spare parts for the oil drilling fields in Tehran. The phrase "no one in the U.S. Government found out that our airline had landed HAWK missiles into Iran until mid-January" had been deleted from his opening statement. But Casey gave no indication that the CIA and NSC staff knew that the shipment was arms, not oil drilling equipment.'" Under questioning by Senate Committee Members, Casey, like Poindexter, reverted to the cover story: SENATOR LEAHY: . . . On November 25th a plane owned by a CIA proprietary . . . delivered 18 HAWK missiles from Israel to Iran. I dis- cussed this at some length with Admiral Poin- dexter this morning. You referred to it here. The Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 i I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 Admiral did not have many details on it. I think he said that he learned of this only yesterday, this shipment by a CIA proprietary of these HAWK missiles. Now, did the CIA know what was on that aircraft, the November 25th '85 aircraft? MR. CASEY: There is some question about that. I was told yesterday the CIA didn't know it until later on. SENATOR LEAHY: Did not know until later on? MR. CASEY: Did not know until later on. Did not know until the Iranians told them some time in January by way of complaining about the inad- equacy of whatever was delivered. SENATOR LEAHY: But my concern is that the NSC says now that they didn't know what was going on and that it just found out that the CIA sent that flight over, and they are trying to figure out why nobody knew what was on it, and now the CIA says well, we did this because the NSC requested it, and we didn't know exactly what they wanted. Do you understand why somebody raised the questions wondering whether there was just plausible deniability being set up here. MR. CASEY: Hadn't thought about it. I hadn't thought about it. SENATOR LEAHY: The question I ask, and I would hope that the Agency will give me a very full, clear, specific answer, is did they know- at the time, and if they didn't know at the time, why not? MR. CASEY: Well, I have inquired into that myself, and have been told, and as far as I can find out, the Agency did not know what it was handling at the time. Now, I am still going to inquire further into that." 108 Before the House Permanent Select Committee on Intelligence, Casey's testimony concerning the No- vember HAWK shipment was similarly misleading. When asked if the Israelis had made any shipments to Iran requiring advance notification or permission, Casey referred only to the August-September 1985 TOW shipments.109 Casey went out of his way on three occasions during his House Committee testimony to say that the NSC staff was "guiding and active in the private provision of weapons to the Contras." 110 303 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 19 Chapter 19 1. Shultz Test., Hearings, 100-9, 7/23/87, at 35. 2. Ex. GPS-35. 3. Id. 4. Ex. GPS-36. 5. Id. 6. N 7796-99, Iran Press Guidance from Poindexter to Keel, 11/4/86; Ex. GPS-37. 7. Shultz Test., Hearings, 100-9, 7/23/87, at 38. 8. N 9028-29. Rod McDaniel Notes, 11/6/86. 9. Pres. Docs., 11/10/86, Vol. 22, No. 45, at 1534. 10. N 18467, PROF from Poindexter to McFarlane, 11/ 7/86, 22:55:45. 11. Ex. GPS-C. 12. Ex. DTR-41. 13. Id. 14. Ex. DTR-41A. 15. Ex. DTR-41. 16. Ex. DTR-41A. 17. Id. 18. Id. 19. N 10378-86. 20. N 8996. 21. Ex. DTR-41A. 22. Ex. GPS-38A. 23. Ex. GPS-38B. 24. Shultz Test., Hearings, 100-9, 7/23/87, at 41. 25. N 7827; N 9030, Notes from National Security Brief- ing, 11/12/86. 26. N 749, PROF from McFarlane to North, 11/11/86, 00:26:41. 27. N 18494; N 19113. 28. N 18476. 29. Ex. EM-21. 30. Id. 31. N 9031. 32. Tower, at D-12 & D-13. 33. Pres. Docs., 11/17/86, Vol. 22, No. 46, at 1561. 34. Id. 35. Shultz Test., Hearings, 100-9, 7/23/87, at 40; see Ex. GPS-C. 36. Ex. GPS-45. 37. Shultz Test., Hearings, 100-9, 7/23/87, at 42-43; see Ex. GPS-42, at 12. 38. Shultz Test., Hearings, 100-9, 7/23/87, at 43. 39. Ex. EM-23. 40. Cooper Test., Hearings, 100-6, 6/25/87, at 228-34. 41. Id. 42. Id. 43. Sofaer Dep., 6/18/87, at 8-21. 44. Id. 45. Id., at 21-28; Sofaer Dep. Ex. 1. 46. C 005. 47. C 006. 48. McFarlane Test., Hearings, 100-2, 5/11/87, at 166-69. 49. Id., at 68. 50. Cooper Test., Hearings, 100-6, 6/25/87, at 237-39. 51. Ex. EM-32. 52. Regan Test., Hearings, 100-10, 7/30/87, at 24-25. 53. Shultz Test., Hearings, 100-9, 7/23/87, at 44. 54. Id., at 44. 55. Id., at 40. 56. Id., at 44. 57. Shultz Test., Hearings, 100-9, 7/23/87, at 45. 304 58. Id. 59. Id. 60. Id. 61. Id. 62. North Test., Hearings, 100-7, Part I, 7/7/87, at 30-33, 35. 63. Poindexter Test., Hearings, 100-8, 7/16/87, at 108; 7/ 20/87, at 274. 64. Poindexter Test., Hearings, 100-8, 7/16/87, at 108-09; 7/17/87, at 144; 7/20/87, at 302-03; McFarlane Test., Hear- ings, 100-2, 5/11/87, at 67, 78-79; 5/12/87, at 93, 106-07. 65. N 5617-20. 66. N 7501. 67. N 9314-15. 68. N 9368. 69. Id. 70. Q 2629, Q 2632. 71. North Test., Hearings, 100-7, Part I, 7/7/87, at 17-18; Q 2629, Q 2632. 72. N 5648. 73. N 12188-90. PROF from McFarlane to Poindexter, 11/18/87, 23:06. 74. N 5661, N 2971, N 42315, N 9385. 75. N 5617-20. 76. N 5576. 77. N 8255; N 5592. 78. N 5655. 79. North Test., Hearings, 100-7, Part I, 7/7/87, at 47. 80. N 12188-90. 81. Ex. 57. (RCM). 82. N 5667. 83. N 5679. 84. N 9385. 85. North Test., Hearings, 100-7, Part I, 7/7/87, at 35-36. 86. Cooper Test., Hearings, 100-6, 6/25/87, at 239; Meese Test., Hearings, 100-9, 7/28/87, at 217. 87. Ex. CJC-6. 88. Cooper Test., Hearings, 100-6, 6/25/87, at 245-46. 89. Meese Test., Hearings, 100-9, 7/28/87, at 218-19. 90. Cooper Test., Hearings, 100-6, 6/25/87, at 239. 91. Id., at 248-49; Sofaer Dep., 6/18/87, at 42-49. 92. Cooper Test., Hearings, 100-6, 6/25/87, at 244-50; Sofaer Dep., 6/18/87, at 48. 93. Cooper Test., Hearings, 100-6, 6/25/87, at 249-50. 94. Id., at 250. 95. Id., at 251. 96. Id., at 239-52. 97. North Test., Hearings, 100-7, Part I, 7/7/87, at 37. 98. Ex. OLN-31. 99. Ex. OLN-23. 100. Regan Test., Hearings, 100-10, 7/30/87, at 26. 101. Id., at 24. 102. Cooper Test., Hearings, 100-6, 6/22/87, at 252. 103. Id., at 266. 104. Exs. JMP-70, JMP-79, JMP-80. 105. Poindexter Test., Hearings, 100-8, 7/16/87, at 113. 106. Id., at 123. 107. Casey, HPSCI Test., 11/21/86, at 6; Casey, SSCI Test., 11/21/86, at 9. 108. Casey, SSCI Test., 11/21/86, at 31-36. 109. Casey, HPSCI Test., 11/21/86, at 46. 110. Id., at 65. See also id., at 42-43, 46. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 November 1986: The Attorney General's Inquiry The Attorney General's Inquiry Is Launched When Attorney General Edwin Meese returned to Washington on the morning of November 21, he im- mediately convened his top advisers to discuss the Administration's conflicting versions of what had ac- tually happened in November 1985. Present were Deputy Attorney General Arnold Burns, John Rich- ardson (the Attorney General's Chief of Staff), Wil- liam Bradford Reynolds (Assistant Attorney General for the Civil Rights Division), and Charles Cooper (Assistant Attorney General for the Office of Legal Counsel).' Cooper briefed the group on the discrep- ancies between the proposed Casey testimony and the facts as recalled by others in the Administration. The Attorney General decided to propose to the President that he be commissioned to gather the facts so that the Administration would be speaking with one voice. 2 At 9:22 a.m., the Attorney General called Poin- dexter on a secure telephone and told him to arrange a meeting among themselves, the President, and Donald Regan.3 According to Regan, Attorney Gen- eral Meese met with him before they went to see the President on the morning of November 21. Attorney General Meese told Regan he was having trouble getting the facts in one place, and that a full investiga- tion should be made.4 At approximately 11:30 a.m., Attorney General Meese, Regan, and Poindexter met with the President. According to Attorney General Meese, he told the President that the Administration did not have a co- herent picture of the Iran initiative because the oper- ation was so heavily compartmentalized. Attorney General Meese suggested that he be authorized to gather the facts to present an accurate overview for the President and the public. The President acceded. It was agreed that over the weekend the Attorney General would try to gather the facts in time for the previously scheduled National Security Planning Group (NSPG) meeting on Monday, November 24. Attorney General Meese testified that when he em- 77-026 0 - 87 - 11 barked on this effort he was acting as "legal adviser to the President." * Meanwhile, at 11:00 a.m., Ledeen and McFarlane met at Ledeen's home to discuss the extent of the arms sales transactions. McFarlane said he was clear on everything except the November 1985 shipment.5 North appeared at Ledeen's home about 12:30 p.m., "in some distress" according to McFarlane.6 Ledeen testified that both North and McFarlane referred to meetings with the Attorney Genera1.7 McFarlane agreed to drive North back downtown. During the drive, North told McFarlane that he was concerned Ledeen may have made money on the arms transac- tions, a concern that North denied in his public testi- mony.8 North also told McFarlane that he was going to have a "shredding party that weekend." McFarlane testified that he responded, "011ie, look, you have acted under instruction at all times and I'm confident that you have nothing to worry about. Let it all happen and I'll back you up." 9 North denied using the term "shredding party," but recalled telling McFarlane that all key documents already had been destroyed.1? Meese arrived back at the Justice Department at 12:45 p.m. and advised Reynolds, Cooper, and Rich- ardson that the President had authorized him to "get his arms around the Iranian initiative." "** Meese then met with FBI Director William Webster on an unrelated matter. When Webster brought up the con- fusion surrounding the Iran arms sales, Attorney Gen- eral Meese advised that the President had asked him to conduct a factual inquiry because different partici- pants had different pieces of knowledge to be recon- ciled. Attorney General Meese declined an offer of FBI assistance from Webster, stating that he saw nothing criminal in the arms sales. Webster agreed that absent evidence of a crime, the FBI should not *Meese Test., Hearings, at 100-9, 7/28/87, at 224; Meese Dep., at 82-84. North and Poindexter also characterized Meese's role as that of "friend" of the President, not Attorney General. North Test., Hearings, 100-7, Part II, 7/14/87, at 186-187; Poindexter Test., Hearings, 100-8, 7/16/87, at 133-134. Poindexter described Meese's role as a "special adviser," Id. **The Attorney General instructed Richardson to keep a log of all meetings the Attorney General had during this inquiry, includ- ing the time of the interviews, meetings and those in attendance. Richardson Dep., 7/22/87, at 34-35. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 305 I] !I .1 .1.. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 be involved." Attorney General Meese did not relate the details surrounding Casey's testimony or the possi- ble violations of the Arms Export Control Act arising from the 1985 shipments." The Attorney General also testified that he did not bring in the FBI because he and Webster concluded that it would not be "ap- propriate." 14 According to North's deputy, Robert Earl, North came to his office during the afternoon of November 21 and told Earl that he had just attended a meeting at the White House, and that the Attorney General was sending a Justice Department team to the Nation- al Security Council because the Congressional brief- ings had raised questions. According to Earl, North said he had asked Attorney General Meese, "Can I have or will I have 24 or 48 hours" and Meese re- sponded that he did not know whether North would have that much time." The Attorney General re- called no such conversation with North; North denied it; and there is no other evidence that North met with the Attorney General that day." Earl testified fur- ther that North asked for Earl's Iran file, remarking that "It's time for North to be a scapegoat." Earl stated that, when he gave his file to North, he could tell that he would never see it again. Earl was right." That afternoon, Attorney General Meese selected his factfinding team. He chose two political appoint- ees and one person from his personal staff. He select- ed Cooper because he was already looking into the matter as head of the Office of Legal Counsel, which provides advice to the executive branch on various legal matters, including national security. Richardson was the Attorney General's Chief of Staff. Reynolds was assigned because, in addition to his responsibil- ities as Assistant Attorney General for Civil Rights, he coordinated certain national security matters and was Counselor to the Attorney General." Meese testified that he never considered assigning attorneys from the Office of Intelligence Policy and Review, whose job it is to review covert action find- ings and applications for intelligence surveillance ac- tivities. Nor, according to the Attorney General, did he consider assigning additional attorneys to assist with the formidable tasks of document review and witness interviews. No members of the Criminal Divi- sion were included, even though William Weld (As- sistant Attorney General in charge of the Criminal Division) told Cooper and Reynolds at a staff meeting that morning that he thought the Criminal Division should be involved." Meese testified that it was his view at the time that there was no reason to believe any crime had been committed or that any criminal investigation was required.2? At their meeting on Friday afternoon, the factfind- ing team formulated a list of witnesses to be inter- viewed. It included McFarlane, North, Secretary Shultz, Secretary Weinberger, the Vice President, Paul Thompson, Stanley Sporkin, John McMahon, Charles Allen, the CIA's Deputy Director for Oper- 306 ations, the CIA Deputy Chief Counsel, and CIA op- erations officers. Meese listed items that needed action, including contacting Poindexter to gather doc- uments and Casey to arrange interviews of Sporkin and McMahon. The focus of the inquiry was to be the November 1985 HAWKs shipment.2' The NSC Staff Responds by Altering and Destroying Evidence Once those at the center of the Iran arms sales were alerted to the Attorney General's inquiry, they took steps, in Colonel Earl's words, to "close down the compartment"?destroy all the documentary evi- dence. 2 2 North met with Poindexter at 1:30 p.m. and then again at 2:25 p.m. on November 21.23 Sometime that same afternoon, North instructed his secretary, Fawn Hall, to alter a series of official action memorandums that he had written during the previous year to then- National Security Adviser McFarlane. These memo- randums related to North's activities in raising funds and arranging military assistance for the Contras during the period of the Boland Amendment. McFar- lane had told North a year earlier, during the 1985 Congressional inquiry, that these memorandums raised significant problems under the Boland Amendment.24 McFarlane had given North a handwritten list con- taining the NSC's "System IV" identification numbers of the problem documents.* North kept McFarlane's list taped to his desk near the computer terminal during the ensuing year.25 Sometime on November 21, 1986, North requested the originals of the documents on McFarlane's list from the System IV security officer, who found and provided North with all but one.** There is no evi- dence that the System IV security officer knew of North's purpose in requesting these documents. North then proceeded to alter the original System IV documents by hand. The gist of his alterations was to eliminate references to the funds raised for the Contras from third countries during the Boland cutoff, and also to eliminate or obscure passages in the documents that showed the NSC staffs active role in facilitating the provision of military intelli- *Hall Test., Hearings, 100-5, 6/8/87, at 478-79; North Test., Hear- ings, 100-7, Part I, 7/8/87, at 173. Ex. FH-1. The NSC maintains a document tracking and filing system that includes assigning discrete numbers to documents prepared by the NSC staff. "System IV" is utilized for the most sensitive, intelligence-related documents. **Ex. FH-1A; Ex. OLN-71. The one document that the security officer could not find (System IV # 40124), he presumed to have been destroyed and so advised North. In fact, the document, which had been written in December 1984, was in the files, but the security officer had checked only the files for 1985. This December 1984 document which North had sought to alter recounted a meet- ing that North had held with an official of Country 4 to solicit lethal assistance for the Contras. Ex. GJS-1. The document was provided to the Committees during the Committees' investigation. See Hall Test., Hearings, 100-5, 6/8/87, at 278. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 gence and other lethal assistance for the Contras during the sameripe od. 26 North gave the doctored documents to Hall and instructed her to prepare new originals containing North's changes. Hall testified that she followed North's instructions without paying attention to the nature of the alterations or asking their purpose. She admitted, however, that she did not feel comfortable, but assumed North had a valid reason. She stated also that she did not then know that the Attorney General had commenced an investigation or that his represent- atives would shortly be reviewing NSC documents." After making the alterations, Hall destroyed the original documents and was preparing to replace her file copies of the original versions of the documents with copies of the altered originals when she was distracted by North's shredding of documents and volunteered to help.* The document shredding involved North, Hall, and Earl. North pulled documents from his safe; Hall shredded them. Earl brought documents down from his office, and these, too, were shredded.28 Hall asked North if she should shred his telephone logs, and he agreed. Hall also shredded PROF notes and KL43 messages.** She could not recall what other types of documents went into the shredder. But the quantity was large?approximately one and one half feet of documents. Indeed, so many documents were de- stroyed that the shredding machine actually jammed and Hall needed assistance from the Crisis Manage- ment Center to reactivate it. Hall testified that, al- though documents were normally shredded in North's office, never before had there been such an organized program of document destruction or such a large volume of documents destroyed." Although Hall stated that, when she participated in the shredding?as in the alteration of documents?she did not know of the Attorney General's inquiry, North and Earl certainly knew. Yet they both main- tained in their testimony that the document destruc- tion was justified to protect the security of the covert action or, as Earl put it, "the compartment." 3? But in fact, the investigators from whom North and Earl were suppressing this evidence were officials of their own Government who had been directed to investi- gate by the President. *Hall Test., Hearings, 100-5, 6/8/87, at 499-502. Because Hall ultimately did not complete the alteration process (by substituting copies of the altered documents for her file copies of the originals), both versions of the documents were found in the NSC files and provided to the Committees during the Committees' investigation. Exs. FH-2 through FH-6A. **When these PROF notes were destroyed, North and others apparently believed that those messages were gone forever. They did not know that, unless messages were deleted from the computer memory itself, the messages still could be retrieved for a time. Such retrieval took place, and that is why the Committees were able to obtain at least some PROF messages that North and others believed to have been destroyed. Poindexter, too, destroyed evidence. At aproxima- tely 3:00 p.m. on November 21, the Attorney General telephoned Poindexter and requested that he make available for review all documents relating to the Iran initiative." Poindexter then ripped up the only signed copy of the President's December 1985 Finding, which retroactively authorized U.S. participation in the November 1985 arms shipment. Poindexter admit- ted at the public hearings that he destroyed this Find- ing because it described the Iran initiative as unambig- uously arms-for-hostages, and therefore would have been politically embarrassing to the President." It also would have stripped away the cover story con- cocted by the NSC staff. It would never reach the investigators. Since the President had obviously been aware of the December 1985 Finding when he signed it, Poin- dexter could not explain why he thought that destroy- ing of this Presidential record would nullify its exist- ence 33?unless he somehow felt confident that the President would either fail to recall the Finding or deny that he had ever signed it. As recently as a week before Poindexter's public testimony, the White House announced that "[o]ur position is that [the Finding] never went to the President, period." 34 Poindexter's participation in destroying evidence did not stop with the Finding. He also tore up certain PROF notes possibly used to brief the President, which had been stored with the Finding. Although Poindexter said he could not recall their content, these documents were of sufficient importance to be locked with the original Finding in Poindexter's secure safe.35 In addition, during the afternoon of November 21, North came to Poindexter with his 1985 spiral note- book which contained North's contemporaneous notes regarding the November 1985 HAWK shipment. se Those notes showed that North and others in the U.S. government were involved with that shipment." Like the Finding, the notes belied Poindexter's state- ment to Congress earlier that day that the United States did not learn of the true contents of the ship- ment until after it was made. Moreover, although Poindexter testified at the public hearings that North's notes did not reflect that the President had approved the HAWK shipment," in fact, North's notes of No- vember 26, 1985 actually read: "R.R. directed oper- ation to proceed. If Israelis want to provide different model, then we will replenish." 39 Poindexter did not object to North's announced intention to destroy the notebook.4? North, Poindexter, and their aides were not the only persons involved in the Iran-Contra Affair to destroy evidence in November 1986. Documents were also shredded at the offices of Secord's company, Stanford Technology Trading Group International (STTGI). According to the testimony of Secord's Ad- ministrative Assistant, Shirley Napier, the documents 307 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 destroyed at STTGI included steno books, telephone logs, and telexes. The destruction continued over a period of days. The participants were Secord, Robert Dutton, Napier, and an STTGI secretary.4' Napier originally testified that the shredding activi- ty occurred early in December 1986.42 Several weeks after her deposition, Napier submitted an affidavit changing her testimony, based on refreshed recollec- tion, to place the shredding during the week of No- vember 17, 1986, "probably the 19th through the 21st"?the same week as the shredding in the White House.* North and McFarlane took other actions on No- vember 21 in response to the Attorney General's in- vestigation. At 3:15 p.m., North met again with Ledeen, this time in North's office, and discussed the November 1985 HAWK shipment. North knew that Ledeen could testify to U.S. involvement. He asked how Ledeen would respond to questions regarding the shipment. Ledeen replied that he would say he was aware of the shipment but did not know who authorized it or how or when the authorization took place. North said that was fine. North stated also that he had been saving things for "his grandchildren" which he would now have to shred.** The Attorney General's investigation went forward later that afternoon with an interview of McFarlane by Meese and Cooper. Attorney General Meese urged McFarlane to tell the whole truth, assuring him this was in the President's interest. McFarlane said he believed that the November 1985 shipment contained oil drilling equipment until he was told otherwise in May of 1986.43 When asked if he had told Secretary Shultz in 1985 about the HAWK shipment, McFar- lane said he could not recall, but did not dispute it. Cooper testified that neither he nor the Attorney General told McFarlane that Secretary Shultz had a contemporaneous note indicating that McFarlane had told him about the HAWK shipment before it oc- curred.44 But McFarlane testified that he learned of the note from the Attorney General at that same interview.45 McFarlane's version is corroborated by the fact that he called the State Department right *Napier Aff., 5/11/87, at Par. 7. Dutton maintained at the hear- ing that the document destruction at STTGI was undertaken be- cause "[wle had a great concern about the security of the office. . . It was General Secord's desire that we don't have any superfluous material laying around the office." But since Dutton also testified that the only records of his that were shredded were supposedly duplicates, he could not explain how destruction of only the dupli- cates preserved operational security. In any event, Dutton did not testify that the numerous other documents shredded at STTGI were only duplicates. Dutton Test., Hearings, 100-3, 5/27/87, at 251. **Ledeen Dep., 6/19/87, at 22. Ledeen also recalled in his depo- sition that, prior to November 21, North had told him that the Justice Department was investigating the possibly illegal sale of HAWK missiles in 1985 and suggested that Ledeen retain an attor- ney. North told Ledeen that he also had been advised by someone from the Justice Department to get an attorney. Id. at 9-10, 27. 308 after the interview asking for a copy of the note." The note, of course, was highly significant, because it was the only existing document known to McFarlane that indicated that U.S. officials did indeed know of, approve, and had participated in, the HAWK ship- ment. North and Poindexter apparently believed they had destroyed or otherwise removed all other such documentary evidence. During the Attorney General's interview, McFar- lane did not volunteer anything about the document shredding comment from North earlier in the day. Nor did McFarlane volunteer that he knew that pro- ceeds of the Iran arms sales had been diverted to the Contras.47 McFarlane testified that he should have told the Attorney General, but it did not occur to him to mention these facts." At the conclusion of the interview, after Cooper had left, McFarlane stayed behind to speak privately to Meese. He told Attorney General Meese that al- though he had taken full responsibility in a speech delivered the night before to "protect the President," he wanted Meese to know that the President was "four square" behind the Iran initiative." According to McFarlane, the Attorney General said it was pref- erable legally if the President had authorized the early shipments. 5 Immediately after leaving the Attorney General's office, McFarlane used a pay telephone outside of the Justice Department to call North." North's notes of that call indicate that McFarlane said he was told that the Arms Export Control Act was not a problem and that "RR" [Reagan] would be supportive of a "mental finding." McFarlane sent Poindexter a PROF note later that evening similarly describing his meeting with the Attorney General. In that note he stated: [I]t appears that the matter of not notifying [Con- gress] about the Israeli transfers can be covered if the President made a 'mental finding' before the transfers took place. Well in that sense we ought to be OK because he was all for letting the Israe- lis do anything they wanted at the very first briefing in the hospital. Ed [Meese] seemed re- lieved at that.52 While the Attorney General and Cooper met with McFarlane, Reynolds, and Richardson spent Friday afternoon at the Justice Department doing routine work and reading the NSC staff's chronologies.53 At- torney General Meese testified that he did not send anyone to review the NSC documents on Friday afternoon, despite the short reporting deadline of Monday afternoon, because "there was no urgency to it." 54 It was midafternoon anyway and the NSC staff needed time to prepare their documents for review.55 After the McFarlane interview, Meese, Cooper, Reynolds, and Richardson made plans to meet the next morning. Sometime in the early evening, Secre- tary Shultz called to tell Meese that he was available Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 CIA-RDP89T00142R000500610001-7 Chapter 20 for an interview the following morning. Meese also called Secretary Weinberger,56 who told Meese that he could be reached that weekend at the hospital to which his wife had been admitted. Subsequently, At- torney General Meese spoke to Secretary Weinberger over the weekend and, although he could not recall what Secretary Weinberger said, he remembered con- cluding that Secretary Weinberger had no useful in- formation.5 7 On November 21, Attorney General Meese called Casey to let him know about the inquiry and what he would be doing at the CIA. Meese also mentioned he wanted to meet with Casey over the weekend." Later that evening, Cooper made arrangements for John McGinnis, an attorney from the Justice Depart- ment's Office of Legal Counsel, to review intelligence reports regarding the Iran arms sales. McGinnis re- viewed these reports overnight and reported back to Cooper that they indicated that the U.S. was involved in the 1985 Israeli shipments.59 According to the At- torney General's statement during his November 25 press conference, these reports also indicated that excess profits from the sale had been made available for some other purpose.6? As the day drew to a close, North remained late in his office to meet with Richard Miller, a private fund- raiser for the Contra cause, who arrived at North's office as North was packing his briefcase. North asked Miller to drive him to Dupont Circle. Either during that drive, or the day before, North told Miller that the Attorney General had advised him to get an attorney. The Attorney General denied telling North to get an attorney; and North testified that it was Casey who so advised him." Miller dropped North at the office building of North's attorney.62 November 22: Diversion is Discovered With the first McFarlane interview behind them, At- torney General Meese and Cooper began their inter- view schedule in earnest early Saturday morning. At 8:00 a.m. they interviewed Secretary Shultz and his assistant Charles Hill at the State Department." Re- garding the November 1985 shipment, Secretary Shultz said that on November 18, 1985, McFarlane told him that Israel was going to send HAWK mis- siles to Iran in a trade for the release of U.S. hostages. Secretary Shultz also informed Meese and Cooper that the President had told him earlier that week that he [the President] had contemporaneous knowledge of the November 1985 HAWK shipment.64 Meese and Cooper asked Hill for the notes of the Shultz/McFar- lane conversation, which Hill provided on Monday morning, November 24.65 Secretary Shultz testified that, during his interview, he expressed concern that the Iran arms sales might be connected to the Contras. Secretary Shultz said in his testimony he based this concern on the fact that Southern Air Transport's name had come up in the Contra resupply operation and also in the Iran arms transactions.66 Secretary Shultz's version of this event is corroborated by Hill's contemporaneous notes of Meese's interview of Shultz. Those notes reflect that Secretary Shultz told Meese: "Another angle worries me. Could get mixed up with help for freedom fight- ers in Nicaragua. One thing may be overlapping with another. May be a connection." 67 During his public testimony, Attorney General Meese initially denied that Secretary Shultz had ever mentioned any connection between the Iran arms sales and the Contras. When Hill's notes were shown to the Attorney General at the hearings, Meese denied that the notes were made at the interview, and stated they were notes of a later meeting at the State Department between Shultz and State Department Legal Adviser Abraham Sofaer." During his next day of testimony, Meese stated that the reference to a connection between the Iran arms sales and the Con- tras was only to "a political connection that enemies of the administration would love to wrap together" (which also appears in Hill's notes). Attorney General Meese denied that Secretary Shultz was referring to any actual connection between the Iran arms sales and the Contras.69 Secretary Shultz's version is corroborated by Hill's contemporaneous notes of Shultz's interview with Meese. Moreover, on November 23, the day after Secretary Shultz's interview with Meese, Sofaer told Cooper that he was concerned that the surplus of funds from the Iran arms sales had possibly been used by Southern Air Transport to subsidize the Contra resupply efort.7? After Secretary Shultz's interview, the factfinding team decided that Reynolds and Richardson should go to the NSC to review documents. They were to look in particular for documents that would indicate whether the 1985 shipments were authorized by the U.S. Government.7' After Reynolds and Richardson left for the NSC, Attorney General Meese and Cooper interviewed Stanley Sporkin, former General Counsel to the CIA." Sporkin told them that he drafted a Finding in November 1985 after he learned that the CIA had assisted in arranging transportation of the HAWK missiles to Iran.73 Reynolds and Richardson arrived at the West Wing of the White House sometime after 11:00 a.m. NSC General Counsel Paul Thompson escorted them to North's office in the Old Executive Office Building, where they met Earl. The Justice Department offi- cials told Earl they only wanted to see documents relating to the Iran initiative. Earl pulled out accor- dion-style brown folders from the shelves behind North's desk and placed them on the table.74 309 Approved For Release 2011/05/25 CIA-RDP89T00142R000500610001-7 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 Richardson also asked for documents from Poin- dexter's and Thompson's files. Thompson replied that they did not have any because as soon as they had read the documents, they sent them back to the origi- nating office. 75 Reynolds and Richardson began to review the doc- uments on the table at approximately noon. Accord- ing to Reynolds, sometime during the first hour of their review, Reynolds came across an undated, un- signed memorandum describing the particulars of a proposed Iran arms transaction to take place in early April 1986. He read the memorandum and put it back. He saw another version of the memorandum with additional information describing an upcoming ship- ment of arms to Iran including a financial breakdown of the transaction. Reynolds did not set aside either of these memorandums for copying. He recalled that neither version included any section setting forth the diversion of arms sales funds to the Contras. To the best of the Committees' knowledge, these versions have never been recovered.76 Reynolds continued his document review of a folder containing intelligence reports. In the back of this folder was a white folder stamped with a red White House label which contained what appeared to be a third version of the memorandum he had seen earlier. He quickly flipped through it. He noted that page 5 included a paragraph stating that $12 million worth of residual funds from the arms sales would be used to purchase supplies for "the Nicaraguan Demo- cratic Resistance Forces." This materiel was needed to "bridge" the gap between current shortages and "when Congressionally approved lethal assistance . . . can be delivered." 77 Reynolds was shocked. He passed the memoran- dum to Richardson. Richardson read it and was also surprised. Reynolds intentionally did not clip the doc- ument so as not to draw attention to it, but returned it to the file where he could later find it. He continued reviewing other documents." At approximately 1:45 p.m. Reynolds and Richard- son broke for lunch with Cooper and Attorney Gen- eral Meese. On the way out, they met North. Reyn- olds told North they had not seen any 1985 files, and North promised to produce them.79 During lunch at the Old Ebbitt Grill, Reynolds told Attorney General Meese and Cooper he had found a memorandum which indicated that $12 million gener- ated from the Iran arms sales may have gone to the Contras. Attorney General Meese and Cooper ex- pressed great surprise. There was discussion of wheth- er North wrote the memorandum. The remainder of the lunch was devoted to a discussion of the 1985 shipments and the data collected by McGinnis. There was no discussion of securing documents.8? The Attorney General's methodology for conduct- ing the inquiry changed at this point. Before discov- ery of the diversion memorandum, all interviews were conducted by the Attorney General with another Jus- 310 tice Department official and notes were taken. There- after, with the exception of the North interview, all interviews conducted by Meese were one-on-one, with no notes taken?including interviews of Casey, McFarlane, Poindexter, Regan and the Vice Presi- dent.* After Reynolds and Richardson had left the NSC for lunch on November 22, North reviewed more documents and selected some for shredding. North's office shredder was jammed, however, and other likely locations in the Old Executive Office Building were not open. Later, Earl saw North with a file full of documents standing beside Paul Thompson. North indicated he was going to the White House Situation Room to use the shredder there." North testified that he was actually shredding docu- ments in his office while Reynolds and Richardson were present.82 However, Reynolds and Richardson denied this, and Earl, as noted, testified that North's office shredder was jammed." While the Attorney General's team was meeting at the Old Ebbitt Grill, Casey and Poindexter were also having lunch together. They were joined by North. In his testimony, Poindexter recalled very little about that 2-hour lunch other than that it was initiated by Casey and that Casey discussed his testimony before the House and Senate Intelligence Committees the day before. 84 Reynolds and Richardson returned to the NSC at approximately 3:30 p.m. where they found North and Earl. Richardson testified that everything appeared to be as they had left it." While Reynolds and Richardson reviewed docu- ments, North worked at this desk and spoke on the telephone. Richardson took notes of some of these calls. He overheard North speak to an Israeli using various code words, including "Beethoven" in refer- ence to Poindexter. North told the Israeli that a lot had come out about the Iran initiative already, but the most sensitive information had not been exposed." During that afternoon, North sat down with Reyn- olds and Richardson and told them he was ready to answer their questions. They responded that they were there only to review documents and the Attor- ney General would interview North later.87 Accord- ing to Richardson, North said "he knew he would not be long for this job." 88 Reynolds and Richardson reviewed documents until approximately 7:15 p.m., at which time they and North left North's office. Reynolds and Richardson made plans to complete their review Sunday morn- ing.89 *Meese Test., Hearings, 100-9, 7/29/87, at 78-81. Meese testified that the reason he did not take notes of his interviews with Casey, McFarlane, Poindexter, Regan or the Vice President was that he was not attempting to solicit a great deal of information, but merely trying to confirm what North had said. Id. at 331-34. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 20 North called Attorney General Meese at 3:40 p.m. that afternoon to arrange the interview.90 Meese asked to interview North on Sunday morning, but North said he wanted to attend church and take his family to lunch first. Meese agreed to set the inter- view for 2:00 p.m.91 Six minutes after North spoke to Meese on Novem- ber 22, Casey called Meese and said there were mat- ters he wanted to discuss with him.92 The two met at Casey's home at 6:00 p.m." By the time of this meet- ing, Attorney General Meese had reason to believe that the CIA's version of Casey's proposed testimony was almost certainly false. Indeed, by then Attorney General Meese had interviewed Secretary Shultz, who had contemporaneous documentation for his recollection of the November 1985 HAWKs ship- ment, and former CIA General Counsel Sporkin, who had been told by Casey's subordinates in November 1985 that missiles were shipped. On another issue, the Attorney General had strong reason to believe there was a connection between the arms sales (in which the CIA had been involved) and the Contras: the diversion memorandum. Despite Casey's obviously central position in any investigation of these matters, Attorney General Meese chose to meet Casey alone. He took no notes of the meeting, nor was the meeting otherwise re- corded. The Committees' information about the meet- ing is thus derived solely from Attorney General Meese's testimony. According to Meese, Casey said that he had been contacted in October 1986 by a former business asso- ciate named Roy Furmark. Furmark told Casey that certain Canadians who had financed the Iran arms sales had not been repaid and were therefore threaten- ing to expose the arms sales. Furmark had represented that the Canadians would claim that the proceeds had been used for "Israeli or United States Government projects." 9 4 The Attorney General explained that Casey said he had not told him about the Furmark visit earlier because, before the factfinding inquiry began, there was no reason to tell the him.95 In testimony before the Senate and House Intelli- gence Committees in December 1986, Attorney Gen- eral Meese was not specifically asked about, and he did not volunteer any reference to, proceeds being diverted to Israeli or U.S. projects." Attorney General Meese has consistently claimed that he did not tell Casey about the diversion memo- randum, or ask him about the diversion, even though Meese recognized it as a bombshell as soon as his staff reported it to him. The reason Attorney General Meese gave for not asking Casey about the diversion memorandum was that he thought it inappropriate to do so until North was questioned. Attorney General Meese also testified that, despite the fact that Casey mentioned a claim that proceeds had been diverted to U.S. projects, Attorney General Meese did not feel the conversation could logically have led to questions regarding a diversion of those proceeds to the Con- tras without revealing to Casey what Meese knew. Attorney General Meese testified that, "I felt it was not appropriate to discuss this with anyone, even as good a friend as Mr. Casey, until I found out what it was all about." So, in a meeting that lasted between 30 minutes and an hour, Meese, according to his testi- mony, avoided the subject.97 While Casey and Meese were meeting, Cooper and Associate Deputy Attorney General William McGin- nis were at the CIA interviewing attorneys from the CIA General Counsel's office and operations officers regarding the events surrounding the November 1985 HAWK shipment and subsequent Finding." Cooper purposely did not ask questions at the CIA about the diversion for fear it would get back to North.99 Cooper did not mention the diversion memo to McGinnis. November 23: Investigation and Obstruction Continue The Attorney General's investigation continued to build on Sunday, November 23 toward the afternoon interview with North. From 9:00 a.m. to noon, Cooper and McGinnis completed more interviews at the CIA. Reynolds and Richardson returned to the NSC to continue their document review, although they apparently never did complete it."? At the CIA, Cooper and McGinnis interviewed Charles Allen, Duane Clarridge, George Jameson, and David Doherty. McGinnis interviewed Clarridge, who told him that the CIA's involvement in Novem- ber 1985 was limited to providing to North the name of a proprietary airline to fly oil drilling equipment to Iran. Clarridge also explained that he made arrange- ments for flight clearances.* Meanwhile, North, who had told the Attorney General he was not available for an interview until the afternoon because he wanted to go to church, called McFarlane Sunday morning and asked to meet with him. McFarlane was getting ready to leave for church himself and told North to meet him at his office at noon. North said he would bring his attor- ney."' North arrived alone at McFarlane's office at 12:30 p.m.. North told McFarlane everything was on track except for one thing that could be a problem: the diversion. According to McFarlane, he asked *Cooper Dep., 6/22/87, at 180. Evidence before the Committees shows that Clarridge was sent a cable from a CIA Chief in Country 15 on or about November 23, 1985, reporting the HAWKs-for- hostages November deal. Notably, the cable is missing from the CIA's files. Hearings, 6/24/87, at 260-73; CI-C27. The missing cable, if found, would have punctured any claim that no one at the CIA was aware in November 1985 prior to the HAWK shipment that the flight clearance problems and the use of a CIA proprietary airline involved the shipment of weapons to Iran. Id. This episode is discussed in more detail in Chapter 10. 311 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 North if the diversion had been approved and North replied that he would not do anything that was not approved. North said that the diversion was a matter of record in a memorandum he had written for Poin- dexter. North did not explain to McFarlane why he thought the diversion could be a problem in light of his belief that all documents relating to the diversion had been destroyed.102 On the other hand, North testified that he recalls only assuring McFarlane that all diversion documents had been destroyed; he ex- pressly did not recall telling McFarlane that there was a memorandum describing the diversion that might cause a problem. At that point, attorney Thomas Green arrived at McFarlane's office. Green told McFarlane he had been an Assistant U.S. Attorney and had dealt with problems of this kind before. Green advised McFar- lane and North to state the story truthfully and let the chips fall where they may.'" Not long thereafter, Richard Secord arrived as well, but by that time, McFarlane had to leave for an appointment. From approximately 12:45 p.m. to 2:00 p.m., Attor- ney General Meese, Reynolds, Cooper, and Richard- son met to discuss the upcoming interview of North.104 North arrived, alone, at approximately 2:15 p.m. Meese did most of the questioning. Richardson and Reynolds took notes.105 The Attorney General began by telling North he wanted all the facts, and did not want North to coverup to protect himself or the President. He then asked North to explain the arms sales from the begin- ning. North replied with a combination of fact and fiction. All the while he knew that the Attorney Gen- eral was acting under orders from the President and that the Attorney General's findings would be report- ed back to the President.'" North said he was unaware of the first shipment of 504 TOWs until after it occurred. Regarding the No- vember 1985 HAWK shipment, North said he re- ceived a call from McFarlane in Geneva who told him to contact Israeli Defense Minister Rabin to help Israel move something to Iran. North then claimed that Defense Minister Rabin told him it was oilrelated equipment. North sent Secord to help with the ship- ment. North also called Duane Clarridge at the CIA to get a CIA proprietary to fly the equipment. When Secord saw the shipment in Israel, he told North the cargo was 18 or 19 HAWK missiles. The implication in North's statements?that he was unaware until in- formed by Secord that the flight was to contain HAWK missiles?was false. As North subsequently admitted in his public hearing testimony, he knew the nature of the cargo from his first involvement in the November shipment.107 North also claimed, falsely, that Poindexter knew nothing of the November 1985 HAWK shipment. North stated, again falsely, that when he discovered from Secord that there were HAWKs on the plane he notified someone at the CIA, possibly Casey.'" 312 While lying to the Attorney General about other aspects of the November 1985 HAWK shipment, North admitted that his statements about that ship- ment in the NSC chronology and at the November 20, 1986, meeting to review Casey's draft testimony were false. As discussed above, North had claimed in the chronology and at the meeting that the United States had to force the Iranians to return the HAWK missiles. In his interview with the Attorney General, North admitted that it was the Iranians who were dissatisfied and demanded their money back.'" Attorney General Meese then asked North to de- scribe the money flow. Again, North lied. North said the money passed from the Iranians to the Israelis who in turn paid into a CIA account which reim- bursed the Army for the weapons. North made no mention of Secord or the Lake Resources account through which the money had actually passed." ? Then the Attorney General showed North the di- version memorandum. The first page referred to U.S. acquiescence in the August 1985 TOW shipment. Meese asked North to explain if this was an armsfor- hostages deal. North asserted that, although he dis- cussed the strategic opening of Iran with President Reagan, with the President "it always came back to the hostages." North said the President was drawn to the linkage between arms and hostages and it was a terrible mistake to say the President wanted the stra- tegic relationship with Iran, because the President wanted the hostages.' " After that exchange, the Attorney General turned to the diversion. He directed North's attention to the section of the memorandum describing how the "re- siduals" would go to the Nicaraguan Resistance. North appeared to be "visibly surprised." He asked if they had found a "cover memo." Reynolds said that none had been found?without first questioning North as to whether he recalled a cover memo, or to whom it had been directed, or what it said. After Reynolds informed North that no cover memo had been found, the Attorney General asked North if they should have found a cover memo, and North said "no." 112 The Attorney General asked North if he had dis- cussed the diversion with the President. North replied that Poindexter was the point of contact with the President.113 Attorney General Meese pointed out that if the President had approved the diversion, North probably would have a record of it. North agreed and said he did not think it was approved by the President. The Attorney General asked whether other files might contain a document indicating Presidential approval, and North said he would check."4 The Attorney General asked North if there was anything more. North said that only the February 1986 shipment and the second shipment had produced residuals to the Contras. North also said that only three people in the Government knew of the diver- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 sion?Poindexter, McFarlane, and himself. North said the CIA did not handle the "residuals" and, though some in the CIA may have suspected a diversion, he did not think anyone at the CIA knew.115 If North's testimony at the public hearings was truthful, then these statements, too, were lies. At the hearings, North testified that Casey knew, approved, and was enthusiastic about the diversion as early as February 1986. And of course, North was aware when he spoke to the Attorney General that Earl knew of the diver- sion.* North claimed that the diversion was an Israeli idea, probably Nir's?another lie refuted by documen- tary evidence.116 He said the money went straight from the Israelis into three Swiss bank accounts opened by FDN leader Calero."7 In fact, the divert- ed funds were deposited to the Swiss account main- tained by Secord and Hakim. North claimed that the October 1986 shipment of TOWs did not produce residual funds because North, over Nir's objection, charged much less for the weapons. He did this, he said, because the Contras had $100 million in U.S. aid and North did not want to create the impression of private profit."8 The Attorney General asked North if there were any other items he had not told them about and North responded negatively. However, North volun- teered that if the diversion were kept quiet,, the only other problem would be the November 1985 HAWK shipment, which someone ought to say was author- ized. The Justice Department officials made no reply."9 Attorney General Meese then confirmed to North that he had to share this information with the Presi- dent and determine if he was aware of it. Meese again asked North about other problem areas, including complaints from people who financed the deals and lost money. North responded only that Ghorbanifar had lost money in a "sting." 120 At this point in the interview, the Attorney General left to pick up his wife at the airport."' Cooper continued further questioning North regarding author- ity for the 1985 shipments. Cooper asked North if he believed at the time that the November shipment con- tained oil drilling equipment. North replied that he really thought it was munitions, but boasted that he could nevertheless pass a lie detector test on whether he thought it was oil drilling equipment.122 North also volunteered that Southern Air Trans- port (SAT) hauled the 1986 arms shipments and that SAT was being investigated by the Justice Depart- ment for its involvement in the Contra resupply oper- ation.123 ''North Test., Hearings, 100-7, Part I. 7/8/87, at 139-40. Indeed, North had told Earl during the spring of 1986 that Casey knew of the diversion. Earl Dep., 5/2/87, at 37. The North interview concluded at 5:55 p.m. as the Attorney General was returning. North was not told what would happen next.124 Although the Justice Department officials noticed North's surprise that they had a copy of the diversion memorandum North had written, no one asked North if he had shredded or otherwise disposed of documents, nor did the Jus- tice Department officials take any steps to secure North's remaining documents. Later that night, Sofaer called Cooper to find out the status of the investigation. Cooper asked the basis of Sofaer's earlier concern about the possibility of surplus funds being generated from the Iran arms sales. Sofaer explained that he thought there may have been a difference between the purchase price and cost price. Sofaer also volunteered that he sus- pected that SAT may have been given excess profits from the Iran arms sales to finance the Contra resup- ply operation. Cooper did not mention the diversion memorandum or North's interview.125 That evening, North called McFarlane and Poin- dexter.126 Afterwards, North shredded additional documents at his office until at least 4:30 a.m., when a security guard noticed that North's office had not been secured for the day. North responded to the officer's security report by claiming that when the officer checked the office, North was in the bath- room.127 November 24: Informing the President Early Monday morning, November 24, McGinnis called George Jameson of the CIA to ask certain limited questions, and Cooper researched possible criminal violations. Attorney General Meese planned to meet with the President, the Vice President, McFarlane, Poindexter, and Regan.'" McGinnis continued to speak that morning with CIA personnel about the money flow. During one of his conversations, he was told of a rumor at CIA that the surplus funds had been diverted to the Con- tras.'" McGinnis told Cooper of this rumor. Cooper then told McGinnis about the diversion memorandum and the North interview.'" Cooper went to the State Department Monday morning to obtain Hill's notes relating to the Novem- ber 1985 HAWK shipment. At first Hill was reluctant to surrender them. He agreed, however, only when Sofaer told him they were needed for a criminal in- vestigation.131 The Attorney General called the head of the Jus- tice Department's Criminal Division, William Weld, at 9:55 a.m. On the previous Friday in an early morn- ing staff meeting attended by Reynolds and Cooper among others, Weld had urged that the Criminal Di- vision should be involved in the weekend inquiry. He had argued, for example, that the Criminal Division 313 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 had already made representations to a court denying any U.S. Government involvement in arms sales to Iran, and that the Criminal Division should know the facts.* Attorney General Meese told Weld during their Monday morning call that the Criminal Division was being left out of the Iran investigation on purpose and not as a result of negligence. Weld inferred that the Attorney General had been informed that Weld had argued for Criminal Division involvement. Weld told Meese that he had registered a concern at the Friday meeting about Meese's personal involvement in the investigation, warning: "If you tried to carry too much water here some might spill on you." 132 Early Monday morning, Attorney General Meese called McFarlane to arrange a second interview.** They met alone at the Justice Department and no one took notes. '33 Meese asked if McFarlane knew about the diversion. McFarlane responded that he learned of it from North during the Tehran mission in May 1986. McFarlane told Attorney General Meese that North claimed to have approval for the diversion. McFarlane testified that the only other question Attorney General Meese asked was whether he had told anyone else about the diversion. Meese, however, could not recall asking that.'34 Meese never asked McFarlane if the President had approved the diver- sion, nor did he show McFarlane the diversion memo- randum. Meese did not ask McFarlane why he had not told him about the diversion during their Friday interview. McFarlane did not mention that he had spoken to Poindexter and North after North's inter- view with the Attorney General."35 Attorney General Meese went to the White House at 11:00 a.m. to meet with the President and Regan pursuant to an appointment he had made earlier that morning. Meese testified that he told the President that his team had found a memorandum at the NSC which included plans to divert excess funds from the Iran arms sales to the Contras. Attorney General Meese also said that North and McFarlane had con- firmed this diversion. The President, Meese said, was very surprised. Meese told the President there was more factfinding to do before he could give him a full report at the National Security Planning Group (NSPG) meeting. '36 Regan had a different recollection of the morning events. Regan testified that Attorney General Meese told him about the diversion prior to meeting with the President. Regan described his own reaction to news of the diversion as "horror, horror, sheer horror." 137 *Weld Dep., 7/16/87, at 13-14. Cooper and Reynolds each testi- fied that he had no recollection of such a conversation. Cooper Dep., 6/22/87, at 123; Reynolds Dep., 8/27/87, at 31-32. However, Richardson not only recalled the Weld statement, but took notes. Richardson Dep., 7/22/87, at 24-28; Ex.. EM-39. **McFarlane Test., Hearings, 100-2, 5/11/87, at 65. McFarlane spoke to Poindexter prior to his meeting with the Attorney Gener- al. Right after speaking to McFarlane, Poindexter spoke to North on a secure telephone. See Poindexter logs. 314 According to Regan, Attorney General Meese told him that North had done the diversion, and Regan said the President needed to be immediately informed. Attorney General Meese said he did not want to tell the President until he could nail down some other things. They went to see the President, but told him only that the factfinding inquiry had uncovered some serious problems and that they would need to meet later that afternoon. They set a meeting for 4:15 p.m.138 No one took notes of the Attorney General's morn- ing meeting with the President. Regan recalled that Meese had papers with him from which he seemed to be reading. However, according to Regan, Attorney General Meese never told him there actually was a memorandum spelling out the diversion. Regan testi- fied that Meese "kept using the phrase, 'I have got a few last-minute things to button up before I can give you the details.'" '39 Attorney General Meese returned to the White House for the 2:00 p.m. NSPG meeting. Richardson's notes indicate that prior to that, the Attorney General met briefly with the Vice President at 1:40 p.m.140 Attorney General Meese, however, testified that this meeting occurred after 4:00 p.m.141 Continuing the pattern, Meese met with the Vice President alone and no notes were taken. Meese reported that the Vice President was unaware of the diversion.142 Back at the Department of Justice, Reynolds and Cooper had arranged to meet at 2:00 p.m. with attor- ney Tom Green.'" Green and Reynolds had a long- standing professional relationship, so Green ap- proached Reynolds for a meeting.144 Reynolds and Cooper both understood that Green had spoken to North after North's Sunday interview with the Attorney General.* Yet Green's version of the events differed sharply from what North had told them. First, Green said the idea to divert funds to the Contras originated with Albert Hakim, while North had tagged Amiram Nir with originating the plan. Green claimed there were no illegalities because the diverted money did not belong to the United States. Green urged that the facts not be made public be- cause it would risk the lives of contacts in Iran as well as the hostages.' 46 Green also recounted other facts which differed from what North had said the day before. In contrast to North's version of the money flow, Green ex- *Cooper Test., Hearings, 100-6, 6/25/87, at 279-82. Ex. CJC-19; Reynolds Dep., 9/1/87, at 37. At first, Cooper had the impression that Green represented both North and Secord, but later Green stated he was not the legal representative of either of them for purposes of that meeting. Cooper Test., Hearings, 100-6, 6/25/87, at 279-82. Eventually, Cooper decided that if Green represented anyone, it was Albert Hakim, because Green referred to a long- standing business relationship with Hakim. Id.; CJC-19. It was Reynolds' impression, however, that Green did not represent any particular individual during the meeting. Reynolds Dep., 9/1/87, at 37. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 plained that the diversion was accomplished by rout- ing the money through Hakim's financial network. Green said that Hakim told the Iranians that in order to foster good relations, the Iranians should make a contribution for the use of the Contras or of the United States. Green also claimed North felt he was doing the "Lord's work." 146 Sometime on Monday, Reynolds told Meese what Green had said about the diversion.147 Attorney General Meese, however, testified that he recalled no mention of the fact that money went through Hakim's financial network and concluded from what Reynolds told him that Green "added nothing particularly new . . . .9, 148 At the White House, the NSPG met from 2:00 p.m. to 3:45 p.m. Present were the President, the Vice President, Poindexter, Casey, Attorney General Meese, Secretary Weinberger, Secretary Shultz, Regan and George Cave. Although the sole topic at the meeting was the Iran initiative, neither Attorney General Meese nor Regan mentioned the diversion, nor did either ask any one present about it.149 Meese's notes of the meeting indicate that at one point Regan asked about the November 1985 HAWK shipment, and specifically, who had authorized it, who knew of it, and whether the President was told of it. Poindexter implied that McFarlane had handled the Iran initiative by himself from July to December 1985. Poindexter told the group that there was "no documentation" of the shipment.15? After the NSPG meeting, Attorney General Meese met with Poindexter from 4:15 p.m. to 4:20 p.m. to find out what he knew of the diversion. Although North had told the Attorney General that Poindexter was the point of contact with the President, the At- torney General chose to meet alone with him and to take no notes.'51 Poindexter told Attorney General Meese that North had given him only enough hints about the diversion to know what was going on, but that he had not inquired further. Poindexter testified that the At- torney General never asked him if the President knew of the diversion.'" Although Meese testified at his deposition that he thought he had asked that question, he stated at the public hearings that he had not asked so direct a question, but only whether anyone else in the White House knew.'" Poindexter testified that he did not tell the Attorney General he actually ap- proved the diversion, because he wanted the Presi- dent and his staff to retain deniability.154 Poindexter told the Attorney General that he knew that when the diversion became public he would have to resign, and would defer to the Attorney General's judgment on the timing of his resignation.155 Attor- ney General Meese asked no further questions be- cause he needed to meet with the President at 4:30 p.m. as scheduled.'" The Attorney General, howev- er, never went back to Poindexter to obtain additional details after meeting with the President. Attorney General Meese met alone with the Presi- dent and Regan. According to Meese, he told the President that Poindexter had confirmed the fact of the diversion.'" According to Regan, Meese was informing the President for the first time of the diver- sion of funds from the arms sales into Swiss bank accounts controlled by the Contras.'" Regan said the President appeared crestfallen. The Attorney General told the President that the person primarily responsible was North, but that Poindexter had some inkling of the diversion and let it happen.159 According to Regan, the conversation then turned to making the information public. Regan suggested they establish a commission to investigate the facts as soon as possible. Regan also suggested that the Presi- dent announce the situation at the press conference and turn questions over to Meese.'" The President said they should think about the matter overnight and decide how it should be handled."' Attorney General Meese testified that they dis- cussed the possibility of Poindexter's resignation that afternoon with the President, and later Meese and Regan met separately.'" Regan said he stayed behind with the President after Meese left and dis- cussed the possibility of Poindexter's resignation. Regan told the President that they would have to take steps to "clean up the mess," including asking Poindexter to resign. The President was silent, ac- cording to Regan, because he "never comments on something of that nature." By virtue of the President's silence, Regan inferred that the President had con- sented to his soliciting Poindexter's resignation.'" During the late afternoon, a meeting took place at the CIA between Roy Furmark and Casey.'" Fur- mark described to Casey in detail the financing ar- rangement of the arms sales. Casey produced for Fur- mark the CIA bank account information which dem- onstrated the flow of funds in and out of the CIA accounts. Casey had questions about Lake Resources because he had concluded there was only $30,000 left in the account. Casey called North, in Furmark's presence, and asked North who actually owed Saudi financier Khashoggi the money he claimed to have lost in financing the arms sales. North told Casey that ? the Israelis and Iranians owed Khashoggi the money.165 Casey then called Cooper and asked him if he ever heard of "Lakeside Resources." Cooper responded that it sounded vaguely familiar but could not recall specific reference to it in their inquiry.'" After Meese left the White House, Regan returned a call he had received earlier that day from Casey. Casey told Regan he wanted to see him and suggested he stop at Casey's office on his way home. There they met for 20-25 minutes. No one else was present, and neither Casey nor Regan took notes. Regan told Casey that the Attorney General had informed the President that arms sales profits had been diverted to 315 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 the Contras. Regan said the White House would an- nounce it publicly the next day and he asked Casey to keep it quiet until then. Casey did not express surprise at news of the diversion, but he warned Regan of the potential consequences of going public, such as the cutoff of Congressional funding for the Contras. Casey also said that contacts with Iran would be severed when the Iranians realized they had been overcharged and the profits diverted. Finally, Casey expressed concern about the reaction in the Middle East if the Israeli role were revealed.'" November 25: The Public Learns of the Diversion By Tuesday morning, November 25, the Attorney General's investigation was largely over. What had started as an effort to resolve differing testimony over the November 1985 HAWK shipment had led to the discovery of an illicit connection between the Iran initiative and the secret Contra support activities. Evi- dence had been destroyed; false statements had been made; important questions had been skirted or avoid- ed. Nevertheless, the secret of the diversion had been uncovered. On this day, the American people would find out. Attorney General Meese's day began with a 6:30 a.m. call from Casey, whom the Attorney General had not yet interviewed about the diversion. Casey told the Attorney General that Regan had advised him of the diversion, and asked Meese to drive by his house on the way to work.'" The Attorney General arrived at 6:45 a.m., with Richardson in the car. Rich- ardson did not go into Casey's house. Richardson testified that he never sat in on meetings between Casey and the Attorney General.'" Meese once again held a crucial meeting without witnesses or notes. Attorney General Meese testified that, at this meet- ing, Casey was adamant that the diversion needed to be publicly announced as quickly as possible.'" This description of Casey's position is substantially differ- ent from Casey's position the day before when he met with Regan." 1 While the Attorney General was at Casey's house, Regan called to speak to him. Regan told the Attor- ney General he wanted to meet with Poindexter at 8:00 a.m. to accept Poindexter's resignation.'" Meese returned to his car and called Poindexter, who was just arriving at the White House. He asked Poindexter to meet him at the Department of Justice, where they spoke privately for 15 minutes before Poindexter met with Regan. The Attorney General told Poindexter the time had come to submit his resig- nation. Poindexter agreed to resign. They then dis- cussed North's transfer back to the Marine Corps. Attorney General Meese told Poindexter he did not think North had done anything illegal.'" 316 Poindexter returned to the White House and was eating breakfast in his office when Regan came in and told him to have his resignation ready for the regular 9:30 a.m. meeting with the President. Regan then asked Poindexter how the diversion could have hap- pened. Poindexter replied he had thought something was going on with North. Regan asked why he never looked into it; Poindexter replied, according to Regan: I knew it would hurt the Contras, and the way those guys on the Hill are jerking around, . . . I was afraid it would hurt them too much, so I didn't look into it.174 In Poindexter's testimony, however, he did not recall Regan asking him about the diversion.'" Both Regan and Poindexter agree that Regan never asked Poin- dexter whether the President knew.'" Attorney General Meese met briefly with Cooper and Richardson.'" He told Cooper that Poindexter was going to resign, and instructed Cooper to meet with White House Counsel Wallison to draft the President's statement. He asked Richardson to have Thompson check the White House files to verify that no documents mentioning the diversion had actually reached the President."78 Richardson asked Thompson to do a file search of all relevant documents that went to the President, and the public announcement was delayed pending its completion. Thompson returned with some docu- ments Richardson had not seen before. Richardson reviewed the documents provided by Thompson from his own and Poindexter's files, including memos re- garding the arms shipments and the original January 6 and 17 Findings. Thompson did not explain why he had not presented those documents during the initial document review the previous Saturday. No PROF notes were included. Richardson found nothing perti- nent to his inquiry. '79 At 9:30 a.m., the Vice President, Regan, Meese, and Poindexter met with the President. Poindexter told the President that he was aware of the plan to divert funds to the Contras, and he tendered his resignation in order to give the President "the necessary latitude to do whatever you need to do." 180 The President told Poindexter that it was in the tradition of a Naval officer to take responsibility. Poindexter then shook hands with those present and left. Poindexter testified that he did not tell the President that he had actually approved the diversion, because matters were in flux and he wanted more time to think about it.'81 After Poindexter left the meeting, those remaining discussed North's fate. It was agreed that North should be immediately reassigned to the Marine Corps. A resignation was not necessary because North was not a Presidential appointee. No one in- formed North that he would be reassigned. He learned of it for the first time while watching the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 President's statement and Meese's press conference on television at noon that day.182 Sometime that morning Poindexter called North and, according to North's notes, discussed the disclo- sure of the Contra connection. North's notes contain a reference to "put it off on Ghorbanifar." 183 At 10:15 a.m. the President met with the National Security Council to brief them on developments.'" From 11:00 a.m. to noon, the President, Regan, Secre- tary Shultz, Attorney General Meese, and Casey briefed Congressional leaders. Attorney General Meese began by telling them about the diversion. Meese said North was involved with possibly one or two other NSC staff or consultants. The President said that this was the only incident of this kind and that Poindexter, although not a participant, had known of it and had therefore resigned.'" House Majority Leader Jim Wright then asked if the diversion was done with knowledge or approval of anyone in the U.S. Government. Attorney General Meese answered that North had approved it. Repre- sentative Wright asked about Poindexter, and Meese responded that Poindexter knew the money was going to the Contras but did not know the details. Senate Minority Leader Robert Byrd then asked if Poindexter's resignation was requested. The President responded that Poindexter volunteered to resign, in the Navy tradition.186 Senator Nunn expressed concern about NSC staff involvement in covert operations. The President re- plied that the NSC staff had served the country well, citing the opening to China as an example. Senator Nunn replied that he drew a distinction between a diplomatic initiative and a covert operation.'" Representative Wright then asked if the CIA knew of the diversion. Casey responded, "No, I didn't." Casey then volunteered that McFarlane learned of the diversion in April or May 1986.188 Representative Wright noted that it strained credu- lity that the Israelis thought up the diversion on their own. Meese explained that there was no question that North or others set it up. Senate Majority Leader Robert Dole then asked how it was determined there was an overcharge for the arms sold. Meese replied that the United States got "dollar-for-dollar" for its weapons and equipment. He related, however, that the exact amount of the diversion was not clear.'" Just before the President's announcement, Richard Secord received word from North's office that Poin- dexter and North were resigning. Secord called Poin- dexter and urged him not to quit but to "stand in there and fight" to get it all straightened out. Poin- dexter told Secord it was too late because he had already resigned. Secord demanded to speak to the President but Poindexter told him it was too late, "they had already built a wall around the Presi- dent." 190 November 25, 1986: The Attorney General's Press Conference The Presidential statement and subsequent press conference by the Attorney General began at noon and lasted approximately 45 minutes. Attorney Gener- al Meese began the press conference with a disclaimer of sorts, stating that the inquiry was not yet complete because "all information was not yet in." Nonetheless, his responses contained several purported conclusions. Meese was asked how the diversion came to his attention. He responded that, through a review of reports and other materials, there was a hint that some money was available to be used for another purpose. He elaborated that the diversion had ac- counted for some $12 million to $30 million. Meese was asked if the CIA knew of the diversion. He responded that none of the statutory members of the National Security Council knew, including Casey." Later, in describing the money flow, Meese said the money went directly from the Israelis into bank ac- counts held by the Contras. This version of events, although consistent with North's statements, was con- tradicted by the diversion memorandum, which de- scribed how the money would be transferred by the Israelis into an account maintained by "a private United States corporation" and then transferred to the Contras.192 Meese was asked about arms shipments prior to the January 1986 Finding. He responded that there was one transaction in which Israel shipped weapons with- out authorization from the United States, and that the weapons so shipped were returned to Israel. Attorney General Meese added that the AugustSeptember and November 1985 shipments were between Israel and Iran and "did not involve, at that time, the United States." '93 Attorney General Meese specifically stated that the President had not known about the November 1985 HAWK shipment until February 1986. Thus the At- torney General said: The President was informed gen- erally that there had been an Israeli shipment of weapons to Iran sometime during the late summer, early fall of 1985, and then he later learned in Febru- ary of 1986 details about another shipment that had taken place in November of 1985, which had actually been returned to Israel in February of 1986.1" These statements were contrary to what he and Cooper had learned regarding CIA participation in the November 1985 HAWK shipment and regarding McFarlane's conversation with Shultz on November 18, 1985. Attorney General Meese's statements were also contrary to the information Meese had received from Secretary Shultz on November 22 that the Presi- dent had told Shultz 3 days earlier that he (the Presi- dent) had known of the November 1985 HAWK ship- 317 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I , 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 ment at the time.195 Attorney General Meese did not tell these facts to the press.* When asked whether the diverted funds were owed to the United States, Meese responded that all money owed to the United States had been paid to the United States. Meese said, "We have no control over that money. It was never United States funds, it was never property of the United States officials, so we have no control over that whatsoever." 796 Meese later testified that a good case could be made that such funds were held in "constructive trust" for the United States, that is, that all profits reaped belong in the U.S. Treasury. '97 Attorney General Meese also stated at the press conference that, to the best of his knowledge, no American was present for, or participated in, negotiat- ing the price of the arms to Iran. Meese's source for this statement is also unclear.199 FBI Director William Webster watched the Attor- ney General's press conference on television, and thereby learned of the diversion. After the press con- ference, Webster walked across the street to the De- partment of Justice and told Meese that a criminal investigation was warranted. The Attorney General stated that he had turned the inquiry over to the Criminal Division to determine which, if any, statutes were violated.199 Webster then raised the problem of securing NSC records. Attorney General Meese as- sured Webster that the Justice Department would take the appropriate steps to secure the records. Web- ster went back to the FBI and told his Assistant Director to gear up for the anticipated investiga- tion.299 At approximately 2:00 p.m., Meese met with Burns, Reynolds, Cooper, Richardson, and Kenneth Cribb (Counselor to the Attorney General). Associate At- torney General Trott joined them midway through the meeting.201 The group discussed possible viola- tions of laws, including the Boland Amendment, the Arms Export Control Act, and the Neutrality Act, and possible misappropriation of U. S. funds.202 They also discussed involving the Internal Security Section of the Criminal Division in the investigation. They discussed the possibility of granting immunity, al- though neither North nor Poindexter had refused to talk to the Attorney General. The Attorney General instructed Deputy Attorney General Burns to call Wallison to ensure that documents belonging to North and Poindexter were secured.2" They agreed to meet again at 5:45 p.m. When they actually did meet, at 6:40 p.m., Meese asked Burns if he had secured the White House docu- *Ex. EM-54. Meese was asked at the hearings whether he be- lieved that Secretary Shultz should resign for not supporting the Iran initiative. Meese stated, "any member of the Administration owes it to the President to stand shoulder-to-shoulder with him and support the policies he has . . . and I intend to do that. Other people speak for themselves." 318 ments. Burns indicated he had not done so and left the room to make the cal1.2" As it turned out, Burns did not get through to Wallison until the next after- noon, November 26. Wallison told him the documents had in fact already been secured by the NSC security officer.205 A letter requesting segregation of the doc- uments was not sent until November 28, 1986, 6 days after discovery of the diversion memorandum.2" Sometime that afternoon, Secord, after being be- sieged by the press at his office, went to a hotel to consult with Tom Green. North joined them. North received two phone calls at the hotel. One was from the Vice President calling to express his regrets about North's dismissal. The other was from the President. North stood at attention while the President spoke to him.207 There is some dispute about the substance of this conversation. North testified that the President told him, "I just didn't know," which North under- stood to be a reference to the diversion.2" Earl testi- fied that, when North returned to the office, North had told him that the President had called and said, "It is important that I not know." 209 North testified that perhaps he told Earl that the President felt it was important that North know that he, the President, did not know of the diversion.21? Craig Coy, who was present when North related the Presidential conversa- tion to Earl, testified that he did not recall North saying anything about the President's statements con- cerning his knowledge.2" Hall testified that North told her that President had said, "I just didn't know." 212 There is no dispute, however, that during the phone call the President told North that he was "a national hero." 273 Indeed, the President has publicly acknowledged making this statement.214 At 4:40 p.m., Meese was called by Israeli Prime Minister Peres. The Prime Minister told Meese that the Government of Israel was concerned about Meese's claims in his press conference and was about to issue a statement. Prime Minister Peres said the Israelis had transferred "defensive arms" at the re- quest of the United States. He also told Meese that the Israelis had not paid anything to any Contra ac- count. The Prime Minister explained that the Iranians paid directly into an account in Switzerland main- tained by an American company. He indicated that Israel?which had been asked by U.S. officials early on to take the rap if the arms sales became public? was not going to take the blame for the diversion.215 Amiram Nir made the same point in a call to North. North's notes of that call show that Nir com- plained about Meese's statements and asked what basis Meese had for making them. Nir pointed out that, far from ever telling him that any funds were diverted, North had always told him there was a shortage of funds. Indeed, Nir questioned why the Israelis had been made to pay for replacement weapons if there was an excess of funds. Nir told North he could not Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 back his story. He said that statements made by the Attorney General regarding Israeli deposits to Contra accounts and other matters were simply false.2" At the time of these events on November 25, McFarlane was in London for a speaking engage- ment. He heard a news account of the Attorney Gen- eral's press conference and, after finishing his speech, called North. North told McFarlane he had met with the Attorney General and Regan, and, based on that meeting, he assumed he would be allowed to resign. North said he learned from watching the press confer- ence on television that he had been "dismissed." 217 McFarlane had written a statement for the press that he read first to North. The statement said that he had been led to believe the diversion had been approved. North confirmed to McFarlane that the diversion had been approved.218 During the afternoon of November 25, the NSC staff secured North's office. In reviewing her files at the time, Fawn Hall discovered that she had not substituted the copies of the documents she had al- tered on November 21 for the copies of unaltered versions of the documents in North's files. She also found PROF notes that were similar to those shred- ded Friday night, along with minutes of the Tehran meeting in May 1986 that she had saved to read. Hall knew that the NSC security staff soon would be clos- ing the office, so she called North and told him to come back to the office, indicating to him the urgen- cy of her request and signalling that it involved a problem with documents. North said that he and his attorney would come back to the office.219 Before they arrived, Hall took the documents up- stairs and placed copies of the altered documents inside her boots, inexplicably leaving the originals of the altered versions on her desk. She then went to Earl's office and solicited his help in pulling the PROF notes from he pile of remaining documents. Earl was going to put the PROF notes in his jacket, but Hall told him she would do it. She then told him to watch the open entrance to his office while she hid the PROF notes under her clothes. Earl assured her that the documents were not visible.220 North and his attorney then arrived at North's office, where North took a phone call in his private office with only Hall present. Hall asked North if he could detect anything against her back, and he said he could not. Hall left the office with North and the attorney. Their briefcases were inspected by the NSC security staff, and they were allowed to pass. In the hallway, Hall indicated to North that she wanted to give him the documents. He told her to wait until they were outside.221 Hall, North, and the attorney walked outside. Hall made a motion to North (she was planning to pass the documents), but the attorney said, according to Hall, "No, wait until we get inside the car." Once in the car, Hall pulled out the documents, gave them to North, and told North that she had not finished sub- stituting the altered documents for the originals. The attorney drove them to their cars and, according to Hall, asked her what she would say if asked about the shredding. Hall replied that she would say "We shred every day," to which the attorney said, "Good." 222 There is no evidence as to whether the attorney knew in advance that Hall had documents on her person. That evening, the attorney withdrew from North's representation.223 Subsequently, North's new attorney returned documents to the NSC. November 26: Criminal Investigation Underway By Wednesday morning, November 26, Meese was prepared for the investigation to enter a new phase. At 9:15 a.m., he met with Justice Department attor- neys Burns, Trott, Reynolds, Cooper, Bolton, Cribb, Korten, Weld, and Richardson. The Attorney Gener- al began the meeting by announcing to Weld that this was the day for the handoff of the investigation to the Criminal Division. Weld said he wanted to assign the investigation to two experienced attorneys in the Public Integrity Section, which typically handles prosecutions of public officials and Independent Counsel inquiries.224 Attorney General Meese stated he also wanted Deputies Mark Richard and John Keeny to participate. Attorney General Meese then assigned Cooper as an additional member of the prosecution team. Attor- ney General Meese explained that he wanted to be kept informed. Richardson instructed the group that if anything came up that was "hot," they were to tell the Attorney General immediately.223 However, the Attorney General testified before the Tower Board that he did not request briefings because he felt this case should be referred to an Independent Coun- se1.228 Attorney General Meese also testified, to the Senate Select Committee on Intelligence, that he sug- gested from the start that an Independent Counsel be appointed.227 Yet the relevant Justice Department of- ficials do not recall when the Attorney General took that position.228 In fact, there was much discussion of appointing a "special counsel," who, unlike an Inde- pendent Counsel, would have been under the control of the Attorney Genera1.229 At approximately 11:00 a.m., Meese spoke with Webster and requested that the FBI enter the case. At 2:45 p.m., the Attorney General called a meeting at the Justice Department, that included representatives of the Criminal Division and the FBI. The Attorney General described the weekend inquiry and answered questions. The Attorney General also designated the criminal investigation team members.23? 319 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 November 27: A Thanksgiving Phone Call November 27 was Thanksgiving. Fawn Hall received a telephone call at home from Jay Stephens, an attor- ney on the White House Counsel's staff.23' Press reports had appeared claiming that documents perti- nent to the Iran-Contra Affair had been shredded at the NSC. Stephens asked Hall whether those reports were true. Hall told Stephens exactly what she had earlier told North's attorney her response would be to such a question: "we shred everyday." Hall admitted during the public hearings that she misled Stephens to believe that nothing unusual had occurred.232 Final Steps The NSC security officer had secured North's office on Novmeber 25. The FBI took over joint custody of the documents at the NSC on Friday, November 28.233* Also on November 28, Hall went to the office of North's new attorney to deliver messages that North had received.234 When Hall returned to the NSC, Craig Coy introduced her to FBI agents, who asked to interview her over the weekend. Hall left her new office that evening with NSC aide Robert Earl, and they agreed not to tell the FBI about the removal of documents from the NSC offices. The next day, after learning that Earl had retained an attorney, Hall ar- ranged for one as wel1.235 On Monday, December 1, William Reynolds had plans to meet alone with Tom Green again. When Weld and Richard heard of this, they opposed the meeting because Reynolds was no longer supposed to be involved in the investigation. They also pointed out that Reynolds might be a fact witness and should therefore not be negotiating with defense counsel. Weld called Reynolds to express his opposition, but Reynolds insisted on meeting with Green. He did, however, agree to have William Hendricks (Deputy Chief of the Public Integrity Section of the Justice Department) present. Weld consulted with Trott, who said that so long as Hendricks was present, the situa- tion should be "survivable." ** 'Mark Richard had advocated serving subpoenas on the NSC staff and others. His concern was that, if documents were altered or destroyed, a prosecutor might be unable to charge obstruction of justice because the defendant could claim that he or she was not aware of any investigation and therefore did not intend to obstruct justice. Richard Dep., 8/19/87, at 176-77. Indeed, as noted earlier, during their public hearing testimony, both North and Poindexter made a point of saying they believed Meese was acting as a friend of, or counselor to, the President, as opposed to acting as Attorney General, during the factfinding inquiry. North Test., Hearings 100- 7, Part I, 7/7/87, at 19; Poindexter Test., Hearings, 100-8, 7/16/87, at 133. "Weld Dep., 7/16/87, at 40. Reynolds, however, maintains that he never intended to meet with Green alone and that it was he who 320 During the meeting, Green said he knew 93 percent of the story and did not feel the President would be embarrassed if the whole truth came out. Green made clear now that he represented Secord. Green said that Secord preferred to tell his story to the Justice De- partment rather than to Congress.236 Green wanted immunity for Secord. He argued that if the Justice Department did not grant immunity and Secord's story did not come out, the press would feed on the situation and create the suspicion that the President and Regan knew more than they claimed they did.2 3 7 Reynolds and Hendricks asked Green about the 1985 arms shipments. Green responded that the Presi- dent authorized the first shipment and that McFarlane probably authorized the second shipment. Turning to the January 1986 Finding, Green said it was broad enough to authorize the "commercial activity in this enterprise." 238 Going back to the November 1985 shipment, Green said McFarlane did not impart to others the truth about the cargo. He said CIA "subordinates" were told the cargo was oil drilling equipment.236 Con- cerning the Contra resupply operation, Green said that only unappropriated funds were used and that private individuals were used to raise and collect money to support the airlift operation.24? Hendricks asked Green about the possibility that the U.S. sale of arms was used as leverage against third countries to force them to send money to the Contras. Green said he knew nothing of that. Green said that the residuals to the Contras were an "unex- pected result" that emerged from the arms sales, rather than being "cooked up" by the operation.241 Hendricks suggested that because Secord was such a "great American," he should come forward without immunity. Green rejected that idea. Hendricks re- sponded that there were problems in granting Secord immunity, and noted the prior criminal investigation against Secord. 2 4 2 Reynolds asked how many people Green thought should be immunized. Green said it should be limited to Secord, North, and Hakim. Green said he could secure the approval of Hakim's and North's lawyers. Green assured them that he did not want to embarrass the President and was not trying to "snooker" anyone. 243 Hendricks noted that it would be inappropriate to immunize anyone while there was an ongoing prelimi- nary inquiry for an Independent Counsel appointment. Green asserted that Secord, North, and Hakim were not covered under the law that grants jurisdiction to the Independent Counsel. Green predicted that if an Independent Counsel were appointed, all the princi- insisted that someone from the Criminal Division be present. Reyn- olds Dep., 9/1/87, at 67. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 pals would "clam up." Green noted that time was of the essence. The meeting ended at 12:15 p.m.244 At 2:20 p.m., Meese met with Burns, Cooper, Bolton, Cribb, Weld, Hendricks, and Richard to dis- cuss the investigation. This meeting focused on whether to apply for an Independent Counsel. There was concern that North and Poindexter might not be persons covered by the Independent Counsel statute. The consensus, however, was that sufficient evidence of a conflict of interest existed that the Justice De- partment should apply for an Independent Counsel. Weld took it upon himself to draft the application that night. Weld mentioned only North in the application as a possible target because he felt there were insuffi- cient facts to name others.245 On December 19, an Independent Counsel was ap- pointed. 321 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 11 I 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 Chapter 20 1. Ex. EM-43. 2. Cooper Test., Hearings, 100-6, 6/25/87, at 250-52; Meese Test., Hearings, 100-9, 7/28/87, at 200-01. 3. Poindexter telephone logs. 4. Regan Test., Hearings, 100-9, 7/30/87, at 224; Regan Dep., 7/15/87, at 44. 5. Ledeen Dep., 6/19/87, at 19. 6. McFarlane Test., Hearings, 100-2, 5/11/87, at 176-77; McFarlane Dep., 7/2/87, at 55. 7. Ledeen Dep., 6/19/87, at 19. 8. North Test., Hearings, 100-7, Part I, 7/9/87, at 226. 9. McFarlane Test., Hearings, 100-2, 5/13/87, at 213-14. 10. North Test., Hearings, 100-7, Part I, 7/8/87, at 146. 11. Cooper Test., Hearings, 100-6, 6/25/87, at 250; Cooper Dep., 6/22/87, at 130. 12. Webster Test., SSCI, 4/8/87, at 167-68; Meese Dep., 7/8/87, at 91. 13. Meese Test., Hearings, 100-9, 7/28/87, at 413-14; Meese Dep., at 80. 14. Meese Dep., at 91. 15. Earl Dep., 5/2/87, at 65. 16. Meese Test., Hearings, 100-9, 7/29/87, at 335-36; North Test., Hearings, 100-7, Part I, 7/8/87, at 144. 17. Earl Dep., 5/2/87, at 64. 18. Meese Test., Hearings, 100-9, 7/28/87, at 225-26; Meese Dep., at 88. 19. Weld Dep., 7/16/87, at 19-20. 20. Meese Test., Hearings, 100-9, 7/28/87, at 226; Meese Dep., at 91. 21. Ex. EM-42. 22. Earl Dep., 5/22/87, at 151-52. 23. Poindexter schedule. 24. See Chapter 6. 25. McFarlane Test., Hearings, 100-2, 5/11/87, at 76; Hall Test., Hearings, 100-5, 6/8/87, at 479-80, 491; Ex. 40 (RCM). 26. Compare Exs. FH-2 through FH-6 (originals) with Exs. FH-2A through FH-6A & FH-5B (altered). 27. Hall Test., Hearings, 100-5, 6/8/87, at 488-90, 496-97. 28. North Test., Hearings, 100-7, Part I, 7/7/87, at 15-17; Hall Test., Hearings, 100-5, 6/8/87, at 502-03; Earl Dep., 5/ 2/87, at 63-64. 29. Hall Test., Hearings, 100-5, 6/8/87, at 503-05. 30. North Test., Hearings, 100-7, Part I, 7/7/87, at 226- 27; Earl Dep., 5/2/87, at 67. 31. Meese Test., Hearings, 100-9, 7/28/87, at 226-27; Meese Dep., at 87; Ex. JMP-18. 32. Poindexter Test., Hearings, 7/15/87, at 42-44, Poin- dexter Dep., 5/2/87, at 113. 33. Poindexter Test., Hearings, 100-8, 7/15/87, at 20-23. 34. Wash. Post, 7/11/87, at A13. 35. Poindexter Test., Hearings, 100-8, 7/16/87, at 118. 36. Id., at 72. 37. North Notes, Q 2640, 11/21/86. 38. Poindexter Test., Hearings, 100-8, 7/16/87, at 116. 39. North Notes, Q 1354, 11/26/87. 40. Poindexter Test., Hearings, 100-8, 7/16/87, at 114. 41. Napier Dep., at 66-68; Corbin Dep., at 7-14; Dutton Test., Hearings, 5/27/87, at 129-31. 42. Napier Dep., at 60-68, 104-05. 43. Ex. CJC-15. 44. Cooper Dep., 7/1/87, at 11, 13-14. 322 45. McFarlane Test., Hearings, 100-2, 5/12/87, at 95; McFarlane Dep., 7/2/87, at 44-45. 46. McFarlane Dep., 7/2/87, at 57-58; Sofaer Dep., 6/18/ 87, at 62-63. 47. Meese Test., Hearings, 100-9, 7/28/87, at 229-30; McFarlane Test., Hearings, 100-2, 5/13/87, at 165. 48. McFarlane Test., Hearings, 100-2, 5/11/87 at 71-73, 83; McFarlane Dep., 7/2/87, at 52. 49. McFarlane Test., Hearings, 100-2, 5/11/87, at 71; McFarlane Dep., 7/2/87, at 52. 50. McFarlane Test., Hearings, 100-2, 5/11/87, at 71-72; see Meese Test., Hearings, 100-9, 7/28/87, at 230-31. 51. McFarlane Dep., 7/2/87, at 11, 53. 52. Ex. RCM-66. 53. Richardson Dep., 7/22/87, at 47. 54. Meese Dep., at 120. 55. Meese Test., Hearings, 100-9, 7/29/87, at 227. 56. Chron. of Justice Dept. Inquiry, 7/26/87. 57. Meese Dep., 7/8/87, at 104-05. 58. Id., at 108-12; Meese Dep., at 106. 59. Cooper Dep., 6/22/87, at 144-45. 60. Ex. EM-54. 61. Meese Dep., at 103; North Test., Hearings, 100-7, Part I, 7/8/87, at 142; Meese Test., Hearings, 100-9, 7/29/87, at 54. 62. R. Miller Dep., 6/23/87, at 11-15. 63. Ex. CJC-1. 64. Ex. GPS-C. 65. Cooper Dep., at 149-50. 66. Shultz Test., Hearings, 100-9, 7/23/87, at 414-15. 67. Meese Test., Hearings, 100-9, 7/29/87, at 414-15. 68. Id., at 286, 288. 69. Id., at 414-15. 70. Sofaer Dep., 6/18/87, at 70; Cooper Test., Hearings, 100-6, 6/25/87, at 265. 71. Richardson Dep., 7/22/87, at 50-51. 72. Meese Test., Hearings, 100-9, 7/28/87, at 234; Meese Dep., 7/8/87, at 109-10. 73. Ex. CJC-18. 74. Richardson Dep., 7/22/87, at 64. 75. Id., at 65-69. 76. Reynolds Dep., 8/27/87, at 68-74. 77. Ex. EM-44. 78. Reynolds Dep., 8/27/87, at 79-85; Richardson Dep., 7/22/87, at 74. 79. Reynolds Dep., 8/27/87, at 87; Richardson Dep., 7/ 22/87, at 81-82. 80. Meese Test., Hearings; 100-9, 7/28/87 at 35; Cooper Dep., 6/22/87, at 159-63. 81. Earl Dep., 5/2/87, at 79-80. 82. North Test., Hearings, 100-7, Part I, 7/9/87, at 183- 84. 83. Reynolds Dep., 8/27/87, at 100-02; Richardson Dep., 7/22/87, at 188-91; Earl Dep., 5/2/87, at 79. 84. Poindexter Test., Hearings, 100-8, 7/21/87, at 70-71. 85. Richardson Dep., 7/22/87, at 88-89. 86. Id., at 92-93. 87. Id., at 93. 88. Id, at 95; North Test., Hearings, 100-7, Part I, 7/7/ 87, at 39. 89. Reynolds Dep., 8/27/87, at 110; Ex. EM-43. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 90. Meese Test., Hearings, 100-9, 7/28/87, at 236. 91. Id., at 239-40. 92. J 9419. 93. Meese Dep., at 116. 94. Id., at 122-23. 95. Meese Test., Hearings, 100-9, 7/28/87, at 109-16. 96. Meese Test., SSCI, 12/17/86, at 75; HPSCI, 12/19/ 86, at 21. 97. Meese Test., Hearings, 100-9, 7/28/87, at 236-39. 98. Ex. CJC-1. 99. Cooper Test., Hearings, 100-6, 6/25/87, at 317; Cooper Dep., 6/22/87, at 184. 100. Ex. CJC-1; Reynolds Dep., 9/1/87, at 89; Richard- son Dep., 7/22/87, at 128-29. 101. North Test., Hearings, 100-7, Part II, 7/14/87, at 223-24; McFarlane Dep., 7/2/87, at 61-62. 102. North Test., Hearings, 100-7, Part II, 7/13/87, at 200-01. 103. McFarlane Dep., 7/2/87, at 64. 104. Ex. EM-47. 105. Meese Test., Hearings, 100-9, 7/29/87, at 240; Reyn- olds Dep., 9/1/87, at 26. 106. North Test., Hearings, 100-7, Part I, 7/8/87, at 141- 43; 7/9/87, at 240-43. 107. Meese Test., Hearings, 100-9, 7/28/87, at 240-41; Cooper Test., Hearings, 100-6, 6/25/87, at 261; North Test., Hearings, 100-7, Part I, 7/9/87, at 240. 108. Ex. EM-47. 109. Cooper Test., Hearings, 100-6, 6/25/87, at 245-46; Ex. EM-43. 110. Meese Test., Hearings, 100-9, 7/28/87, at 244-45. 111. Id., 7/29/87, at 411-12; Ex. EM-43. 112. Cooper Test., Hearings, 100-6, 6/25/87, at 262; Meese Test., Hearings, 100-9, 7/28/87, at 242-43, 248. 113. Meese Test., Hearings, 100-9, 7/28/87, at 245-46; Cooper Test., Hearings, 100-6, 6/25/87, at 262. 114. Meese Test., Hearings, 100-9, 7/29/87, at 246. 115. Id., at 128. 116. See Chapter 15. 117. Meese Test., Hearings, 100-9, 7/28/87, at 243-45. 118. North Test., Hearings, 100-7, Part I, 7/8/87, at 108. 119. Meese Test., Hearings, 100-9, 7/28/87, at 246; Cooper Test., Hearings, 100-6, 6/25/87, at 264. 120. Ex. EM-47. 121. Reynolds Dep., 9/1/87, at 31. 122. Cooper Test., Hearings, 100-6, 6/25/87, at 261; Ex. EM-47. 123. Ex. EM-47. 124. Cooper Test., Hearings, 100-6, 6/25/87, at 264; Reynolds Dep., 9/1/87, at 31. 125. Sofaer Dep., 6/18/87, at 69-70. 126. Poindexter Test., Hearings, 100-8, 7/16/87, at 82; North Test., Hearings,100-7, Part I, 7/9/87, at 151. 127. North Test., Hearings, 100-7, Part I, 7/9/87, at 257- 58; Barbara Browne Aff. 9/4/87, at 1. 128. Cooper Test., Hearings, 100-6, 6/25/87, at 265-67; Cooper Dep., 6/22/87, at 210. 129. McGinnis Interview, 4/24/87; Cooper Test., Hear- ings, 100-6, 6/25/87, at 266. 130. Cooper Dep., 6/22/87, at 185; Ex. CJC-1. 131. Sofaer Dep., 6/18/87, at 71. 132. Weld Dep., 7/16/87, at 23-24. 133. Meese Test., Hearings, 100-9, 7/28/87, at 250; Meese Dep., at 140. 134. Meese Test., Hearings, 100-9, 7/28/87, at 250; McFarlane Dep., 7/2/87, at 67. 135. Meese Dep., at 141-42. 136. Meese Test., Hearings, 100-9, 7/28/87, at 251; Meese Dep., at 144-45. 137. Regan Test., Hearings, 100-10, 7/30/87, at 30. 138. Id., at 29; Regan Dep., 7/15/87, at 54-55. 139. Regan Test., Hearings, 100-10, 7/30/87, at 29; Regan Dep., 7/15/87, at 55-57. 140. Ex. EM-43. 141. Meese Test., Hearings, 100-9, 7/29/87, at 139. 142. Id., at 77-78; Cooper Test., Hearings, 100-6, 6/25/87, at 108-09; Cooper Dep., 6/23/87, at 24. 143. Ex. CJC-1. 144. Reynolds Dep., 9/1/87, at 35-37. 145. Cooper Test., Hearings, 100-6, 6/25/87, at 280-81; Cooper Dep., 6/23/87, at 31-33. 146. Cooper Dep., 6/23/87, at 33; Ex. CJC-19. 147. Cooper Test., Hearings, 100-6, 6/25/87, at 281-82. 148. Meese Dep., at 137. 149. Meese Test., Hearings, 100-9, 7/28/87, at 252; Meese Dep., at 149. 150. Ex. EM-49; Meese Test., Hearings, 100-9, 7/28/87, at 252. 151. Meese Test., Hearings, 100-9, 7/29/87, at 254; Meese Dep., 7/8/87, at 146. 152. Poindexter Test., Hearings, 100-8, 7/16/87, at 120. 153. Meese Test., Hearings, 100-9, 7/28/87, at 254; Meese Dep., at 147. 154. Poindexter Test., Hearings, 100-8, 7/16/87, at 119-20. 155. Id. 156. Meese Test., Hearings, 100-9, 7/28/87, at 253. 157. Id., 7/29/87, at 234; Meese Dep., 7/8/87, at 149. 158. Regan Test., Hearings, 100-10, 7/30/87, at 75-76; Regan Dep., 7/15/87, at 62. 159. Regan Test., Hearings, 100-10, 7/30/87, at 30; Regan Dep., 7/15/87, at 62. 160. Regan Test., Hearings, 100-10, 7/30/87, at 30-31; Regan Dep., 7/15/87, at 64. 161. Meese Test., Hearings, 100-9, 7/28/76, at 255. 162. Meese Dep., at 150-51. 163. Regan Test., Hearings, 7/30/87, at 78-79; Regan Dep., 7/15/87, at 68-69. 164. Furmark Dep., 7/22/87, at 167. 165. Id., at 168. 166. Cooper Test., Hearings, 100-9, 6/25/87, at 283; Cooper Dep., 6/23/87, at 37-38. 167. Regan Test., Hearings, 100-10, 7/30/87, at 31-32; Regan Dep., 7/15/87, at 73-75. 168. Meese, Tower Board, 1/20/87, at 41. 169. Richardson Dep., at 133-34. 170. Meese Test., Hearings, 100-9, 7/28/87, at 255; Meese Dep., at 154. 171. Regan Test., Hearings, 100-10, 7/30/87, at 31-32; Regan Dep., 7/15/87, at 74-76. 172. Meese, Tower Board, 1/20/87, at 42. 173. Poindexter Test., Hearings, 100-8, 7/16/87, at 88. 174. Regan Test., Hearings, 100-10, 7/30/87, at 43; Regan Dep., 7/15/87, at 69. 175. Poindexter Test., Hearings, 100-8, 7/16/87, at 120. 176. Regan Test., Hearings, 100-10, 7/30/87, at 86-87; Poindexter Test., Hearings, 100-8, 7/16/87, at 89. 177. Meese logs; Richardson Dep., 7/22/87, at 136. 178. Richardson Dep., 7/22/87, at 138. 323 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 20 179. Id., at 138-41. 180. Poindexter Test., Hearings, 100-8, 7/16/87, at 121. 181. Id., at 121-23. 182. Regan Test., Hearings, 100-10, 7/30/87, at 34, 60; Regan Dep., 7/15/87, at 69-70; McFarlane Dep., 7/8/87, at 69; North Test., Hearings, Part I, 7/9/87, at 125. 183. North Notes, Q 2647. 184. Meese schedule. 185. Ex. EM-53. 186. Id., at 4, 9. 187. Id., at 7. 188. Id., at 10. 189. Id., at 17, 20. 190. Secord Test., Hearings, 100-1, 5/5/87, at 135. 191. Ex. EM-54. 192. Reynolds Dep., 9/1/87, at 61-62. 193. Ex. EM-54. Id. Ex. GPS-C. Ex. EM-54. Meese Test., Hearings, 100-9, 7/29/87, at 259. Ex. EM-54. Webster Int., 4/28/87; Webster Test., SSCI, 4/8/87, 194. 195. 196. 197. 198. 199. at 131. 200. Webster Int., 4/28/87. 201. Ex. EM-43. 202. Ex. EM-55. 203. Richardson Dep., 7/22/87, at 145. 204. Cooper Test., Hearings, 100-6, 6/25/87, at 268-69. 205. Burns Int., July 7, 1987. 206. Cooper Test., Hearings, 100-6, 6/25/87, at 270. 207. Secord Test., Hearings, 100-1, 5/5/87, at 135-36. 208. North Test., Hearings, 100-7, Part I, 7/8/87, at 1. 209. Earl Dep., 5/22/87, at 145-47. 210. North Test., Hearings, 100-7, Part I, 7/8/87, at 93. 211. Coy Dep., 6/1/87, at 22-26. 324 212. Hall Test., Hearings, 100-5, 6/8/87, at 506-07. 213. Id., at 297. 214. Time Magazine, 12/8/86, at 18. 215. Ex. EM-56. 216. North Notes, Q 2650-51. 217. North Test., Hearings, 100-7, Part I, 7/9/87, at 233. 218. McFarlane Test., Hearings, 100-2, 5/11/87, at 79-80, McFarlane Dep., 7/8/87, at 69. 219. Hall Test., Hearings, 100-5, 6/8/87, at 508-09. 220. Id., at 509-10. 221. Id., at 510. 222. Id. 223. Id., at 511. 224. Weld Dep., 7/16/87, at 34-35. 225. Id., at 34-35. 226. Meese, Tower Board, 1/20/87, at 49. 227. Meese Test., SSCI, 12/17/86, at 14. 228. E.g., Trott Dep., 7/2/87, at 69-70; Richard Dep., 8/ 19/87, at 181-83. 229. Richard Dep., 8/19/87, at 182-83. 230. Weld Dep., 7/16/87, at 35. 231. Hall Test., Hearings, 100-5, 6/9/87, at 523. 232. Id. 233. Trott Dep. 7/2/87, at 62-63. 234. Hall Test., Hearings, 100-5, 6/8/87, at 511. 235. Id., at 512-13; Earl Dep., 5/2/87, at 94. 236. Reynolds Dep., 9/1/87, at 66-72. 237. Id., at 72; Id., Ex. 3. 238. Reynolds Dep., 9/1/87, Ex. 3. 239. Id. 240. Id. 241. Reynolds Dep., 9/1/87, at 70-71. 242. Id., at 72. 243. Reynolds Dep., 9/1/87, Ex. 3. 244. Id. 245. Weld Dep., 7/16/87, at 42. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part V The Enterprise Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H , I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 21 Introduction to the Enterprise By the summer of 1986, the organization that Richard Secord ran at Lt. Col. Oliver L. North's direction controlled five aircraft, including C-123 and C-7 transports.1 It had an airfield in one country, ware- house facilities at an airbase in another, a stockpile of guns and military equipment to drop by air to the Contras, and secure communications equipment ob- tained by North from the National Security Agency (NSA). 2 Flying the planes were veteran pilots and crew, many experienced in covert operations. At any given time, about 20 airmen were paid consultants to a Panamanian corporation formed by Secord and Albert Hakim at North's direction; their salaries were paid from secret Swiss accounts controlled by Secord and Hakim.9 In Robert Dutton, a recently retired U.S. Air Force lieutenant colonel, the organization had an expert in special operations.4 Dutton was reporting to an NSC official, Oliver North, and a retired Air Force gener- al, Richard Secord, both of whom indicated that the operation was authorized by the President of the United States.5 This private air force was but a part of the organization that Secord and Hakim called the "Enterprise." This part of the Report explores the activities of the Enterprise and addresses questions such as: Where did the Enterprise get the money? How did it spend it? Who profited? What amount of the Iranian arms sales proceeds was spent on the Contras (the so-called "diversion")? What happened to the $10 million that Brunei contributed? What other covert operations did the Enterprise conduct or plan? Witnesses testifying before the Committees could not easily define the Enterprise. To Hakim, Secord's partner, the Enterprise was a covert organization with a chain of command headed by North; it was also a business with a chain of Swiss accounts that he set up and partially owned.6 Secord first described the En- terprise as the group of offshore companies that car- ried out the Iran and Contra operations, but later testified that it was fair to describe the Enterprise as his own covert operations organization formed at the request of North and Poindexter to carry out all of the operations described in his testimony.7 Secord declared that he "exercised overall control" over the Enterprise, but acknowledged that he depended upon North's support.9 North described Secord's network of offshore com- panies as a private commercial organization, but he also stated that it was the starting point for the cre- ation of an organization that would conduct activities similar to those of the Central Intelligence Agency (CIA), including counterterrorism.9 Poindexter never defined the Enterprise, but stated that he found attrac- tive the idea of a "private organization properly ap- proved, using nonappropriated funds in an approved sort of way." o Secord consistently turned to the same group of individuals in order to accomplish the tasks that North assigned to him. Albert Hakim, an Iranian-born American citizen, was his partner and, by agreement, Secord and Hakim were to share equally in any En- terprise profits. Hakim controlled the Enterprise's bank accounts." Rafael Quintero, a Cuban exile for- merly associated with the CIA, handled the logistics of arms deliveries from various locations in Central America." Glenn Robinette, a former CIA officer- turned-consultant, investigated those who made accu- sations about operations of the Enterprise and per- formed other tasks, among them, installation of a se- curity system at North's residence.13 Thomas Clines, a former CIA official-turned-investor and consultant, served as the primary broker for the Enterprise's arms transactions.' 4 The relationships were not new. Secord had been in contact with the group throughout his career; appar- ently he trusted these individuals and they trusted him." Secord, as an Air Force officer, and Clines, as a CIA officer, worked together in the late 1960s when both were assigned to the CIA station in Laos, and developed a close relationship.16 When Secord returned from Laos he was stationed at the Pentagon. Clines took the opportunity to intro- duce him to a number of Clines' CIA associates, in- cluding Quintero.17 Clines also introduced Secord to Edwin Wilson, a former CIA officer who had become enormously successful in international business deal- ings." In the mid 1970s, Secord was stationed in Iran where he exercised substantial influence over purchas- ing decisions of the Iranian Air Force.19 At about this time, according to Hakim, Wilson bought, or was 327 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 21 given, an interest in one of Hakim's companies and Wilson became "acquainted" with Hakim's "Iranian operations." 20 Hakim's Iranian operations included, among other things, an effort to sell electronic intelli- gence systems to the Iranian Government.2' The op- erations also involved payoffs to Iranian Air Force and Army Generals through "bearer letters" and numbered Swiss accounts.22 Hakim and Secord claimed that they first met on unfriendly terms in 1976 or 1977 when Secord recommended against a contract that Hakim proposed to the Iranian Govern- ment. 2 3 After Secord returned from Iran, his relationship with Wilson became more involved.24 In 1981, Secord and Clines became subjects of a Department of Justice conflict-of-interest and bribery investigation stemming from their relationship with Wilson. In ad- dition, in 1982, Clines became a target of a Depart- ment of Justice investigation concerning fraudulent overbillings of the U.S. Government by the Egyptian American Transport Company (EATSCO), 49 per- cent of which was owned by Clines.25 Secord retired from the Air Force in May 1983 because the Wilson story and the ongoing Justice Department investigation had placed a cloud over his military career." Two months later, EATSCO plead- ed guilty to criminal and civil overbilling charges. Clines, on behalf of the corporate entity that held his 328 49 percent interest, paid a $10,000 criminal fine and a $100,000 civil fine as part of the settlement. In July 1984 the Justice Department closed the EATSCO case and in January 1986, it closed the conflict-of- interest and bribery investigation of Secord and Clines.27 No indictments or other prosecutorial action followed. Hakim kept in communication with Secord after Secord left Iran. When Hakim learned that Secord was considering retirement, he tried to recruit Secord as a partner to revive his security sales company, Expantrade. By offering security systems to foreign governments, Hakim believed that "you have a deep penetration in that government and therefore you can do a lot of business." 28 Secord agreed with the concept and in May 1983, immediately upon his retirement, joined Hakim. Secord became Hakim's equal partner in a new com- pany, Stanford Technology Trading Group Interna- tional (STTGI), headquartered in Vienna, Virginia, outside of Washington, D.C. STTGI, relying on Se- cord's contacts, tried to develop contracts in the secu- rity field in Saudi Arabia and elsewhere." In 1984, when North recruited Secord to help with arms supply to the Contras, Hakim and Secord found a major project that would steadily grow more com- plex?as the ensuing chapter shows.3? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 21 Chapter 21 1. Dutton Test., Hearings, 100-3, 5/27/87, at 212, 217, 219. 2. Id., at 208-09, 212-13. 3. Id. at 207. 4. Id., at 204-05, 206-07. 5. Id. at 204, 211. 6. Hakim Test., Hearings, 100-5, 6/3/87, at 213, 6/5/87, at 548; Hakim Dep., 5/22/87, at 114-15, 5/23/87, at 259. 7. Secord Test., Hearings, 100-1, 5/7/87, at 172, 200-01. 8. Id. at 172. 9. North Test., Hearings, 100-7, 7/10/87, at 314-15; Hear- ings, 100-7, 7/8/87, at 117-18. 10. Poindexter Test., Hearings, 100-8, 7/15/87, at 58-9. 11. Secord Test., Hearings, 100-1, 5/7/87, at 155 (50/50 partners in Enterprise profits); at 172 (control over bank accounts). 12. Id. 6/5/87, at 53. 13. Robinette Test., Hearings, 100-6, 6/23/87, at 3-4, 5. 14. Secord Test., Hearings, 100-1, 5/5/87, at 52-53. 15. Secord Test., Hearings, 5/6/87, at 50; Id., at 172. Secord knew Robinette through Clines. Robinette testified that he had been a friend of Clines for more than 35 years. Robinette Test., Hearings, 100-6, 6/23/87, at 2. 16. FBI Summary of Secord Interviews, FB389-92; Clines FBI Interview, FB 407, 404-08. Clines refused to provide testimony to the Committees without a grant of limited immunity, which immunity the Committees declined to pro- vide. Staff Memorandum: "Order to Testify Notwithstand- ing Fifth Amendment Privilege -- Tom Clines," 3/13/87. 17. Quintero FBI Int., 8/30/82, FB597-98. Quintero stated that at first Secord was not friendly but that their relation- ship grew much closer over the years. At the time of the interview, Quintero stated that he, Clines and Secord had gotten together about nine times during the course of the year. FB597-98. 18. FB389-92. The principal source of Wilson's wealth turned out to be arms deals. During 1983, Wilson was convicted of conspiring to sell arms and explosives to Libya as well as conspiring to murder the federal prosecutor and six witnesses in his trial. Washington Post, 1/10/84, at A4. See generally, Washington Post, 3/14/83, at A17. 19. U.S. Air Force Biography of Secord, N16289. 20. Hakim Dep., 5/22/87, at 28-29. Hakim claims that Wilson infiltrated his organization through Hakim's associ- ate Frank Terpil. Hakim said that he kicked Wilson and Terpil out of his organization in 1976 or 1977. Hakim Dep., 5/22/87, at 32. 21. Id. at 17-18. 22. Ex. AH43 (legal brief submitted on Hakim's behalf by his attorneys in the course of a civil suit). 23. Hakim Dep., 5/22/87, at 19-20; Secord Test., Hear- ings, 100-1, 5/5/87, at 47. CIA files disclose that in August of 1976, CIA officer Ted Shackley tried to arrange for Secord to assist Hakim in his efforts to obtain security contracts with the Iranian government in return for Hakim providing intelligence for the CIA. Under Shackley's pro- posal, Clines was supposed to introduce Hakim to Secord. Shackley's proposal was rebuffed by a CIA official, in part because Hakim had taken advantage of the Iranians by selling them "unneeded over sophisticated equipment at ex- orbitant price[s]." C7147-59; Shackley Dep., 9/21/87, at 284-300. Hakim testified that Wilson introduced him to Clines and Shackley and that Wilson set up this arrange- ment on the understanding that he, Wilson, would receive a share of any profits made by Hakim. Hakim also stated that the meeting never occurred and that he did not remember who he was supposed to be introduced to in Iran. Hakim Dep., 5/31/87, at 229-33. 24. Wilson provided Secord with nearly exclusive use of a private plane for almost a year. FBI Report on Wilson's aircraft used by Secord, FB393, 389-90. Clines arranged for Wilson to buy a townhouse (originally sold to Secord by Clines) from Secord so Secord could recover the original investment. FB390. 25. Senate Committee Staff Memorandum, Subj: EATSCO and Secord/Clines Investigations, EN199, FB404. 26. Secord Test., Hearings, 100-1, 5/5/87, at 55. 27. FBI Closing Memorandum, Subj: EATSCO, FB2204; FBI Closing Memorandum, Subj: Clines and Secord, FB5038-39. 28. Hakim Dep., 5/22/87, at 45-47. 29. Hakim Dep., 5/22/87, at 44-45; Secord Test., Hear- ings, 100-1, 5/5/87, at 47; Zucker letter regarding S'TTGI security project, STG9141. 30. Clines and Secord maintained a close friendship. In 1984, when Clines needed $33,000 to pay the $100,000 EATSCO civil fine, Secord loaned him $33,000. Robinette acted as the courier of Secord cashier's check which was converted into a Clines cashier's check made out to the U.S. Treasury. Senate Committee Staff Memorandum Subj: EATSCO fine, 10/12/87, EN 69-72; Robinette, Test. Hear- ings, 100-6, 6/23/87, at 27-9. 329 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 The Enterprise Almost $48 million flowed into the Enterprise. It came from contributions directed to the Enterprise by North from Carl "Spitz" Channell and Richard Miller, third countries, and others. It came from the sales of arms to the Contras and missiles to Iran. It came from the sale of weapons to the CIA. The total would have been at least $10 million greater had the Brunei contribution not been misdirected. All of the Enterprise's money went into Swiss bank accounts managed by an expert in handling money, Willard Zucker, and was protected by the world's most stringent secrecy laws. But the Enterprise did not rely solely on Swiss law to preserve the confiden- tiality of its operation. Zucker created a maze of com- panies through which money could be passed without trace. The corporate operations of the Enterprise were befitting of its covert charter. One of the main objectives of the Committees was to penetrate this secrecy?to find out where the money came from, and where it went; and thus, to learn about the operations and organization of the Enterprise. In the financial records of the Enterprise, the Com- mittees found that: ?The plan?which North attributed to Casey?to create a worldwide private covert operation organiza- tion, with significant financial resources, was being implemented through a network of offshore compa- nies administered in Switzerland. ?The Enterprise took in nearly $48 million during its first 2 years. Its income-generating capacity came almost entirely from its access to U.S. Government resources and connections: the contributions directed to it by North, the missiles sold to Iran, and the brokering of arms to the Contras as arranged by North. ?The Enterprise generated a substantial amount of its income from the sale of arms to Iran. Before its operations came to a halt, the Enterprise managed to divert at least $3.8 million from the Iran arms sale profits to the Contras. ?The Enterprise spent almost $35.8 million. It used its resources to finance covert operations not reported to Congress as required by law and, in some in- stances, not disclosed to the President. ?The income of the Enterprise exceeded its ex- penditures by $12.2 million. ?Secord, Hakim, and Clines took self-determined "commissions" from the $12.2 million surplus to reward themselves for their work on arms deliveries to the Contras and the CIA. The commissions totaled approximately $4.4 million, with an average markup of about 38 percent over the cost of the arms?not 20 percent as asserted by Secord. ?Contrary to their testimony that they only took "commissions" out of the Enterprise accounts, Hakim and Secord also took approximately $2.2 million from the $12.2 million surplus for personal business ven- tures and personal use. One of these business ventures involved plans to sell weapons to the Contras at sub- stantial profits; another called for the sale of weapons to Iran. ?$5.6 million of the $12.2 million surplus was left in Enterprise accounts managed in Switzerland when the Enterprise ceased its operations in November, 1986. An additional $2.2 million from earlier commis- sion payments and profit distributions remained in separate accounts managed in Switzerland for the benefit of the individual members of the Enterprise. In the following seven sections, the Committees describe these findings in detail. The first section de- scribes the Enterprise's records and explains the net- work of companies and bank accounts through which the Enterprise operated. The second traces the sources of the Enterprise's funds and North's role in generating them. The third describes the Enterprise's expenditures. The fourth examines the diversion. The fifth shows what happened to the "surplus," the excess ($12.2 million) of revenues over expenditures, and discusses Hakim's efforts to pass money to North. The sixth section describes where the Enterprise funds are now, and the seventh tells the story of what happened to the misdirected Brunei contribution. 331 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Section 1: The Swiss Connection, the Secret Accounts and Companies, and the Covert Charter The Swiss Connection The Enterprise's records were maintained by Com- pagnie de Services Fiduciaries (CSF). CSF is a Swiss fiduciary company,' owned and administered on a daily basis by Willard I. Zucker, a U.S. citizen and former Internal Revenue Service (IRS) lawyer who has resided in Switzerland for 20 years.2 CSF estab- lishes tax haven offshore companies to hold the funds of its clients, satisfying the necessary formalities and keeping the books. It also accepts its clients' funds, keeping them in its name with a bank or investment house. A Swiss fiduciary company has no exact counter- part in the United States. The client employing a Swiss fiduciary such as CSF?which uses Panamanian or Liberian companies, Swiss bank accounts, and off- shore trust accounts?buys a triple layer of secrecy, a formidable barrier against identification of the loca- tion of money.3 Starting in 1971, Zucker provided banking-type services to Hakim.4 The Zucker-Hakim relationship continued into the 1980s; thus, Zucker's services were available when Secord became Hakim's partner in 1983. As early as June 1984, Zucker visited the United States and met with Secord about a Hakim- Secord business project that involved supplying mili- tary equipment to an unnamed resistance group.3 Zucker was a discreet, efficient, and rapid channel for moving money. By merely telephoning Zucker in Switzerland, Hakim, and later Secord,6 could order the movement of funds from Swiss bank accounts to the destination of their choice without a paper trace to either of them. With bank accounts in international tax havens and financial centers, CSF would simply issue a check from the most appropriate location.7 When necessary, Hakim could direct Zucker to set up a new Swiss bank account and an offshore shell com- pany to act as the nominal owner of the account. If Secord or Hakim wanted $50,000 in cash that could not be traced to a Swiss account, Zucker could ar- range for that, too; Zucker would call upon business associates and other U.S. contacts to provide the cash and Zucker, in turn, would reimburse his sources.8 Thus, Zucker?who had a license to practice law in the United States, all the powers of a Swiss fiduciary, an inside knowledge of the IRS, and experience in meeting the needs of clients such as Hakim?was a covert operator's model banker, accountant, lawyer, and money manager. The Secret Records Zucker kept track of Enterprise funds on a series of ledgers, referred to herein as the CSF Ledgers. After 332 being granted limited use immunity, Hakim provided the Committees with copies of the CSF Ledgers for the period from December 1984 until May 1986. Hakim also provided the Committees with copies of certain supporting documentation, including bank statements from Swiss banks, bank wire transfer records, incorporation documents, and fiduciary agreements. For the most part, accountants for the Committees were able to verify the data contained in the CSF ledgers provided by Hakim. Methods employed in- cluded extensive analysis of the Swiss banking records provided by CSF through Hakim, corroboration by independent third parties, and analysis of relevant documentation obtained from banks in the United States.? Zucker maintained three types of ledgers for the Enterprise. A "General Ledger" showed expenditures and receipts for each of the Enterprise's companies. "Capital Ledgers" tracked the distributions from En- terprise bank accounts to several individuals, includ- ing Hakim, Secord, and Clines. "Fiduciary ledgers" accounted for funds held by CSF (in its own bank accounts) in a fiduciary capacity on behalf of the Enterprise and various individuals, including Secord and Hakim.1? Secord and Hakim testified that they reviewed parts of the CSF Ledgers on several occasions. They were thus able to keep track of Enterprise income, expenditures, and "capital" distributions (which Zucker called profit distributions), despite the com- plexity of the banking structure." The Covert Charter North testified that as early as 1984 Casey wanted to establish an offshore entity capable of conducting operations in furtherance of U.S. foreign policy that was "stand-alone"?financially independent of appro- priated funds and, in turn, Congressional oversight." During the first half of 1985, the Enterprise simply purchased arms and resold them to the Contras at a profit, which was distributed to its partners. It had no continuing assets of its own and conducted no oper- ations apart from selling arms to the Contras. During this period, North steered contributions from Country 2 to accounts controlled by Contra leader Adolfo Calero in Miami. Calero transferred over $11 million to an Enterprise company named Energy Resources, Inc.' 3 Energy Resources paid approximately $9 mil- lion for arms which were delivered to the Contras, and the profit of over $2 million was distributed to Secord, Hakim and Clines. Starting in July of 1985, however, the donations raised by North were no longer sent to Calero's ac- count, but were sent directly to accounts of the En- terprise. Using these funds, the Enterprise then begun to take shape as the "stand-alone" self-financed entity capable of conducting covert actions for the U.S. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Government which Casey, according to North, had envisioned. In April and mid-May 1985, three new companies were established: Lake Resources, Gulf Marketing, and Udall Research Corp; and in Septem- ber 1985, Albon Values and Dolmy Inc. were added to the roster." Most of the funds from Energy were eventually moved to Lake. Lake became the funnel for contributions to the expanded Enterprise organiza- tion. As the network of companies and accounts grew, North asked Secord to produce a chart setting forth the organization of the Enterprise as envisioned by Casey. As North put it: A: Director Casey had in mind, as I understood it, an overseas entity that was capable of con- ducting operations or activities of assistance to U.S. foreign policy goals that was a stand- alone? Q: Self-financed? A: That was self-financing, independent of appro- priated monies and capable of conducting activi- ties similar to the ones that we had conducted here. . . . Q: Did I understand you to say . . . that the chart that you had drawn by Hakim, which is Exhibit [OLN] 328, was a chart to reflect that concept? A: . . . that chart was something that I had asked General Secord for. Q: Was it intended to reflect the concept as de- scribed by Director Casey? A: Yes.' 5 Hakim testified that in February 1986, with the assistance of CSF, he had the chart drawn on a com- puter and then gave it to Secord." (See figure 22-1) The chart was the blueprint for the off-the-shelf covert organization that Casey envisioned. It depicts three types of companies: collecting companies, treas- ury companies, and operating companies (collectively the "Enterprise Companies"). Hakim stated that the idea was that each collecting company would serve as the sole receiver of funds for the Enterprise for a period of time. When the first collecting company became too visible it could be cast aside and the next company would be taken off the "shelf" and brought into use. Thus, secrecy would be preserved." The treasury companies show the global scope of the plan. Each treasury company was responsible for holding funds for operations in a distinct region of the world: South America, the Middle East, and Africa." Africa was included because, according to Hakim, Secord said?allegedly in jest?"who knows, if we do a good job, the President may send us to Angola."19 Each of the regional treasury companies, Hakim explained, would supply funds to "operating compa- nies" within their respective regions. Each operating company would perform specific operations, and thus, the exposure of any single company would not bring down the entire network. For example, Toyco was to be used for the purchase and sale of weapons?euphe- mistically called "toys"?for the Contras, while Udall was to be used to run the air resupply operations.2? The final element of the chart, the section for re- serves marked with an "R," reflects the plan for con- tinuing operations?the essential ingredient for an "off-the-shelf," "self-sustaining" organization. Hakim stated that the "R" stood for the "Reserves" that were to hold the capital necessary for the Enterprise to become self-sufficient." Appropriately, the chart provides that the reserves would be held by CSF Investments Ltd., the Bermuda branch of CSF that invests and manages funds of CSF clients.22 The financial records of the Enterprise show that Hakim and Secord attempted to follow the frame- work set forth in the chart. Time pressures, however, sometimes led to the use of a company for a different purpose from the one intended.23 Lake Resources served as the collecting company for the Enterprise starting in the summer of 1985.24 Gulf Marketing was supposed to replace Lake as a collecting company when Lake became too visible. But these plans were interrupted by the exposure of the Iran initiative in November and the closing down of the entire Enterprise. Gulf did serve, however, as an intermediate ac- count through which funds were passed to operating companies.23 Dolmy was never put into use as a collecting, company; rather, when the orders came from North to purchase a ship for a covert operation, Hakim pulled Dolmy off the shelf because he did not have another operating entity available. He explained: I was always hit with surprises. These surprises created a lot of headache and difficulty in the total system, gave a lot of difficulty to CSF and its staff. The requirement was to purchase a ship. They wanted things done always yesterday. There was not enough time." In Central America, where activity was the most intense, the Enterprise fully developed the network of companies set forth on the blueprint. Albon Values, the Central American treasury company, directed $4.3 million of its funds to two Central American operat- ing companies: Toyco S.A. and Udall Research Cor- poration. 2 7 Performing their operational roles, Toyco28 purchased arms for the Contras and made payments to Contra leaders, while Udall, among other things, bought and operated the aircraft for the resup- ply operation. Udall also leased land in Costa Rica, 333 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Figure 22-1. Exhibit AH-1: Diagram of the Enterprise ..T ILAKE A GULF Pc. 3cx 142 ,RESOURCES MARKETING I 121i 17.3"774. 3 CeNALTANTZ Trq. 365 .01 eel Ion hou ri flery sag II,peal .1114111-?)?1 SOUTH AMERICA _ _ ? _ _ .1711 AL8ON VALUES tasettery novo/ UDALL 00?1611.41 compony TOYCO Moieties rompaap 1,11 4P-1 MIDDLE-EAST HYDE PARK SQUARE CORP. !Thew ampay operetiog tD_OLMY CI eellsellases mow BUSINESS Inc. eel/ AFRICA iC S F Fi Inv 'Ltd. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 where it built an emergency airstrip for the aircraft dropping supplies in Nicaragua." In short order, Zucker could create or dissolve a corporation as circumstances required. When the air- strip was publicly denounced by the newly-elected government in Costa Rica, and it was revealed that Udall owned the airstrip and that "Olmstead" was its agent, North wrote to Poindexter: [Last night, the Minister of Costa Rica an- nounced that] authorities had discovered a secret airstrip . . . which had been built and used by a Co. called Udall Services for supporting the Con- tras . . . . Damage assessment: Udall Resources, Inc. SA, is a proprietary of Project Democracy [North's euphemism for the Enterprise]. It will cease to exist by noon today. There are no USG fingerprints on any of the operations and Olm- stead is not the name of the agent?Olmstead does not exist.3? Hyde Park Square served as a switching point be- tween the Iranian and Contra operations. Beginning on April 17, 1986, proceeds from the Iranian transac- tions were moved through Lake into Hyde Park Square, and then transferred to other accounts for the Contras and other covert operations. As a result, Hyde Park Square, shown on the chart as a Middle East treasury company, also became a collecting com- pany that fed other accounts." Hakim and Secord also carried out the last step of the chart: the creation of "Reserves" totaling $4.2 million. As contemplated in the chart, the Reserves were held by CSF Investments Limited, Zucker's Bermuda subsidiary. Like a brokerage house, CSF Ltd. invested the Reserves in short-term deposits and in stocks. Pursuant to a written agreement, CSF was required to invest and spend the money in any manner directed by Hakim.32 The Reserves are dis- cussed in greater detail below, as is a special compa- ny, Defex SA, that does not show up on Hakim's chart. Section 2: Income Generation Table 22-1 and Figure 22-2 summarize the sources of the Enterprise income, from December 1984 to De- cember 1986. The details of each of these income-raising efforts are set forth in other chapters of this Report. The summary here demonstrates that every single source of Enterprise income involved North and the use of U.S. Government resources. Indeed, Secord flatly ac- knowledged this connection.33 Initially, North arranged for Calero to receive con- tributions and to purchase arms from Secord.34 Later, the Enterprise received Contra contributions directly and used them to buy arms for the Contras." Then Table 22-1.?Enterprise Income 1 1985 and 1986 Source Amount Arms Sales to the Contras (Calero) $11,348,926 Total $11,348,926 Donations for the Contras: Institute for North-South Issues (Miller) 60,000 IBC (Miller) 429,839 IC, Inc. (Miller) 1,307,691 Country 3 2,000,000 Joseph Coors 65,000 Total 3,862,530 Arms Sales to Iran: Second Channel 3,600,000 Israel 2,685,000 Khashoggi 25,000,000 Total 31,285,000 Other: Arms Sales to the CIA 1,200,000 Interest Income and Miscellaneous 262,637 Total 1,462,637 Grand Total Income 47,959,093 Based upon analysis of the CSF ledgers and supporting bank records, H6378-79. ' Poindexter and North agreed to use the Enterprise as the agent for the Iranian initiative," with North pric- ing the sales at a markup that generated excess funds for the Contra resupply operation and other Enter- prise activities.37 Through a conduit, the CIA became a source of funds for the Enterprise when it pur- chased weapons originally destined for the Contras." Indeed, North tried to get the CIA to provide more: When the Boland Amendment expired and Congres- sional funding for the Contras resumed, he tried to persuade the CIA to purchase the Enterprise's aircraft and airstrip." The only money the Enterprise was able to earn on its own was about $254,000 in invest- ment income on the money that came from its U.S. Government connections. North helped generate the Enterprise's revenues, and, in turn, Secord and Hakim accommodated North's requests for funds and services. At North's request, the Enterprise bought a ship, sent radios to a foreign political party, and provided money to Drug Enforcement Administration (DEA) agents for a covert operation.4? Hakim testified that, as a result of these kinds of demands, he was not sure who was making the decisions about the use of the Enterprise's funds?North acting as an official of the U.S. Gov- ernment, or he and Secord.41 As Hakim put it: "who- ever designed this structure, had a situation that they could have their cake and eat it too. Whichever they wanted to have, a private organization, it was private; when they didn't want it to be a private organization it wasn't.,42 335 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Arms Sales to the Contras (Calero) 11.35 Arms Sale to Central Intelligence Agency 1.2 Figure 22-2. Enterprise Income ($47.96 Million). Contra Donations 3.86 Arms Sales to the Contras (Calero) 23.7% Arms Sale to Central Intelligence Agency 2.5% (in millions) Interest and Other Income 0.26 Contra Donations 8.1% Interest and Other Income 0.5% Source: Compagnie de Services Fiduciaires ledgers. 336 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 The Cash Balances The Enterprise companies built up substantial cash balances, which totaled almost $5.5 million by the time the operations came to a halt in December 1986.43 Table 22-2 summarizes the ending monthly cash balances for the Enterprise companies and the Reserves. Hakim testified that he understood that North wanted a pool of funds available in Switzerland for the Contras and any other purpose he might des- ignate.44 Secord testified that he was "generating money to keep the Enterprise going."'" Later, in an interview, he elaborated: The majority of the money was in [the Enterprise accounts] to provide operating capital for a very, very large enterprise which owned a ship, and which was preparing to buy a two million dollar 707, and which was preparing to set up perma- nent headquarters in Europe for a joint Iranian- American commercial venture.4 6 Table 22-2.-Estimated Ending Monthly Cash Balances Month Ending Enterprise 2 Companies Reserves Total Dec. 84 $10,957 $10,957 Jan. 85 418,939 418,939 Feb 344,591 344,591 Mar 3,543,489 3,543,489 Apr 4,128,476 4,128,476 May 1,573,472 1,573,472 June 1,515,879 1,515,879 July 1,316,089 1,316,089 Aug 725,123 725,123 Sept 1,561,631 1,561,631 Oct 1,123,709 1,123,709 Nov 918,867 918,867 Dec 513,595 513,595 Jan. 86 394,166 394,166 Feb 6,755,693 6,755,693 Mar 4,106,152 $2,000,000 6,106,152 Apr 2,462,197 2,000,000 4,462,197 May 8,799,871 2,000,000 10,799,871 June 5,269,057 4,200,000 9,469,057 July 2,019,829 4,200,000 6,219,829 Aug 612,383 4,200,000 4,812,383 Sept 1,144,218 4,200,000 5,344,218 Oct 1,944,486 4,200,000 6,144,486 Nov 1,441,331 4,200,000 5,641,331 Dec 1,299,127 4,200,000 5,499,127 1 Based upon an analysis of the CSF Ledgers and supporting bank account records. During the month of May the bank account balances went as high as $23 million; the money was rapidly spent, however, pursuant to the Iran arms transactions. Ending monthly balances, shown here, present a more accurate picture of cash freely available to the Enterprise. 2 Includes funds controlled by Energy, Lake, Gulf, Udall, Albon, Dolmy, ACE, Hyde Park, ToyCo, Stanford Tech Services, S.A., and Defex SA. ACE was created for the Contra air resupply operation. Stanford Tech Services paid American Express bills for Hakim and Secord. Section 3: Expenditures All told, the Enterprise spent almost $35.8 million- out of the nearly $48 million it took in-on covert operations. Table 22-3 and Figure 22-3 summarize the expenditures. Table 22-3.-Enterprise Expenditures I. CENTRAL AMERICA: Arms Purchased for Sale to Calero: Defex 2 $7,487,606 Transworld Arms 1,390,532 Total 8,878,138 Arms Purchased and Donated to Southern front Defex 864,407 Air Resupply: C-123 (Doan Helicopter) 475,000 C-123 (Hanson Sale) 250,000 Maule Aircraft (Maule Air) 183,238 Caribous (Propair Inc.) 1,096,966 Airfield 125,000 Southern Air Transports 1,991,512 Corporate Air Services 437,688 Aero Contractors 70,756 East 657,804 Central American Contractor 192,233 Quintero 198,376 David Walker 110,000 Other 4 73,367 Total 5,861,940 Contra Leaders and Others: Calero 200,000 Contra Leader 59,500 Contra Leader 155,000 Calero's Broker 200,000 Contra Leader 50,000 Total Contra 664,500 Legal Support: Shea and Gardner 20,000 Tom Green 90,000 Sharp, Green, and Lankford 1,671 Total 111,671 Other 130,217 Total 16,510,873 2. MID-EAST (IRAN ARMS): Payments to CIA for Arms 12,237,000 Israel 5 732,250 Southern Air Transport 1,151,000 Aeroleasing 226,998 CIA Proprietary Airline 127,700 Related Costs 457,700 Advance to Richard Second 260,000 Total 15,192,648 3. WORLD WIDE: Erria (North Africa) 743,409 DEA Agents 30,150 Radios for foreign government 100,000 Defex 2 (Arms sold to CIA) 2,226,987 Total Contra 3,100,546 4. OTHER 967,953 Total Expenditures 35,772,020 1 Based upon an analysis of CSF ledgers and supporting bank account records, H6344-62. 2 These expenditures include payments to Alkasser totalling $1.5 million. According to Richard Secord, Alkasser is an agent for Defex and the $1.5 million covered arms purchases from Defex. The expenditures also include prepaid transportation costs. According to Southern Air's records, this includes $598,390 for delivery of arms to Calero and the Southern Front. 4 Includes $48,165 which, as of 10-22-86, remained in ACE's bank account. 5 Payment for leasing of aircraft. 337 77-026 0 - 8/ - 12 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 When asked about the cash balances, North testified that Casey wanted the Enterprise to become a self- sustaining operation so that "there [would] always be something there which you could reach out and grab . . . at a moment's notice."47 But North also said that he was surprised by the size of the balance, adding, "I am not willing at this point to accuse anybody?"48 He also acknowledged that he had been told in September 1986?even though the cash bal- ances were then approximately $5.3 million?about a shortage of money available for the Second Channel Iranian initiative.49 Throughout 1985 and the first half of 1986, Enter- prise cash surpluses, including the Reserves, were in- creasing. They reached their height in May 1986. As of May 1, 1986, the funds in the accounts of the collecting companies, treasury companies, operating companies (collectively the "Enterprise companies") and the Reserves, contained approximately $10.8 mil- lion. In October 1986, at the same time New York busi- nessman Roy Furmark was threatening to expose the initiative if the Iran arms financiers were not paid, the Enterprise companies and the Reserves still had a total cash balance in the vicinity of $6.1 million. Central American Expenditures 5 ? In the beginning, the Enterprise simply sold arms to the Contras. Its Contra arms-brokering operation? complete with an offshore company and an offshore account?was only the first stage for the full-service covert organization that, according to North, Casey envisioned.5' From December 1984 through July 1985, Calero transferred $11.3 million to Secord.52 Secord used the money to provide five arms shipments, described by Secord as Phases I through IV (one of the five ship- ments was a supplement to a previous one).53 Secord spent a total of $9.4 million for the arms he sold to Calero, including transportation costs; however, the total cost?including commissions for Secord, Hakim, and Clines?exceeded $11.3 million; the shortfall was made up with other Enterprise funds, including dona- tions from the private fund-raising network.54 From February until May 1986, the Enterprise pur- chased approximately $3.1 million of military equip- ment from Defex, a Portuguese arms supplier.55 It delivered some of the arms, paid for largely by the Iranian weapon sales and third-country contributions, in three airlifts which took place in March, April, and May 1986 (described by Secord as phases V through VII).56 Additional arms purchased during the same 338 period (the "stranded shipment") never reached the Contras.57 In addition, the Enterprise spent approximately $5.9 million for air resupply operations, which had been planned by North, Secord, Clines, and Quintero in July 1985. It acquired an air force, purchasing two C- 123 cargo aircraft, two Caribou aircraft, and three Maule aircraft.58 More than $1.5 million (out of the $5.9 million) was transferred by the Enterprise to various vendors through Amalgamated Commercial Enterprises (ACE), a Panamanian company established by Rich- ard Gadd to pay for the Caribous, air crews and other expenses associated with the resupply operation. Ac- cording to Gadd, he was originally told by Secord that he, Gadd, would own the aircraft through ACE, but Secord later changed his mind and the Enterprise retained ownership through its Udall Corporation." Operating the airplanes was expensive: the Enter- prise paid Corporate Air Services a total of $437,688, directly and indirectly, for the crews used in the resupply operation. Southern Air Transport received approximately $2 million for aircraft spare parts, fuel, and other services in connection with the resupply operation.6? Eagle Aviation Services and Technolo- gy, Inc. (EAST), another Gadd company, received $657,804 for providing other air services." David Walker, a British expert in guerrilla warfare recruited by North, received $110,000 for his services on May 5, 1986.62 Secord noted that during the July meeting in Miami it was decided that the resistance needed "to get into some of the urban areas." 63 North testified that in 1985, he authorized Walker to perform military operations "in Managua and else- where in an effort to improve the perception that the Nicaraguan resistance could operate anywhere that it so desired."64 Later, Walker provided two techni- cians to help carry out a military operation in Nicara- gua.65 Secord and Hakim testified that in 1986 Walker provided air crews for the resupply oper- ation.66 The Enterprise acquired land for an airstrip in Costa Rica for a down payment of $125,000 and a purchase money mortgage of $4,875,000. A Central American contractor who constructed the airfield, re- ceived payments totaling $192,233 from February through July 1986.67 The Enterprise disbursed funds to a number of Contra leaders. It paid $50,000, $155,000, and $59,500, respectively, to three Contra leaders, and $400,000 to Calero and his broker for food supplies and other expenses." North may have had even more complex plans for payments to the Contras." Figure 22-4 summarizes expenditures related to the Contras. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Figure 22-3. Enterprise Expenditures, December 1984 through December 1986 ($35.77 Million) Worldwide 3.1 Other Worldwide 8.7% (in millions) 0.97 Other 2.7% Source: Compagnie de Services Fiduciaires ledgers. 339 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H I I I .,? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Figure 22-4. Expenditures Relating to the Contras ($16.5 Million) Contra Leaders Other and Others 0.1 0.7 Legal Support 0.1 Arms Donated to Southern Front 0.9 Contra Leaders and Others 4.2% (in millions) Other 0.6% Arms Donated to Southern Front 5.5% Legal Support 0.6% Source: Compagnie de Services Fiduciaires ledgers. 340 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 The Mideast: Expenditures for the Iran Operations 70 The Enterprise was involved in every NSC-con- nected shipment of weapons to Iran from November 1985 on. The net surplus generated by these transac- tions for the benefit of the Enterprise was $16.1 mil- lion. The first transaction, the Israeli November 1985 HAWK shipment, generated a net surplus of $850,317. The transaction began when an Israeli inter- mediary deposited $1,000,000 into the Lake Resources account on November 20, 1985. Eighty Israeli owned HAWKs were to be transported by the Enterprise to Iran in four separate shipments. Only 18 HAWKs were delivered, however, before the Iranians termi- nated the transaction. The Enterprise incurred charter expenses of $127,700 for the delivery of the 18 HAWKs, and $21,983 for a private jet for Secord. This left the Enterprise with $850,317. According to Secord, the Israelis told North that the extra money could be used for "whatever purpose we wanted."71 After discussing the matter with North, Secord agreed to use the money for the Contras and testified that he did so.72 The Enterprise's role in the next transaction?the sale of the 1,000 TOWs in February?was more active. The Enterprise was the "commercial cut-out" for the CIA, receiving the money for the missiles from Ghorbanifar, paying the CIA for them, and de- livering them to Iran. The net surplus from this trans- action was approximately $5.5 million. As it did with the Calero arms sales, the Enterprise received pay- ment to cover the cost of the arms before the arms were purchased. Between February 7 and 18, 1986, Khashoggi (who was financing Ghorbanifar) trans- ferred a total of $10 million to the Lake Resources account for the shipment. On February 10 and 11, Secord directed a total payment of $3.7 million to the CIA for the TOWs. In addition, payments totaling $484,000 were made to Southern Air for the delivery of missiles from the United States to Israel; one pay- ment of $185,000 was made to the Israeli Ministry of Defense to transport the TOWs from Israel to Iran; another payment of $100,000 was made to the Israeli Ministry of Defense for other related activities; and $31,500 was paid to an Israeli bank for miscellaneous expenses. The Enterprise's role was the same in the third transaction?the deliveries of the HAWK replacement parts to Iran in May and August 1986, and the ship- ment of TOWs to Israel to replenish the TOWs sold to Iran in September 1985. The net surplus from this transaction was approximately $8.3 million. Khashoggi financed the May transaction for Ghor- banifar, transferring $15 million to the Lake Re- sources account on May 14 and 16, 1986, for the HAWK parts. On May 15 and 16, the Israeli Ministry of Defense transferred a total of $1,685,000 to the Lake Resources account for the TOWs." After Kha- shoggi's first payment was received, Secord directed the Enterprise to pay $6.5 million to the CIA to cover the cost of the HAWK spare parts and the TOWs. In order to pay for the delivery of the HAWK parts, the TOWs, and McFarlane's trip to Iran, the Enterprise paid $667,000 to Southern Air and $447,250 to the Israeli Ministry of Defense. Dutton received $40,000 to cover the cost of the crew and other expenses on the Israel-to-Iran leg of the mission. Secord also appears to have received $260,000 which was apparently related to the Iran transactions.74 Finally, the Enterprise paid $205,015 for expenses of chartering corporate aircraft for Secord and North in connection with their negotiations with the Irani- ans. The fourth and final transaction consisted of the shipment of 500 TOWs from U.S. stocks to Iran through the Second Channel. The net surplus was $1.4 million. The Second Channel advanced $3.6 mil- lion to Hyde Park Square on October 29, 1986, for the TOWs. Hyde Park, in turn, paid the CIA $2,037,000 for the missiles and incurred other ex- penses aggregating $161,240. Worldwide Projects The Enterprise's expenditures were not limited to Central America and the Middle East. In May 1986, North directed Secord to purchase a ship for other covert operations. Accordingly, the Enterprise spent $743,409 on the purchase and operation of a Danish vessel named the Erria." North directed a project with DEA agents to try to free certain hostages which contemplated paying bribes and, indirectly, a $2 million ransom to their captors. North turned to businessman and philanthro- pist H. Ross Perot, who agreed to provide $2 million for the project. In addition, North called upon the Enterprise which paid $30,150 to the DEA agents for their expenses.76 At North's request, the Enterprise paid $100,000 for radios supplied to a political party of a foreign nation.77 Another project involved an attempted propaganda effort in a foreign country. North dis- closed to the Committees in an executive session that a number of other projects were in the planning stages.78 The North Residence Security System Another Enterprise expense was a home security system, which cost approximately $16,000, for the residence of Oliver North. As early as September 1985, North reported harassment which he attributed to anti-Contra demonstrators, including damage to part of the fence around his home and one of his cars." In the spring of 1986, the press reported that 341 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Abu Nidal, the international terrorist and assassin, had placed North on his "hit" list. When the FBI advised North that it was not authorized to provide protec- tion, North made a request to Poindexter for assist- ance. Poindexter did not follow up on the matter.8? According to the Marine Corps, North did not re- quest protection for his home from the Corps, an option that was available to him." North told Secord about the problem and Secord offered to help." Secord asked Glenn Robinette, an ex-CIA officer with experience in electronic surveillance and securi- ty, for assistance. Secord had hired Robinette in late March to do investigative work related to the Avir- gan and Honey lawsuit, at a fee of $4,000 a month plus expenses. Robinette examined the North resi- dence and met first with Mrs. North, then with North and Secord. Robinette proposed a security system de- signed primarily to provide protection from trespass- ers, not terrorists, at a cost of $8,500. According to Robinette, North responded to the effect, "Please try to keep it along those lines. Remember, I am a poor lieutenant colonel." 83 Robinette paid the installers of the system, which included a remote control electronic gate, approxi- mately $13,900?$6,000 in May and roughly $7,900 on July 10th when the installation of the system was complete. At the time of each payment, Robinette reported to Secord, rather than North, for reimburse- ment because he was "working for Secord." Secord reimbursed Robinette for his time and expenses with $7,000 in cash and a $9,000 check drawn by Zucker from Enterprise funds and mailed to Robinette at Se- cord's request.84 On August 6, 1986, at a meeting in the White House, North told Members of the House Permanent Select Committee on Intelligence, who were inquiring about his involvement with the Contras, that he had installed, at his own expense, a security system to protect his family from anti-Contra demonstrators.85 North testified that a bill never came for the securi- ty system and that he assumed that "an accommoda- tion was worked between Mr. Robinette and General Secord to make a gift out of [the] security system." 86 Secord, in an interview, denied that he made the gift or approved it. From Secord's viewpoint, there was a misunderstanding: Robinette asked for his expenses and Secord never realized that those expenses were for the security system rather than for investigative work.87 Robinette testified as follows: Q: When you went to General Secord to seek reimbursement [for the final payment to the secu- rity company], you told him what you were seek- ing reimbursement for, didn't you? A: Yes, sir. Q: He knew he was paying you for the security system, didn't he? 342 A: That would be my understanding, sir. I usual- ly told him what I was asking to be paid for. Q: There is no question about it, is there? A: No, sir, there is no question about it.88 In December 1986, North realized that the gift of the security system "just didn't look right." 89 By that time, North had been named in the Justice Depart- ment application for the appointment of an Independ- ent Counsel. North called Robinette and asked him to send a bill." Since the system had already been paid for, Robinette assumed that North wanted to make it appear that he (North) had actually paid the bill. Robinette, who told Secord that he was going to send North a bill, sent North two back-dated bills of pay- ment due, dated months earlier but actually written and delivered at the same time in December 1986." North, in turn, wrote two back-dated letters, de- signed to fit with Robinette's bills, which told a false story about financial arrangements relating to the se- curity system. In the first, dated May 18, 1986, but written in December 1986, North stated that it was his understanding that he could pay for the system either through 24 monthly installments or by making his house a demonstration unit. North concluded the letter by informing Robinette that he was selecting the second option. In the second letter, dated October 1, 1986, but also written in December, North apolo- gized for the delay in responding to the first and second notices and reminded Robinette that he wished to pay for the system by making his home available as a demonstration unit." In his testimony, North stated that he typed at least one of the letters on a demonstration typewriter in a typewriter store, rather than using a home typewriter." On the morning of March 16, 1987, as Robinette went out to get his morning paper, he was inter- viewed by a reporter about the driveway gate which was part of the North security system. Robinette stated that he installed the gate for North at no charge, hoping that North "might steer business his way" and that he would be able to put in gates for North's neighbors." Later in the day, North called Robinette, asking to meet with him on the following day at his lawyer's office, and requesting that Robin- ette bring copies of the back-dated letters." Robinette gave the letters to North's attorneys, but did not say they were spurious. Robinette then went to see Secord who, upon learning that Robinette had sent North a bill for the security system, stated, "You did the right thing." That same afternoon Robinette received a call from North's attorney, who told him not to protect North, and to "tell the truth, tell the truth, tell the truth." He also advised Robinette to get an attorney. Robinette did so. Later, after receiving immunity, he related the above-described events to the Independent Counsel and the Committees." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 North testified that in fabricating the letters in De- cember 1986, "I did probably the grossest misjudg- ment that I have made in my life."97 He added that he had acted, in accepting the system, to protect his family and told the Committees, "If it was General Secord who paid the bill. . . you guys ought to write him a check, because the Government should have done it to begin with." 98 North offered no explana- tion as to why he also created the false record, other than that the gift "just didn't look right."99 Unexplained Cash Expenditures The CSF ledgers record expenditures of approxi- mately $902,110 during the period from March 1985 to October 1986 without identifying their specific pur- pose. Two transactions accounted for the bulk of these funds. The first involved a $260,000 cash dis- bursement on May 21, 1986.1" In the second transac- tion, $310,000 was withdrawn from the Hyde Park account on July 18, 1986.1" The ledgers state that in both cases, the funds were "in transit," but where they went is unknown. In addition, the Enterprise transferred $152,200 to an account called Codelis.'" Finally, Hakim, Secord, and Clines received cash to- taling $179,610 from various Enterprise accounts; these transactions were listed as "business expenses," and were in amounts of up to $50,000 Section 4: The Diversion How Much?'" The Iran arms sales generated a $16.1 million surplus for the Enterprise. The Enterprise managed to spend part of that money, $3.8 million, for the Contras before its operations were stopped. As of November 19, 1985, the day before the first money from the Iran arms transactions was deposited into the Enterprise, the Enterprise had a cash balance of approximately $1 million. From November 20, 1985 through December 1986, the Enterprise received an additional $2.4 million in donations for the Con- tras. During the same period, the Enterprise spent approximately $7.2 million on behalf of the Con- tras.' ?5 The shortfall?$3.8 million?was diverted from the Iran arms sale surplus.'" The diversion did not take place by accident. In fact, North helped set the price of the arms so that a surplus would be created which could be used for the Contras.'" According to Secord, North consistently instructed him to use the surpluses generated from the Iranian arms sales for the Contra project.'" North apparently thought that at least $6 million of the Iran surplus from the May transaction alone would be used for the Contras. He sent Poindexter a PROF note on May 16, saying that the Enterprise had "more than $6 million available for immediate disbursement."'" Poindexter testified that he believed that the Enter- prise was giving the Contras all of the surplus from the Iran arms Section 5: Profits Who Made What Breaking the Code Names Hakim was both a promoter and a salesman: The Enterprise was a great opportunity to make a great deal of money and, he said, at the same time, to serve both his new country, the United States, and his native country, Iran. Hakim added: I never pretended to undertake the tasks I was asked to perform for philanthropic purposes and I made that clear to all of those with whom I [w]as involved?including General Secord, Lieu- tenant Colonel North, the CIA, and the Irani- ans.111 The Enterprise fulfilled Hakim's objective: without risking any of its own or Hakim's money, the Enter- prise made extraordinary profits through weapons sales. Its revenues of $48 million exceeded its expenses by $12.2 million. Secord preferred to speak of this money as "residuals" or "surplus" rather than profit because he did not want to be called a "profiteer."112 Not only was the structure and operation of the Enterprise cloaked in secrecy, so was the distribution of its profits. The CSF records indicate that $6.8 million of the $12.2 million "surplus" was distributed as profits directly or indirectly to five entities: "Albert Hakim, Korel Assets, C. Tea, Scitech, and Button.""3 In addition, $4.2 million was transferred to CSF to be held in a fiduciary capacity for the Enterprise as "Reserves."114 The balance, $1.2 mil- lion, remained at the end of 1986 as undistributed cash in the Enterprise's operating companies."5 Each of the five entities had a Capital Ledger. Each time funds were distributed from Enterprise ac- counts to one of the five entities, the date and the amount of the transfer were recorded in that ledger. Generally, the funds were wired from Enterprise ac- counts either to a bank account controlled by one of the five entities or CSF, where at least four of the five entities had entered into individual fiduciary agreements. The fiduciary agreements provided that CSF would manage the money of each entity and return all or part of the money to the entity or its representative upon demand. Hakim produced records of a CSF fiduciary fund for Korel, Hakim, Scitech, and Button, including ledgers for each fund.116 Only Hakim's Capital Ledger was in his own name.117 Hakim stated that C. Tea was the code name for Thomas Clines," g who handled the Contra arms procurement for the Enterprise."9 The records bear that out.'2? Hakim testified that Scitech was the 343 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? I I . ,..,....!..J..,I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 offshore arm of the Secord/Hakim firm STTGI and that it was equally owned by Secord and Hakim. The records also support that statement.'" Hakim also testified that Korel stood for Secord, and Button stood for North.122 Korel Assets Hakim testified that Korel Assets was a corporation that held Secord's profit share.'" The records of the Enterprise support Hakim's testimony. Profit distribu- tions to Korel match, often to the last dollar, distribu- tions to Secord's equal partner, Hakim. According to the CSF Ledgers, $1.62 million was transferred out of the Enterprise accounts for the benefit of "Korel Assets." Most of this money was distributed to the Korel Assets Fiduciary Fund where it remained unspent. However, $269,000 was trans- ferred either directly from the Enterprise accounts or indirectly through the Korel Fiduciary Fund to the U.S. or elsewhere. The Committees have traced most of this money to: Secord's personal bank account (in- cluding payments for a personal airplane) ($74,600); payments for Secord's Porsche ($31,825); payments for a stay by Secord at a health farm ($3,075); and cash withdrawals where Secord signed the withdraw- al slips ($33,000).124 An additional $126,492 went for other purposes.126 Secord testified that he was unaware that Korel Assets stood for him and that it held his profit share.126 He claimed that the money he personally received from Switzerland came through Hakim as personal loans or as payments for work unrelated to the Enterprise. Hakim never mentioned Korel to Secord. As far as Secord was concerned, the money for the Porsche was a loan from Hakim (even though Secord signed no note and paid no interest), and the money for the airplane was Secord's share of a con- sulting fee.127 Hakim denied that the money for a Porsche was a loan and indicated that in both cases he took the money from Secord's profit share.'" Secord testified that he was originally an equal profit participant with Hakim in the Enterprise, and that the same 50/50 profit-sharing arrangement ap- plied to any profits from any Enterprise company, including Korel Assets.'" According to Secord, CSF initially held his profits under his name. Then, some- time in July or August 1985, he orally foreswore his interest in any profits of the Enterprise.13? He stated that after he foreswore his profits, he "left to Hakim to do with [them] as he wished." If Hakim placed the money in a CSF fiduciary fund called Korel Assets for him, Secord was unaware of it. In addition, Secord asserted that Hakim calculated profits on the Contra arms deals, and that Secord had no specific knowledge about the profit distributions.'" Hakim confirmed part of what Secord said. Hakim stated that Secord orally relinquished his interest in any profits, not in mid-1985, but in "early to mid 344 1986."132 Hakim noted, however, that he ignored Secord's oral waiver and he continued to treat the money held by Korel Assets as Secord's profit share that Secord could claim at any time.' 33 Secord, Hakim declared, was not a good businessman who could keep track of money; rather, "he was born a general and will die a general."34 Hakim denied that he was the one ultimately re- sponsible for profit distributions and indicated that Secord was aware of Korel and its function. Hakim testified that Secord was the final authority on profit distributions (commissions were distributed to Korel, Hakim and C. Tea through August 1986).132 And, according to Hakim, Secord inspected the profit en- tries of the Enterprise books, including those of Korel Assets, as late as May 1986.'36 Hakim also stated that Secord's profits were distributed to Korel Assets with Secord's specific approval so as "to eliminate personal contact to those funds."137 Except in a few cases,'" Secord's name does not appear on the CSF documents produced by Hakim.139 "Button" On May 20, 1986, the Enterprise transferred $200,000 to "B. Button." The money was wired out of an Enterprise account to CSF, which agreed to hold the funds for "B. Button" under a CSF fiduciary agreement. The transfer was recorded in the Button Capital Ledger as a distribution for the benefit of Button.149 Hakim's explanation of the Button money changed during his deposition. He initially testified that the Button fund was set up to pay death benefits for the pilots in the Contra air operation and that Button meant "Button up or something."141 When told of a handwritten note by Zucker referring to "Mrs. Belly Button," Hakim said that Button meant "bellybutton" and gave an almost incomprehensible explanation.142 Hakim, who denied that Button stood for anyone's name, failed to explain why "Button" had a Capital Ledger, as if it were sharing profits. Two days later, Hakim stated that the $200,000 was a death benefit for Mrs. North and her family in the event of North's death. The Capital Ledger "Button" referred to distributions for the benefit of North. Shortly thereafter, Hakim produced the "B. Button" fiduciary agreement which showed that $200,000 was being held by Zucker for B. Button. And after being shown the reference to "Mrs. Bellybutton," Hakim admitted that it was the code name for Mrs. North. (Button was short for North's codename?Bellybut- ton.) Hakim testified that he had proposed to Secord that a $500,000 death benefit be set up in connection with North's trip to Tehran in May 1986, but that Secord had rejected the proposal telling Hakim that he did not "understand a soldier's life." Hakim then pro- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 posed $200,000, and Secord acquiesced.'" Hakim said that his motive was humanitarian: he had become extremely fond of North (whom he had met only once) and wanted to relieve North's anxieties about his family. He asserted he never told North about the Button Fund, but did say if North did not return from Tehran "as long as one of us is alive you need not worry about your family.9,144 The death benefit for North had not emerged in Secord's prior interviews and public testimony. When asked about Hakim's testimony, Secord acknowledged that Hakim told him of the need for "insurance cover- age" for North. Secord claimed that he told Hakim that they "couldn't set up an insurance coverage for 011ie North," but that North could be covered by the $200,000 death benefit fund which had been set up in November 1985 for the pilots involved in the resup- ply operation.'" He recalled opposing the notion of a $500,000 fund.146 North offered a third version. He testified that in early March, just after he met Hakim, Hakim told him, "If you don't come back, I will do something for your family.99 1 47 The matter did not end with the creation of the Button Fund. Hakim also testified that he sought a way to give money to Mrs. North for the education of the North children, after he learned from Secord that North was worried about college costs. Hakim testified that he decided to offer Mrs. North $15,000, representing the annual interest on the $200,000 Button account, and that he asked Zucker to try to pass money to Mrs. North in a "legal, proper way." According to Hakim, Zucker telephoned Mrs. North directly, and told her that he was representing an anonymous admirer of her husband who wanted to help her family financially and that he wished to meet with her in Philadelphia.146 Secord gave a different version. He testified that Hakim never said anything to him about giving money to Mrs. North, but had mentioned only that Zucker was a "wizard" at making money for other people, and that he might be able to advise Mrs. North on investments.'" Secord stated that he told Hakim that the Norths did not have any money to invest, and that you could not make "chicken soup out of chicken feathers."'" Although Secord consid- ered it a "bad idea," Hakim insisted that he ask North.15' Secord called North at least twice about the matter.'" In particular, Hakim spoke to Secord about the "requirement" to put a North child in col- lege. As a result, Secord testified, Mrs. North met with Zucker when he came to Philadelphia in the spring.'" North testified that he sent his wife to Philadelphia for the meeting with Zucker, but that Nile purpose, as I understood it, of that meeting was that my wife would be in touch with the person who would, if I didn't return, do some- thing for my family.'" There are three reports, all second hand accounts, of the meeting between Mrs. North and Zucker. (Mrs. North, invoking her spousal privilege, declined to tes- tify, and Zucker refused to meet with the Commit- tees.)155 According to Hakim, Zucker reported that he looked at the North family structure to see if there would be a legal way to pass money, but was unable to identify a family member to serve as the con- duit.'" Secord testified that North told him that "the trip to Philadelphia had been a waste of time and a train ticket and his wife was more confused now than she normally was."157 North testified that Zucker's meeting with his wife focused on "a general descrip- tion of my family," and that Zucker telephoned Mrs. North in June: "The lawyer called again and asked for the name of an adult executor for our family." North said he told his wife not to call back.159 Hakim, however, continued to pursue the matter. He testified that he "started to really focus on this" in the fall of 1986.159 Hakim testified that Zucker came up with the idea of having a client of his, a real estate developer, employ Mrs. North. Hakim stated that he told Zucker, "if the guy doesn't have an opening, cannot pay for it, we will pay for it. In other words we [would have] paid the guy to pay her so she would work."'" In September, Zucker called a Washington lawyer, David Lewis. Lewis testified that he visited Zucker in Geneva on October 10, 1986. Zucker asked Lewis if he had a client who could pass money to the wife of a White House official disguised as compensation for her services in a real estate trans- action. The money, Zucker explained, was due her husband. The husband's name, to the best of Lewis' recollection, was Lt. Col. North."' Zucker said that Lewis' client would be reimbursed through a Swiss account, or any other account in the world.'" Lewis demurred. He reported this attempt to the Commit- tees and the Independent Counsel in February 1987 after he realized the significance of the conversation. Secord testified that he knew nothing about this effort.16 3 No money, so far as the Committees can determine, was ever passed to the Norths by Zucker or Hakim. $15,000 was transferred, however, to STTGI on May 5, 1986. The transmittal instructions contained the no- tation, in Zucker's writing, "Mrs. Bellybutton."164 There is no evidence that North knew of the effort to pass money to his family through Lewis. Hakim stated, "I put a wheel into motion and then if North's family wanted to open the door . . . they could. If they wanted to close the door . . . they also could do that."'" The Surplus The $12.2 million in Enterprise surplus was distrib- uted in a number of ways. (See Figure 22-5, Break- down of $12.2 million surplus). The CSF ledgers indi- cate that Secord, Hakim, and Clines took part of the 345 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Figure 22-5. Breakdown of $12.19 Million Surplus (in millions) Button Fund 0.2 Source: Compagnie de Services Fiduciaires ledgers. 346 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 surplus as commissions on arms sales to the Contras. But Secord and Hakim did not stop with the self- determined commissions. The ledgers also indicate that they took part of the $12.2 million as seed money for risky personal business ventures, for personal ex- penditures, and for the Button fund. Finally, Secord and Hakim transferred part of the surplus to CSF to be held as Reserves for future projects by Hakim, Secord, and North. The Commissions Approximately $4.4 million of the Enterprise profits went to Secord, Hakim, and Clines as commissions on arms sales to the Contras and the CIA?even though North testified that he did not intend to make anyone a rich man from the sales.166 Apparently, Secord and Hakim never negotiated with Calero167 or anyone else for these commissions; they simply took what they wanted out of the general pool of money in the Enterprise accounts. Hakim described the basic ar- rangement in his testimony as follows: Q: Your gross income comes from third parties, contributions from third countries, private contri- butions, profits on the sale of arms to Iran. So really as far as the profit that you take or the leftover in the enterprise you really negotiate with yourself as to the amount of profits, do you not? A: That is correct. Q: And that makes it very flexible for you as to whether or not you want to claim 75 percent or 50 percent or 30 percent, isn't that basically the situation? A: You are correct, sir. . . . Q: You simply negotiate with yourself? A: Yes.168 As noted, Secord described each arms shipment as a separate phase, Phases I-VII. The final shipment for the Contras, purchased in August of 1986, never made it to the Contras and thus Secord did not describe it as a "Phase"; here, it is referred to as the Stranded Shipment.' 6 9 The CSF ledgers indicate that on Phases I through IV, Secord and Hakim allocated themselves and Clines a total of approximately $2.7 million, equal to 31.6 percent of the cost of the arms alone and 28.7 percent of the cost of arms including delivery.'" Calero testified that he received the impression from Secord that there were no such commissions, and considered it a "revelation" when he heard Secord testify.'" North testified that under Casey's plan those involved in the Enterprise were entitled to "reasonable compensation."' 7 2 On Phases V through VII and the stranded ship- ment, once again, Secord and Hakim allocated com- missions to themselves and Tom Clines from funds in the Enterprise accounts. The CSF ledgers indicate that the commissions totalled $1.7 million, which was equal to 56 percent of the cost of the arms alone and 49 percent of the cost of arms and delivery to Central America.' 7 3 Secord testified that the Enterprise's mark up on its arms sales to the Contras, excluding transportation, ranged between 20 and 30 percent and "averaged out almost exactly to 20 percent."174 According to CSF ledgers, the commissions on all the arms purchased for the Contras averaged 38 percent when transporta- tion costs are excluded.' 7 5 Table 22-4 shows the mark-up on arms shipments to the Contras. Table 22-4.?Mark-up on Arms Purchased for Contras According to CSF Ledgers Phase Cost of Cost of arms transpor- tation Related delivery costs, Commis. Total sions as a Total costs commissions D percent of per ledger total cost Commis- sions as a percent of arms cost I-HP $6,491,159 $566,385 $98,100 $7,155,644 $2,446,493 34.19 37.69 IV 2,044,258 118,500 73,220 2,235,978 252,000 11.27 12.31 Total Phases I-IV 8,535,417 684,885 171,320 9,391,622 2,698,493 28.73 31.62 V 222,003 121,000 10,000 353,003 345,000 97.73 155.40 VI 229,279 120,000 66,780 416,059 229,303 55.11 100.01 VII 413,158 0 142,127 555,285 301,168 54.24 72.89 Stranded shipment 2,227,001 0 0 2,227,001 861,327 38.68 38.68 Post phase IV 3,091,441 241,000 218,907 3,551,348 1,736,798 48.91 56.18 Grand total 11,626,858 925,885 390,227 12,942,970 4,435,291 34.27 38.15 Related Transportation Costs includes 'bonuses' paid to Quintero, for assistance on arms deliveries and other miscellaneous expenses. SC4103. Secord Test. 5/5/87 at 54. 2 The commissions paid on phases 1-1II were in lump sums for all three phases and cannot be accurately allocated to the individual phases. Source: CSF Ledgers, bank documents, and information provided by Secord and Hakim. 347 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I . I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Hakim arranged for several commissions and profit distributions to be made through an off-the-chart company, Defex SA, which did not appear on the CSF chart in North's safe. The choice of name was not random. Defex (Portugal) was a major arms dealer from whom the Enterprise bought weapons. Defex SA was owned by the Enterprise and, accord- ing to Hakim and Secord, had no connection with Defex (Portugal). Hakim testified that when he trans- ferred funds to Defex SA, "people" would think that the funds were being used to purchase arms from Defex (Portugal)."6 Secord testified that Defex SA was a "cover mechanism" set up by Hakim to dis- guise the source of money paid to arms dealers.'" Hakim could not remember exactly whom he was trying to confuse-maybe Eastern bloc arms dealers, he suggested. The ledgers indicated that one of the main uses of Defex SA was for distributing profits. Often, commissions were moved into the Defex SA account, creating wire records and ledger entries that looked like payments to Defex. Then the profits were wired out of Defex SA to members of the Enter- prise.' 7 8 The final commission distribution was for the "stranded shipment." In August 1986, the restrictions of the Boland Amendment were about to be lifted and the CIA wigs to resume its role as arms supplier to the Contift. Haim and Clines decided that they should have one last distribution. They made it a large one. The purchase price of the weapons was about $2.2 million.'" The weapons were purchased, but deliv- ery to the Contras was never completed. Hence, the weapons were known as the "stranded shipment" and were ultimately sold for a $1 million loss to an inter- mediary who later sold the weapons to the CIA.'8? But the loss was not limited to $1 million. Hakim testified that he and Clines proposed that the group reward itself for their work with a fee of $861,327, which is equal to 39 percent of the cost of the weap- ons. According to Hakim, Secord approved the com- mission and the division of profits among the group. The profits were split on a 30/30/30/10 basis: $258,398 each to Hakim, Korel Assets, and Clines, and $86,133 to Scitech. 8 1 Table 22-5 shows who received the commissions. Table 22-5.-Commissions on Arms Sales to Contras Phase Date of Distribution from Enterprise Hakim Korel C-Tea STTG1 and SciTech 1 Profit Ratio Total Commissions per ledgers Total Commissions per rd Secord 1-lila 2/85-12/85* $779,691 $814,793 $507,090 $344.919 32/33/21/14 $2,446,493 $2,239.114 IV 3 12/17/85 100,800 100,800 50,400 40/40/20/ 0 252,000 252,000 V 4 2/7/86 165,000 165,000 15,000 48/48/ 4/ 0 345,000 150,000 VI(a) 5 4/22/86 ** 50,000 50,000 25,000 16,000 35/35/18/11 141,000 0 VI(b) 5/20/86 26,490 26,490 26,490 8,833 30/30/30/10 88,303 88,303 VII(a)6 6/3/86 ** 79,167 79,167 79,167 26,390 30/30/30/10 263,891 263,891 V1I(b) 6/20/86 ** 11,183 11,183 11,183 3,728 30/30/30/10 37,277 37,277 Subtotal 1,212,331 1,247,433 714,330 399,870 34/35/20/11 3,573,964 3,030,585 Stranded shipment 7 8/27/86 ** 258,398 258,398 258,398 86,133 30/30/30/10 861,327 861,327 Total 1,470,729 1,505,831 972,728 486,003 33/34/22/11 4,435,291 3,891,912 150/50 Secord/Hakim companies. 2 Profit distributions for Phases I-III were paid in lump sums and cannot be accurately divided among phases. Shown here is the total sum of money distributed to Korel, Hakim, C. Tea, and STTGI/Scitech during the period from February 1985 to mid-December 1985. That sum falls into the 40/40/20 ratio described by Secord (when the Scitech/STTGI share is divided among Secord and Hakim), and is substantially verified by Secords's estimated total profit for Phases I-III ($2,239,114). The last distribution for this period, which went to Hakim, was paid on 12/17/85; the CSF ledger entry for this 12/17/85 distribution reads "Bal. Acc. Phases Secord described the Phase IV profit as an December shipment with a total profit of $252,000; accordingly, the May 20, 1986, distribution which totaled $252,000 has been allocated to Phase IV. 4 Hakim testified that the February 7, distribution was a profit distribution (Hakim, Dep. 5/22/87, at 122-24). The Committees have allocated the February 7, 1986, distribution to Phase V by process of elimination-all of the other distributions fit with other phases. 5Secord described Phase VI as an April shipment with a total profit of $88,303. Thus, the May 20, 1986, distribution which totaled $88,303 has been allocated to Phase VI. The Committees have assumed that the April 22, distribution was a profit distribution because it fails into a 40/40/20 ratio described by Secord (when the STTGI/Scitech share is allocated equally among Korel and Hakim). The Committees have assumed that the April 22, 1986, distribution was part of the Phase VI profit because the distribution occurred in April (the date of the shipment, according to Secord). 6 Secord reported a total profit of $301,194 on Phase VII (a May shipment according to Secord). Since the June 3, 1986, and June 20, 1986 distribution total this amount, they have been categorized as Phase VII shipments. Secord did not report the amount of profit for the stranded shipment; however, Hakim was shown the ledgers and stated that the August 27, 1986, profit distribution was for work done on the Stranded Shipment. ? Defex, S.A. was used for one of the transfers, $522,820 on 7/24/87, to Korel. ?? Defex, S.A. was used for these distributions., Source: CSF Ledgers, bank documents, and information provided by Secord and Hakim. In most cases, the CSF Capital Ledgers did not specifically identify the reasons for particular distribu- tions. The ledgers simply tracked the distribution of 348 money in Enterprise accounts to Secord, Hakim, Clines, and other persons. A total of $6.6 million was distributed to Secord, Hakim, and Clines, while Table Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 22-5 shows only $4.4 million in commissions. The difference is additional profit distributions which Secord and Hakim took from Enterprise accounts for business ventures and personal use. To distinguish commission withdrawals from personal and business venture withdrawals, the Committees relied on a number of factors, including notations in the ledgers, Hakim's testimony, information provided by Secord, and a careful analysis of distributions.182 Other Profit Distributions'83 In addition to commissions, the partners took more than $2.1 million in profit distributions from the En- terprise accounts. Apparently, $420,000 of this money was used by Secord, Hakim, and Clines for personal and other purposes. The balance, approximately $1.7 million, was invested in a variety of business ven- tures.184 While most of these business ventures had no con- nection to the Enterprise, one venture involved pro- posed sales of military equipment to the Contras and another contemplated sales of military equipment to the Iranians. Zucker played an active role in the ven- tures as an adviser.195 In at least one case, he was also a potential partner. This section describes these business ventures in greater detail. A. Tri-American Partnership'86 In the spring of 1986, $150,000 was transferred from Albon Values to Tri-American Arms, a partner- ship among Secord (representing Hakim's interest as well as his own), Larry Royer, and Dan Maros- tica.197 Secord and Hakim each participated in the development of ambitious plans for Tri-American.199 Initially, they planned four projects requiring sever- al million dollars in venture capital. They included the manufacture of submachine guns, a biotechnology speculation, a real estate investment, and the "bulk manufacturing of opium alkaloids."89 To explain the source of the venture capital, Hakim and Secord put out a cover story?an organization called the Arab Development Project would be back- ing Stanford Technology Trading Group in the ven- tures. In fact, as Hakim testified, the funds were to come out of the Enterprise.190 Royer and Marostica testified that the initial phase of the machine gun project called for manufacturing 4,000 guns for the Contras; the projected cost of the weapons was $3 million and the projected profit to Tri-American was $4.2 million."' Secord flatly denied, however, that one of the purposes of Tri- American was to sell weapons to the Contras."92 The real estate investment involved the purchase of timber property in the Northwest. After cutting Mar- ostica out, Secord, Hakim, and Royer pursued the project through a company bearing the initials of their last names, SRH, Inc. According to Royer, the project called for purchasing land for $5.7 million and a $1 million down payment to obtain financing for the purchase. In addition, Royer stated that the project required $5 million in working capita1.193 Hakim tes- tified that CSF was planning to extend a multimillion dollar loan to SRH, Inc., for the project?and that the loan was to be collateralized by Enterprise funds. The project was abandoned after the Iran-Contra story appeared in the press.'" B. Stanford Technology Trading Group, Inc. Secord and Hakim ran a great deal of their business activities out of the offices of Stanford Technology Trading Group, their jointly-owned company. As noted, Hakim and Secord founded the company with the purpose of developing security contracts in for- eign countries. They did not have much success. The Enterprise supported the entire budget of the compa- ny, which ran up bills (including salary) of more than $500,000 from the summer of 1984 to the fall of 1986. A total of $582,206 (including commissions of $214,000 and $50,000 for the laser sight described below) was distributed from the Enterprise's oper- ating accounts to Stanford Technology Trading Group from February 1985 through November 1986.195 Secord drew a salary of $6,000 a month, Hakim drew $5,000 a month, Dutton received $3,283 a month, and rent was $3,868 a month.'" Keith Phillips, whom Secord hired to pursue security con- tracts in Saudi Arabia, received $37,000 from Enter- prise accounts.197 Secord acknowledged that Stanford Technology Trading Group received approximately $400,000 to $500,000 from Switzerland, but claimed that these were loans from CSF arranged by Hakim.'" Hakim testified that disbursements to Stanford Technology Trading Group started out as loans from CSF but that the loans were repaid by the Enterprise; in effect, "money was pumped from the Enterprise into STTGI."199 C. The Scitech Fund Hakim described Scitech as an offshore company that would use its capital to further Secord/Hakim busi- ness projects.20? CSF held a fiduciary fund for Sci- tech with $271,984 from commissions on arms sales and an additional $250,000 from Enterprise ac- counts."' A $100,000 down payment for the SRH, Inc., real estate deal came from the Scitech fund.202 D. Laser Sight In the fall of 1986, Hakim, apparently with Secord's assistance, attempted to market a laser night-vision sight for military use. Hakim approached Forways, Inc., a manufacturer of military spare parts, to see if the company could produce the sight. Zucker, a 25 percent owner of Forways, had brought Forways to Secord's attention as early as June of 1984. In August 349 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 . . I? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 of 1986, after a Hakim visit to Forways for a demon- stration of the laser sight, the Enterprise wired $50,000 as "seed money" to Forways for the manufac- ture of the sights. But the money was not used by Forways. Instead, it was immediately sent to Stanford Technology Trading Group.20 3 E. Forways Throughout 1986, Zucker experienced problems with one of his Forways partners, Jacob Farber.204 According to Hakim, in the fall of 1986, he and Secord made plans to purchase most of Farber's inter- est in Forways so that they would obtain a one-third interest in the company. At the same time, as negotia- tions were ongoing with the Second Channel, Hakim gave a set of Forways catalogues to the Second Channel negotiators and told them "once things get going, then we will be able to sell directly from Forways."205 Hakim denied that he mentioned any specific product.2" The records of Forways show that from the fall of 1985 through the fall of 1986, the company attempted to buy?and apparently succeed- ed in some cases?quantities of HAWK spares parts in Europe. 2 7 In early October, Farber sold his shares to Zucker for $750,000. Shortly thereafter, Zucker wrote a memorandum to the officers of Forways stating that Secord and Hakim would probably buy the bulk of the Farber shares, thereby obtaining a one-third inter- est in Forways. Zucker also stated in the memoran- dum that he expected Forways to have record-break- ing sales and profits in the coming year?at levels inconceivable to the new officers of Forways.208 In early November, $760,000 of Enterprise money was apparently transferred to CSF: on November 5, 1986, $500,000 moved out of Hakim's fiduciary fund to an unknown location and, on November 10, 1986, $260,000 moved out of one of the operational compa- nies to an unknown location. The $500,000 block of funds had been previously earmarked for a joint Hakim/Secord investment. The $260,000 transfer was recorded in the ledgers with the notation "CSF In vest.?Forways." 2 9 Hakim denied that the Secord-Hakim purchase of the Farber shares was ever completed, and in March of 1987, Zucker wrote a note to an officer and direc- tor of Forways indicating that after the Iran/Contra story broke, he stopped the Hakim-Secord part of the transaction.2" However, there is no record of the $760,000 ever being returned to the Enterprise or any of the fiduciary funds. F. The Iranian Market The amounts distributed to Hakim and Secord do not tell the full story of their ambitions, which Hakim made no effort to hide. Hakim saw the Iranian market as providing spectacular opportunities for wealth. He testified that he hoped to obtain for Secord and him- 350 self at least a 3 percent share of the annual $15 billion Iranian market if commercial relations with the United States could be renewed. By using money from the Enterprise, including the reserves to "grease" the way with the Second Channel, and by proposing compromises to North and Iran, Hakim was not only promoting a solution to the impasse over the hostages, but also pursuing his and Secord's own commercial interests. The ultimate goal, as Hakim admitted, was not the millions he actually took from the Enterprise during 1985 and 1986, but the $15 billion-a-year Iranian market.2" The Reserves The Enterprise transferred $4.2 million to CSF to be held in three fiduciary accounts referred to as the "Reserves.19212 A large part of the Reserve monies appear to have come from the proceeds of the Iranian arms sales. According to the CSF fiduciary agreements, Hakim was the owner of the Reserves; Secord testified, how- ever, that the Enterprise was the beneficial owner of the Reserves and Hakim acknowledged that the Re- serves were treated as the Enterprise's money.2" Table 22-6, Distributions to Reserves, shows the amount of each Reserve, the operational company from which the monies were taken, and the date each Reserve was established. Table 22-6.?Distributions to Reserves 2 14 Reserve Date Amount Source Reserve 1 3/05/86 $2,000,000 Gulf Marketing Reserve 2 6/18/86 2,000,000 Hyde Park Reserve 3 6/18/86 200,000 Hyde Park 2" Based upon CSF Ledgers. Hakim testified that Reserve 2, containing $2,000,000, was to be used to pay money to persons associated with the Second Channel. According to Hakim, if the Second Channel initiative was success- ful, the money was to be invested for those persons in the joint Iranian-U.S. venture which was being planned; if the Second Channel was unsuccessful, it would be used as baksheesh.215 Reserve 1, containing an additional $2,000,000, was to be used for any pur- pose, including "operational purposes.99216 The CSF fiduciary agreement governing Reserve 1?the one for covert operations?provided that should Hakim die, Secord would have direct control over it and should Secord die, North would have direct control. Should North die, the remaining por- tion of the Reserve would be divided equally among the estates of all three men. The instructions to CSF were irrrevocable without the consent of all the bene- ficiaries.2" Hakim said that in setting up Reserve 1, he simply followed the structure of the Enterprise Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 from top to bottom as he understood it?with North on the top.2' 8 The CSF fiduciary agreement governing Reserve 2?dedicated to the commercial venture with the Ira- nians?provided that upon the death of Hakim, Secord would control the Reserve, and if Secord should die, the remaining portion of the Reserve would be divided among the estates of Hakim and Secord. Again, the instructions to CSF were irrevoca- ble without the consent of Secord.219 Initially, Secord testified that the two $2,000,000 Reserves established as insurance for Israeli aircraft were largely restricted to that use.22? In fact, the Israelis did demand a guarantee against loss of $2 million for each airplane used in the Iranian arms transfers?a guarantee which was explicitly released on August 3, 1986.22' Later, Secord indicated that the Reserves were used for all of the Enterprise's operations. One of the continuing operations named by Secord was "a joint Iranian-American commercial venture."222 North testified that he specifically requested that some Reserve funds be put aside for a number of special activities.223 Those activities included recov- ering military equipment, setting up a propaganda op- eration in foreign countries, and influencing domestic politics in foreign countries.224 Secord and North testified briefly about the origin of the Hakim "wills"?the provisions for continuing control over the Reserves in the event of Hakim's death. Secord told the Committees that he knew Hakim had made arrangements to cover a catastrophe but professed ignorance of the details.225 North claimed to have been totally in the dark as to the arrangements. He noted, however, that at one point he asked Secord what would happen to the money if "both you guys go down on some airplane flight." According to North, Secord responded, "Don't worry, arrangements will be made so that these oper- ations can continue. "226 Hakim claimed that he told North that if he, Hakim, died, North would be in total control. 227 Neither Secord nor Hakim had a clear recollection of the purpose of Reserve 3 containing $200,000. Hakim suggested that it might have been set up to cover "death benefits" for those working on the re- supply operation, or as a set aside for a Secord-Hakim business venture. Secord remembered setting aside $200,000 for death benefits. He insisted, however, that there was only one such fund and it was converted into the Button fund. The purpose of Reserve 3 re- mains a mystery.228 Section 6: Where Is The Money Now229 The Enterprise generated a surplus of $12.2 million. Some of this surplus went directly to Secord, Clines, and Hakim. Substantial funds, $7.8 million, however, remained under management in Switzerland when the Enterprise ceased its operations. This money was ap- parently frozen by Swiss authorities at the request of the Justice Department. Of the $7.8 million, approximately $2 million is held in CSF fiduciary accounts for the benefit of Hakim, Korel Assets and Scitech. Approximately $200,000 re- mains in the Button account and another $4.2 million is held as reserves for the Enterprise by CSF. The balance, $1.2 million, is in the Enterprise's Swiss bank accounts, unallocated for any purpose. Table 22-7 shows the location of the $7.8 million. Table 22-7.?Individuals and Entities that Control Unspent Enterprise Funds Transferred Description from Enterprise Investment Income Withdrawals Balance 12-31-86 Total Cash in Enterprise Companies Reserves Held by CSF: $1,227,173 $1,227,173 Reserve 1 $2,000,000 144,398 15,246' 2,129,152 Reserve 2 2,000,000 75,583 23,6731 2,051,909 Reserve 3 200,000 7,915 50,7692 157,146 4,338,207 CSF Fiduciary Funds: Hakim 1,613,649 301,7433 1,655,7994 259,593 Button 200,000 14,330 2,339' 211,991 Korel 1,434,121 218,192 105,2785 1,547,035 Sci Tech 458,424 34,535 302,8225 190,137 2,208,756 Total 7 7,774,136 'CSF management fees. 'CSF management fees and a transfer to Sharp, Green, and Lankford. 3 Generally, all funds transferred to CSF came from Enterprise accounts. One notable exception was $258,300 transferred by Hakim from his California bank account on May 29, 1986, to his CSF fiduciary account to repay a CSF loan. These funds are included in Hakim's income amount. 4 Traced, for the most part, to Hakim's U.S. bank accounts and Hakim projects. 'Traced to Secord's bank account and payments made for Secord's bills. 'Traced, for the most part, to Secord/Hakim business ventures. CSF records indicate that, as of 12-31-86, all of the money was held for CSF by Merrill, Lynch, Pierce, Fenner, and Smith, Inc. (Geneva office). Source: CSF Ledgers, H6363A. 351 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .,? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 The participants have different ideas of what should happen to the money. Secord testified that the money belongs to the Enterprise and that is up to Hakim, as the owner of the Enterprise, to decide what to do with it. He would recommend to Hakim that the money, after expenses, be donated to the William Casey Fund for the support of the Contras.23? Likewise, North testified that he would send "that money, every nickel of it, to the Nicaraguan Resist- ance, which was indeed the original purpose of set- ting up all those non-U.S. government entities."231 Hakim said that he was entitled to, and promised a substantial interest in, the Enterprise funds.232 Hakim recognized that North's view of who owned the funds differed from his but realized he would benefit either way?either he would profit from opening the trade door to Iran, or he would fight North for a share of the money. Hakim declared that if the United States had tried to end the Iran initiative, "I guarantee you that I would have put up a big fight to get as much as I could from that money before letting it g0."233 Hakim also testified that "obligations" were still out- standing to the Iranians who helped open the Second Channe1.234 Section 7: Brunei Contribution If not for a typographical error, the Enterprise would have received an additional $10 million generated by U.S. Government efforts: the misdirected contribution from the Sultan of Brunei. In December 1985, Congress amended Boland to provide explicitly that solicitation by the State De- partment of humanitarian aid for the Contras from third countries was not precluded. Solicitation of lethal assistance was not addressed.238 The National Security Planning Group decided to pursue such third-country funding at a meeting with the President on May 16, 1986. These funds would bridge the gap until the anticipated resumption of U.S. aid in the fal1.236 The Administration estimated that the earliest that aid could be made available to the Contras through the normal appropriations channels was August or September 1986. In the face of continued House op- position and the likelihood of a filibuster in the Senate, Secretary Shultz advocated seeking aid from third countries as the course of least resistance. He believed that it was highly improbable that Congress would support a reprogramming of some money from the Department of Defense for non-military aid to the Contras and he argued that it would be desirable to approach other countries.237 Secretary Shultz was asked to draw up a list of possible donors.288 In discussions at the State Department following the National Security Planning Group meeting, Secre- tary Shultz ruled out any countries receiving U.S. aid 352 or whose political relationship with the United States was otherwise delicate. The Secretary's criteria elimi- nated all the obvious candidates, including nations in the Middle East.238 In early June, Assistant Secretary Elliott Abrams recommended the Sultanate of Brunei?a tiny, oil-rich nation on the northwest coast of Borneo?and the Department agreed.24? Abrams described how the selection was made: Take a list of countries in the world and exclude those with insufficient resources to make a hu- manitarian contribution. Exclude further those which are right-wing dictatorships, or which are, if you will, on the other side, allied with the Soviet Union. Then exclude those . . . over which we can be said to have some leverage. You are left essentially with oil producers. Then look for non-Arab?since I had been to Ambassa- dor Murphy already, non-Middle East non-Arab oil producers. Venezuela, I thought, would not do this. You are down to Brunei.241 Since Secretary Shultz planned to travel to Asia in June 1986, Abrams was tasked with getting an appro- priate account number in the event of a successful solicitation of Brunei for a contribution to the Con- tras. Abrams approached North, who, with Poin- dexter's concurrence, gave Abrams the number of the Enterprise's Lake Resources account in Switzerland. Abrams was not told that this was an account con- trolled by North, Hakim, and Secord for disbursing lethal (not humanitarian) aid to the Contras.242 But either North or his secretary made a mistake. In writing down the account number or in typing it, North or his secretary apparently inverted the first two digits, so that the correct account number at Credit Suisse, 386-430-22-1, became 368-430-22-1.243 North gave Abrams a typed card containing the erro- neous number and Abrams gave it to the Secretary of State.244 The Secretary of State was informed by Abrams that the account belonged to the Contras; Abrams said he had received that information from North.245 The State Department then decided that Brunei would not be approached during the Secretary's June trip, although the Secretary carried with him to Asia the card containing the wrong number.248 On August 5, Secretary Shultz directed Abrams to make contact with Brunei.247 Around this time, Abrams obtained a second account number from the Chief of the CIA Central American Task Force.248 Abrams could not explain why he asked for this second account number.248 But once he obtained it, he had the problem of deciding which account to use, the one provided by the CIA or North. Charles Hill, Secretary Shultz's Executive Assistant, recommended that Abrams use the number from North because it Approved For Release 29,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 probably was cleaner.250 Ironically, the account Abrams received from the CIA was a Contra account established specifically to receive the expected contri- bution. Had that account been used, the Contras would have received an additional $10 million. Abrams, carrying North's account number and using the cover name "Mr. Kenilworth," met with an official of Brunei in London on August 9, 1986, and successfully solicited a $10 million contribution for humanitarian aid. Abrams gave the Bruneian official the Swiss account number from North.25' On September 15, Brunei confirmed to the State Department that "arrangements have been consum- mated." 252 But North advised Abrams three days later that no funds had been received.253 The State Department went back to Brunei and was told that transferring the funds would require the U.S. to "wait for a short while before the transaction is complet- ed." 254 By November, the funds still had not arrived in the Lake Resources account. This remained true as of November 25, when the Attorney General announced discovery of the diversion. On December 1, Secretary Shultz instructed Charles Hill to brief the State De- partment's Legal Adviser, Abraham Sofaer, on the circumstances surrounding the solicitation. According to Sofaer, this was the first time he learned about the Brunei contribution. 255 When he was informed of the Brunei contribution, Sofaer directed the U.S. Ambassador to advise the Brunei Government that if the funds were still under its control, they should be frozen.256 But on Decem- ber 4, 1986, Brunei informed the State Department that it had sent the funds to the designated account in August and could not withdraw the transfer. Sofaer testified that on December 4, he received the approv- al of officials at the Justice Department and the White House to approach the Swiss Ambassador in Wash- ington with a request that all accounts related to Lake Resources and Oliver North be frozen. Simultaneous- ly, he ordered a cable sent to the U.S. Ambassador in Switzerland instructing that the same request be made. The request became effective the following morning.257 The problem, however, was that nobody in Washington?not even Oliver North?knew where the Brunei funds had gone. A diplomatic coup had become a diplomatic fiasco. The fiasco continued into 1987. With the assistance of Swiss authorities aided by the State Department, the Committees determined that the Brunei funds had ended up in the Credit Suisse account of a person described by the Swiss as a wealthy Swiss businessman involved in the shipping business who alleged that the $10 million flowed into his account in connection with a shipping transaction. The account-holder had withdrawn the $10 million transfer shortly after it arrived at Credit Suisse and placed it in a certificate of deposit at another Swiss bank in Geneva, where it had been collecting inter- est.258 In May 1987, the matter was placed in the hands of a Swiss Magistrate, who, with the Committees' en- couragement, froze the certificate of deposit. The Government of Brunei was notified by the State De- partment and asserted its claim. The Committees un- derstand that, as of this writing, the $10 million has been returned to Brunei, but the interest remains frozen. Swiss authorities have declined to reveal the identi- ty of the individual who received the funds. The Committees were assured by the Swiss Magistrate, however, that the individual is neither a principal in the investigation, nor related to any of the principals. 353 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 Chapter 22 1. Hakim Dep., 5/22/87, at 66; Secord Test., Hearings, 100-1, 5/7/87, at 166-67. CSF was established in September 1971. According to a report by Credit Suisse dated October 14, 1985, the wife of Willard Zucker holds all of the capital shares. The Credit Suisse report also states: "The company's goal is to give all advice on fiscal, financial, judicial and economic matters and handle all financial goods of the customer . . . The company would also take part or partici- pate in any financial and real estate actions or enterprises." Among the officers of CSF are: Jean De Senarclens, Alfred Stohler, Willard Zucker and Roland Farina. CSF Invest- ments, Ltd, a Bermuda Co. is an affiliate. EN 36-38. 2. Zucker, living in Switzerland under the protections and obligations of Swiss secrecy law, refused to talk to the Committees. 3. The Lake account provides an example. CSF estab- lished the "Lake" bank account with a Swiss bank on July 19, 1985. The account was opened in the name of Lake Resources Inc. Lake Resources Inc. was incorporated in Panama on May 14, 1985. The initial officers were three Swiss citizens associated with CSF. Thus, Lake Resources could perform all the functions of a corporation without giving any indication of its true owners. Summary of CSF Incorporation Records, 10/12/87, H6942-56. Even the names of the shareholders were protected. Apparently, CSF typically held the shares of the companies it manages pursu- ant to a written agreement with the true owner. Summary of CSF Incorporation Records, H6954. 4. Hakim Dep., 5/22/87, at 65; Wood Int., 8/12/87; Cas- tells Int., 8/28/87; Memorandum from Zucker stating "[CSF's] association with STTGI, its associated and prede- cessor companies, dates back to 1971." STG9141. 5. Clark and Zink Dep., 7/6/87, at 29-34, 83. Through a brochure, STTGI claimed that it had a European office and that it could provide the type of services that CSF offered. In fact, the office address, telephone number, and telex number for the European office were CSF's and the serv- ices offered appear to have been CSF's too, STGI34452-53. 6. Hakim Dep., 5/23/87, at 97-99, 239; Secord memoran- dum to Zucker, Subj: movement of funds, H1670; Secord Dep., 6/10/87, at 76. The STTGI phone records show calls to CSF which correspond with the movements of Enter- prise funds through the CSF-managed Swiss accounts. Staff Memorandum Summarizing STTGI Phone Records, 10/6/ 87, EN73-96. 7. The Enterprise did not use conventional checks. If checks were required, wire transfers were made from the Enterprise network of accounts to a CSF account which in turn issued a check in CSF's name to the payee. See, e.g., Robinette Test., Hearings, 100-6, 6/23/87, at 12. The records supplied by Hakim indicate that CSF had bank accounts in the United States, Bermuda, Paris, and Brussels, and that CSF also held accounts in brokerage firms in several countries. CSF's account in the U.S. was maintained at Republic Bank of New York. 8. Hakim indicated that on three occasions he was in- volved in arrangements to pick up sums of $50,000 in cash in New York which he brought to Secord. Hakim was under the impression that Secord routed the money onward to the Contras. Hakim Dep., 5/23/87, at 166-67. Two Zucker business associates have indicated, through their lawyers, that Zucker arranged for them to drop off Contra- 354 bound cash in amounts of $50,000 to Hakim, and a Hakim courier. Staff Memorandum on Zucker Cash Operations, 8/ 13/87, EN56-68. Hakim also utilized his own sources. For example, Owen testified that he picked up cash from a store owner in New York which apparently was for the Contras. Owen, Test., Hearings, 100-2, 5/19/87, at 353. The store owner, who Hakim said was a friend of his, was reimbursed through a CSF check. Hakim Dep., 5/23/87, at 149. CRF 5123. Staff Memorandum, Subj: Owen Cash Pick Up, 10/19/ 87, EN54. 9. Summary of CSF Ledger entries, wire records, bank statements and credit advices, H6338-62. Hakim failed to provide a complete set of invoices from arms dealers, making it difficult to determine whether expenditures shown on the bank account statements -- and accounted for in the ledgers as weapons purchases -- were actually for weapons. Secord said he shredded some telexes related to Defex transactions sometime in November of 1986 as a security procedure. Secord Test., Hearings, 100-1, 5/7/87, at 197. 10. General Ledger, H972-1145; Capital Ledger, H958-71; Fiduciary Ledger, H02756-3132. 11. Hakim Dep., 5/23/87, at 88-89; Secord Test., Hear- ings, 100-1, 5/7/87, at 157. Zucker memorandums, H1779, H1780. 12. North Test., Hearings, 100-7, 7/10/87, at 3. 13. Energy Resources International SA (administered by CSF) was incorporated on July 24, 1978 in Panama and apparently inactive until it was used by the Enterprise. The company's first bank account was opened on December 21, 1985 at Credit Suisse; the second account was opened on March 13, 1985, at Banco Portuguese in London; and the third account on April 19, 1985, at Banque Suisse. The Committees did not receive bank records for the accounts at Banco Portuguese and Banque Suisse. Summary of Incor- poration Records, H6942-56. 14. Summary of Incorporation Records prepared by Committee staff, H6942-5. 15. North Test., Hearings, 100-7, 7/10/87, at 314-15. 16. Hakim Dep., 5/22/87, at 114-15. 17. Id. at 86, 93-94. 18. Id. at 92. 19. Id. at 110. 20. Id. at 98-99. 21. Hakim Dep., 5/22/87, at 116. 22. As of December 31, 1984, CSF Investment managed assets of more than $31 million, CRF2215-18. 23. With respect to expenditures and financial data, the summary provided below is based on an analysis of portions of the CSF General Ledger, H983-H1044. 24. Lake became active in the summer and fall of 1986. The active Energy bank account was closed in October, 1985. 25. Hakim Dep., 5/22/87, at 93-94. Gulf Marketing Con- sultants, Ltd. was incorporated in Liberia on May 15, 1985. It opened two bank accounts at Swiss banks on August 28, 1985 and February 17, 1986. The Committees only received records for the account maintained at Credit Suisse. Sum- mary of Incorporation Records prepared by Committee staff, H6942-56. 26. Hakim Dep., 5/22/87, at 94. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 27. Albon Values Corporation SA was incorporated on September 9, 1985, and opened a Swiss bank account on December 15, 1985. Records show Secord as a representa- tive of the company, but do not contain his signature. Sum- mary of CSF Incorporation Records, H6942-56. 28. Toyco SA was incorporated on April 17, 1986, in Panama. It opened a Swiss account on May 14, 1986. Sum- mary of CSF Incorporation Records, H6942-56. Money was also withdrawn from Toyco for profit distributions. 29. Secord Test., Hearings, 100-1, 5/5/87, at 75. Udall Research Corporation was incorporated on May 23, 1985, in Panama and its Swiss bank account was opened on March 19, 1986. A fiduciary agreement between CSF and Hakim provides that CSF holds the shares of Udall on behalf of Hakim. Bank records show that Richard Secord is a repre- sentative of Udall. Apparently, Olmsted was given power of attorney for Udall. Summary of CSF Incorporation Records, H6942-56. 30. North, PROF Note, 9/25/86, to Poindexter, N12611. In fact, the Udall account remained open, with a balance of less than $3,000, until November 18, 1986. 31. Hyde Park was incorporated on December 15, 1983, in Liberia. It opened an account in London on June 29, 1984, at Barclays Bank; the authorized signatories were Daniel Jones and Burt Barnett. Apparently, Jones and Bar- nett are two California lawyers, CRF2445. Hyde Park opened a second account on March 19, 1986, with only CSF-associated individuals on the signature card. The Com- mittees received records only for the account maintained at Credit Suisse. Summary of CSF Incorporation Records, H6942-56. 32. Ex. AH-17-21. 33. Secord Test., Hearings, 100-1, 5/7/87, at 200-01. 34. North Test., Hearings, 100-7, 7/10/87, at 2-3. 35. Hakim Test., Hearings, 100-5, 6/5/87, at 328-29. 36. Poindexter Dep., 5/2/87, at 382-83. 37. North Test., Hearings, 100-7, 7/10/87, at 294-95; Earl Dep., 5/2/87, at 31-33. 38. Secord Test., Hearings, 100-1, 5/7/87, at 190-91. 39. North Test., Hearings, 100-7, 7/14/87, at 140; Tambs Test., Hearings, 100-3, 5/28/87, at 382-83. 40. Hakim Dep., 5/24/87, at 44. 41. Hakim Test., Hearings, 100-5, 6/5/87, at 348. 42. Id., at 340-41. See Chapter 23 on the Erria and the DEA operation. 43. See Table 22-2, Estimated Ending Monthly Cash Bal- ances. In addition, $2.2 million of profits distributed to members of Enterprise remained in the personal fiduciary accounts of the members of the Enterprise. 44. See Hakim Dep., 5/24/87, at 44-47. 45. Secord Test., Hearings, 100-1, 5/7/87, at 176. 46. Nightline, Iran Contra Hearings: Secord Int., 7/9/87, at 5. 47. North Test., Hearings, 100-7, 7/8/87, at 122. 48. Id. 49. Id. at 73-80. 50. Calculations related to arms transactions assume that certain expenditures designated in the ledgers for arms actu- ally were spent for that purpose and that arms purchased were sent to Calero and not resold for a profit. The evi- dence appears to support those assumptions. Calero did not keep an itemized record of the arms he received, but re- members receiving most of the weapons described by Secord. Calero Int., 8/12/87. 51. North Test., Hearings, 100-7, 7/8/87, at 122, ("there was always an intention to make this a self-sustaining oper- ation.") See also, North Test., Hearings, 100-7, 7/10/87, at 3 (Casey's criteria for the off-the-shelf organization applied to the arms sales from the beginning). 52. See Table 22-1, Enterprise Income. 53. Secord letter to the Committees, SC04081-105. 54. See Table 22-4, Mark-up On Arms Purchased for Contras According to CSF Ledgers. 55. Id. 56. Secord Letter to the Committees, SC04081-105. 57. See the "stranded shipment" discussion later in this chapter. 58. See Table 22-3, Enterprise Expenditures. One of the Maules was used by the Secord/Dutton resupply operation. The others were used for other Contra operations run by the Contras. Dutton Test., Hearings, 100-3, 5/27/87, at 213. 59. Summary of ACE transactions, H6347; Gadd Dep., 5/ 1/87, at 27. ACE received a total of $1.54 million and disbursed $1,096,966 to Prop Air for the purchase of the two Caribous; $230,433 to Southern Air for fuel, spare parts, and partial payment on an airplane; $144,300 to Cor- porate Air Services for crew; and $20,462 to others. The ACE account had a cash balance of $48,165 as of October 22, 1986. H6347. 60. See Table 22-3, Enterprise Expenditures. 61. Id. 62. Wire Record, H893; Ledger Record, H1073. 63. Secord Test., Hearings, 100-1, 5/5/87, at 60. 64. North Test., Hearings, 100-7, Part II, 7/13/87, at 84. 65. North Test., Closed Session, 7/9/87, at 58; North, PROF Note, 8/23/86 at 15:52:52, to Poindexter, N12151. 66. Secord Test., Hearings, 100-1, 5/5/87, at 68; Hakim Dep., 5/23/87, at 185-86. Dutton recalled being told that some of his pilots had been supplied by Walker. Dutton Test., Hearings, 100-3, 5/27/87, at 214. 67. Wire Record, H1553; Ledger Entry, H1056. Analysis of Payments to a Contractor in a Central American Country H6345. 68. Summary of payments to Contra leaders, H6350-51. 69. North apparently discussed a plan for bounty pay- ments of $5,000 to be paid to an FDN military commander for each captured Sandinista officer, $5,000 to be paid to each soldier who captured the officer, and $200,000 to be paid to the FDN for every five officers captured. North's notebook for October 10, 1986, states: "Calero-Bounty for Sandinista or Cuban officers-5K ea[ch] for [FDN military commander]-5K ea[ch] for soldier capturing 200K for FDN for each 5." North Notebook, 10/10/86, Q2522. 70. The description here is based upon the CSF Ledgers and supporting bank documents and is confirmed, with re- spect to the transfers to and from the Israeli accounts, by the Israeli Financial Chronology. See Table 22-3, Enterprise Expenditures, and supporting documentation referred to therein. See also Secord Test., Hearings, 100-1, at 95 (first transaction) 105-06, 178 (second transaction), 119, 180 (third transaction), 123 (fourth transaction). 71. Secord Test., Hearings, 100-1, 5/6/87, at 95. 72. Id. 73. On May 16, 1986, $225,000 was paid from the Enter- prise accounts to an unknown party. The CSF Ledgers indicate that the $225,000 came from the $1,685,000 deposit. 74. According to North's notebook, North met with Secord on May 19, 1986, and informed Secord of the need 355. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II ... I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 to bring $260,000 in cash to Israel. North Notebooks, 5/19/ 86, Q2155. Two days later, $260,000 was withdrawn from the Lake Resources account. Bank Record, H518. 75. Summary of expenditures shown in the CSF Ledgers which relate to the Erria. H86357-59. The cost of the ship was about $321,000. Funds distributed to the captain to- talled $80,000; monthly payments for "chartering services" totalled $126,000. Ship expenses labeled crew wages were approximately $32,500. A payment for "insurance" was made on May 20, 1986, in the amount of $52,900 and other expenses totalled $131,009. Id. See Chapter 23 for a descrip- tion of the Erria's mission. 76. Bank Record, H882; Ledger entry, H1019. See Chap- ter 23 for a description of the DEA project. 77. Wire Record, H889; Ledger Record, H1074; Memo- randum to file Subj: Motorola Interviews, 10/12/87. See also, Napier Dep., 4/10/87, at 52-53; Hakim Dep., 5/24/87, at 44; STTGI notes referring to the radios, STG5206. 78. For a description of these projects, see Chapter 23. 79. Ex. RCM-41A. 80. Poindexter Test., Hearings, 100-8, 7/16/87, at 106. 81. Letter from Counsel for the Commandant of the Marine Corps, 7/9/87, NF378-79; letter from Office of the Secretary of the Navy, 7/9/87, NF380. 82. North Test., Hearings, 100-7, Part I, 7/8/87, at 120. See generally New York Times, Late City Edition, 7/10/87, at A9. 83. Robinette Test., Hearings, 100-6, 6/23/87, at 1-8. 84. Robinette 6/23/87, at 17-26; Ex. GR-3 to GR-7D. 85. HF1365-66. At the meeting, North also said that during the installation period, he moved his family to a government base, as suggested by the FBI and Secret Serv- ice. HF1365-66. 86. North Test., Hearings, 100-7, Part I, 7/8/87, at 129. 87. Nightline, Iran Contra Hearings: Secord Int., 7/9/87, at 10. 88. Robinette Test., Hearings, 100-6, 6/23/87, at 12. 89. North Test., Hearings, 100-7, Part I, 7/8/87, at 129. 90. Id. 91. Id., Robinette Test., Hearings, 6/23/87, at 13-15. 92. North Test., Hearings, 100-7, Part I, 7/8/87, at 129; Robinette Test., Hearings, 100-6, 6/23/87, at 16-19. 93. North Test., Hearings, 100-7, Part I, 7/8/87, at 131. 94. Washington Post, 3/17/87, at All; Chicago Tribune, 3/18/87, at 1-2. 95. Robinette Test., Hearings, 100-6, 6/23/87, at 19. 96. Id. at 46-50. 97. North Test., Hearings, 100-7, Part I, 7/8/87, at 129. 98. Id. at 126, 130. 99. Id. at 129. 100. Cash withdrawal, H518; North Notebook, 5/19/86, Q2155. For the purpose of calculating Enterprise Expendi- tures this $260,000 was treated as an expense related to the Iranian transactions. 101. Cash withdrawal, H107; Ledger Record, H1048. 102. Ledger entries H1075, H1093; wire records, H883, H796. Hakim testified that he thought the Codelis money was for a Secord/Hakim American Express account. Hakim Dep., 5/23/87, at 44-48. However, the Secord/Hakim American Express account was covered by Stanford Tech- nology Services SA. See H1456. 103. Analysis of miscellaneous entries in CSF ledgers by Committee staff accountants, H6350-57. There were also a number of other miscellaneous expenditures, totalling .356 $325,843, which occurred during 1985 and 1986, including directors fees, $65,000; bank charges, $74,715; miscellaneous legal expenses, $67,500; and various other expenditures. 104. The numerical data here are based upon analysis of the CSF Ledgers and supporting bank documents, Id. (In this Report, the term "diversion" refers to that portion of the surplus from the Iran arms sale that was used to pay Contra-related expenses.) 105. This $7.2 million does not include $1.2 million in commissions paid to members of the Enterprise for their work on the Contra arms shipments. 106. If the $1.2 million in commissions taken by the part- ners in the Enterprise are treated as a Contra expenditure, the amount of the Diversion is $5 million. 107. North Test., Hearings, 100-7, Part I, 7/10/87, at 294- 95. 108. Secord Test., Hearings, 100-1, 5/6/87, at 110-11. 109. North Test., Hearings, 100-7, Part I, 7/10/87, at 311. In fact, the actual cash balance at that time was approxi- mately $11.6 million. Summary of Bank Records, H8925. 110. Poindexter Test., Hearings, 100-8, 7/16/87, at 105. 111. Hakim Test., Hearings, 100-5, 6/3/87, at 194. 112. Secord Test., Hearings, 101-1, 5/7/87, at 181. 113. See Table 22-5, Commissions on Arms Sales. 114. Id. 115. Id. 116. Ex. AH-4-15. A number of distributions for Clines were also wired to CSF accounts. Ledger entries, H968. This suggests that Clines may have also had a CSF fiduci- ary fund. 117. Hakim Dep., 5/22/87, at 136. 118. Hakim Test., Hearings, 100-5, 6/3/87, at 215. 119. Hakim Dep., 5/23/87, at 41. 120. A number of C. Tea distributions have been traced directly to Clines' U.S. bank accounts. Wire transfers, H382, H332, H291. 121. Hakim Test., Hearings, 100-5, 6/3/87, at 215. As for the relevant records that support Hakim's claim, see the "Commissions" section. Hakim testified that Scitech's full name was Scitech Trading Group, Inc. (abbreviated "STTGI"). Id. at 213. Scitech Trading Group, Inc. was incorporated in Liberia on July 22, 1985. Summary of CSF Incorporation Records, H6952. The records show that Sci- tech received Secord/Hakim commissions in equal propor- tions and that expenditures made by Scitech were for Secord/Hakim business ventures. See the Commissions Sec- tion and the Other Profit Distributions Section below. 122. Hakim Test., Hearings, 100-5, 6/3/87, at 216. 123. Id., at 213. 124. Summary of Korel Ledgers, H6368, H6341. 125. $35,000 was transferred to another individual and $28,111 went through Secord to an individual (Zucker's notes state "It $28,111 is to be a check drawn to someone designated to Nancy by RVS"). About $1,671 was trans- ferred to Sharp, Green, and Lankford?Tom Green's law firm. $45,000 was paid to Secord's attorney, Tom Green, and $16,710 was distributed in other cash withdrawals. Summary of Korel Ledgers, H6341. 126. Secord Test., Hearings, 100-1, at 154-55, 165. 127. New York Times, 6/7/87, at 1, 16; Nightline, 7/9/ 87, at 4. 128. Hakim Test., Hearings, 100-5, 6/5/87, at 355. Secord stated that the money from Hakim was part of a general arrangement under which Hakim provided capital to Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 STTGI and Secord provided management skills. As part of the arrangement Hakim was to give Secord personal loans until STTGI showed a profit. New York Times, 6/7/87, at 16. 129. Secord Test., Hearings, 100-1, 5/7/87, at 155. 130. Id. at 156. 131. Id. at 155-59. 132. Hakim Dep., 5/31/87, at 50. In his public testimony, Hakim placed the date in "the first half of 1986." Hakim Test., Hearings, 100-5, 6/3/87, at 215-16. 133. Hakim Test., Hearings, 100-5, 6/3/87, at 215. 134. Hakim Dep., 5/23/87, at 121. 135. Hakim Test., Hearings, 100-5, 6/5/87 at 322-23; Hakim Dep., 5/23/87, at 11-12. 136. Hakim testified that he and Secord inspected the "bottom line" at CSF from time to time. Hakim last saw the records in mid-1986. Hakim Dep., 5/23/87, at 84, 87. Hakim stated, in particular, that Secord inspected the Korel and Scitech accounts. Hakim Test., Hearings, 100-5, 6/5/87, at 312. 137. Hakim Test., Hearings, 100-5, 6/3/87, at 215. 138. Case 1: Secord testified that his initial profits on arms sales totaled "several hundred thousand dollars" and were held by CSF in his name. Secord Test., Hearings, 100-1, 5/ 7/87, at 154, 164-65. The ledgers show that on 4/4/85, approximately $220,000 was transferred for "RVS" to CSF, and that in May 1986, CSF moved approximately the same sum into Korel Assets. Thus, it appears that the "RVS" marked money -- Secord's initial profits -- were moved into Korel Assets. General Ledger, H967; Fiduciary Ledger, H03076; Wire Records, H373, H372. Case 2: The bank account ledgers show a transfer marked "transfer RVS." The transfer can be traced directly to Korel Assets. Fiduci- ary Ledgers H3074, H03131; General Ledger, H967. Case 3: The fiduciary agreement with respect to the management of one of the $2,000,000 reserves by CSF originally read "RVS/AH." The title of the agreement was changed to "AH-1." H2723. 139. Secord did volunteer that he signed a fiduciary agreement for the management of his money with CSF. Secord Test., Hearings, 100-1, 5/7/87, at 154. The agree- ment was not produced by Hakim. Hakim Dep., 5/23/87, at 203. Secord Test., Hearings, 100-1, at 154. Through July 1987, Secord opposed in the Swiss courts the Independent Counsel's application for the Enterprise's financial records. 140. Capital Ledger, H970; wire transfer, H177; Fiduciary Ledger, H2933. The copy of the fiduciary agreement deliv- ered to the Committee was never signed by the client, "B.Button". Ex. AH-26, Hearings, 100-1. 141. Hakim Dep., 5/22/87, at 124. 142. Q: "What does that [bellybutton] have to do with death benefits?" A: "No, you know, probably wiggle and touch somebody's bellybutton. I don't remember now. It has been such a long time." Hakim, 5/22/87, at 124. "I think it had to do with the family of the possible victims that somebody had to wiggle their bellybuttons . . . It is not referring to anyone's name . . . I said [to Zucker] somebody needs to go and wiggle the bellybutton of the families, the wife, the kids, and I said `Button'." Hakim, 5/22/87, at 129- 30. 143. Hakim Dep., 5/24/87, at 182-83, 211-15, 5/25/87, at 7. 144. Hakim Test., Hearings, 100-5, 6/3/87, at 217. 145. Secord Dep., 6/10/87, at 24-25. Secord's handwrit- ten notes of the Enterprise's finances show that he began reserving, or "fencing in" $200,000 for the death benefit fund in November 1985. It appears that this fund may have been formally established as Reserve Account 3 in May. Id. at 24; Secord Ex. 5. 146. Secord Dep., 6/10/87, at 25, 27. 147. North Test., Hearings, 100-7, Part I, 7/7/87 at 45. 148. Hakim Test, Hearings, 100-5, 6/4/87, at 270-78, Hakim Dep., 5/24/87, at 200-03. 149. Secord Dep., 6/10/87, at 32-34. 150. Id. at 27. 151. Id. at 25-26. 152. Id. at 32. 153. Id. at 32. 154. North Test., Hearings, 100-7, Part I, 7/8/87, at 136. 155. Letter from Mrs. North to the Committees, 6/3/87, SC4233. 156. Hakim Dep., 5/24/87, at 195-96, 198. 157. Secord Dep., 6/10/87, at 34. 158. North Test., Hearings, 100-7, Part I, 7/8/87, at 136- 37. 159. Hakim Dep., 5/24/87, at 193. Hakim placed Mrs. North's trip to Philadelphia in August or September. Id. at 193-95. A lawyer in the Philadelphia suburbs, Harold Cohen, recalled that on September 26, 1986, Zucker inter- rupted a meeting with him to meet a lady from Washington. But he did not know her name, and the Committees have not been able to determine whether it was Mrs. North. Cohen Dep., 6/1/87, at 11-12. 160. Hakim Dep., 5/24/87, at 201. 161. Lewis Dep., 6/14/87, at 8-14. Lewis added "the reference to the White House and to someone's wife is a certainty. The reference to the name is less certain." Id. at 19. 162. Id. at 13. 163. Secord Dep., 6/10/87 at 35-36. 164. Ex. AH-27. The $15,000 wired into the STTGI ac- count was commingled with STTGI funds, and thus it is impossible to be sure how it was used. The STTGI files produced for the Committees, however, contain no written record of any transfer from STTGI to the Norths. Summa- ry of STTGI bank records, STG134511. Secord did pay $7,000 in cash for the North security system on May 19 or 20. Robinette Dep., 6/17/87, at 30; Robinette Test., Hear- ings, 100-6, 6/23/87, at 9-10. 165. Hakim Test., Hearings, 100-5, 6/3/87, at 218-19. 166. North Test., Hearings, 100-7, Part II, 7/10/87, at 10. See also discussion of arms expenditures for the Contras in Section 3. 167. Calero Test., Hearings, 100-3, 5/20/87, at 13. 168. Hakim Test., Hearings, 100-5, 6/5/87, at 28-29. 169. Secord Letter, SC04081-105. Although it is difficult to verify arms purchases, there is no doubt that payments described as commissions on the arms transactions were actually paid directly and indirectly (through CSF) to mem- bers of the Enterprise. Through a series of ledgers, fiduciary agreements, and wire records, CSF documented the distri- bution of funds to members of the Enterprise. 170. Secord told the Committees that the "profit" on the phase I-IV arms sales was $2.49 million. Secord Letter, SC04081-105. 171. Calero Test., Hearings, 100-3, 5/20/87, at 13. 172. North Test., Hearings, 100-7, Part II, 7/10/87, at 3. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 357 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 173. Although Secord did not provide an estimate as to the commissions distributed for the stranded shipment, Hakim did do so. Secord Letter, SC04081-105; Hakim Dep., 5/23/87, at 19. The profit estimated by the Committees for these shipments is $300,000 higher than that estimated by Secord/Hakim. 174. Secord Test., Hearings, 100-1, 5/5/87, at 53. 175. See Table 22-4, Markup on Arms Purchased for Contras According to CSF Ledgers. 176. Hakim Dep., 5/22/87, at 88. See Table 22-5, Com- missions on Arms Sales to the Contras. 177. Secord Test., Hearings, 100-1, 5/7/87, at 171. 178. See Table 22-5, Commissions on Arms Sales to the Contras; Hakim Dep., 5/22/87, at 88-89. Exactly whom Hakim was trying to confuse and what he was trying to accomplish is not clear. On the CSF books, payments to Defex SA (the fake arms account) would appear to depress profits that the Enterprise actually made on the arms sales and thus mislead an uninformed reader. 179. Hakim Test., Hearings, 100-5, 6/5/87, at 20-21. Secord claimed that the cost of the weapons was about $2.4 million. Secord letter, SC04184. Committee accountants could only identify $2.2 million in weapons costs for the stranded shipment in the CSF ledgers. 180. Secord Test., Hearings, 100-1, 5/7/87, at 191; Hakim Dep., 5/22/87, at 156-62; Id. at 161. 181. Hakim Dep., 5/23/87, at 19-20; Hakim, 6/5/87, at 52-56. 182. See Table 22-4, Mark-Up on Arms Purchased For the Contras According to CSF Ledgers. Secord testified that commissions were distributed in a 40/40/20 ratio (Secord, Hakim, Clines) and Hakim indicated that on the later arms shipments the ratio was 30/30/30/10 (Secord, Hakim, Clines, and Scitech); Secord Test., Hearings, 100-1, at 53; Hakim Dep., 5/22/87, at 147-48. The ledgers show that the total sum of money distributed to Korel, Hakim, and C. Tea during February 1985 to mid- December 1985 equaled a 32/33/21/14 ratio among Korel, Hakim, C. Tea and Scitech/STTGI, which is equivalent to a 39/40/21 ratio when one splits the STTGI/Scitech distri- bution among Korel and Hakim. While most of the relevant ledger entries describing the distributions simply stated "transfer," the last distribution in the period contained a notation "Bal. of Act. for Phases On December 17, 1985, there was a simultaneous distribu- tion, marked in the ledgers as "Profit Distribution Phase IV," to Korel, Hakim, and Clines, in a 40/40/20 ratio; in addition, there were four other simultaneous 1986 distribu- tions: May 20, June 3, June 20, and August 27, all of which fell in the 30/30/30/10 pattern described by Hakim. A Feb- ruary 7, 1986, distribution was made in basically a 50/50 ratio between Korel and Hakim. Hakim indicated that this was a commission payment. The balance of the distributions shown in the ledgers from December 17, 1985, to the end of the active days of the Enterprise -- $2.1 million -- did not fall into any pattern, and, except for some very minor amounts, did not include Clines. Secord told the Committees the total amount of profit the Enterprise made on each arms shipment and roughly the date of each arms transaction. Using this information, the Committees correlated the commission distribution to each arms shipment. 358 183. The financial data in this Section are based upon the CSF ledgers and supporting bank documents. 184. Summary of distributions to Secord, Hakim, and Clines, excluding commissions, H6372A-77. The Commit- tees traced $328,885 of this money to Hakim and $42,275 to Clines. Secord received $50,000 which he, in turn, loaned to his attorney, Tom Green. Id. 185. See Secord Test., Hearings, 100-1, 5/8/87, at 307, Secord Ex. 76. 186. See Staff Memorandum, The Tri-American Arms Venture, 10/5/87. 187. Secord Test., Hearings, 100-1, 5/8/87, at 193-94, 331; Ex. RVS-75, Hearings, 100-1, at 594; Hakim Test., Hearings, 100-5, 6/5/87, at 14-16. 188. Marostica Dep., 5/20/87, at 24-26, 29-30; Royer Dep., 5/21/87, at 79-83. 189. Ex. RVS-76, Hearings, 100-1, at 598; Hakim Dep., 5/ 23/87, at 80; Secord Test., Hearings, 100-1, 5/8/87, at 331- 36. 190. Hakim Dep., 5/31/87, at 178-80. 191. Marostica Dep., 5/20/87, at 13-20; Royer Dep., 5/ 21/87, at 28-32. 192. Secord Test., Hearings, 100-1, 5/7/87, at 193. 193. Royer Dep., 5/21/87, at 45-53. 194. Hakim Test., Hearings, 100-5, 6/5/87, at 16; Royer Dep., 5/21/87, at 58. 195. Summary of CSF ledger entries showing transfers to STTGI, H637-1. 196. Summary of STTGI Bank Records, STG134507-09; Secord Test., Hearings, 5/7/87, 100-1, at 168. 197. Scitech ledger entries, H02959-60. 198. Secord Test., Hearings, 100-1, 5/7/87, at 166-67. 199. Hakim Dep., 5/23/87, at 143. 200. Hakim Test., Hearings, 100-5, 6/3/87, at 217. 201. Scitech ledgers, H02959-60; Summary of CSF Ledg- ers and Bank Records, prepared by Committee staff ac- countants, H6372B. 202. Hakim 6/3/87, at 38; Royer Dep., 5/25/87, at 49-50. The payment was wired to the bank which held the proper- ty on October 24, 1986. At the same time, an additional $30,000, also drawn from the Scitech fund, was wired to the trust account of a law firm involved in the transaction; wire transfers, H1520-A, B and C. 203. Farber Dep., 6/1/87, at 4 (Zucker bought his 25% interest personally). Clarke and Zink Dep., 7/6/87, at 14 (CSF held Zucker's 25% interest); at 29-31 (Secord's June visit to Forways); at 26-28 (laser sight); at 37-40 ($50,000 wire through Forways). 204. Clarke-Zink Dep., 7/6/87, at 26, 36, 54. 205. Hakim Dep., 5/31/87, at 254. 206. Id. at 255. 207. Forways Records, EN 0199-358. 208. Clarke and Zink Dep., 7/6/87, at 9-10, 62; Ex. 2. 209. Ledger entry re $500,000, H02862; ledger entry re $260,000, H1084; Hakim Dep., 5/24/87, at 144-58 ($500,000 earmarked for joint Secord/Hakim investment). Hakim stated that the $260,000 was for a line of credit extended to Forways and that the money should have been returned to the Enterprise. Hakim Dep., 5/23/87, at 171-74. 210. Hakim Dep., 5/31/87, at 255-56; Clarke and Zink Dep., 7/6/87, at 73-76; Ex. 3. 211. Hakim Dep., 5/23/87, at 256, 263-64. 212. Hakim could not identify the purpose of the third fund which totaled $200,000. Since Hakim created it in a Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 22 manner nearly identical to the other two, the Committees refer to it here as a Reserve. 213. Secord Test., Hearings, 100-1, 5/7/87, at 162; Hakim Dep., 5/23/87, at 108, 257-60. 214. Based upon CSF ledgers. 215. Hakim Dep., 5/31/87, at 34-35. 216. Hakim Dep., 5/24/87, at 163; Hakim Test., Hearings, 100-5, 6/4/87, at 286-87; Hakim Test., 6/3/87, at 280. 217. Ex. AH-17, 18, Hearings, 100-5. 218. Hakim Test., Hearings, 100-5, 6/3/87, at 222. 219. Exs. AH-19 and 20. 220. Secord Test., Hearings, 100-1, 5/7/87, at 179. 221. North Notebooks, 8/3/86, Q2316. 222. Nightline, 7/9/87, at 5. 223. North Test., Hearings, 100-7, Part I, 7/10/87, at 314- 15; Ex. OLN-328, Hearings, 100-7. 224. See Chapter 23, "Other Privately Funded Operations of the Enterprise." 225. Secord Test., Hearings, 100-1, 5/7/87, at 166. 226. North Test., Hearings, 100-7, Part I, 7/8/87, at 124- 25. 227. Hakim Dep., 5/31/87, at 40-41. 228. Hakim Dep., 5/31/87, at 9-11; Secord Dep., 6/10/87, at 37-38. 229. The numerical data here are based upon the CSF ledgers and supporting bank documents. See Table 22-7, Individuals and Entities that Control Unspent Enterprise Funds. 230. Secord Test., Hearings, 100-1, 5/8/87, at 4. 231. North Test., Hearings, 100-7, Part II, 7/13/87, at 45- 46. 232. Hakim Dep., 5/24/87, at 35; Hakim Test., Hearings, 100-5, 6/3/87, at 200-01. 233. Hakim Dep., 5/23/87, at 259-60. 234. Hakim Dep., 5/31/87, at 34-35, 53. 235. U.S. Congress. Intelligence Authorization Act FY86, Sec. 105, P.L. 99-169, 99 Stat. 1003. 236. Raymond F. Burghardt to Rodney B. McDaniel, Memorandum, Secret, "Minutes of the May 16, 1986, Na- tional Security Planning Group Meeting," National Security Council (June 4, 1986), N10288. 237. At a White House interagency meeting the week of May 12, the group (comprised of officials of the CIA, Defense, and State), recommended that the Administration consider an immediate reprogramming of $15M from De- fense to CIA for non-military assistance to the Contras ($5M per month through August, 1986). Contrary to the conclusion reached by Secretary Shultz on May 16, the group concluded there was "a reasonable likelihood of suc- cess" of securing the support of the Senate and House Intelligence Committees for the reprogramming option. Poindexter to the President, Memorandum, prepared by: North and Burghardt, N6263. 238. Shultz Test., Hearings, 100-9, 7/23/87, at 17-18; Ex. GPS-A, Hearings, 100-9, at 4. 239. At the time, the Secretary and the State Department itself had not been informed of the contributions to the Contras by Country 2 and Country 3. Abrams Test., Hear- ings, 100-5, 6/2/87, at 42. Shultz was advised by McFarlane only on June 16, 1986, of the $32 million contribution from Country 2. He was never told of the $2 million contribution from Country 3. Shultz Test., Hearings, 100-9, 7/23/87, at 4. 240. Abrams Test., Hearings, 100-5, 6/2/87, at 43. 241. Id. at 43. 242. Id. at 44; North Test., Hearings, 100-7, Part I, 7/8/ 87, at 156-57; Shultz Test., Hearings, 100-9, 7/23/87, at 19- 20. 243. North's secretary, Fawn Hall, testified that she is certain she typed the account number precisely as North gave it to her. Hall Test., Hearings, 100-5, 6/8/87, at 487; North Test., Hearings, 100-7, Part I, 7/10/87, at 326; Abrams Test., Hearings, 100-5, 6/2/87, at 45; Ex. GPS-56-U, Hearings, 100-9. 244. Abrams Test., Hearings, 100-5, 6/2/87, at 45-46; Ex. EA-10, Hearings, 100-5. 245. Shultz Test., Hearings, 100-9, 7/23/87, at 20, 51; Abrams Test., Hearings, 100-5, 6/2/87, at 45. 246. Shultz Test., Hearings, 100-9, 7/23/87, at 20. 247. Ex. GPS-A, at 5. 248. Id.; Abrams Test., 6/2/87, at 45. 249. Id. 250. Abrams Test., Hearings, 100-5, at 46-7. 251. Abrams Test., Hearings, 100-5, 6/2/87, at 48-50; Ex. GPS-A, Hearings, 100-5, at 5. 252. Ex. GPS-56-0. Subsequently, Brunei informed State that the $10 million had been transferred on August 19, 1986. Ex. GPS-56-T, Hearings, 100-9. 253. Ex. GPS-A, at 5. 254. Ex. GPS-A, at 5; GPS-56-R. 255. Sofaer Dep., 6/18/87, at 75-76. 256. Ex. GPS-A, Hearings, 100-9, at 6. 257. Sofaer Dep., 6/18/87, at 83. According to Secretary Shultz's chronology, on the day Sofaer was informed of the Brunei solicitation, Monday, December 1, the U.S. Ambas- sador to Brunei was instructed to advise Brunei that if funds were still under its control, they should be frozen. Ex. GPS- A, Hearings, 100-9, at 6. Sofaer testified he received the number of the Lake Resources account in Switzerland from Nick Platt on Tuesday and "immediately communicated that to the Department of Justice and to the FBI." Sofaer Dep., 6/18/87, at 82. On Wednesday, he said, "I started pressing for action and was not getting it." Id. at 82. 258. Statement of Chairman Inouye, McFarlane Test., Hearings, 100-2, 5/12/87, at 83-84. 359 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 Other Privately Funded Covert Operations Under the plan that Lt. Col. Oliver L. North attrib- uted to Director of Central Intelligence William Casey, profits from the Iran arms sales were to fund not just the Contras, but other covert operations of the Enterprise as well. Before the Iran arms sales became public, Lt. Col. Oliver L. North had begun implementing certain projects he and Casey believed the Enterprise could perform. "We always assumed," North said later "that there would come a time again, as indeed it did, where the Congress would make available the moneys necessary to support the Nicaraguan freedom fighters." When that happened, the Enterprise, functioning free of government scrutiny and with ample funds, could carry out other covert projects; many were intended "to be conducted jointly [with] . . . other friendly intelligence services" while others would be limited to activities conducted by North, Secord and Hakim.2 Even before the Enterprise was formed, however, North was operating with non-appropriated funds on another project that the Government could not do because it was contrary to United States policy?the ransom of the hostages. The DEA Ransom Operation Before the Iran initiative was conceived, the NSC staff was working on a plan to ransom the hostages. Confronted with the policy of the U.S. Government of not paying for the hostages release, North found a loophole by using private funds. Edward V. Hickey, Jr., an Assistant to the Presi- dent, attended a meeting of the Terrorist Incident Working Group (TIWG) in January 1985. Hickey noted that the area in Lebanon, where the hostages were held, was a known area of narcotics trafficking. Hickey had a personal interest in the hostages. He had known William Buckley, the CIA Chief of Sta- tion in Beirut who had been kidnapped on March 16, 1984. Hickey asked his long-time friend, a DEA Special Agent (Agent 1), if DEA could help to locate Buck- ley and the other hostages. Agent 1 reported that another DEA Special Agent (Agent 2) had contacts in the Middle East who might be able to help. Shortly thereafter, Agents 1 and 2 met with Hickey and Hick- ey's military aid General Matthew Caulfield. Agent 2 told Hickey that he had an excellent source with impressive contacts in Lebanon.3 Following this meeting, Hickey met with Deputy National Security Adviser John Poindexter and en- couraged him to include the DEA in the Hostage Locating Task Force (HLTF).4 On February 13, 1985, National Security Adviser McFarlane notified the Departments of State, Defense, and Justice and the CIA that the Task Force would report to the TIWG and it would include the DEA.6 The DEA was to be represented on the Task Force by Abraham Azzam, an Arabic speaking agent of Lebanese herit- age.6 Funding for the Task Force would come from the CIA.7 With the approval of DEA Administrator Mullen, the DEA provided Agents 1 and 2 with $20,000 for travel, expenses and for payments to their sources for information on the hostages.8 If the DEA's sources were productive, they were to be turned over to the CIA for further operational handling. Agents 1 and 2 were instructed to report to Azzam, who in turn was to report to DEA Deputy John Lawn.3 Agents 1 and 2 were not to be involved operation- ally in securing the release of the hostages; their func- tion was to assist in obtaining intelligence information regarding the location of the hostages.' ? According to Lawn, he gave these instructions because Federal law provides that DEA's responsibility is for oper- ations that concern drug-related law enforcement." (See Figure 23-1.) In February 1985, Azzam, Agent 1, and Agent 2 met with Agent 2's source in Geneva and in New York. The source claimed that he had contacts who could arrange to pay off individuals in Lebanon who had enough influence over the captors to arrange for the release or escape of the hostages. He added that $50,000 was needed to begin operations," and that the hostages could be released if the United States sold weapons, tanks, airplanes, and other military equipment to those controlling the holders of the hos- tages. Oliver North, the NSC staff member responsi- ble for terrorism issues, later told the agents the United States could not sell weapons." 361 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Figure 23-1. Organization Chart of the Drug Enforcement Administration. DIVISIONAL FIELD OFFICES Atlanta New Orleans Boston New York Chicago Philadelphia Dallas Phoenix Denver San Diego Detroit San Francisco Houston Seattle Los Angeles St. Louis Miami Washington, D.C. Newark i BOARD OF PROFESSIONAL CONDUCT ADMINISTRATOR DEPUTY ADMINISTRATOR I OFFICE OF CHIEF COUNSEL OFFICE OF CONGRESSIONAL AND PUBLIC AFFAIRS I ADMINISTRATIVE LAW JUDGE I PLANNING & INSPECTION DIVISION OPERATIONS DIVISION OPERATIONAL SUPPORT DIVISION Assistant Administrator for Planning & Inspection Assistant Administrator for Operations Assistant Administrator for Operational Support Deputy Assistant Administrator for Planning & Inspection Office of Professional Responsibility Deputy Assistant Administrator for Operations Deputy Assistant Administrator for Operational Support I I Management Staff Office of International Programs Equal Employment Opportunity Staff Office of Personnel Office of Planning & Evaluation Office of Security Programs I I Office of Office of Office of Office of Diversion Control Intelligence Science & Technology Controller Office of Inspections Office of Investigative Office of Office of Training Sections Information Systems Administration October 1987 Source: U.S. Department of Justice. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 Under the Task Force authorization, the CIA was to pay for hostage information. But the CIA was reluctant to do so without proof that Agent 2's source was legitimate and would produce valuable informa- tion. Agent 1, Agent 2, Hickey, and Caulfield then met with Poindexter to explain their need for funds. Poindexter told them he would look into the matter.' 4 In early March 1985, Hickey arranged a meeting among North, Agent 1, Agent 2, Azzam, and Caul- field. At the meeting, the agents explained their ef- forts to North and informed him that the CIA was reluctant to provide the money." In a follow-up phone call to North on March 12, 1985, Caulfield said the DEA's efforts were "not very sophisticated."16 He explained that the plan now called for four hos- tages to be released in exchange for $1 million per hostage, once the $50,000 was paid to the source." North's notes of the conversation reflected his own reaction: "fundamental decision: Do we pay ransom?"" North answered his own question with his actions: he became the operational leader of the project.' 9 Soon thereafter, the DEA agents arranged for two CIA officers to meet Agent 2's source in New York. The two officers were sufficiently convinced of the value of the source to authorize the $50,000 expendi- ture from the CIA." Agent 1 received the money on March 18 from a CIA officer and signed a form acknowledging that he was responsible to account for it." Agent 1 paid the money to the source in two installments: $20,000 on March 19, and $30,000 on April 20, after the source had returned from a trip to Lebanon. 22 On May 2, 1985, upon the source's return from another trip to Lebanon, he told the agents that he now needed to give $200,000 to his contact, who would locate Buckley and obtain proof that he was still alive. After that payment, the source said, it would take an additional $1 million per hostage to secure their release. Azzam became concerned when he learned that the source's contact was known to the DEA as a narcot- ics trafficker and a thief." Azzam voiced his concerns to CIA officials who agreed that the $200,000 should not be paid until the source produced proof that his contacts had access to Buckley. The proof was to consist of photographs of the hostage with current newspapers, or similar items, showing the date of the proof." North told Azzam he could get the ransom money of $1 million per hostage. When Azzam asked North where he would get it, North asked him not to in- quire." Azzam surmised correctly that North was planning to get the money from H. Ross Perot, a Texas industrialist." Azzam told this to the CIA offi- cers. The next day, North called Azzam to express his anger that Azzam had told the CIA. Azzam could not understand North's anger. He believed that the CIA was to be a full partner given that DEA could not legally have any operational capabilities." Reported- ly, Perot was upset that his role had been compro- mised and complained to Poindexter and McFarlane. In early May 1985, the source went to Lebanon to obtain the required proof while Agents 1 and 2 waited in Cyprus. The source produced a document that allegedly was proof of access to Buckley." Azzam directed Agent 1 to bring the document to him for verification by expert analysts from the CIA and FBI laboratories. Despite these instructions, Agent 1 presented the "proof' first to North, a signal in Azzam's eyes that Agents 1 and 2 regarded North as their principal supervisor." On May 14, 1985, Azzam and Agent 1 took the document to the CIA. The Agency found the evi- dence unacceptable.3? The CIA and FBI technical reports which were produced two weeks later were inconclusive.3' Because the first evidence the source produced was at best inconclusive and at worst fabricated, the CIA developed a series of questions to the hostages only they could answer." When the source refused to return to Lebanon and submit the questions, the CIA and Azzam declined to authorize the $200,000.33 Ac- cording to the CIA's Deputy Director for Operations, Clair George, the plan was a "scam, a fake" nothing more than "hocus pocus." 34 North Continues the Initiative Notwithstanding this account of their source, Agents 1 and 2 urged North to continue working with them." On May 22, 1985, according to North's notes, the two Agents assured North that their source could produce the hostages if given $200,000 for pay- ments to officials in Lebanon and $2 million for two hostages." The agents explained that they needed to change their operating procedures: they wanted to report directly to the NSC staff to get the DEA "off their backs." 37 They advised North to contact DEA Administrator Lawn or Attorney General Meese di- rectly to ensure that they could proceed without in- terference.38 On June 7, 1985, in a memo to McFarlane, North detailed the DEA operation. He wrote that, "at the request of the two DEA officers who originated the contact in Lebanon, I met with their asset [source] in Washington . . ." 29 North informed McFarlane that the $2,200,000 would be provided by a "donor," but that "travel arrangements and operational costs are currently being financed from funds normally avail- able to the Nicaraguan resistance." He added that "our normal point-of-contact of these matters is not yet aware." 40 North's disclosure that private money raised for the benefit of the Contras was available to support the DEA operation is consistent with a state- ment he made at the time to Clair George, who recalled: 363 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 011ie North always sort of implied when we were talking about the hostages that if I ever thought that I needed money and that policy dictated it, but I didn't want to take it from CIA funds because they are Congressionally con- trolled, he could get money.4' Finally, North recommended in the memorandum that McFarlane approve the plan and ask the Attor- ney General to detail Agents 1 and 2 to the NSC for 30 days. McFarlane initialed the "approve" line at the bottom of the memo. McFarlane handwrote just under the approve line, "North to follow up 6/10 with AG." 42 McFarlane testified that he did not realize the full meaning of North's memorandum regarding his use of funds "normally available" to the Contras. "To tell you the truth," McFarlane testified, "it is my own oversight. . . . If I had been careful about reading [North's memorandum] I would have [understood its true significance]." 43 McFarlane testified that he never asked North whether he was getting money from Calero to assist in the release of the hostages. "I didn't, but I should have, and I just missed this. That's all," he explained. "I thought it was all coming from a private U.S. citizen." 44 Poindexter, however, knew the source of the funds. He stated that North told him the money was coming from Calero con- trolled funds that had been contributed to the Con- tras.45 Around June 10, North prepared a memorandum for Attorney General Meese describing how the DEA agents would deposit the $200,000 and open an ac- count for the remaining $2 million, which was to be provided by the "donor to bribe those in control of the hostages." North asked the Attorney General to assign the DEA agents to "this organization [NSC staff] for a period not to exceed 30 days." 46 Attorney General Meese complied with North's request.47 That assignment would last for over one year. Once the DEA agents were assigned to North, they reported directly to him, except for occasional, curso- ry briefings to Lawn." They wrote no reports of their activities and made no entries in the DEA in- formant files regarding contacts with their sources. Further, they immediately destroyed their notes after orally reporting to North.49 The agents embarked on the operation as planned. In late May, Jay Coburn, an employee of H. Ross Perot, had delivered $200,000 in cash to North and Agent 1 without obtaining a receipt.5? North placed the money in his office safe and told Agent 1 that a nongovernmental employee would have to handle the money." Agent 1 suggested his brother, who had experience in security matters.52 The plan called for Agent 1 and his brother to meet with their source on Cyprus and for the brother to give him the money. If everything went well, they would arrange for the $2 million to be deposited and available for "contacts," 364 who would arrange the release and transportation of two hostages. True to the plan, North gave the brother the $200,000 in cash and $11,000 in Calero traveler's checks for expenses.53 Agent 1 and his brother trav- elled to Cyprus in late June of 1985, where the broth- er gave the source the $200,000 to take to Lebanon. Two unrelated events then intervened: the hijack- ing on June 14, 1985, of TWA flight 847 by Lebanese terrorists, and in early June the death of one of the source's contacts in Lebanon.54 As a result, the DEA source claimed to be leery about approaching anyone associated with the hostage holders. The source, after a trip to Lebanon, reported that the hostages possibly could be freed in exchange for arms.55 The agents concluded that this was not feasible." Ironically, this same course was about to be pursued by the United States in the Iran initiative. Late 1985 and Early 1986: North Presses On In December 1985, Charles Allen of the CIA became Chairman of the Hostage Location Task Force.57 Allen already was involved in the Iranian initiative. North also recruited an Army Major of the Defense Intelligence Agency, who had an intelligence background in the Middle East. North or Allen then picked the Major to serve as "team leader or chief of staff, organizer, et cetera." 58 The first meeting of the Task Force took place on December 23, 1985, and included were Allen, North, the Major, and others representing various federal agencies and departments." Agents 1 and 2 were not made an official part of the Task Force, but North advised the Task Force that Agents 1 and 2 would be useful sources for "intelligence and special projects." 60 The Major described Agents I and 2 as "street toughs in camel hair coats," 61 who were "street- smart but not very knowledgeable of other federal agencies . . . outside their own, nor knowledgeable certainly in any way, shape or form, about Middle East or international relations or politics or the mili- tary." 62 At their first meeting, the DEA agents told the Major and Allen that they did not want to deal with the Operations Directorate at the CIA; Allen told them that the Major would be their CIA con- tact.63 On January 14, 1986, Agent 1 and the Major went to New York to meet with and evaluate a new DEA "source," who, if acceptable, would be paid from CIA funds." On January 28, 1986, the Major report- ed to North his reservations about the source and the whole operation. North said that he liked the DEA agents because they were "action oriented." From that point on, the Major sensed that North was delib- erately keeping him uninformed." Allen testified that he believed the DEA agents were working only to Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 obtain intelligence information and were not involved operationally in hostage-release activities.66 In January 1986, the Major expressed to Allen his concern regarding the propriety of using money to gain the hostages' release. Allen replied that North had told him that the President had said he would "go to Leavenworth if necessary" to free the hos- tages.67 The Major also recalled that in March 1986, while Allen and the Major were generally discussing how to finance efforts to free the hostages, Allen commented that, "011ie was already into his Contra money for the hostages. . . ." 68 The Major did not pursue this remark.6 9 In late April 1986, the Major submitted a paper to North analyzing a range of options to gain the release of the hostages.7? When the Major met with North to present his paper, he urged North to abandon any effort to gain the release of the hostages by providing arms to Iran." Indeed, his paper warned that a fac- tion in Iran might leak such a sale "simply to embar- rass the present Administration." 72 North was non- committal and "made no comment on [the Major's] noting that it was against official U.S. policy . . . [and] encouraged terrorism." 7 3 In late May 1986, the Major left the Task Force.74 The DEA Agents Become Operational Again In May 1986, at the very time that North was preparing to accompany McFarlane to Tehran, he continued to work with the DEA agents to ransom the hostages for $1 million each. When the plan final- ly was executed, it occurred simultaneously with the McFarlane mission to Tehran.'" In May, Agent 1 was in Cyprus working on a hostage rescue plan with the new DEA source. He called Agent 2 in the United States and requested more money: $20,000 for the source and $10,000 for Agent l's expenses.76 Agent 2 asked North, who then turned to the Enterprise. North gave Agent 2 the telephone number of Albert Hakim, Secord's associ- ate, in Geneva. A DEA Agent ("Agent 3") called upon Hakim in Switzerland. He gave Agent 3 $30,000 cash in bills wrapped in Credit Suisse bands, without a receipt.77 Agent 3 gave the money to Agent 1, who took it to Cyprus." The DEA agents were to rent speed boats as a diversion and North was to obtain assistance from the U.S. Sixth Fleet." According to the new plan, certain Lebanese ele- ments would be paid $1 million to rescue each hos- tage. Once the hostages were freed, it was decided they would be taken by the Enterprise ship Erria to Cyprus. While the Enterprise provided the expense money, North turned once again to H. Ross Perot for funding of the ransom. In June 1986, Jay Coburn, Perot's aide, flew to Cyprus in a private plane. Coburn was to provide $2 minium upon the release of the hostages." After Coburn arrived, Clines appeared in Cyprus with the Erria, but the plan collapsed: the contacts demanded the money before releasing the hostages, but the DEA agents refused to pay until the hostages were freed.81 Soon after the June 1986, DEA mission failed, North told McFarlane that Perot had complained that he lost his money on the operation, and that North had failed to keep him informed. North asked McFar- lane to mollify Perot. McFarlane eventually saw Perot and asked him "not to be too hard on 011ie." 82 In addition, a letter was addressed to Perot from the President, dated June 11, 1986, stating: I have been briefed on your effort over the past several weeks on behalf of our Americans ab- ducted in Beirut. On behalf of the American people, I want to thank you for your discreet assistance in this regard. My hope is that we may yet succeed in reuniting these men with their families and loved ones. Thanks again and God bless you. 82 a In August and September 1986, Agent 1 called North about two possible sources on the hostages. North told Agent 1 he could not "touch them" and referred him to Dewey Clarridge at the CIA. On October 14, 1986, North met with Lawn. North ex- pressed his appreciation for the DEA agents' efforts, but acknowledged that their efforts had failed." With that, U.S. efforts to ransom the hostages ended." The Attorney General's Role Throughout the DEA operation, private funds were used to pay the expenses of the agents and to provide the ransom money. Yet, as discussed in Chap- ter 27, the use of nonappropriated funds to finance Government operations is inconsistent with the provi- sions of the Constitution requiring that all monies spent by the Government be appropriated by Con- gress. Numerous statutes and governmental account- ing rules implement this principle. A government offi- cial receiving money for the government from any source must deposit it in the Treasury;" government agencies may not accept gifts of money absent specif- ic statutory authorization;" and government employ- ees may not receive private funds for the performance of their governmental duties." To violate these laws creates an obvious conflict of interest for the agents as well as privatizing governmental functions. The use of private money to finance the DEA operation broke each of these rules. The evidence points toward the conclusion that the Attorney General approved the use of private funds for the ransom/resource operations. According to McFarlane, North was informed by the Attorney General that it was acceptable for Perot to contribute money to be used to bribe public officials and other 365 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 individuals in Lebanon. McFarlane stated that Attor- ney General Meese explicitly had approved this action and told him he was "keeping an eye on it." 88 North's testimony confirms McFarlane's account. North stated that he understood from the Attorney General that "we couldn't use U.S. Government monies for those purposes [but] we could use outside monies." North also recalled informing the Attorney General of the source of the money." Attorney Gen- eral Meese, however, maintained that he was not aware of a "plan to use private funds to ransom people in foreign countries," 90 nor did he recall ad- dressing the issue of using appropriated or unappro- priated funds to conduct the activity." McFarlane testified that Attorney General Meese had advised that while Government funds could not be used, private monies could be used to bribe foreign officials to free the hostages.92 Agent 2 testified that Lawn told him that the Attorney General had person- ally approved Agent 2's participation in the NSC hostage effort.93 Agent 2 told the Committees that Lawn had given him instructions that the DEA agents not handle the private money personally.94 Agent 1 stated that North gave him the money-han- dling instructions and attributed them to the Attorney Genera1.96 The Attorney General denied knowing of the spe- cifics of Perot's involvement in the plan,97 although his telephone logs reflect some contact with Perot during 1985. Then, on November 26, 1986, after the diversion became public, the Attorney General tele- phoned Perot. A note taken by Meese's aide on De- cember 3, 1986, reflects an instruction by the Attor- ney General to call Perot to check on whether he would respond that the Attorney General knew of or authorized the payments.98 Administrator Lawn's testimony regarding his knowledge of using private money to ransom the hos- tages also contradicted documentary evidence. Lawn at first testified that he was never told that the money would be paid by a private donor.99 Lawn was then shown a copy of his handwritten notes of a briefing of the plan by Agent 2 which reads, in part: "donor money, not CIA;" "facilitators will not handle funds;" and "contact with donor." 100 Lawn then admitted that "obviously I was told that there was donor money and I was obviously told that it was not CIA money. I don't recall hearing that. I don't recall re- cording that. But this obviously is my handwrit- ing." 101 As to the notations that the agents would not themselves handle the private funds but only fa- cilitate the delivery of the funds, Lawn admitted: "I assume that I was told. I am sorry, I just don't recol- lect having been told." 102 Policy Considerations Were ignored . President Reagan repeatedly has stated since 1981 that the United States would not pay ransom to ter- 366 rorists who kidnapped Americans,'" a policy ad- hered to by Administrations of both parties over the years. There are practical reasons for such a policy. Clair George, the Deputy Director for Operations, stated: "You don't trade for hostages . . . because now everybody is going to sell them for something." 104 Former Deputy Director of the CIA, John McMahon stated that ransom payments could become a source of funds for terrorists. When they "run out of funds, they would kidnap the nearest U.S. businessman, get a ransom and then they'd fill their coffers for a year. When they needed more, they would ransom another one." 105 The DEA operation had all these shortcomings plus an additional one: it was inconsistent with the simultaneous effort to gain the release of the hostages through the Iran initiative. It is reasonable to believe that the Lebanese hostage holders would be less likely to release the hostages at the request of Iran, at the same time as they were being offered $1 million per hostage in the DEA initiative. There was little consideration of these factors. The DEA initiative was not discussed at a meeting of the NSC; there were no policy papers; and no consulta- tion with the Secretaries of Defense and State.1" Secord summed up the process when he testified that "it did not occur to me at the time that these two [efforts] clashed," but he acknowledged that "they could have collided." 107 Some on the NSC staff characterized the payments to the hostages holders as "bribes" not ransom, and the operation as a rescue, not a payoff. The Other Operations Israel During the 1985-1986 winter, North set into motion a series of projects involving Israel. These took advan- tage of the close working relationship North had de- veloped with his counterpart in the Israeli Govern- ment, Amiram Nir, Adviser to Prime Minister Peres on combatting terrorism. North and Nir had similar backgrounds in working for their respective governments: both believed in un- orthodox tactics when dealing with terrorism. Ac- cording to North, Nir broached the idea for joint operations during a trip to the United States in Janu- ary 1986. Nir carried a proposal, according to North, that the profits Israel would generate from the Iranian arms sales would be used, in part, for a series of covert operations.'" These would include gathering intelligence on terrorist groups, seeking the release of hostages, initiating and financing propaganda efforts that would be operated covertly.'" North recorded in his notebooks that Nir had suggested on January 9 that, from the sale of the first 1,000 TOWs to Iran for $10 million, $2.5 million would be dedicated for Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 "Ops." "? Each project received a code name in the sequence TH-1, TH-2, and so on. North told the Committees that the projects had not progressed beyond the planning stage and, therefore, he did not seek a Presidential Finding authorizing any of these operations.'" North testified that he discussed the Enterprise's role in these projects with Poindexter, but Poindexter said he did not recall such a conversation."2 The only evidence that the President knew of these sensi- tive projects appears in a September 15, 1986, memo- randum from North to Poindexter. North asked Poin- dexter to brief the President on certain initiatives, including one of the proposed joint U.S.-Israeli covert operations. An attachment to the memorandum which North suggested should be briefed to Casey stated that "covert funds could be made available" for this operation, but the source of the funds was not dis- closed.113 Poindexter noted on the memorandum that he approved North's recommendation to brief the President on these operations and that it was "done." Poindexter testified that he did not know or tell the President that the covert funds referred to by North were coming from the Enterprise."4 The Lebanese Operation Another initiative undertaken by North involved the use of DEA and Israeli contacts to fund and equip a force in Lebanon. North described the proposed force as part of a "long term operation" to give the United States some future military leverage on the ground in Lebanon.115 North sent Poindexter a PROF note in June 1986 about Secord's progress in working with a Lebanese group on a hostage rescue operation: "After the CIA took so long to organize and then botched the Kil- burn effort, Copp [Secord] undertook to see what could be done through one of the earlier DEA devel- oped [Lebanese] contacts. Dick [Secord] has been working with Nir on this, and now has three people in Beirut and a 40-man . . . force working for us. Dick rates the possibility of success on this operation as 30% but that's better than nothing." 116 In closed testimony before the Committees, North indicated that the project was never carried out even though "we spent a fairly significant amount of money on . . . [this additional] DEA operation." "7 Peter Kilburn, a 60-year-old librarian at the Ameri- can University in Beirut, was kidnapped on Novem- ber 30, 1984. U.S. sources believed that, unlike the other hostages, Kilburn was being held by a criminal faction in Lebanon. At one point in the fall of 1985, North had contemplated allocating Enterprise funds to support an operation intended to free him."5 The plan was terminated when Kilburn was murdered al- legedly by agents of Mu'ammar Qaddafi shortly after the American air raid on Libya in April 1986. Other Countries Other projects contemplated by North involved aiding anticommunist resistance groups around the world. North told the Committees that he and Direc- tor Casey "had several discussions about making what he called off-the-shelf, self-generating activities that would be able to do a number of these things. He had mentioned specifically an ongoing operation." In addi- tion, North testified, "I concluded within my own mind the fact that it might require [other ongoing] operations [as well]." 119 In testimony before the Committees, North explained his motivation for assist- ing resistance groups. "We cannot be seen . . . in the world today as walking away and leaving failure in our wake. We must be able to demonstrate, not only in Nicaragua, but . . . elsewhere where freedom fighters have been told, we will support you, we must be able to continue to do so." 120 In April 1986, North asked Secord and his partner Albert Hakim to use $100,000 from the Lake Re- sources Swiss accounts to purchase conventional radio phone equipment for donation to a political party in a foreign country. On April 29, two repre- sentatives of a U.S. manufacturer met in Miami with Secord and one of Secord's associates, and the pur- chasing agent for the political party. At the meeting, the purchasing agent agreed to buy $100,000 of the radio equipment, and Secord?upon North's request? arranged for the Enterprise to wire this amount to the manufacturer. The Erria Another of North's projects involved the purchase by the Enterprise of the M/V Erria, a small coastal freighter of Danish registry used to transport goods between Europe and the Middle East. The Erria, built in 1973, was small, only 163 feet long, and weighed 710 tons.12' Before its purchase, the Erria was owned by its captain, Arne Herup.122 In 1984 and 1985, the Erria was used to run weap- ons to the Persian Gulf and then to Nigeria and Central America. Because of its Danish registry, the Erria, was able to escape the scrutiny of customs officials.122 a "When we ended up needing a ship to perform a certain task," recalled North, "there was nowhere to get one on short notice, and so this orga- nization [the Enterprise] produced it practically over- night." Poindexter testified that Secord offered the ship because the Department of Defense could not provide a ship suitable for the covert operation.'" According to North, Casey said "we can't find one anywhere else, get a ship. It didn't cost the taxpayers of the United States a cent." 124 The money came from the Iran arms sales and other Enterprise funds. The Erria first came to the attention of the Enter- prise in April 1985, when it carried arms purchased through Secord to the Contras. En route to Central 367 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 _ . i. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 America, the Erria came under surveillance by an unidentified "fishing boat" which Captain Herup as- sumed was Cuban.123 Herup took evasive action and brought the cargo successfully to a Central American country.126 Herup's actions impressed Secord's asso- ciate, Thomas Clines, and when North needed a ship in April 1986, for covert operations, Clines suggested to Hakim that the Enterprise purchase the Erria from Herup, and keep him as Captain. Hakim bought the ship for $312,000 through Dolmy Business, Inc., one of the Panamanian compa- nies owned by the Enterprise, on April 28, 1986.127 Herup was asked to remain as captain for at least six months, with Danish agent Tom Parlow of SA Char- tering continuing as the ship's agent. Hakim and Clines told Herup that they were working for the CIA and that at some future date they might ask him to transport technical equipment for covert oper- ations. They promised that when the project was fin- ished, the ship would be returned to Herup at no cost. The Proposed Charter to the CIA for a Covert Operation The first mission North contemplated for the Erria was for an extended covert operation. On April 28, 1986, Secord sent a KL-43 message to North propos- ing that the CIA charter the vessel for that purpose: 44. . ? Abe [Hakim] still in Copenhagen with our lawyer finalizing purchase of ship. Deal has been made after three days of negotiation. The Danish cap- tain is up and eager for the mission?he now works for us. We are asking . . . [of the CIA] for firm fixed price contract of $1.2 million for six months. He will probably balk at this price . . .09127a As Secord predicted, the Agency felt the rate was excessive (several times the prevailing rate for similar assets) and it balked at chartering the ship. In addi- tion, the CIA informed North that it was not interest- ed on technical grounds and that it did not feel that security could be maintained because of the ship's previous use by North's associates to ferry arms to Central America. The Agency indicated that Tom Clines' involvement was a negative factor of major proportions.128 North persisted in his efforts to have the CIA lease the ship. He then enlisted Poindexter's help. In a May 14 memorandum, Vincent M. Cannistraro of the SC staff urged Poindexter to take the matter up with Casey: Status of 011ie's Ship. 011ie has offered the use of a Danish vessel for [a covert operation]. He first offered CIA a six month lease. CIA told me that they thought it was too expensive, and the cost and time involved in refitting the vessel for [the] mission made the alternative option . . . more attractive. 011ie then offered to [perform the mis- sion] using his own resources. [C/NE] has told 368 me that because of the alleged involvement of one Tom Clines (who was involved with Wilson and Terpil), CIA will have nothing to do with the ship.129 In the end, Casey supported Clair George's deci- sion that the ship was not suitable for Agency use. The Odyssey of the Erria On May 9, 1986, the Erria commenced its oper- ations under its new owners, the Enterprise. The ship was to travel to pick up technical equipment for a covert operation. On May 16 Herup was ordered to abort the mission and return to Larnaca, Cyprus. The new plan for the ship was to pick up any American hostages released as a result of the DEA initiative. En route to Lar- naca, Herup received instructions to take up a posi- tion off the coast of Lebanon and to await further directions.139 As described earlier in this Chapter, the DEA hos- tage ransom plan failed. Accordingly, after a 48-hour wait, Hakim ordered the ship to sail on to Larnaca. On June 5, Herup received instructions to head for Gibraltar, but at the last moment the ship was divert- ed to Cagliari, Sardinia. From there, he was told to take the ship to Setubal, Portugal, to await an arms cargo from Defex. The cargo at Setubal was not ready for loading, and Herup was instructed to return to Copenhagen, where he arrived on July 4.13' The Erria then was ordered to Szczecin, Poland, where it arrived on July 10. The cargo it picked up was marked "machine parts," but actually consisted of 158 tons of Communist-bloc weapons, including AK- 47 assault rifles, hand grenades, mortars, and a variety of ammunition.132 The shipment was consigned to Energy Resources International, an Enterprise compa- ny. The Erria's next stop was Setubal, Portugal, where on July 19, it loaded an additional 222 tons of arms from Defex Portugal in the presence of Parlow and Clines.133 Herup was told to set his course for a Central American port. According to Hakim, the total cargo, which he called the "stranded shipment," cost $1.7 million;134 Secord placed the cost at about $2.4 million.'" En route to Central America, Parlow called Herup and told him to stop the ship: Congress was in the process of repealing the Boland Amend- ment. The vessel sat in the water for 4 days. Captain Herup then was ordered to return to Portugal, where he was met by Clines.' 36 The Enterprise decided to find a buyer for the 380- ton cargo of arms now on board the Erria. Defex sold the arms to an intermediary for $1.2 million. The intermediary, in turn, sold the cargo for $2,156,000 (including transportation),137 to the CIA, which did not want to deal with the Enterprise because of Clines' involvement. The arms were transferred from Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 the Erria to another ship on September 20 for deliv- ery to the CIA.'" Hakim and Secord continued their efforts. Herup was ordered to take the now-empty Erria to Haifa, Israel, where it was to receive a new shipment of arms. So as not to run afoul of the Arab boycott, the name of the ship was altered to read, "Ria," and false entries were placed in the Captain's log. On October 13, at Haifa, Herup loaded a crate containing eight tons of Eastern Bloc arms that Nir had promised for the Contras. The captain also had been told he was to pick up pharmaceuticals for Iran. No pharmaceuticals were loaded. Herup was then ordered to go to Fujairah in the Gulf of Oman. The Iranians had promised North two Soviet T-72 tanks, but after the Erria waited 6 weeks in the Gulf, the plan failed to materialize. On Decem- ber 9, Herup was ordered to open the Israeli crate. He found only 600 well-used AK-47 assault rifles and 15 cases of ammunition?valued at approximately $100,000?a cargo not worth transporting to Central America.' 3 9 After the revelations of the Iran-Contra covert op- erations in November 1986, Clines or Hakim ordered the Erria on December 14 to return to Eilat, Israel, where the crate of weapons that had been received in Haifa were unloaded. The Erria returned to Denmark later in December. Its missions on behalf of the Enterprise were at an end. Conclusion The Erria was in a sense a metaphor for the other operations of the Enterprise?ventures that began with ambitious expectations but accomplished noth- ing. But the fate of these ventures cannot obscure the danger of privatization of covert operations or the fact that the participants in the Enterprise had auda- cious plans for covert operations. Had the architects of the other operations been emboldened by success, and not frustrated by failure, the Committees can only conjecture, with apprehension, what other uncon- trolled covert activities on behalf of the United States lay in store. 369 77-026 0 - 67 - 13 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 Chapter 23 I. North Test., Hearings, 100-7, Vol. 1, at 140. 2. North Test., Hearings, 100-7, Vol. I, at 314-15; Ex. OLN 328. 3. Hickey Int., 6/8/87. 4. Id. 5. McFarlane to Shultz, Weinberger, Smith, Casey, Vessey, Subj. "Hostage Locating Task Force," 2/13/85. See also: Poindexter to Shultz, Weinberger, Meese, Casey, Crowe, Subj. "Revised Terms of Reference (TOR) for Hos- tage Locating Task Force (HLTF)," 12/20/85. 6. Lawn Dep., 8/20/87, at 8-9, 11. 7. Id. at 41-42. 8. Special Enforcement Operation Account (SE0 471); Azzam Int., 5/26/87. 9. Lawn Dep., 8/20/87, at 7-8. 10. Id. at 49. 11. Lawn Dep., 9/20/87, at 49. 12. Azzam Int., 5/26/87. 13. Agent 1 Dep., 8/28/87, at 56-57. 14. Hickey Int., 6/9/87. 15. Azzam Int., 5/26/87. 16. North Notebooks, 3/12/85, Q1168. 17. Id. 18. Id. Q1168-69. 19. Agent 2 denied that the DEA operations involved ransom. Agent 2 Dep., 8/12/87, at 188. He stated that the large payments were "bribes" and could not be ransom because "[a] ransom has to be solicited." (Id. at 193). In discussing the $1 million per hostage figure that was con- templated for the May 1986, rescue effort (see below), Agent 2 maintained that this money was intended only for those who were "corruptible." (Id. at 196). Agent 2 also testified, however, that he could not be sure that some of these monies would not be given to the individuals were responsible for the kidnappings. (Id. at 194). Agent 2 testi- fied that the possibility that the payment of monies would create an incentive for more kidnappings was discussed and it was concluded that "[w]e'd just have to take our shot." (Id. at 199). 20. Agent 1 Dep., 8/12/87, at 14. 21. C9300, CIA document: Agent 1 Dep., 8/12/87, at 32. 22. C9296-C9300, C9299, C9297-98, C9296. 23. Azzam Int., 5/26/87. 24. Id. 25. Id. 26. Earlier Perot had tried to donate a plane to DEA which Azzam had refused. Azzam was therefore aware of Perot's efforts to aid law enforcement. Id. 27. Id. 28. C9259. 29. Azzam Int., 5/26/87. 30. C9282-84, CIA Report on Buckley Proof dated May 15, 1985. 31. Azzam Int., 5/26/87. 32. C9282-84, CIA Report on Buckley Proof, dated May 15, 1985. 33. Azzam Int. 5/26/87. 34. Clair George Test., Hearings, 100-11, at 235-236; See also Clair George Dep., 4/24/87, at 60. 35. Agent 1 Dep., 8/12/87, at 62-64. 36. North Notebooks, 5/22/85, Q1854-56. 37. Id., Q1855. 370 38. Id. 39. North Memo, 6/7/85, to McFarlane, at 2; Ex. 38A (RCM). 40. Id. 41. Clair George Dep., 4/24/87 at 57-58. 42. Ex. 38A. (RCM). McFarlane testified that he never discussed this matter with the President. 43. McFarlane Test., Hearings, 100-2, at 45. 44. McFarlane Test., Hearings, 100-2, at 45. 45. Poindexter Test., 7/15/87 at 187; 7/17/87, at 148. 46. Ex. EM-2, Hearings. 47. Yet, when asked by the House Judiciary Committee on March 5, 1987, if he knew of the plan, the Attorney General testified he knew only that the DEA agents were collecting information. (Meese Test., House Committee on the Judiciary, March 5, 1987, Ex. EM-5, at 54-55.) Howev- er, in testimony at the Joint Hearings, Meese claimed he was unaware only of any "ransom" plan as opposed to plans to bribe foreigners. (Meese Test., 7/29/87, at 222-23.) Meese repeated his prior testimony that he was not aware of the operational role of the DEA agents, although the memo he received from North stated that the agents would rent a safehouse and open a bank account. (Id.) The Attor- ney General did not consider such activities to be oper- ational, although the head of the DEA, John Lawn, does. (Lawn Dep., 8/20/87, at 49.) 48. Lawn Dep., 8/20/87 at 10-11. 49. Agent 1 Dep., 8/12/87 at 85-86. 50. Agent 1 Dep., 8/28/87 at 47-50. 51. Agent 1 Dep., 8/12/87 at 79. 52. Agent 1 Dep., 8/28/87 at 95-97. 53. Brother Int., 6/3/87. 54. Agent 2 Dep., 8/12/87 at 94; North Notebooks, 6/6/85, Q1895. 55. Agent 1 Dep., 8/28/87 at 99-102. 56. Agent 1 Dep., 8/28/87 at 106. 57. The Hostage Location Task Force is to be distin- guished from the Hostage Locating Task Force referred to earlier. The former was a short-term entity headed by Charles Allen and included staff members on loan from other agencies. Some of these staff members worked full- time and were physically located at CIA. Its purpose was to define the options available to deal with the hostages held in Lebanon. (DIA Major Dep., 7/2/87, at 48). The Hostage Locating Task Force, by contrast, was an interagency group that met only periodically. Its purpose was to share information relating to hostages. (Id. at 8). 58. DIA Major Dep., 7/2/87, at 35. 59. DIA Major Int., 6/10/87. 60. Id. at 43. 61. Id. at 74. 62. Id. at 73. 63. DIA Major Int., 6/10/87. 64. Agent 1 Dep., 8/28/87, at 131-32. 65. DIA Major Int., 6/10/87. 66. Allen Dep., 4/21/87, at 93-94. In fact, Allen told FBI Executive Assistant Director Oliver "Buck" Revell in April 1987, that he did not even know the DEA agents. (Memo from Revell to Webster dated May 7, 1987, FB002889-90; Revell Dep. 6/11/87 at 29.) Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 67. The Major assumed that North meant that the Presi- dent was willing to commit illegal acts to gain the release of the hostages. The Major did not believe the statement. DIA Major Dep., 7/2/87, at 101-02. 68. DIA Major Dep., 7/2/87, at 128. 69. Id. at 128. 70. N7437, DIA Major Hostage Memo. 71. DIA Major Dep., 7/2/87, at 115-17. 72. N7437, DIA Major Hostage Memo. 73. DIA Major Dep., 7/2/87, at 117. 74. Id. at 142. 75. Agent 2 Dep., 8/12/87, at 188. Agent 2 testified that the operation was planned to occur in the May-June time frame and that he kept North apprised of developments. Id. at 204. Secord testified that North enlisted him to assist in the DEA effort "just before" the Tehran mission began. Secord Test., Hearings, 100-1, 5/6/87, at 111. 76. Agent 1 Dep., 8/28/87, at 136-37. 77. The bank records of Hyde Park Square Corp., one of the corporations within the Enterprise, disclose a withdraw- al on May 19, 1986 of $30,150. 78. Agent 1 Dep., 8/28/87 at 138. 79. Agent 1 Dep., 8/28/87, at 147. In an apparent refer- ence to the Sixth Fleet, Agent 1 speaks erroneously of North obtaining assistance from "The Seventh Fleet or something like that." 80. North had pursued a similar course in an attempt to obtain the release of Peter Kilburn, an American citizen who was the librarian at the American University in Beirut. Kilburn was kidnapped on November 30, 1984, by a differ- ent group. A source indicated in the summer of 1985, that he could gain access to Kilburn in exchange for cash. North turned to Perot to provide $100,000 in cash and eventually $1 million to obtain Kilburn's release. This time, Coburn provided $100,000 in cash, all of which was eventually given to the intermediary. Kilburn was killed by his captors after the U.S. bombing raid on Libya on April 15, 1986, before the rescue attempt could be carried out. 81. See also Erria Section. 82. McFarlane Dep., 7/2/87 at 82. 82a. President to Perot Letter, 6/11/86, N4247. 83. Lawn Dep., 8/20/87, at 53. 84. The DEA agents had other experiences with people involved with North's network. Sometime in 1986, Fawn Hall asked Agents 1 and 2 to meet with Michael Ledeen. They met at Ledeen's office. Ledeen told them he was a very good friend of North's. Ledeen said he had a $30,000 contract with Continental Airlines and he wanted to know how he could stop DEA from seizing their airplanes if cocaine was discovered on board. (Id. at 170.) The agents arranged for Ledeen to meet the DEA regional director in Miami regarding the problem. Robinette told them, on an- other occasion, that he was retained by Clines to investigate a civil suit filed against Clines and others alleging assassina- tion plots and drug dealing in Central America. (Id. at 158.) Agent 1 told him he knew very little about the drug situa- tion down there. Later, Robinette called him to ask him to check out Ted Shackley. Agent 1 referred him to his broth- er for investigative work. In December 1986, Albert Hakim called Agent 3 in Switzerland. Hakim told Agent 3 that he had an Iranian business associate who was in the hospital construction business who had to accompany him to the United States on business. (Agent 3 Dep., 5/13/87, at 60.) Hakim asked if Agent 3 could assist this Iranian in getting a visa to the United States. Agent 3 said he could not. Agent 3 asked Hakim if he was working for any government agencies, and Hakim said he was still working with the CIA. (Id.) Agent 3 suggested that in that case he should seek CIA assistance in getting his associate travel papers. 85. 31 U.S.C. Sec. 3302. 86. 16 Comp. Gen. 911 (1937). 87. 31 U.S.C. Sec. 3302. 88. McFarlane Dep., 7/2/87, at 78-79. 89. North Test., Hearings, 100-7, Vol. 2, at 185-86; McFarlane Test., Hearings, 100-7, Vol. 2, at 212-13. 90. Meese Test., Hearings, 100-9, at 388. 91. Id., at 10. 92. McFarlane Dep., 7/2/87, at 80. 93. Agent 2 Dep., 8/12/87, at 76-77. 94. Id. at 77. 95. Footnote omitted. 96. Agent 1 Dep., 8/12/87, at 79. 97. Meese Dep., 7/8/87, p. 169. 98. Meese phone Logs; 12/3/86 Richardson's notes, 9089. 99. Lawn Dep., 8/20/87, at 45. 100. Id., at 112-14. 101. Id., at 127. 102. Id., at 115. 103. Footnote omitted. 104. George Dep., 4/24/87, at 63. 105. McMahon Dep., 6/1/87, at 69. 106. The DEA operation lacked authorization pursuant to a Finding as required under Executive Order 12333. 107. Secord Test., Hearings, 5/7/87 at 188. 108. North Test., 7/8/87, at 32; North Test., Closed Ses- sion, 7/9/87 at 9. 109. North Test., Closed Session, 7/9/87 at 5-11. 110. North Notebooks, 1/9/86, Q1429. 111. North Test., Closed Session; July 9, 1987 at 5-8, 11. North testified about the projects in Executive Session of the Committees. 112. Poindexter Test., 7/15/87 at 144-145. 113. North to Poindexter, memorandum, "Follow-on Meeting with Amiram Nir," September 15, 1986, N2927. 114. See generally Poindexter Test., 7/15/87, at 160-64; Ex. JMP 58; Ex. OLN 303. 115. North Notebooks, 11/19/85, Q1319. 116. North, PROF note, 6/3/86 at 1142-43, to Poin- dexter, N12543. 117. North Closed Test., 7/9/87, at 64. 118. DIA Major Dep. 7/2/87, at 9-14; U.S. Congress, House Select Committee to Investigate Covert Arms Trans- actions With Iran, internal memorandum, Robert A. Ber- mingham to John W. Nields, Jr., Subj: Joint Effort to Rescue Peter Kilburn (September 7, 1987); New York Times 3/2/87. 119. North Test., Closed Session, 7/9/87, at 18. 120. North Test., 7/9/87, at 18-19. 121. ER33. 122. Herup Int., 4/29/87, at 1. 122a. Danish law prohibits the sale of arms to states at war. 123. Poindexter Test., 7/15/87 at 149-51. 124. North Test., Hearings, 7/10/87, at 93-95. 125. There was no contact between the two vessels. The unidentified ship followed the Erria for two days and then departed. 371 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I g ? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 23 126. The commercial Bill of Lading shows the destination as a Central American port; however, the true destination of the cargo was a different Central American port. The ship arrived at that port on June 2, 1985. ER0001-02. 127. Dolmy Business, Inc., was organized as a corpora- tion under the laws of Panama, on September 11, 1985. ER03-09; ER10-12. See also: the Memorandum of Agree- ment and Bill of Sale covering the Erria. ER13-17; ER18- 19. 127a. OLN Ex.-286. 128. C9605. Items for discussion at DCI meeting with Poindexter on 5/15/86. 129. N43472 (Memo from Cannistraro to Poindexter "Agenda for weekly meeting with DCI," 5/14/86.) 130. See summary log of the Erria, at ER0021; Erria log book, at ER0023-30; and ship's position May 23-29, as re- flected on page 14 of the Erria log book, at ER0031. 131. At this point, Albert Hakim and Dolmy Corporation owed SA Chartering $32,000 for fuel and wages, and it was for the purpose of collecting this debt that Tom Parlow directed Captain Herup to return to Copenhagen. Parlow sent a telex to CSF, stating falsely that SA Chartering had the vessel impounded for non-payment of account. CSF 372 then promptly wired money to SA Chartering which was drawn against Dolmy's Credit Suisse account. 132. Herup, Int., 4/29/87 at 68; Staff memo on Coastal Freighter Erria, 3/4/87, at 5; "National Syrian tied to North." B. Sun, 4/20/87, at 1A, 9A. 133. Staff memo on Coastal Freighter Erria, 3/4/87, at 5. 134. See Chapter 22. 135. SC4104, Secord letter to Liman and Nields, "Arms Sales Profit Analysis." at 2. 136. Herup Int., 4/29/87, at 6-7. 137. Staff memo on Hakim/Secord ownership of Erria arms cargo, 4/30/87, at 2; C4803-C4807, H87. The CIA did not get the whole cargo for that price. Some of the muni- tions were diverted by the intermediary, for use by North for other covert activities. 138. The transfer of the Erria's cargo took place in Cher- bourg, France. Five of the ship's containers were destined for one U.S. port, and 22 containers were destined for another U.S. port. See loading diagram at ER34. The rele- vant shipping documents, including cargo declaration, mani- fest, identification of crew, etc., at ER35-42, ER43-4. 139. ER32. See also Herup Int., 4/29/87, at 10. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part VI Conclusions and Recommendations Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I] . , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 Covert Action in a Democratic Society The Iran-Contra Affair raises fundamental and trou- blesome questions about the secret intelligence oper- ations of the U.S. Government. Can such operations, and particularly covert action, be authorized and con- ducted in a manner compatible with the American system of democratic government and the rule of law? Is it possible for an open society such as the United States to conduct such secret activities effec- tively? And if so, by what means can these operations be controlled so as to meet the requirements of ac- countability in a democratic society?1 These questions became the center of public debate in the mid-1970s, after revelations of controversial Central Intelligence Agency (CIA) activities and ex- tensive investigations by a Presidential Commission and Select Committees of the House and the Senate.2 The result of those inquiries was a concerted effort by the executive and legislative branches to adopt laws and procedures to control secret intelligence ac- tivities, including covert actions, and to ensure that they would be conducted only with the prior authori- zation of the President and timely notice to Congres- sional committees specially constituted to protect the secrecy necessary for effective operations. Experience has shown that these laws and proce- dures, if respected, are adequate to the task. In the Iran-Contra Affair, however, they often were disre- garded. The flexibility built into the legislation and rules to allow the executive branch to deal with ex- traordinary situations was distorted beyond reasonable bounds. Laws intended to reflect a spirit of comity between the branches were abused when that commit- ment to cooperation was abandoned. The Director of the Central Intelligence Agency, William J. Casey, and other Government officials showed contempt for the democratic process by with- holding information that Congress was seeking and by misrepresenting intelligence to support policies advo- cated by Casey. What is Covert Action? The term "covert action" refers to a specific type of clandestine activity that goes beyond the collection of secret intelligence.3 It is an attempt by a government to influence political behavior and events in other countries in ways that are concealed. Covert action is not defined in statute. Executive Order 12333, however, issued by President Reagan in 1981, refers to covert action as special activities which are defined as: Special activities mean activities conducted in support of national foreign policy objectives abroad which are planned and executed so that the role of the United States government is not apparent or acknowledged publicly, and func- tions in support of such activities . . . .4 This definition excludes diplomatic activities, the collection and production of intelligence, or related support functions. The Executive order also provides that the authorized special activities may not include activities that are "intended to influence United States political processes, public opinion, policies, or media."5 Peacetime covert action became an instrument of U.S. foreign policy in response to the expansion of Soviet political and military influence following World War II. The overt U.S. policies at that time included the commitment of military assistance under the Truman Doctrine, the surge of economic aid through the Marshall Plan, the efforts to establish a democratic regime in West Germany, and the dramat- ic airlift to break the Soviets' Berlin blockade. Ac- companying the overt policies were covert actions designed to counter Soviet political influence and to prepare for behind-the-lines resistance in case of a Soviet invasion of Europe. When a Communist-orga- nized coup overthrew the Government of Czechoslo- vakia in February 1948, and a series of general strikes orchestrated by Communist-controlled labor unions swept Western Europe, U.S. officials decided that this covert political action and support should be intensi- fied to reinforce the still-fragile free institutions of the postwar world.? In this atmosphere, President Truman directed the development of a covert action capability. A 1948 National Security Council Directive, NSC 10/2, de- fined covert actions to be: 375 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 24 propaganda; economic warfare; preventive direct action, including sabotage, anti-sabotage, demoli- tion and evacuation measures; subversion against hostile states, including assistance to underground resistance movements, guerrillas and refugee lib- eration groups, and support of in digenous anti- communist elements.' Since 1948, U.S. covert actions have included most of these activities. What makes such activities "covert" is not their effect, but their implementation in a manner permit- ting "plausible denial," a concept that NSC 10/2 also codified. U.S. action in support of indigenous groups were to be: so planned and executed that any U.S. govern- ment responsibility for them is not evident to unauthorized persons and that if uncovered the U.S. Government can plausibly disclaim any re- sponsibility for them.8 This concept was an important element in the meas- ures which the Truman and Eisenhower Administra- tions implemented to strengthen democratic trade unions, the fledgling postwar political parties, and the free press in the war-ravaged parts of the world. For American support had its own danger: it might have tainted the recipients and exposed them to charges of being in the service of "Yankee imperialism." Means had to be found to camouflage the American connec- tion. Financing and other support, in case of unwel- come publicity, was to be nonattributable to the U.S. Government, and allegations about such support were to be deniable in a plausible manner. As originally defined in NSC 10/2, "plausible denial" meant concealing the U.S. Government's role from unauthorized inquiry?not avoiding responsibil- ity and accountability to other agencies of the Gov- ernment, including Congress. One of the main issues identified by Congressional investigations in the mid- 1970s, however, was the misuse of "plausible denial." Covert Action and the Law Covert action operations pose challenges for the polit- ical processes of the United States. As with other secret intelligence programs and more sensitive de- fense projects, appropriations and expenditures of these operations must necessarily be kept from the public domain. Thus, covert assistance to foreign gov- ernments and groups does not receive the open debate other assistance programs do. Paramilitary covert actions are in the "twilight area"" between war, which only Congress can de- clare, and diplomacy, which the President must manage. This type of activity is especially trouble- some as a constitutional separation of powers issue. While covert actions can be legitimate instruments of foreign policy, they can, if inconsistent with the 376 national policy, undermine U.S. interests abroad. Even if the covert action is consistent with U.S. policy, disclosure sometimes can be harmful to U.S. interests.11 The executive and legislative branches have agreed that covert actions must be subject to specific legal controls. Statutes, executive orders, and national secu- rity directives establish a framework for the authori- zation and conduct of these activities. The system was intended to insure careful review and accountability and to meet the practical need of securing political support. The National Security Act of 194712 created both the National Security Council (NSC) and the Central Intelligence Agency. The law authorized the CIA to advise the NSC on intelligence matters, to correlate and evaluate intelligence, and "to perform such other functions and duties related to intelligence affecting national security as the National Security Council may from time to time direct." While Congress has never provided specific authority for the CIA or any other elements of the Government to conduct covert actions, it has continued to appropriate funds for these activities. When Secretary of Defense James Forrestal asked the Director of Central Intelligence (DCI) in 1947 whether the CIA was empowered to conduct covert activities, the Director replied that the CIA could do so if the NSC approved the activities and Congress appropriated funds to carry them out." A CIA's legal counsel put it in similar terms: If the President gave us a proper directive and Congress gave us the money, we had the admin- istrative authority to carry out [covert actions]." In 1948, NSC 10/2 established the first administra- tive mechanism for the approval of covert actions at a senior interagency level, with the participation of offi- cials from the White House, the State Department, the Defense Department, and the CIA. The Eisenhower Administration tightened and for- malized procedures for control of covert action by creating the "5412" Committee for the review and supervision of covert activities. The Department of Justice was to review covert action proposals before they were submitted to the NSC. The "5412" Committee of the Eisenhower era became the "303" Committee of the Johnson Admin- istration and the "40" Committee under President Nixon" but the essential procedures remained the same: a proposal for covert action was reviewed and analyzed by an interagency committee, resulting, if approved, in an NSC directive from the President and the review of the expenditure by a Congressional committee. Congressional oversight was by consensus. A series of personal relationships developed between the direc- tors of the CIA and the chairmen of the Congression- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 al Committees dealing with Appropriations and Armed Services." There was trust and mutual respect along with a bipartisan agreement across a broad spectrum of foreign policy, although since the mid-1950s there were pressures from within and outside Congress to establish more clearly defined forms of Congressional oversight for intelligence activities. After public allegations of CIA efforts to "destabi- lize" the Allende regime in Chile," Congress sought to insure Presidential accountability for covert actions and notification of all appropriate Congressional com- mittees, including those on foreign affairs. The Hughes-Ryan Amendment of 1974 provided: No funds appropriated under the authority of this chapter or any other Act may be expended by or on behalf of the Central Intelligence Agency for operations in foreign countries, other than activi- ties intended solely for obtaining necessary intelli- gence, unless and until the President finds that each such operation is important to the national security of the United States." The Hughes-Ryan Amendment also required the President "to report, in a timely fashion, a description and scope of such operations to the appropriate com- mittees of Congress." There were six such committees at that time. Further allegations of CIA involvement in unlawful domestic activities prompted President Ford to estab- lish a commission, chaired by Vice President Rocke- feller, to evaluate certain past CIA practices.19 In January 1975, President Ford indicated "off the record" that he had discovered CIA involvement in assassination conspiracies that "would blacken the reputation of every President after Harry Truman."2? The story did not stay off the record for long and there was a public outcry. Shortly thereafter, the Senate established a temporary Select Committee to Study Governmental Operations with Respect to In- telligence Activities (the Church Committee),2' and the House of Representatives created its own tempo- rary Select Committee on Intelligence (the Pike Com- mittee). 2 2 The investigations by the Church Committee in 1975 and 1976 failed to turn up proof that Presidents had ordered assassinations of foreign officials, but some senior officials indicated it was their belief that some Presidents had secretly approved such activi- ties.23 Many in Congress felt that the problem was not so much that the CIA was undertaking covert action without the proper authority, but that Execu- tive approval had been given in a deliberately ambig- uous manner. Congress responded with the Hughes-Ryan Amend- ment24 which altered the approval process of CIA covert action operations. By requiring that the Presi- dent personally approve all covert actions as impor- tant to the national security, Congress sought to make the President responsible for all covert operations. The U.S. Government might still be able to deny publicly the responsibility for specific actions, but within the Government there would be an accounta- ble source of authority?the President.25 By 1977, both Houses of Congress established per- manent select committees for intelligence oversight. This increased from six to eight the number of "ap- propriate committees" to be notified under the terms of the Hughes-Ryan Amendment." The resolution establishing the Senate Select Committee on Intelli- gence expressed the sense of the Senate that the Com- mittee should be notified of "significant anticipated intelligence activities." The term was intended to ensure that notice of Presidential Findings under the Hughes-Ryan Amendment would occur prior to the implementation of the operation. The Executive branch also established new proce- dural controls over covert action operations. Presi- dent Ford's Executive Order 1190527 set up an NSC Committee to review covert action proposals prior to their submission to the President and to conduct "periodic reviews of programs previously considered" by the Committee." The Committee was composed of the NSC principals, the National Security Adviser, the Attorney General, and the Director of the Budget, or their representatives. An Intelligence Oversight Board was created to assess reports of illegality and impropriety in the ac- tivities of the intelligence community and to report its evaluations directly to the President. The CIA was authorized to carry out covert actions as directed by the President only when these were "within the limits of applicable law." President Carter carried forward similar procedures in his Executive Order 12036, issued in 1978.29 The Carter Order added the provision that designated the CIA as the sole agency to carry out covert action unless the President directed otherwise. It also re- quired that the Congressional oversight committees be kept informed of - "significant anticipated intelligence activities" in a manner consistent with constitutional authorities and duties of the executive and legislative branches. In 1980, Congress replaced the notification provi- sions of the Hugherctkan Amendment by amending the National Stew* Act of 1947 to add a new sec- tion 501 on Corigressional oversight of intelligence activities.3? For the first time, the language on notice of "significant anticipated intelligence activities" was written into law. Under the new law, notification had to be given only to the Intelligence Committee of each house, rather than to eight committees. Moreover, in extraor- dinary circumstances affecting the national interests of the United States, the President may choose to limit prior notice to the chairmen and ranking minority members of the Intelligence Committees and the ma- 377 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 jority and minority leaders of the two Houses, a total of eight Members. The law provided that the Committees were to be notified in a "timely fashion" of any covert action for which prior notice was not given." The 1980 report on this provision by the Senate Intelligence Commit- tee states: The Senate Select Committee and the Executive Branch and the intelligence agencies have come to an understanding that in rare, extraordinary circumstances if the President withholds prior notice of covert operations, he is obliged to inform the two Oversight Committees in a timely fashion of the action and the reasons for with- holding such prior notice." According to the Committee report, the law was a compromise intended to codify the "practical relation- ship" that "the Executive Branch and the intelligence oversight committees had developed based on comity and mutual understanding, without confrontation" and thus to "carry this working relationship forward into statute." 3 3 Although the law gave the President some flexibil- ity on notification, there was no exception from the requirement for a Presidential Finding as a precondi- tion to all covert action operations. Presidential ac- countability remained the cornerstone of the system of control over covert actions. When President Reagan took office, he pledged to revitalize U.S. intelligence and to dispel the "suspi- cion and mistrust . . . [that] can undermine this na- tion's ability to confront the increasing challenge of espionage and terrorism." 3 4 As part of the effort to restore confidence, the President issued Executive Order 1233335 in which he eased some of the restrictions on CIA activities. The new order pledged continued obedience to the law and retained the provision that only the CIA could conduct covert actions in peacetime unless the President designated another agency to do so. The Executive Order also applied the Hughes-Ryan Amendment's Finding requirement to all covert ac- tions, not just to those of the CIA." In keeping with standard American political proc- esses, a basic structure of covert action procedures evolved within the law. A system of interlocking stat- utes, executive orders, and national security directives had been established by three successive Administra- tions. Despite occasional problems, this system has proved workable. The Administration has notified the oversight Committees of its proposals including those of great sensitivity in which lives might be in danger in event of disclosure. In fact, "the Committees have received advance notification of every presidential finding but for the two involving the attempted rescue of our hostages in Iran in 1979-80 and the NSC 378 initiative in 1985 and 1986."37 The President and senior intelligence officials have indicated to Congress their satisfaction with the Oversight Committees' role and with the prevailing procedures, which also pro- tect the CIA from charges that its actions are unau- thorized. Indeed, the procedures implemented by the Executive and by Congress preclude the possibility that the intelligence agencies would be blamed for activities for which elected officials might wish to deny responsibility. These mechanisms were a significant achievement of bipartisan, interbranch cooperation. But they re- quired continuing adjustment in light of experience with existing procedures. One such adjustment oc- curred in 1984 following public disclosure of the mining of the Nicaraguan harbors. The Intelligence Committees had not been adequately briefed by the CIA on the anticipated escalation of U.S. involvement in Nicaragua." This subsequently led to an agree- ment between the Senate Intelligence Committee and the Director of Central Intelligence, known as the Casey Accords, formalizing the requirement that the Director report any significant anticipated intelligence activity, including instances in which the activity would be part of an ongoing program." The agree- ment also institutionalized various reporting require- ments to ensure more substantive briefings, improve oversight of broad Findings and bring potential treaty and legal repercussions to the attention of the Mem- bers. For the goals of this system of accountability and oversight to be fulfilled, several steps had to be taken. First, the President had to approve specifically, and accept responsibility for, each covert action by sign- ing a Finding before the operation proceeded. Second, the Congressional Intelligence Committees had to be notified either before the operation began or in a "timely fashion" thereafter. Third, for over- sight of intelligence activities to be meaningful, intelli- gence officials had to respond candidly to Congres- sional inquiries and provide Congress and officials in the executive branch with objective intelligence anal- yses so that proposed actions could be evaluated ob- jectively.40 In the Iran-Contra Affair, the principles of this process of accountability and oversight would get their severest test. Misuse of Findings The Findings process was circumvented. Covert ac- tions were undertaken outside the specific authoriza- tions of Presidential Findings. At other times, covert actions were undertaken without a Presidential Find- ing altogether. Actions were undertaken through enti- ties other than the CIA, including foreign govern- ments and private parties. There were claims that the Findings could be used to override provisions of the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 law. The statutory option for prior notice to eight key congressional leaders was disregarded throughout, along with the legal requirement to notify the Intelli- gence Committees in a "timely fashion." "Stretching" Findings On December 1, 1981, President Reagan signed a Finding that authorized certain covert action pro- grams in Central America, particularly in Nicara- gua." The Finding is directed toward the Cuban presence in Nicaragua and Central America generally. This conflicts with the Administration's explanation of the Finding which emphasized its purpose as the interdiction of arms from Nicaragua to the leftist in- surgents in El Salvador. Yet, under the aegis of this Finding, the CIA provided assistance to Eden Pas- tora's rebel forces in the south of Nicaragua, far from El Salvador. The stated goal of these forces was the overthrow of the Sandinista Government.42 Destabilizing the Sandinistas in Nicaragua was a different goal from arms interdiction to El Salva- dor." Director Casey, however, declined to seek a new Finding that properly distinguished between these two objectives. If a Finding signed by the President and presented to the Intelligence Committees for one purpose can be used for another, the Finding and notification process- es become meaningless. In fact, while Casey was Di- rector of Central Intelligence, CIA personnel attempt- ed to craft Findings in terms so broad that they would not limit the CIA's freedom to act.44 Judge Sporkin, the General Counsel of the CIA, analogized the formulation of Findings to the preparation of a securities prospectus where the corporate purposes are broadly stated to give management discretion to carry out a wide range of activities.45 Viewed in this way, a Finding becomes a blank check for the intelli- gence agency and defeats the notion of Presidential accountability under the Hughes-Ryan law. At this point, it ceases to be a self-limiting document confined to a specific program. Dispensing with Presidential Findings In reaction to the adoption of the second Boland Amendment in October 1984, the NSC staff took an increasingly active role in support of the Contras. The NSC staff raised money for the Contras and, with Richard Secord's assistance, created an organization outside the Government to procure arms and resupply the Contras." While the President has said that sup- porting the Contras was his own idea,47 he told the Tower Board that he was unaware that the NSC staff was directly assisting the Contras." In any event, there was no Presidential Finding authorizing these activities. National Security Adviser Robert C. McFarlane testified that he was unaware of the mag- nitude of Oliver North's operation" although both North and Admiral John M. Poindexter disputed McFarlane's denials.5? Efforts coordinated by North to ransom hostages constituted another instance in which the legal re- quirements for a Finding were dispensed with. This was in contravention of the President's own directive, Executive Order 12333, which provided specifically that all covert actions be contained in Presidential Findings. Not only was a Finding dispensed with, but funds to support the operation were raised from pri- vate sources. The operation was pursued despite the objection of CIA and some DEA officials, and Con- gress was not notified. There was also no written Finding when the CIA became involved in the covert shipment of arms to Iran in 1985. As McFarlane subsequently expressed, "Nile President was all for letting the Israelis do whatever they wanted to do."51 In November 1986, McFarlane asserted that the Attorney General had opined that U.S. participation in the initial Israeli shipments could be justified on the grounds that the President had made a "mental Finding."52 The Attor- ney General testified to his view that the President's concurrence was tantamount to an oral Finding and thus sufficient legal authorization for the program." The December 1985 Finding sought to authorize retroactively the CIA-assisted shipment of arms in November 1985. It was drafted after the shipment was made; presented to the President at the request of Casey and urging of CIA Deputy Director John McMahon; and then signed by the President without the normal full staffing of relevant senior Administra- tion officials.54 This process ignored a central pur- pose of the Finding requirement which is to ensure that the President fully authorizes a covert action before it begins and is accountable for its implementa- tion.55 Further, the "unless and until" language of the Hughes-Ryan Amendment clearly required a Finding before the CIA could proceed. The use of Findings to ensure Presidential responsi- bility for covert action operations also was disregard- ed in the diversion of money from the Iran program to the Contras, which itself was never authorized by a Finding. Neither the January 17, 1986, Finding relat- ing to the Iran arms sales, nor any Finding relating to assistance to the Contras authorized the diversion of funds. Poindexter testified that he believed the diver- sion would become politically controversial if ex- posed, so he decided not to tell the President in order to give him "deniability."56 Poindexter testified that he destroyed the only signed copy of the December 1985 Iran Finding in November 1986 to spare the President political ern- barrassment.57 However, when the President signed that Finding?which was written as a straight arms- for-hostages operation?he accepted responsibility for his decision. Along with that responsibility came the risk that the public might disapprove of the decision if 379 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 it were ever revealed. In destroying the record of the President's post hoc approval of the November 1985 shipment, Poindexter also sought to destroy the proof of Presidential accountability that the law seeks to achieve. Using Findings To Avoid Laws At times, certain members of the Administration used Findings to avoid legal requirements. A project to stockpile weapons for the Contras is a case in point. In the summer of 1983, the CIA feared that Con- gress might refuse to appropriate funds for the Con- tras in the next fiscal year 1984. The Agency thus devised a way of bypassing the appropriations proc- ess: the Department of Defense (DOD) would secret- ly transfer military equipment to the CIA without charge. The Agency would then dispense the equip- ment to the Contras in the following fiscal year even if Congress cut off aid. To justify its request, the CIA pointed to the broad Presidential Finding authorizing assistance to the Contras even though nothing was said in that Finding about a donation of DOD materi- el to the Contras through the CIA. The Finding that was supposed to enhance control over covert action operations was invoked to justify an evasion of one of the Constitution's most funda- mental safeguards, the dependence of the executive branch upon Congress for specific appropriations. In the end, the proposal was not implemented because DOD would not transfer the equipment to the CIA free of charge. In the Iran initiative, the Administration also used the Finding to avoid compliance with the laws regu- lating the export of arms. When the January 17, 1986, Iran Finding was under consideration, CIA, DOD, and Justice Department lawyers addressed the ques- tion of whether the Finding could authorize CIA arms transfers without regard to the restrictions on arms transfers under the Foreign Assistance Act and the Arms Export Control Act. In 1981, Attorney General William French Smith had taken the posi- tion?based on an analysis by the State Department Legal Adviser?that the restrictions of those statutes applied only to transfers undertaken pursuant to them; the President, however, could approve a transfer "outside the context of those statutes" by utilizing the Economy Act and the National Security Act.58 Nonetheless, the Smith opinion recognized the Con- gressional reporting requirements applicable in any event, and specifically concluded that "the House and Senate Intelligence Committees should be informed of this proposal and the President's determinations."'" When the Smith opinion was considered in the con- text of the Iran Finding in January 1986, its require- ment of at least some form of prior Congressional notification was ignored. Instead, a memorandum from Poindexter to the President describing the Find- 380 ing characterized that opinion as concluding "that under an appropriate finding you could authorize the CIA to sell arms to countries outside of the provisions of laws and reporting requirements for foreign mili- tary sales."'" Poindexter's memorandum recommend- ed to the President "that you exercise your statutory prerogative to withhold notification . . . to the Con- gressional oversight committees until such time as you deem it to be appropriate."81 Later in 1986, after the Iran Finding was executed, the Arms Export Control Act was amended to ban all arms exports under the Act to countries that support- ed terrorism, unless there was a Presidential waiver and a report to Congress." Administration officials, however, continued to rely on the Finding as the controlling authority, despite the fact that Iran was a designated terrorist country. The former General Counsel of the CIA testified that under the Administration's interpretation, a Find- ing would justify arms transfers that occurred even after the 1986 amendment. Q. "The impression was left somehow that if we decided to go 'black' or covert, we don't have to comply with other provisions of the law. Would that be your interpretation as well?" A. "Well . . . they give the President an oppor- tunity to, through a different regime, to do it that way, so that you can avoid the other problems. Yes. I think that is an accuracy." Q. "I have some difficulty with that interpreta- tion because there is nothing in the Hughes-Ryan Act which suggests that somehow [a Finding] would preempt the other provisions of the law. . . . If we had the Arms Export Control Act, had a flat prohibition on the sale of arms to countries who sponsor terrorism and we listed Iran as one of those countries that sponsor terror- ism, could the President legally sign a covert action [finding] permitting the CIA to ship arms to Iran?" A. "I think that is what we said in this case. . . . I mean that was the interpretation that you could have that, that [it] could be done. That is what covert action is, Senator. It is an ability of the Government. You see you are not defeating anything because the system requires there be no- tification to Congress."" It is unreasonable, however, to interpret the Smith opinion as providing a justification for avoiding all of the various requirements of the Arms Export Control Act and the National Security Act. Moreover, Execu- tive Order 12333 does not, and legally could not, authorize U.S. intelligence agencies to conduct activi- ties in violation of the laws of the United States." The argument that covert action pursuant to a Find- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 ing may proceed without regard to certain statutory restrictions applicable to other Government programs is not the same as an argument for exemption from all Federal statutes. Moreover, the Administration also used the January 17 Iran Finding to override statutory Congressional notification provisions. As explained above, the Presi- dent was informed that this new Finding could justify arms transfers without any prior notification to Con- gress, including the limited notification to the chair- men and ranking minority members of the Intelligence Committees and the majority and minority leaders of the two Houses. At best, the President was given misleading advice. Findings were intended to subject covert action to the accountability of the constitution- al system, not to supplant law. Not Playing It Straight With Congress The concept of Presidential responsibility was not the only principle undercut during the Iran-Contra initia- tive. Accountability to Congress for intelligence oper- ations also was ignored. For Congress to exercise its constitutional and statutory responsibility for over- sight, it must first be notified of significant intelli- gence activities and then be given truthful and com- prehensive information about them. Misleading Testimony Congress was not notified of either the Iran initia- tive or the NSC staffs covert operation in support of the Contras. Senior intelligence officials, including the Director of Central Intelligence, misled Congress, withheld information, or failed to speak up when they knew others were giving incorrect testimony. For example, Clair George (CIA Director for Op- erations), the CIA's Chief of Central America Task Force (C/CATF), and Elliott Abrams (Assistant Sec- retary of State), testified in October 1986, before the House Permanent Select Committee on Intelligence (HPSCI) on the shooting down of the Hasenfus flight. Abrams testified that the U.S. Government was not involved in the Hasenfus operation.65 George and the C/CATF knew that the testimony was incorrect, but neither corrected Abrams. George later apologized to the Select Committees: I was surprised that Abrams made that statement. It was so categorical. The question is, should I step up and say "hold it, Elliott, what about? excuse me, all you members of the HPSCI, but Elliott and I are now going to discuss what we know about" and I didn't have the guts to do it or I didn't do it.66 George's own testimony to the Senate Foreign Re- lations Committee also was inaccurate. Unaware of the activities of one of his field officers, he stated that the CIA was not involved "directly or indirectly in arranging, directing, or facilitating resupply missions conducted by private individuals in support of the Nicaraguan democratic resistance."67 Similarly, the C/CATF told the Select Committees that his testimo- ny at the same was "narrowly defined,"68 thus rein- forcing the impression that U.S. officials had no role in the private resupply operation. He explained that he: could have been more forthcoming to the [Senate Foreign Relations] Committee, but I frankly was not going to be the first person to step up and do that . . . so long as others who knew the details, as much as I, who knew more than I, were keep- ing their silence on this, I was going to keep my silence. 6 9 He elaborated: "I was a member of the team, I was a member of the Administration team . . . my frame of mind was to protect, was to be a member of the team . . . and to do it without lying, try to go through as best we could."7? While the C/CATF maintained that he was able to give technically cor- rect answers, he conceded that he knew that the testimony of George and Abrams was mistaken. He testified that his loyalty to the Administration pre- vented him from correcting the record when the Committees suggested that he place his allegiance above his responsibilities as a professional intelligence officer. The C/CATF explained that Congress' re- quest for information put him in a "giant nutcracker" between the Administration, to which he felt a pri- mary duty, and Congress, which counted on the CIA to provide objective information." A pattern developed in the CIA of not seeking information that could cause problems for Administra- ton policy if it had to be revealed to Congress. When CIA stations abroad reported on General Singlaub's efforts to purchase arms and ammunition for the Con- tras, North reported to McFarlane on February 6, 1985, that "[two countries] have indicated . . . that they want to help in a 'big way'. Clair George (CIA) has withheld the dissemination of these offers and contacted me privately to assure that they will not become common knowledge."72 Deputy Director Gates told the Senate Intelligence Committee: "Agency people . . . from the Director on down, actively shunned information. We didn't want to know how the Contras were being funded . . . we actively discouraged people from telling us things. We did not pursue lines of questioning."73 When Gates first heard Charles Allen's suspicions that a diversion of funds had taken place, his "first reaction was to tell Mr. Allen that I didn't want to hear any more about it." 7 4 Thus, when witnesses appeared before the Intelli- gence Committees, they could deflect inquiries be- cause they had consciously chosen to avoid knowl- 381 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I] ?.l 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 edge. This turned upside down the CIA's mission to collect all intelligence relevant to national security. Such behavior is both self-destructive and corrosive of the democratic process. It is self-destructive be- cause the intelligence agencies are dependent on Con- gressional support, which is undermined by a lack of candor. It is corrosive of the democratic process be- cause Congress is prevented by such activity from obtaining the information necessary to fulfill its con- stitutional oversight functions. As Clair George point- ed out, once members of the intelligence agencies begin to deceive others in the Government, "the de- struction of a secret service in a democracy" must follow. He added, "I deeply believe with the com- plexities of the oversight process in the relationship between a free legislative body and a secret spy serv- ice, that frankness is the best and only way to make it work."7 5 Misuse of Intelligence The democratic processes also are subverted when intelligence is manipulated to affect decisions by elect- ed officials and the public. This danger is magnified when a Director of Central Intelligence, like Casey, becomes a single-minded advocate of policy. Al- though Deputy Director of Central Intelligence, John McMahon testified that no such intelligence manipula- tion took place, there is evidence that Director Casey misrepresented or selectively used available intelli- gence to support the policy he was promoting, par- ticularly in Central America. For example, in the first week in January 1986, an all-source CIA analysis stated that while problems with supplies were hampering the Contras' strategy of forcing the Sandinistas to fight on more than one front, "[t]he insurgents have adequate weapons and ammunition and . . . problems with food supplies appear to have eased since U.S. funding [is] available to buy and transport food locally."76 But that posi- tive evaluation of the Contras' position was not raised during a January 9, 1986, "NSC Pre-Brief."77 In addi- tion, notes taken during that meeting reflect that Di- rector Casey chose to ignore the CIA assessment and said, he "wants to make the insurgency choice stark? either we go all out to support them or they'll go down the drain."78 Intelligence misrepresentations for policy purposes occurred in the spring of 1986, when the Sandinistas pursued Contra fighters into Honduras. Such raids had periodically occurred since mid-1985. Neither Honduras nor the United States made an issue of these incursions because they were limited in scope and aimed at the Contras. At that time, the Sandinista raid was considered routine by the CIA Intelligence Directorate which noted, "[t]he Sandinistas probably believed that there would, as usual, be no Honduran reaction to the incursions and that their forces could quickly move out and return to Nicaragua."79 382 The White House response ignored this assessment, blamed Congress for encouraging the raid, and used the incident to authorize emergency military aid to Honduras. Press spokesman Larry Speakes stated at the daily White House briefing on March 25, 1986: Within 48 hours of the House rejection of aid to the Nicaraguan resistance, Sandinista military units crossed into Honduras in a large scale effort to attack UNO and FDN camps." Actually, the first Sandinistas crossed the border on March 20, the same day as the House action, and began to retreat across the border by March 24, before Speakes gave his briefing.8' They were back in Nicaragua before President Reagan signed the au- thorization for emergency military assistance to Hon- duras. Casey, however, wanted CIA analysts to highlight, rather than minimize, the raid's significance in Agency reports. In an April 3 memorandum, Casey instructed the Deputy Director of Intelligence to use the available material on the Sandinista incursion: to alert the world that the Sandinistas were pre- paring and trying to knock the Contras out while we debated in the U.S. and can have another bigger try if we debate another two weeks.82 The Acting Deputy Director of Intelligence replied on the same date: Pursuant to your note this a.m., DI and DO redrafted the blind memo on the Sandinista Military Actions and Intentions. . . . DIA [Defense Intelligence Agency] wanted to prepare a dissent. DIA has not yet formally submitted its position, but we have been led to understand that its approach will be that the incident represented more a target of opportunity for the Sandinistas rather than being representative of any clear strategy. Also, you should know that in the past we have had some difficulty in coordinating pieces on the fighting with INR (of State Department) which has estimated lower num- bers of troops involved in recent operations.83 Casey subsequently expressed his dissatisfaction with the revised CIA assessment in a memorandum to the C/CATF on April 3: [the DDI material] still does not make the point that this is what is trying to be represented as a target of opportunity and the incursion appears to us to be a long-planned effort designed to knock out the Contra forces quickly. . . .84 Casey then suggested that alternatively his point be incorporated into a memorandum which should be used for the following purposes: Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 a. In Latin American countries "[i]t should be taken to the highest level of government available in the hope that it would either influence those governments to be supportive of the Contra program and upcom- ing debate or at least refrain from undercutting its cause up here."85 b. "A fully sanitized version should be made avail- able to 011ie North, Pat Buchanan and Elliott Abrams for their purposes here. I'll leave it up to you to get the materials on to Elliott, Pat and 011ie."86 Subsequent developments in Honduras confirmed that the Honduras "emergency" was mainly in Wash- ington. On Tuesday, March 25, when President Reagan ordered the emergency military aid, the U.S. Commander in Chief, South, General John Galvin, arrived in Tegucigalpa to assess the situation and pro- vide intelligence and advice to the Honduran govern- ment, President Azcona of Honduras left the capital for a seaside vacation.87 Another example of the selective misuse of intelli- gence occurred in November 1986, after Casey had meetings in several Central American capitals. The local CIA station chiefs attended those meetings and cabled reports of the meetings to the C/CATF, who was to use these cables as the basis for a draft report on the Director's trip. One of the Central American Presidents was criti- cal of U.S. policies, particularly those supporting the Nicaraguan armed Resistance. The U.S. Ambassador in that country told Casey that most Latin American countries opposed U.S. policy in Central America. Yet, the remarks critical of U.S. policy were omitted from the draft trip report prepared for Casey by the C/CATF.88 On November 23, Director Casey discussed his trip to Central America in a letter to President Reagan: "On Thursday, I returned . . . from . . . Central America. I found the commandantes and the fighting men of the FDN in high spirit and ready to go. In stark contrast, the leaders [of Central American coun- tries] were scared to death that we would not stay the course . . . .In fact, one of the leaders refused to meet with Casey, and another was critical of U.S. policies. Casey chose to give the President a distorted picture of the attitudes of the Central American presi- dents effectively reinforcing his own view of what U.S. policy should be. Misrepresentation of intelligence also occurred in the Iran initiative. In memorandums recommending the January Findings, Poindexter told the President that Iran was in danger of losing the war with Iraq. According to Poindexter, Casey, agreed with this as- sessment. Yet, the Secretary of State, the Secretary of Defense, and Clair George all testified that the intelli- gence community was of the opposite view?that Iran had the upper hand in the war. Secretary Shultz asserted that in connection with the Iran initiative, the intelligence "he [the President] was getting . . . was faulty about terrorism."'" The reason, according to Shultz, was that there was a problem of keeping "intelligence separated from policy and control over policy was very much in play and the Director of Central Intelligence wanted to keep himself very heavily involved in this policy which he had been involved in apparently all along."9 1 The misuse of intelligence was a subject ancillary to the mandate given the Committees by Congress. The Committees included these examples because the seri- ous implications they pose for decisionmaking. This misuse of intelligence by a Director of Central Intelli- gence, the National Security Advisor, or any Senior Intelligence official, frustrates the ability of those within the executive branch and Congress to arrive at decisions based upon sound national policy judge- ments. Conclusions Out of necessity, covert activities are conducted, and nearly all are approved and monitored, in secret. Be- cause they are not subject to public debate and scruti- ny, they must be examined carefully within the practi- cal constraints imposed by the need for operational security. It has been the United States' historic achievement to develop a system of law, using stat- utes, executive orders, regulations, notification proce- dures, that provides this scrutiny and protection. The Committees conclude: (a) Covert operations are a necessary component of our Nation's foreign policy. They can supplement, not replace, diplomacy and normal instruments of foreign policy. As National Security Adviser Robert McFar- lane testified, "it is clearly unwise to rely on covert action as the core of our policy."'" The government must be able to gain and sustain popular support for its foreign policy through open, public debate. (b) Covert operations are compatible with demo- cratic government if they are conducted in an ac- countable manner and in accordance with law. Laws mandate reporting and prior notice to Congress. Covert action Findings are not a license to violate the statutes of the United States. (c) As the Church Committee wrote more than a dozen years ago. "covert actions should be consistent with publicly defined United States foreign policy goals."'" But the policies themselves cannot be secret. (d) All Government operations, including covert action operations, must be funded from appropriated monies or from funds known to the appropriate com- mittees of the Congress and subject to Congressional control. This principle is at the heart of our constitu- tional system of checks and balances. (e) The intelligence agencies must deal in a spirit of good faith with the Congress. Both new and ongoing covert action operations must be fully reported, not 383 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .1 1 1 Approved For Release 2011/05/25: CIA-RDP89T00142R00050061060.1-7 Chapter 24 cloaked by broad Findings. Answers that are techni- cally true, but misleading, are unacceptable. (f) Congress must have the will to exercise over- sight over covert operations. The intelligence commit- tees are the surrogates for the public on covert action operations. They must monitor the intelligence agen- cies with that responsibility in mind. (g) The Congress also has a responsibility to ensure that sensitive information from the executive branch remains secure when it is shared with the Congress. A need exists for greater consensus between the Legisla- tive and executive branches on the sharing and pro- tection of information. (h) The gathering, analysis, and reporting of intelligence should be done in such a way that there can be no question that the conclusions are driven by the actual facts, rather than by what a policy advo- cate hopes these facts will be. It has been observed that a country without en- emies has no need of an army or an intelligence agency.9 4 The United States of America, as a great power with worldwide interests, will continue to have to deal with nations that have different hopes, values, and ambitions. These differences will inevitably lead to conflicts. History reflects that the prospects for peaceful settlement are greater if this country has adequate means for its own defense, including effec- 384 tive intelligence and the means to influence develop- ments abroad. Organized and structured secret intelligence activi- ties are one of the realities of the world we live in, and this is not likely to change. Like the military, intelligence services are fully compatible with demo- cratic government when their actions are conducted in an accountable manner and in accordance with law. This country has been fortunate to have a military that is sensitive to the constraints built into the Con- stitution and to the necessity of respecting the Con- gress' responsibilities. This attitude of the military has won the trust of the American people, as George C. Marshall, the Chief of Staff of the Army during World War II, explained to one of his officers: But we have a great asset and that is that our people, our countrymen, do not distrust us and do not fear us. Our countrymen, our fellow citi- zens, are not afraid of us. They don't harbor any ideas that we intend to alter the government of the country or the nature of this government in any way. This is a sacred trust. . . . Like the military, the intelligence services can func- tion only with the trust and support of their country- men. If they are to earn that trust, they must heed Marshall's words.9 5 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 24 Chapter 24 1. For a discussion of these issues, see G.F. Treverton, Covert Action: The Limits of Intervention in the Post-war World (Basic Books 1987). 2. See U.S. Congress, Senate Select Committee to Study Governmental Operations with Respect to Intelligence Ac- tivities, Final Report and Hearings, Book IV: Supplementa- ry Detailed Staff Reports on Intelligence and Military Intel- ligence (GPO 1975-76). 3. The distinction between clandestine intelligence collec- tion and counterespionage, on the one hand, and covert military, political, and economic actions, on the other, is addressed in R.S. Cline, The CIA Under Reagan, Bush and Casey (Acropolis Books, 1981); S. Kent, Strategic Intelli- gence for American World Policy (Princeton University Press, 1966); and L.B. Kirkpatrick, The United States Intelligence Community: Foreign Policy and Domestic Activities (Hill & Wan, 1973). 4. Section 3.4(h), Executive Order 12333, December 4, 1981. Sciaroni Ex. 14, at B116. 5. Id. 6. See C. Meyer, Facing Reality: From World Federalism to the CIA, (Harper and Row, 1980) for a discussion of U.S. covert action in Europe to counter the Soviet political and propaganda offensive during the postwar years. 7. Quoted in W. M. Leary, ed., The Central Intelligence Agency: History and Documents 131-33 (University of Ala- bama Press, 1984). 8. Id. 9. The Senate Select Committee to Study Governmental Operations with Respect to Intelligence Activities (com- monly known as the Church Committee) stated in its 1975 report to the Senate: "Non-attribution to the United States for covert operations was the original and principal purpose of so called doctrine of plausible denial." Evidence before the Committee clearly demonstrates that this concept, de- signed to protect the United States and its operatives from the consequences of disclosures, has been expanded to mask decisions of the President and his senior staff members. A further consequence of the expansion of this doctrine is that subordinates, in an effort to permit their superiors to 'plausi- bly deny' operations, fail to fully inform them about those operations. 'Plausible denial' has shaped the process for approving and evaluating covert actions. For example, the 40 Committee and its predecessor, the Special Group, have served as 'circuit breakers' for Presidents, thus avoiding consideration of covert actions by the Oval Office. 'Plausi- ble denial' can also lead to the use of euphemism and circumlocution, which are designed to allow the President and other senior officials to deny knowledge of an operation should it be disclosed." U. S. Congress. Senate. Alleged Assassination Plots Involving Foreign Leaders, an Interim Report of the Select Committee to Study Governmental Operations with Respect to Intelligence Activities, Report No. 94-465, 94th Congress, 1st Session (1975), at 11. 10. See Youngstown Sheet & Tube v. Sawyer, 343 U.S. 579, 637 (1952), Jackson, J., concurring. "When the Presi- dent acts in absence of either a Congressional grant or denial of authority, he can only rely upon his own inde- pendent powers, but there is a zone of twilight in which he and Congress may have concurrent authority, in which its distribution is uncertain." 11. E.g., Article 18 of the Organization of American States (OAS) Charter, which provides in part that: "No State or group of States has the right to intervene, directly or indirectly, for any reason whatever, in the internal or external affairs of any other State. The foregoing principle prohibits not only armed forces but also any other form of interference or attempted threat against the personality of the State or against its political, economic and cultural elements." 12. 50 U.S.C. Sec. 401 et seq. 13. H. Moses, The Clandestine Service of the Central Intel- ligence Agency, 3-4 (Association of Former Intelligence Offi- cers, 1983). 14. Interview with Lawrence Houston, 7/8/83, quoted in J. Ranelagh, The Agency: The Rise and Decline of the CIA, n.7 at 767 (Simon & Schuster 1986). 15. Ranelagh, at 279-83. 16. W. E. Colby, Honorable Men: My Life in the CIA (Simon & Schuster 1978). 17. Covert Action in Chile, 1963-1973, Committee Print, Staff Report of the Select Committee to Study Governmen- tal Operations with Respect to Intelligence Operations. U.S. Senate. 94th Congress, 1st Session, 1975. 18. 22 U.S.C. Sec. 2422. 19. This resulted in the Report to the President by the Commission on CIA Activities Within the United States (commonly known as The Rockefeller Commission) (GPO 1975). 20. D. Wise, The American Police State (Random House 1976). 21. Hearings and Final Report of the Select Committee to Study Government Operations With Respect to Intelligence Activities, United States Senate, 94th Congress, Vol. 1-7, and Final Report, Books 1-5 (Church Committee). 22. House Select Committee on Intelligence, Recommen- dations of the Final Report of the House Committee on Intelligence (GPO 1976) (Pike Committee Report). 23. U. S. Congress. Senate. Alleged Assassination Plots Involving Foreign Leaders, an Interim Report of the Select Committee to Study Governmental Operations with Re- spect to Intelligence Activities, Report No. 94-465, 94th Congress, 1st session (1985), at 16, 25-26, 65, 67, 117. 24. 22 U.S.C. Sec. 2422. 25. The Church Committee stated: "The concept of plau- sible denial, at least as it applies to the President, within the government 'is dead.' Main new covert operations cannot be undertaken without the knowledge, and approval, of the Chief Executive." Church Committee Final Report, Book I, at 58. 26. Formerly Pub. L. 93-559, Sec. 32, 88 Stat. 1804 (1974). 27. 41 Fed. Reg. 7703 (1976). 28. 43 Fed. Reg. 3674 (1978). 29. 22 U.S.C. Sec. 2422. 30. Senate Report No. 96-730, May 15, 1980, to accompa- ny S. 2284, at 4. 31. Id. at 2. 32. Id. at 12. 33. Id. at 5. 34. Presidential Statement on U.S. Intelligence Activities, 12/4/81, Public Papers of Ronald Reagan, 1981, at 1126-27. 35. Executive Order 12333, 12/4/81, Sciaroni Ex. 14, at B102 16. 36. Section 3.1, Executive Order 12333, December 4, 1981, at B114. 385 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R660560610061-7 Chapter 24 37. U.S. Congress. House Permanent Select Committee on Intelligence, Hearings before the Subcommittee on Leg- islation, H.R. 1013, H.R. 1371, and Other Proposals Which Address the Issue of Affording Prior Notice of Covert Actions to the Congress, 100th Cong., 1st Sess., at 176 (June 10, 1987). 38. Chronology of House Permanent Select Committee on Intelligence and Mining Activities, Internal Memoran- dum. See Chapter 2. 39. C0616-00621, 40. Id. 41. The Finding states: "Support and conduct. . . para- military operations against the Cuban presence and Cuban Sandinista support infrastructure in Nicaragua and else- where in Central America." N44649. 42. Gregg Memo, 7/12/82, to W. Clark: Subj: "Proposed Covert Action Finding on Nicaragua." N44654. 43. Inman Int., 3/16/87, at 6. 44. Sporkin Int., 3/19/87, at 2. 45. Id. 46. See Chapter 22. 47. See New York Times, 5/16/87, at Al. The President stated, "As a matter of fact, I was very definitely involved in the decisions about support to the freedom fighters. It was my idea to begin with." 48. Tower Report, at 111-24. 49. McFarlane Test., 7/14/87, at 201, 221-22; 5/11/87, at 7 25. 50. North Test., 7/7/87, at 24; id. 7/8/87, at 226; id. 7/ 13/87, at 128-30; Poindexter Test., 7/15/87, at 187-88. 51. McFarlane PROF Note, 11/22/86 at 16:56:33, to Poindexter, Ex. EM-41. 52. Prof Note, McFarlane to Poindexter, 11/21/86, N12670. 53. Meese Test., 7/29/87, at 231. 54. Ex. JMP-18; Poindexter Test., 7/15/87, at 43; McMa- hon Dep., 6/1/87, at 94-97. 55. 22 U.S.C. Sec. 2751 et seq. 56. Poindexter Test., 7/15/87, at 94. 57. Id at 44. 58. Letter from William French Smith, Attorney General of the United States, to William J. Casey, Director of Cen- tral Intelligence, 10/5/81, with attachments. N10019-40. 59. Id. 60. Ex. JMP-28. 386 61. Id. 62. Pub. L. 99-399, Sec. 509(a) (Aug. 27, 1986). 63. Sporkin Test., 6/24/87, at 183 (emphasis added). Judge Sporkin had left the CIA before the 1986 amendment was completed. 64. Section 2.8, Executive Order 12333, December 4, 1981. 65. Hearings before HPSCI, 10/14/86. 66. George Test., 8/6/87, at 34. 67. Hearings Before the Senate Foreign Relations Com- mittee, 10/10/86, at 16. 68. C/CATF Test., 8/5/87, at 58. 69. Id., at 62. 70. Id., at 171-75. 71. Id., at 185; George Dep., 8/6/87, at 80. 72. N7015. 73. Gates, Tower Test., 12/4/86, at 38. 74. Id., at 18-19. 75. George Test., 8/6/87, at 175. 76. CIA Special Analysis "Resupply Problems for Insur- gents," at 9 (Jan. 8, 1986), CIIN 1391, TCS 2706/86, C3327. 77. C3315-17. 78. C3315. 79. C4929. 80. Transcript of 3/25/86 Press Briefing. N38896. 81. "U.S. Pushed Honduras to Admit Raid," Miami Herald, 3/28/86, at 1A, I6A. 82. C4921. 83. Id. 84. C4920. 85. Id. 86. Id. 87. Associated Press wire article, by George Gedda, 3/ 25/86, 10:14 AET. 88. C/CATF Test., 5/5/87, at 233-35. 89. CI698. 90. Shultz Test., 7/23/87, at 162. 91. Id., at 12. 92. McFarlane Test., 5/1/87, at 8. 93. Church Committee, Findings and Conclusions at 448. 94. T. Powers, The Man Who Kept the Secrets: Richard Helms and the CIA, at vi (Knopf 1979). 95. F.C. Pogue, 3 George Marshall 459 (Viking Press 1973). Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 Powers of Congress and the President in the Field of Foreign Policy Under our Constitution, both the Congress and the Executive are given specific foreign policy powers. The Constitution does not name one or the other branch as the exclusive actor in foreign policy. Each plays a role in our system of checks and balances to ensure that our foreign policy is effective, sustainable and in accord with our national interests. Key participants in the Iran-Contra Affair had seri- ous misconceptions about the roles of Congress and the President in the making of foreign policy. Poin- dexter testified, referring to his efforts to keep infor- mation about the covert action in support of the Con- tras from the Congress, "I simply did not want any outside interference." 1 North testified, "I didn't want to show Congress a single word on this" same covert action.2 In Poindexter's and North's view, Congress trespassed on the prerogatives and policies of the President and was to be ignored or circumvented when necessary. If Congress denied the President funds to implement his foreign policy, they believed that the President could and should seek funds from private parties and foreign governments. If Congress sought to investigate activities which were secretly taking place, they believed executive branch officials could withhold information to conceal operations. These practices were required, in their judgment, to promote the President's policies. In Part IV, these Committees set forth the record of the misrepresentations, half-truths, and concealment employed by some within the executive branch to prevent Congress from learning about the NSC staffs covert activities. Here, we note that the attitude that motivated this conduct was based on a view of Con- gress' role in foreign policy that is without historical or legal foundation. The argument that Congress has but a minor role in foreign policymaking is contradicted by the language of the Constitution, and by over 200 years of history. It is also shortsighted and ultimately self-defeating. American foreign policy and our system of govern- ment cannot succeed unless the President and Con- gress work together. The Witnesses' Position at the Hearings During the public hearings, both Poindexter and North characterized Congress as meddlers in the President's arena. Both asserted that their actions in providing covert support to the Contras were lawful despite the prohibitions contained in the Boland Amendment. 3 In light of that position, Poindexter was specifically asked "why it was when the NSC was carrying out military support for the Contras, you felt it necessary to withold information from the Congress." 4 In his responses, Poindexter said in part that the covert action in Central America was an implementation of the President's policy, and that "we didn't want more restrictive legislation intro- duced in some new form of the Boland Amend- ment." 5 Characterizing such legislation as "outside interference," Poindexter responded to questions: Q. Now, the outside interference we are talking about was Congress, and I take it the reason they were inquiring about Colonel North's activities, the Government's activities in support of the Contras, was precisely so that they could fulfill with information their constitutional function to pass legislation, one way or the other. Isn't that true? A. Yes, I suppose that is true. Q. And that you regarded as outside interfer- ence? A. The point was, and still is, that the President has the constitutional right and, in fact, the con- stitutional mandate to conduct foreign policy. His policy was to support the Contras.6 North also repeatedly stated his view that "it was within the purview of the President of the United States to conduct secret activities . . . to further the policy goals of the United States." 7 North claimed that the President had the power under the Constitu- tion to conduct "secret diplomacy" because "the President can do what he wants with his own staff." 8 He stated that the President had a "very wide man- 387 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 date to carry out activities, secretly or publicly, as he chooses." 9 The Constitutional Framework The Constitution itself gives no support to the argu- ment that the President has a mandate so broad. The words "foreign policy" do not appear in the Constitu- tion, and the Constitution does not designate the President as the sole or dominant actor in foreign policy. The only foreign policy powers expressly granted to the Executive in the Constitution are the powers to nominate Ambassadors, to negotiate treaties, and to direct the Armed Forces as Commander-in-Chief. Two of these powers are specifically conditioned on Senate approval: the Senate, through its power of advise and consent, can confirm or reject Ambassa- dors and ratify or reject treaties. On the other hand, the Constitution expressly grants Congress the power to regulate foreign com- merce, to raise and support armies, to provide and maintain a navy, and to declare war. Congress is given the exclusive power of the purse. The Execu- tive may not spend funds on foreign policy projects except pursuant to an appropriation by Congress. Judicial Decisions Recognize a Shared Power Judicial decisions have not found in the Constitu- tion any exclusive Presidential power to conduct for- eign affairs. Questions involving foreign policy are infrequently litigated. But on those occasions where opinions are on point, the courts routinely have de- scribed the conduct of foreign policy as a shared power between Congress and the President. Only last year, the Supreme Court, in discussing its own role in a case involving "this Nation's foreign relations," recognized "the premier role which both Congress and the Executive play in this field." 10 Similarly, in 1948 the Supreme Court declined to take jurisdiction of a case turning on a foreign policy issue, noting that such issues "are wholly confided by our Constitution to the political departments of the gov- ernment, Executive and Legislative." " In a 1979 case, the D.C. Circuit Court of Appeals noted that Congress' role in foreign policy stems from its power of the purse and its authority to investigate the Ex- ecutive's faithful execution of the law: "The legisla- ture's powers, including prominently its dominant status in the provision of funds, and its authority to investigate the Executive's functioning, establish au- thority for appropriate legislative participation in for- eign affairs." 12 In 1977, the D.C. Circuit rejected the argument that the Executive had "absolute discretion in the area of national security." 13 The Court noted that the Constitution assigns each branch powers "equally in- 388 separable from the national security." 14 Finally, the Court dismissed the executive branch's claim that it could prevent Congress from obtaining information that might impact on national security since the Ex- ecutive's concern with secrecy "conflicts with an equally legitimate assertion of authority by Congress to conduct investigations relevant to its legislative functions." 15 Congress's role in obtaining and protecting confi- dential information relating to foreign policy has also been recognized in judicial opinions. In United States v. Nixon, the Supreme Court recognized that "mili- tary, diplomatic, or sensitive national security se- crets" 16 may be entitled to specially privileged status in certain contexts, but went on specifically to state that the case had nothing to do with the balance between the President's "generalized interest in confi- dentiality . . . and congressional demands for informa- tion." 17 And, as Justice Black noted in his concur- rence in the 1971 Pentagon Papers case, "Nile guard- ing of military and diplomatic secrets at the expense of informed representative government provides no real security for our Republic." 18 The D.C. Circuit has also underscored that the duty of protecting national security secrets is shared jointly by Congress and the President: "There is Con- stitutional power, under the Necessary and Proper Clause, in the federal government to keep national security information secret. This is typically a govern- ment power, to be exercised by the legislative and executive branches acting together." 19 Judicial opinions, thus, have consistently recognized that Congress shares with the President powers in the conduct of foreign policy and also shares with him the right of access to, and the duty to protect, sensi- tive national security information. The Curtiss-Wright Case In urging a broad interpretation of presidential power, various witnesses before these Committees in- voked the Supreme Court's 1936 decision in United States v. Curtiss-Wright Export Corporation.20 Their reliance on this case is misplaced. In Curtiss-Wright, Congress, by statute, had delegat- ed to the President the power to prohibit the sale of arms to countries in an area of South America if the President believed the prohibition would promote peace. The Curtiss-Wright Corporation claimed that the power to make this determination was a legisla- tive power that Congress could not delegate to the President. Witnesses at the hearings misread this case to justi- fy their claim that the President had broad inherent foreign policy powers to the virtual exclusion of Con- gress. Curtiss-Wright did not present any such issue. The case involved the question of the powers of the President in foreign policy where Congress expressly authorizes him to act; it did not involve the question Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 of the President's foreign policy powers when Con- gress expressly forbids him to act. In Curtiss-Wright, the Court upheld broad delega- tions by Congress of power to the President in mat- ters of foreign affairs. Writing for the Court, Justice Sutherland said that legislation within "the interna- tional field must often accord to the President a degree of discretion and freedom from statutory re- striction which would not be admissible were domes- tic affairs alone involved." 21 In language frequently seized on by those seeking to claim that the President's role in foreign policy is exclusive, Justice Sutherland noted that the President was acting not only with a delegation of power by the legislature, but also with certain powers the Con- stitution gave directly to him: It is important to bear in mind that we are here dealing not alone with an authority vested in the President by an exertion of legislative power, but with such an authority plus the very delicate, plenary and exclusive power of the President as the sole organ of the federal government in the field of international relations?a power which does not require as a basis for its exercise an act of Congress, but which, of course, like every other governmental power, must be exercised in subordination to applicable provisions of the Constitution.22 Some have tried to interpret this passage as stating that the President may act in foreign affairs against the will of Congress. But that is not what it says. As Justice Jackson later observed, the most that can be drawn from Justice Sutherland's language is the inti- mation "that the President might act in external af- fairs without congressional authority, but not that he might act contrary to an Act of Congress." 23 More recently, in Dames & Moore v. Regan," the Supreme Court cautioned that the broad language in Curtiss- Wright must be viewed only in context of that case. Writing for the majority, Justice (now Chief Justice) Rehnquist expressed the Court's view of the appropri- ate relationship between the executive and the legisla- tive branches in the conduct of foreign policy: When the President acts pursuant to an express or implied authorization from Congress, he exer- cises not only his powers but also those delegated by Congress. In such a case the executive action 'would be supported by the strongest presump- tions and widest latitude of judicial interpretation, and the burden of persuasion would rest heavily upon any who might attack it.' . . . When the President acts in the absence of congressional authorization he may enter a 'zone of twilight in which he and Congress may have concurrent au- thority, or in which its distribution is uncertain.' . . . In such a case, the analysis becomes more complicated, and the validity of the President's action, at least so far as separation-of-powers principles are concerned, hinges on a consider- ation of all the circumstances which might shed light on the views of the Legislative Branch toward such action, including 'congressional iner- tia, indifference or quiescence.' . . . Finally, when the President acts in contravention of the will of Congress, 'his power is at its lowest ebb' and the Court can sustain his actions "only by disabling the Congress from action on the sub- ject." 25 Similarly, in 1981, the D.C. Circuit cautioned against undue reliance on the quoted passage from Curtiss-Wright: "To the extent that denominating the President as the 'sole organ' of the United States in international affairs constitutes a blanket endorsement of plenary Presidential power over any matter extend- ing beyond the borders of this country, we reject that characterization." 26 In calling the President the "sole organ" of the Nation in its relations with other countries, Justice Sutherland quoted from a speech by John Marshall in 1800 when Marshall was a Member of the House of Representatives: "As Marshall said in his great argu- ment of March 7, 1800, in the House of Representa- tives, 'The President is the sole organ of the nation in its external relations, and its sole representative with foreign nations.' Annals, 6th Cong., col. 613." 27 The reader might assume from this passage that Marshall advocated an exclusive, independent power for the President in the area of foreign affairs, free from legislative control. When his statement is placed in the context of the "great argument of March 7, 1800," however, it is clear that Marshall regarded the President as simply carrying out the law as estab- lished by statute or treaty. The House had been debat- ing a decision by President John Adams to turn over to England a person charged with murder. Some members thought the President should be impeached for encroaching upon the judiciary, since the case was already pending in court. Marshall replied that Presi- dent Adams was executing a treaty approved by the Senate that had the force of law. Here is the full context of Marshall's "sole organ" statement: The case was in its nature a national demand made upon the nation. The parties were the two nations. They cannot come into court to litigate their claims, nor can a court decide on them. Of consequence, the demand is not a case for judi- cial cognizance. The President is the sole organ of the nation in its external relations, and its sole representative with foreign nations. Of consequence, the demand of a foreign nation can only be made on him. 389 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 He possesses the whole Executive power. He holds and directs the force of the nation. Of consequence, any act to be performed by the force of the nation is to be performed through him. He is charged to execute the laws. A treaty is declared to be law. He must then execute a treaty, where he, and he alone, possesses the means of executing it. The treaty, which is a law, enjoins the per- formance of a particular object. The person who is to perform this object is marked out by the Constitution, since the person is named who con- ducts the foreign intercourse, and is to take care that the laws be faithfully executed. The means by which it is to be performed, the force of the nation, are in the hands of this person. Ought not this person to perform the object, although the particular mode of using the means has not been prescribed? Congress, unquestionably, may pre- scribe the mode, and Congress may devolve on others the whole execution of the contract; but, till this be done, it seems the duty of the Execu- tive department to execute the contract by any means it possesses." Moreover, as Professor Corwin?a respected schol- ar on the American Presidency?has written, al- though Marshall referred to the President as the "sole organ of the nation in its external relations," "[c]learly, what Marshall had foremost in mind was simply the President's role as instrument of communi- cation with other governments." 39 While the President is not confined to acting merely as an "instrument of communication with other governments," neither does the President enjoy absolute or exclusive power in matters affecting for- eign affairs. The Curtiss- Wright opinion itself notes that the President's authority in foreign affairs "must be exercised in subordination to the applicable provi- sions of the Constitution." 30 At the hearings, North cited to the circumstances surrounding Senate consideration of the Jay Treaty during the presidency of George Washington as sup- port for his claim that the President had the power to withhold information from Congress. There, President Washington "refused to accede to a request to lay before the House of Representatives the instructions, correspondence and documents relating to the negoti- ation of the Jay Treaty." 31 Reliance on President Washington's position with respect to information about the Jay Treaty is errone- ous. President Washington did not argue that he had the power to withhold documents from Congress. As the opinion in Curtiss- Wright makes clear, President Washington only withheld these "correspondence and documents" from one House of Congress, not from the entire legislative branch. He gave the documents 390 to the Senate; he withheld them from the House be- cause the documents related to a treaty negotiation, and the power to ratify or reject treaties is reserved under the Constitution to the Senate. Circumvention of Congress' Constitutional Power of the Purse In testifying before these Committees, North and Poindexter indicated their view that whatever power Congress may have in foreign policy derived solely from its power of the purse. They reasoned that so long as public money was not expended, Congress had no role and the President was free to pursue his foreign policy goals using private and third-country funds. North said the President "was fully within his rights to send us off to talk to foreign heads of state, to seek the assistance of those foreign heads of state to use other than U.S. Government monies, and to do so without a Finding." 32 Poindexter supported the concept of circumventing Congressional opposition to the President's foreign policy by using nonappropriat- ed funds: Congress has put some restrictions on the use of proposed funds. Those restrictions didn't apply to private funds. They didn't apply to third-country funds. And the restrictions in the Boland Amendment, as I have said, did not apply to the NSC staff.33 These claims by North and Poindexter strike at the very heart of the system of checks and balances. To permit the President and his aides to carry out covert actions by using funds obtained from outside Congress undermines the Framer's belief that "the purse and the sword must never be in the same hands." These Committees have rejected these claims in Chapter 27. Suffice it to say here that, under the view of North and Poindexter, a President whose appro- priation requests were rejected by Congress could raise money from private sources or third countries for armies, military actions, arms systems, and even domestic programs. That is the path to dictatorship. Besides usurping Congress' power of the purse, the use of foreign funds has another, equally dangerous, effect on our democratic processes. That effect was explored by a Member of the panel during McFar- lane's testimony about the solicitation of Country 3 for assistance to the Contras: Q: In October 1985 when the State Department was scheduling an appointment for Colonel North to meet with one of these countries that later contributed $2 million, I was involved in a tough legislative battle in this House. On October 12, I believe, of 1985, this House passed a textile Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 bill, very controversial. At that very time, Colo- nel North apparently was soliciting, from a nation that was impacted by this bill, funds se- cretly and that country later delivered $2 million, according to the testimony. The President vetoed that bill in December 1985 and between December 1985 and August 1986, when the Congress decided to sustain the President by an eight-vote margin, there were entreaties apparently made to many other nations that were impacted by this legislation. . . . So this is the type of thing that is extremely dangerous from a perception standpoint, is it not? A: I agree with that, yes. Q: I think I could go back into my District or around this country and say while I was fighting for this bill, unbeknownst to me one of the na- tions that was severely impacted was secretly giving millions of dollars to the executive branch that later vetoed the bill, that ought to be disturb- ing to me, don't you think? A: I agree sir.34 It is a mistake for the United States to engage in what Assistant Secretary of State Elliott Abrams called "tin cup" diplomacy. It is unseemly for a global superpower to ask other nations to finance its foreign policy. Moreover, allowing foreign policy to be conducted with funds supplied by private parties and foreign governments is likely to create the expec- tation by the donor nations that they can expect something in return for their largesse. These concerns were, of course, raised by Congressional actions when in August 1985 it allowed the Administration to solic- it humanitarian assistance for the the Contras from third countries. But since this decision was made openly and in accordance with the normal processes of government, the reward for any donor nation could also be openly considered and agreed upon by the executive and legislative branches. There would be no need to hide the help, and no reason to hide the reward. But by seeking private and third-country aid for the Contras without Congressional notification?much less approval?the Administration did more than engage in an unfortunate fundraising effort that opened the door to expectations of secret return favors. This clandestine financing operation under- mined the powers of Congress as a coequal branch and subverted the Constitution. Foreign Policy as a Shared Power The sharing of power over foreign policy requires consultation, trust, and coordination. As President Reagan told a joint session of Congress on April 27, 1983: "The Congress shares both the power and the responsibility for our foreign policy." In the aftermath of the Vietnam war, Secretary of State Henry Kissinger observed: The decade-long struggle in this country over executive dominance in foreign affairs is over. The recognition that the Congress is a coequal branch of government is the dominant fact of national politics today. The executive accepts that the Congress must have both the sense and the reality of participation; foreign policy must be a shared enterprise." The need for such a cooperative relationship was stressed in the testimony received by these Commit- tees from Secretary of State George Shultz and Sec- retary of Defense Caspar Weinberger. Each recog- nized that both Congress and the Executive had fun- damental duties in the area of foreign policy. Secretary Shultz rejected the notion that there is a need "to lie and cheat in order to be a public servant or to work in foreign policy." 36 He emphasized that Congress and the President must work cooperatively on foreign affairs: [W]e have to respect the fundamental duties of our colleagues on the Hill, but we have to expect them to respect ours and what that means is . . . while we have a system of separation of powers in the way it is constituted, it inevitably means we also have a system of sharing powers . . . . You have to have a sense of tolerance and re- spect and a capacity to work together and a desire to do it, for us to share information, for you to put forward your ideas, not to keep telling us all the time how to run things. But keep tabs. To have a way of interacting . . . .37 Secretary Weinberger was asked at the hearings whether frequent consultation with Congress on for- eign policy issues was a valuable opportunity for the President. He replied: Indeed, yes, sir. Not only because it is very useful to have the advice . . . but I also think that it is important for the longer-range success of any kind of activity, because I have frequently made the point in private meetings that we can't fight a war on two fronts. We can't fight with the enemy, whoever it may be, and we can't fight with the Congress at the same time. 391 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I:i.i. I .. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 We need to have the United States Government unified if any kind of activity is going to succeed over the long run and we have a very different governmental system than most other countries. We deliberately divided authority and power to keep government ineffective and weak, that is what the Founders had in mind. They considered it to a considerable extent, but we can work within that. But we do have to do it in a way that gets as much general acceptance of a course before we embark on it whenever we possibly can as soon thereafter as we can.38 Questioned further whether clandestine undertakings needed the support of the Congress, he replied: I think without any question, sir, because you frequently with clandestine activities, which we have to do in this kind of world, you are not able to have public support. So you certainly need to have Congressional un- derstanding, Congressional approval wherever it can be obtained, and that is done through consul- tation . . . .39 In remarks to Poindexter near the end of Poin- dexter's testimony before these Committees, a Repub- lican Member of the House Select Committee high- lighted the need for honest consultation where the 392 Constitution divides power among brandies of gov- ernment: "The reason for not misleading the Congress is a practical one. It is stupid. It is self-defeating because while it may, in fact, allow you to prevail in the problem of the moment, eventually you destroy the President's credibility.'t40 Conclusion The questions before these Committees concerning the foreign policy roles of Congress and the President are not abstract issues for legal scholars. They are practical considerations essential to the making of good foreign policy and the effective functioning of government. The theory of the Constitution is that policies formed through consultation and the demo- cratic process are better, and wiser, than those formed without it. The Constitution divided foreign policy powers be- tween the legislative and executive branches of gov- ernment. That division of power is fundamental to this system, and acts as a check on the actions of each branch of government. Those who would take short- cuts in the constitutional process?mislead the Con- gress or withhold information?show their contempt for what the Framers created. Shortcuts that bypass the checks and balances of the system, and excessive secrecy by those who serve the President, do not strengthen the President. They weaken the President and the constitutional system of government. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 25 Chapter 25 1. Poindexter Test., Hearings, 100-8 at 158. 2. North Test., Hearings, 100-7, Part I at 87. 3. Poindexter Test., Hearings, 100-8 at 155, 158. 4. Poindexter Test., Hearings, 100-8 at 158. 5. Id. 6. Id. at 159. 7. North Test., Hearings, 100-7, Part II at 38. 8. Id. at 37. 9. Id. at 34. 10. Japan Whaling Assn. v. American Cetacean Society, 106 S.Ct. 2860, 2866 (1986). 11. C. & S. Air Lines v. Waterman Corp., 333 U.S. 103, 111 (1948). 12. Goldwater v. Carter, 617 F.2d 697, 709 (D.C. Cir. 1979), vacated on other grounds, 444 U.S. 996 (1980). 13. United States v. AT&T, 567 F.2d 121, 128 (D.C. Cir. 1977). 14. Id. at 128. 15. Id. 16. United States v. Nixon, 418 U.S. 683, 706 (1974). 17. Id. at 712 n. 19. (Emphasis added.) 18. New York Times Co. v. United States, 403 U.S. 713, 719 (1971). 19. United States v. AT&T, 551 F.2d 384, 393 (D.C. Cir.1976) (footnote omitted). 20. United States v. Curtiss-Wright Corp., 299 U.S. 304(1936). 21. Id. at 320. 22. Id. at 319-320. 23. Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 636 n.2 (1952) (Jackson, J., concurring). 24. 453 U.S. 654 (1981). 25. Id. at 668-69 (emphasis added; quoting in part Jack- son, J., concurring, in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. at 637-38. 26. American Intern. Group v. Islamic Republic of Iran, 657 F.2d 430, 438 n.6 (D.C. Cir. 1981). 27. United States v. Curtiss-Wright, 299 U.S. at 319. 28. Annals of Cong., 6th Cong., at 613-614 (emphasis supplied). 29. E. Corwin, The President: Office and Powers 1787- 1957 178 (1957) (emphasis in original). 30. 299 U.S. at 320. 31. Id. at 320. 32. North Test., Hearings, 100-7, Part II at 37. 33. Poindexter Test., Hearings, 100-8 at 158. 34. McFarlane Test., Hearings, 100-2 at 279-80. 35. 72 Dept. State Bull. 562 (1975). 36. Shultz Test., Hearings, 100-9 at 232. 37. Shultz Test., Hearings, 100-9 at 236-237. 38. Weinberger Test., Hearings, 100-10 at 208-209. 39. Id. at 209. 40. Poindexter Test, Hearings, 100-8, at 246. 393 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 The Boland Amendments and The NSC Staff Beginning in 1983, Congress responded to the Presi- dent's policy toward the Contras principally through its power over appropriations?one of the crucial checks on Executive power in the Nation's system of checks and balances. Because the President's program depended upon providing financial assistance to the Contras, appropriations bills became the forum for debating what the Nation's policy should be. Aid to the Contras was controversial from the be- ginning. The Kissinger Commission,' unanimous on virtually all other recommendations about Central America, could not agree on the Contras. The Ad- ministration's justifications for aid to the Contras were sometimes contradictory. The President publicly denied that his goal was to overthrow the Sandinista Government. Yet the Contras pursued only one goal?to topple the Sandinistas. In Congress, the two Chambers found themselves at odds, with the House generally denying or restrict- ing and the Senate generally supporting aid for the Contras. Votes in each Chamber were often decided by razor-thin margins. Ultimately, restrictions on assistance to the Contras were embodied in the Boland Amendments, named after their chief sponsor, Representative Edward P. Boland. While Congress applied various requirements to support for the Contras in each of the six fiscal years from October 1, 1982, to September 30, 1987, the legislation for fiscal years 1983, 1985, and 1986 embodied the most important restrictions and will be designated Boland, I, II, and III, respectively. The Boland Amendments were compromises be- tween supporters of the Administration's programs and opponents of Contra aid. As compromises, they were written not with the precision of a tax code, but in the language of trust and with the expectation that they would be carried out in good faith. None expect- ed the Administration to secretly seek loopholes, or to lead Congress to believe that support was not being given to the Contras when, in fact, it was. This Chapter focuses on how the Boland Amend- ments evolved2 and on how one element within the White House?the National Security Council staff? discharged its trust under the Boland Amendments. Boland I: September 27, 1982, to December 7, 1983 As has been noted in other chapters, the Administra- tion's efforts on behalf of the Nicaraguan resistance began not long after the Administration began. By the end of 1981, as required by law, the Administration was advising the Intelligence Committees in both chambers of Congress about the Central Intelligence Agency's involvement in Nicaragua, which was then funded out of the CIA's contingency reserve.2 Ac- cording to the Administration, its covert activities were intended to interdict the flow of arms from Nicaragua to rebel forces opposing the government of El Salvador.4 Ultimately, both Intelligence Commit- tees sought to curtail, or at least channel, the CIA's activities in the region by restricting the CIA's use of its contingency reserve funding. The first such restric- tion was embodied in a classified annex to the intelli- gence authorization bill for fiscal year 1983, which became effective September 27, 1982.5 In late 1982, the American press began to report accounts of the Administration's "secret war" in Nicaragua.6 On December 8, 1982, Representative Tom Harkin offered an amendment to the pending Defense Appropriations Bill for fiscal year 1983 stating: None of the funds provided in this Act may be used by the Central Intelligence Agency or the Department of Defense to furnish military equip- ment, military training or advice, or other sup- port for military activities, to any group or indi- vidual, not a part of a country's armed forces, for the purpose of assisting that group or individual in carrying out military activities in or against Nicaragua. 7 Soon thereafter, Representative Boland, Chairman of the House Permanent Select Committee on Intelli- gence, sponsored a substitute?referring explicitly to the overthrow of the Government of Nicaragua?that was to become Boland I: None of the funds provided in this Act may be used by the Central Intelligence Agency or the Department of Defense to furnish military equip- 395 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 , ..1 . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 ment, military training or advice, or other sup- port for military activities, to any group or indi- vidual, not a part of a country's armed forces, for the purpose of overthrowing the government of Nicaragua or provoking a military exchange be- tween Nicaragua and Honduras.8 Representative Boland said that this substitute was substantively identical to the restriction contained in the classified annex to the earlier enacted Intelligence Authorization Act and that it had been accepted by the Administration. "They do not like it," he said, "but it is agreeable to them." 9 Representative Harkin countered almost immediate- ly with a substitute of his own, which differed primar- ily from Representative Boland's by focusing on the intent of the recipients of CIA assistance: None of the funds provided in this Act may be used by the Central Intelligence Agency or any agency of the Department of Defense to furnish military equipment, military training or advice, or other support for military activities, to any indi- vidual or group which is not part of a country's armed forces and which is already known by that agency to have the intent of overthrowing the gov- ernment of Nicaragua or of provoking a military conflict between Nicaragua and Honduras." Representative Harkin's substitute was defeated; Boland I prevailed by a vote of 411 to 0. In the Senate, a similar debate took place, but with a different outcome. On December 18, 1982, by a vote of 58 to 38, that body tabled a proposal spon- sored by Senator Christopher J. Dodd that would have made a "policy declaration" that "no funds should be obligated or expended, directly or indirect- ly, after January 20, 1983, in support of . . . paramili- tary groups operating in Central America." 11 Ultimately, the conference committee incorporated Boland I into the Defense Appropriations Act for fiscal year 1983, which became effective on Decem- ber 21, 1982.12 Boland I was the law at least until October 1, 1983.13 Within a few months of the enactment of Boland I, however, a dispute arose between the Administration and some Members of Congress, including Represent- ative Boland, over the scope of the prohibition. Rep- resentative Boland and others in Congress contended that the intent of the recipients of the aid governed the permissibility of assistance. No group that intend- ed to overthrow the Nicaraguan Government could receive U.S. assistance, they said." The Administration took a more constricted view: as long as the United States itself was not seeking to overthrow the Sandinista Government, the objectives of the Contras to replace the Nicaraguan Government were irrelevant." As support for its position, the Administration pointed to the defeat of the second Harkin amendment, which would have barred assist- 396 ance to the Contras because of their intent to over- throw the Nicaraguan Government. While subsequent changes in the Boland amendments ultimately would render moot this particular dispute, the Administra- tion's willingness, indeed eagerness, to exploit ambigu- ities in Boland I presaged its attitude toward the later Congressional efforts to limit Administration support for the Contras. In addition, the aggressive approach by the Administration to this ambiguity helps to ex- plain why the Boland Amendments evolved toward more restrictive formulations. Limited Funding: December 8, 1983, to October 3, 1984 As fiscal year 1983 progressed with Boland I in place, the Administration's support for the Contras contin- ued. In addition, the Administration began to expand its justifications for the program beyond the interdic- tion of arms to include bringing the Sandinistas to the bargaining table and forcing free elections.' 6 As a result, on May 13, 1983, the House Permanent Select Committee on Intelligence reported out H.R. 2760, a bill to amend the Intelligence Authorization Act for the then-current fiscal year that would have foreclosed funding for the Contras. In language that foreshadowed Boland II, that bill provided: None of the funds appropriated for the Central Intelligence Agency or any other department, agency, or entity of the United States involved in intelligence activities may be obligated or ex- pended for the purpose or which would have the effect of supporting, directly or indirectly, mili- tary or paramilitary operations in Nicaragua by any nation, group, organization, movement, or individual.' 7 The Senate never voted on H.R. 2760." Thus, Boland I continued to govern the Administration's relationship with the Contras through the remainder of fiscal year 1983.'? While H.R. 2760 was under consideration, howev- er, both the House and the Senate were working on intelligence authorizations and defense appropriations for fiscal year 1984. As reported out by the House Intelligence Committee, the Intelligence Authoriza- tion Bill, H.R. 2968, contained the same provisions cutting off funding for the Contras as did H.R. 2760.2? Fiscal year 1984 was well under way before H.R. 2968 reached the floor of the House.21 Again mem- bers extensively debated the proper policy toward Nicaragua, and again voted to cut off covert aid, 243 to 171.22 On the Senate side, the intelligence authorization legislation was reported out of committee without any unclassified restriction on support for the Contras. On Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 November 3, 1983, after debate over the Administra- tion's policies toward Nicaragua, the Senate approved an intelligence authorization bill that did not restrict assistance for the Contras.23 The conference on the conflicting versions of the legislation was a pivotal point in the history of aid to the Contras. After the conference, Representative Boland explained the opening positions and the out- come to his colleagues in the House: As you know, I believe [the Central Intelligence Agency's] paramilitary action in Nicaragua is ille- gal, unwise, counterproductive, and against the best interest of the United States. I, and a majority of the House conferees, would have preferred that the covert action be stopped. This was the position of the House of Represent- atives. Just as clearly, it was the position of the Senate conferees and of the Senate that the action should be permitted to continue and that when appropriated funds ran out, the Central Intelli- gence Agency could utilize the reserve for con- tingencies unless both Intelligence Committees disapproved. We could have forced a deadlock and killed both the Intelligence Authorization Bill and the De- fense Appropriations Bill. But the Central Intelligence Agency would still have been able to fund the covert action from the Continuing Resolution and from the reserve for contingencies?and would have had available to it much more than $24 million. Instead, we agreed to a compromise?a $24 million cap on funding from whatever source.24 The key to this compromise from the House's standpoint was the amount of aid provided, enough to carry the Contras "at present rate of expenditure" only through June 1984.25 At that point, according to Representative Boland, the Administration would have to terminate its covert program or come "back to both Houses of Congress and request additional funds. . . .,, 26 The conference language, included in both the In- telligence Authorization Act (Public Law 98-212) and the Defense Appropriations Act (Public Law 98-215) for fiscal year 1984, read: During fiscal year 1984, not more than $24 mil- lion of the funds available to the Central Intelli- gence Agency, the Department of Defense, or any other agency or entity of the United States involved in intelligence activities may be obligat- ed or expended for the purpose or which would have the effect of supporting, directly or indirect- ly, military or paramilitary operations in Nicara- gua by any nation, group, organization, move- ment, or individual.27 Significantly, these pieces of legislation, which became effective on December 8 and December 9, 1983, included within the $24 million cap all funds expended to assist the Contras from the beginning of the fiscal year on October 1, 1983. Thus, by the time these enactments became law, there was already less than $24 million that could be provided by the cov- ered agencies. Boland II: October 3, 1984, to December 3, 1985 The period between October 12, 1984 (the effective date of Boland II), and August 8, 1985 (the effective date of the legislation providing for "humanitarian aid"), was the high-water mark of restrictions on as- sisting the Contras. During this period, the covered agencies and entities were proscribed from expending any funds whatsoever to support, directly or indirect- ly, those resistance forces. But Boland II was itself a compromise. As will be seen, even as Congress shut off aid at the beginning of fiscal year 1985, the Senate insisted on providing a procedure that might expedite support for the Contras after February 28, 1985, upon the passage of a joint resolution." An important question would also arise after the Committees began their investigation as to the application of Boland II to the NSC and its staff. As before, an examination of the events leading to this version of the Boland Amendment is essential to its understanding. The Evolution of Boland ll A major factor in the formulation and passage of Boland II was the revelation regarding the mining of Nicaraguan harbors. On April 6, 1984, The Wall Street Journal reported the CIA's involvement in that mining. Additionally, the CIA's role in military at- tacks on Nicaraguan oil facilities at the port of Cor- into was soon thereafter revealed." Many Members of Congress expressed astonishment at these revelations. A dispute arose as to whether CIA Director Casey had adequately notified the Intel- ligence Committees. Senator Goldwater, Chairman of the Senate Committee, protested to Casey.3? National Security Adviser Robert McFarlane responded that Congress had been adequately briefed about the mining. In support of Senator Goldwater's position, his vice-chairman, Senator Moynihan, resigned from that post, only to be persuaded to stay on." Both the Senate and the House ultimately voted to condemn the CIA's involvement in the incident.32 The revela- tions also produced an intense negative international reaction, particularly when Nicaragua sued the United 397 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I .. I . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 States in the International Court of Justice alleging, and ultimately proving to the satisfaction of that court, that the United States violated international law.33 As the end of fiscal year 1984 approached, the House considered an Intelligence Authorization Bill (H.R. 5399), and a Continuing Appropriations Bill (H.J. Res. 648), both of which prohibited the use of any funds available to the CIA, DOD, or any entity involved in intelligence activities to support "directly or indirectly" military or paramilitary operations in Nicaragua. The prohibitory language was identical to that contained in H.R. 2760, the House's earlier, un- successful attempt to amend the Intelligence Authori- zation Act for fiscal year 1983. The House debated this version of the Boland Amendment on August 2, 1984, and passed it by a vote of 294 to 118.34 On the Senate side, the majority once again defeat- ed an effort to include a parallel prohibition in that Chamber's version of intelligence authorization legis- lation. The vote, which took place after lengthy debate on October 3, 1984, was 42 in favor of includ- ing such a prohibition and 57 against.35 The conferees ultimately agreed to adopt the House prohibition, but to couple it with an explicit promise to revisit the issue in another 4 months. As finally enacted, Section 8066 of Public Law 98-473, the Con- tinuing Appropriations Act for fiscal year 1985, read: (a) During fiscal year 1985, no funds available to the Central Intelligence Agency, the Department of Defense, or any other agency or entity of the United States involved in intelligence activities may be obligated or expended for the purpose or which would have the effect of supporting, di- rectly or indirectly, military or paramilitary oper- ations in Nicaragua by any nation, group, organi- zation, movement, or individual. (b) The prohibition concerning Nicaragua con- tained in subsection (a) shall cease to apply if, after February 28, 1985? (1) the President submits to Congress a report? (A) stating that the Government of Nicaragua is providing material or monetary support to anti- government forces engaged in military or para- military operations in El Salvador or other Cen- tral American countries; (B) analyzing the military significance of such support; (C) stating that the President has determined that assistance for military or paramilitary operations prohibited by subsection (a) is necessary; (D) justifying the amount and type of such assist- ance and describing its objectives; and 398 (E) explaining the goals of United States policy for the Central American region and how the proposed assistance would further such goals, in- cluding the achievement of peace and security in Central America through a comprehensive, veri- fiable and enforceable agreement based upon the Contadora Document of Objectives; and (2) a joint resolution approving assistance for military or paramilitary operations in Nicaragua is enacted. According to the conferees, up to $14 million in aid to the Contras could be made available upon passage of the joint resolution described in Section 8066(b).36 Representative Boland reported to his colleagues that: the compromise provision [Section 8066] clearly ends United States support for the war in Nicara- gua. Such support for the war can only be re- newed if the President can convince the Con- gress that this very strict prohibition should be overturned.3 7 Responding to an inquiry from another Member, Rep- resentative Boland specified "there are no exceptions to the prohibition."35 Representative Boland plainly viewed the conference compromise as terminating all U.S. Government assistance of any kind until Con- gress revisited the issue. On the other side of the Capitol, the Senate empha- sized that the prohibition was not necessarily perma- nent. As Senator Ted Stevens described it, the com- promise did not cut the Contras' lifeline, but rather "[put] off the decision until next year." Reacting to a pessimistic assessment from Senator John P. East, he continued: Under these circumstances, I do believe the Sena- tor would be unwise to send a message to the Sandinistas that we have abandoned completely support for the Contras. We have set in motion a process by which the President can once again trigger support for the Contras should the Sandi- nista government persist [in exporting revolu- tion]. I say to my friend we did not win and we did not lose. . . what we are saying to the Sandinistas is, "we have a period of time here because of our internal process and our process of selecting our leader for the next four years . . . and you are put on notice that if the President asks for this money on February 28 . . . we can approve it." 3 9 In the interim, according to Senator Stevens, the Con- tras would be able to tap other sources of support: Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 The Contras [already] are supporting themselves with assistance they are getting from elsewhere in the world. Having that assistance out there to be made available on March 31 will encourage that assistance from other sources to the Contras during this period.40 Thus, while House conferees hailed Boland II as a victory in the effort to end U.S. involvement in Ni- caragua's civil war, the Senate conferees billed it as a draw or, at worst, a temporary setback to be over- come after the Presidential election. But not even Senator Stevens suggested that entities within the U.S. Government could continue covert support for the Contras after enactment of Boland II. As it turned out, Congress never approved the $14 million allocation. President Reagan made the neces- sary certification under Section 8066 early in April 1985.4' The Senate approved the joint resolution on April 23, 1985, by a vote of 53 to 46.42 The measure failed in the House, however, by a vote of 180 to 248.43 As a result, no funds should have been expend- ed by covered entities to support the Contras from the exhaustion of the $24 million appropriation some- time in June, 1984, to the effective date of legislation providing humanitarian aid, August 8, 1985. Boland ll and the NSC Staff Unlike Boland I, which applied by its terms solely to the CIA and the DOD, Boland II also applied to "any other agency or entity . . . involved in intelli- gence activities." After this investigation began, mem- bers of the Administration asserted that Boland II did not apply to the NSC staff. The Committees disagree, and note that this assertion never was made publicly prior to this investigation. By its terms, Boland II reached any agency "in- volved in intelligence activities." Thus, Boland II did not put just the CIA out of the Contra support busi- ness; it prevented other government agencies from covertly taking the CIA's place. The Administration has asserted that Boland II did not apply to the NSC staff because: (1) the NSC does not traditionally engage in intelligence activities; and (2) the phrase "agency involved in intelligence activi- ties" is a statutory term of art which does not include the NSC. These post hoc arguments are not persua- sive for a number of reasons. The statutory language is clear on its face: if an agency is "involved in intelligence activities," then it cannot engage in the proscribed conduct of assisting the Contras. That Boland II did not specifically men- tion the NSC is of no consequence. The statute men- tioned by name those agencies which Congress knew would be engaged in intelligence activities, and in- cluded a "catch-all" provision to describe all other agencies that were intended to fall within Boland II's reach. This "catch-all" provision is no statutory term of art. Rather, the phrase used by Congress?"any other agency or entity . . . involved in intelligence activities"?is descriptive. For instance, had the NSC staff remained true to the NSC's traditional statutory functions of coordination and oversight, Boland II would not have applied to its activities. Thus, the law could not be evaded by assigning the prohibited activities or the persons engaged in those activities to a government agency that typically did not engage in "intelligence activities." Any other in- terpretation would have rendered the law meaning- less. The target of Boland II was not the CIA, but any covert operation supporting the Contras, directly or indirectly. Shifting responsibility from the CIA to the NSC staff would have accomplished nothing, other than to change the personnel running the Contra support operation. North and Poindexter, however, both testified that there was discussion among the NSC staff after Boland II was adopted that it did not apply to the NSC staff. No documentary evidence exists, however, to suggest that this interpretation was ever put for- ward before August 1985. On the contrary, North's memos and McFarlane's and Poindexter's responses in late 1984 and early 1985 reflect a sensitivity that, at least for the record, the NSC staff had to comply with Boland. McFarlane in his public testimony scoffed at the view that Boland II did not apply to the NSC staff 44?even though, because McFarlane had not sought immunity, it was in his interest to deny Boland's applicability. If North and Poindexter had any doubt about the reach of Boland II, they could have obtained legal opinions. The Office of Legal Counsel of the Depart- ment of Justice exists to provide legal opinions to the executive branch. The Counsel to the President also renders legal opinions on statutory interpretation; and the Attorney General issues both informal and formal opinions from time to time. But the Justice Depart- ment, the Counsel to the President, and the Attorney General were never asked for legal opinions on whether Boland II applied to the NSC staff." North testified that Professor John Norton Moore of the University of Virginia gave him an opinion that Boland II did not apply to the NSC.48 Moore is a distinguished professor of law who has written exten- sively on Executive power. His opinion would carry weight. But Moore has denied that he had ever been asked for or given an opinion on the applicability of Boland 11.47 No written evidence of such an opinion exists. Because McFarlane headed the NSC staff as Na- tional Security Adviser at the time Boland II was enacted, his contemporaneous interpretation of the ap- plicability of Boland II to that staff carries consider- able weight. According to McFarlane: . . . [T]he law expressly foreclosed even a liaison role for the CIA, or for the Defense Department. 399 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 I interpreted it as well that the NSC was not to itself get involved in military or paramilitary ac- tivities or replicating the CIA function in those domains.48 Indeed, McFarlane acted on this interpretation.49 Such a contemporaneous reading carries the most weight when, as in this matter, the official making the interpretation informed Congress of it." McFarlane's correspondence with Representative Lee H. Hamil- ton, Representative Michael D. Barnes, and Senator David Durenberger all reflected his understanding." Legal analysis available at the time reached the same conclusion. An undated memorandum prepared by the Congressional Research Service of the Library of Congress in response to an inquiry dated August 13, 1985, found "strong, if not conclusive evidence that the [language] was intended to apply to the Na- tional Security Council."" Similarly, a staff memo- randum prepared for Representative Henry J. Hyde, which the FBI later found in North's files, explained that the "NSC is clearly a U.S. entity involved in intelligence activities, subject to the Section 8066(a) prohibition." 53 The opposing view, that the Boland prohibition did not apply to the NSC staff, found its only contempo- raneous expression in an opinion by Bretton Sciaroni, counsel to the Intelligence Oversight Board." During Sciaroni's testimony, however, questions were raised about his qualifications to render this opinion. He had never practiced law before becoming the Board coun- sel." This written opinion was his first on legisla- tion.96 More importantly, Sciaroni based his opinion on certain key factual premises that turned out to be incorrect. Addressing the statute's language, Sciaroni admitted in his opinion that, "on the face of it the NSC would appear to be an agency or entity of the United States covered by the amendment."97 He con- cluded that the NSC was not an agency or entity "involved" in intelligence activities from the factual premise that "it is a coordinating body with no oper- ational role," so that the NSC "does not function as an operational unit."58 North, however, confirmed that he had been con- ducting the "full-service covert operation," depicted in extensive evidence before the Committees. By itself, this assertion put the NSC within Boland II's coverage of "any agency or entity of the United States Government involved in intelligence activi- ties." Asked at the hearings, "[were you] told at that time that [the NSC staff] was, in fact, involved in intelli- gence operations?" Sciaroni responded, "No, I was not told that."99 He explained more fully: Q: Well, I am simply asking you, sir, isn't it true that the conclusion [of your opinion] was based on failure to communicate information to you? 400 A: True. Q: You didn't have the facts? A: That is true. Q: And it was the incorrect facts in part upon which your opinion was based? A: That is absolutely correct." In any event, the Sciaroni opinion was not unveiled until long after North's activities began to unravel. Poindexter acknowledged his reason for keeping its conclusion under wraps: fear that if Congress learned that the NSC staff was even entertaining the notion that it was exempt from Boland II, Congress would act to eliminate any such misconception." Instead, Congress was told that the NSC staff was observing the letter and spirit of Boland. In August 1985, the House and Senate Intelligence Committees and the House Foreign Affairs Commit- tee each inquired about the activities of the NSC staff and of North. McFarlane replied that the NSC was complying with the letter and spirit of the law." Poindexter denied that he saw this response at the time, although the record shows that he assembled the team to handle the response and that he was sent a draft for comment." He claimed that, when he finally saw the McFarlane draft in the Tower Review Board Report, he was surprised by its language." But, in the summer of 1986, the House Intelligence Committee would conduct another inquiry of North, an inquiry Poindexter deflected by noting that McFarlane had previously certified that "the actions of the National Security Council staff were in compli- ance with both the spirit and the letter of the law regarding support of the Nicaraguan resistance."" The message to Congress was clear and consistent: Boland II did not need clarification. It covered the NSC, which "was complying." Indeed, no one ex- pressed this more forcefully than McFarlane at the public hearings: And I think also that the evidence that surely I did believe that the Boland Amendment applied to the NSC staff is expressed in the fact that otherwise why would we have worked so hard to get rid of it after it was passed? If we felt that we were not covered, what was I doing? What were we doing coming up here day after day trying to get rid of it? 66 Even by its terms, the Sciaroni opinion did not give North?or Poindexter?a clean bill of health. Sciaroni noted that if North's salary was borne by the DOD, an entity expressly named in Boland II, he could be subject to its restrictions. This, in fact, was the case." Referring to this caveat in Sciaroni's opinion, Poin- dexter testified in his deposition that, "we were will- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 ing to take some risks in order to keep the Contras alive. . .?,, 68 The Meaning of "Indirect" Support Boland II prohibited the obligation or expenditure of appropriated funds "for the purpose or which would have the effect of supporting" the Contras "directly or indirectly." Viewed narrowly, this statute forbade only the provision of government money or material to the Contras. Representative Boland, on the other hand, read his amendment more broadly at the time of its enactment so as to give meaning to the phrase "directly or indirectly": Let me make very clear that this prohibition ap- plies to all funds available in fiscal year 1985 regardless of any accounting procedure at any agency. It clearly prohibits any expenditure, in- cluding those from accounts for salaries and all support costs. The prohibition is so strictly writ- ten that it also prohibits transfers of equipment acquired at no cost.69 Opinions issued by the Comptroller General of the United States in other contexts would seem to con- firm Representative Boland's interpretation.70 More- over, McFarlane candidly told the Committees that, during his tenure as National Security Adviser, he understood that Boland II precluded any assistance by the NSC staff to the Contras." Once again, North took a position contrary to that of his former boss. After describing his "full-service covert operation,"" North agreed on the one hand that the Boland Amendment applied to "U.S. Govern- ment funds": And my understanding?and I have not read Boland, the Boland amendments in some time, but my understanding then was that what we could not do is take and expend funds which had been made available to the CIA and the DOD, et cetera, for the purpose of providing direct or indirect support for military and paramilitary op- erations in Nicaragua. That is a memory that is over seven months old, but I think that was what the intent was. Certainly the way we pursued it and we made every effort not to expend U.S. Government funds to support the Nicaraguan resistance. . . .73 On the other hand, North did not count fixed operat- ing costs, such as his appropriated salary, as covered by the Boland II prohibition: Q: You were aware, I take it, that salaries were included in the Boland Amendment? A: No?not mine.74 But, as noted above, Representative Boland clearly considered salaries within the ambit of the legislation he sponsored. The historical background provides the reason for Boland II's comprehensive coverage. Boland II had emerged in reaction to the revelation of the CIA's role in the mining of Nicaraguan harbors. At that time, the CIA had allegedly exceeded the $24 million limit in conducting that operation. According to re- ports, the CIA had attempted to obscure this overrun by charging to its overall operating budget the $1.2 million cost of a vessel deployed during the mining of the harbors." Representative Boland's explanation that the amendment "clearly prohibits any expendi- ture, including those from accounts for salaries and all support costs" anticipated and rejected use of a ra- tionalization similar to North's by which costs charged to an "overall operating budget" were ig- nored for determining compliance with a funding cut- off. The prohibition against the CIA funds "available" to it precluded that agency from using its contingency reserve or any funds at its disposal. In the Committees' view, Boland II had a discerni- ble purpose: to end covert support for the Contras by the United States. Once the NSC staff became in- volved in intelligence operations and continuing covert, albeit quasi-private, assistance to the Contras, both the letter and spirit of Boland II were violated. Humanitarian Aid: August 8, 1985, to March 31, 1986 The day after rejecting the joint resolution required by Boland II to "unfence" the $14 million in military aid, the House?by a vote of 213 to 215?rejected an amendment that would have released that amount as "humanitarian assistance." 76 Six weeks later, in June 1985, the Senate consid- ered, and the House reconsidered, the concept of hu- manitarian aid to the Contras. In both Chambers, pro- ponents stressed the Contras' needs for food, clothing, and medical supplies." In both Chambers, opponents suggested that the provision of humanitarian assist- ance to a fighting force was a Trojan horse conceal- ing military assistance." The Senate approved its version of this legislation on June 6, by a vote of 52 to 42. In addition to unfencing the previously appropriated $14 million, it authorized an additional $24 million, with the entire $38 million to be spent solely on humanitarian aid.79 Thereafter, a major reversal occurred in the House. On June 12, that Chamber voted 248 to 184 to include $27 million in humanitarian aid in a supplemental ap- propriations bill." This change may have been attrib- utable, at least in part, to a highly publicized trip made by Nicaraguan President Daniel Ortega to Moscow shortly before that vote." During consideration of this legislation, some atten- tion was focused on which agency would administer 401 77-026 0 - 87 - 14 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 the humanitarian assistance. The Senate bill included a provision allowing "the National Security Council to monitor the use of funds."82 This approach would have given the NSC staff a legal role in managing funds for the Contras. Proposals for a CIA role were also made. On the other hand, the House, opposed any statutory role for DOD or CIA." In the end, the conferees declined to include the NSC in the administration of the humanitarian aid program.84 Instead, the Nicaraguan Humanitarian As- sistance Office (NHAO) was created in the Depart- ment of State to administer the humanitarian aid. Sig- nificantly, the NHAO appropriation retained the pro- hibitions of Boland II except for that relaxation neces- sary to authorize the humanitarian aid itself. In addi- tion, related legislation included: ?The "Pell Amendment," a prohibition against the United States "enter[ing] into any arrange- ment conditioning, expressly or implicitly, the provision of assistance under [the International Security and Development Act] or the purchase of defense articles and services under the Arms Export Control Act upon the provision of assist- ance by a recipient" to the Contras;85 and ?The "Kerry Amendment," which prohibited the use of any funds to support, "directly or indirectly, activities against the government of Nicaragua which have not been authorized by, or pursuant to law, and which would place the United States" in violation of international law.86 All these provisions became effective on August 8, 1985. Exchange of Intelligence One week later, the President signed a Supplemen- tal Appropriations Act for fiscal year 1985, Public Law 99-88, that included another provision relevant to the Committees' inquiry. After incorporating by reference the prohibitions contained in Boland II and suspending those prohibitions only insofar as neces- sary to distribute the humanitarian aid authorized a week earlier, the Act provided: Nothing in this Act [or Boland II] shall be con- strued to prohibit the United States government from exchanging information with the Nicara- guan democratic resistance.87 The conference report accompanying the earlier legislation providing humanitarian assistance similarly prescribed that, "none of the prohibitions on the pro- vision of military or paramilitary assistance to the democratic resistance prohibits the sharing of intelli- gence information with the democratic resistance."88 Beginning with the enactment of Boland II, debate had arisen over the permissibility and desirability of providing the Contras with intelligence information. 402 Keyed as it was to the expenditure or obligation of funds, including salaries and support costs, Boland II prohibited any significant transfer of intelligence in- formation or resources to the Contras. This conclu- sion is bolstered by the legislative history of H.R. 2760, the textually similar but unapproved amendment to the Intelligence Authorization Act for fiscal year 1983.89 The breadth of Boland II's original prohibition had raised concern in the intelligence community about the handling of "defensive" intelligence, that is, intel- ligence that, if provided to the Contras, could prevent needless loss of life. Responding to this perceived problem, the CIA had proposed guidelines, which met resistance from the House Intelligence Committee, that would have al- lowed it to pass intelligence: on a case by case basis where: (1) the lives of U.S. persons are at stake either inside or outside Nicaragua; (2) the lives of third country non-combatants are at stake either inside or outside Nicaragua; or (3) a holocaust-type situation may occur involv- ing substantial loss of life, or threatening the con- tinued existence of the opposition groups (for ex- ample, ambush or imminent attack)." Ultimately, the CIA agreed to notify the Intelli- gence Committees each time they invoked these guidelines to transfer intelligence, and to justify that action fully as a humanitarian necessity." While textual support in Boland II for a distinction between offensive and defensive intelligence is diffi- cult to discern, the abstract utility of defensive intelli- gence had some appeal. Speaking against an amend- ment to provide a more explicit exception allowing for the exchange of intelligence, Representative Boland pointed to the CIA's guidelines: [W]hat about a situation where a large concentra- tion of Contras?perhaps unarmed or in a sanctu- ary along the border?is about to be attacked by the Sandinistas in their new Soviet helicopters. Can't the Central Intelligence Agency warn them? Well, Mr. Chairman, they can. Now, where do I get that interpretation? I get it, Mr. Chairman, from the Central Intelli- gence Agency. They have told the Intelligence Committee that it is their interpretation of the present limitation that it does not prohibit the provision of intelli- gence?so called defensive intelligence?to the Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 Contras to prevent a massacre or a holocaust- type of situation. They say they can't provide intelligence to sup- port military activities in the field, but they can provide humanitarian warning of catastrophic at- tacks. So, Mr. Chairman, my amendment [which would have continued the Boland II prohibitions] does permit?as the intelligence community tells us? the provision of intelligence in extraordinary cir- cumstances where the real prospect of a substan- tial loss of life exists.92 The legislation that became effective August 15, 1985, provided that nothing in Boland II or the Inter- national Security and Development Act would there- after prohibit "exchanging information" with the Con- tras. As the legislative history makes clear, moreover, the "information" that could be exchanged included intelligence." Representative Hyde, a supporter of the exception, suggested that the exception would allow the transfer of intelligence, not only in support of humanitarian aid, but also "so [the Contras] can defend themselves against the helicopter gunships."94 Representative Joseph P. Addabbo, an opponent of the exception, cited its ambiguity as a reason to reject it: Under Section 102 . . . the current prohibition . . . is interpreted to allow the United States government to exchange information with the Contras. I am not sure anybody can tell me the effect of this interpretation but, of course, this would mean that the Central Intelligence Agency involvement with the Contras would be started again. What type of information will be ex- changed is limited only by your imagination. In addition to intelligence information, could train- ing procedures for the Contras be exchanged, could instruction in terrorist activities be ex- changed, could instruction on the planting of bombs or ships be exchanged? Who would define the type of information to be exchanged? Nobody knows, is the answer.95 The Permissibility of Solicitation Boland II did not contain a provision specifically addressing third-country solicitation. But the subject had not been overlooked either in Congress or in the executive branch. In 1984, before Boland II was adopted but as Contra funding was running out, third-country fund- ing became the focus of a legal debate within the Administration. At a National Security Planning Group meeting in June 1984, Secretary of State Shultz conveyed the concern of White House Chief of Staff James A. Baker, III, who was not present, that solicitation and control of third-country funding for the Contra program was an "impeachable of- fense." Others at the meeting asserted that if the United States did not serve as a conduit for the funds, third country solicitation was permissible. The follow- ing day, Attorney General William French Smith orally expressed his opinion to Casey that solicitation was lawful as long as there was no quid pro quo." In October 1984, Congress complicated the legal picture further by passing Boland II with its prohibition of expending funds to provide support, "directly or indi- rectly." After Boland II was in place, the State Department agreed in early 1985 that the legislation barred solici- tation or encouragement of contributions to the Con- tras. In March 1985, appearing before the Senate Committee on Foreign Relations, Assistant Secretary of State for Inter-American Affairs, A. Langhorne Motley?Elliott Abrams' predecessor?was asked for assurances that the Administration knew, and agreed, that solicitation of funds from third countries was prohibited; he agreed with that interpretation and gave those assurances. Motley stated, "even if today we wanted to go to third countries to encourage or solicit, we could not because there is a prohibition." Senator Christopher J. Dodd asked, "all I am asking from you is, and from the administration more directly, is whether or not we can have an assurance that there will be no indirect efforts made to finance the Contra operation through third party nation . . . ." Motley responded: "I think that was one thing that was loud and clear with us when I started. I told you that we understood what it means, direct and indirect, including third party." After being asked again, and giving that same assur- ance (Senator Dodd: "We have that assurance, then?" Motley: "That is right. . . . I think that is an easy assurance to give, Senator. . . ."), Motley described Boland II's prohibition this way: Nobody is trying to play games with you or any other Member of Congress. That resolution stands, and it will continue to stand, and it says no direct or indirect. And that is pretty plain English; it does not have to be written by any bright, young lawyers. And we are going to con- tinue to comply with that.97 The State Department gave the same interpretation and assurance in at least one other hearing." The CIA also took the position that Boland II prohibited it from engaging in any third-country solicitation.99 McFarlane took a similar position with respet to the NSC and, according to his testimony, so instruct- ed his staff.'" He specifically told Congress that the NSC staff was not soliciting funds.'" North denied receiving any such instruction, but nevertheless pre- faced every meeting with potential contributors with a disclaimer that he was not soliciting.102 403 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H . I . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 Indeed, North wrote a memorandum to McFarlane outlining the options for financing the Contras. He noted that Boland II was silent on third-country fund- ing but that Congress would regard it as an evasion of the law. He therefore concluded that third-country solicitation could be safely undertaken only upon con- sultation with Congress and with the risk that it might say no.'" At the time North wrote the memoran- dum, he was secretly involved in trying to raise money from Far Eastern countries, and a Middle Eastern country had already contributed $32 million. On August 8, 1985, with the enactment of the Pell Amendment, U.S. officials were prohibited from agreeing, "expressly or implicitly," that foreign aid or military assistance would be contingent upon assist- ance to the Contras. In their report on that legislation, the conferees attempted to draw a distinction between discussing U.S. policies in Central America and agree- ing on a quid pro quo: The purpose of the [Pell Amendment] is to pro- hibit the United States from furnishing economic or military assistance or selling United States military equipment on the condition, either ex- pressly or implicitly, that the recipient or pur- chaser provide assistance to insurgents involved in the struggle in Nicaragua. This section does not prohibit United States government officials from discussing United States policy in Central America with recipients of United States assist- ance or purchasers of United States military equipment.10 4 The conferees specified that the legislation did not prohibit "recipients of United States assistance from furnishing assistance to any third party on their own volition and from their own resources."105 Thus, at least as of August 8, 1985, while Congress acknowledged that Administration officials were per- mitted to discuss Central American policy with for- eign countries, and that those foreign countries could "on their own volition" contribute their own funds to the Contras, it clearly proscribed any quid pro quo, expressed or implied, for any contribution by a for- eign country.106 A question not addressed by the conferees was whether Administration officials could, consistent with Boland II, solicit contributions from foreign countries. In the Committees' judgment, how- ever, any such solicitation by a covered entity, includ- ing the NSC staff, would have been prohibited by Boland II because it would have involved, at a mini- mum, salaried employees. Boland III: December 4, 1985, to October 17, 1986 Boland III was embodied in various statutory provi- sions covering aid to the Contras during the period from December 4, 1985 to October 17, 1986, particu- 404 larly in Public Law 99-169, Section 105, and Public Law 99-190, Section 8050. Public Laws 99-88 and 99- 83, which approved humanitarian assistance, extend into this period but are considered in the previous section of this chapter. Public Law 99-169, enacted on December 4, 1985, reads: Funds available to the Central Intelligence Agency, the Department of Defense, or any other agency or entity of the United States in- volved in intelligence activities may be obligated and expended during fiscal year 1986 to provide funds, materiel, or other assistance to the Nicara- guan democratic resistance to support military or paramilitary operations in Nicaragua only as au- thorized in section 101 and as specified in the classified Schedule of Authorizations referred to in section 102, or pursuant to section 502 of the National Security Act of 1947, or to section 106 of the Supplemental Appropriations Act, 1985 (Public Law 99-88). Nothing in this section pre- cludes?(1) administration, by the Nicaraguan Humanitarian Assistance Office established by Executive order 12530, of the program of human- itarian assistance to the Nicaraguan democratic resistance provided for in the Supplemental Ap- propriations Act, 1985, or (2) activities of the Department of State to solicit such humanitarian assistance for the Nicaraguan democratic resist- ance. Public Law 99-190, Section 8050, became effective on December 19, 1985, and reads: None of the funds available to the Central Intelli- gence Agency, the Department of Defense, or any other agency or entity of the United States involved in intelligence activities may be obligat- ed or expended during fiscal year 1986 to provide funds, materiel, or other assistance to the Nicara- guan democratic resistance unless in accordance with the terms and conditions specified by sec- tion 105 of the Intelligence Authorization Act (Public Law 99-169) for fiscal year 1986. A classified amount was appropriated to the CIA to provide the Contras with communication equipment and related training. An additional classified amount was allocated to bolster intelligence-gathering in the region. Thus, Boland III permitted covered agencies to support the Contras only in particular ways, specif- ically by the provision of communications equipment, related training, and intelligence "information and advice." Exchange of Intelligence The Administration's ability to offer intelligence to the Contras, first acknowledged in August 1985, con- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 tinued with the enactment of Boland III. In addition, specific, classified appropriations were made to en- hance the exchanges of intelligence. But ambiguities as to the scope of the exception persisted. The CIA, for example, believed that it was not authorized to provide specialized logistics training.'" The President's Intelligence Oversight Board, on the other hand, interpreted the legislation as allowing military training, "so long as such training does not amount to the participation in the planning or execu- tion of military or paramilitary operations in Nicara- gua.,9 os Solicitation Section 105(bX2) of Public Law 99-169 explicitly stated that "nothing in this section precludes . . . activities of the Department of State to solicit . . . humanitarian assistance for the Nicara- guan democratic resistance." The Administration had sought this exception, but notably did not ask for permission to solicit lethal aid. The House conferees, moreover, specified that Boland III was intended to prohibit any solicitation that it did not authorize ex- plicitly: [The] State Department may solicit, through its normal diplomatic contacts, humanitarian assist- ance of the same type as is authorized by the Supplemental Appropriations Act for fiscal year 1985. No other department or agency involved in intelligence activities may engage in any type of solicitation for the Contras.109 Renewed Assistance: October 18, 1986, to September 30, 1987 By mid-1986, the mood of Congress had shifted back in favor of supporting the Contras. Ultimately, Congress would provide $100 million for the Nicara- guan opposition, of which $70 million could be used for non-humanitarian purposes. This swing began on March 27, 1986, when the Senate approved S.J. Res. 283 to provide $100 million for the anti-Sandinista forces. Senator Lugar spon- sored an amendment that contained no restrictions on the use of the CIA; it passed by a vote of 53 to 47.110 Amendments offered by Senators Edward M. Kenne- dy and Jim Sasser seeking to prevent funds from being used for military purposes were rejected.11' On June 25, 1986, the House approved an amend- ment offered by Representative Don Edwards, which became Title II of the Military Construction Appro- priation Act for Fiscal Year 1987, by a vote of 221 to 209.112 Under this legislation, $100 million of unobli- gated DOD funds for fiscal year 1986 could be used for the Nicaraguan opposition."3 On August 13, 1986, the Senate adopted the House position and sub- sequently approved the entire bill. Title II was ulti- mately incorporated into Public Law 99-500, which became effective on October 18, 1986.114 The Boland Amendments Were Violated in Letter and Spirit Boland II forced the CIA to withdraw from its role of fmancing, arming, training, _clothing, feeding, and supervising the Contras. But the vacuum was quickly filled. Acting to carry out ,the President's direction to keep the Contras together "body and soul," North, with the express approval of Poindexter and at least the acquiescence of McFarlane, took over where the CIA left off. With North as the action officer, the NSC staff raised funds from third countries, directed whether those funds should be sent to Secord or Calero, recruited the Enterprise to handle the logis- tics, helped the Enterprise run the resupply operation for the men in the field, and gave the ultimate direc- tions to Secord and his aides on how to conduct the operation. Even an ambassador, Lewis Tambs, took orders from North on opening a front against the Sandinistas. An isolated act of assisting the Contras may have presented a close question of law under Boland II and III. But the NSC staff's activities were not so limited. Its support for the Contras was systematic and perva- sive. As the CIA had done before Boland II, the NSC staff now ran the Contra insurgency. According to Poindexter, North "was the switching point that made the whole system work . . . . I viewed 011ie as the kingpin to the Central American opposition once the CIA was restricted." 5 Moreover, while the NSC staff started its support of the Contras at least in part with private funds, the diversion gave it control over funds that belonged to the United States. The profits that were skimmed were generated by the sale of weapons belonging to the United States. North, sometimes with the assist- ance of Earl, fixed the mark-up to ensure that there would be money to divert. The Secord-Hakim Enter- prise was not only brought into the sales as the "agent of the CIA," but, according to Hakim's and Secord's testimony, functioned at North's direction. Because Boland II and III both prohibited direct or indirect use of the United States funds, the diversion was a flagrant violation of those proscriptions. Even the amendment to Boland III, authorizing the State Department to solicit humanitarian funds for the Contras, was abused by the NSC. When Brunei agreed to transfer $10 million, North gave Abrams the account number of Lake Resources. According to Abrams, North represented that this account was one of Calero's and that the money would be used for non-lethal expenditures. But, in fact, it was controlled by the Enterprise and was used to pay for arms for the Contras, to pay their leaders, and to finance the military airlift. Giving Abrams the Lake Resources 405 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 account was a deliberate effort to divert funds solicit- ed for humanitarian purposes to lethal ends, and was foiled only because of an error in the account number. The Administration only recently has asserted that Congress lacked the authority to restrict the Presi- dent's options in Nicaragua in the manner it did. As in the case of the Sciaroni opinion, at no time prior to public disclosure of alleged violations of the Boland Amendments did the Administration come forward to challenge their constitutionality. On the contrary, Congress and the American people were routinely being assured that the statutes were being observed, "in letter and in spirit." As President Reagan himself stated during a press conference on April 14, 1983, "But what I might wish or our government might wish still would not justify us violating the law of the land."" 6 Surely an Administration should identify in a timely fashion those laws it claims a constitutional preroga- tive to ignore or subvert. But even beyond the aura of disingenuousness, the attack on the constitutionality of the Boland Amendment falls, in the Committees' col- lective opinion, far short of the mark. The analysis must begin, of course, with an appro- priate statement of what is, and is not, in issue. Some have attempted, for example, to cast the Boland Amendments as violative of the Supreme Court's famous dictum in United States v. Curtiss-Wright Export Corp.,117 referring to: the very delicate, plenary and exclusive power of the President as the sole organ of the federal government in the field of international rela- tions?a power which does not require as a basis for its exercise an act of Congress . . ." But one does not have to be a proponent of an imperial Congress to see that this language has little application to the situation presented here. We are not confronted with a situation where the President is claiming inherent constitutional authority in the ab- sence of an Act of Congress. Instead, to succeed on this argument the Administration must claim it retains authority to proceed in derogation of an Act of Con- gress?and not just any act, at that. Here, Congress relied on its traditional authority over appropriations, the "power of the purse," to specify that no funds were to be expended by certain entities in a certain fashion. Bearing this in mind, the Committees believe a more instructive decision than Curtiss-Wright is Dames & Moore v. Reagan."8 There, the Supreme Court upheld Executive Orders issued by President Carter to govern the treatment of claims against Iran after resolution of the hostage crisis 1979 and 1980. Chief Justice Rehnquist, then an associate justice, wrote for the Court and quoted portions of a concurring opin- 406 ion filed by Justice Jackson in the Steel Seizure Case."9 According to Chief Justice Rehnquist: When the President acts pursuant to an express or implied authorization from Congress, he exer- cises not only his powers but also those delegated by Congress. In such a case the executive action "would be supported by the strongest presump- tions and widest latitude of judicial interpretation, and the burden of persuasion would rest heavily upon any who might attack it." When the Presi- dent acts in the absence of congressional authori- zation he may enter a "zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain." In such a case, the analysis becomes more complicated, and the validity of the President's action, at least so far as separation-of-powers principles are con- cerned, hinges on a consideration of all the cir- cumstances which might shed light on the views of the Legislative Branch toward such action, including "congressional inertia, indifference or quiescence." Finally, when the President acts in contravention of the will of Congress, "his power is at its lowest ebb" and the Court can sustain his actions "only by disabling the Congress from action on the subject." 120 As the Committees have already noted, the Admin- istration's activities in support of the Contras were conducted in direct contravention of the will of Con- gress. It follows, then, that the President's constitu- tional authority to conduct those activities was "at its lowest ebb." It strains credulity to suggest that the President has the constitutional prerogative to staff and fund a mili- tary operation without the knowledge of Congress and in direct disregard of contrary legislation. To endorse such a prerogative would, in the language of Dames & Moore, "[disable] the Congress from action on the subject" and leave the Administration entirely unaccountable for such clandestine initiatives. In Federalist 75, Alexander Hamilton cautioned against granting the President too much authority over foreign affairs: The history of human conduct does not warrant that exalted opinion of human virtue which would make it wise in a nation to commit inter- ests so delicate and momentous a kind as those which concern its intercourse with the rest of the world to the sole disposal of a magistrate, created and circumstanced, as would be a president of the United States. While each branch of our Government undoubtedly has primacy in certain spheres, none can function in secret disregard of the others in any sphere. That, in essence, was the Administration's attempt here. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 Congress must be able to depend upon the Presi- dent for the execution of laws. It cannot be thrust into an adversarial role in which it must treat representa- tions from the President's staff with skepticism and incredulity. If the President believes that a law has provisions that are unconstitutional, he must either veto it or put Congress on notice of his position?as he did with portions of Gramm-Rudman. The one option the executive branch does not have is to pre- tend that it is executing the law when it is, in fact, evading it. The American system works well only when its branches of government trust one another. The Iran- Contra Affair is a perfect example of how to destroy that trust. 407 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I 1 ...t . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 Chapter 26 I. Report of the National Bipartisan Commission on Cen- tral America, Henry Kissinger, Chairman, Washington, D.C., 116 (1984). 2. The Congressional Research Service has compiled a complete legislative history of the Boland Amendments, which is reproduced at Vol. 133, No. 97, Cong. Rec. (daily ed., June 15, 1987), 4577-4990. 3. The contingency reserve is comprised of funds appro- priated by Congress for use by the CIA in covert oper- ations. 4. See generally, Amendment to the Intelligence Authori- zation Act for Fiscal Year 1983, 98th Cong., H. Rep. 98- 122, parts 1 and 2, May 13 and June 14, 1982. 5. Amendment to the Intelligence Authorization Act for Fiscal Year 1983, 98th Cong., H. Rep. 98-122, at 8. 6. See, e.g., "Fears of War Along the Border: A Covert United States Operation Slowly Spins Out of Control," Time, Dec. 6, 1982, at 37, 40; "A Secret War for Nicara- gua," Newsweek, Nov. 8, 1982, at 42-53. 7. Vol. 128, No. 143, Cong. Rec., H9148-49 (daily ed., Dec. 8, 1982). 8. Vol. 128, No. 143, Cong. Rec., H9158 (daily ed., Dec. 8, 1982). 9. Vol. 128, No. 143, Cong. Rec., H9156 (daily ed., Dec. 8, 1982). 10. Vol. 128, No. 143, Cong. Rec., H9159 (daily ed., Dec. 8, 1982). 11. Vol. 128, No. 151, Cong. Rec., S15350-51 (daily ed., Dec. 18, 1982). 12. P.L. 97-377, Section 793, 96 Stat. 1830. 13. The Continuing Appropriations Act for Fiscal Year 1984, P.L. 98-107, Section 101(c), 97 Stat. 735, provided, in a section devoted to appropriations for DOD and CIA appropriations, that "no appropriation or funds made avail- able or authority granted pursuant to this subsection shall be used to initiate or resume any project, activity, or organiza- tion. . . for which appropriations, funds, or other authority were not available during FY83." This provision would appear to have extended Boland I's prohibition from Oct. 1, 1983, to the enactment of Boland II as part of the Depart- ment of Defense Appropriations Act, P.L. 98-212, 97 Stat. 1452, on Dec. 8, 1983. 14. H.R. Rep. No. 98-122, 98th Cong., 1st Sess., Pt. 1 at 11 (May 13, 1983). 15. This conclusion was reached both by the Office of Legal Counsel of the Department of Justice and by the President's Intelligence Oversight Board. See Memorandum for the Attorney General from Theodore B. Olsen, Assist- ant Attorney General, Office of Legal Counsel, dated Apr. 27, 1984 (J790547926), at 12; Memorandum for the Presi- dent's Intelligence Oversight Board from Robert F. Turner, Counsel, dated Apr. 6, 1983 (J480844837), at 16-21. 16. The transition in the Administration's rationale for its support of the Contras can be traced through public state- ments made by the President and also through the evolution of the Presidential Findings on Central America and Nicara- gua. See Public Papers of the President: Ronald Reagan, Vol. I, January to June 1984 (Washington, D.C.: U.S. Gov- ernment Printing Office, 1986), at 384, 503-504, 726; see also Presidential Findings on Central America and Nicaragua, N16574, C06930, N32003-N32005, N17081-N17082, N9246- N9247. 408 17. Amendment to the Intelligence Authorization Act for Fiscal Year 1983, 98th Cong., H.R. 2760, July 28, 1983. See Section 801(a). 18. Amendment to the Intelligence Authorization Act for Fiscal Year 1983, 98th Cong., H.R. 2760, July 28, 1983. 19. See note 13, supra, regarding the status of Boland I after September 30, 1983. 20. Intelligence Authorization Act for Fiscal Year 1984, 98th Congress, H.R. 2968, May 16, 1983. The Committee's report simply incorporated by reference its earlier report on H.R. 2760. 21. See note 13, supra, regarding the status of Boland I after September 30, 1983. 22. Vol. 129, No. 138, Cong. Rec., H8389-8432 (daily ed., Oct. 20, 1983). 23. Vol. 129, No. 149, Cong. Rec., S15295 (daily ed., Nov. 3, 1983). 24. Vol. 129, No. 161, Cong. Rec., H10544 (daily ed., Nov. 18, 1983). Representative Boland's comments and House debate of November 18 on H.R. 2968. 25. Vol. 129, No. 161, Cong. Rec., H10544 (daily ed., Nov. 18, 1983). 26. Vol. 129, No. 161, Cong. Rec., H10487 (daily ed., Nov. 18, 1983). 27. Department of Defense Appropriations Act for Fiscal Year 1984, 98th Cong., P.L. 98-212, Stat. 1952, Section 775; Intelligence Authorization Act for Fiscal Year 1984, 98th Cong., P.L. 98-215, Stat. 1975, Section 108. 28. Continuing Appropriations for Fiscal Year 1985, 98th Cong., P.L. 98-473, Section 8066, Stat. 1935, 1984. 29. 1984 Cong. Quarterly Almanac 89. 30. Letter of April 9, 1984, from Chairman Goldwater to Director Casey. 31. 1984 Cong. Quarterly Almanac 89. 32. Senate amendment to H.R. 2163; House, adoption of H. Con. Res. 290. 33. The United States contested the Court's jurisdiction, and made no presentation on the merits of the suit. 34. Vol. 130, No. 101, Cong. Rec., H8284 (daily ed., Aug. 2, 1984). 35. Vol. 130, No. 129, Cong. Rec., S12879 (daily ed., Oct. 3, 1984). 36. Continuing Appropriations for Fiscal Year 1985 and for Other Purposes, 98th Cong., 2nd Sess., H. Rep. 98-1159 at 382. 37. Vol. 130, No. 133, Cong. Rec., H11974 (daily ed., Oct. 10, 1984). 38. Vol. 130, No. 133, Cong. Rec., H11980 (daily ed., Oct. 10, 1984). 39. Vol. 130, No. 134, Cong. Rec., 514205 (daily ed., Oct. 11, 1984). 40. Vol. 130, No. 134, Cong. Rec., S14205 (daily ed., Oct. 11, 1984). 41. President Reagan "Central American Peace Propos- al," Apr. 4, 1985, from Weekly Compilation of Presidential Documents, Vol. 21, No. 14, at 416-20. 42. Vol. 131, No. 48, Cong. Rec., S58924-25 (daily ed., Apr. 23, 1985). 43. Vol. 131, No. 48, Cong. Rec., H9085-86 (daily ed., Apr. 23, 1985). Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 44. McFarlane Test., Hearings, 100-2, at 129-30; id., Hearings, 100-7 Part II, 7/14/87, at 202. 45. Poindexter Test., Hearings, 100-8, 7/17/87, at 176. 46. North Test., Hearings, 100-7, Part I, 7/9/87, at 203. 47. Moore Int., 8/5/87; The Dallas Morning News, 7/16/ 87, at 10A. 48. McFarlane Test., Hearings, 100-2, 5/14/87, at 20. 49. See, e.g., Ex. RCM 30B (Memorandum from North recommending that North be allowed to approach private donors for replacement of Contra helicopter; handwritten notation by McFarlane on memorandum that "I don't think this is legal"). 50. See, e.g., Bob Jones University v. United States, 461 U.S. 574 (1983). 51. Exs. RCM 41C, 40B, and 41E. 52. Memorandum of Raymond J. Celada, Senior Special- ist in American Public Law, American Law Division, Cong. Research Service, Library of Congress, regarding "Legality of NSC Involvement in Support of the Contras," [hereinafter "Celada memorandum"] at 12. On the copy provided to the Committee, the addressee and the date of the memorandum have been deleted. According to its text, however, it was written in response to an "inquiry of August 13, 1985." Id., at 1. 53. Ex. BSG 26. These contemporaneous opinions relied to varying degrees upon the basic legal authorities under which the NSC staff operated., The NSC and its staff were created by the National Security Act of 1947. The Act provides: "the function of the Council shall be to advise the President with respect to the integration of domestic, for- eign, and military policies relating to the national security. . . ." Section 402(c) states: "the Council shall have a staff to be headed by a civilian executive secretary who shall be appointed by the President. . . ." Section 102, which created the CIA, begins by stating, "there is hereby established under the National Security Council a Central Intelligence Agency. . . ." 50 U.S.C. sec. 403 [emphasis added]. From its inception, the CIA has been "under" the NSC. Executive Order No. 12,333, the Administration's charter for intelligence activities, states that the NSC "shall act as the highest Executive Branch entity that provides review of, guidance for and direction to the conduct of all national foreign intelligence, counterintelligence, and special activities, and attendant policies and programs." ("Special activities" is a term generally applied to covert actions.) 54. Ex. BGS-9. 55. Sciaroni Test., Hearings, 100-5, 6/8/87, at 33; id. at 46. 56. Id. at 145. 57. Ex. BGS 9 at 2. 58. Ex. BGS 9 at 5, 6. 59. Sciaroni Test., Hearings, 100-5, 6/8/87, at 20. 60. Id. 61. Poindexter Test., Hearings, 100-8, 7/15/87, at 84-85. 62. Ex. RCM 40B. 63. Exs. JMP 7A, JMP 8, JMP 9 and JMP 10. 64. Poindexter Dep., 7/2/87, at 56. 65. Ex. JMP 14. 66. McFarlane Test., Hearings, 100-8, 7/14/87, at 204. 67. See Ex. BGS 9, at 3, n.5. 68. Poindexter Dep., 5/2/87, at 51. 69. Vol. 130, No. 133-4, Cong. Rec. (daily ed., Oct. 10 and 11, 1984). 70. In Decision B-201260, 60 Comp. Gen. 440 (1981), for example, the Comptroller General found that a provision forbidding the Customs Service from using any funds in its appropriation to pay overtime in excess of $20,000 to any single employee had been violated by an overpayment of $194.17, even though that amount had been reimbursed to the Service. In finding a violation, the Comptroller General cited, in particular, "the Administrative expenses of paying the excess $194.17 in overtime compensation," even though those expenses were "minimal." See also Decision B-196559, 59 Comp. Gen. 115 (1979) (interpretation of anti-lobbying restriction). See generally Principles of Federal Appropria- tions Law, at 3-24 to 3-210 (GAO 1982). 71. McFarlane Test., Hearings, 100-2, 5/12/87, at 129-30. 72. North Test., Hearings, 100-7, Part I, 7/8/87, at 154. 73. Id., at 164. 74. Id., at 170. 75. 1984 Cong. Quarterly Almanac 90. 76. Vol. 131, No. 49, Cong. Rec. (daily ed., Apr. 24, 1985) vote on Michael amendment. 77. Vol. 131, No. 73, Cong. Rec., S7637 (daily ed., June 6, 1985) Senate debate. 78. Vol. 131, Nos. 73, 80, Cong. Rec. (daily ed., June 6 and 12, 1985). 79. Vol. 131, No. 73, Cong. Rec., S7628-S7648 (daily ed., June 5, 1985). 80. Vol. 131, No. 80, Cong. Rec., H4169-H4170 (daily ed., June 12, 1985). 81. Daniel Ortega went to Moscow on April 28, 1985. 82. 131 Cong. Rec., S7628, June 6, 1985. 83. H.R. 2577, Ch. V. 84. Conf. Rep. No. 99-236, 99th Cong., 1st Sess., at 56 (July 2, 1985). 85. International Security and Development Cooperation Act of 1985, 99th Cong., P.L. 99-83, Section 722(d), Stat. 149, Aug. 8, 1985. 86. International Security and Development Cooperation Act of 1985, 99th Cong., P.L. 99-83, Section 722(e), Stat. 149, Aug. 8, 1985. 87. Supplemental Appropriations for the Fiscal Year Ending September 30, 1985, 99th Cong., P.L. 99-88, Stat. 324, Section 102(b). 88. International Security and Development Cooperation Act of 1985, P.L. 99-83, 99th Cong., Section 722(g), Stat. 249, Aug. 8, 1985; Conference Committee Report on 99-83, at 144. 89. H. Rep. 98-122, which accompanied H.R. 2760, stated that the legislation would "not prohibit the collection, pro- duction, or analysis of intelligence by U.S. intelligence ele- ments, nor the provision of such intelligence to friendly foreign countries, as long as such activity does not support military or paramilitary operations in Nicaragua by any foreign nations or other entity," at 14. 90. 15071. 91. See Vol. 131, No. 80, Cong. Rec., H4143 (daily ed., June 12, 1985) (Statement of Rep. Boland). 92. Vol. 131, No. 80, Cong. Rec., H4143 (daily ed., June 12, 1985); see also Vol. 131, No. 80, Cong. Rec., H4131 (daily ed., June 12, 1985) (Statement of Rep. Bonior). 93. Vol. 131, No. 80, Cong. Rec., H4144 (daily ed., June 12, 1985). 94. The Conference Report on the International Security and Development Cooperation Act of 1985 explained that this exception allowed "the sharing of intelligence informa- 409 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 ..1 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 26 tion with the democratic resistance." H. Rep. 99-237, at 144. 95. Vol. 131, No. 80, Cong. Rec., H4145 (daily ed., June 12, 1985). 96. Q338. 97. Security and Development Assistance: Hearings Before the Sen. Comm. on Foreign Relations, 99th Cong., 1st Sess., at 908-10 (1985). 98. Department of Defense Appropriations for 1986: Hearings Before a Subcomm. of the House Comm. for Ap- propriations, 99th Cong., 1st Sess. 1091-92 (1985). 99. Memorandum for the General Counsel, 8/23/84, C415. 100. McFarlane Test., Hearings, 100-2, at 44-48; id, at 127. 101. Ex. RCM 40B. 102. North Test., 7/9/87, at Hearings, 100-7, Part 1, at 271; Id., 7/7/87, at 91; see e.g. O'Boyle Test., 5/21/87, at 100-3 at 118. 103. North Memo, 1/15/86 to McFarlane: Subj: "Nicara- gua Options," N45025. 104. International Security and Development Cooperation Act of 1985; Conference Report 99-237 to accompany S. 960, 99th Cong., July 29, 1985, at 143. 105. International Security and Development Cooperation Act of 1985; Conference Report 99-237 to accompany S. 960, 99th Cong., July 29, 1985, at 143. 106. As early as December 11, 1984, Representative Ad- dabbo had expressed concern over the possibility that for- eign assistance funds were being redirected to the Contras. In a letter to Secretary Shultz, he wrote "I am concerned that countries receiving U.S. foreign assistance aid may be utilizing a portion of such aid to assist the Contras and, in doing so, effect a rather devious contravention of the law prohibiting such aid," N31162. 107. CIA document, Subj.: "Question for the Record re- garding January 28 Covert Action Update Briefing," C5284-85. 410 108. Intelligence Oversight Board memorandum of Apr. 8, 1986, discussing the communications and advice provision of legislation concerning the Nicaraguan opposition, N33562. See also C924 (letters from Representative Hamil- ton and Senator Durenberger). 109. Vol. 131, No. 159, Cong. Rec., H10294 (daily ed., Nov. 19, 1985) (emphasis added). 110. Vol. 132, No. 40, Cong. Rec. (daily record, Mar. 27, 1986). Senate floor debate and vote on S.J. Res. 283, 111. Vol. 132, No. 40, Cong. Rec. (daily record, Mar. 27, 1986). Kennedy Amendment No. 1716 to S.J. Res. 283 to prohibit any United States assistance to military and para- military groups operating in Nicaragua was rejected by a vote of 76 nays to 24 yeas. Similarly defeated was a second Kennedy Amendment, No. 1727, which sought to prevent the introduction of United States personnel into Nicaragua. A Cranston-Sasser amendment, No. 1722, calling for bilater- al negotiations, also was rejected., 112. Vol. 132, No. 88, Cong. Rec., H4253 (daily ed., June 25, 1986). 113. Vol. 132, No. 88, Cong. Rec., H4237 (daily ed., June 25, 1986). 114. Continuing Appropriations for Fiscal Year 1987, 99th Cong., P.L. 99-500, Section 201, Stat. 1783, 295-300, Oct. 18, 1986. See also discussion in Vol. 132, No. 88, Cong. Rec. (daily ed., June 25, 1986), House floor debate, H4253- 80. 115. 116. at 541. 117. 118. 119. Poindexter Dep., 5/2/87, at 63. Public Papers of the President: Ronald Reagan, 1983, 299 U.S. 304, 319-20 (1936). 453 U.S. 654 (1981). Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952). 120. 453 U.S. at 668-69 (emphasis supplied; quoting in part from Jackson, J., concurring in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. at 637-38). Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 SIR THOMAS MORE: law. I know what's legal I'll stick to what's legal . . WILLIAM ROPER: So Devil benefit of law! Chapter 27 Rule of Law The law, Roper, the not what's right. And . . now you'd give the MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: Oh? And when the last law was down, and the Devil turned round on you?where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast?Man's law, not God's?and if you cut them down?and you're just the man to do it? d'you really think you could stand upright in the winds that would blow then? ?A Man For All Seasons by Robert Bolt Too many laws were "cut down" in the Iran- Contra Affair by officials who, like Roper, decided that the laws inhibited pursuit of their goals. This process began when members of the National Security Council staff decided "to take some risks" with the law, in John Poindexter's words, in order to continue support for the Contras. At the end, as Oliver North acknowledged, they were engaging in conduct such as lying to Congress that they knew was plainly "wrong." The Committees were charged by their Houses with reporting violations of law and "illegal" or "unethical" conduct,2 and if the Committees are to be true to their mandates, they cannot hesitate to draw the inevitable conclusions from the conduct these offi- cials displayed during this affair. The judgments of these Committees are not the same as those required of the Independent Counsel. He must decide whether there was criminal intent behind any violation, whether there are any extenuat- ing circumstances, and whether prosecution is in the public interest. The Committees express no opinions on these subjects and our comments in this section are purposefully general so as not to prejudice any indi- vidual's rights. Our focus is not on whether the tech- nical and demanding requirements of criminal statutes have been met, but on whether the policy underlying such statutes has been frustrated. Moreover, the list of statutes implicated by the Iran-Contra Affair is not exhaustive. Because of the importance of the Boland Amend- ment to this investigation, this Report considers the applicability of that Amendment to the NSC in a separate chapter. The only issue under the Boland Amendment that is addressed in this chapter is the legality of the diversion. The Boland Amendment aside, however, the Committees find that activities in the Iran-Contra Affair, including the diversion, were conducted and later covered up by members of the NSC staff in violation of the Constitution and of ap- plicable laws and regulations. Use of Donated Funds to Evade Congress' Power of the Purse Overview The Committees find that the scheme, taken as a whole, to raise money to conduct a secret Contra- support operation through an "off-the-shelf" covert capacity (the Enterprise) operating as an appendage of the NSC staff violated cardinal principles of the Constitution. Several witnesses at the public hearings contended that the covert action to support the Contras did not violate the Boland Amendment because it was fi- nanced by contributions, not appropriated funds. The Boland Amendment by its terms, they maintained, only prevented the President from spending appropri- ated funds to support the Contras. But that ignores a greater principle. The Constitution contemplates that the Government will conduct its affairs only with funds appropriated by Congress. By resorting to funds not appropriated by Congress?indeed funds denied the executive branch by Congress?Administration of- ficials committed a transgression far more basic than a violation of the Boland Amendment. The power of the purse, which the Framers vested in Congress, has long been recognized as "the most important single curb in the Constitution on Presiden- tial Power." 3 The Framers were determined not to 411 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 combine the power of the purse and the power of the sword in the same branch of government. They were concerned that if the executive branch had both the power to raise and spend money, and control over the armed forces, it could unilaterally embroil the country in war without consent of Congress, notwithstanding Congress' exclusive power to declare war. When members of the executive branch raised money from third countries and private citizens, took control over that money through the Enterprise, and used it to support the Contras' war in Nicaragua, they bypassed this crucial safeguard in the Constitution. As Secretary of State George Shultz testified at the public hearings: "You cannot spend funds that the Congress doesn't either authorize you to obtain or appropriate. That is what the Constitution says, and we have to stick to it."4 The Power of the Purse and the Constitution Article I, Section 9, Clause 7 of the Constitution, the appropriations clause, provides: No money shall be drawn from the Treasury, but in consequence of appropriations made by law. The appropriations clause was intended to give Con- gress exclusive control of funds spent by the Govern- ment, and to give the democratically elected repre- sentatives of the people an absolute check on Execu- tive action requiring expenditure of funds. The Framers viewed Congress' exclusive power of the purse as intrinsic to the system of checks and balances that is the genius of the United States Consti- tution. James Madison, the principal architect of the Con- stitution, explained: The House of Representatives alone can propose the supplies requisite for the support of govern- ment. They, in a word, hold the purse. . . . This power of the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people for obtaining a re- dress of every grievance, and for carrying into effect every just and salutary measure.5 Col. George Mason, another Constitutional Conven- tion delegate, stated, ". . . the purse and the sword ought never to get into the same hands, whether legislative or executive This concept has been a guiding constitutional prin- ciple for 200 years. As President Reagan stated at an October 22, 1987, press conference: "The President of the United States cannot spend a nickel. Only Con- gress can authorize the spending of money."7 Congress' exclusive control over the expenditure of funds cannot legally be evaded through use of gifts or donations made to the executive branch. Were it oth- 412 erwise, a President whose appropriation requests were rejected by Congress could raise money from private sources or third countries for armies, military actions, arms systems, and even domestic programs. The Government may, of course, receive gifts.9 However, consistent with Congress' constitutionally exclusive power of the purse, gifts like all other "mis- cellaneous receipts" must, by statute (31 U.S.C. Sec- tion 484) be placed directly into the Treasury of the United States,9 and may be spent only pursuant to a Congressional appropriation.10 * The Constitutional process that lodges control of Government expenditures exclusively in Congress is further enforced by the Anti-Deficiency Act (31 U.S.C. Section 1341) which prohibits an officer of the United States from authorizing an expenditure that has not been the subject of a Congressional appropria- tion, or that exceeds the amount of any applicable appropriation. Thus it provides: An officer or employee of the United States Government may not make or authorize an ex- penditure or obligation exceeding an amount available in an appropriation or fund for the ex- penditure or obligation; or involve [the] govern- ment in a contract or obligation for the payment of money before an appropriation is made unless authorized by law. Violations of the Anti-Deficiency Act are made crimes by 31 U.S.C. Section 1350. ** *The significance of this proposition is explained in a major General Accounting Office publication on Appropriations Law, which serves as a guide for Government officials: Once money is deposited into a "miscellaneous receipts" ac- count, it takes an appropriation to get it back out. E.g. 3 Comp. Gen. 296 (1923); 2 Comp. Gen. 599,600 (1923). Thus, the effect of 31 U.S.C. Section 484 is to ensure that the execu- tive branch remains dependent on the Congressional appropria- tions process. . . [it] emerges as another element in the statuto- ry pattern by which Congress retains control of the public purse under the separation of powers doctrine. See 51 Comp. Gen. 506,507 (1972). (Principles of Federal Appro- priations Law, United States General Accounting Office, Office of General Counsel, pp. 5-65). "Use by the Executive of gifts to pay for programs not funded by Congress is also prohibited by the doctrine against augmentation of appropriations, which the GAO also explained: The prohibition against augmentation is a corollary of the separation-of-powers doctrine. . . . To permit an agency to operate beyond [its appropriation] with funds derived from some other source without specific congressional sanction would amount to a usurpation of the congressional prerogative. Restated, the objective of the theory against augmentation of appropriated funds is to prevent a government agency from undercutting the congressional power of the purse by circu- itously exceeding the amount Congress has appropriated for that activity . . . . (Id. at pp. 5-62.) Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 Use of the Enterprise to Mask the Fact that the U.S. Government Had Taken Control of the Donations The constitutional scheme, which these laws ampli- fy, is thus a simple one. Congress is dependent upon the executive branch to execute the law it passes; and the executive branch is dependent upon Congress to appropriate the funds to carry on its activities. This mutual dependence is at the heart of the system of checks and balances. The Constitutional plan did not prohibit the Presi- dent from urging other countries to give money di- rectly to the Contras." But the Constitution does prohibit receipt and expenditure of such funds by this Government absent an appropriation. This prohibition may not lawfully be evaded by use of a nominally private entity, if the private entity is in reality an arm of the Government and the Government is able to direct how the money is spent. The law with respect to when a nominally private company is an arm of the Government such that expenditure of its funds is governed by rules applica- ble to expenditure of Government funds is summa- rized in Motor Coach Industries, Inc. v. Dole, 725 F.2d 958, 964-65 (4th Cir. 1984). There, the Court articulat- ed a multifactor approach for resolving when an os- tensibly private entity like a trust is a Federal entity: We must consider, at a minimum, the purposes for which the trust was established; the public or private character of the entity spearheading the trust's creation; the identity of the trust's benefici- ary and administrators; the degree of control ex- ercised by the public agency over disbursements and other details of administration; and the method by which the trust is funded." Lake Resources, the flagship of the Enterprise, was created by Richard Secord and Albert Hakim at North's request in July 1985. North did not like the way Contra leader Adolpho Calero was spending the donations received earlier, and he wanted more con- trol over expenditures. By North's own admission, Lake Resources was to be an "off-the-shelf" company to conduct a "full service covert action" in support of the Contras and other governmental projects. North referred to it in his PROF messages to Poindexter as "our Lake Resources company." North was responsible, directly or indirectly, for virtually all the income of Lake Resources and the other companies in the Enterprise, and he had the power to direct its expenditures. North instructed Secord to spend money for airplanes, an airstrip, and munitions for the Contras and Secord did. He in- structed Secord to spend money on radios for a politi- cal party in a foreign country and Secord did. He instructed Secord to spend its money for a ship to conduct an intelligence operation and Secord did. He instructed Secord to spend cash in support of a Drug Enforcement Agency operation to free U.S. hostages and Secord did. North had secure communication devices in his office and those of all principal operatives in the covert action. Using these devices, North was able to maintain control of the most minute details of the operation. On one occasion, he even instructed pilots on the coordinates to be used in a weapons drop to the Contras inside Nicaragua. Lake Resources was created for the very purpose of conducting Government operations while evading the Congressional appropriations power. In describing Director of Central Intelligence William Casey's plan for an off-the-shelf covert capacity, North testified: Q: Do you remember giving testimony about the fact that Director Casey wanted something that he could pull off the shelf and that is why he was excited about the fact that you were now able to generate some surpluses That could be used? A: That is correct. Q: Why don't you give us a description of what he said, or as you understood it, what he meant by pulling something off the shelf? A: Director Casey had in mind, as I understood it, an overseas entity that was capable of con- ducting operations or activities of assistance to U.S. foreign policy goals that was a stand-alone. Q: Self-financed? A: That was self-financing, independent of appro- priated monies and capable of conducting activi- ties similar to the ones that we had conducted here.' 3 (Emphasis added.) The concept of an off-the-shelf covert company to conduct operations with funds not appropriated by Congress is contradictory to the Constitution. The decision to use the Enterprise to fight a war with unappropriated funds was a decision to combine the power of the purse and the power of the sword in one branch of government. Referring to the concept of having independently financed entities conduct covert actions to avoid Con- gressional review, Secretary Shultz said: "This is not sharing power, this is not in line with what was agreed to in Philadelphia. This is a piece of junk and it ought to be treated that way."14 As former Secretary of State Henry Kissinger re- cently wrote with particular reference to the use of the proceeds of the Iranian arms sales: On the formal level the case is obvious. The Executive branch cannot be allowed?on any claim of national security?to circumvent the Congressional prerogative over appropriations by 413 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 ? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 raising its own funds through the sale of govern- ment property.' 5 Legal Advice The President may have received support for use of third country funds from a decision at the June 1985 National Security Policy Group meeting, which he attended, to seek the advice of Attorney General Wil- liam French Smith before any funds were obtained from third countries. At that meeting, Secretary Shultz warned that so- licitation of third-country funds that the Government could control might be an "impeachable offense," at- tributing this opinion to Chief of Staff James Baker. Casey disagreed and offered to obtain an opinion from Attorney General Smith.' 6 When Casey approached the Attorney General the following day, however, he drew the question nar- rowly, asking only whether Nicaragua's neighbors could be urged to help the Contras. The Committees have received evidence that Attorney General Smith gave an oral opinion that this would not be unlawful. As noted above, the Constitution does not prohibit a President from urging foreign countries and private citizens to give money to causes which the President supports, so long as this Government does not take control of the money. But no representatives of the Justice Department were ever asked to express an opinion that it was constitutional for members of the executive branch to do what they did here?raise money from third coun- tries and private parties, put the money in an entity controlled by the Executive, and direct its expendi- ture for projects of the executive branch. Nor did any legal officer of the Government ever suggest that it was lawful or constitutional to divert proceeds from the sale of U.S. property for purposes forbidden by the Congress. The oral, on-the-spot advice of Attorney General Smith to Casey that Central American countries could be approached may in the transmission have been given a broader interpretation. The Committees simply do not know. But the Iran-Contra Affair cannot stand as a precedent for bypassing the consti- tutional requirement for appropriations. Securing funds, without Congressional authorization, to fund Government programs run by Government officials, is a direct violation of the Constitution that cannot be condoned. Section 501 of the National Security Act and Related Regulation The Committees find that the failure to notify the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence of the covert action to support the Contras violated the 414 Congressional notice provisions of Section 501 of the National Security Act; and that the delay in notifying Congress of the Iran arms sales abused whatever flexi- bility Congress built into the statute. Section 501 of the National Security Act requires that Congress be notified of all covert actions con- ducted by any agency of Government. The statute provides: The Director of Central Intelligence and the heads of all departments, agencies and other entities of the United States involved in intelligence activities shall: (1) keep the Select Committee on Intelligence of the Senate and Permanent Select Committee on Intelligence of the House of Representatives (hereinafter in this section referred to as the "In- telligence Committee") fully and currently in- formed of all intelligence activities which are the responsibility of are engaged in by or are carried out for or on behalf of any department, agency, or entity of the United States, including any signifi- cant anticipated intelligence activity. (Emphasis added.) There are only two exceptions or qualifications to the requirement of prior notice. First, the relevant head of a department, in lieu of notifying both Intelli- gence Committees, may notify the two ranking Mem- bers of each Intelligence Committee, and the two ranking Members of each House of Congress. This requires a personal decision by the President of the United States. Second, the Act recognizes that there are circum- stances under which the President may not have pro- vided any prior notice to Congress. In such a case, he must "fully inform the Intelligence Committees in a timely fashion" with a "statement of the reasons for not giving prior notice." This also requires a personal decision by the President.17 The notification provision of Section 501 serves vital purposes for both Congress and the executive branch. First, the required notification allows for ben- eficial congressional input in decisions that may affect important national interests. As former Director of Central Intellience William E. Colby said during con- sideration of the Act, discussion with Congressional officials of planned covert actions "enables the Execu- tive to get a sense of Congressional reaction and avoid the rather clamorous repudiation which has oc- curred in certain cases. . . . I think that is a helpful device."' 8 Second, notification enables Congress to fulfill its constitutionally mandated role of monitoring Execu- tive actions in the area of national defense and foreign policy lest covert actions entangle the country in overt hostilities. As a mechanism for consultation be- tween the executive and legislative branches, notifica- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 tion helps to address the anomaly of formulating plans for secret action within a democracy. The language of Section 501, as well as its legisla- tive history, was the product of a delicate compro- mise between Congress and the executive branch. The purpose of the compromise was to avoid a confronta- tion with President Carter, who maintained there might be situations in which he should not be re- quired to give prior notice, and that a statute requir- ing such disclosure in every case would interfere with his constitutional responsibilities. After lengthy con- sultation with the Administration, the statute was crafted so as to permit the Congress and the President to continue to disagree. This was done by the inclu- sion of a preamble that states that the notice require- ments apply "to the extent consistent with all applica- ble authorities and duties, including those conferred upon the executive and legislative branches of the Government," and by recognizing that there might be circumstances where prior notice is not given. Deferral of notice was intended to be the exception, not the rule. For example, Senator Dee Huddleston, the lead sponsor of the bill, stated: I myself believe that the only constitutional basis for the President to withhold prior notice of a significant intelligence activity would be exigent circumstances when time does not permit prior notice; in such a case the committee could be notified as soon as possible." Similarly, Senator Daniel Inouye said during consid- eration of the Conference Report on the Intelligence Oversight Act: I am of the firm belief that the only time the President has the constitutional authority to with- hold prior notice to the intelligence committees would be in matters of extreme exigency. In my experience as chairman of the Intelligence Com- mittee and as a continuing member of that com- mittee, and after 4 years of reviewing the covert operations of our intelligence system, I cannot conceive of any circumstance which would re- quire the withholding of prior notice except where the nation is under attack and the Presi- dent has no time to consult with Congress before responding to save the country.2? The Administration's conduct in the Iran-Contra Affair was inconsistent with these standards. The Contra Covert Operation Under Section 501, the President alone can make a determination to delay notice of a covert operation. The President did not make a personal determination that notice of the NSC staffs Contra support activity should either be delayed or limited. Indeed, he has publicly disclaimed knowledge of the covert action. Thus, prior notice to Congress of the covert action by the NSC staff was required. No notice of any kind was ever sent to Congress concerning the Contra covert action conducted by the NSC staff. On the contrary, the NSC staff took every step to keep Congress from discovering its ac- tivities. The covert action was carried out in violation of the Congressional notice provisions of the National Security Act. The Iranian Arms Sales The President did know of the Iran arms sales, and he made a deliberate decision not to notify Congress. Thus, Congress did not learn of direct arms sales to Iran, approved by the Finding of January 17, 1986, until the press reported it in November 1986. Con- gress did not learn of the December 5, 1985, Finding approving U.S. participation in the Israeli shipments until Poindexter's testimony was compelled under a grant of immunity. As a consequence of the Presi- dent's decisions not to notify Congress, the operation continued for over a year through failure after failure, and when Congress fmally did learn, it was not through notification by the Administration, but from a story published in a Beirut weekly. The flexibility afforded the President for providing notice to Congress was abused by this delay. The reason cited for not notifying Congress was not that there was insufficient time to notify Congress?the only reason recognized in the legislative history justi- fying absence of prior notice?but that leaks might result and could endanger the hostages. There was no evidence to support such a rationale. The hostages had value to their holders only while they were alive.21 The Intelligence Committees frequently are entrusted with information about covert operations in which disclosure would put American lives at risk. Moreover, the information the Administration with- held from Congress was given at various times to an Iranian intermediary who failed several CIA lie detec- tor tests, officials of the Government of Iran, officials of the Government of Israel, officials of the Govern- ment of a European country, private Israeli business- men, and private U.S. citizens who did not have secu- rity clearances, such as Hakim. It is a fair conclusion, therefore, that the Adminis- tration chose not to notify Congress of the arms-for- hostages initiative precisely because it anticipated Congress' objections and knew that the Secretaries of State and Defense would not defend the initiative. Indeed, the Iran initiative was contrary to longstand- ing national policies and to common sense, and the Administration might have abandoned the plan rather than disclose it to Congress. All covert actions can be supported by strong argu- ments for secrecy. If the Administration can use these arguments as reasons to withhold notice where its plans are most suspect, Section 501 of the National 415 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 .4 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 Security Act is all but nullified. It is precisely when a covert action is suspect and potentially embarrassing that Congressional notice is most important. It is also then that the Administration is most in need of inde- pendent evaluations and criticism of proposed poli- cies. And it is then when Congress, the representative of the people, must be given at least the opportunity to be heard in secret before action that could be calamitous for the Nation is carried out. The DEA Hostage Rescue Operation In 1985 and 1986, the NSC used DEA agents to conduct a covert operation designed to free the hos- tages. The details of this operation are described in Chapter 23 of this Report. Congress must be notified of such operations under Section 501 of the National Security Act. No notice of any kind was provided to Congress about this operation, and no decision was ever made by the President that prior notice should be withheld or delayed. Thus, failure to notify Congress of the DEA covert operation violated the law. Executive Order 12333, and NSDD 159 The procedures applicable to covert actions are gov- erned not only by statutes, but by executive orders and National Security Decision Directives (NSDDs). These are written regulations signed by the President of the United States, and are binding on the entire executive branch until they are rescinded or changed by the President. They, too, were violated. Executive Order 12333 issued by the President pro- vides that "no agency except the CIA . . . may conduct any special activity (elsewhere defined to include covert actions overseas) unless the President determines that another agency is more likely to achieve a particular objective." There was no Presidential determination that the NSC staff should conduct the Contra covert oper- ation, and thus the NSC staff's covert action in sup- port of the Contras violated the President's executive order. Similarly, National Security Decision Directive 159, promulgated by the President, provides that no covert action overseas may be conducted by any agency of Government unless it is authorized by a written Finding signed by the President. There was no written Finding signed by the Presi- dent approving the covert action by the NSC staff in support of the Contras. Thus the NSC staff's activity violated this directive. 416 Violations of 18 U.S.C. Section 1001 We have described elsewhere (Part IV) the elaborate efforts by Government officials to conceal their Contra-support activities from Congress. It is enough to say here that, among other things, Congress was told by an Administration official orally and in writing in 1985 that the NSC staff was not engaged in fundraising or arranging military support for the Contras. Congress was personally told by North in 1986 that he was not engaged in fundraising or giving military advice to the Contras. Congress was told in testimony by Administration officials in October 1986 that the Government had no connection to the plane carrying Eugene Hasenfus. And Congress was told in testimony by Administration officials in October, November, and December 1986 that the Ad- ministration was not involved in raising funds for the Contras from foreign countries, including specifically funds from Country 2. These statements were all untrue. They were made by officials who had varying degrees of knowledge about the facts they discussed. Some of the statements may have been unintentionally misleading and made by officials who were themselves deceived; others were outright falsehoods. Most of these statements were not under oath. But for the branches to operate in a cooperative relation- ship, Congress must be able to rely on statements even if unsworn. Congress and the executive branch are partners, not adversaries. The law recognizes this, and the false statement statute, 18 U.S.C. 1001, provides felony criminal pen- alties for knowingly false, fictitious, and fraudulent statements to Congress,22 even if not made under oath.2 3 Some officials claimed they were forced to choose between making false statements and revealing infor- mation they believed should remain secret. Govern- ment officials may claim any valid privilege including executive privilege, as a basis for refusing to answer questions or provide documents, and thus set in motion procedures for lawfully resolving the claim. But under the U.S. legal system, public officials do not have the option of making false statements to Congress. 24 The Diversion Boland Amendment The Committees find that the diversion of arms sales proceeds to the Contras' war effort was an evasion of the Boland Amendment no matter how narrowly that noncriminal statute is construed. The Boland Amendment provides that "no funds available to the Central Intelligence Agency, the De- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 partment of Defense, or any other agency or entity involved in intelligence activities" may be spent for military support of the Contras. (Emphasis added.) The missiles that were sold to Iran in 1986 came from Department of Defense stocks. The missiles had been purchased with money appropriated for the De- partment of Defense by Congress, and the missiles belonged to the Department of Defense. The Depart- ment of Defense sold the missiles to the Central Intel- ligence Agency, and the Central Intelligence Agency sold the missiles to Iran. The memorandum to the President dated January 17, 1986, outlining the arms sales the President ap- proved that day spells this out very clearly. It states that the CIA would purchase the missiles from DOD and would sell the missiles "directly" to Iran, using an "agent"?i.e., the various Enterprise companies? to handle the actual transactions. Iran paid $28.5 million for those weapons. In the ordinary course, the purchase price is paid to the seller, i.e., the CIA. In this case, however, National Security Adviser Poindexter decided, on North's rec- ommendation, that only a portion of the money should go to the CIA, with the rest remaining in the custody of Secord's companies before being used to support the Contras. Thus, Poindexter testified: Q: Who decided how that money would be used? A: The?my guidance to Colonel North what he requested and I approved, was that those funds should be used for support of the contras in Cen- tral America so they could keep pressure on the Sandinistas. Q: So the decision?and I think you said earlier in your testimony, "the buck stops here"?the decision as to how that money was to be used was made by you? A: Was my decision; that is correct.25 Poindexter could also have decided that all of the purchase price be remitted to the CIA. North testified as follows: Q: The question was, if those higher-ups in the U.S. Government from whom you sought ap- proval decided that the $10 million [residue] should not, any part of it, be sent to the contras but should all come back to the U.S. Treasury, that is what would have happened isn't it? A: Yes." Given the Enterprise's status as an agent, and the NSC staffs control over the pricing and the proceeds of the arms sales, the full purchase price was available to the CIA. These funds, generated from the sale of U.S. weapons, could no more be diverted to the Con- tras than the weapons themselves. Proceeds of Arms Sales Funds of the United States The Committees find that the full proceeds of the arms sales to Iran belong to the U.S. Government. Consequently, these funds are governed by statutes applicable to Government funds, including statutes prohibiting conversion of U.S. Government funds to unauthorized purposes. As already noted in the previous section, Secord's Enterprise received the purchase price for the missiles in its capacity as agent for the United States. This conclusion is strongly supported by the documentary and testimonial evidence. The President approved the arms sales based on the January 17, 1986, memoran- dum, which states that the purchase price "would be transferred to an agent of the CIA," and that the CIA would "deliver the weapons to Iran through the agent." That memorandum is consistent on this point with other documents in the Committees' possession.* Moreover, as noted above, the Enterprise conducted itself in a manner consistent with its status as an agent of the United States, spending money for Government purposes?for the Contras, for a foreign country, for a ship, and for a DEA operation?all at the direction of Government officials.27 The Enterprise's profits from the Iran arms sales were not the result of entre- peneurial risks or skills. The Government determined the price which the Enterprise paid for the missiles and approved and negotiated the price at which the missiles were sold to Iran. Government funds include not only funds in the physical possession of the Government, but funds that, although in the possession of another, are under the Government's control." When an agent of the Government collects money owed to the Government by a customer of the Government, the money belongs to the Government and cannot be converted to some other use. Arbuckle v. United States, 146 F.2d 657 (D.C. Cir. 1944). The chief legal officer of the United States appears to be in agreement with the Committees on this point. The Attorney General of the United States took the position in an official request for assistance to the Central Authority of Switzerland, dated December 12, 1986, that the full proceeds of the arms sales were funds of the United States; and gave similar testimony to these Committees. Thus, referring to these funds he ? Other memorandums confirm the Enterprise's role as agent in the Iran arms sales. The proposal to sell missiles directly to Iran first appeared in a December 9, 1985, memorandum from North to Poindexter, suggesting "using Secord as our conduit." A memoran- dum by CIA General Counsel Stanley Sporkin dated January 15, 1986, makes three separate references to an "agent" who would supply the weapons to Iran and "act as a middleman with our authority." And the January 17, 1986, Memorandum to the Presi- dent makes the final proposal to have the CIA transfer the weapons "directly" to Iran "using an authorized agent as necessary." 417 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 said: "I would say that as a general matter, it is highly probable that those funds should be on a constructive trust theory or agency theory the property of the United States." 29 Government funds coming into the hands of an officer or agent of the United States must be paid immediately into the Treasury (31 U.S.C. Sections 484, 3302) and may not be applied to some other use (18 U.S.C. Section 641). Consequently, it is the Com- mittees' judgment that all funds derived from the pro- ceeds of the sale of arms to Iran currently in the custody of the Enterprise or its representatives belong to the United States and by law should be returned to the United States Treasury forthwith. Iran Arms Sales: Arms Export Control Act The Committees find that the Administration's ap- proval of the transfer of weapons to Iran by Israel violated the Arms Export Control Act (AECA).3? All the HAWKS and TOWs that Israel transferred to Iran in 1985 had earlier been obtained from the United States under the AECA. Agreements between this country and Israel prohibited Israel from transfer- ring the arms to any third country without first ob- taining written consent of the United States.31 Under the AECA, the President may not provide that consent unless: (1) the United States itself would transfer those arms to that country; (2) the transferee country (here Iran) agrees in writing that it will not further transfer the items without obtaining the con- sent of the President; and (3) the President notifies Congress of the transfer (22 U.S.C. Section 2753(a)).32 The President's authorization of the 1985 Israeli transfers to Iran were made without even a pretense of compliance with the AECA or Israel's written agreements with the United States. No written con- sent was sought or given; and even if Israel had sought a written consent, this Government could not have given it without changing its own regulations. This is so because Iran, which was considered a ter- rorist nation by the United States and which was the subject of a U.S. arms embargo, was not eligible for direct sales.33 No written Iranian retransfer assur- ances were obtained nor could they have been. Final- ly, no notice was given to Congress. In 1985, the Secretary of Defense stated vigorously to the President that he believed the sales were ille- gal. He restated his belief before these Committees in 1987: A: But my feeling about that was, as I've men- tioned to you earlier, that the Export Control Act doesn't permit a blanket approval in advance or anything of that kind and does not permit exports, did not permit exports to Iran, neither that Act nor some others, and did not permit the 418 Israelis to export anything we hadn't specifically authorized. Q: So if Israel had earlier purchased arms from the United States under the Arms Export Control Act and not pursuant to an intelligence activity, your position was that the law forbade them to transfer them to any third country without going through varius kinds of waivers and reporting requirements? A: Yes. Right.34 Later he testified: Q: So it would have been?you're saying it would have been a violation of law for Israel to have?? A: I don't know of anything that would have taken it out of the normal course. I haven't re- searched the problem and had a legal opinion on it. My view is that our Arms Export Control Act would make that kind of transaction illegal, yes. That is just my own conclusion." The Administration takes the position that the CIA may transfer weapons as part of an intelligence oper- ation, outside the context of the AECA, by using the President's powers under the National Security Act. That is the approach the President used in 1986 re- garding his January 17, 1986, Finding. However, no such Finding existed for the sale of 504 TOWs; only a retroactive Finding existed for the November 1985 HAWKs sale; and the weapons transferred by Israel to Iran were governed by the AECA having been earlier transferred to Israel pursuant to that Act." The Department of Justice, in a legal opinion on December 17, 1986, concluded that the 1985 Israeli shipments did not violate the AECA.37 In reaching this conclusion, the opinion assumed that Israel was acting solely as a "conduit" in a direct sale by the United States to Iran; that the United States promptly replenished all Israeli weapons with identical weap- ons; that the Israelis had no financial interest in the transaction; and that the United States asked Israel to engage in these transfers as an accommodation to the United States." The opinion also recognized that its conclusion depended on the correctness of these as- sumptions. The assumptions are, in fact, incorrect. It was the Israelis who first suggested and engaged in the arms sales. Israel was more than a conduit. The initiative was considered a joint venture by the United States and Israel; Israel ended with newer TOWs than it started with; and the prolonged negotiations over re- plenishment reveal the financial interest Israel had in the transaction. Since its assumptions were incorrect, the legal conclusion of the Department of Justice opinion must be discounted. Moreover, even if the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 assumptions were correct, it is not clear that the De- partment of Justice legal opinion is correct. Violation of 18 U.S.C. Section 1505 and the Presidential Records Act The destruction or alteration of documents39 or the giving of false testimony4? to frustrate a Congression- al inquiry is a felony if done with "corrupt" intent? i.e., the purpose of impeding an inquiry (18 U.S.C. Section 1505).41 Even if a subpoena has not been issued, an individ- ual on notice of a planned Congressional inquiry cannot lawfully alter or destroy documents for the purpose of preventing Congress from developing the facts if he knows such documents may be subpoenaed or requested. E.g., see United States v. Vesich, 724 F.2d 471 (5th Cir. 1984); United States v. Tallant, 407 F.Supp. 878, 888 (N.D. Ga. 1975). Starting at least as early as November 10, 1986, the Administration was put on notice that various Con- gressional committees planned inquiries into the sale of arms to Iran. Both the House and Senate Intelli- gence Committees told the White House of the inquir- ies and arranged for Poindexter and Casey to appear before them on Friday, November 21, 1986. Thereaf- ter, several Administration officials took actions which had the effect of concealing this Government's participation in the Israeli shipments that violated the Arms Export Control Act. On November 18, 1986, 3 days before the sched- uled appearance of Casey and Poindexter, Presidential aides began to focus on the legal problems attending U.S. involvement in the Israeli shipments made prior to the January 17, 1986, Finding. Then during the next 3 days, several Administration officials involved in the pre-Finding shipments told conforming stories denying U.S. involvement in these shipments, at times using a false cover story that the United States had been told that the Israelis were shipping oil-drilling equipment, not arms. These officials wrote this false cover story into NSC chronologies; they told the false cover story in one version or another to Con- gress and to the Attorney General; and they de- stroyed documents that would have revealed the truth. The full facts concerning this effort, in the face of imminent Congressional probes, to alter the historical record, are described in Part IV. Whether or not any of the individuals had the requisite criminal intent to violate 18 U.S.C. Section 1505, their conduct violated the very thrust of that law?to ensure that Congress' access to the truth would not be obstructed. Iran: The Presidential Records Act Government employees do not have the discretion to destroy or alter embarrassing or incriminating docu- ments. The Presidential Records Act was enacted after Watergate for the very purpose of ensuring that official records would be preserved. The Act has no criminal penalties but it was willfully violated by Poindexter in destroying the December 1985 Finding. Conclusion Article II, Section 3 of the Constitution directs that the President "shall take care that the laws be faithful- ly executed." 42 The "take care" clause was derived from the English Bill of Rights, which forbade the King from suspending laws that he did not like. As Justice Jackson stated, the "take care" clause signifies "that ours is a government of laws, not of men." 43 The "take care" clause embodies the principle of accountability. As Gouverneur Morris, one of the Constitutional Convention delegates, stated, the Fram- ers were quite cognizant that "without . . . ministers the Executive can do nothing of consequence."44 At the same time, however, they understood that a gov- ernment of the people could not function unless the elected chief executive was responsible for the actions of his appointed subordinates. In 1789, Madison wrote that "[N]o principle is more clearly laid down in the Constitution, than that of responsibility."45 The "take care" clause so unpretentious in its wording, made accountability compatible with delegation. Although they recognized that executive power must be exer- cised by subordinate departments, the Framers never- theless required the President to superintend the ac- tions of those departments, thus correcting the tend- ency of "plurality in the executive . . . to conceal faults and destroy responsibility." 46 The President's responsibility to supervise his ap- pointees was vigorously debated in the first session of Congress when the President's power to remove Cab- inet officers was questioned. Many of the members had been delegates to the Constitutional convention or the ratifying conventions, and they had firsthand knowledge of the Framers' intent. One Member of Congress, Fisher Ames, stated, "The executive powers are delegated to the President with a view to have a responsible officer to superintend, control, in- spect, and check the officers necessarily employed in administering the laws."47 "If anything in its nature" is executive, James Madison explained, "it must be that power which is employed in superintending and seeing that the laws are faithfully executed." Repre- sentative Lee answered his own rhetorical question, "Is not the President responsible for the Administra- tion? He certainly is."49 In modern government, with its hundreds of thou- sands of employees, a President obviously cannot per- sonally supervise the acts of all who act in his name. But if the "take care" clause has any vitality, it in- vests in a President the responsibility for cultivating a respect for the Constitution and the law by his staff 419 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 and closest associates. When the President's National Security Adviser, who had daily contact with the President, can assume that he is carrying out the President's wishes and policy in authorizing the diver- sion; when- NSC staff members believe that the de- struction of official documents is appropriate and the 420 deception of Congress is proper; and when laws like the Boland Amendment can be treated as if they do not exist, then clearly there has been a failure in the leadership and supervision that the "take care" clause contemplated. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 27 Chapter 27 I. H. Res. 12 at 3. 2. S. Res. 23 at 3. 3. Corwin, The Constitution and What It Means Today, 101 (13th ed., 1975). 4. Shultz Test., Hearings, 100-9, at 254. 5. Federalist 58. 6. Madison's Notes of the Constitutional Convention, Ohio University Press, 1966 at p. 81. 7. New York Times, "Televised Press Conference," 10/ 22/87, p. 8. 8. See, e.g., United States v. Burnison, 339 U.S. 87, 90 (1950). 9. See 31 U.S.C. section 484 (known as the Miscellaneous Receipts Statute). 10. Principles of Federal Appropriations Law, United States General Accounting Office, Office of General Coun- sel, at 5-65. 11. The Administration received precisely that advice. At the June 1985 NSPG meeting, Secretary Shultz warned that the United States could not receive money from third coun- tries and spend it for the Contras and that to do so might be an "impeachable offense," attributing this opinion to Chief of Staff James Baker. Casey said that they could ask the third countries to give directly to the Contras and sought the opinion of Attorney General Smith, who gave oral advice that it was lawful for the President to urge Nicara- gua's neighbors to help the Contras. The Attorney General was not asked, and expressed no opinion, that it was consti- tutional for the NSC staff to raise money for the Contras which they would control directly or indirectly. 12. 725 F.2d at 965. 13. North Test., Hearings, 100-7, Part I, at 314. 14. Shultz Test., Hearings, 100-9, at 255. 15. The Washington Post, 7/28/87, p. 15. 16. The minutes of the NSPG meeting, attended by the President, reflect Shultz's warning. North's notes also indi- cate he was told that fundraising might be considered an impeachable offense and that the opinion of the Attorney General was going to be sought. 17. National Security Act Section 501. 18. Id.; 126 Cong. Rec. 13095 (1980) (Statement of Sen. Huddleston, quoting statement of former Director Colby). 19. 126 Cong. Rec. 13096 (1980). 20. 6/3/80 at 13105; Ex. EM-11, Hearings, 100-9. 21. In fact, public disclosure did not result in any loss of life of which the Committees are aware. 22. The Supreme Court has held that Section 1001 applies to false statements made to Congress, just as it applies to false statements made to other parts of the Government. United States v. Bramblett, 348 U.S. 503 (1955). 23. Attorney General Meese acknowledged that 18 U.S.C. Section 1001 applies to statements made to Congress whether or not under oath, and that there is no exception for NSC employees. Meese Test., Hearings, 100-9, at 68-69, 149. 24. For the reasons set forth below a violation of 18 U.S.C. Section 1001 may also constitute an obstruction of a Congressional proceeding and violate 18 U.S.C. Section 1505. 25. Poindexter Test., Hearings, 100-8, at 150. 26. North Test., Hearings, 100-7, Part I, at 115. 27. Secord denied he was acting as an agent of the Gov- ernment. He testified that he was independent and could have sold the missiles to some other country and spent the money as he wished. Secord Test., Hearings, 100-1, at 132. This testimony was largely contradicted by Hakim, the doc- umentary record, the conduct of the parties, and common- sense. The Committees do not find Secord's testimony to be credible. 28. It is a basic legal principle that Government funds include funds over which the Government exercises con- trol. E.g., Motor Coach Industries v. Dole, 725 F.2d 958, 964- 65 (4th Cir. 1984); United States v. Bailey, 734 F.2d 296, 300 (7th Cir. 1984); United States v. Mitchell, 625 F.2d 158, 160- 61 (7th Cir. 1980); United States v. McIntosh, 655 F.2d 80, 83-84 (5th Cir. 1981); United States v. Evans, 572 F.2d 455, 471-72 (5th Cir. 1978); see also United States v. Benefield, 721 F.2d 128, 129 (4th Cir. 1983); United States v. Canales, 596 F.2d 662, 664 (5th Cir. 1974); United States v. Banneda, 607 F.Supp. 419 (N.D. Ind. 1985); United States v. Johnson, 596 F.2d 842, 846 (9th Cir. 1979). 29. Meese Test., Hearings, 100-9, at 113. See also Meese Test., Hearings, 100-9, at 65. 30. 22 U.S.C. Section 2751 et seq. 31. See 22 U.S.C. Sections 2314(a), 2753(a)(2). 32. See analogous provisions of the Foreign Assistance Act: 22 U.S.C. Section 2311 et. seq., at 2314(a) and (e), applicable to weapons initially sold under the Act. 33. See Gaffney Test., Hearings, 100-6, at 61-62. The provision that would have prohibited sales to Iran may be waived by the President, but not without a separate notifi- cation to both Houses of Congress. 34. Weinberger Dep., 6/17/87 at 62. 35. Weinberger Dep., 6/17/87 at 29; Similar testimony was given to the Committees by other DOD witnesses experienced in AECA transfers. 36. See Opinion of Jerome Silber, General Counsel to Defense Security Assistance Agency, dated January 21, 1987. 37. The Committees have been given access to a legal opinion ("Opinion") written by Charles Cooper, Assistant Attorney General, Office of Legal Counsel, Department of Justice. (See Ex. EM-69, pp. 14-17, Hearings, 100-9.) 38. See Opinion written by Charles Cooper at 16. 39. E.g., United States v. Presser, 187 F.Supp. 64 (N.D. Ohio 1960), aff'd 292 F.2d 171 (6th Cir. 1961), affd by an evenly divided court, 371 U.S. 71 (1962). 40. E.g., United States v. Lavelle, 751 F.2d 1266 (D.C. Cir. 1985). The giving of false testimony may also violate 18 U.S.C. Section 1621 (perjury) and 18 U.S.C. Section 1001 (false statements not under oath). 41. U.S. v. Lange11a, 776 F.2d 1078 (2d Cir. 1985). 42. W. Crosskey, Politics and the Constitution, 434 (1953); Stewart, The Trial of the Seven Bishops, 55 Col. St. B. J. 70 (1980). 43. Youngstown Sheet and Tube Co. v. Sawyer, 343 U.S. 579 at 646 (1952). 44. W. Benton, 1787 Drafting the U.S. Constitution, Vol. 2 at p. 1240 (1986). 45. 1 Annals of Congress at 480. 46. The Federalist 70 (A. Hamilton). 47. 1 Annals of Congress 495. 48. Id. at 544. 421 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 28 Recommendations It is the conclusion of these Committees that the Iran- Contra Affair resulted from the failure of individuals to observe the law, not from deficiencies in existing law or in our system of governance. This is an impor- tant lesson to be learned from these investigations because it points to the fundamental soundness of our constitutional processes. Thus, the principal recommendations emerging from the investigation are not for new laws but for a renewal of the commitment to constitutional govern- ment and sound processes of decisionmaking. The President must "take care" that the laws be faithfully executed. This is both a moral and legal responsibility. Government officials must observe the law, even when they disagree with it. Decisionmaking processes in foreign policy matters, including covert action, must provide for careful con- sideration of all options and their consequences. Op- posing views must be weighed, not ignored. Unsound processes, in which participants cannot even agree on what was decided (as in the case of the initial Iranian arms sale) produce unsound decisions. Congress' role in foreign policy must be recog- nized, not dismissed, if the benefit of its counsel is to be realized and if public support is to be secured and maintained. The Administration must not lie to Congress about what it is doing. Congress is the partner, not the adversary of the executive branch, in the formulation of policy. Excessive secrecy in the making of important policy decisions is profoundly antidemocratic and rarely promotes sound policy decisions. These recommendations are not remarkable. They embody the principles on which this country's success has been based for 200 years. What is remarkable is that they were violated so freely and so repeatedly in the Iran-Contra Affair. Congress cannot legislate good judgment, honesty, or fidelity to law. But there are some changes in law, particularly relating to oversight of covert operations, that would make our processes function better in the future. They are set forth below: 1. Findings: Timely Notice The Committees recommend that Section 501 of the National Security Act be amended to require that Congress be notified prior to the commencement of a covert action except in certain rare instances and in no event later than 48 hours after a Finding is ap- proved. This recommendation is designed to assure timely notification to Congress of covert operations. Congress was never notified of the Iranian arms sales, in spite of the existence of a statute requiring prior notice to Congress of all covert actions, or, in rare situations, notice "in a timely fashion." The Ad- ministration has reasoned that the risks of leaks justi- fied delaying notice to Congress until after the covert action was over, and claims that notice after the action is over constitutes notice "in a timely fashion." This reasoning defeats the purpose of the law. 2. Written Findings The Committees recommend legislation requiring that all covert action Findings be in writing and per- sonally signed by the President. Similarly, the Com- mittees recommend legislation that requires that the Finding be signed prior to the commencement of the covert action, unless the press of time prevents it, in which case it must be signed within 48 hours of approval by the President. The legislation should prohibit retroactive Findings. The legal concept of ratification, which commonly arises in commercial law, is inconsistent with the ra- tionale of Findings, which is to require Presidential approval before any covert action is initiated. The existing law does not require explicitly that a Presidential Finding approving a covert operation be in writing, although executive orders signed by both Presidents Carter and Reagan required that they be in writing. Despite this requirement, a PROF note by McFarlane suggested that the initial arms sales to Iran were approved by a "mental finding," and there is conflicting testimony about whether certain actions were orally approved by the President. The require- ment of a written Finding will remove such uncer- tainties in the future. 423 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 28 3. Disclosure of Written Findings to Congress The Committees recommend legislation requiring that copies of all signed written Findings be sent to the Congressional Intelligence Committees. Since existing law does not require that covert action Findings be in writing, there currently is no requirement that written Findings be disclosed to Congress. The existing practice has been not to pro- vide the Intelligence Committees with a signed writ- ten Finding. 4. Findings: Agencies Covered The Committees recommend that a Finding by the President should be required before a covert action is commenced by any department, agency, or entity of the United States Government regardless of what source of funds is used. The existing statutes require a Presidential Finding before a covert action is conducted only if the covert action uses appropriated funds and is conducted by the Central Intelligence Agency (CIA). By executive order and National Security Decision Directive (NSDD), Presidential Findings are required before covert actions may be conducted by any agency. Nonetheless, both the National Security Council (NSC) and the Drug Enforcement Administration (DEA) became engaged in covert actions without Presidential Findings fully authorizing their involve- ment. The executive order requirement is sound. In the Committees' judgment, Presidential Findings for covert actions conducted by any agency should be required by law. Experience suggests that Presidential accountability, as mandated by the Finding require- ment, is equally as important in the case of covert actions conducted by agencies other than the CIA. The Committees also believe the Finding require- ment should apply regardless of the source of funding for the covert action. 5. Findings: identifying Participants The Committees recommend legislation requiring that each Finding should specify each and every de- partment, agency, or entity of the United States Gov- ernment authorized to fund or otherwise participate in any way in any covert action and whether any third party, including any foreign country, will be used in carrying out or providing funds for the covert action. The Congress should be informed of the identities of such third parties in an appropriate fashion. Current law does not require a Finding to state what agencies, third parties, or countries will be uti- lized in conducting a covert action. The Iran-Contra investigation demonstrates that disclosure of what U.S. agencies (such as the NSC), private parties, or foreign countries will be engaged in covert actions 424 are matters of considerable importance if Congress is to fulfill its oversight responsibilities adequately. The record of the Iran-Contra investigation reflects repeated efforts by the executive branch to obtain funds from third countries for covert operations and for other causes the Administration supports. These actions raise concerns of two kinds. First, there is a risk that foreign countries will expect some- thing in return. Second, in an extreme case such as that presented by the record of these hearings, the use of third country or private funds threatens to circum- vent Congress' exclusive power of the purse. 6. Findings: The Attorney General The Committees recommend that the Attorney General be provided with a copy of all proposed Findings for purposes of legal review. The first Iranian arms Finding of December 5, 1985, was not reviewed by the Attorney General. The Attorney General did give oral advice on the January 17 Finding but did not do the analysis or research that a written opinion would have entailed. The Presi- dent, the intelligence community, and Congress are entitled to a review by the country's chief legal offi- cer to ensure that planned covert operations are lawful. 7. Findings: Presidential Reporting The Committees recommend that consistent with the concepts of accountability inherent in the Finding process, the obligtion to report covert action Findings should be placed on the President. Under current law, it is the head of the intelligence entity involved which has the obligation to report to Congress on covert action. Yet policy choices are inherently part of the Findings process and it is the President who must authorize covert operations through the signing of Findings. 8. Recertification of Findings The Committees recommend that each Finding shall cease to be operative after one year unless the President certifies that the Finding is still in the na- tional interest. The executive branch and the Intelli- gence Committees should conduct frequent periodic reviews of all covert operations. 9. Covert Actions Carried Out by Other Countries The Committees believe that the definition of covert action should be changed so that it includes a request by an agency of the United Sttes to a foreign country or a private citizen to conduct a covert action on behalf of the United States. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 28 10. Reporting Covert Arms Transfers The Committees recommend that the law regulat- ing the reporting of covert arms transfers be changed to require notice to Congress on any covert shipment of arms where the transfer is valued at more than $1 million. Under current law, the Administration must report covert arms transfers involving any single item valued at more than $1 million. Since a TOW or a HAWK missile is individually worth less than $1 million, this reporting requirement did not apply to the Iranian arms sales even though two shipments involved $10 million in arms or more. It is the value of a transfer, not the value of each component of a transfer, that matters. 11. NSC Operational Activities The Committees recommend that the members and staff of the NSC not engage in covert actions. By statute the NSC was created to provide advice to the President on national security matters. But there is no express statutory prohibition on the NSC engaging in operational intelligence activities. 12. NSC Reporting to Congress The Committees recommend legislation requiring that the President report to Congress periodically on the organization, size, function, and procedures of the NSC staff. Such a report should include a list of duties for each NSC staff position from the National Security Adviser on down, and whether incumbents have been detailed from a particular department or agency. It should include a description of the President's guide- lines and other instructions to the NSC, the National Security Adviser, and NSC staff for their activities. Particular attention should be paid to the number and tenure of uniformed military personnel assigned to the NSC. 13. Privatization The Committees recommend a strict accounting of all U.S. Government funds managed by private citi- zens during the course of a covert action. The record of the Iran-Contra hearings reflects use of private parties to conduct diplomatic missions and covert actions. Private parties can be of considerable use to the Government in both types of ventures and their use should be permitted. However, the record reflects that funds generated during a covert action are subject to abuse in the hands of a private citizen involved in conducting a covert action. 14. Preservation of Presidential Documents The Committees recommend that the Presidential Records Act be reviewed to determine how it can be made more effective. Possible improvements include the establishment of a system of consultation with the Archivist of the United States to ensure complete compliance with the Act, the creation of a program of education of affected staff as to the Act's provi- sions, and the attachment of criminal penalties for violations of the Act. During the Iran-Contra hearings, Oliver North, John Poindexter, Fawn Hall, and others admitted to having altered and destroyed key documents relating to their activities. Such actions constitute violations of the Presidential Records Act, which was intended to ensure the preservation of documents of historical value that were generated by the Chief Executive and his immediate staff. 15. CIA Inspector General and General Counsel The Committees recommend that a system be de- veloped so that the CIA has an independent statutory Inspector General confirmed by the Senate, like the Inspectors General of other agencies, and that the General Counsel of the CIA be confirmed by the Senate. The CIA's internal investigation of the Iran-Contra Affair?conducted by the Office of the Inspector General?paralleled those of the Intelligence Commit- tees and then the Iran Committees. It contributed to, and cooperated with, the Tower Board. Yet, the Office of the Inspector General appears not to have had the manpower, resources or tenacity to acquire key facts uncovered by the other investigations. The Committees also believe the General Counsel plays an important role in these matters and accord- ingly should be confirmed by the Senate. 16. Foreign Bank Records Treaties The Committees recommend that treaties be negoti- ated with foreign countries whose banks are used to conceal financial transactions by U.S. citizens, and that these treaties covering foreign bank records specify that Congress, not just the Department of Justice, has the right to request, to receive, and to utilize such records. Many of the important records relating to the Iran- Contra Affair were generated by foreign banks that were used by the Enterprise for the covert arms sales to Iran and the Contra supply operation. The Inde- pendent Counsel has sought access to these Swiss bank records pursuant to a treaty with Switzerland. But the Independent Counsel and the Justice Depart- ment do not believe the Congressional Committees are entitled under the terms of the treaty to receive these records. New treaties should assure Congress of access to such records and should streamline the process for obtaining them. The Independent Counsel had not received all of the Swiss bank records after 9 months of waiting. Given the use of foreign banks by drug dealers, terrorists, and others involved in unlaw- 425 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 28 ful activity, it is more essential than ever that binding secrecy not be a shield for serious criminal conduct. 17. National Security Council The Committees recommend that all statutory members of the National Security Council should be informed of Findings. 18. Findings Cannot Supercede Law The Committees recommend legislation affirming what the Committees believe to be the existing law: that a Finding cannot be used by the President or any member of the executive branch to authorize an action inconsistent with, or contrary to, any statute of the United States. 19. Improving Consistency in Dealing with Security Breaches The Committees recommend that consistent meth- ods of dealing with leaks of classified information by government officials be developed. The record of these hearings is replete with expres- sions of concern by executive branch officials over the problem of unauthorized handling and disclosure of classified information. The record is also replete with evidence that high NSC officials breached secu- rity regulations and disclosed classified documents to unauthorized persons when it suited their purposes. Yet no steps have been taken to withdraw or even review clearances of such people. 20. Review of Congressional Contempt Statutes The Committees recommend that the Congressional contempt statutes be reviewed by the appropriate Committees. There is a need, in Congressional investigations, for a swift and sure method of compelling compliance with Congressional orders for production of docu- ments and the obtaining of testimony. These investiga- tions raised questions about the adequacy of existing statutes. In addition, new legislation should make clear that a Congressional deposition, including one conducted by staff, is a "proceeding" at which testimony may be compelled under the immunity statute, 18 U.S.C. Sec- tion 6001 et. seq. 21. Review of Special Compartmented Operations Within the Department of Defense The Committees recommend that oversight by In- telligence and Armed Services Committees of Con- gress of special compartmented operations within the Department of Defense be strengthened to include systematic and comprehensive review of all such pro- grams. 426 22. Review of Weapons Transfers by Chairman of Joint Chiefs of Staff The Committees recommend that the President issue an order requiring that the Chairman of the Joint Chiefs of Staff should be consulted prior to any transfer of arms by the United States for purposes of presenting his views as to the potential impact on the military balance and on the readiness of United States forces. 23. National Security Adviser The Committees recommend that Presidents adopt as a matter of policy the principle that the National Security Adviser to the President of the United States should not be an active military officer and that there should be a limit placed on the tour of military offi- cers assigned to the staff of the National Security Council. 24. InteHigence Oversight Board The Committees recommend that the Intelligence Oversight Board be revitalized and strengthened. 25. Review of Other Laws The Committees suggest that appropriate standing Committees review certain laws for possible changes: a. Should restrictions on sales of arms to certain countries under the Arms Export Control Act ("AECA") and other statutes governing overt sales be made applicable to covert sales? b. Should the Hostage Act be repealed or amend- ed? c. Should enforcement or monitoring provisions be added to the AECA so that we better control retransfers of U.S.-manufactured arms by coun- tries to whom we sell them? 26. Recommendations for Congress a. The Committees recommend that the oversight capabilities of the Intelligence Committees be strengthened by acquisition of an audit staff. b. The Committees recommend that the appropriate oversight committees conduct review of sole-source contracts for potential abuse. c. The Committees recommend that uniform proce- dures be developed to ensure that classified informa- tion is handled in a secure manner and that such procedures should include clear and strengthened sanctions for unauthorized disclosure of national secu- rity secrets or classified information which shall be strictly enforced. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 28 27. Joint Intelligence Committee The Committees recommend against consolidating the separate House and Senate Intelligence Commit- tees into a single joint committee. We believe that such consolidation would inevitably erode Congress' ability to perform its oversight function in connection with intelligence activities and covert operations. Congress has structured its system for effective over- sight in this area to meet the need for secrecy that necessarily accompanies intelligence activities and the creation of a single oversight committee would simply add nothing to this effort. 427 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I !I I . I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Section II The Minority Report Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? H. . 1. + Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Minority Report of Representative Dick Cheney of Wyoming Representative William S. Broomfield of Michigan Representative Henry J. Hyde of Illinois Representative Jim Courter of New Jersey Representative Bill McCollum of Florida Representative Michael DeWine of Ohio Members, House Select Committee to Investigate Covert Arms Transactions with Iran Senator James McClure of Idaho Senator Orrin Hatch ? of Utah Members, Senate Select Committee on Secret Military Assistance to Iran and the Nicaraguan Opposition 431 O iL Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I 4,1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Minority Staff Associate Minority Counsel Assistant Minority Counsel Minority Research Director Robert W. Genzman Kenneth R. Buck Bruce Fein Thomas R. Smeeton Minority Staff Director George W. Van Cleve Chief Minority Counsel Richard J. Leon Deputy Chief Minority Counsel Minority Editor/Writer Michael J.Malbin Minority Executive Assistant Molly W. Tully Minority Staff Assistant Margaret W. Dillenburg Associate Staff House of Representatives Representative Broomfield Representative Hyde Representative Courter Representative McCollum Representative DeWine Steven K. Berry David S. Addington Diane S. Dornan Dennis E. Teti Tina L. Westby Nicholas P. Wise Associate Staff Senate Senator McClure Senator Hatch Jack Gerard Dee Benson 432 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Table of Contents Part I Introduction Chapter 1 Introduction 437 Part II The Foreign Affairs Powers of the Constitution and the Iran-Contra Affair Chapter 2 The Foreign Affairs Powers and the Framers' Intentions 457 Chapter 3 The President's Foreign Policy Powers in Early Constitutional History 463 Chapter 4 Constitutional Principles In Court 471 Part III Nicaragua Chapter 5 Nicaragua: The Context 483 Chapter 6 The Boland Amendments 489 Chapter 7 Who Did What to Help the Democratic Resistance 501 Part IV Iran Chapter 8 The Iran Initiative 519 Chapter 9 Iran: The Legal Issues 539 Chapter 10 The Diversion 549 Part V Disclosures and Investigations Chapter 11 The Disclosure and the Uncovering 561 Chapter 12 The NSC's Role in Investigations 567 Part VI Putting Congress' House in Order Chapter 13 The Need to Patch Leaks 575 Part VII Recommendations Chapter 14 Recommendations 583 Part VIII Appendixes 433 77-026 0 - 8/ - 1) Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 V ...... ? v v. 4 4 414 44. 1. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part I Introduction Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 Introduction President Reagan and his staff made mistakes in the Iran-Contra Affair.* It is important at the outset, however, to note that the Presi- dent himself has already taken the hard step of acknowledging his mistakes and reacting precisely to correct what went wrong. He has directed the National Security Council staff not to engage in covert operations. He has changed the procedures for notifying Congress when an intelligence activity does take place. Finally, he has installed people with seasoned judgment to be White House Chief of Staff, National Security Adviser, and Director of Central Intelligence. The bottom line, however, is that the mis- takes of the Iran-Contra Affair were just that?mistakes in judgment, and nothing more. There was no constitutional crisis, no systematic disrespect for "the rule of law," no grand conspiracy, and no Administration- wide dishonesty or coverup. In fact, the evi- dence will not support any of the more hys- terical conclusions the Committees' Report tries to reach. No one in the government was acting out of corrupt motives. To understand what they did, it is important to understand the context within which they acted. The decisions we have been investigating grew out of: ?Efforts to pursue important U.S. inter- ests both in Central America and in the Middle East; ?A compassionate, but disproportionate, concern for the fate of American citizens held hostage in Lebanon by terrorists, in- cluding one CIA station chief who was killed as a result of torture; *See "Our View of the Iran-Contra Affair," below at 442 if. ?A legitimate frustration with abuses of power and irresolution by the legislative branch; and ?An equally legitimate frustration with leaks of sensitive national security secrets coming out of both Congress and the execu- tive branch. Understanding this context can help explain and mitigate the resulting mistakes. It does not explain them away, or excuse their having happened. The Committees' Report and the Ongoing Battle The excesses of the Committees' Report are reflections of something far more profound. Deeper than the specifics of the Iran-Contra Affair lies an underlying and festering insti- tutional wound these Committees have been unwilling to face. In order to support rhetor- ical overstatements about democracy and the rule of law, the Committees have rested their case upon an aggrandizing theory of Con- gress' foreign policy powers that is itself part of the problem. Rather than seeking to heal, the Committees' hearings and Report betray an attitude that we fear will make matters worse. The attitude is particularly regretta- ble in light of the unprecedented steps the President took to cooperate with the Com- mittees, and in light of the actions he already has taken to correct past errors. A substantial number of the mistakes of the Iran-Contra Affair resulted directly from an ongoing state of political guerrilla warfare over foreign policy between the legislative and executive branches. We would include in this category the excessive secrecy of the Iran initiative that resulted from a history 437 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 and legitimate fear of leaks. We also would include the approach both branches took toward the so-called Boland Amendments. Congressional Democrats tried to use vague- ly worded and constantly changing laws to impose policies in Central America that went well beyond the law itself. For its own part, the Administration decided to work within the letter of the law covertly, instead of forcing a public and principled confrontation that would have been healthier in the long run. Given these kinds of problems, a sober examination of legislative-executive branch relations in foreign policy was sorely needed. It still is. Judgments about the Iran-Contra Affair ultimately must rest upon one's views about the proper roles of Congress and the President in foreign policy. There were many statements during the public hearings, for example, about the rule of law. But the fundamental law of the land is the Constitu- tion. Unconstitutional statutes violate the rule of law every bit as much as do willful violations of constitutional statutes. It is es- sential, therefore, to frame any discussion of what happened with a proper analysis of the Constitutional allocation of legislative and executive power in foreign affairs. The country's future security depends upon a modus vivendi in which each branch recognizes the other's legitimate and consti- tutionally sanctioned sphere of activity. Con- gress must recognize that an effective foreign policy requires, and the Constitution man- dates, the President to be the country's for- eign policy leader. At the same time, the President must recognize that his preemi- nence rests upon personal leadership, public education, political support, and interbranch comity. Interbranch comity does not require Presidential obsequiousness, of course. Presi- dents are elected to lead and to persuade. But Presidents must also have Congressional support for the tools to make foreign policy effective. No President can ignore Congress and be successful over the long term. Con- gress must realize, however, that the power of the purse does not make it supreme. 438 Limits must be recognized by both branches, to protect the balance that was intended by the Framers, and that is still needed today for effective policy. This mutual recognition has been sorely lacking in recent years. Why We Reject the Committees' Report Sadly, the Committees' Report reads as if it were a weapon in the ongoing guerrilla war- fare, instead of an objective analysis. Evi- dence is used selectively, and unsupported inferences are drawn to support politically biased interpretations. As a result, we feel compelled to reject not only the Committees' conclusions, but the supposedly "factual" narrative as well. We always knew, of course, that there would be differences of interpretation. We had hoped at the start of this process, how- ever, to arrive at a mutually agreeable state- ment of facts. Unfortunately, that was not to be. The narrative is not a fair description of events, but an advocate's legal brief that arrays and selects so-called "facts" to fit pre- conceived theories. Some of the resulting narrative is accurate and supported by the evidence. A great deal is overdrawn, specu- lative, and built on a selective use of the Committees' documentary materials. The tone of the Report flows naturally from the tone of the Committees' televised hearings. We feel strongly that the decision to air the hearings compromised some intelli- gence sources and methods by broadcasting inadvertent slips of the tongue. But one thing television did do successfully was lay bare the passions that animated too much of the Committees' work. Who can forget the mas- sive displays of travelers' checks being shown to the country to discredit Col. North's character, weeks before he would be given a chance to reply? Or the "j'accuse" atmosphere with which witnesses were con- fronted, beginning with the first week's pros- ecutorial confrontation with General Secord, as Members used the witnesses as objects for lecturing the cameras? These tactics had Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 little to do with factfinding, or with a careful review of policies and institutional processes. But we shall not dwell on the hearings at this stage. The respected constitutional scholar, John Norton Moore, has written an excellent article about them. We have at- tached the article, "The Iran-Contra Hear- ings and Intelligence Oversight in a Democ- racy," along with other material Professor Moore sent the Committees, as an appendix to our Report. Suffice it to say that we agree with Moore completely. We mention the hearings now only to note that the same spirit, not surprisingly, has dominated the written Report. Our reasons for rejecting the Committees' Report can best be understood by sampling a few of its major conclusions. By presenting these examples, we hope to alert conscien- tious readers?whether they agree with our interpretations or not?to take the narrative with a very large grain of salt. Regrettably, readers seeking the truth will be forced to wade through a mass of material to arrive at an independent judgment. The President's Knowledge of the Diversion The most politically charged example of the Committees' misuse of evidence is in the way it presents the President's lack of knowledge about the "diversion"?that is, the decision by the former National Security Adviser, Admiral John Poindexter, to au- thorize the use of some proceeds from Iran arms sales to support the Nicaraguan demo- cratic Resistance, or Contras. This is the one case out of thousands in which the Commit- tees?instead of going beyond the evidence as the Report usually does?refused instead to accept the overwhelming evidence with which it was presented. The Report does grudgingly acknowledge that it cannot refute the President's repeated assertion that he knew nothing about the diversion before At- torney General Edwin Meese discovered it in November 1986. Instead of moving for- ward from this to more meaningful policy questions, however, the Report seeks, with- out any support, to plant doubts. We will never know what was in the documents shredded by Lt. Col. Oliver L. North in his last days on the NSC staff, the Report says. Of course we will not. That same point could have been made, however, to cast un- supported doubt upon every one of the Re- port's own conclusions. This one seems to be singled out because it was where the Presi- dent put his own credibility squarely on the line. The evidence shows that the President did not know about the diversion. As we discuss at length in our chapter on the subject, this evidence includes a great deal more than just Poindexter's testimony. Poindexter was cor- roborated in different ways by the Presi- dent's own diaries and by testimony from North, Meese, Commander Paul Thompson (formerly the NSC's General Counsel), and former White House Chief of Staff Donald Regan. The conclusion that the President did not know about the diversion, in other words, is one of the strongest of all the infer- ences one can make from the evidence before these Committees. Any attempt to suggest otherwise can only be seen as an effort to sow meritless doubts in the hope of reaping a partisan political advantage. The Idea for the Diversion and the Use of Israeli Evidence In the normal course of the narrative's hun- dreds of pages, the lack of objectivity stems more from the way it selects, and makes questionable inferences, from a scarcity of evidence, rather than a deliberate decision to ignore what is available. This becomes most obvious when we see a witness dismissed as being not credible for one set of events, and then see the same witnesses' uncorroborated testimony become the basis for a major set of assertions about other events. If these flip- flops could be explained by neutral rules of evidence, or if they were random, we could treat them more lightly. But something quite different seems to be at work here. The nar- rative seems to make every judgment about the evidence in favor of the interpretation 439 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 4 I. 4,4t i? ?? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 that puts the Administration in the worst possible light. Two examples involving North will make the point clearly. The first has to do with when he first got the idea for a diversion. North testified that he first got the idea for diverting some of the Iran arms sale pro- ceeds to the Contras from Manucher Ghor- banifar at a London hotel meeting in late January 1986. He acknowledged that the subject of using the residuals to replenish Israeli weapon supplies, and for related oper- ations, came up in a discussion with Amiram Nir, an Israeli official, in late December or early January. North specifically said, how- ever, that the Nir conversation had nothing to do with the Contras.2 The Committees also received a chronolo- gy from the Israeli Government, however, that claimed North told Israeli supply offi- cials in New York on December 6 that the Contras needed money, and that he intended to use proceeds from the Iran arms sales to get them some. When North was asked about the December 6 meeting, he reiterated that he did not recall discussing the Contras with anyone involved in the Iran initiative before the late January meeting with Ghor- banifar. 3 The Committees' Report has used the Is- raeli chronology, and the timing of North's alleged December 6 conversation, to suggest that the idea of gaining funds for the Nicara- guan Resistance was an important consider- ation that kept the Iran arms initiative alive, more than a month before the President signed the Finding of January 17. The prob- lem with making this important inference is that we have no way of knowing whether the Israeli chronology is accurate. It may be, but then again it may not. The Government of Israel made its chronology available to the Committees fairly late in our investiga- tions, and consistently refused to let key Is- raeli participants give depositions to the Committees' counsel. We have no quarrel with the fact that Israel, or any other sovereign nation, may refuse to let its officials and private citizens 440 be subject to interrogation by a foreign legis- lature. The United States, no doubt, would do the same. But we do object vehemently to the idea that the Committees should use unsworn and possibly self-serving informa- tion from a foreign government to reject sworn testimony given by a U.S. official? particularly when the U.S. official's testimo- ny was given under a grant of immunity that protected him from prosecution arising out of the testimony for any charge except perju- ry. Even if North did mention the Contras to the Israeli supply officials in early Decem- ber, however, the inference made from the timing would be unfair. The Committees have no evidence that would give them any reason to believe that anyone other than North even considered the Contras in con- nection with the Iran arms sales before the January Finding. Poindexter specifically tes- tified that he first heard of the idea when North asked him to authorize it in Febru- ary.4 North testified that he first mentioned the idea to the Director of Central Intelli- gence, William J. Casey, at about the same time, in late January or early February, after the post-finding London meeting.5 More im- portantly, North and Poindexter both testi- fied that no one else in the U.S. Government was told about a diversion before this time. What that means is that the diversion cannot possibly have been a consideration for people at the policymaking level when the President decided to proceed with the Iran initiative in January. Off-the-Shelf, Privately Funded Covert Operations Paradoxically, the Committees seem to have had no difficulty swallowing North's testi- mony that Director Casey intended to create a privately funded, off-the-shelf covert oper- ations capability for use in a variety of un- foreseen circumstances.6 This is despite the fact that two people close to Casey at the CIA, Deputy Director of Central Intelli- gence John M. McMahon and Deputy Di- rector for Operations Clair George, both Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 denied Casey would ever have countenanced such an idea. "My experience with Bill Casey was absolute," said George. "He would never have approved it." 7 We have to concede the possibility, of course, that Casey might have discussed such an idea speculatively with North with- out mentioning it to others at the CIA.* As with so many other questions, we will never know the answers with certainty. Casey's terminal illness prevented him from testifying between December 1986 and his death in May 1987. Nevertheless, it is interesting to note how much the majority is willing to make of one uncorroborated, disputed North statement that happens to suit its political purpose, in light of the way it treats others by North that are less convenient for the narrative's thesis. The Allegation of Systematic Cover-up The Report also tries to present the events of November 1986 as if they represent a sys- tematic attempt by the Administration to cover up the facts of the Iran initiative. The reason for the alleged coverup, it is suggest- ed, was to keep the American people from learning that the 1985 arms sales were "ille- gal." There can be no question that the Admin- istration was reluctant to make all of the facts public in early November, when news of the arms sales first came out in a Lebanese weekly. It is clear from the evidence that this was a time when covert diplomatic dis- cussions were still being conducted with Iran, and there was some basis for thinking more hostages might be released. We consid- er the Administration's reticence in the early part of the month to have been completely justifiable. However, as November 1986 wore on, Poindexter and North did falsify the docu- mentary record in a way that we find de- plorable. The outstanding fact about the late We use the word "speculatively" here because North testified, at the same time as he introduced the idea, that it never was put into effect. November events, however, is that Attorney General Meese understood the importance of getting at the truth. Working on a very tight schedule, Meese and three others from the Department of Justice managed to uncover the so-called "diversion memorandum" and reported it to the President. The President immediately removed Poindexter and North from the NSC staff. Shortly afterwards, he asked for an Independent Counsel to be ap- pointed, appointed the Tower Board, and supported the establishment of select Con- gressional investigative committees, to which he has given unprecedented cooperation. The Committees' Report criticizes Meese for not turning his fact-finding operation into a formal criminal investigation a day or two earlier than he did. In fact, the Report strongly tries to suggest that Meese either must have been incompetent or must have been trying to give Poindexter and North more time to cover their tracks. We consider the first of these charges to be untrue and the second to be outrageous. We shall show in a later chapter that Meese worked with the right people, and the right number of them, for a national security fact-finding in- vestigation. Whatever after-the-fact criticism people may want to make, it is irresponsible to portray the Administration, in light of Meese's behavior, as if it were interested in anything but learning the truth and getting it out as quickly as possible. The "Rule of Law" Finally, the Committees' Report tries? almost as an overarching thesis?to portray the Administration as if it were behaving with wanton disregard for the law. In our view, every single one of the Committees' legal interpretations is open to serious ques- tion. On some issues?particularly the ones involving the statutes governing covert oper- ations?we believe the law to be clearly on the Administration's side. In every other case, the issue is at least debatable. In some, such as the Boland Amendment, we are con- vinced we have by far the better argument. In a few others?such as who owns the 441 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 .1 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 funds the Iranians paid Gen. Richard Secord and Albert Hakim?we see the legal issue as being close. During the course of our full statement, we shall indicate which is which. What the Committees' Report has done with the legal questions, however, is to issue a one-sided legal brief that pretends the Ad- ministration did not even have worthwhile arguments to make. As if that were not enough, the Report tries to build upon these one-sided assertions to present a politicized picture of an Administration that behaved with contempt for the law. If nothing else would lead readers to view the Report with extreme skepticism, the adversarial tone of the legal discussion should settle the matter. Our View of the Iran-Contra Affair The main issues raised by the Iran-Contra Affair are not legal ones, in our opinion. This opinion obviously does have to rest on some legal conclusions, however. We have summarized our legal conclusions at the end of this introductory chapter. The full argu- ments appear in subsequent chapters. In our view, the Administration did proceed legally in pursuing both its Contra policy and the Iran arms initiative. We grant that the diver- sion does raise some legal questions, as do some technical and relatively insubstantial matters relating to the Arms Export Control Act. It is important to stress, however, that the Administration could have avoided every one of the legal problems it inadvertently encountered, while continuing to pursue the exact same policies as it did. The fundamental issues, therefore, have to do with the policy decisions themselves, and with the political judgments underlying the way policies were implemented. When these matters are debated as if they were legal? and even criminal?concerns, it is a sign that interbranch intimidation is replacing and de- basing deliberation. That is why we part company not only with the Committees Re- port's answers, but with the very questions it identifies as being the most significant. 442 There are common threads to what we think went wrong with the Administration's policies toward Central America and Iran. Before we can identify those threads, how- ever, we will give a very brief overview of the two halves of the Committees' investiga- tions. For both halves, we begin with the context within which decisions were made, describe the decisions, and then offer some judgments. After taking the parts separately, we will then be in a position to talk about commonalities. Nicaragua The Nicaraguan aspect of the Iran-Contra Affair had its origins in several years of bitter political warfare over U.S. policy toward Central America between the Reagan Administration and the Democratic House of Representatives. The United States had supported the Sandinistas in the last phase of the dictatorial regime of Anastasio Somoza and then gave foreign aid to Nicara- gua in 1979 and 1980, the first years of San- dinista rule. By 1980, however, the Sandinis- tas had shed their earlier "democratic re- former" disguise and begun to suppress civil liberties at home and export revolution abroad. As a result, the United States sus- pended all aid to Nicaragua in the closing days of the Carter Administration. During the early years of the Reagan Ad- ministration, the Soviet Union and its allies dramatically increased their direct military support for Nicaragua, and their indirect support, through Nicaragua, of Communist guerrillas in El Salvador. The Reagan Ad- ministration decided to provide covert sup- port for the Nicaraguan democratic Resist- ance in late 1981, and Congress agreed. By late 1982, however, Congress adopted the first of a series of so-called "Boland Amend- ments," prohibiting the CIA and Defense Department from spending money "for the purpose of overthrowing the Government of Nicaragua or provoking a military exchange between Nicaragua and Honduras." The House voted for this "limitation" by a Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 margin of 411-0, in large part because every- one understood that the Administration could continue to support the Resistance as long as the purpose of the support was to prevent the revolution from being exported to El Salvador. This approach left many unsatisfied. Some within the Administration wanted a broader attack on the Sandinista regime. Some within Congress wanted to end all support for the Contras and begin moving back toward the 1979-80 policy of providing economic assist- ance to the Sandinistas. Neither side of the policy debate was politically strong enough to prevail. Instead, during the course of the next several years, Congress and the Admin- istration "compromised" on a series of am- biguous formulas. Meanwhile, the Soviet buildup acceler- ated, and Sandinista support for the insur- gents in El Salvador continued. In May 1983, the House Intelligence Committee, chaired by Representative Edward P. Boland, reported: It is not popular support that sustains the insurgents [in El Salvador]. As will be discussed later, this insurgency depends for its lifeblood?arms, am- munition, financing, logistics and com- mand-and-control facilities?upon out- side assistance from Nicaragua and Cuba. This Nicaraguan-Cuban contri- bution to the Salvadoran insurgency is long standing. It began shortly after the overthrow of Somoza in July, 1979. It has provided?by land, sea and air?the great bulk of the military equipment and support received by the insurgents.8 Despite this finding, House Democrats succeeded in late 1983 in limiting appropri- ated support for the Resistance to an amount intentionally calculated to be insufficient for the full fiscal year. The funds ran out by late spring or summer 1984. By October, the most stringent of the Boland Amendments had taken effect. Paradoxically, Congress' 1983-85 decisions came in a context in which it was continuing to pass laws that accused the Sandinistas of violating the non- aggression provisions of the charter of the Organization of American States?a viola- tion that the OAS charter says calls for a response by other member nations, including the United States.* Actions By the late spring of 1984, it became clear that the Resistance would need some source of money if it were to continue to survive while the Administration tried to change public and Congressional opinion. To help bridge the gap, some Administration officials began encouraging foreign governments and U.S. private citizens to support the Contras. NSC staff members played a major role in these efforts, but were specifically ordered to avoid direct solicitations. The President clearly approved of private benefactor and third-country funding, and neither he nor his designated agents could constitutionally be prohibited from encouraging it. To avoid po- litical retribution, however, the Administra- tion did not inform Congress of its actions. In addition to encouraging contributions, the NSC's North, with varying degrees of authorization and knowledge by National Se- curity Advisers Robert C. McFarlane and Admiral John Poindexter: ?Helped coordinate or facilitate actions taken by private citizens and by certain U.S. *Despite the fact that the Committees announced that their hear- ings were to be neither "pro-Contra nor anti-Contra," the fact is that the Committees' staff left no stone unturned in its efforts to obtain information that might be politically damaging to the Resist- ance, even if irrelevant to the Committees' mandates. The Commit- tees' investigators reviewed major portions, if not all, of the Con- tras' financial records; met with witnesses who alleged the Resist- ance was involved in terrorism or drug-running; investigated the financial conduct of the NHAO program, and so on. The fact is, however, that the Committees received no credible evidence of misconduct by the Resistance. It comes as little surprise, of course, that the Committees' majority does not explicitly acknowledge this. To give but one example of the Committees' findings, investigators produced a detailed memorandum concerning allegations of drug running, and concluded that the allegation had no substance. This memorandum was included in the Committees' record and is re- printed as Appendix E to the Minority Report. For this reason, suggestions that the Committees have not investigated such matters, and other Committees of Congress should, ought to be seen for what they are: political harassment by Congressional opponents of the Resistance. 443 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 Government officials to direct money, arms, or supplies from private U.S. citizens or for- eign governments to the Nicaraguan Resist- ance; ?Provided the Resistance with expert military judgment or advice to assist in the resupply effort; and ?Together with others in Government, provided the Resistance with intelligence in- formation that was useful in the resupply effort. Poindexter and North testified that they both believed these activities were legally permis- sible and authorized. They also said that the President was kept generally informed of their coordinating role. The President has said, however, that he was not aware of the NSC staffs military advice and coordination. Because the Boland Amendment is an ap- propriations rider, it is worth noting that there is no evidence that any substantial amounts of appropriated taxpayer funds were used in support of these efforts. In addition, the NSC staff believed?as we do?that the prohibition did not cover the NSC.9 At no time, in other words, did members of the President's staff think their activities were illegal. Nevertheless, the NSC staff did make a concerted effort to conceal its actions from Congress. There is no evidence, however, to suggest that the President or other senior Administration officials knew about this con- cealment. Judgments The effort to raise foreign government and private funds for the Resistance raised about $35 million between mid-1984 and mid- 1986?virtually all of it from foreign coun- tries. In addition, the much discussed and unauthorized diversion orchestrated by North and Poindexter contributed about $3.8 million more. Without this support, accord- ing to uncontroverted testimony the Com- mittees received, there can be no question that the Resistance would have been annihi- lated. In other words, the support clearly did make an important strategic difference in the 2 years it took the Administration to per- 444 suade Congress to reverse its position. The short-term benefits of the effort are therefore undeniable. The long-term costs, however, seem not to have been adequately consid- ered. We do believe, for reasons explained in the appendix to this introductory chapter and in our subsequent chapters on Nicara- gua, that virtually all of the NSC staffs ac- tivities were legal, with the possible excep- tion of the diversion of Iran arms sale pro- ceeds to the Resistance. We concede that reasonable people may take a Contrary view of what Congress intended the Boland Amendments to mean. But we also agree with a letter from Prof. John Norton Moore, which appears as Appendix B to our Report, that to the extent that the amendment was ambiguous, "well recognized principles of due process and separation of powers would require that it be interpreted to protect Ex- ecutive Branch flexibility." 10 Notwithstanding our legal opinions, we think it was a fundamental mistake for the NSC staff to have been secretive and decep- tive about what it was doing. The require- ment for building long-term political support means that the Administration would have been better off if it had conducted its activi- ties in the open. Thus, the President should simply have vetoed the strict Boland Amendment in mid-October 1984, even though the Amendment was only a few paragraphs in an approximately 1,200 page- long continuing appropriations resolution, and a veto therefore would have brought the Government to a standstill within 3 weeks of a national election. Once the President decid- ed against a veto, it was self-defeating to think a program this important could be sus- tained by deceiving Congress. Whether tech- nically illegal or not, it was politically fool- ish and counterproductive to mislead Con- gress, even if misleading took the form of artful evasion or silence instead of overt mis- statement. We do believe firmly that the NSC staff's deceits were not meant to hide illegalities. Every witness we have heard told us his Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 concern was not over legality, but with the fear that Congress would respond to com- plete disclosure with political reprisals, prin- cipally by tightening the Boland Amend- ments. That risk should have been taken. We are convinced that the Constitution protects much of what the NSC was doing? particularly those aspects that had to do with encouraging contributions and sharing infor- mation. The President's inherent constitu- tional powers are only as strong, however, as the President's willingness to defend them. As for the NSC actions Congress could con- stitutionally have prohibited, it would have been better for the White House to have tackled that danger head on. Some day, Con- gress' decision to withhold resources may tragically require U.S. citizens to make an even heavier commitment to Central Amer- ica, perhaps one measured in blood and not dollars. The commitment that might elimi- nate such an awful future will not be forth- coming unless the public is exposed to and persuaded by a clear, sustained and princi- pled debate on the merits. Iran The Iran arms sales had their roots in an intelligence failure. The potential geopolitical importance of Iran for the United States would be obvious to anyone who looks at a map. Despite Iran's importance, the United States was taken by surprise when the Shah fell in 1979, because it had not developed an adequate human intelligence capability there. Our hearings have established that essentially nothing had been done to cure this failure by the mid-1980's. Then, the United States was approached by Israel in 1985 with a proposal that the United States acquiesce in some minor Israeli arms sales to Iran. This propos- al came at a time when the United States was already considering the advisability of such sales. For long term, strategic reasons, the United States had to improve relation- ships with at least some of the currently im- portant factions in Iran. The lack of adequate intelligence about these factions made it im- portant to pursue any potentially fruitful op- portunity; it also made those pursuits inher- ently risky. U.S. decisions had to be based on the thinnest of independently verifiable information. Lacking such independent intel- ligence, the United States was forced to rely on sources known to be biased and unreli- able. Well aware of the risk, the Administration nonetheless decided the opportunity was worth pursuing. The major participants in the Iran arms affair obviously had some common and some conflicting interests. The key question the United States had to ex- plore was whether the U.S. and Iranian lead- ership actually felt enough of a common in- terest to establish a strategic dialogue. Actions To explore the chance for an opening, the President agreed first to approve Israeli sales to Iran in 1985, and then in 1986 to sell U.S. arms directly. The amounts involved were meager. The total amount, including all of the 1985 and 1986 sales combined, consisted of 2004 TOW antitank missiles, 18 HAWK antiaircraft missiles, and about 200 types of HAWK spare parts. There was a strong division of opinion in the Administration about the advisability of these arms sales, a division that never abated. Unfortunately, this served as a pretext for Poindexter's decision not to keep the Secre- taries of State or Defense informed about the detailed progress of the negotiations between the United States and Iran. One reason for the failure to inform appears to have been a past history in which some Administration officials may have leaked sensitive informa- tion as a way to halt actions with which they disagreed. Poindexter's secretive incli- nations were abetted by Secretary Shultz, who all but invited Poindexter not to keep him informed because he did not want to be accused of leaking. They also were abetted by Secretary Weinberger, who?like Shultz?was less than vigorous about keep- ing himself informed about a policy he had good reason to believe was still going for- ward. 445 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 The first deals with the Iranian Govern- ment were flawed by the unreliability of our intermediary, Manucher Ghorbanifar. For all of his unreliability, however, Ghorbanifar helped obtain the release of two U.S. hos- tages and did produce high Iranian officials for the first face-to-face meetings between our governments in 5 years. At those meet- ings, one of which was held in Tehran in May 1986, U.S. officials sought consistently to make clear that we were interested in a long-term strategic relationship with Iran to oppose the Soviet Union's territorial inter- ests. As concerned as the President had become personally for the fate of the hos- tages?including the CIA's Beirut station chief, William Buckley, who was repeatedly tortured until he died?the hostages were always presented in these negotiations as ob- stacles to be overcome, not as the reason for the initiative. But Ghorbanifar appeared to have misled both sides, and the Iranian offi- cials seemed to be interested only in weap- ons, and in using the hostages for bargaining leverage. After the Tehran meeting, the United States was able to approach a very high Ira- nian official using a Second Channel ar- ranged by Albert Hakim and his associates. There is little doubt about Hakim's business motives in arranging these meetings; there is equally little doubt that this channel repre- sented the highest levels of the Iranian Gov- ernment. Discussions with this channel began in the middle of 1986 and continued until December. They resulted in the release of one further hostage and U.S. officials expect- ed them to result in some more. Perhaps more importantly, these discussions appear to have been qualitatively different from the ones conducted through the First Channel arranged by Ghorbanifar, and included some talks about broad areas of strategic coopera- tion. As a result of factional infighting inside the Iranian Government, the initiative was exposed and substantive discussions were suspended. Not surprisingly, given the nature of Iranian politics, the Iranian Government 446 has publicly denied that significant negotia- tions were underway. Congress was not in- formed of the Administration's dealings with Iran until after the public disclosure. The failure to disclose resembled the Carter Ad- ministration's similar decisions not to disclose in the parallel Iranian hostage crisis of 1979- 81. President Reagan withheld disclosure longer than Carter, however?by about 11 months to 6. Judgments The Iran initiative involved two govern- ments that had sharp differences between them. There were also very sharp internal divisions in both Iran and the United States about how to begin narrowing the differ- ences between the two countries. In such a situation, the margin between narrow failure and success can seem much wider after the fact than it does during the discussions. While the initial contacts developed by Israel and used by the United States do not appear likely to have led to a long-term relationship, we cannot rule out the possibility that nego- tiations with the Second Channel might have turned out differently. At this stage, we never will know what might have been. In retrospect, it seems clear that this initia- tive degenerated into a series of "arms for hostage" deals. It did not look that way to many of the U.S. participants at the time. Nevertheless, the fact that the negotiations never were able clearly to separate the long- term from the short-term issues, confirms our instinctive judgment that the United States should not have allowed arms to become the currency by which our country's bona fides were determined. There is no evidence that these relatively minor sales materially altered the military balance in the Iran-Iraq war. However, the sales damaged U.S. credibility with our allies, making it more difficult, among other things, for the Administration to enforce its preexisting efforts to embargo arms sales to Iran. The decision to keep Congress in the dark for 11 months disturbs all Members of these Committees. It is clear that the Reagan Ad- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 ministration simply did not trust the Con- gress to keep secrets. Based on the history of leaks we shall outline in a later chapter, it unfortunately had good reason to be con- cerned. This observation is not offered as a justification, but as an important part of the context that must be understood. To help remove this concern as an excuse for future Administrations, we are proposing a series of legislative and administrative recommenda- tions to improve both Congress' and the ex- ecutive branch's ability to maintain national security secrets and deter leaks. Diversion The lack of detailed information-sharing within the Administration was what made it possible for Poindexter to authorize the di- version and successfully keep his decision to do so from the President. We have already indicated our reasons for being convinced the President knew nothing about the diver- sion. The majority Report says that if the President did not know about it, he should have. We agree, and so does the President. But unlike some of the other decisions we have been discussing, the President cannot himself be faulted for this one. The decision was Admiral Poindexter's, and Poindexter's alone. As supporters of a strong Presidential role in foreign policy, we cannot take Poin- dexter's decision lightly. The Constitution strikes an implicit bargain with the President: in return for getting significant discretionary power to act, the President was supposed to be held accountable for his decisions. By keeping an important decision away from the President, Poindexter was acting to undercut one foundation for the discretionary Presi- dential power he was exercising. The diversion also differs from the basic Nicaragua and Iran policies in another im- portant respect: we can find nothing to justi- fy or mitigate its having occurred. We do understand the enthusiasm North displayed when he told the Committees it was a "neat idea" to use money from the Ayatollah, who was helping the Sandinistas, to support the Contras. But enthusiasm is not a sufficient basis for important policy decisions. Even if there were nothing else wrong with the di- version, the decision to mix two intelligence operations increased the risk of pursuing either one, with predictably disastrous reper- cussions. Unlike the Committees' majority, we be- lieve there are good legal arguments on both sides of the question of whether the proceeds of the arms sales belong to the U.S. Govern- ment or to Secord and Hakim. For that reason, we think it unlikely, under the cir- cumstances, that the funds were acquired or used with any criminal intent. Nevertheless, the fact that the ownership seems unclear under current law does not please us. We do believe that Secord and Hakim were acting as the moral equivalents of U.S. agents, even if they were not U.S. agents in law. The diversion has led some of the Com- mittees' Members to express a great deal of concern in the public hearings about the use of private citizens in covert operations in settings that mix private profits with public benefits. We remain convinced that covert operations will continue to have to use pri- vate agents or contractors in the future, and that those private parties will continue to operate at least partly from profit motives. If the United States tries to limit itself to deal- ing only with people who act out of purely patriotic motives, it effectively will rule out any worthwhile dealing with most arms dealers and foreign agents. In the real world of international politics, it would be foolish to avoid working with people whose motives do not match our own. Nevertheless, we do feel troubled by the fact that there was not enough legal clarity, or accounting controls, placed on the Enterprise by the NSC. The Uncovering It is clear that officials of the National Secu- rity Council misled the Congress and other members of the Administration about their activities in support of the Nicaraguan Re- sistance. This occurred without authorization 447 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H . .. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 from outside the NSC staff. It is also clear that the NSC staff actively misled other Ad- ministration officials and Congress about the Iran initiative both before and after the first public disclosure. The shredding of docu- ments and other efforts at covering up what had happened were also undertaken by NSC staff members acting on their own, without the knowledge, consent, or acquiescence of the President or other major Administration officials, with the possible exception of Casey. In the week or two immediately after the Iran initiative was disclosed in a Lebanese weekly, the President did not tell the public all that he knew, because negotiations with the Second Channel were still going on, and there remained a good reason for hoping some more hostages might soon be released. Once the President learned that not all of the relevant facts were being brought to his at- tention, however, he authorized the Attor- ney General immediately to begin making inquiries. Attorney General Meese acted properly in his investigation, pursuing the matter as a fact-finding effort because he had no reason at the time to believe a crime had been committed. Arguments to the contrary are based strictly on hindsight. In our opin- ion, the Attorney General and other Justice Department officials did an impressive job with a complicated subject in a short time. After all, it was their investigation that un- covered and disclosed the diversion of funds to the Contras. Common Threads The different strands of the Iran-Contra Affair begin coming together, in the most obvious way, on the level of personnel. Both halves of the event were run by the NSC, specifically by McFarlane, Poindexter, and North. With respect to Nicaragua, the Boland Amendment just about ruled all other agencies out of the picture. With re- spect to Iran, the other parts of the executive branch?from the State and Defense Depart- ments to the CIA?seemed more than happy to let the NSC be in charge. 448 It is ironic that many have looked upon these events as signs of an excessively pow- erful NSC staff. In fact, the NSC's roles in the Iran and Nicaragua policies were excep- tions rather than the rule. The Reagan Ad- ministration has been beleaguered from the beginning by serious policy disagreements between the Secretaries of State and De- fense, among others, and the President has too often not been willing to settle those disputes definitively. The press accounts written at the time Poindexter was promoted to fill McFarlane's shoes saw his selection as a decision to have the National Security Ad- viser play the role of honest broker, with little independent power." This image of the NSC lasted almost until the Iran arms initiative became public. Poindexter was seen as a technician, chosen to perform a techni- cal job, not to exercise political judgment.12 Once the NSC had to manage two oper- ations that were bound to raise politically sensitive questions, it should have been no surprise to anyone that Poindexter made some mistakes. It is not satisfactory, howev- er, for people in the Administration simply to point the finger at him and walk away from all responsibility. For one thing, the President himself does have to bear personal responsibility for the people he picks for top office. But just as it would not be appropri- ate for the fingers to point only at Poin- dexter, neither is it right for them only to point to the top. Everyone who had a stake in promoting a technician to be National Security Adviser should have realized that meant they had a responsibility to follow and highlight the po- litical consequences of operational decisions for the President. Even if the Cabinet offi- cials did not support the basic policy, they had an obligation to remain engaged, if they could manage to do so without constantly rearguing the President's basic policy choice. Similarly, Chief of Staff Donald Regan may not have known, or had reason to know, the details of the Iran initiative or Contra resup- ply effort. But he should have known that North's responses to Congressional inquiries Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 generated by press reports were too impor- tant politically to be left to the people who ran the NSC staff. The discussion of personnel ultimately gets around to the importance of political judg- ment. We can be more precise about what that means, however, if we consider the common threads in the decisions we have already labelled as mistakes. These have in- cluded: ?The President's decision to sign the Boland Amendment of 1984, instead of veto- ing it; ?The President's less-than-robust defense of his office's constitutional powers, a mis- take he repeated when he acceded too read- ily and too completely to waive executive privilege for our Committees' investigation; ?The NSC staffs decision to deceive Congress about what it was doing in Central America; ?The decision, in Iran, to pursue a covert policy that was at odds with the Administra- tion's public expressions, without any warn- ing signals to Congress or our allies; ?The decision to use a necessary and con- stitutionally protected power of withholding information from Congress for unusually sen- sitive covert operations, for a length of time that stretches credulity; ?Poindexter's decision to authorize the diversion on his own; and, finally, ?Poindexter and North's apparent belief that covering up was in the President's polit- ical interest. We emphatically reject the idea that through these mistakes, the executive branch subverted the law, undermined the Constitu- tion, or threatened democracy. The Presi- dent is every bit as much of an elected repre- sentative of the people as is a Member of Congress. In fact, he and the Vice President are the only officials elected by the whole Nation. Nevertheless, we do believe the mis- takes relate in a different way to the issue of democratic accountability. They provide a good starting point for seeing what both sides of the great legislative-executive branch divide must do to improve the way the Gov- ernment makes foreign policy. Congress Congress has a hard time even conceiving of itself as contributing to the problem of democratic accountability. But the record of ever-changing policies toward Central America that contributed to the NSC staffs behavior is symptomatic of a frequently re- curring problem. When Congress is narrow- ly divided over highly emotional issues, it frequently ends up passing intentionally am- biguous laws or amendments that postpone the day of decision. In foreign policy, those decisions often take the form of restrictive amendments on money bills that are open to being amended again every year, with new, and equally ambiguous, language replacing the old. This matter is exacerbated by the way Congress, year after year, avoids pass- ing appropriations bills before the fiscal year starts and then wraps them together in a governmentwide continuing resolution loaded with amendments that cannot be vetoed without threatening the whole Gov- ernment's operation. One properly democratic way to amelio- rate the problem of foreign policy inconsist- ency would be to give the President an op- portunity to address the major differences between himself and the Congress cleanly, instead of combining them with unrelated subjects. To restore the Presidency to the position it held just a few administrations ago, Congress should exercise the self-disci- pline to split continuing resolutions into sep- arate appropriation bills and present each of them individually to the President for his signature or veto. Even better would be a line-item veto that would permit the Presi- dent to force Congress to an override vote without jeopardizing funding for the whole Government. Matters of war and peace are too important to be held hostage to govern- mental decisions about funding Medicare or highways. To describe this legislative hos- tage taking as democracy in action is to turn language on its head. 449 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 The Presidency The Constitution created the Presidency to be a separate branch of government whose occupant would have substantial discretion- ary power to act. He was not given the power of an 18th century monarch, but nei- ther was he meant to be a creature of Con- gress. The country needs a President who can exercise the powers the Framers intend- ed. As long as any President has those powers, there will be mistakes. It would be disastrous to respond to the possibility of error by further restraining and limiting the powers of the office. Then, instead of seeing occasional actions turn out to be wrong, we would be increasing the probability that future Presidents would be unable to act de- cisively, thus guaranteeing ourselves a per- petually paralyzed, reactive, and unclear for- eign policy in which mistake by inaction would be the order of the day. If Congress can learn something about democratic responsibility from the Iran- Contra Affair, future Presidents can learn something too. The Administration would have been better served over the long run by insisting on a principled confrontation over those strategic issues that can be debated publicly. Where secrecy is necessary, as it often must be, the Administration should have paid more careful attention to consulta- tion and the need for consistency between what is public and what is covert. Inconsist- ency carries a risk to a President's future ability to persuade, and persuasion is at the heart of a vigorous, successful presidency. A President's most important priorities, the ones that give him a chance to leave an historic legacy, can be attained only through persistent leadership that leads to a lasting change in the public's understanding and opinions. President Reagan has been praised by his supporters as a "communicator" and criticized by his opponents as an ideologue. The mistakes of the Iran-Contra Affair, iron- ically, came from a lack of communication and an inadequate appreciation of the impor- tance of ideas. During President Reagan's terms of office, he has persistently taken two 450 major foreign policy themes to the American people: a strong national defense for the United States, and support for the institu- tions of freedom abroad. The 1984 election showed his success in persuading the people to adopt his fundamental perspective. The events since then have threatened to under- mine that achievement by shifting the agenda and refocusing the debate. If the President's substantial successes are to be sustained, it is up to him, and those of us who support his objectives, to begin once again with the task of democratic persuasion. Afterword: Summary of Legal Conclusions Nicaragua The main period under review during these investigations was October 1984 through Oc- tober 1986. During this period, various ver- sions of the Boland Amendment restricted the expenditure of appropriated funds avail- able to agencies or entities involved in intel- ligence activities from being spent directly or indirectly to support military or paramilitary operations in Nicaragua. In August 1985, the State Department was authorized to spend $27 million to provide humanitarian assist- ance to the Nicaraguan democratic Resist- ance. In December 1985, the CIA was au- thorized to spend funds specifically appropri- ated to provide communications equipment and training and to provide intelligence and counterintelligence advice and information to assist military operations by the Resistance. On October 18, 1986, $100 million in direct military support for the Contras was made available for fiscal year 1987. Our under- standing of the effect of these prohibitions rests on both statutory and constitutional in- terpretations. (1) The Constitution protects the power of the President, either acting himself or through agents of his choice, to engage in whatever diplomatic communications with other countries he may wish. It also protects the ability of the President and his agents to Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 persuade U.S. citizens to engage voluntarily in otherwise legal activity to serve what they consider to be the national interest. That includes trying to persuade other coun- tries to contribute their own funds for causes both countries support. To whatever extent the Boland Amendments tried to prohibit such activity, they were clearly unconstitu- tional. (2) If the Constitution prohibits Congress from restricting a particular Presidential action directly, it cannot use the appropria- tion power to achieve the same unconstitu- tional effect. Congress does have the power under the Constitution, however, to use ap- propriations riders to prohibit the entire U.S. Government from spending any money, in- cluding salaries, to provide covert or overt military support to the Contras. Thus, the Clark Amendment prohibiting all U.S. sup- port for the Angolan Resistance in 1976 was constitutional. Some members of Congress who supported the Boland Amendment may have thought they were enacting a prohibi- tion as broad as the Clark Amendment. The specific language of the Boland Amendment was considerably more restricted, however, in two respects. (a) By limiting the coverage to agen- cies or entities involved in intelligence activities, Congress chose to use lan- guage borrowed directly from the In- telligence Oversight Act of 1980. In the course of settling on that language in 1980, Congress deliberately decided to exclude the National Security Council (NSC) from its coverage. At no time afterward did Congress indi- cate an intention to change the lan- guage's coverage. The NSC therefore was excluded from the Boland Amendment and its activities were therefore legal under this statute. (b) The Boland prohibitions also were limited to spending that directly or indirectly supported military or para- military operations in Nicaragua. Under this language, a wide range of intelligence-gathering and political support activities were still permitted, and were carried out with the full knowledge of the House and Senate Intelligence Committees. (c) Virtually all, if not all, of the CIA's activities examined by these Committees occurred after the De- cember 1985 law authorized intelli- gence sharing and communications support and were fully legal under the terms of that law. (d) If the NSC had been covered by the Boland Amendments, most of Oliver North's activity still would have fallen outside the prohibitions for reasons stated in (b) and (c) above. Iran The Administration was also in substantial compliance with the laws governing covert actions throughout the Iran arms initiative. (1) It is possible to make a respectable legal argument to the effect that the 1985 Israeli arms transfers to Iran technically vio- lated the terms of the Arms Export Control Act (AECA) or Foreign Assistance Act (FAA), assuming the arms Israel transferred were received from the United States under one or the other of these statutes. However: (a) Covert transfers under the Na- tional Security Act and Economy Act were understood to be alternatives to transfers under the AECA and FAA that met both of these latter acts' es- sential purposes by including provi- sions for Presidential approval and Congressional notification. (b) The requirement for U.S. agree- ment before a country can retransfer arms obtained from the United States is meant to insure that retransfers con- form to U.S. national interests. In this case, the Israeli retransfers occurred with Presidential approval indicating that they did so conform. 451 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 1 (c) The Israeli retransfer and subse- quent replenishment made the deal es- sentially equivalent to a direct U.S. sale, with Israel playing a role funda- mentally equivalent to that of a mid- dleman. Since the United States could obviously have engaged in a direct transfer, and did so in 1986, whatever violation may have occurred was, at most, a minor and inadvertent techni- cality. (2) A verbal approval for covert transac- tions meets the requirements of the Hughes- Ryan Amendment and National Security Act. Verbal approvals ought to be reduced to writing as a matter of sound policy, but they are not illegal. (3) Similarly, the President has the consti- tutional and statutory authority to withhold notifying Congress of covert activities under very rare conditions. President Reagan's de- cision to withhold notification was essential- ly equivalent to President Carter's decisions in 1979-1980 to withhold notice for between 3 and 6 months in parallel Iran hostage oper- ations. We do not agree with President Rea- gan's decision to withhold notification for as 452 long as he did. The decision was legal, how- ever, and we think the Constitution man- dates that it should remain so. If a President withholds notification for too long and then cannot adequately justify the decision to Congress, that President can expect to pay a stiff political price, as President Reagan has certainly found out. Diversion We consider the ownership of the funds the Iranians paid to the Secord-Hakim "Enter- prise" to be in legal doubt. There are re- spectable legal arguments to be made both for the point of view that the funds belong to the U.S. Treasury and for the contention that they do not. If the funds do not belong to the United States, then the diversion amounted to third-country or private funds being shipped to the Contras. If they did belong to the United States, there would be legal questions (although not, technically, Boland Amendment questions) about using U.S.-owned funds for purposes not specifi- cally approved by law. The answer does not seem to us to be so obvious, however, as to warrant treating the matter as if it were criminal. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ,Chapter 1 Endnotes 1. North Test., Hearings, 100-7, Part I, 7/8/87, at p. 106; 7/10/87, at 295-96; Vol. II, 7/14/87, at pp. 164-65. 2. Id., Vol. I, 7/10/87, at p. 296. 3. Id., at p. 295. 4. Poindexter Test., Hearings, 100-8, 7/15/87, at p. 35. 5. North Test., Hearings, 100-7, Part I, 7/8/87, at p. 139. 6. North Test., Hearings, 100-7, Part I, 7/8/87, at p. 140. 7. George Test., Hearings, 100-11, 8/6/87, at p. 172. See also McMahon Dep., 9/2/87, at 3-8. 8. U.S. House of Representatives, Permanent Select Com- mittee on Intelligence, Report to Accompany H.R. 2760, Amendment to the Intelligence Authorization Act for Fiscal Year 1983, May 13, 1983, p. 2. 9. McFarlane may be an arguable exception. See chapter 7 below. 10. John Norton Moore, letter to Brendan Sullivan, July 9, 1987, p. 2, reprinted along with other Moore material at the end of our separate views. 11. See, for example, "Primus, Pares and Poindexter," New York Times editorial, December 6, 1985; Mary Belch- er, "White House shift realigns influence in foreign policy; more clout likely for State, Defense," The Washington Times, December 5, 1985, p. 1. 12. Leslie H. Gelb, "How the New Admiral at the White House Fares," New York Times, September 23, 1986, p. 24. 453 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part II The Foreign Affairs Powers of the Constitution and the Iran-Contra Affair Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 The Foreign Affairs Powers and the Framers' Intentions Judgments about the Iran-Contra Affair ultimately must rest upon one's views about the proper roles of Congress and the President in foreign policy. There were many statements during the public hearings, for example, about the rule of law. But the fundamental law of the land is the Constitution. Unconstitutional statutes violate the rule of law every bit as much as do willful violations of constitutional statutes. It is essential, therefore, to frame any discussion of what happened with a proper analysis of the Constitutional allocation of legislative and executive power in for- eign affairs. One point stands out from the historical record: the Constitution's Framers expected the President to be much more than a minister or clerk. The President was supposed to execute the laws, but that was only the beginning. He also was given important powers, independent of the legislature's, and these substantive- ly were focused on foreign policy. Our analysis will cover three chapters. The first will be about the debates in and around the Constitu- tional Convention of 1787 and will show the particu- lar importance of what Alexander Hamilton called "energy in the executive" in this policy arena. The second reviews historical examples. It shows that, throughout the Nation's history, Congress has accept- ed substantial exercises of Presidential power?in the conduct of diplomacy, the use of force and covert action?which had no basis in statute and only a gen- eral basis in the Constitution itself. The third consid- ers the applicable court cases and legal principles. Taken together, the three chapters will show that much of what President Reagan did in his actions toward Nicaragua and Iran were constitutionally pro- tected exercises of inherent Presidential powers. How- ever unwise some of those actions may have been, the rule of law cannot permit Congress to usurp judg- ments that constitutionally are not its to make. It is true that the Constitution also gives substantial for- eign policy powers to Congress, including the power of the purse. But the power of the purse?which forms the core of the majority argument?is not and was never intended to be a license for Congress to usurp Presidential powers and functions. Some of the statutes most central to the Iran-Contra Affair contain a mixture of constitutionally legitimate and illegit- imate prohibitions. By the end of the three chapters, we will be in a position to start sorting them out. "Necessary and Proper" and the "Invitation to Struggle" In order to sort out constitutional from unconstitu- tional exercises of power, however, one first must have a basis, or a set of principles, to guide the sorting. It is a commonplace to note that foreign policy was meant to be shared between the branches. The two branches' respective powers clearly were meant to overlap somewhat, with each branch having different means for addressing parallel policy issues. This overlap led the respected Presidential scholar, Edward S. Corwin, to describe the Constitution as "an invitation to struggle for the privilege of directing American foreign policy." 1 But to acknowledge the existence of a struggle is a far cry from seeing the Constitution as if it permits any branch to go after another's powers, without bounds. The boundless view of Congressional power began to take hold in the 1970's, in the wake of the Vietnam War. The 1972 Senate Foreign Relations Committee's report recommending the War Powers Act, and the 1974 report of the Select Committee on Intelligence Activities (chaired by Senator Frank Church and known as the Church Committee), both tried to support an all but unlimited Congressional power by invoking the "Necessary and Proper" clause. That clause says Congress may "make all Laws which shall be necessary and proper for carry- ing into Execution the foregoing [legislative] Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any De- partment or Officer thereof" The argument of these two prominent committees was that by granting Con- gress the power to make rules for the other depart- ments, the Constitution meant to enshrine legislative supremacy except for those few activities explicitly reserved for the other branches.2 One must ignore 200 years of constitutional history to suggest that Congress has a vast reservoir of im- plied power whose only limits are the powers explicit- ly reserved to the other branches. It seems clear, for example, that Congress could not legislate away the Supreme Court's power of judicial review, even 457 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 though judicial review is not mentioned explicitly in Article III. The same applies to the Presidency. The Necessary and Proper clause does not permit Con- gress to pass a law usurping Presidential power. A law negating Presidential power cannot be treated as if it were "necessary and proper for carrying" Presi- dential powers "into Execution." To suggest other- wise would smack of Orwellian Doublespeak. The issue for this investigation, therefore, is not whether Congress and the President both have a le- gitimate role in foreign policy. Clearly, both do. Rather, the question is how to interpret the powers the two branches were given. All three of the Gov- ernment's branches were given both express and im- plied powers. Congress does not have the authority to arrogate all of the implied power to itself. What we need to determine is whether these implied powers all fall into an undefined war zone, or whether there are theoretical and historical principles that allow one to decide when powers are more properly exercised by one branch or another. Separation of Powers One commonly held, but mistaken view of the separa- tion of powers sees its whole function as having been preventive. Justice Louis D. Brandeis, for example, wrote that the "doctrine of separation of powers was adopted by the Convention of 1787, not to promote efficiency but to preclude the exercise of arbitrary power." 3 His statement has been accepted in some Congressional quarters as if it holds the force of con- ventional wisdom,4 but it misses half of the historical truth. The fallacy of Brandeis' statement becomes appar- ent when one considers the defects of the U. S. Gov- ernment before the Constitution. The Constitutional Convention, among other things, was taking the exec- utive from being under the legislature's thumb, not the legislature from being under the executive's. After suffering through the Articles of Confederation (and various state constitutions) that had overcompensated for monarchy, the 1787 delegates wanted to empower a government, not enfeeble it. Brandeis was partly right to point out that the Framers did not want power to be used arbitrarily, and that checks and balances were among the means used to guard against arbitrariness. But the principles underlying separation had to do with increasing the Government's power as much as with checking it.5 For the Government to overcome the Articles' problems, the executive and judiciary had to act, di- rectly upon citizens throughout the far-flung new nation. As Charles Thach said in his classic study, "the delegates' chief concern was thus to secure an executive strong enough, not one weak enough." 6 The delegates did not want a monarchy, but felt they had no reason to fear such a threat as long as Mem- bers of Congress retained their independent political 458 connection to the people. The problem was to make sure the other branches were not drawn, to use James Madison's word, into the legislature's "vortex." 7 Constitutional Convention The need for a strong Executive was not seen or articulated clearly at the beginning of the Constitu- tional Convention by all of the delegates. On June 1, 1787, in the first debate on the subject, Connecticut's Roger Sherman said "he considered the Executive magistracy as nothing more than an institution for carrying the will of the Legislature into effect." 8 For that reason, Sherman supported the original Virginia Plan's provisions for the office. As submitted on the first day of the convention's substantive business on May 29, these included election by the legislature, no reeligibility for reelection and a short list of powers. The Presidency grew considerably in stature be- tween June 1 and September 17, the convention's last day. The leading strong Executive proponents, includ- ing James Wilson of Pennsylvania and Gouverneur Morris of New York, persuaded their colleagues to borrow key provisions from the New York State Constitution, whose independently powerful governor stood out from the much weaker executives in the other states. By the time the convention had finished, the Presidency (like the governorship of New York) was to be unified in one person who had an electoral base independent from the legislature's, who was al- lowed to run for reelection and who was given a qualified veto over legislative bills. With those changes in place, the delegates insured that the Presi- dency would not be the subservient clerkship original- ly envisioned by Sherman. The President's enumerated powers were not dis- cussed until the second half of the Constitutional Con- vention. For a week after the July 16 Great Compro- mise on legislative representation, the delegates debat- ed the Presidency without reaching final conclusions. On July 26, they recessed to let a Committee of Detail work on a draft Constitution. At this point, the convention had only given the President the power to enforce laws, appoint officers, and exercise a qualified veto over legislation. The Committee of Detail's report of August 6 listed specific powers for all three branches, significantly expanding the ones for the President. To the ones listed on July 26, the committee added the ability to recommend legislation, to receive ambassadors, to communicate with other heads of state and to act as commander in chief.9 Beyond these powers, however, the committee did not yet see the President as being preeminent in for- eign policy. Reflecting the stake that small state dele- gates felt they had in the Senate, the committee gave the Senate the power to make treaties and appoint Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 ambassadors and judges, and gave the full Congress the power to make war. Over the next several weeks, all of these foreign policy decisions were modified to increase the Presi- dent's power. On August 17, "Mr. Madison and Mr. Gerry moved to insert 'declare', striking out [Con- gress's power to] 'make' war; leaving the Executive the power to repel sudden attacks." 10 This sentence is sometimes read by advocates of Congressional power as if the President was to be left only with the power to repel sudden attacks." The next sentence muddies this interpretation substantially, however. Roger Sherman?the same delegate who was so suspi- cious of Executive power?said he would oppose the change because he interpreted it to mean the Presi- dent was being given the power "to commence war." Oliver Ellsworth joined Sherman's reasoning, and Madison's notes (much skimpier for September than earlier) made George Mason's remarks inscrutable." The motion was adopted, but an honest reading of these contradictory interpretations compels the con- clusion that the scope of Executive power on this point was not settled. The President clearly was being given some discretion to use force without a declara- tion of war, but how much would have to be worked out in subsequent practice. The treaty power was debated on August 23, but left unresolved." On September 4, a Committee of Eleven reported a provision that said, "the President by and with the advice and consent of the Senate, shall have power to make Treaties; and he shall nomi- nate and by and with the advice and consent of the Senate shall appoint ambassadors", other public Min- isters, judges and other officers not otherwise provid- ed for in the Constitution. The votes of two-thirds of the Senators present were to be needed to ratify a treaty." The provision for treaties was adopted with little recorded debate on September 7. James Wilson did move to require ratification to be shared by the House of Representatives, but the motion was defeat- ed 1-10 after Sherman said "the necessity of secrecy in the case of treaties forbade a reference of them to the whole Legislature." 15 The delegates reduced the two-thirds requirement for advice and consent to a simple majority for treaties of peace, but reversed themselves the next day." As with the war power, shifting the power to make treaties away from the Senate clearly was meant to expand the President's role?this time to take the lead in international negoti- ations. This expansion would parallel the President's sole authority to receive ambassadors and his author- ity to nominate ambassadors with advice and consent of the Senate. Once again, however, the exact scope of the relationship implied by the treaty power was left to be worked out in practice. The Federalist Analysis of Political Principles Although the convention left a great deal unsettled, that does not mean the Framers considered the distri- bution of foreign policy powers to be unimportant. "Problems of security and diplomacy were among the dominant preoccupations of the men who met at Philadelphia," wrote one legal scholar, "and first among their arguments for Union." 17 John Jay's four papers on foreign affairs come first in the Federalist and more than half of the papers in one way or another involve national security or foreign policy. In fact, one of the main differences between Federalists and Anti-Federalists during the whole ratification period turned on the Federalists' insistence that a strong national government was needed to meet for- eign threats." So the issues were aired at some length. If we begin with the discussions about governmen- tal institutions that were not specifically focused on foreign policy, we can see that there were some prin- ciples underlying the way powers were allocated to the various branches of government. There was some overlap, to be sure. "Unless these departments be so far connected and blended, as to give each a constitu- tional controul over the others," Madison wrote in Federalist No. 48, no checking or balancing could occur." But the core of each branch's power cen- tered upon tasks it was supposed to be best suited to perform.2? The primary concern the Framers had for the Con- gress was to create a body whose members?naturally concerned with the immediate concerns of their own districts?would be encouraged to debate and deliber- ate in the name of the national interest.21 If delibera- tion was the key word for designing the legislature, energy, the ability to act, was the central concept for the Presidency. In describing the delegates' decision to have a single Executive and a numerous legislature, Alexander Hamilton wrote: "They have, with great propriety, considered energy as the most necessary qualification in the former, and have regarded this as most applicable to power in a single hand; while they have, with equal propriety, considered the latter as best adapted to deliberation." 22 The need for an effective foreign policy, it turned out, was one of the main reasons the country needs an "energetic government," according to Alexander Hamilton in Federalist Nos. 22 and 23. Madison made the same point in No. 37: "Energy in Government is essential to that security against external and internal danger, and to that prompt and salutary execution of the laws, which enter into the very definition of good Government." 23 The relevance of these observations about the government's power is that the Framers saw energy as being primarily an executive branch charac- teristic. 459 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 Energy is the main theme of Federalist No. 70 ("energy in the executive is a leading character in the definition of good government.") It is said to be im- portant primarily when "decision, activity, secrecy, and dispatch" were needed. These features are "essen- tial to the protection of the community against for- eign attacks." "In the conduct of war . . . the energy of the executive is the bulwark of national securi- ty." 24 But war was not the only aspect of foreign policy described as being more appropriate for the executive than legislative branch. "The actual conduct of for- eign negotiations, . . . the arrangement of the army and navy, the direction of the operations of war; these and other matters of a like nature constitute what seems to be most properly understood by the adminis- tration of government." 25 On negotiations, Hamilton went further to say that the Executive is "the most fit agent" for "foreign negotiations." 26 In all of the quotations above, the Federalist was not treating powers as if they were randomly distrib- uted. "Separated powers are not separated arbitrar- ily," writes one constitutional scholar.27 "They are divided on principle, and not according to the pru- dential considerations of the moment," concludes an- other." The responsibilities given each branch were the ones most suited to its composition. Activities requiring discussion and deliberation formed the heart of the legislature's job; those calling for "decision, activity, secrecy and dispatch" were the heart of the Executive's. The distribution of these characteristics among the branches would not by itself settle a dis- pute over the separation of powers. One could not, for example, challenge the existence of Congressional intelligence committees by saying that the Federalist called secrecy more of an Executive than a legislative trait. The analysis does show, however, that the Framers had solid reasons for placing the deployment and use of force (but not declarations of war), togeth- er with negotiations, intelligence gathering," and other diplomatic communications (but not treaty rati- fication) at the center of the President's foreign policy 460 powers. The principles underlying this distribution of powers should therefore be respected in constitutional interpretation, except where there are compelling rea- sons to suppose the Framers intended a different result. We would be remiss if we failed to note that Feder- alist No. 70 gave two reasons for supporting unity in the Executive. So far, our discussion has concentrated on the first: the need for energy in the Executive. No government, democratic or otherwise, could long sur- vive unless its Executive could respond to the uncer- tainties of international relations. But energy in the Executive seemed frightening to some people. To them, the Federalists made two responses. The first was that the Executive could not maintain a standing army, equip a navy, or engage in a large-scale use of force, without spending appropriated funds provided and controlled by the Congress.3? The second was that an independent, single Execu- tive?in addition to being more energetic?would also be more responsible politically. It would be much easier to hold one person accountable than a commit- tee." In other words, giving the President some inde- pendent, inherent power was not seen as being un- democratic. The President and Congress both were considered to be representatives of the people. The Congress produced a more fitting result when the primary need was to moderate internal factional de- mands through discussion and deliberation before pro- ducing general rules. But foreign policy is dominated by case-by-case decisions, not general rules, and the aim is not to moderate internal pressures through de- liberation, but to respond to external ones quickly and decisively. For these kinds of situations, multiple bodies?like Congress?are inherently unable to accept blame or responsibility for mistakes. Thus, de- spite the majority's contentions to the contrary, put- ting such decisions in the hands of the Congress was considered to be less democratic than giving them to the President, because there would be no way for the people to hold any one person accountable for a legis- lative decision. Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 2 Chapter 2 (Minority) 1. Edward S. Corwin, The President: Office and Powers (1957), p. 171. 2. U.S. Senate, 92d Cong., 2d Sess., Committee on For- eign Relations, War Powers, S. Rept. 92-606 to accompany S. 2956, (1972), p. 16; and U.S. Senate, 94th Cong., 2d Sess., Select Committee to Study Governmental Operations With Respect To Intelligence Activities, Final Report: Foreign and Military Intelligence, S. Rept. 94-755 (1976), Book I, p. 3. 3. Myers v. United States 272 U.S. 52, 293 (1926). 4. See, for example, U.S. Senate, 94th Cong., 2d Sess., Select Committee to Study Governmental Operations With Respect To Intelligence Activities, Final Report: Foreign and Military Intelligence, S. Rept. 94-755 (1976), Book I, p. 31. 5. See, for example, Louis Fisher, President and Con- gress: Power and Policy (1972) at 3: "I would not go so far as to claim that the framers' search for administrative effi- ciency, and their adoption of a separate executive for that purpose, represents the whole truth. Still, it is at least half the truth." See also L. Fisher, "The Efficiency Side of Separated Powers," 5 Journal of American Studies 113 (1971). 6. Charles C. Thach Jr., The Creation of the Presidency, 1775-1789 (1923), p. 77. 7. Alexander Hamilton, James Madison, and John Jay, The Federalist (Jacob Cooke, ed., 1961), No. 48, p. 333. Hereafter cited as Federalist. 8. Max Farrand, The Records of the Federal Convention of 1787 (1937), 4 vols., Vol. 1, p. 65. Hereafter cited as Farrand. 9. Farrand, II, 185. 10. Farrand, II, 318. 11. U.S. Senate, 92d Cong., 2d Sess., Committee on For- eign Relations, War Powers, S. Rept. 92-606 to accompany S. 2956 (1972), p. 4. 12. Farrand, II, 318-19. 13. Farrand, II, 392-94. 14. Farrand, II, 498-99. 15. Farrand, II, 538. 16. Farrand, II, 541, 549. 17. Eugene V. Rostow, "Great Cases Make Bad Law: The War Powers Act," 50 Texas L.Rev. 833, 845 (1972). 18. Nathan Tarcov, "The Federalists and Anti-Federalists on Foreign Affairs," 14 Teaching Political Science: Politics in Perspective 38 (Fall, 1986). 19. Federalist No. 48 at 332. William R. Davie made the same point in the North Carolina ratifying convention: "It is true, the great Montesquieu, and several other writers, have laid it down as a maxim not to be departed from, that the legislative, executive, and judicial powers should be sepa- rate and distinct. But the idea that these gentlemen had in view has been misconceived or misrepresented. An absolute and complete separation is not meant by them. It is impossi- ble to form a government on these principles." Jonathan Elliot, ed. The Debates in the Several States on the Adop- tion of the Federal Constitution, 5 vols (1888), Vol. IV, p. 121. 20. See Ann Stuart Diamond, "The Zenith of Separation of Powers Theory: The Federal Convention of 1787," Pub- lius, (Summer 1978) at 51. 21. Michael J. Malbin, "Congress During the Convention and Ratification," in L. Levy and D. Mahoney, eds., The Constitution: A History of its Framing and Ratification (1987); M. Malbin, "Factions and Incentives in Congress," 86 The Public Interest 91 (1987). 22. Federalist No. 70 at 472. 23. Federalist No. 37 at 233. 24. Federalist No. 70 at 471-72, 476. 25. Federalist No. 72 at 486-87. 26. Federalist No. 75 at 505, emphasis added. 27. Gary J. Schmitt, "Separation of Powers: Introduction to the Study of Executive Agreements," 27 The American Journal of Jurisprudence 114, 115 (1982). 28. Glen E. Thurow, "Presidential Discretion in Foreign Affairs," 7 Vanderbilt J. of Int'l. L. 71, 75 (1973). 29. Federalist No. 64 at 435. 30. Federalist No. 26 at 168; No. 41 at 273-74. We discuss the Constitutional limits on the appropriations power as a tool of foreign policy in the next chapter. 31. Federalist No. 70 at 476-77. 461 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 3 The President's Foreign Policy Powers in Early Constitutional History Our review of the Constitutional Convention conclud- ed that the original document left a great deal to be worked out in practice. The Federalist does not change this conclusion. It does give us a theoretical basis, however, for seeing that the subsequent histori- cal development of the President's foreign policy powers was no aberration. This is evident in the early development of diplomatic power, in presidential de- ployments of force, and in the use of secret agents for intelligence and covert activities. Diplomacy The major uncertainties affecting the President's abili- ty to hold the initiative in negotiations and diplomatic communications were settled early. The President's role as the "sole organ" 1 of international communica- tions was asserted unequivocally on October 9, 1789, when George Washington answered a letter that the King of France had addressed "to the President and Members of the General Congress" by saying that the task of receiving and answering such letters "has de- volved upon me." Washington's interpretation was not based on the explicit words of Article II. Con- firming this assertion, the Senate twice rejected mo- tions to request the President to communicate mes- sages on behalf of the United States.2 The related issue of whether the President may be required to give all requested information to Congress arose in a variety of foreign policy contexts during the Washington Administration. According to Abra- ham Sofaer's definitive study of the first forty years' practice under the Constitution, Washington repeated- ly asserted, and Congress just as repeatedly accepted, a presidential right to withhold information the Presi- dent thought should be kept secret. In 1794, for exam- ple, the Senate requested copies of the correspond- ence between our ambassador to France and the French Republic. Attorney General William Bradford wrote that "it is the duty of the Executive to with- hold such parts of the said correspondence as in the judgment of the Executive shall be deemed unsafe and improper to be disclosed." Washington's response to the Senate clearly indicated that he was withhold- ing some material, but the Senate took no further action.3 A year later, the Senate asked President Washing- ton for John Jay's negotiating instructions and dis- patches relating to the controversial Jay Treaty, "the first truly significant treaty completed under the new Constitution." 4 The issue here had to do not with the President's right to be the sole negotiator of treaties, but with what information Congress could insist on, after the fact, as a matter of right. Despite some advice to the contrary within his cabinet, Washington decided to give all requested information to the Senate. Thomas Jefferson, Washington's Secretary of State, made it clear later, however, that he considered the decision to have been a matter of political pru- dence rather than an acquiescence in a Senatorial right of advance consultation.5 When it was time for the House to consider imple- menting legislation for the Jay Treaty, Washington refused the same information?an action that pro- voked more than 300 pages of debate in the Annals of Congress. The President said he was refusing the re- quest because the House had no role in ratifying trea- ties. The Cabinet, however, had also discussed a second reason for refusing to answer: the President's inherent power to decide what could, with safety, be shared. In a subsequent House debate, James Madison argued that the President should not be allowed to judge what was in the House's power, but supported the idea that the President could withhold papers if "in his judgment, it might not be consistent with the interest of the United States at this time to disclose." In other words, Madison was saying that each branch was the proper judge of its own constitutional powers. According to Sofaer, the debate showed "that members widely shared the view that the Presi- dent had discretion to decline to furnish information requested. . . . Only one member . . . claimed that the House had an absolute right to obtain information it sought." 6 In addition to negotiating treaties, and sharing in- formation about them with Congress, there was a major dispute during the Washington Administration about subsequent interpretation and implementation. After war broke out between France and England in 1793, Washington decided to issue his famous Procla- mation of Neutrality. Public sentiment was in favor of having the United States support France, a course 463 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 that arguably would have been consistent with a 1778 Treaty of Alliance between the United States and France. Washington was convinced, however, that taking sides in the war would be disastrous. He took the position that it was up to him, as President, to interpret the country's treaty obligations when he felt those obligations did not require him to ask Congress for a declaration of war. For eight months, Washing- ton implemented his policy without asking Congress to convene for a special session. One of the truly remarkable aspects of the decision was that, in addition to its assertion of the President's unilateral power to set policy, Washington claimed that he could use military force, if necessary, to pre- vent violations of the policy outside the United States by privateers and by people who helped outfit them, and that he could treat violations within the United States as criminal acts under the common law. Al- though unrelated concerns about common law crimes and the difficulty of winning jury convictions led to the first Congressional Neutrality Act, there was never any doubt about Washington's authority to en- force his policy of neutrality abroad. Washington's proclamation also occasioned one of the great public debates over executive power in the Nation's history. About two and a half months after the proclamation, Hamilton published the first of a series of papers under the pseudonym of Pacificus. The main constitutional issue of the day was whether Congress' power to declare war carried with it the power to declare peace, or to determine whether U.S. treaty obligations with France required supporting that country in its war with England. Hamilton argued that these powers must "of necessity belong to the Executive Department." 7 His reasoning was as follows: It appears to be connected to that department in various capacities, as the organ of intercourse be- tween the Nation and foreign Nations?as the interpreter of the National Treaties in those cases in which the Judiciary is not competent, that is between Government and Government?as that Power, which is charged with the Execution of the Laws, of which treaties form a part?as that Power which is charged with the application of the Public Force. That view of the subject is so natural and obvi- ous?so analogous to general theory and prac- tice?that no doubt can be entertained of its just- ness, unless such doubt can be deduced from particular provisions of the Constitution.8 At this point, Hamilton turned his attention to the texts of Articles I and II, and particularly to the general clauses introducing each of them. The second Article of the Constitution of the United States, section 1st, establishes this general 464 Proposition, That "The EXECUTIVE POWER shall be vested in a President of the United States of America." The same article in a succeeding Section pro- ceeds to designate particular cases of Executive Power. . . . It would not consist with the rules of sound construction to consider this enumeration of par- ticular authorities as derogating from the more comprehensive grant contained in the general clause, further than as it may be coupled with express restrictions or qualifications . . . . Be- cause the difficulty of a complete and perfect specification of all the cases of Executive author- ity would naturally dictate the use of general terms?and would render it improbable that a specification of particulars was designed as a sub- stitute for those terms, when antecedently used. The different mode of expression employed in the constitution in regard to the two powers the Leg- islative and the Executive serves to confirm this inference. In the article which grants the legisla- tive powers of the Governt. the expressions are? "All Legislative powers herein granted shall be vested in a Congress of the United States;" in that which grants the Executive Power the expres- sions are, as already quoted, "The EXECUTIVE PO[WER] shall be vested in a President of the United States of America". . . . The general doctrine then of our constitution is that the EXECUTIVE POWER of the Nation is vested in the President; subject only to the excep- tions and qu[a]lifications which are expressed in the instrument . . . . This mode of construing the Constitution has indeed been recognized by Congress in formal acts, upon full consideration and debate. The power of removal from office is an important instance.8 Thomas Jefferson, Washington's Secretary of State, joined the other members of the Cabinet in supporting the President's proclamation. He became upset, how- ever, at Pacificus' arguments for executive power, and urged his friend, James Madison, to write a reply. The results were published under the pseudonym of Helvidius. To see the laws faithfully executed constitutes the essence of the executive authority. But what relation does it have to the power of making treaties and war, that is, of determining what the laws shall be with regard to other nations? By whatever standard we try this doctrine, it must be condemned as no less vicious in theory than it would be dangerous in practice . . . . Approved For Release 29,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Whence can the writer have borrowed it? There is but one answer to this question. The power of making treaties and the power of declaring war, are royal prerogatives in the British government, and are accordingly treated as execu- tive prerogatives by British commentators. 10 Interestingly, a letter Madison wrote to Jefferson shows that he was extremely reluctant to take on the task." On an earlier occasion when he was support- ing the removal power, Madison had described the executive power in terms much closer to Hamilton's. The constitution affirms that the executive power shall be vested in the president. Are there excep- tions to this proposition? Yes, there are. The con- stitution says that, in appointing to office, the senate shall be associated with the president, unless in the case of inferior officers, when the law shall otherwise direct. Have we [in Congress] a right to extend this exception? I believe not. If the constitution has invested all the executive power in the president, I venture to assert, that the legislature has no right to diminish or modify his executive authority." Whatever one may want to say about Madison's narrow construction of Presidential power in the role of Helvidius, there can be little doubt that the history of the years and decades immediately following Washington's assertions of broad power, developed more along lines envisioned by Pacificus. Sofaer's review of the Washington administration ended by observing that "the framework for executive-congres- sional relations developed during the first eight years differs more in degree than in kind from the present framework." 13 At least as important as the first eight years, however, was the fact that this framework was maintained by Jefferson and his successors, despite their public identification during the years the Feder- alists held power with the Helvidius view of the Presi- dency. One constitutional dispute early in the Jefferson Administration was over the Louisiana Purchase. What would the party whose adherents had insisted on a Senate role in negotiating the Jay Treaty say about the President's power to negotiate the Pur- chase? Jefferson's Secretary of State Albert Gallatin supported the Louisiana Purchase by saying that the purchase eventually would have to be ratified by treaty and that its negotiation therefore belonged to the President under the Constitution. Jefferson did not embrace Gallatin's constitutional argument. Instead, the President decided to go through with the Pur- chase, without abandoning his view that the Constitu- tion severely limited the President, by asserting an inherent, extraconstitutional prerogative power for the Executive that was more sweeping than anything Hamilton had ever put forward. Jefferson justified his decision this way: A strict observance of the written law is doubt- less one of the high duties of a good citizen, but it is not the highest. The laws of necessity, of self-preservation, of saving our country when in danger, are of higher obligation. To lose our country by a scrupulous adherence to written law, would be to lose the law itself . . . absurdly sacrificing the end to the means." One of the remarkable aspects of Jefferson's asser- tion is the stark way in which it poses a fundamental constitutional issue. Chief Executives are given the responsibility for acting to respond to crises or emer- gencies. To the extent that the Constitution and laws are read narrowly, as Jefferson wished, the Chief Ex- ecutive will on occasion feel duty bound to assert monarchical notions of prerogative that will permit him to exceed the law. Paradoxically, the broader Hamiltonian ideas about executive power?by being more attuned to the realistic dangers of foreign policy?seem more likely to produce an Executive who is able and willing to live within legal bound- aries. Thus, the constitutional construction that on the surface looks more dangerous seems on reflection to be safer in the long run. After Jefferson, the notion of executive prerogative was put on the shelf. Instead, Jeffersonian Presidents began asserting Hamiltonian ideas about executive power. Although we will discuss the use of force separately below, Sofaer's comment on the post-Jef- fersonians bears quotation here: Although Presidents during this period claimed no inherent authority to initiate military actions, Madison [departing from the theory of the Helvi- dius papers] and particularly Monroe secretly used their powers in ways that could have been justified only by some sweeping and vague claim?such as the right to use the armed forces to advance the interests of the United States." The reason such inherent presidential power was exercised in this period, and later, was not mysterious. The exercise grew out of the character of foreign policy and of the offices the Constitution had created. As Gary Schmitt put it in an article about Jefferson: To some extent, the enumerated powers found in Article II are deceiving in that they appear un- derstated. By themselves, they do not explain the particular primacy the presidency has had in the governmental system since 1789. What helps to explain this fact is the presidency's radically dif- ferent institutional characteristics, especially its unity of office. Because of its unique features, it enjoys?as the framers largely intended?the ca- pacity of acting with the greatest expedition, se- 465 77-026 0 - 87 - 16 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 crecy and effective knowledge. As a result, when certain stresses, particularly in the area of foreign affairs, are placed on the nation, it will "natural- ly" rise to the forefront." These stresses are particularly evident when it is time to use force or engage in secret diplomacy or covert actions. We close this section on diplomacy by relating it to some of the issues of the Iran-Contra investigation. Some Members of these Committees seem to have taken the positions (1) that Congress can require the President to notify it whenever the President prepares or begins to conduct secret negotiations or covert operations, whatever the circumstances, and/or (2) that Congress may constitutionally use its appropria- tions power to prohibit certain forms of communica- tion between the President (or the President's employ- ees in the White House and State Department) and other governments or private individuals. We consid- er negotiations and communications with foreign gov- ernments or individuals to be Presidential powers pro- tected by the Constitution, without reservation. They fall comfortably within precedents established during the Washington Administration which have never been successfully challenged since. The constitutional validity of withholding information about sensitive, covert operations involves additional considerations that will be discussed separately later. Use of Force We do not intend to turn this report into an argument about war powers. We have no doubt that we dis- agree with some of our esteemed colleagues on this issue, but there is no point in getting sidetracked. Nevertheless, we consider it important to say some- thing about the power Presidents traditionally have exercised under the Constitution, to use force with and without prior congressional authorization. This history clearly supports our basic contention that the Constitution expected the President to be much more than a clerk. It will also provide a context for discuss- ing the less drastic projections of U.S. power that fit under the rubric of covert action. In its 1973 hearings on the War Powers Resolution, the House Foreign Affairs Subcommittee on National Security Policy and Scientific Developments pub- lished a list of 199 U.S. military hostilities which occurred abroad without a declaration of war.17 (The five declarations of war in the Nation's history were for the War of 1812, Mexican War, Spanish-American War, World War I, and World War II.) The list was a revision of one published the year before in a law review article by J.T. Emerson." Of the 199 listed actions, only 81 could be said under any stretch of the imagination to have been initiated under prior legisla- tive authority. The 81 included 51 undertaken under treaties, many of which left substantial room for inter- 466 pretation. In addition, many of the remaining actions were undertaken with only the vaguest statutory au- thority. President Jefferson's five-year campaign against the Barbary States, for example, was justified by the claim that Congress' general decision to pro- vide a navy carried with it the authority to deploy the navy whereever the President wished, including a theater in which the President had every reason to expect hostilities. The point here is not to quibble about the 81 occa- sions the subcommittee described as having had prior congressional authorization. Rather, it is to show that the list made every effort to include all examples for which some kind of prior congressional authorization could arguably have been claimed. That leaves an extremely conservative number of 118 other occasions without prior legislative authorization. What follows is a sampler of the 118 actions taken solely on execu- tive authority. The descriptive language below is paraphrased from the subcommittee exhibit cited above. ?In 1810, Governor Claiborne of Louisiana, on the sole order of the President, used troops to occupy disputed territory east of the Mississippi. ?During the "First Seminole War," 1816-18, U.S. forces invaded Spanish Florida on two occasions. In the first action they destroyed a Spanish fort. In the second they attacked hostile Seminole Indians, occu- pying Spanish posts believed to have served as havens. President Monroe assumed responsibility for these acts. ?In 1818, the U.S.S. Ontario landed at the Colum- bia River and took possession of Oregon, which was also claimed by Russia and Spain. ?In 1844, President Tyler deployed forces to pro- tect Texas against Mexico, anticipating Senate ap- proval of a treaty of annexation. The treaty was later rejected. ?In 1846, President Polk ordered General Scott to occupy disputed territory months before a declaration of war. The troops engaged in battle when Mexican forces entered the area between the Nueces and Rio Grande Rivers. The fighting occurred three days before Congress acted. ?In 1853-54, Commodore Matthew C. Perry led an expedition to Japan to negotiate a commercial treaty. Four hundred armed men accompanied Perry and landed with him at Edo Bay in July, 1853, where he stayed ten days after being told to leave. He then sailed south and took possession of the Bonin Islands. In March 1854, he returned to Edo Bay with 10 ships and 2,000 men. He landed with 500 men and signed a treaty after a six-week campaign. The whole cam- paign was on executive authority. ?In late 1865, General Sherman was sent to the Mexican border with 50,000 troops to back up the protest made by Secretary of State Seward to Napole- on III that the presence of 25,000 French troops in Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Mexico "is a serious concern." The troops remained until February 1866, when Seward demanded a defi- nite date for French withdrawal and France com- plied. ?In 1869-71, President Grant sent a naval force to the Dominican Republic to protect it from invasion while the Senate considered a treaty of annexation. The Senate rejected the treaty, but the naval force stayed in place for months afterwards. ?Between 1874 and 1915, U.S. forces were put ashore on 29 different occasions to protect American lives or interests in places as diverse as Hawaii, Mexico, Egypt, Korea, Argentina, Chile, Nicaragua, China, Colombia (Panama), Dominican Republic, Syria, Abyssinia, Morocco, Honduras, Turkey and Haiti. ?Between 1915 and 1934, the United States placed Haiti under U.S. military and financial administration. The occupation was sanctioned by a treaty ratified by the Senate in February 1916, but the first months of the occupation were on Executive authority. ?In February 1917, President Wilson asked Con- gress for authority to arm U.S. merchant vessels. Congress refused and Wilson acted on his own au- thority to provide the ships with guns. ?In 1918-20, after signing the Armistice for World War I, U.S. troops participated in Allied anti-Bolshe- vik military actions in Russia. ?Between 1926 and 1933, 5,000 U.S. troops were in Nicaragua at the request of the government during the period of Sandino's attempted revolution. Con- gressional Democrats opposed President Coolidge's decisions but did not question his authority. ?On September 3, 1940, President Roosevelt in- formed Congress that he had agreed to deliver a flotilla of destroyers to Great Britain in return for a series of military bases on British soil along the West- ern Atlantic. ?In April 1941, after the German invasion of Den- mark, the U.S. Army occupied Greenland under agreement with local authorities. The action appears to have been contrary to an express congressional limitation. ?On July 7, 1941, U.S. troops occupied Iceland. Congress was notified the same day but was not con- sulted in advance. The Reserves Act of 1940 and the Selective Service Act of 1940 both provided that U.S. troops could not be used outside the Western Hemi- sphere. ?By July 7, 1941, President Roosevelt had ordered U.S. warships to convoy supplies sent to Europe to protect military aid to Britain and Russia. By Septem- ber, the ships were attacking German submarines. ?In July 1946, during an Italian-Yugoslav border dispute in the Trieste area, President Truman ordered U.S. Naval units to the scene. After the Yugoslays shot down U.S. transport planes in August, Truman ordered U.S. troops and air forces to be augmented. Five thousand U.S. troops remained in Trieste as late as 1948. ?Between 1948 and 1960, U.S. forces were de- ployed to evacuate, protect or be ready to protect U.S. lives in or near Palestine, China, Egypt, Indone- sia, Venezuela, and Cuba. ?In October 1962, President Kennedy ordered a naval "quarantine" of Cuba during the Cuban Missile Crisis. ?On April 24, 1965, a revolt broke out in the Dominican Republic, and on April 28 President John- son sent American troops. The announced purpose was to protect American lives. At the peak of the action, 21,500 U.S. troops were in the Dominican Republic. An Inter-American Peace Force began ar- riving on May 21 and stayed through the year. ?On September 17, 1970, King Hussein of Jordan moved against the Palestine Liberation Organization. Syria sent 300 tanks across the Jordanian border and President Nixon ordered the United States Sixth Fleet to deploy off the Lebanese-Israeli coast. The United States apparently was prepared to intervene to pre- vent Hussein's overthrow. Syrian tanks began with- drawing on September 22 and Hussein and PLO leader Yassir Arafat agreed to a cease-fire on Septem- ber 25. As should be obvious from all of these examples, Presidents from the earliest history of the United States have not limited themselves to a Roger Sher- man-like limited conception of their job. Neither have they felt, as they have deployed force without con- gressional authorization, that their actions had to be limited to hot pursuit, repelling attacks or protecting American lives. Until recently, the Congress did not even question the President's authority. The relevance of these repeated examples of the extensive use of armed force, therefore, is that they indicate how far the President's inherent powers were assumed to have reached when Congress was silent, and even, in some cases, where Congress had prohib- ited an action. We shall show later that most of the Reagan Administration's actions in Central America in fact were not covered by statute. They therefore fall constitutionally under the heading of unauthor- ized, but also unprohibited actions. As shown above, Presidents historically have had not only the power to negotiate and communicate, but also to deploy force overtly?sometimes for major campaigns in- volving significant losses of life?without Congres- sional approval. The Reagan Administration did not even come remotely close to this level of activity in its support of the democratic resistance in Nicaragua. Intelligence and Covert Actions We end this review of historical precedent with a brief overview of intelligence and covert actions au- thorized by past Presidents. That history begins in the 467 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 earliest days of the Nation. As Representative Hyde mentioned during Admiral Poindexter's testimony on July 17," the Continental Congress?which did not have a separate executive branch?set up a Commit- tee of Secret Correspondence made up of Benjamin Franklin, Robert Morris, Benjamin Harrison, John Dickinson and John Jay. On October 1, 1776, Frank- lin and Morris were told that France would be will- ing to extend credit to the revolutionaries to help them buy arms. They wrote: Considering the nature and importance of [the above intelligence,] we agree in opinion that it is our indispensable duty to keep it a secret from Congress. . . . As the court of France has taken measures to negotiate this loan in the most cau- tious and secret manner, should we divulge it immediately we may not only lose the present benefit but also render the court cautious of any further connection with such unguarded people and prevent their granting other loans of assist- ance that we stand in need of.2? In a subsequent chapter on leaks, we shall discuss the methods this committee used to protect secrets, some of which should be revived today. The Federalist also recognized the important role intelligence might play under the new Constitution. Federalist No. 64, about treaties, was written by Jay, an experienced diplomat as well as a former member of the Committee on Secret Correspondence. He said: It seldom happens in the negotiation of treaties, of whatever nature, but that perfect secrecy and immediate dispatch are sometimes requisite. There are cases when the most useful intelligence may be obtained, if the person possessing it can be relieved from apprehensions of discovery. Those apprehensions will operate on those persons whether they are actuated by mercenary or friendly motives; and there are doubtless many of both descriptions who would rely on the secrecy of the President, but who would not confide in that of the Senate, and still less in that of a large popular assembly. The convention have done well therefore in so disposing of the power of making treaties, that although the President must in forming them act by the advice and consent of the senate, yet he will be able to manage the business of intelligence in such manner as pru- dence may suggest.2' Beginning with George Washington, almost every President has used "special agents"?people, often private individuals, appointed for missions by the President without Senate confirmation?to help gain the intelligence about which Jay wrote, and to engage in a broad range of other activities with or against foreign countries. The first such agent was Gouver- neur Morris, who was sent to Great Britain in 1789 to 468 explore the chances for opening normal diplomatic communications.22 At the same time, Britain sent a "private agent" to the United States who communi- cated outside normal channels through Secretary of Treasury Alexander Hamilton instead of through the Francophile Secretary of State, Thomas Jefferson." Washington's agents were paid from a "secret serv- ice" fund he was allowed to use at his discretion, without detailed accounting. 24 The early examples that are most interesting for these investigations are ones in which the President used his discretionary power to authorize covert ac- tions. ("Covert action" is an inexact term generally recognized to include covert political action, covert propaganda, intelligence deception, and covert para- military assistance.) In the period of 1810-12, for ex- ample, Madison used agents to stimulate revolts in East and West Florida that eventually led to an overt, Congressionally unauthorized military force to gain U.S. control over territories held by a country with which the United States was at peace. Even more telling, however, is the following example from the Madison Administration. Madison [in 1810] sent Joel R. Poinsett, secretly and without Senate approval, to South America as an agent for seamen and commerce. Poinsett did some commercial work, but he broadly con- strued instructions from Secretaries of State Smith and Monroe, and worked intimately with revolutionary leaders in Argentina and Chile, suggesting commercial and military plans, helping them obtain arms, and actually leading a division of the Chilean army against Peruvian loyalists. Nothing in Poinsett's instructions specifically au- thorized these activities. But he had kept the ad- ministration advised of most of his plans and re- ceived virtually no directions for long periods of time, and no orders to refrain in any way from aiding the revolutionaries . . . . Poinsett was given broad leeway to advance the republican cause, without any commitment from the admin- istration. He was told to write in code, and all his important communications were withheld from Congress.22 In other words, Poinsett made Oliver North look like a piker. In 1843, President Tyler secretly sent Duff Green to Great Britain to engage in secret propaganda ac- tivities relating to the U.S. desire to annex Texas. At one point, Green had a letter published in a newspa- per without using his own name. This raised a furor among members of Congress, several of whom de- manded to know his identity. Because Green was paid out of the President's contingency fund, Congress made the fund an issue during the subsequent adminis- tration of President Polk. Polk refused to disclose his expenditures in a statement that openly acknowledged Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 they were being used for more than intelligence gath- ering: In no nation is the application of such funds to be made public. In time of war or impending danger the situation of the country will make it neces- sary to employ individuals for the purpose of obtaining information or rendering other important services who could never be prevailed upon to act if they entertained the least apprehension that their names or their agency would in any contin- gency be revealed.26 One early example of a covert action brought to an end through a leak is described in Edward Sayle's article on the history of U.S. intelligence: President Pierce, as Polk, made extensive use of agents and covert action. One of the most inno- vative plans was to acquire Cuba from Spain. Spain had refused to part with the troublesome island, and a scheme was devised to force them to sell. It called for cooperative European money-lenders to call in their loans to the Span- ish Crown, pressuring Madrid to sell Cuba to the United States as a means to raise the needed cash. The plan went well until leaked to the New York Herald. 2 7 Examples like these are legion. During the coun- try's first century, Presidents used literally hundreds of secret agents at their own discretion. Congress did give the President a contingency fund for these agents, but never specifically approved, or was asked to approve any particular agent or activity. In fact, Congress never approved or was asked to approve covert activity in general. The Presidents were simply using their inherent executive powers under Article II of the Constitution. For the Congresses that had ac- cepted the overt presidential uses of military force summarized in the previous section, the use of Execu- tive power for these kinds of covert activities raised no constitutional questions. Conclusion Presidents asserted their constitutional independ- ence from Congress early. They engaged in secret diplomacy and intelligence activities, and refused to share the results with Congress if they saw fit. They unilaterally established U.S. military and diplomatic policy with respect to foreign belligerent states, in quarrels involving the United States, and in quarrels involving only third parties. They enforced this policy abroad, using force if necessary. They engaged U.S. troops abroad to serve American interests with- out congressional approval, and in a number of cases apparently against explicit directions from Congress. They also had agents engage in what would common- ly be referred to as covert actions, again without Congressional approval. In short, Presidents exercised a broad range of foreign policy powers for which they neither sought nor received Congressional sanc- tion through statute. This history speaks volumes about the Constitu- tion's allocation of powers between the branches. It leaves little, if any, doubt that the President was ex- pected to have the primary role of conducting the foreign policy of the United States. Congressional ac- tions to limit the President in this area therefore should be reviewed with a considerable degree of skepticism. If they interfere with core presidential for- eign policy functions, they should be struck down. Moreover, the lesson of our constitutional history is that doubtful cases should be decided in favor of the President. 2 8 469 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 3 Endnotes 1. This phrase, commonly used in contemporary debates over the President's foreign policy powers, originated in Alexander Hamilton's Pacificus papers, was used by John Marshall in a House floor debate in 1800, and then reap- peared in the Supreme Court case of U.S. v. Curtiss-Wright. See Alexander Hamilton, Papers, H. Syrett, ed., Vol. XV, pp. 37-38 (1969); 10 Annals of Congress 613 (1800); U.S. v. Curtiss-Wright Export Corp. 299 U.S. 304, 319-20 (1936). 2. Abraham D. Sofaer, War, Foreign Affairs and Consti- tutional Power (1976), p. 94. 3. Sofaer at 83-85. 4. Gary Schmitt, "Executive Privilege," in J. Bessette and J. Tulis, eds. The Presidency in the Constitutional Order (1981) 154, 187 n.38. 5. Thomas Jefferson, Writings, 10 vols., Paul L. Ford, ed. (1892-99), Vol. 1, p. 294; cited in Gary Schmitt, "Jefferson and Executive Power: Revisionism and the 'Revolution of 1800' ", 17 Publius 7,15 (1987). 6. This debate is analyzed by Sofaer at 85-93. The Madi- son quotation is at 87 and the Sofaer quotation is at 88. 7. Hamilton, Papers, XV at 38. 8. Id. 9. Id. at 38-40. Hamilton's reference is to the extensive debate in the First Congress in the bill establishing the Department of State that resulted in a close vote rejecting the idea that Senate advice and consent should be needed to remove people from office whose appointment had depend- ed upon Senate confirmation. 10. James Madison, Writings, G. Hunt ed. (1906), VI, 149-50. 11. Id. at 138-39. 12. As quoted in Edward S. Corwin, The President's Control of Foreign Relations (1917) at 29. 470 13. Sofaer at 127. 14. Jefferson, Writings, Vol. 9, p. 279. 15. Sofaer at 378. 16. Schmitt, "Jefferson and Executive Power," at 23, n. 29. 17. U.S. House of Representatives, Committee on Foreign Affairs, 93rd Cong., 1st Sess., War Powers, Hearings Before the Subcommittee on National Security Policy and Scientif- ic Developments, Exhibit II, pp. 328-376 (1973). 18. J.T. Emerson, "War Powers Legislation," 74 W.Va.L.Rev. 53, 88-119 (1972). 19. Hearings, July 17, pp. 205-07. 20. Revolutionary Diplomatic Correspondence of the United States, October 1, 1776. 21. Federalist No. 64 at 434-35, emphasis in the original. 22. U.S. Senate, 94th Cong., 2d Sess., Select Committee to Study Governmental Operations With Respect To Intelli- gence Activities, Final Report: Foreign and Military Intelli- gence, S.Rept. 94-755 (1976), Book I, p.34. 23. Leonard D. White, The Federalists: A Study in Ad- ministrative History, 1789-1801 (1948), pp. 212-13. 24. 1 Stat. 128-29. See also, L. White, The Federalists at 343; Sayle, "Historical Underpinnings," at 9. 25. Sofaer, War, Foreign Affairs and the Constitution at 264-65. 26. As quoted by Sayle, "Historical Underpinnings," at 15. 27. Sayle, "Historical Underpinnings," at 16. 28. See letter from John Norton Moore to Brendan Sulli- van, July 9, 1987, p. 2, reprinted at the end of the minority report. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Constitutional Principles In Court The historical examples given in the preceding section point the way toward a proper understanding of the Executive's foreign policy powers as those powers have evolved under the Constitution. The assertion by Presidents, and the acceptance by Congress, of inher- ent presidential powers in foreign policy were the normal practice in American history before the 1970s, not an aberration. The history therefore creates a strong presumption against any new constitutional in- terpretation that would run counter to the operative understanding in the legislative and executive branches that has endured from the beginning. The Supreme Court has used history in just such a presumptive way. In the Opinion of the Court in the "flexible tariff" delegation case of Field v. Clark, Jus- tice Harlan wrote: The practical construction of the Constitution, as given by so many acts of Congress [involving similar delegations], and embracing almost the entire period of our national existence, should not be overruled unless upon a conviction that such legislation was clearly incompatible with the law of the land.' The point of this quotation is not that historical usage must slavishly be followed. Rather, it is that historical precedents?especially ones that began almost imme- diately, with the support of many who participated in the 1787 Convention?carry a great deal of weight in any discussion about what the Constitution was sup- posed to mean in the real world of government. The historical examples clearly undermine the posi- tion of the staunchest proponents of Congressional power: that Presidents were intended to be ministerial clerks, whose only authority (except for subjects ex- plicitly mentioned in Article II) must come from Con- gress. But that still leaves two other possibilities that must be considered when judging the constitutional validity of executive action. One is that a particular exercise of presidential power may have been accepta- ble in the past only because Congress had not yet spoken on the subject. The other is that at least some exercises of implied power (i.e., power not explicitly stated in Article II) are so central to the office that they remain beyond the constitutional reach of legisla- tive prohibition. The Supreme Court precedents dis- cussed below show that many of the major Iran- Contra actions undertaken by President Reagan, his staff, and other executive branch officials, fall into the constitutionally protected category. The Steel Seizure Case and Inherent Presidential Power Justice Robert Jackson's concurring opinion in the Steel Seizure Case (Youngstown Sheet and Tube Co. v. Sawyer) is often used as a basis for outlining the logi- cally possible constitutional relationships between leg- islative and executive power. In the case's most famous dictum, Jackson wrote: We may well begin by a somewhat over-simpli- fied grouping of practical situations in which a President may doubt, or others may challenge, his powers, and by distinguishing roughly the legal consequences of this factor of relativity. 1. When the President acts pursuant to an ex- press or implied authorization of Congress, his authority is at its maximum, for it includes all that he possesses in his own right plus all Con- gress can delegate. . . . 2. When the President acts in absence of either a congressional grant or denial of authority, he can only rely upon his own independent powers, but there is a twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain. . . . 3. When the President takes measures incom- patible with the express or implied will of Con- gress, his power is at its lowest ebb, for then he can rely only upon his own constitutional powers minus any constitutional powers of Congress over the matter. Courts can sustain exclusive presidential control in such a case only by dis- abling the Congress from acting upon the sub- ject.2 The major issues in the Iran-Contra investigation have to do with incidents about which Congress os- tensibly has spoken. In other words, putting aside 471 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ..I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 issues of statutory construction to be argued in later chapters, they all fall into Jackson's third category, the one where presidential power is supposedly at its weakest. Even in this category, however, Jackson conceded that Congress is "disabled" from interfering with some matters. Later in the same opinion, Jackson distinguished between situations in which an exercise of power is turned outward, as it is in most pure foreign policy matters, and those on which it is turned inward, as it was in the labor-management dispute involved in the Steel Seizure Case: I should indulge the widest latitude of interpreta- tion to sustain his [the President's] exclusive func- tion to command the instruments of national force, at least when turned against the outside world for the security of our society. But, when it is turned inward, not because of rebellion but because of a lawful economic dispute between industry and labor, it should have no such indul- gence.3 Jackson's opinion was cited with approval by a unanimous court in Dames & Moore v. Regan, a case that grew out of a claim against Iranian assets frozen by President Carter during the hostage crisis of 1979- 81.4 In the same Dames & Moore opinion, however, Justice Rehnquist was careful to say: "We attempt to lay down no general 'guidelines' covering other situa- tions not involved here." Immediately after this statement, and just before the reference to Jackson, Rehnquist also quoted with approval a famous pas- sage from the 1936 case of US. v. Curtiss-Wright Export Corp.: [W]e are dealing here not alone with an authority vested in the President by an exertion of legisla- tive power, but with such an authority plus the very delicate, plenary and exclusive power of the President as the sole organ of the federal govern- ment in the field of international relations?a power which does not require as a basis for its exercise an act of Congress, but which, of course, like every other governmental power, must be exercised in subordination to the applicable pro- visions of the Constitution.6 Taken together, therefore, the Steel Seizure Case, Dames & Moore v. Regan and US. v. Curtiss-Wright stand for the following propositions: The President does not have plenary power to do whatever he wants in foreign policy; Congress does have some legislative powers in the field. However, there are some foreign policy matters over which the President is the "sole organ" of government and Congress may not impinge upon them. 472 The Holding of the Curtiss-Wright Decision Before we apply these general constitutional princi- ples to the events in these investigations, we should first expand upon the authority of US. v. Curtiss- Wright. That case involved a challenge to a congres- sional resolution that specified criminal penalties to be invoked against arms merchants if the President should determine and proclaim that prohibiting arms sales would promote peace in a conflict in the Chaco in Bolivia. Because Congress had passed a resolution specifying what would happen if, and only if, the President issued a proclamation, the case is sometimes dismissed as if its statements confirming inherent pres- idential power in foreign affairs were obiter dicta having no value as precedent. This misreading of Curtiss-Wright is based on a mis- understanding of the importance of the main issue of the case in the legal history of the New Deal. The Curtiss-Wright Corporation had challenged the law as permitting criminal penalties to be based on an execu- tive action, a proclamation, that was not guided by clear standards specifying the conditions under which the proclamation should or should not be issued. The challenge, in other words, was that the law involved an excessively broad, standardless delegation by Con- gress of its own legislative power.* Delegation was very much of a live issue at the time of Curtiss-Wright. In the two years before this case, the Supreme Court in three separate decisions? and for the only three times in the country's history before or since?used the concept of excessive, stan- dardless delegation to declare some of the main pieces of New Deal legislation to be unconstitutional.7 Be- cause the joint resolution concerning Bolivia con- tained no more precise standards than the ones in the statutes the Court had just overturned, there was no way for the Court to uphold the Bolivian resolution without either abandoning its recently adopted tough stance on delegation, or somehow distinguishing this case from the others. The Court's statements about the President's inherent foreign policy powers there- fore were crucial to its final decision. The differences between the President's and Con- gress's powers over domestic and foreign policy made up the bulk of Justice Sutherland's opinion for the Court in Curtiss-Wright. When it came time to show the relevance of these differences for the delegation issue, Sutherland used a quotation from Chief Justice Hughes's Opinion of the Court in the first of the three *Because it has been fifty years since the Supreme Court over- turned an act of Congress solely because of excessive delegation, people today tend to overlook the issue's past importance. The doctrine remains on the books, but in the words of administrative law specialist Kenneth Culp Davis, it has become a collection of words "without practical effect." See Kenneth Culp Davis, Admin- istrative Law and Government (2d ed., 1975) at 39. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 preceding delegation decisions, Panama Refining Co. v. Ryan. In the Panama Refining case, the Court in- validated a major New Deal law, the National Indus- trial Recovery Act, by saying that the NIRA in- volved an excessively broad delegation. In order to support the decision, however, the Court felt that it had to distinguish the NIRA from a string of earlier statutes, beginning with the Neutrality Act of 1794, that had been upheld despite seeming to contain simi- larly broad delegations. What the Court said in Panama Refining was that the Neutrality Act and the other previously upheld statutes had "confided to the President, for the purposes and under the conditions stated, an authority which was cognate to the conduct by him of the foreign relations of the government."8 By saying this, the Court was indicating that the lack of inherent and "cognate" constitutional powers in the sphere of domestic policy meant that the Court should apply a more rigorous delegation standard that it had for foreign policy. In Curtiss-Wright, the Court was saying that Presi- dent Roosevelt had his own, inherent power to issue a statement of neutrality in the Bolivian conflict, and even use force to implement it abroad, just as Wash- ington had in 1794. If the President wanted to go beyond proclamations to impose criminal law sanc- tions on U.S. citizens for domestic acts, however, congressional authority would be needed.* The need for legislation before criminal sanctions could be imposed for domestic activity in turn brought the delegation issue into play. In Curtiss-Wright, the court held that solely because the President is the sole organ of the country's foreign relations, Congress does not have to spell out the conditions under which a Presidential proclamation may invoke criminal sanc- tions with the same precision as it must to meet con- stitutional standards in a case of domestic policy. The underlying premises about the President's foreign policy powers thus were essential to the holding in Curtiss-Wright, and have never been challenged or abandoned by subsequent Supreme Courts. Justice Jackson's recognition in The Steel Seizure Case that some areas of Presidential authority are beyond Con- gress's reach, and the 1981 Supreme Court invocation of both Curtiss-Wright and Jackson in the previously mentioned Dames & Moore case make this abundantly clear. *The Supreme Court in an unrelated matter in 1812 had held that federal courts could no longer impose criminal penalties based simply on the common law. U.S. v. Hudson & Goodwin 11 U.S. (7 Cranch) 32 (1812). For contrast, see Chief Justice Jay's charge to the jury in Henfield's Case, in which Jay stated his reasons why the government could impose a common law criminal sanctions to support President Washington's Neutrality Proclamation. 11 Fed. Cas. 1099 (C.C.D.Pa., 1793) (No. 6,360). The President as the "Sole Organ" for Diplomacy We have shown that the Constitution gives the Presi- dent some power to act on his own in foreign affairs. What kinds of activities are set aside for him? The most obvious?other than the Commander-in-Chief power and others explicitly listed in Article II?is the one named in Curtiss-Wright: the President is the "sole organ" of the government in foreign affairs. That is, the President and his agents are the country's eyes and ears in negotiation, intelligence sharing and other forms of communication with the rest of the world. This view has a long and until recently unchal- lenged history. As was mentioned in the earlier histor- ical section, the phrase originated in Alexander Ham- ilton's Pacificus papers of 1793 and was used by John Marshall in a House floor debate in 1800. The 1860 lower court decision of Durand v. Hollins described the President as "the only legitimate organ of the government, to open and carry on correspondence or negotiations with foreign nations, in matters concern- ing the interests of the country or of its citizens." Justice Jackson also referred to the concept in an opinion written just four years before the Steel Seizure Case. In C. & S. Air Lines v. Waterman Corp., a case involving a Civilian Aeronautics Board decision to deny an airline a license to serve foreign countries, Jackson said: Congress may of course delegate very large grants of its power over foreign commerce to the President. [Citation omitted.] The President also possesses in his own right certain powers con- ferred by the Constitution on him as Command- er-in-Chief and as the Nation's organ in foreign affairs. For present purposes, the order draws vitality from either or both sources." ? Finally, to complete this brief history, the passage from Curtiss-Wright with the "sole organ" reference was quoted and reaffirmed in Dame & Moore v. Regan in 1981. The "Sole Organ" and the Boland Amendments What are the implications for the Iran-Contra investi- gation of characterizing the President as the "sole organ" of foreign policy? For one thing, it is beyond question that Congress did not have the constitutional power to prohibit the President from sharing informa- tion, asking other governments to contribute to the Nicaraguan resistance, or entering into secret negotia- tions with factions inside Iran. Such conversations are paradigms of what Chief Justice John Marshall said in Marbury v. Madison: "The President is invested [by the Constitution] with important political powers in the exercise of which he is to use his own discre- 473 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 . I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 tion."" In addition, as Marbury made clear, these powers do not stop with the President. To make them effective, the President may exercise his own discre- tion through agents of his own choice. To aid him in the performance of these duties, he is authorized to appoint certain officers who act by his authority and in conformity with his orders. In such cases, their acts are his acts; and whatever opinion may be entertained of the manner in which executive discretion may be used, still there exists, and can exist, no power to control that discre- tion. . . . The conclusion from this reasoning is, that where the heads of departments are the political or confidential agents of the executive, merely to execute the will of the president, or rather to act in cases in which the executive possesses a consti- tutional or legal discretion, nothing can be more perfectly clear than that their acts are only politi- cally examinable.' 2 What follows from Chief Justice Marshall's opinion in Marbury is that if Congress cannot prevent the President from exercising discretion over a particular matter, neither may it prevent the President's personal staff on the National Security Council, the Depart- ments of State and Defense, the Intelligence Commu- nity, or the President's ad hoc personal representa- tives, from performing the same tasks on the Presi- dent's orders and in his own name. Many, if not all, of the actions by representatives of the U.S. government that have been alleged to run counter to the Boland amendments were essentially forms of information sharing and diplomatic commu- nication. To the extent that such activities by the NSC staff, CIA, State Department or Defense De- partment were covered by the amendments?and we shall argue that many were not?we believe the ac- tivities were constitutionally protected against limita- tion by Congress. The executive was not bound to follow an unconstitutional effort to limit the Presi- dent's powers. Protecting American Citizens Abroad One inherent presidential power particularly relevant to the Iranian side of this investigation is the power to protect the lives and interests of American citizens abroad. Our earlier summary of presidential uses of force without prior congressional authorization showed the many occasions for which this was the justification. One example was left off the earlier list to be used here. In July 1854, U.S. Navy Commander George S. Hollins demanded reparations from Nicaragua after a U.S. official was injured during a riot. When he failed 474 to receive satisfaction, Hollins ordered his ships to bombard San Juan del Norte, otherwise known as Greytown. Calvin Durand then sued Hollins in the Circuit Court for the Southern District of New York for damages the bombardment had caused to his prop- erty. In its opinion denying Durand's claim, the court said: As the executive head of the nation, the president is made the only legitimate organ of the general government, to open and carry on correspond- ence or negotiations with foreign nations, in mat- ters concerning the interest of the country or of its citizens. It is to him, also, the citizens abroad must look for protection of person and of proper- ty, and for the faithful execution of the laws existing and intended for their protection. For this purpose, the whole executive power of the country is placed in his hands, under the constitu- tion, and the laws passed in pursuance thereof. . . . Now, as it respects the interposition of the executive abroad, for the protection of the lives or property of the citizen, the duty must, of ne- cessity, rest in the discretion of the president. Acts of lawless violence, or of threatened vio- lence to the citizen or his property, cannot be anticipated and provided for; and the protection, to be effectual or of any avail, may, not infre- quently, require the most prompt and decided action. . . . The interposition of the president abroad, for the protection of the citizen, must necessarily rest in his discretion; and it is quite clear that, in all cases where a public act or order rests in execu- tive discretion neither he nor his authorized agent is personally civilly responsible for the conse- quences.' 3 Several times during the public hearing of these Committees, Republican Members referred to the 1868 Hostage Act. This act, which says that a Presi- dent should take all steps necessary to secure the release of Americans held illegally by a foreign power, is discussed later, in the section of our Iran chapter about the Americans held hostage in Leba- non. Interestingly, the Durand v. Hollins decision af- firming the President's discretionary power came eight years before the Hostage Act changed a discre- tionary power into an obligation. Even without that act, the Durand case stands for the proposition that the President has the discretion to take whatever steps may be necessary, short of a full scale war, to protect American citizens. The Supreme Court reiterated this point in its analysis of the privileges and immunities of U.S. citizens in The Slaughter-House Cases: Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Another privilege of a citizen of the United States is to demand the care and protection of the Federal government over his life, liberty, and property when on the high seas or within the jurisdiction of a foreign government. Of this there can be no doubt." This privilege of citizenship was specifically en- dorsed again by the Supreme Court in the 1890 case of In re Neagle. Referring to the President's obligation to "take care that the laws be faithfully executed," the Court said: In the view we take of the Constitution of the United States, any obligation fairly and properly inferrible from that instrument, or any duty . . . to be derived from the general scope of his duties under the laws of the United States, is "a law" within the meaning of this phrase. . . . Is this duty limited to the enforcement of acts of Congress or of treaties of the United States according to their express terms, or does it in- clude the rights, duties and obligations growing out of the Constitution itself, our international relations, and all the protection implied by the nature of the government under the Constitu- tion?' 5 In answering its own question, the Court referred the 1853 Austrian seizure of Martin Koszta, a Hungar- ian native who had declared his intention to become a U.S. citizen. Captain Ingraham trained his ship's guns on an Austrian ship to gain Koszta's release to France during diplomatic negotiations. The action "met the approval of the country and of Congress, who voted a gold medal to Captain Ingraham for his conduct in the affair," the Court noted. "Upon what act of Con- gress then existing can any one lay his finger in sup- port of the action of our government in this matter?"' 6 After reviewing these cases, Borchard's 1915 trea- tise on protecting citizens abroad concluded: Inasmuch as the Constitution vests in Congress the authority to 'declare war' and does not em- power Congress to direct the President to per- form his constitutional duties of protecting Amer- ican citizens on foreign soil, it is believed that the Executive has unlimited authority to use the armed forces of the United States for the protec- tive purposes abroad in any manner and on any occasion he considers expedient.' 7 Quincy Wright's classic 1922 treatise on the control of U.S. foreign relations quoted this passage from Bor- chard and endorsed it "with the sole qualification that 'the manner' may not amount to a making of war."" Underlying Borchard's, Wright's and the 19th century Supreme Court's interpretation of the President's dis- cretionary power is the Hamiltonian notions in the Pacificus papers. We noted earlier that Hamilton had rested part of his argument on the difference in lan- guage between Article I and II. Article I gives Con- gress "all legislative powers herein granted," but Arti- cle II gave the President all of "the executive power" without qualification. What the 19th century decisions did, in pure Hamiltonian fashion, was to look at the inherent character of the executive power and then look to Article I only to see if there were explicit exceptions carved out for Congress. When no such exceptions were found, the Presidential actions were upheld. The Constitutional Limits to Congressional Restrictions All of these court decisions demonstrate that the President was meant to have a substantial degree of discretionary power to do many of the kinds of things President Reagan did in Iran and Central America. They do not suggest that a President can do anything he wants. Congress and President were given differ- ent resources and different modes of influencing the same policy arenas. Both President and Congress can sway the U.S. posture toward Nicaragua or Iran, for example, but each have their own characteristic tools to bring to bear on the subject. What the Constitu- tional separation of powers protects is not the Presi- dent's or Congress's precise sway over particular events. That is for the individual occupants of each branch to earn. But the Constitution does prevent either branch from using its own powers, or modes of activity, to deprive the other branch of its central functions. The Iranian arms sales, for example, involved sales of U.S. assets. As such, the sales were governed either by the Arms Export Control Act, or by the Economy Act and National Security Act. These laws clearly affect one method a President may wish to use to protect American lives abroad. Nevertheless, the con- stitutionality of the legislation seems assured both by Congress's power to regulate foreign commerce (Arti- cle I, Sec. 8) and, perhaps, by Congress's power to set rules for disposing of U.S. property." More impor- tantly, the legislation would withstand constitutional challenge because Congress acted to pursue an explic- it grant of legislative power without undermining or negating the President's equally important inherent power to protect American lives and safety. Similarly, we grant without argument that Congress may use its power over appropriations, and its power to set rules for statutorily created agencies, to place significant limits on the methods a President may use to pursue objectives the Constitution put squarely within the executive's discretionary power. For exam- ple?although we shall show later that the Boland amendments, as actually written, permitted the NSC staff to continue providing certain types of military 475 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II , . J. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 and operational advice to the Nicaraguan Democratic Resistance?we have no doubt that Congress has the constitutional power to enact a statute that would cut off all military and financial aid to the Resistance, except those that fall under the constitutionally pro- tected rubric of information-sharing and diplomatic communication. The question thus is not whether Congress has any power overlapping the President's, but what bound- aries the Constitution places on congressional at- tempts to limit the President. The most obvious limit is that just as Congress cannot tell the President to do something unconstitutional, neither can it impose an unconstitutional requirement as a condition for grant- ing a privilege.20 It therefore may not insist that the President forego some of his constitutionally protect- ed power to get appropriations. The most recent major case on this point is the "legislative veto" deci- sion of INS v. Chadha, in which the Supreme Court held that Congress cannot demand that the President give up his power to sign, or refuse to sign, legislative decisions?even if the President agreed to the original bill that set up the procedure to bypass the so-called "presentment" requirement.21 Power of the Purse These basic rules apply to appropriations as much as to any other kinds of laws. As Louis Fisher wrote in a 1979 study for the Congressional Research Service, the Constitution "does not distinguish between appro- priation and authorization."22 One recent court case on this point involved an amendment on a Health, Education and Welfare (HEW) Department appro- priation bill prohibiting the department from using any of its funds, including salaries, to impose manda- tory school busing plans on local communities to pro- mote racial desegregation. The U.S. Court of Appeals for the District of Columbia ruled in 1980 that in order to preserve the statute's constitutionality, it would be construed to prohibit HEW from cutting off federal funds to a school district that refused to imple- ment a busing plan. The statute could not, however, constitutionally prohibit HEW from seeking other ways to promote desegregation. In addition, if HEW believed a particular school district needed busing to enforce the requirements of the Constitution, the law could not be read to prohibit HEW from recommend- ing that the Justice Department bring a suit in the federal courts. 2 3 In other words, Congress may not use its control over appropriations, including salaries, to prevent the executive or judiciary from fulfilling Constitutionally mandated obligations. The implication for the Boland amendments is obvious. If any part of the amend- ments would have used Congress's control over sala- ries to prevent executive actions that Congress may not prohibit directly, the amendments would be just 476 as unconstitutional as if they had dealt with the sub- ject directly. There is one other important way the Constitution circumscribes legislative limitations on the executive. To explain the way it works, it is easiest to begin with a quotation from the 1893 case of Swaim v. U.S.: Congress may increase the Army, or reduce the Army, or abolish it altogether; but so long as we have a military force Congress cannot take away from the President the supreme command. . . . Congress can not in the disguise of 'rules for the government' of the Army impair the authority of the President as commander in chief.24 The same argument extends by analogy to all of the President's inherent powers under Article II. Con- gress does not have to create a State Department or an intelligence agency. Once such departments are created, however, the Congress may not prevent the President from using his executive branch employees from serving as the country's "eyes and ears" in for- eign policy. Even if Congress refuses to fund such departments, it may not prevent the President from doing what he can without funds to act as the nation's "sole organ" in foreign affairs. Even the final report of the Church committee acknowledged this point.25 In the same vein, Congress does not have to appro- priate any funds for covert operations. Or, it may decide to give funds only for specified operations one at a time. Since 1789, however, Congress has chosen to give the President a contingency reserve fund for secret agents and operations. The existence of such a fund is obviously crucial, because without it Congress would have to make individual appropriations for each action and thereby harm the country's ability to respond to breaking events during a fiscal year with- out compromising the secrecy of the operation. Nev- ertheless, even though a contingency fund is an essen- tial tool for foreign policy, there is nothing in the Constitution requiring Congress to set one up. Once Congress makes the decision to establish such a fund, therefore, it may as a quid pro quo set rules for its use. However, there are some limits to the rules Con- gress may thereby impose. For example, Congress may not insist, and has never insisted upon giving advance approval to covert operations because such a requirement would be the functional equivalent of a legislative veto. Similarly, Congress may not condi- tion an authorization or appropriation upon any other procedural requirements that would negate powers granted to the President by the Constitution. What Congress grants by statute may be taken away by statute. But Congress may not ask the President to give up a power he gets from the Constitution, as opposed to one he gets from Congress, as a condition for getting something, whether money or some other good or power from Congress. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Notifying Congress This observation bears directly on the legal require- ments for notifying Congress. Before we explain how, another "implied powers" analogy is in order. In the 1821 case of Anderson v. Dunn, the Supreme Court upheld Congress's contempt power by finding that even though the power was not explicitly mentioned in the Constitution, it was clearly necessary to imple- ment other powers that were. There is not in the whole of that admirable in- strument, a grant of powers which does not draw after it others, not expressed, but vital to their exercise; not substantive and independent, indeed, but auxiliary and subordinate. The idea is utopian that government can exist without leaving the exercise of discretion some- where. Public security against the abuse of such discretion must rest on responsibility, and stated appeals to public approbation. . . . If there is one maxim which necessarily rides over all others, it is, that the public functionaries must be left at liberty to exercise the powers which the people have entrusted to them. The interests and dignity of those who created them, require the exertion of the powers indispensable to the attainment of the ends of their creation. .2 6 . . Using this line of reasoning, the Court argued that even though courts were vested with the contempt power by statute, they would have been able to exer- cise that power without the aid of a statute. For the same reason, the court held, Congress must have in- herent authority to exercise a similar power." Later cases tried to circumscribe Congress's contempt power, but the power itself was always held to be a necessary adjunct to Congress's legislative functions and therefore to rest on an implied constitutional foundation. 2 8 The argument that a power must be implied by the Constitution because it is essential to some other con- stitutional power, is what lay behind the claims of President Carter's and President Reagan's Justice De- partments that Congress may not constitutionally re- quire the President to give advance notification, or even notification to a limited number of members within 48 hours, of all covert operations. Some oper- ations, by their very nature, may make notification within 48 hours impossible. The situations are rare, but they clearly exist. According to Admiral Stansfield Turner, who was the Director of Central Intelligence at the time, there were three occasions, all involving Iran, in which the Carter Administration withheld notification during an ongoing operation. By contrast, the CIA's general counsel has told the House Intelligence Committee that the Iran arms sales were the only time President Reagan withheld notice during his two terms." In the Carter examples, notification was withheld for about three months until six Americans could be smuggled out of the Canadian Embassy in Teheran. As Representative Norman Mineta pointed out in tes- timony following Turner's, the Canadian government made withholding notification a condition of their participation.3? Notification was also withheld for about six months in two other Iranian operations during the hostage crisis. Said Turner: "I would have found it very difficult to look . . . a person in the eye and tell him or her that I was going to discuss this life threatening mission with even half a dozen people in the CIA who did not absolutely have to know".31 In these situations, President Carter thought his constitu- tional obligation to protect American lives could not have been fulfilled if he had been required to notify Congress within 48 hours. As the Canadian example makes clear, the choice is sometimes put on us by people outside U.S. control between not notifying or not going ahead at all. These examples show that the situations under which notification may have to be withheld depends not on how much time has elapsed, but on the charac- ter of the operation itself. In the very rare situation in which a President believes he must delay notification as a necessary adjunct to fulfilling his constitutional mandate that decision must by its nature rest with the President. As the Supreme Court has said: "In the performance of assigned constitutional duties, each branch of the government must initially interpret the Constitution, and the interpretation of its powers by any branch is due great respect from the others."32 The President obviously cannot consult with Con- gress about whether to consult. Any other conclusion would be logically absurd. In some respects, requiring notification within a specific time period might look like other Congres- sional report-and-wait requirements imposed on the executive branch that the Supreme Court has explicit- ly endorsed.33 There is one important difference, however. The report and wait requirements the Court has upheld have all been in domestic policy matters over which the President has no inherent power to act without statutory authorization. In foreign rela- tions, Congress can use statutes to deprive Presidents of the means necessary to conduct an effective policy, but it cannot use its control over the means to deprive the President of his underlying authority or its essen- tial adjuncts. Some people in Congress worry that the power to withhold notification may be abused, as we think it was in 1985-86 in the Iran arms sales. To avoid abuse, Representatives Stokes and Boland have introduced a bill that would require advance notification in most cases, and notification within 48 hours for all of the rest. We are convinced this approach would be un- 477 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I ? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 constitutional. Equally importantly, we think it is not needed. The constitutional basis for withholding noti- fication can only be invoked credibly, by its own terms, in very rare circumstances. A generalized fear that Congress might leak would not by itself suffice, because the same fear could be invoked equally for all covert actions and therefore would not be credible. The members who think they need new legislation underestimate the political leverage they now have to insure that a President will not abuse his inherent power. The oversight rules already in place assure that Congress eventually will find out about any oper- ation. Once that happens, Congress's control over the purse, and its power to investigate, give it ample means to exact a severe political price on a President whom it feels has overstepped proper bounds. The Iran-Contra investigations have made this abundantly clear to President Reagan. We cannot believe any future President will miss the point. Conclusion The Constitution gives important foreign policy powers both to Congress and to the President. Nei- 478 ther can accomplish very much over the long term by trying to go it alone. The President cannot use the country's resources to carry out policy without con- gressional appropriations. At the same time, Congress can prohibit some actions, and it can influence others, but it cannot act by itself, and it is not institutionally designed to accept political responsibility for specific actions. Action or implementation is a peculiarly ex- ecutive branch function. The Constitution's requirement for cooperation does not negate the separation of powers. Neither branch can be permitted to usurp functions that belong to the other. As we have argued throughout, and as the Supreme Court reaffirmed in 1983, "the powers delegated to the three branches are functional- ly identifiable."34 The executive branch's functions are the ones most closely related to the need for secrecy, efficiency, dispatch, and the acceptance by one person, the President, of political responsibility for the result. This basic framework must be pre- served if the country is to have an effective foreign policy in the future. , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 4 Endnotes I. Field v. Clark 143 U.S. 649,691 (1892). 2. Youngstown Sheet and Tube Co. v. 'Sawyer 343 U.S. 579, 635-38 (1952). 3. Id. at 645. 4. Dames & Moore v. Regan 453 U.S. 654, 661-62 (1981) 5. Id. at 661. 6. Id. at 661, citing U.S. v. Curtiss-Wright Export Corp. 299 U.S. 304 (1936). 7. Panama Refining Co. v. Ryan 293 U.S. 388 (1935); Schechter Poultry Corp. v. U.S. 2295 U.S. 495 (1935); Carter v. Carter Coal Co. 298 U.S. 238 (1936). 8. 293 U.S. at 422. Emphasis added. 9. Durand v. Hollins 8 Fed. Cas. 111, 112 (C.C.S.D.N.Y., 1860) (No.4,186). 10. C. & S. Air Lines v. Waterman Corp. 333 U.S. 103, 109-10 (1948), emphasis added 11. Marbury v. Madison, 11 Cranch 137, 165-66 (1803). 12. Id. at 166. 13. 8 Fed. Cas. at 112. 14. Slaughter-House Cases, 16 Wall. 36, 79 (1872). 15. In re Neagle 135 U.S. 1, 59, 64 (1890). 16. Id. at 64. 17. Borchard, The Diplomatic Protection of Citizens Abroad (1915) at 452. 18. Quincy Wright, The Control of American Foreign Relations (1922) at 307. 19. Article IV, Sec. 3. In this clause, the phrase "territory or other property" suggests an original meaning having more to do with land than money or other material assets, but subsequent cases have extended it to include mineral leases, U.S. v. Gratiot 39 U.S. (14 Pet.) 526 (1840), and electricity, Ashwander v. Tennessee Valley Authority 297 U.S. 288, 335-40 (1936). 20. Frost Trucking Co. v. Railroad Commission 271 U.S. 583, 598 (1925) 21. INS v. Chadha 462 U.S. 919 (1983). 22. Louis Fisher, "The Authorization-Appropriations Process: Formal Rules and Informal Practices," Congres- sional Research Service, Report No. 79-161 GOV, Aug. 1, 1979, p. 3. 23. Brown v. Califano 627 F. 2d 1221 (1980). 24. Swaim v. U.S. 28 Ct. Cl. 173, 221 (1893). 25. U.S. Senate, Select Committee To Study Governmen- tal Operations, Final Report at 39. 26. Anderson v. Dunn 6 Wheat. 204, 225-26 (1821). 27. Id. at 628-29. 28. Kilbourn v. Thompson 103 U.S. 168 (1881) read the power narrowly, but McGrain v. Dougherty 273 U.S. 135 (1927) and Sinclair v. US. 279 U.S. 263 (1929) in turn read Kilbourn narrowly. Later cases have tended to involve con- flicts between the contempt power and the First Amend- ment, Watkins v. U.S. 354 U.S. 178 (1957) and Barenblatt v. US. 360 U.S. 109 (1959). 29. U.S. House of Representatives, Permanent Select Committee on Intelligence, Subcommittee on Legislation, 100th Cong., 1st Sess., Hearings on HR. 1013, H.R. 1371, and Other Proposals Which Address the Issue of Affording Prior Notice of Covert Actions to the Congress, April 1 and 8, June 10, 1987, p. 176. 30. Id. at 158. 31. Ibid. at 45. See also 46, 49, 58, 61. 32. US. v. Nixon 418 U.S. 683, 703 (1974). 33. See Sibbach v. Wilson 312 U.S. 1 (1941) and INS v. Chadha 462 U.S. at 935, n. 9. 34. INS v. Chadha, 462 U.S. at 951 (1983). 479 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part III Nicaragua Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I ..? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 Nicaragua: The Context It is impossible to understand the motivations for the Administration's actions without first understanding the strategic and political context within which it was operating. In describing these circumstances, it is nec- essary to begin with the fact that the Sandinista Gov- ernment in Nicaragua is a Communist regime that openly espouses the expansionist, Leninist doctrine of "revolution without borders." Because of this, and because the Sandinistas have behaved in a manner consistent with the doctrine by supporting Commu- nist insurgencies elsewhere in Central America, Nicaragua has become a direct threat to the stability of the governments of its neighbors and to U.S. secu- rity interests. In 1979, in the belief that it was supporting a turn toward a more pluralistic, more democratic path in Nicaragua, the United States decided, with bipartisan support, to cut off all military aid to the corrupt predecessor dictatorship of Anastasio Somoza, sup- ported its removal, and provided $118 million in eco- nomic aid to the new regime in its first 18 months. That bipartisan support included some of us who are among the more conservative Members of these Com- mittees. Indeed, a clear majority in Congress accepted the Carter Administration's arguments that the Sandi- nista-led revolution should be judged by its actions. In short, the U.S. Government wanted to believe that the incoming revolutionary government would honor its mid-1979 pledge to the Organization of American States of implementing democratic reforms. It was not too long, however, before it became apparent that once again the United States had been fooled by Marxists masquerading as democrats, much as the Sandinistas' mentor, Fidel Castro, had done 20 years before. By April of 1980, the Nicaraguan Coun- cil of State was packed with Sandinista adherents who were more attuned to policies of internal repres- sion than to fulfilling the dashed promises that had led Social Democrats to join the revolutionary cause. That turn of events prompted the resignation of Al- fonso Robelo and led him ultimately to join the lead- ership of the Nicaraguan resistance. Nevertheless, United States assistance continued. But Sandinista repression goes beyond packing the key governmental forums. Consider these remarks by Resistance leader Adolfo Calero in our hearings: The Sandinistas are systematic breakers of human rights. There is no habeas corpus in Nicaragua. If people are not brought over to tribunals they are kept in jails at Sands, the secret jails. Their secret jails are spread throughout the country. There is torture going on. While I was living in Nicaragua I was personally told of experiences of one of my drivers, driver salesman of the Coca Cola. I re- member he was put into a freezer and when he was about to die, and started to?I don't know what you call?the last reaction that people have when they are about to die?somebody heard him and took him out.' What ultimately turned the course on aid to Nicara- gua was not only the change in the Sandinista's be- havior inside Nicaragua, however, but its growing importance in the global competition between the U.S. and the Soviet Union. The 1979 Foreign Assist- ance Act giving aid to the Sandinistas contained a provision, authored by Rep. C.W. "Bill" Young of Florida, that required the aid to be terminated if the President could not certify that Nicaragua was not exporting or supporting violence and terror in neigh- boring Central American nations. By September 1980, some Members of Congress began to question Presi- dent Carter's certification on this point. Representative Young, then a Member of the House Intelligence Committee, was disturbed by President Carter's certification of Sandinista compliance with democratic procedures and with its pledges to the OAS. As a Member of the intelligence panel, Young was privy to information that contradicted what the President was saying. On September 30, 1980, he de- cided to voice his concerns in public testimony before the House Foreign Affairs Committee's Subcommittee on Inter-American Affairs. Young had this to say about the main substantive point at issue: I am very concerned about the President making the certification that the government of Nicara- gua is not involved in the exporting of terrorism or in supporting the overthrow of other duly constituted governments in Central America, since I have access to the intelligence information of the Central Intelligence and Defense Intelli- gence Agencies concerning this matter. While I 483 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 cannot quote classified information in this open session, I can tell you that the intelligence reports confirm in overwhelming detail that the Sandi- nista clique that rules Nicaragua is engaged in the export of violence and terrorism. Young's testimony did not stop at this point, how- ever. It seems that the Democratic Administration was less than forthcoming about giving the legislative branch the information it needed to fulfill its policy responsibilities. Young said: I feel that you should also know about the diffi- culties that we have recently had in obtaining the classified information on this subject from the Executive Branch. As I previously noted, the staff of the Subcom- mittee on Evaluation has had an ongoing study of intelligence on Nicaragua which began in late 1978. As part of that responsibility the staff often makes visits to the CIA to talk with analysts and periodically requests studies produced by the CIA and other intelligence agencies in Washing- ton, and in general has paid attention to what is going on. On 12 August of this year, the staff made a rou- tine request to talk with an analyst at CIA's Na- tional Foreign Assessment Center about Nicara- gua. The staff was told that they would not be able to talk with the analyst at CIA since there was "a Presidential Embargo" on talking about Nicaragua. I was unaware of this at the time since this took place during the recess, but the staff was quite concerned. The Chairman of the Committee, Mr. Boland, sent a letter to the Di- rector of Central Intelligence on this matter, on August 22. To date the CIA has not responded to that letter. I would further note that the staff was notified via telephone on September 10 that the embargo had been lifted and that discussions could be held with CIA analysts. Two days later, the President made his certification that Nicaragua is not ex- porting terrorism and/or acting as a conduit for arms or sanctuary for revolutionaries in other Central American countries. It is very disturbing that the Central Intelligence Agency was directed to not provide an answer to the Chairman of the House Permanent Select Committee on Intelligence to the questions that he asked in his letter of August 22. The conclusion Young drew from this was very serious. It mirrors one particular charge we have heard in the Iran-Contra hearings, but from a much firmer base. 484 What we have is a case of the intelligence com- munity being manipulated by the Executive Branch to protect a political sensitivity. What dismays me is the political misuse of the intelli- gence community, which rightfully has a reputa- tion for objectivity. The intelligence community must be free of political bias so that our decision makers can use their reports to reach decisions based on the facts of the matter, and not on desired political outcomes.2 Following Young's testimony, the Carter Administra- tion slowed down its aid to Nicaragua. It was not until January, however, in the final days of his Presi- dency, that President Carter decided to suspend aid. The Reagan Administration quickly decided to con- duct a careful review of available intelligence regard- ing Nicaraguan subversive, extraterritorial activities. In April 1981, the Administration determined that the Sandinistas were furnishing logistical and political as- sistance to the rebels in El Salvador. By November 1981, the Sandinista armed forces had grown from an armed force of only 5,000 2 years before, to about 40,000 troops supported by Soviet tanks, artillery, and armored personnel carriers.3 Some 2 years later, the House Intelligence Committee, chaired by Represent- ative Boland, corroborated this finding when it de- clared that: [T]his (Salvadoran) insurgency depends for its life-blood, arms, ammunition, financing, logistics and command-and-control facilities, upon outside assistance from Nicaragua and Cuba. This Nica- raguan-Cuban contribution to the Salvadoran in- surgency is longstanding. It began shortly after the overthrow of Somoza in July, 1979. It has provided, by land, sea and air, the great bulk of the military equipment and support received by the in- surgents. 4 During the period between January 1982 and Janu- ary 1985, while Congress was vacillating and pinching pennies, the Soviet Union and its allies provided about $500 million in military aid alone to Nicaragua. By early 1985, at the time of the cutoff of U.S. tax- payer military assistance to the Resistance, the Sandi- nista armed forces included 62,000 troops. Their arse- nal also included nearly 150 tanks (of which more than 110 were T-55 Soviet battle tanks that were clearly superior to any other tank in the region), 200 other armored vehicles (mostly machine-gun-armed BTR-60 and BTR-152 personnel carriers that can carry an infantry squad), 300 missile launchers, 45 airplanes, and 20 helicopters, including the deadly Soviet MI-24 HIND-D "flying tanks" that General Singlaub described as "the most effective people kill- ing machine[s] in the world." 5 During 1985, the already high level of aid acceler- ated. According to publicly available material provid- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 ed by the State Department, the Soviet Union, Cuba, and Eastern Bloc countries gave Nicaragua another $150 million in military aid in 1985. (In addition to the Soviet Union and Cuba, Nicaragua is receiving aid from Czechoslovakia, North Korea, Libya, and the Palestine Liberation Organization, among others.6) That figure for military aid jumped to $580 million for 1986 alone. Between December 1982 and October 1986, according to Defense Intelligence Agency esti- mates discussed in these Committees' public hearings, the same countries gave $1.34 billion in military aid and another $1.8 billion in economic aid to the Nicara- guan Government.7 The net result is that Nicaragua has far and away the largest armed force in all of Central America, and that does not even take into account approximately 2,500 to 3,000 advisers from the Soviet Union, Cuba, and other Soviet bloc coun- tries.8 In contrast, all U.S. humanitarian and military aid to the Resistance during the entire 1980s amount- ed to approximately $200 million, $100 million of which came in the fiscal year from October 1, 1986 to September 30, 1987. These numbers only begin to give a picture, how- ever, of the reasons for viewing Nicaragua as a threat to the region. According to former National Security Advisor Robert C. McFarlane: The danger is not Nicaraguan soldiers taking on the United States, it is that country serving as a platform from which the Soviet Union or other surrogates like Cuba can subvert neighboring re- gimes and ultimately require the United States to defend itself against a Soviet threat, whether by spending more dollars on defense that we didn't need to, to worry about our southern border, whether we need to worry more about the Panama Canal now that Russians are here, whether we need to be concerned about the half of our oil imports that come from refineries in the Caribbean within MIG range of Nicaragua, and we have not had to think about these things for a long time, The danger, it should be obvious from what McFar- lane said, is not simply that posed to other Central American countries by Nicaragua's own armed forces. According to information presented during General Singlaub's testimony, the Nicaraguans are building a 10,000-foot-long airstrip at Punta Huete. As Repre- sentative Hyde observed, the runway is "capable of accommodating any Soviet aircraft in their inventory. That includes the Backfire bomber, the Bear-D recon- naissance aircraft, and it's strictly a military facility with antiaircraft guns deployed around the air- field." 10 Singlaub agreed, and said that what made the airfield significant was that it would accommodate intercontinental as well as short-range aircraft. Nor is this all. The Soviet Union has an intelligence collection facility at Lourdes near Havana, Cuba, that is able to monitor maritime, military and space com- munications as well as telephone conversations in the Eastern portion of the United States. A similar base in Nicaragua would mean a similar capability for the Pacific and West Coast." Finally, the Nicaraguans are building the Corinto port facility that is being made into a deep water port able to accommodate submarines." The Soviet presence in Nicaragua, in other words, when combined with its presence in Cuba, could mean a Soviet base on both ends of the Caribbean as well as the only Soviet port in the Pacific outside the Soviet Union itself. The latter, Singlaub said, "would give them for the first time a base from which they could threaten the West Coast of the United States." 13 485 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 I I 11 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 486 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 So there is plenty of reason for a President of the United States to think the Nicaraguan Government is not merely unfortunate for its own people, but a dis- tinct threat to the security of the region and, ultimate- ly, to the United States. This is no speculative threat. In 1983, the Congress found that: By providing military support (including arms, training, and logistical, command and control, and communications facilities) to groups seeking to overthrow the government of El Salvador and other Central American governments, the Gov- ernment of National Reconstruction of Nicaragua has violated article 18 of the Charter of the Orga- nization of American States which declares that no state has the right to intervene, directly or indirectly, for any reason whatsoever, in the in- ternal or external affairs of any other state.14 This finding was not repealed by the Boland Amend- ment the following year. In fact, in the International Security and Development Cooperation Act of 1985, the Congress found that Nicaragua: Has committed and refuses to cease aggression in the form of armed subversion against its neigh- bors in violation of the Charter of the United Nations, the Charter of the Organization of American States, the Inter-American Treaty of Reciprocal Assistance, and the 1965 United Na- tions General Assembly Declaration on Interven- tion.15 The legal significance of these findings can be found in the charter of the Organization of American States. The specific clause of the treaty Congress charged Nicaragua with violating was the one that said: "No State or group of States has the right to intervene, directly or indirectly, in the internal affairs of any other State." 16 By defining Nicaragua's behavior as aggression, the Congress also, knowingly, was bring- ing another clause of the treaty into play: Every act of aggression by a State against the territorial integrity or the inviolability of the ter- ritory or against the sovereignty or political inde- pendence of an American State shall be consid- ered an act of aggression against the other Amer- ican States.17 Finally, by invoking these clauses, Congress also was involving a third that fundamentally distinguishes U.S. actions from Nicaragua's: "Measures adopted for the maintenance of peace and security in accordance with existing treaties do not constitute a violation of the principles as set forth in Articles 18 and 20." 18 What all of this means is that when President Reagan sought to bring pressure on the Nicaraguan Government by aiding the Resistance, he was doing something more than merely furthering his own policy goals. According to the findings of the Con- gress of the United States and the terms of the OAS charter, the President was obliged to do what he could to act against Nicaragua's aggression against its neighbors. The finding would not have permitted the President to violate laws that explicitly prohibited the use of appropriated funds for a particular purpose. Beyond these explicit prohibitions, however, the President was not only permitted by his inherent for- eign policy powers under the Constitution, but was positively obliged to do whatever he could, within the law, to respond to Nicaragua's behavior. Because of this obligation, it is not proper to assert that the President should have gone out of his way to avoid any actions that some of the Boland Amend- ment's sponsors might arguably have wished to pro- hibit. Although no President is required to so inter- pret a law on any subject within his constitutional authority, such a response might have made sense as an act of prudence and comity if Congress had only passed a prohibition. The fact, however, is that Con- gress put two sets of obligations on the President, one mandating action and the other restricting it. Under the circumstances, the President had a duty to try to satisfy both of the mandates, to whatever extent he could possibly do so. 487 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I El I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 5 Endnotes 1. Calero Test., Hearings, 100-3, 5/20/87, at 51. 2. All of the above quotations from Representative Young are in U.S. House of Representatives, 96th Cong., 2d Sess., Committee on Foreign Affairs, Subcommittee on Inter- American Affairs, Hearing: "Review of the Presidential Certification of Nicaragua's Connection to Terrorism." Sept. 30, 1980; Prepared Statement of C.W. Bill Young, pp. 16-17. 3. U.S. Departments of State and Defense, The Challenge to Democracy in Central America (June 1986) at 20. 4. U.S. House of Representatives, 98th Cong., 1st Sess., Permanent Select Committee on Intelligence, H. Rept. 98- 122, Part I, Amendment to the Intelligence Authorization Act for Fiscal Year 1983, p. 2, emphasis added. 5. The data are from Ex. OLN-212, Hearings, 100-7, Vol. II and from U.S. Departments of State and Defense, The Sandinista Military Buildup, An Update (Oct. 1987), at 5, 9. The quotation is from Singlaub Test., Hearings, 100-3, 5/21/ 87, at 178. 488 6. McFarlane Test., 5/13/87, Hearings, 100-1, at 79. 7. Calero Test., Hearings, 100-2, 5/20/87, at 111. 8. McFarlane Test., Hearings, 100-2, 5/13/87, at 76. 9. McFarlane Test., Hearings, 100-2, 5/14/87, at 64. 10. Singlaub Test., Hearings, 100-3, 5/21/87, at 217. 11. Ibid., at 218. 12. Ibid., 13. Ibid., at 184. 14. Section 109 of the Intelligence Authorization Act for Fiscal Year 1984, Pub. L. No. 98-215, 97 Stat. 1475. 15. Section 722 (c)(2)(vi) of the International Security and Development Cooperation Act of 1985, Pub. L. No. 99-83, 99 Stat. 149. 16. Article 18 of the Organization of American States, as reprinted in the Congressional Record, June 7, 1985, p. 57744. 17. Ibid., Article 27. 18. Ibid., Article 22. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 The Boland Amendments People listening to the public hearings on the Iran- Contra Affair heard many statements about the "spirit of the Boland Amendments." Everyone knows, the argument goes, that Congress wanted to cut off all U.S. aid to the Nicaraguan resistance. Congress did not anticipate that anyone on the National Security Council staff would support private and third-country fundraising or give advice to and help coordinate the private resupply effort. Col. North's activities were a clear attempt, the argument concludes, to circumvent the law. There are three basic problems with this line of reasoning. First, as previously discussed, the Constitu- tion does not permit Congress to prevent the Presi- dent or his designated agents from communicating with the Nicaraguan resistance or from encouraging other countries and private citizens to support the resistance. Second, as Justice Frankfurter said in Ad- dison v. Holly Hill Co., "Congress expresses its mean- ing by words . . . . It is no warrant for extending a statute that experience may disclose that it should have been made more comprehensive." One of the reasons there was so much discussion of the "spirit of the law" at the hearings is, as we shall show, that it is difficult to argue the letter of the law had been violat- ed. Finally, even this last statement concedes too much. The fact is that Congress was not animated by a single "spirit" when it passed the Boland Amend- ments. It is necessary, therefore, to take account of the political history in the first part of this chapter as well as the statutory history in the rest. The "Spirit" of October 1984 We have already noted that at the same time Con- gress was denying appropriations for the anti-Sandi- nista resistance, it was also declaring the Sandinista Government to be in violation of a provision of the OAS Charter that calls for a response by the Presi- dent. In addition, Congress has changed its collective mind virtually every year over policy toward Nicara- gua. The United States gave aid to the Sandinistas in fiscal 1980, took aid away from the Sandinistas at the end of 1980 for fiscal year 1981, and then gave covert support to the democratic resistance in 1981 for fiscal year 1982. For fiscal 1983, Congress denied aid "for the purpose of overthrowing the government," a re- striction that was all but meaningless and therefore adopted by the House unanimously. For fiscal year 1984, Congress removed the language about purpose but limited the amount of assistance to a level that it knew would not last for the full year. Then, the strictest version of the Boland Amendment was adopted for fiscal 1985?partly, it is often said, be- cause Congress was upset at allegedly not having been informed about the CIA's role in connection with the mining of Nicaraguan harbors.* *Much has been written about whether the late Director of Central Intelligence, William Casey, adequately informed the Senate Intelligence Committee about the mining of Nicaraguan harbors in 1984. A review of the record indicates that while Casey could have been more expansive, he did clearly tell the Committee on March 8, and again on March 13, that mines were being placed in the Nicaraguan harbors of Corinto and El Bluff, as well as at the oil terminal at Puerto Sandino. See Bob Woodward, Veil: The Secret Wars of the CIA 1981-1987 (1987), Chapter 16, 319-338; also McMahon Dep., 9/2/87, at 32-41. On the House side, the Intelligence Committee, chaired then by Edward Boland, received a mining briefing on January 31, 1984, more than two months before these activities became a public controversy, and approximately three weeks after the first mines were deployed. The CIA had been discussing the possibility of mines being employed in Nicaragua with the House panel as far back as the summer of 1983. In essence, what appears to have happened in the Senate is that following disclosures in the media in early April 1984 about these operations, a number of Senators feigned ignorance of these activi- ties. In fact, they had known about them for some time. Senator Leahy was one who had known for some time and scolded his colleagues for their hypocrisy. Reportedly, some Senators who knew about the mining when they voted for additional assistance for the Contras turned around after the media disclosures and voted for a resolution condemning and prohibiting the mining. As Leahy put it, "There were Senators who voted one way the week before and a different way the following week who knew about the mining in both instances and I think were influenced by public opinion, and I think that's wrong and that is a lousy job of legisla- tive action." (See Henry J. Hyde, Can Congress Keep a Secret?, National Review, Aug. 24, 1984, pp. 46-61; also, Bernard Gwertz- man, Moynihan to Quit Senate Post in Dispute on CIA, New York Times, April 16, 1984; Joanne Omang & Charles Babcock, Moyni- han Resigns Intelligence Panel Post, Assails CIA, Washington Post, April 16, 1984; Sen. Moynihan 's Point, Washington Post, editorial, April 17, 1984; McFarlane Test., Hearings, 100-2, 5/13/87, at 230- 32.) During this period, Casey's deputy was John McMahon. His recollection of this matter is consistent with Leahy's. He indicates 489 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 The way the majority treats the mining incident is symptomatic of its entire pre-history of the Boland Amendment. The basic argument is that Congress had an open mind about Nicaraguan policy, but that the Administration offered shifting rationales for the policy, misled Congress as to its intentions and ac- tions, and finally justified a cutoff of funds by failing to notify Congress adequately about the mining of the harbors in Nicaragua. This is, of course, a totally subjective, hence fundamentally misleading account of the political history, to the limited extent that the facts it cites are accurate. First, the majority thesis utterly ignores what the Soviets and Sandinistas were that on the March 12, 13 Appropriations Committee Senators were briefed, and on the following day, "Casey was back to the Senate Intelligence Committee" to remind Members of what he had told them previously about the mining. After that session, McMahon recalls: [There was] still not a word. We then, on March 28, got a letter from Senator Pell in Foreign Relations saying, "Tell me about this mining." So we prepared a written response, sent it to Senator Pell through Barry Goldwater, who was then Chairman of the Senate Select Committee on Intelligence. Not munh happened until the latter part of the first week, in April, when there was a great deal of furor in the press, which generated in Europe, about the mining of the harbors, was picked up by the Post and Times here and a lot of noise, and suddenly amnesia struck Capitol Hill, no one remem- bered hearing about the mining. . . Barry Goldwater sent a letter to Casey telling him he was "pissed." When I got this letter I went in to Casey and said, "What the hell is he talking about, where has he been for the last two months?" (See McMahon Dep. 9/2/87 at 35-37.) Subsequently, according to McMahon, Casey confronted Gold- water regarding the mining notification. McMahon recalls: [Casey] showed him then the transcript from the hearings on the 8th and on the 13th of March, and Barry [Goldwater] said, "You know, I don't know, I just don't remember." And it's my under- standing that Barry wanted to send a letter of apology to the agency but was urged not to do so?because the Senate apologizes to no one. McMahon added that as far as he was concerned, "there was no intent by the agency to keep the mining of the harbors from the committees. We did everything we possibly could to tell them about it and tell them about it in a timely fashion." (McMahon Dep., 9/2/87 at 36-38.) Interestingly, Senator Goldwater, who excoriated Casey for al- legedly not properly informing the Senate Intelligence Committee on the mining, voted on April 10, 1984, against the resolution condemning the mining. (See Congressional Record, April 10, 1984, p. S4205.) Ultimately, Casey felt the politically expedient thing to do was to "apologize" to the Senate Intelligence Committee and get this brouhaha behind him. When he finally did so, Senator Jake Garn reportedly became enraged because he believed there had been adequate notification. In his new book, Veil, Bob Woodward claims Garn underscored his fury by screaming: "You're all [expletive deleted's?the whole Congress is full of [expletive deleted's, all five hundred thirty-five Members are [expletive deleted's" . . . . Members stood up, including Moyni- han, who wanted to prevent a further confrontation. "Smile," Moynihan said, "when you call me an [expletive deleted]." Garn later wrote to Goldwater and apologized for disrupting the Com- mittee. (See Woodward, Veil, at 33.) Garn subsequently confirmed most of this story, saying only that the incident occurred after the committee meeting was over and that he did not apply the expletive to the full Senate. See Around the Hill, Roll Call, October 25, 1987, p. 13. 490 doing during the same period to escalate the conflict and consolidate the Marxist regime in Managua.* Second, it ignores the fact that many Members of Congress, almost all Democrats, opposed U.S. policy in Nicaragua almost from the beginning, and that most of the votes in both the House and the Senate during the relevant periods, including the votes on the various contested versions of the Boland Amend- ments, were almost completely straight party-line votes. One key result of its remarkably distorted account is that the majority often confuses cause and effect. This is almost self-evident in its treatment of the mining of Nicaraguan harbors. In October 1983, Con- gress decided to limit funding for the Contras to $24 million for fiscal year 1984, an amount deliberately calculated to fall considerably short of the Contras' needs for that period. This was the handwriting on the wall, that the Contras might well be cut off com- pletely if there was a slight change in the climate of opinion. The Contras knew it; the Sandinistas knew it; and the U.S. Government knew it. The mining was therefore an effort to bring the Sandinistas to the table before Congress cut off support. In short, it was an effect of the Congressional decision, not the cause of a later decision. But this reversal of cause and effect is typical of the majority's amateur psychohis- tory. Unfortunately for them, in many other parts of the world psychohistory is correctly not regarded as a useful tool in foreign relations. The strictest of the Boland Amendments was in effect for only eight months when Congress decided to allow some humanitarian aid to the resistance. Then, a few months into the fiscal year, Congress also permitted communications assistance and advice. Fi- nally, for fiscal 1987, Congress resumed full funding for the resistance at a level of $100 million. As McFarlane said to Representative Courter during tes- timony, "It is absolutely out of the question to have a coherent policy with that kind of a change in the legal framework." 2 Congress's ambivalence expressed itself not only from year to year, but within years as well?including the year of the strictest Boland prohibition. If all we were talking about was a clear expression of Congres- sional intent in the form of a strict prohibition, that clear statement would have to govern for as long as it stayed in effect. The fact, however, is that Congress was of more than one mind?even within the statute that contained the strictest Boland prohibition. The most stringent Boland Amendment was part of a continuing appropriations resolution that included 9 of the 13 appropriations bills needed to fund the Gov- alt is one of the curious facts of the Majority Report that the first acknowledgement of the communist nature of the regime comes on page 11 of the Executive Summary while the first politi- cal description of the Sandinistas comes on page 3. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 ernment for fiscal 1985.3 The fiscal year started on October 1, 1984. President Reagan had already vetoed one continuing resolution because of its spending levels; Government workers even had to be fur- loughed at one point. By the time a reworked funding bill reached the floor on October 10 and 11, there was a great sense of political urgency. Election Day was only 3 weeks away, the resolution contained a large number of contentious water and public works projects important for individual districts, and mem- bers of the House and Senate were all eager to get home to campaign. All year long, passage of the Intelligence Authori- zation and Department of Defense Appropriations Acts had been stalemated between the staunch oppo- nents of aid for the resistance, who made up a majori- ty in the House, and the equally staunch supporters of aid, who formed a majority in the Senate. In the compressed, highly politicized pre-election timetable of October, the two groups were willing to work out a compromise. The final defense appropriations bill included the famous Boland prohibition quoted below, together with a series of expedited procedures that would let Congress vote on a new, $14-million aid package for the Contras any time after February 28. Some supporters of aid for the resistance, such as Senator John East of North Carolina, criticized the Senate Republican leadership for agreeing to the deal. "What I think we have done in this conference report is exchange the aid to the Contras and other impor- tant defense-related items . . . for water projects," East said.4 Senator Ted Stevens, who was the Assist- ant Majority Leader and, as Chairman of the Appro- priations Subcommittee on Defense, was the floor manager of this portion of the conference report, was the other main speaker on the Senate floor at the same time as East. Stevens said that: [East's position] is counterproductive to his point of view. There is money in this bill for assistance to the Contras. There is $14 million . . . . I can tell the Senator that it would take less than 31 days to pursue that subject under this report, in terms of fast-tracking both the House and Senate, a resolution to approve the President's certifica- tion. That money is in the bill and it can be used. The money that was provided the Contras ran out in August. The Contras are still supporting themselves with assistance they are getting from elsewhere in the world. Having that assistance out there to be made available on March 31 will encourage that assistance from other sources to the Contras during this period.3 Representative Boland's explanation of the conference agreement took note of the same compromise lan- guage, albeit in terms that emphasized the importance of the prohibition he had been so strongly supporting. Representative Boland did say: This prohibition applies to all funds available in fiscal year 1985 regardless of any accounting pro- cedure at any agency. It clearly prohibits any expenditure, including those from accounts for salaries and all support costs. The prohibition is so strictly written that it also prohibits transfers of equipment acquired at no cost. 6 In the same speech, however, Boland also said: The compromise which we have worked out on Nicaragua preserves the House position with one important proviso. No funds may be spent on the secret war in Nicaragua until February 28, 1985 . . . . Only if Congress affirmatively provides for a re- newal of funding for the war could any funds be used for that purpose.7 Representative Boland, in other words, essentially was confirming Senator Stevens' interpretation of the compromise. The Senate supporters of Contra aid were willing to agree to the conference report, and the President was willing to sign the bill, only be- cause there was a general understanding that a second vote would be forthcoming after the 1984 elections were out of the way. Clearly, that understanding would have made no sense unless the resistance con- tinued to exist. Thus, President Reagan's instructions to his staff to do whatever they could within the law to keep the democratic resistance alive, and the ac- tions he took that were consistent with Congress's findings about the OAS charter, all were entirely in keeping with the full spirit?the spirit expressed by all of the participating Members of Congress?of even the strictest Boland prohibition. The Words of the Boland Amendment The real legal issue turns, therefore, on the exact words of the Boland Amendment.* Before turning to *The majority criticizes the only contemporaneous executive branch legal opinion on the issue, from the President's Intelligence Oversight Board, which concluded that the NSC was not covered by the Boland Amendment. The majority asserts that the drafter was not given all the facts needed for his opinion, but ignores the fact that the drafter specifically testified at the hearings that having the additional facts then before the Committees would not have changed his key legal conclusions. (Sciaroni Test., Hearings, 100-5, 6/8/87, at 12.) The majority also criticizes the credentials of the 491 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 those words, however, it is important to bear in mind that they were a rider, or a limitation amendment, to an appropriations bill. The Boland Amendment was not, for example, like the Hatch Act, which prohibits specific (political) activities by civil servants whether they are on the job or off. s Nor is it like the Neutrali- ty Act, which also prohibits defined activities and makes them criminal.9 An appropriations rider, even if it reaches salaries, is nothing more than a limitation on the way Federal funds may be used. It does not reach a person's whole life and does not make activi- ties criminal. What were the precise "funds available," to use Mr. Boland's words, whose use was prohibited? The rele- vant language read as follows: During fiscal year 1985, no funds available to the Central Intelligence Agency, the Department of Defense, or any other agency or entity of the United States involved in intelligence activities may be obligated or expended for the purpose or which would have the effect of supporting, di- rectly or indirectly, military or paramilitary oper- ations in Nicaragua by any nation, group, organi- zation, movement or individual." The terms of this prohibition apply to funds made available to specific arms of the executive branch. The fiscal 1983 prohibition of aid "for the purpose of overthrowing the government" applied only to funds available to the Department of Defense and Central Intelligence Agency. The fiscal 1985 law broadens the prohibition to include "any other agency or entity of the United States involved in intelligence activities." The obvious question, given Col. North's activities in behalf of the democratic resistance, is whether the staff of the National Security Council (NSC) is an "agency or entity" covered by the act. Comparing the Boland Language With Broader Prohibitions The phrase "agency or entity involved in intelligence activities" is surely an odd one that needs explaining. Some Members of Congress may have thought they were enacting an absolute prohibition in 1984, and that feeling may help explain the vehemence of their reaction to what the NSC staff did. But if that is the result Congress wanted to achieve, it chose very bad language for doing so?language that, as we shall show soon, carried a legislative history that specifical- ly excluded the NSC from its coverage. If Congress had simply wanted to prohibit all U.S. activity that might help the resistance, there were plenty of easier ways available for it to have done so. drafter, but ignores the fact that Committee testimony proves the opinion was approved and issued after review by a Board which includes Charles Meyers, former Dean of the Stanford Law School, as one of its three members. (Id.) 492 All it needed to do was look at another very well known and similar law, the Clark Amendment, that cut off support to the resistance fighters in Angola in 1976. That language read as follows: Notwithstanding any other provision of law, no as- sistance of any kind may be provided for the purpose, or which would have the effect, of pro- moting or augmenting, directly or indirectly, the capacity of any nation, group, organization, movement or individual to conduct military or paramilitary operations in Angola." Congress obviously knows how to write an airtight prohibition when it wants to. As in this example, it does not write about agencies or entities, but simply bars "assistance of any kind" from any source. Virtually every year, appropriations bills contain prohibitions worded more broadly than the Boland Amendment. The continuing resolution for 1986, for example, says that "none of the funds available in this or any other Act shall be made available for the pro- posed Woodward light rail line in the Detroit, Michi- gan area" unless certain conditions are met." If this example seems too far-fetched, consider the Hughes- Ryan Amendment to the Foreign Assistance Act of 1981, an amendment that anyone responsible for the Boland Amendment would know in detail: "No funds appropriated under the authority of this or any other Act may be expended by or on behalf of the Central Intelligence Agency" for foreign operations unless the President finds the action to be important to the na- tional security and reports a description of the oper- ation to Congress in a timely fashion.' 3 The absence of the phrase "any other Act" from the Boland Amendment is important for considering whether the NSC was covered by that act. The fiscal 1985 continuing resolution containing the Boland Amendment stitched together nine appropriations bills and a comprehensive crime control bill. The major sections of the resolution followed the wording of the original appropriations bills by designating each of the original bills as a separate "act," each with its own preamble and title." That each "act" within the con- tinuing resolution was treated as a separate legal entity is shown by the fact that several of them con- tained prohibitions against using the money "in this act" for lobbying, but each of the lobbying provisions was worded differently, prohibiting different kinds of behavior for different departments." The Boland Amendment was not contained in the same appropria- tions bill that provides funds for the NSC. The De- partment of Defense Appropriations, for example, in- cludes traditional elements of the intelligence commu- nity. The National Security Council, in contrast, is and traditionally has been funded together with the rest of the White House in an entirely separate appro- priations bill for Treasury, Postal Service, and Gener- al Government that is considered by a separate appro- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 priations subcommittee.' 6 If Congress had intended to cover the funds made available to the NSC staff for salaries, in other words, it could easily have followed the broad language of the Clark Amendment, the Arms Export Control Act, or words often used to extend appropriation riders to funds made available in "any other act." The Boland Amendment's Language in Other Intelligence Law What accounts for the narrowness of the language of the Boland Amendments? The phrase "agency or entity involved in intelligence activities" did not origi- nate with these particular prohibitions. The history of its use in intelligence legislation begins with the at- tempts during the late 1970s to pass a comprehensive charter for the intelligence community. On February 8, 1980, the last version of the broad charter bill was introduced in the Senate. It contained the following definition: The terms "intelligence community" and "entity of the intelligence community" mean (A) the office of the Director of National Intelli- gence [the bill's successor to the Director of Cen- tral Intelligence]; (B) the Central Intelligence Agency; (C) the Defense Intelligence Agency; (D) the National Security Agency; (E) the offices within the Department of Defense for the collection of specialized national intelli- gence through reconnaissance programs; (F) the intelligence components of the military services; (G) the intelligence components of the Federal Bureau of Investigation; (H) the Bureau of Intelligence and Research in the Department of State; (I) the foreign intelligence components of the De- partment of Treasury; (J) the foreign intelligence components of the Department of Energy; (K) the successor to any of the agencies, offices, components or bureaus named by the clauses (A) through (J); and (L) such other components of the departments and agencies, to the extent determined by the President, as may be engaged in intelligence ac- tivities.' 7 Later, the same bill said that "the entities of the intelligence community [defined above] are authorized to conduct intelligence activities, under the direction and review of the National Security Council, but only in accordance with the provisions of this Act."18 The bill, in other words, clearly and intentionally did not treat the NSC as an "entity of the intelligence com- munity." At least one staff consultant to the Senate Select Committee on Intelligence was concerned that the bill would not require the NSC to report any covert operations it might undertake. William R. Harris was directly involved in the deliberations that led to the statutory language we have been analyzing. Because of his expertise on the subject, House Chairman Lee Hamilton and Ranking Minority Member Dick Cheney wrote a letter to the former Senate consultant asking him "for any observations or recollections that relate to the concept of an 'intelligence agency' or 'intelligence entity' as traditionally understood by Congress or the Chief Executive." Harris responded on September 25, 1987, with a 14-page statement that is reprinted as Appendix A to this Minority Report. In his position as consultant, Harris urged the Com- mittee to write language that would include the NSC: It was my position that, unless the mandatory reporting duties included the NSC and its staff, there was a foreseeable risk of the NSC manag- ing covert operations through the NSC itself, without a specific duty to report on such activi- ties to the oversight committees of the Congress. The Charter and Guidelines Subcommittee staff- ers indicated that the President would not author- ize this change in customary practice, precisely because, upon discovery, the Congress would enact legislation requiring mandatory reporting by the National Security Council or the President regarding its activities. At this point (on a day in February 1980 that I cannot ascertain from my records), I took the issue to the staff director of the Senate Select Committee, William G. Miller. Any change of the nature I was proposing would reopen consti- tutional issues of concern to the Attorney Gener- al and the Counsel to the President. Mr. Miller reminded me that both Vice President Mondale and David Aaron, the Deputy Special Assistant to the President for National Security Affairs, served with the committee. The President would not permit, I was advised, the conduct of covert operations by the NSC staff itself. I reminded the staff director that intelligence charters must be designed to function under changed and partly unforeseen circumstances, well beyond the serv- ice of officials who knew the precise reasons for legislative action.' 9 493 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 11 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Harris' position was that if Congress wants to pro- hibit or require the President and the NSC to do something?as he thought it should?then Congress should say so clearly and not rely on the political sympathy of a current Vice-President and NSC staff- er. We agree with this position wholeheartedly. As Justice Frankfurter said in the quotation we used at the beginning of this chapter, "Congress expresses its meaning by words." 2 ? One month later, the Committee staff produced a draft that partly addressed Harris's concern, not by expanding the definition of the intelligence communi- ty, but by adding language that would have made it more difficult for the NSC and other parts of the Government to conduct covert operations.21 The Congress did not enact this language, however, and decided to concentrate strictly on the subject of over- sight. The Intelligence Oversight Act of 1980 started out as one section of the charter bill. After some change, it was enacted as an amendment to the National Secu- rity Act of 1947. The shorter version omits the origi- nal bill's long definition of the intelligence community to require reports of intelligence activities to Congress from: The Director of Central Intelligence and the heads of all departments, agencies, and other enti- ties of the United States involved in intelligence activities. 2 2 In this version, the language is almost identical to the jurisdictional language of the Boland Amendment. Given the statutory history, the phrase appears simply to be a shorthand substitute for items (C) through (L) on the long itemized list in the proposed charter. The fact that the Oversight Act was an amendment to the National Security Act is instructive. The Na- tional Security Act created the National Security Council, which has only four statutory members: the President, Vice President, Secretary of State, and Sec- retary of Defense, with the President clearly put at the head. In order to believe that the phrase "agencies and other entities involved in intelligence activities" applied to the NSC, one would have to accept the entirely preposterous idea that the 1980 law contem- plated the head of the NSC, that is, the President, personally reporting any "significant anticipated intel- ligence activity"?including any of a purely informa- tion-gathering character?to the Intelligence Commit- tees. Even if Congress had wanted to engage in the constitutional confrontation such a reading would imply, it is difficult to imagine Congress specifically mentioning the Director of Intelligence in the Over- sight Act, and then reaching the President by indirec- tion without even bothering to say so. The point that Congress did not intend to treat the President as the head of an "intelligence agency or entity" is strengthened when one realizes that the 494 Oversight Act also amended a sentence that appears immediately after the one in the Hughes-Ryan Act, which does require Presidential Findings for covert CIA operations. There is no way the Members of Congress could have amended one sentence without considering its relation to the other. As the words of Hughes-Ryan make clear, when Congress wants to place a requirement on the President, it does so di- rectly. There is no way to avoid the conclusion that the text of Oversight Act imposes. Even though many people today seem to assume that this law imposes a reporting requirement directly on the President, the fact is that it does not. The Oversight Act's reporting requirements cover the Director of Central Intelli- gence and the heads of all other agencies or entities involved in intelligence activities. It deliberately did not cover the NSC or its head, the President. It knowingly exempted the NSC, even though the NSC staff had engaged in many activities during the 1970s that were well known to Congress and would have called for a required report under the 1980 act if the NSC had been covered. In fact, no one even hinted in 1980 that the NSC or its staff should be covered by the Oversight Act. It is fanciful to maintain that Con- gress intended to break almost 40 years of complete deference to the President's use of the NSC without provoking some extended discussion or controver- sy. 2 3 Harris concludes that Congress adopted language in 1980 that deliberately stepped back from earlier pro- posals for Government-wide reporting requirements to narrower language that excluded the NSC. He wrote: In the period 1975-1978, Congressional investiga- tions of intelligence activities encompassed enti- ties of the entire federal government, and propos- als for mandatory reporting to the Congress mir- rored that broad jurisdictional concern. Commencing in 1978, the intelligence oversight committees adopted the procedure of enacting separate intelligence authorization acts for all en- tities of the "intelligence community" engaged in national intelligence or counterintelligence. Con- currently, from 1978 onwards, draft legislation proposing mandatory self-reporting by heads of intelligence departments, agencies, or entities en- compassed expressly specified departments and agencies and other "entities" that performed clas- sified missions within the "intelligence communi- ty." Proposals in 1980 to extend the scope of "entities" to include the National Security Coun- cil and its staff were expressly rejected in the course of streamlining what became the Intelli- gence Oversight Act of 1980.24 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Once again, we agree completely with Harris' con- clusions. His words, we should point out, gain credi- bility from the fact that he wanted the NSC to be covered, over the opposition of President Carter's White House. Nevertheless, we acknowledge that a statement from a former Senate staff aide has no com- pelling legal weight as legislative history. What gives the interpretation its real weight is that it is the only one that can make sense of the words Congress used in the various bills it considered and the final law it enacted. After the Oversight Act To complete this line of analysis, President Reagan issued Executive Order 12333 on December 4, 1981, defining the intelligence community essentially along the lines of the charter bill. This language was meant to be a definition of the phrase "agencies or entities involved in intelligence activities" that appeared in the Oversight Act. The principal NSC staff coordina- tor for the executive order was Kenneth DeGraffen- reid, who had worked on the staff of the Senate Select Committee on Intelligence at the time the Oversight Act was enacted.25 The relevant section read as follows: The Intelligence Community and agencies within the Intelligence Community refer to the following agencies or organizations: (1) The Central Intelligence Agency (CIA); (2) The National Security Agency (NSA); (3) The Defense Intelligence Agency (DIA); (4) The offices within the Department of Defense for the collection of specialized national foreign intelligence through reconnaissance programs; (5) The Bureau of Intelligence and Research of the Department of State; (6) The intelligence elements of the Army, Navy, Air Force, and Marine Corps, the Federal Bureau of Investigation (FBI), the Department of the Treasury, and the Department of Energy, and; (7) the staff elements of the Department of Energy. It is worth noting that missing from this enumeration is the charter bill's elastic provision, which could po- tentially expand the list. It is also worth noting that the enumeration is fol- lowed in Intelligence Authorization Acts, including the specific one for fiscal 1985 that contained the same prohibitory Boland Amendment as the continu- ing resolution. The previous year, the House had adopted a version of the Boland Amendment that also would have reached "any other agency or entity of the United States involved in intelligence activi- ties."26 The Senate refused to agree and $24 million, or enough to fund the resistance for about half a year, was finally adopted as a compromise. During the House's consideration of the bill, however, Repre- sentative Boland offered the following description of what the Authorization Act covered: Mr. Chairman, H.R. 2968, the Intelligence Au- thorization Act for fiscal year 1984 authorizes funds for all the activities of the Central Intelli- gence Agency; the Defense Intelligence Agency; The National Security Agency; other intelligence components of the Department of Defense and the Departments of the Army, Navy and Air Force; the Bureau of Intelligence and Research at the Department of State; the Intelligence Divi- sions of the Federal Bureau of Investigation; in- telligence elements of the Departments of Treas- ury and Energy, and of the Drug Enforcement Administration; and the intelligence community staff of the Director of Central Intelligence. Generally, these activities are divided into two categories. The first is intelligence activities?that is to say, national intelligence activities?which produce intelligence for important policy-makers of the Government?the President, the Cabinet, the National Security Council and the Joint Chiefs of Staff.2 7 Representative Boland, in other words, adopted the traditional distinction of the Oversight Act and Exec- utive Order 12333 between the intelligence communi- ty, on the one hand, which produces intelligence, and the National Security Council, which is not an agency "involved in intelligence activities" but a consumer. He made it clear that the authori7ation bill did not apply to the NSC. The authorization acts follow the jurisdiction, or power to legislate, that the rules of the House and Senate give to the Intelligence Committees. The White House and NSC staff authorizations clearly and exclusively fell within the jurisdictions of other com- mittees at the time of the Boland Amendment, as they do now. The importance of this fundamental fact of legislative history may be lost unless one has a sense of the jealousy with which committees traditionally guard their own jurisdictions. If Congress had intend- ed to cover staffs that fall within the jurisdictions of two committees, the procedure virtually always adopted.. would have been for the second committee to ask for, and get, a multiple referral of the bill. Committees normally insist on multiple referral even when they are in complete agreement with what a bill is trying to do, because they want to preserve their own jurisdictional claims for the future. 495 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 To summarize, the Oversight Act, the Executive Order, and the typical intelligence authorization act do not cover the President or the National Security Council.* To quote Harris again, this history "estab- lishes a presumption that only 'intelligence communi- ty' entities are intended to be covered by other intelli- gence-related legislation utilizing the phrasing."Harris does acknowledge that "the presumption may be re- butted by evidence of actual legislative intent to the contrary" and says that he does not know the specific legislative history of the 1984 and subsequent Boland Amendments." We have searched that history, how- ever, and there is no evidence of an intention to change a well-known term of art that excluded the NSC into one that included it.** The Spirit Redux Some members of these Committees have tried to argue, without addressing the legislative history just presented, that the Boland Amendment should be read not to cover a specific list of agencies, but any agency or entity that might in the future become involved with intelligence activities. Any other read- ing, it is said, would render the law meaningless by letting the President get around its provisions by put- ting agents in any of the Government's departments outside the intelligence community, including the De- partment of Agriculture.2 9 We consider this argument to be completely mistak- en. For one thing, as we have just demonstrated, the term "agency or entity involved in intelligence activi- ties" was not made up by the Boland Amendment out of whole cloth. If the phrase is to have any meaning, it must be the same in the Boland Amendment and Oversight Act. But the argument that an interpreta- tion of Boland which excludes the NSC would be a "slippery slope" is also wrong because the slope is not *A technical question exists about whether North was covered by the Boland Amendment as an individual because his salary apparently was paid from the Department of Defense appropria- tion. Because North's salary could just as easily have been paid or reimbursed from the NSC appropriation, and because the functions he performed on detail to the NSC were clearly NSC duties unre- lated to his DOD assignment, our basic point is unaffected. **We note that the Department of Justice has concluded that language in section 403(b)(1) of the Intelligence Authorization Act reaches the NSC because it covers "any agency or entity involved in intelligence or intelligence-related activities." See U.S. Depart- ment of Justice, Memorandum for the Attorney General, "Legal Authority for Recent Covert Arms Transactions to Iran," Decem- ber 17, 1986, p. 5, n. 10. Given the history we have discussed, the accuracy of the Justice Department's conclusion is clearly open to question. Even assuming its correctness, arguendo, Attorney General Meese made, the point in his testimony that the underlined phrase does not appear in the Boland Amendment and therefore makes this phrase broader than the one in that amendment. Therefore, Meese said, this language is clearly distinguishable from the definitional language of the Boland Amendment, which appears in a separate section of the same bill. See Meese Test., Hearings, 100-9, 7/29/87, at 421-22. 496 in fact slippery. Arguments about the NSC staff do not automatically apply to other departments and agencies. The NSC staff is the President's personal foreign policy staff; the Department of Agriculture is not. The NSC is therefore authorized to conduct, and historically has conducted, activities directly related to the President's Contra policy that others may not conduct without explicit statutory authority. If the language of the Boland Amendment did not cover the NSC, can the Administration fairly be said to have evaded the law through Oliver North's ac- tions to help the democratic resistance? On the most obvious level, no one is evading the law if he or she continues to do something the law permits, or fails to prohibit. But to leave the matter there makes it look as if the Administration was faced with a clear Con- gressional mandate. In fact, as we have shown, the mandate was two-sided. Part of what Congress wanted in 1984 was to cut off U.S. financial aid to the Contras. That objective was fulfilled. During fiscal 1984, Congress appropri- ated $24 million to support the resistance, and permit- ted the full infrastructure of the CIA, Defense De- partment, and other intelligence agencies to back up the expenditure of the money. When the Boland Amendment went into effect, the CIA's financial and infrastructure support was eliminated. The entire Na- tional Security Council appropriation, for all salaries and all worldwide activities, was between $4 million and $5 million during the mid-1980s. The most the NSC staff could do would be to spend a part of a few people's salaries to encourage activities that did not spend U.S. funds. At its most ambitious, the NSC staff's activity would therefore represent a minuscule fraction of the U.S. Government's support for the resistance before the prohibition. This judgment is strongly reinforced by the facts disclosed by the record of these Committees' public hearings. During the period of the Boland Amend- ment, a very small number of NSC staff officials had responsibilities that related to the resistance. These responsibilities included, among other things, main- taining political contact with the resistance, exchang- ing information with it, and providing it with guid- ance and political advice. No one?especially not anyone familiar with U.S. intelligence?would main- tain that the Boland Amendment outlawed these ac- tivities. At the same time, the NSC staff engaged in more controversial activities, such as giving the resist- ance expert assistance on arms procurement, helping to coordinate the operational details of military resup- ply, and persuading other countries to give financial support to the resistance. If one tried to keep a diary of the NSC staffs time, however, it would quickly become clear that any expenditure of NSC staff sala- ries on activities that might have been outside the law if the NSC were covered, was clearly incidental to expenditures for activities that remained clearly legal Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 during the time of the most stringent Boland Amend- ment. There were no other significant expenditures of ap- propriated funds to support the resistance during the period of the Boland Amendment?no " diverted" tanks or planes, for example. In short, the appropria- tions limitation purposes of the Boland Amendment in fact were met. Even though the NSC staff did sup- port the resistance in the ways just described, the level of U.S. support dropped to just a trickle of personal advice. In addition, we must reiterate that Congress' full intention involved more than just the limitation provision. Congress assumed there would be a future vote on the resistance, and that the resist- ance would continue to exist as a viable force until that vote with funds from private and non-U.S. sources. Satisfying Congress's full intention, therefore, would almost seem to require some form of NSC staff involvement. Oliver North and John Poindexter testified that they attempted to comply with the law.3? We have seen that the NSC was not covered by the law's language. But even if the NSC had been covered, virtually all, if not all, of North's and Poindexter's activities in behalf of the democratic resistance would still have been lawful. This point can be best under- stood by looking at the different interpretations placed on the law from the beginning, and at the changes Congress began making to the Boland prohi- bitions within months of its adoption. Sharing Information and Intelligence Under the Boland Amendment A review of the legislative history of the Boland Amendment and related subsequent amendments makes clear that it was lawful for Col. North and others to provide intelligence to the resistance leader- ship. The legislative history also makes clear that it is reasonable to view the Boland Amendment as allow- ing the type of information transfer, advice, and co- ordination that Col. North and others provided to the Contra resupply effort. On December 19, 1984, Director of Central Intelli- gence William J. Casey wrote to Representative Boland, Chairman of the House Permanent Select Committee on Intelligence, to describe some activities the CIA considered to be consistent with the prohibi- tion bearing the Chairman's name. Casey's letter did not discuss normal information and intelligence-shar- ing because, as a still classified exhibit to Col. North's testimony makes clear," Members of Congress al- ready knew about, and approved, such communica- tion between the resistance and CIA. Rather, Casey's letter was about providing specific, detailed intelli- gence that might be useful operationally. Casey wrote: We are contemplating providing defensive intelli- gence to the FDN . . . . This intelligence would be furnished exclusively for the purpose of pre- cluding hostile actions against the FDN. We would ensure that the information provided does not contain the specific details requisite for the planning/launching of offensive operations. We are fully aware of the current restrictions pertaining to Agency support for insurgent forces. It is our belief, however, that provision of this information is consistent with our long-estab- lished practice of providing intelligence as appro- priate to prevent loss of life." On January 14, 1985, Casey's letter was answered by Boland and Representative Lee Hamilton, who was soon to succeed Boland as chairman. According to their response: The thrust of the public debate [over the Boland Amendment] . . . was clearly directed at the complete severance of all intelligence community connections with the Contras and the end of all support for anti-Sandinista military activity. Therefore, your stated intention to provide "de- fensive intelligence" to the FDN is trou- bling . . . . It is our opinion that, at a minimum, section 8066 prohibits the provision of intelligence information to the FDN on any systematic or continuing basis, particularly if such information will enable a FDN force to avoid tactical contact with the enemy and thus be in a better position to contin- ue military operations of its own. On the other hand, the unplanned for, isolated provision of incidentally acquired information to a person threatened by imminent assassination would seem reasonable. In any event, on the basis of the imprecise infor- mation given to us, we are unable to approve or disapprove any contemplated CIA activity. Some examples of intelligence you would provide to the FDN could, in our view, violate the law, yet not every example seemed illegal . . . . If your decision is to proceed, we ask that you provide the Committee with the guidelines under which your General Counsel will approve or dis- approve the furnishing of intelligence to the FDN.33 In the first of the sentences quoted above, Hamilton and Boland clearly went beyond both the letter and spirit of the Boland Amendment by suggesting that its purpose was to eliminate "all intelligence community connections with the Contras." Those connections were continuing throughout the period with the 497 77-026 0 - 87 - 17 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Chairmen's full knowledge and acquiescence, as we indicated above. However, there remained a valid dis- pute over exactly how detailed such intelligence shar- ing could be. Hamilton and Boland took the view that tactical information of a militarily useful sort was prohibited, even if it were for defensive purposes. Two months later, the CIA responded to the Chair- men's request to provide Congress with detailed guidelines. On March 18, 1985, Casey wrote to Ham- ilton and to Senator David Durenberger, Chairman of the Senate Select Committee on Intelligence: This is in response to questions raised by the Committee regarding the Agency's plans to pro- vide certain defensive intelligence to opposition groups in Nicaragua . . . . We do not intend to provide intelligence on any systematic or con- tinuing basis. Our goal is humanitarian in nature and any intelligence we would pass would be strictly limited, on a case-by-case basis, to infor- mation which in general affects the lives of U.S. persons or third country noncombatants or which suggests that a holocaust-type situation involving substantial loss of life may occur.34 Casey thus indulged Hamilton and Boland temporari- ly on the specific issue, but presented the CIA's guidelines as the Agency's statement about what it would do, without conceding the House Chairmen's interpretation of what the law required. Until the CIA was able to get the law clarified, it behaved in a manner consistent with its own guidelines, which were drafted, as shown below, to be stricter than the law itself. Five months later, on August 8, 1985, Congress resolved the interpretation dispute in the CIA's favor. In the Supplemental Appropriations Act for fiscal 1985, Congress said: Nothing in this Act, section 8066(a) of the De- partment of Defense Appropriations Act, 1985 (as contained in section 101 of Public Law 98- 473), or section 801 of the Intelligence Authoriza- tion Act for Fiscal Year 1985 (Public Law 98- 618) shall be construed to prohibit the United States from exchanging information with the Nic- araguan democratic resistance.35 Congress did not say it was creating new authority. The phrase, "nothing in this act . . . shall be con- strued to prohibit," is the kind of language Congress uses when it is indicating its interpretation of what a past law has always meant. The report of the House conferees made this abundantly clear: The conference committee discussed, and the In- telligence Committees have clarified, that none of the prohibitions on the provision of military or paramilitary assistance to the democratic resist- 498 ance prohibits the sharing of intelligence informa- tion with the democratic resistance." This point was made again in December 1985, when Congress again addressed the subject of intelli- gence sharing. In the Intelligence Authorization and Department of Defense Authorization Acts of 1986,37 Congress permitted the intelligence community to provide communications equipment and related train- ing, and to exchange information with and provide advice to the democratic resistance. The conference report explained the provision this way: The conferees note that under current law and the restriction contained in Section 105 of this Con- ference Report, the intelligence agencies may provide advice, including intelligence and coun- terintelligence information, to the Nicaraguan democratic resistance. Section 105 does not permit intelligence agencies to engage in activi- ties, including training other than the communi- cations training pursuant to Section 105, that amount to participation in the planning or execu- tion of military or paramilitary operations in Nicaragua by the Nicaraguan democratic resist- ance, or to participation in logistics activities inte- gral to such operations." As with the August statute, the statutory history con- tains a clear reference to words that interpret what the law has been and not just what it will be. It is clear, therefore, that the law allowed Col. North and others to pass intelligence of military value to the resistance. Advice for and Coordination of the Resupply Operation The language and legislative history of the Boland Amendment, as modified by the "communications" and "advice" provisions, also make clear that Col. North and other U.S. Government officials could le- gally provide general advice, coordination, and infor- mation with respect to the Contra resupply operation that began in late 1985. The Boland Amendment provides that: No funds . . . may be obligated or expended for the purpose or which would have the effect of supporting, directly or indirectly, military or para- military operations in Nicaragua. [Emphasis added.] This language does not prohibit all support, but only support of a specific kind. The question that always arose, however, was what kind of support would con- stitute indirect support of a military operation inside Nicaragua? After the "communications" and "advice" provisions were enacted in 1985, the Chairmen of the House and Senate Intelligence Committees disagreed Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 6 about their meaning?particularly as they might apply to a resupply operation, as opposed to specific mili- tary or paramilitary operations in Nicaragua. Rep. Hamilton, in a December 4, 1985, letter, took the position that the law prohibited advice about "lo- gistical operations upon which military or paramili- tary operations depend." 3 9 Senator Durenberger, in a letter dated the next day, however, said that he be- lieved the law meant to allow just such advice. Faced with these conflicting interpretations, the CIA, after a careful analysis of the legislative history, chose to accept the position that most clearly represented a harmonization of the points of difference between the two Chambers: The legislative history, therefore, seems to draw distinctions between, on the one hand, participa- tion, planning, and providing advice (which would not be permitted in support of paramilitary operations) and, on the other hand, information sharing, including advice on the delivery of sup- plies . . . . There is no clear indication that Con- gress intended to prohibit the CIA from giving advice on supply operations, and some indication that it did intend to distinguish between mere information-sharing and actual participation in such operations. Furthermore, there would appear to be a valid distinction between permissi- ble, general military resupply operations and op- erations in the context of specific military oper- ations, which were not authorized . . . . Merely passing intelligence on Sandinista gun or radar placements, weather conditions, flight vec- tors, and other information to assist in the deliv- ery of supplies for general maintenance of the forces in the field would not seem to be prohibit- ed, both because this would not constitute "par- ticipation," and because this would not be "inte- gral" to a "paramilitary operation" as contem- plated by Congress." 40 We agree with the legal conclusions reached in this memorandum. Based on these conclusions, we would argue that virtually all, if not all, of Col. North's activities in support of the democratic resistance would have been legal even if the Boland Amend- ment had applied to the NSC. By extension, we be- lieve that virtually all, if not all, of the activities of employees of other executive branch agencies and entities that were covered were also legal. The worst that can be said of all of these people is that they adopted one side of a reasonable dispute over inter- pretation. In that dispute, the opinions of the Senate are every bit as much of a valid indicator of Con- gress's intention as the House's. There is no way, therefore, that behavior undertaken in reliance on the Senate's legislative record can fairly be interpreted as an intentional flouting of the law. 499 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 6 Endnotes I. Addison v. Holly Hill Co. 322 U.S. 607, 617 (1944). 2. McFarlane Test., Hearings, 100-2, 5/13/87, at 187. 3. Pub. L. No. 98-473; 98 Stat. 1837. 4. Congressional Record, Oct. 11, 1987, p. S14206. 5. Id. at S14205. 6. Id. at H12206. 7. Id. 8. 5 U.S.C. 7324(a)(2). 9. 18 U.S.C. 960. 10. Pub. L. No. 98-473; 98 Stat. 1837, 1937 (Oct. 12, 1984), Continuing Resolution, Department of Defense Ap- propriations Act, Sec. 8066 (a). 11. 22 U.S.C. 2293, emphasis added. 12. Pub. L. No. 99-190, 99 Stat. 1287. 13. 22 U.S.C. 2422. 14. See, for example, P.L. 98-473, 98 Stat. 1877, 1885, 1905, 1923. 15. For example, compare Pub. L. No. 98-473, 98 Stat. 1923 with 1937-38. 16. See Pub. L. No. 98-441, 98 Stat. 1699 (Oct. 3, 1984). 17. 96th Congress, 2d Sess., S.2284, Sec. 103 (12). 18. Id., Sec. 111 (a). 19. William R. Harris, "Reporting Obligations and Fund- ing Restrictions Affecting Intelligence Departments, Agen- cies, and Entities of the United States," Prepared Statement in reply to a request of the U.S. House Select Committee to Investigate Covert Arms Transactions with Iran," Sept. 25, 1987, p. 7. Full statement reprinted as Appendix A to the Minority Report. 20. Addison v. Holly Hill Co. 322 U.S. at 617. 21. Harris, "Reporting Requirements," prepared statement at 8. 22. 50 U.S.C. 403. 23. See TVA v. Hill, 98 S. Ct. 2279, 2300 (1978). 500 24. Harris, "Reporting Obligations," prepared statement at 14, emphasis added. 25. Id., p. 11. 26. Congressional Record, Oct. 20, 1983, p. H8413. 27. Id., p. H8389. 28. Harris, "Reporting Obligations," prepared statement at 11-12. 29. See Senators Inouye and Mitchell, Meese Test. Hear- ings, 7/29/87, at 428-29. 30. This point was corroborated by Generals Secord and Singlaub. See Secord Test., Hearings, 100-1, 5/21, at 197; Singlaub Test., Hearings, 100-3, 5/21/87 at 197. 31. OLN-91. 32. North testimony, Exhibit OLN-333A. 3343.. I Id. d 35. Pub. L. No. 99-88, Sec. 102 (b). 36. U.S. House of Representatives, 99th Cong., 1st Sess., H.Conf. Rept. 99-237, International Security and Develop- ment Cooperation Act of 1985, p. 144, emphasis added. The provision first appeared in the ISDCA, but the conferees agreed to drop the provision because the same language was to appear in the supplemental appropriations act. Nev- ertheless, this interpretation is the one that was offered to the House by the committee of jurisdiction that had origi- nated the language. The interpretation was not contradicted in other reports or on the House or Senate floor. 37. Pub. L. No. 99-169; Pub. L. No. 99-190. 38. U.S. House of Representatives, 99th Cong. 1st Sess., H. Rept. 99-373, Conference Report to Accompany H.R. 2419, p. 16, emphasis added. 39. As quoted in March 2, 1987, memorandum from CIA Associate General Counsel W. George Jameson to the Gen- eral Counsel, p. 6; Ex. TC-13, Hearings, 100-4. 40. Id. at 5, 7. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 Who Did What To Help The Democratic Resistance? The public hearings of these Committees presented a confusing picture of U.S. assistance to the Nicaraguan democratic Resistance during the period of the Boland Amendments. The overall impression the Committees' majority tried to create was that the government was engaged in a massive effort to sub- vert the law. A careful review shows, however, that this simply was not the case. The NSC staff's activi- ties fell into two basic categories. Some were the kinds of diplomatic communication and information sharing that Congress may not constitutionally pro- hibit, even if Congress had intended the Boland Amendment to apply to the NSC. Others, with the possible exception of the diversion, were in accord- ance with the law, as we have analyzed it in the preceding section. Given the nature of the strategic threat in Central America, we also believe President Reagan had more than a legal right to pursue this course of assistance to the Contras. We believe he was correct to have done so. The mixed signals Congress was giving indicates that many members agreed. Our only regret is that the Administration was not open enough with Congress about what it was doing. We have no intention here of trying to present all of the evidence the Committees received about what each person did. If we did, our dissent would have to be as long as the Committees' narrative. Frankly, we believe the mind-numbing detail in that narrative ob- scures as much as it reveals, leaving readers with some fundamentally mistaken impressions. In the fol- lowing few pages, therefore, we will limit our com- ments to a broad factual overview to indicate why we reach the conclusions we do. The President President Reagan gave his subordinates strong, clear and consistent guidance about the basic thrust of the policies he wanted them to pursue toward Nicaragua. There is some question and dispute about precisely the level at which he chose to follow the operational details. There is no doubt, however, about the overall management strategy he followed. The President set the U.S. policy toward Nicaragua, with few if any ambiguities, and then left subordinates more or less free to implement it. The first crucial step was the President's decision to back a December 1981 Central Intelligence Agency (CIA) proposal for covert action. Within a year, the policy was covert in name only and Congress began passing the first of the Boland Amendments. Never- theless, when the Kissinger Commission recommend- ed a more overt policy of support for the Resistance in 1984, former National Security Adviser Robert C. McFarlane testified that the recommendation was ig- nored by the President and by Congress.' The Administration was aware as early as mid-1984 that Congress would probably cut off funds to the Resistance; the mining incident served as either a reason or as a convenient pretext for the cutoff, de- pending upon one's point of view. The President in- structed the NSC staff, according to both McFarlane and Col. North, as early as the spring of 1984 to keep the "body and soul" of the Resistance together until Congress could be persuaded to resume support for them.2 North testified that he understood this to mean specifically, among other things, that he was to keep the Contras together in the field as a fighting force.3 Although McFarlane appears to have interpreted the President's desires somewhat more narrowly, McFar- lane said that the President repeatedly made his gen- eral desire to support the Resistance known both pri- vately and publicly.4 McFarlane and his successor, Admiral John Poin- dexter, both portrayed the President as having been generally aware that the Resistance was receiving funds from third countries and from private parties, but not of the details of Contra expenditures.6 There is no evidence that the President authorized or direct- ed McFarlane or the NSC staff to contact third coun- tries in 1984 or 1985 to raise funds for the Resistance. There also is no evidence that the President personal- ly solicited such funds from foreign heads of state, and the President has denied having done so.6 How- ever, it is clear that the President knew such funds had been given to the Resistance during 1984-85,7 and that he did not tell the NSC staff not to encourage such foreign political or financial support. In addition, Poindexter said the President considered contributions from third countries to be entirely acceptable and 501 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 thought they should be encouraged.8 But whatever the President's precise knowledge or direction of the NSC staff's role in encouraging contributions, we are firmly convinced that the Constitution protects such di- plomacy by the President or by any of his designated agents?whether on the NSC staff State Department or anywhere else. The President also knew that some private U.S. citizens were giving money to help the democratic Resistance?another activity that was perfectly lega1.8 In 1986, after Congress specifically stated that third country solicitations by the State Department were not precluded, the President did authorize such a so- licitation in a National Security Planning Group meet- ing. That decision that eventually led Secretary of State George Shultz and Assistant Secretary Elliott Abrams to solicit the Government of Brunei. The President's exact knowledge of other aspects of the NSC staff's support for the Resistance is less clear. The President knew North was the main staff officer acting as liaison to the Resistance. The Presi- dent was briefed by Poindexter about the construction of an emergency air field in a neighboring country that was to be used for the private Southern Front resupply operation," and, according to McFarlane, he personally intervened with the head of state of a Central American country to obtain release of an arms shipment for the Resistance that had been seized immediately after a vote in Congress to reject an effort to resume Contra funding." On most other aspects of the resupply operation and North's military advice to the Resistance, the President seems not to have been informed of what McFarlane and Poin- dexter considered to be "details," many of which McFarlane denied knowing himself. Again, whatever the President's precise level of information, it is clear that matters about the President's knowledge of which these Committees can be sure?including the ones just cited?all fall within the sphere of constitu- tionally protected diplomatic communication or the equally protected speech and encouragement of legal ac- tivity by U.S. citizens. The Vice President There is no evidence that Vice President George Bush knew about either the Contra resupply effort or the diversion of funds to the democratic Resistance. The Vice President's staff does acknowledge having learned about General Secord's resupply operation from Felix Rodriguez in August 1986. The staff mem- bers informed the relevant agencies, but said they did not think the issue warranted informing Bush at the time. The testimony all says the subject was not dis- cussed with the Vice President. Two April scheduling memoranda did use the word "resupply" in connec- tion with one Rodriguez visit to the Vice President's office, but there is no reason to infer from a single 502 phrase that the Vice President's staff had full knowl- edge of a subject the NSC staff was deliberately keep- ing from them. Felix Rodriguez The one point of connection between the Vice President, his staff, and the resupply effort, was Felix Rodriguez (also known as Max Gomez) a retired CIA officer and personal friend of Donald P. Gregg, the Vice President's Assistant for National Security Af- fairs. Rodriguez was a significant figure in North's resupply operation as the facilitator/coordinator of private benefactor flights. He had three short personal meetings with the Vice President during this time period. According to his testimony, all three related to his counter-insurgency efforts in Central Amer- ica.' 2 The second of these meetings took place on May 1, 1986, some eight months after Rodriguez began work- ing with North on the resupply effort and a few months after that effort became active.* According to his testimony, Rodriguez was fed up with the oper- ation and was planning to quit." Neither Watson nor Gregg had been told about his role at this time, Ro- driguez said." He had purposely kept that informa- tion from all others at North's request," and asserted that he did not intend to inform the Vice President or * The majority in Chapter 3 claims that North employed the assistance of other U.S. officials in order to obtain approval from a Central American country to serve as the host for the resupply operation air base. Thereafter, it strongly suggests that Col. James Steele and Donald Gregg, the Vice President's National Security Adviser, were those other officials and that very matter was dis- cussed by the three of them at a meeting on September 10, 1985. The reference to a meeting on September 10, 1985, is based exclusively on ambiguous notes contained in Col. North's note- books. Since Col. North was never asked about that meeting or those notes, we cannot tell when they were made, let alone wheth- er they were accurate or reflect a meeting which actually occurred. Moreover, despite being subject to lengthy depositions and being totally cooperative with these Committees, neither Col. Steele nor Mr. Gregg has been asked whether such a meeting ever took place and if so, whether the quoted material was discussed. In short, there is simply no credible evidence against which the meaning or accuracy of these notes has been tested. Indeed, the evidence before the Committees, to date, suggests the contrary. North recruited Rodriguez to perform the function of obtaining support for the use of the Central American country's air base, and that he did so, with permission to use North's name. North directed Rodriguez not to inform Gregg and his office about this (Rodriguez's) involvement, and he didn't. Moreover, the major- ity's own account of events indicates that Rodriguez was first considered by North as a possible source of assistance when Col. Steele suggested that. idea on September 16, 1985; 6 days after this supposed meeting between North, Steele, and Gregg. Therefore, there is no evidence to suggest that North's private resupply oper- ation was discussed on September 10. And finally, the reference made in Chapter 3 to Gregg not knowing about a resupply oper- ation prior to the summer of 1986 is not even accurate. A close reading of the very pages cited by the majority to Gregg's deposi- tion indicates that he admitted to knowing in early 1986 about an informal, non-lethal, supply operation funded by American citizens. Gregg Dep., 6/18/87 at 26-28. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 his staff about the effort on May 1.16 Nevertheless, a scheduling proposal dated April 6, and a very short April 30 briefing memorandum, described the purpose of the meeting as being, in part, to provide a briefing about "resupply of the Contras." 7 It is not clear how this language got into these documents.* Whatever the explanation, the people present at the meeting? former Senator Nicholas Brady, Gregg, Colonel Samuel J. Watson III (Gregg's deputy), and Rodri- guez?all said they were certain resupply never was discussed with the Vice President," and the Commit- tees have no reason to doubt these statements. Neither do the Committees have any reason to suspect that Watson or Gregg knew about North's involvement at this time. Let us shift focus now to August 1986.** On August 8, Rodriguez met with Gregg and Watson and told them about North's involvement with the resup- ply operation and possible profiteering by Secord and his associates.*** Rodriguez's disclosures on the eighth of August, and Gregg's ensuing conversations with North's deputy, Robert Earl, prompted Gregg to call a multi-agency meeting on August 12 to alert the agencies of the problems Rodriguez felt deserved their attention." In other words, when Bush's staff became aware that some aspects of the resupply effort might be harmful to the Resistance, the staff met with the appropriate agencies (State, CIA and Defense) and told them of the potential problem. Gregg did not, however, bring the matter to the Vice President's personal attention. ? Phyllis Byrne, the secretary in the Vice President's offices who typed these memos, testified that after Rodriguez had requested the appointment, she asked Colonel Watson about the visit's purpose. She said that Watson gave her the language she used for the "purpose" section of the scheduling proposal when she typed it on April 14. Two weeks later she simply reused the same language for the Vice President's scheduling memorandum. (Byrne deposition, June 16, pp. 12-13.) Colonel Watson has testified not only that he has no recollection of providing Ms. Byrne with that information, but reiterated that he would have had no reason at that time to connect Rodriguez with resupply at all. Furthermore, Watson said that he had no recollection of reviewing the scheduling memoran- dum either alone or with Rodriguez before the meeting. (Watson deposition, June 16, pp. 27-40.) Similarly, Gregg does not remem- ber reading that language at either the proposal or memorandum stages, and says he would never have phrased such a discussion in that manner. (Gregg deposition, May 18, pp. 32-33.) **Watson's notes, which were exhibits to his deposition, indicate that three times during the first week of August 1986, either North or Earl made resupply-related references to Watson regarding Ro- driguez's activities in Central America. Each time, according to Watson, he asked about the statements, only to be rebuffed. (Watson Dep., 6/16/87, at 43-55.) Ironically, the apparent purpose of these asides, according to Watson, was to get him (and Gregg) to "admonish" Rodriguez about whatever it was he was supposedly doing to harm the resupply effort. ***According to all three, however, Rodriguez did not outline his own resupply role until December 1986, weeks after North had been reassigned. (Rodriguez Test., Hearings, 100-3 5/27/87, at 315; Rodriguez Dep., 5/1/87 at 43; Watson Dep., 6/16/87 at 34; Gregg Dep., 5/18/87 at 81. National Security Council Staff Robert McFarlane and John Poindexter appear to have had different views of what the President wanted, and what the law would allow, the NSC staff to do. It is important to be clear, however, that with the possible exception of some small fraction of NSC staff salaries, overhead, and small amounts of travel expenses?all of which could legitimately have been used in any event to maintain contact by the NSC staff with the Resistance leadership and others?no appropriated funds were devoted to the efforts dis- cussed below. Robert McFarlane testified that he believed (1) that the NSC staff was covered by the Boland Amend- ment, and (2) that one of the principal purposes of the amendment was to prevent the government from rais- ing funds in support of the Resistance.2? He testified that he took this position for political reasons, not on the basis of an analysis of the law.2' It should be noted, however, that although McFarlane says he was quite vocal on the point of NSC coverage, Command- er Paul Thompson, formerly the NSC's legal counsel, has a different recollection. Thompson said that he remembers a discussion in which he and McFarlane considered whether the NSC might conceivably be covered and then decided that the issue was moot because nothing the NSC staff was doing would be a violation even if it were covered.22 Thompson also remembered a conversation with Bretton Sciaroni, the counsel for the Intelligence Oversight Board. I told him that we at NSC Staff had already determined that the NSC Staff was not an intelli- gence agency under that definition. But the real message I left with him was that McFarlane had already represented to the members of Congress that whether or not we were subject to the Boland Amendment, we considered ourselves subject to it, or words to that effect. The reason being that Mr. McFarlane had already made the determination that we had not violated the Boland Amendment, so it was almost a moot argument to make." Whatever McFarlane's contemporaneously ex- pressed view of the Boland Amendment might have been, he testified that his understanding of the role of the NSC staff was that it was limited to providing political support and direction for the Resistance movement, and did not include fundraising.24 He also specifically denied that the President intended him to provide military assistance to the Contras." Poin- dexter testified, however, that he was familiar with, and approved the details, of North's work as a "switching point" for activities related to the demo- cratic Resistance advice.26 Poindexter also said that the President was generally aware of North's role, 503 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I II 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 and that he believed the President had implicitly au- thorized the NSC staff's efforts." Whatever the differences in their understandings, McFarlane and Poindexter both chose North to carry out their instructions. North claimed his activities throughout were fully authorized. McFarlane claimed that several of North's actions during his tenure were not authorized, but Poindexter said that he had gener- ally authorized North's actions. During McFarlane's tenure as National Security Adviser and after the previously appropriated funds had been used up in or about June of 1984, the Na- tional Security Council Staff engaged in a series of activities described below. Fundraising From Third Countries Beginning in June of 1984, Country Two provided what ultimately amounted to $32 million for support of the Resistance; the support was provided at the level of $1 million per month in 1984, and then in a lump sum of $25 million in early 1985. It is clear from the hearing record that the NSC staff was engaged in an effort to encourage Country Two, and other third countries, to support the Contra cause, both political- ly and financially. Even though McFarlane and North both claim not to have "solicited" funds, McFarlane personally encouraged contributions, unsuccessfully from Country One and successfully from Country Two. North, occasionally using Gaston Sigur who was then on the NSC staff, General Secord and Gen- eral Singlaub, encouraged contributions from several other countries as well. It is important to note, how- ever, that there is no evidence of any kind in the records of the Committees which suggests that any quid pro quo was sought or received in return for any third country contribution to the Resistance. Raising Private Funds in Support of the Resistance Beginning in the spring of 1985, a group of private individuals began to raise funds to support the Contra cause. North met with the fundraisers and their poten- tial contributors, alone and in small and larger groups, and helped acquaint these groups with the humanitarian and military needs as well as the politi- cal and military situation of the Resistance. In addi- tion, North helped to arrange White House briefings for certain groups of contributors on a few occasions; the President spoke at some of these briefings. The President believed, and was consistently briefed, that the private groups were using their funds to purchase television advertising to promote the Contra cause and to engage in other such public awareness pro- grams on behalf of Administration policies. There is no evidence that North was aware of people using the promise of such meetings to obtain contributions of a certain minimum amount. Generally, North did not personally solicit funds from contributors, although 504 the record is clear that he was acting in general concert with individuals who were soliciting funds and that he did direct the disposition of some of the funds so raised. From the record, it also appears that the nature of North's presentations to groups was that he tried to present the reasons behind the President's policy of support for the democratic Resistance and opposition to the Sandinistas. These presentations ap- parently were similar, if not identical to ones he gave to many other groups of noncontributors to persuade them to support the President's policy. Assisting in Arms Purchases and Humanitarian Supplies During McFarlane's tenure as NSC Adviser, North asked General Secord, by then a private citizen, to assist the Contras in their arms procurements. North met with Secord and, on other occasions, with Gener- al Singlaub to obtain their assistance as private citi- zens. The arms were purchased with third country or private funds. It seems clear that Colonel North dis- cussed the proposed procurements with Resistance leaders, and also made his own suggestions for appro- priate procurements. North appears to have had detailed knowledge about what was being shipped, and the shipment de- tails necessary to coordinate air drops with the Resist- ance. In fact, there is evidence that North intervened on at least one occasion with officials of a foreign country to persuade them to allow a proposed ship- ment of arms which had been purchased with private funds to proceed." McFarlane testified during his second appearance that he did not regard these activi- ties as having been authorized by him." Giving Military Advice to the Democratic Resistance In addition, during McFarlane's tenure and during the period of the most restrictive Boland Amendment, North appears to have given strategic military advice to the democratic Resistance. Secord testified that North actively participated in a "program review" meeting in Miami in July 1985, a principal purpose of which was to discuss the overall military situation of the Resistance and to decide how their military effort should be reoriented.30 North provided military advice of a general nature to the Resistance on the other occasion as well." McFarlane claimed he was not informed of the Miami "program review" meeting by North, or of other specific occasions on which North gave military advice, although he also testified that he did not regard such advice as central to the Boland Amendment's restrictions." North specifical- ly denied having given tactical military advice on specific military operations.33 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 7 Giving Intelligence to the Democratic Resistance During the entire period of the Boland Amend- ment's restrictions, both the CIA and the NSC were expected to continue obtaining information about the activities of the democratic Resistance as part of their normally assigned duties. Obtaining detailed knowledge about the Resistance by all normal intelli- gence gathering methods, including direct conversa- tions with Contra leaders, was clearly consistent with the law at all times. During McFarlane's tenure, North provided intelli- gence to the Resistance by conveying information provided to him by certain officials of the Central Intelligence Agency who testified they did not know North was passing it to the Contras. Some of the information was principally of military significance, and was provided for defensive purposes, while other information could have been used for humanitarian purposes as well. The CIA could not have passed the information directly, under the agency's own cease and desist order, which, as we indicated earlier, went well beyond the requirements of the Boland Amend- ment. North also developed an informal intelligence source of his own in the person of Robert Owen, whom he used as a secret courier and transfer agent for cash and intelligence. Private Air Resupply Network In the fall of 1985 after the "program review" meeting in Miami, North approached Secord to devel- op a privately funded private air resupply network to support the Resistance. General Secord proceeded to establish this network during late 1985 and ran it through early October 1986, when a resupply airplane carrying Eugene Hasenfus was shot down over Nica- ragua. This air resupply network delivered both lethal and humanitarian cargo to Contra forces operating within Nicaragua. The air resupply network was funded by private contributions, the Iran arms sales and some third country funds. As part of the development of the resupply net- work, North, through other U.S. officials in Central America, such as CIA station chief "Tomas Castillo" and Ambassador Lewis Tambs, sought the creation of an emergency airstrip in a neighboring Central Amer- ican country. It appears that this was done with Ad- miral Poindexter's approval; McFarlane, who had es- sentially left the NSC by then, claimed he did not know about the airstrip or about instructions to Am- bassador Tambs to open a "Southern Front." 34McFarlane testified that North did not tell him about Secord's involvement in this resupply network, though he stated that North did indicate that "occa- sionally" air deliveries were made to the Resistance. McFarlane denied he had authorized North to direct the air resupply of arms to the Contras.35 Poindexter said he was aware of the air resupply network. He regarded it as a byproduct of Colonel North's other efforts for the Resistance, within the scope of the President's direction to the NSC staff.36 In the course of the resupply effort, North provided some people with KL-43 encryption devices. This occurred after the law was changed to permit intelligence agencies to provide communication assistance and information to the Resistance. Conclusion In sum, the NSC's activities, aside from its normal duties, generally fell into two categories. One in- volved information sharing with the democratic Re- sistance and encouraging contributions that?with the possible exception of the diversion?were perfectly legal. Activities such as these could not constitutional- ly have been prohibited by statute. The second cate- gory involved North's military advice to the Resist- ance and detailed coordination of the resupply effort. Since the NSC was not covered by the Boland Amendment, these activities were clearly legal. But even if one assumes the NSC were covered, we showed earlier that the amendment did not prohibit general military advice and resupply coordination. Some of these latter activities, however, perhaps could have been reached by Congress without violat- ing the Constitution. It was to protect these unpopu- lar, but legal activities from possibly being made ille- gal that we believe the NSC staff misled Congress. There is no evidence that the President knew more than general information about this side of North's activities, or anything at all about the deceptions of Congress. State Department Little or no evidence surfaced during these hearings to suggest that the State Department was used wit- tingly or unwittingly to circumvent the Boland Amendment. Individuals such as Louis Tambs (Am- bassador to Costa Rica) and Robert Owen (who had a contract relationship with UNO under a grant agree- ment with the Nicaraguan Humanitarian Assistance Office, or NHAO) did assist North with the resupply effort, but this was done without the knowledge and blessing of their superiors at the Department. Owen's assistance arguably took place during his "off" hours, but Tambs' assistance with the establishment of the Point West airfield was clearly done in the course of his long, ambassadorial day. Even Tambs' activities, however, fell within the normal, legal and constitution- ally protected scope of activity for an ambassador. His error was to bypass his superiors in the State Depart- ment by reporting outside channels to North.* That *Ambassador Tambs had been a friend of Col. North's going back to 1982 when Tambs was a consultant to the NSC. Later when Tambs was the Ambassador to Colombia, North personally 505 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I 11 .1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 is, the error?like that of a CIA station chief, "Tomas Castillo"?was a matter of violating his own depart- ment's policy rather than violating the law. Robert Owen's activities received a great deal of attention during the early days our public hearings. The examination of his role during the period of his NHAO contract seem to proceed upon two suspi- cions: (1) that North had placed Owen in the NHAO program to be his eyes and ears in Central America; and (2) that North had also done this to gain access to NHAO facilities to assist the covert resupply effort. The major problem was how to reconcile his "off- hours" assistance with lethal aid drops, with the hu- manitarian purposes NHAO was designed to accom- plish. The Boland Amendment clearly would have prohibited the use of NHAO resources for lethal as- sistance, and Owen did not step over that line. As a limitation on appropriations, the Boland Amendment does not cover a person's private time. However, Owen's contract with NHAO reads as if it may well have prohibited such off-hours activity, even if the Boland Amendment did not.37 In any event, Owen was not totally forthright with the State Department about the assistance he gave North. In that respect, he joins a long list of people whom North persuaded to work outside normal channels. Elliott Abrams The main State Department focus of the Nicaragua side of the Committees' investigation, however, was Elliott Abrams, Assistant Secretary of State for Inter- American Affairs. Abrams was the main spokesman for the Contra program.38 As chairman of the Re- stricted Interagency Group (RIG), Abrams therefore was a natural object of suspicion for those opposed to Contra aid. The theory that seemed to structure the investiga- tion of Abrams' role was that he either knowingly assisted and advised North, or that he realized what North was doing but ignored it to let North keep the Resistance alive while the Administration fought for renewed Congressional aid. There was a third possi- bility testified to by Abrams, however: that North effectively kept Abrams in the dark. The evidence more clearly substantiates what Abrams said than either of the other, more conspiratorial theories. In this respect, Abrams was more of a victim than a co- conspirator. He was deliberately kept uninformed by North and Poindexter, just as were the President, Secretaries Shultz and Weinberger, the Intelligence Oversight Board's Bretton Sciaroni, and the United States Congress. Abrams was not engaged in any conduct that even remotely qualified as a violation of the Boland prohi- saw to it that troops were sent to the embassy in Colombia to protect Tambs when his life was threatened by drug dealers. Tambs Test., Hearings, 100-3, 5/28/87, at 366-67. 506 bitions or of any other law.* Indeed, on the one occasion he was presented with information about the activities of the CIA's Tomas Castillo, he immediately went to the Secretary of State". This happened about three weeks after Hasenfus's airplane had been shot down. During this period, Abrams appears to have been misled by North and by CIA officials. As a result, he repeatedly informed Congress, the press and the Secretary, to his later chagrin, that there was no Government involvement with the resupply effort.4? As he himself said during our hearings, his statements were "completely honest and completely wrong"41. So convincing was Abram's testimony on this point in our hearings that Senators Rudman and Mitchell, and House Vice Chairman Fascell, characterized Abrams as having been hung out to dry.** An even better barometer of the extent to which Abrams had been kept in the dark by North was his testimony regarding his knowledge of critical key players and their involvement in the resupply effort and in the Southern Front. With regard to the resup- ply, Abrams testified that he did not know General Secord, Robert Dutton, Richard Gadd, Rafael Quin- tero or Felix Rodriguez, let alone what role they were playing in the resupply effort.'" He stated cate- gorically that neither he nor anyone else at State knew that Owen, in his "off-hours", was assisting North in coordinating lethal drops to the Resistance. He asserted that if he or anyone at State had known this, Owen would have been fired immediately.43 There is no evidence to challenge those assertions, nor were they challenged by the Committees. Some on these Committees questioned whether Abrams lived up to the instructions Secretary Shultz gave him to "Monitor 011ie".44 Underlying the ques- tions seems to have been an assumption that Abrams knowingly averted his glance. To reach this conclu- sion, however, one has to believe that everyone in government always should act on the assumption that his or her colleagues are potential liars. Business would then be conducted through investigative tech- * A clear indication of the extent to which the State Department attempted to comply with the Boland Amendment is the level of debate within the NHAO program over what constituted humani- tarian aid. As Elliott Abrams testified: "This was not something we did carelessly. I remember . . . Ambassador Deumling coming to a RIG meeting and saying the Contras have asked for wrist watches, can I pay for wrist watches. . . . This was deadly serious because of the legal restrictions. We actually debated. Of course, wrist watches weren't lethal aid, but were they humanitarian aid? . . . We ultimately decided . . . wrist watches were okay." Abrams Test., Hearings, 100-5, 6/2/87, at 35-36. " Abrams Test., Hearings, 100-5, 6/2/87, at 131, 142, 154. In chapter 7 of the Majority Report, Assistant Secretary Abrams is quoted as having admmitted to these Committees that certain state- ments that had been made by him were "completely wrong." For some reason, the majority failed to point out that Abrams preceded that admission by noting that while the statements were completely wrong, they were "completely honest." Id. at 65. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 niques rather than through normal comity. Congress does not apply this standard when it looks at Admin- istration presentations to Congressional Committees, nor should it apply it to relationships inside the Ad- ministration. Abrams?like Secretaries Shultz and Weinberger on the Iran initiative, and like several Committees of Congress that asked about North's Contra assistance?proceeded on the assumption that his colleagues were telling him the truth. If they were not, the blame surely belongs more to the deceiver than the deceived. The other major area of inquiry regarding Abrams was his November 25, 1986 testimony before the Senate Select Committee on Intelligence on the clear- ly lawful solicitation of funds from Brunei. With regard to the solicitation itself, the only problem that seemed to raise any concern during the hearings was the fact that Abrams gave the Brunei representative a mistyped Swiss bank account number that was pro- vided by Colonel North instead of using another number supplied by the Chief of the CIA's Central American Task Force. The account number North intended to give Abrams was one controlled by Gen- eral Secord and Albert Hakim. However, despite theories and suspicions to the contrary, Abrams' se- lection of that account, on the advice and with the blessing of his superiors at State, was based on his belief that it was an account controlled by the Resist- ance. His selection of that account was not part of a clandestine venture calculated to assist Lake Re- sources and the Secord-Hakim enterprise.45 There is no question that Abrams exercised very poor judgment in his SSCI testimony by attempting to answer questions regarding third country fundrais- ing in a technically correct, but misleading, manner to protect the confidence of Brunei. Abrams himself de- scribed it as an indefensible and foolish act that he greatly regretted." He surely could have asked the Senators to let him refrain from answering the ques- tion until he had a chance to discuss the matter with the Secretary. Ultimately, Abrams apologized to the Senate Intelligence Committee for his error, six months before these hearings began.47 The CIA's Role The Central Intelligence Agency was not a major player in the Administration's efforts to help the Nic- araguan Resistance during the period of the prohibito- ry Boland Amendments. That was partly because the amendments explicitly limited the CIA and other in- telligence agencies. In addition, the CIA, as an agency, wanted to avoid even coming close to the edge of the law. As Admiral Poindexter said in our public hearings, "They wanted to be careful and Di- rector Casey was very sensitive to this, they wanted to keep hands-off as much as they could." 48 Of course, the agency could not simply keep hands off. For one thing, it was expected throughout this period to continue intelligence gathering and political support for the Resistance. At the same time, the CIA felt it had to be responsive both to Congress's man- date and to the Administration's strong support for the Contras. The result was an extremely difficult situation for career professionals who had to imple- ment policy at the operational level. The Chief of the Central American Task Force described his feelings this way: I knew almost from the beginning that I was caught between the dynamics of a giant nutcrack- er of the Legislative on the one hand and the Executive on the other, and I was in the center of a very exposed position.49 The agency had been traumatized during the post- Vietnam Congressional investigations of the 1970s. The Latin American division was traumatized once again when five reprimands were issued as a result of the agency's role in helping to prepare a manual for the Resistance that some interpreted as talking about assassination,50 a technique the U.S. was explicitly prohibited from using. As a result, the CIA was very concerned throughout this period with protecting itself, and the government's future intelligence capa- bility, from political retaliation." Two different ef- fects flowed from this. First, as a matter of internal policy, the CIA regularly issued extremely conserva- tive guidelines that avoided taking legally defensible actions for political reasons. Second, we believe this posture, and Director Casey's own protective feelings toward the agency, contributed to Casey's decision to work closely with Col. North. Because of their efforts to avoid both sides of the nutcracker, four of the CIA's career civil servants find themselves the subject of persistent reports sug- gesting that their careers may now be on the line. The four include (1)"Tomas Castillo" (a pseudonym), who was chief of station in a Central American country, (2)the Chief of the Central American Task Force, ("C/CATF") (3)Duane (Dewey) Clarridge and (4)Clair George, the deputy director for operations (DD0). Castillo is now on duty pending a final deter- mination of his status. The others have been the sub- ject of press reports. We discuss the major allegation about Clarridge in our section on the legal issues raised by the Iran initiative. For the others, the main questions all grow out of the CIA's relationship with the Nicaraguan democratic Resistance during the time of the Boland Amendments. There is substantial conflict in the testimony we have received, particularly between Castillo and Task Force Chief. It is impossible for us to resolve all of these conflicts in our own minds. Our bottom line judgments, however, are as follows: 507 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I !I . 1 .. I ... Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 ?The CIA tried as an organization to work within the Boland Amendment, and succeeded. ?The essential dispute between Task Force Chief and Castillo is whether Task Force Chief's policy guidelines were clearly articulated, whether Castillo overstepped those guidelines, and whether Castillo properly informed his superiors of what he was doing. ?The policy guidelines themselves, which should have been written more clearly, were issued for politi- cal reasons, and not because Task Force Chief thought Castillo had overstepped the CIA's legal au- thority.52 ?Finally, we do not believe these individuals de- serve to pay with their own careers for the political guerrilla warfare that was going on over Nicaragua between the President and a vacillating Congress. We will not dwell on the legal issues here. At the end of the Boland Amendment chapter, we discussed an internal CIA legal memorandum with which we agree. That memorandum, it will be remembered, argued that it was legal for the CIA to: provide information involving safe delivery sites, weather conditions, hostile risk assessments and the like to assist the Nicaraguan Resistance in their resupply activities where the CIA's role did not amount to participating in the actual delivery of material or in planning, directing, or otherwise coordinating deliveries during the course of or in the context of specific military engagement." This legal opinion should have been written in early 1986, instead of a year later.54 But it was not, and people had to make judgments on the ground. We believe their judgments were legally correct. Never- theless, a few of them have been controversial. In judging the agency's activities to support the Resistance, it is important to keep the level of assist- ance in perspective. Tomas Castillo was the CIA offi- cial who worked most directly with the Resistance's private resupply network. He apparently was far more active in this respect, for example, than the passive stance of the CIA elsewhere in Central Amer- ica. Despite this, he has testified that he spent only about one-tenth of one percent of his time in 1986 facilitating the resupply effort.55 The Task Force Chief was a member of the Re- stricted Interagency Group, or RIG, along with Abrams and North. In this capacity, he had plenty of opportunity to see how North had become the "point man" for the Administration's Contra policy. Accord- ing to the Task Force Chief, constant feuding among RIG members before Abrams became Assistant Secre- tary, eventually led to a situation in which power gravitated toward North." In addition, North man- aged to develop a relationship with Castillo,* in * As with Tambs, North developed a personal friendship with Castillo. The North and Castillo families vacationed together in February 1986. See Castillo Test., Hearings, 100-4, 5/29/87, at 8. 508 which Castillo?like Ambassador Tambs?was willing to work with North outside of normal channels. Cas- tillo said he disagreed with the Task Force Chief on various policy matters and hoped he could get his voice heard through North.57 North claimed that Casey knew Castillo reported to North." The relationships between Castillo, North and the Task Force Chief obviously led to some misunder- standings and missed communications. The main issues on which these Committees focused were the development of an emergency airfield and Castillo's role in passing useful overflight intelligence to the private suppliers. The last issue also has led to a dispute over the Task Force Chiefs instructions to Castillo and Castillo's response. Southern Front Air Strip Castillo and the Task Force Chief corroborate each other, and the other evidence we have seen, on the absence of a significant CIA role in conjunction with the construction of a privately owned, emergency landing strip to help the Southern Front resupply effort. Castillo did admit that he was "probably" the first to have the idea that the air strip should be built.59 Castillo testified that a resupply operation was a logistical necessity to supply the insurgents he wanted to see moved out of a neighboring country into Nicaragua. He considered the move to be impor- tant politically, because the Resistance's presence in the other country was causing resentment in that other country." The airstrip was in turn required for the success of the resupply operation. Castillo himself, upon specific instructions from the CIA," took no concrete steps to assist in the plan to construct an airstrip, other than to visit potential sites on one occasion, on his own decision, as an observer with Robert Owen." Castillo specifically denied that he instructed Ambassador Tambs to seek authoriza- tion for the airstrip from local officials." He testified that Ambassador Tambs' goals with respect to cre- ation of a Southern Front were based on instructions Tambs received from Oliver North, but Castillo denied North asked for the airstrip." Castillo felt his role was "passively [to] monitor" the activities of the private benefactors with respect to the airstrip; he knew those activities were being coordinated by North. 6 5 The Task Force Chiefs testimony parallels Castil- lo's on these points. There is no evidence to indicate that the Task Force Chief, on his own or on behalf of the Agency, instructed or suggested to anyone, that Castillo should establish a Southern Front for the Contras. He categorically denied (as did Elliott Abrams) ever knowing about, let alone agreeing to, North's alleged discussion with Tambs and Castillo about the necessity for opening a Southern Front." Indeed, the first time he can recall learning about the airstrip was in a brief conversation with Castillo at a Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 meeting on December 9, 1985. The Task Force Chiefs best recollection was that he was "worried and concerned" when Castillo indicated that it was being built and that Castillo did not mention who was doing the building. He simply assumed that it was being built by the private benefactors and the Task Force Chief cautioned Castillo to make sure that whatever he was doing was legal." Several months afterward, when North started showing pictures of the work being done on the air- strip at the conclusion of a meeting of Administration officials, the Task Force Chief had to pull him aside to caution him about the wisdom of showing such pictures. It was at that point that the Task Force Chief became concerned that North might not only be exceeding the boundaries of the politically accepta- ble in his dealings with this highly controversial pro- gram, but flaunting it before others. He realized he did not have the power to control North. "I was going to keep the agency and myself within the bounds of propriety and legality," but "there were things that were beyond my powers." 68 Providing Intelligence for Air Resupply In February 1986, General Secord complained to Di- rector Casey that the air resupply effort was not get- ting any help from the Central American Task Force." At about this same time, in February, North distributed KL-43 communications encryption de- vices that he had obtained from the National Security Agency to Secord, five people in Secord's resupply network and Castillo. North also kept one for him- self.70 It should be noted that these devices were distributed after Congress, in December 1985, passed a law specifically authorizing intelligence agencies to share intelligence with the Resistance, and to spend money to help the Resistance with communications. Castillo testified that he received a KL-43 machine from North, through Rafael Quintero, in order to relay drop zone information between the Southern Front Commanders to the private benefactors." From this point forward, Castillo was described by both General Secord and Robert Dutton as having been very helpful?Dutton used the word "critical"? to the resupply effort.72 Castillo's facilitation of the efforts of the resupply operation involved the passing of information such as the location of proposed drop zones and times back and forth from the southern front commanders to the private benefactors." During the Spring, Castillo also requested intelligence such as hostile risk assessments and flight vectors from the CIA to support the flight activities, and filed intelligence reports concerning the results of these activities.74 Castillo specifically denied that he was involved in the planning of any of the resupply flights." He also denied, in response to a point made by Dutton, that there was any United States Govern- ment involvement in obtaining permission for the re- fueling of two resupply flights at a Central American country airport. 7 6 Castillo testified that the Chief of the Latin Ameri- can Division ("Division Chief') and the Task Force Chief knew of his activities,77 and the above cited cable traffic from the Spring would bear him out. The first successful lethal air drop was in April, and was supported by cabled intelligence from headquarters. No one in the operations directorate knew, however, about the KL-43 until the Division Chief designate's maiden visit to the country in April 1986.78 Castillo testified that he asked the new Division Chief for assurance that relaying information with the KL-43 between the private benefactors and the Resistance was legal under the Boland Amendments. He said that the Division Chief designate assured him he would look into it upon returning to Washington." The Task Force Chief testified that his superior, the Division Chief, never informed him of this discussion with Castillo.8? The Task Force Chief also said that he did not know about Castillo's direct contact with the private benefactors until a May 1986 CIA offi- cials' meeting that he, Castillo and the Division Chief attended. He said he was surprised to learn at that meeting how closely Castillo had been dealing with the private benefactors." At the meeting, Castillo said that he let it be known that he thought the fact that he was the communications link between head- quarters, the Resistance and the supply operation, pre- sented a "problem." He suggested, therefore, that the agency train someone from the Resistance to take over that role.82 On May 28, the Task Force Chief sent Castillo the following message: [Headquarters] wishes to reaffirm with . . . guidelines that no repeat no . . . materiel or monetary support can be provided to UNO/FDN or UNO/South representatives. . . . can provide advice and commo [communication] equipment as approved by hqs. and can engage in intelli- gence exchange as approved by hqs.83 After this cable, the agency worked to find and train an UNO communicator. At this point, the Presi- dent's $100 million aid package was going through the Congress. On June 24, a Resolution of Inquiry into North's support of the Resistance was filed in the House, in a move whose timing was obviously meant to influence floor votes. The next day the House, in a major reversal, voted an aid package for the Contras. On July 12, just 17 days after the House vote, the Task Force Chief sent a vaguely worded, confusing cable that read, in part, as follows: Headquarters has reviewed our commitment to provide secure communications. . . . We have taken a second look at the commo link. To date we have maintained our distance from the private 509 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 benefactors (PB) who are providing assistance to the Resistance and have repeatedly briefed Con- gress that we do not have any relationship with the PB's. The proposed program of assistance would change our policy. . . . There have been numerous allegations of violations of law by PB's. We do not have a firm handle on whether all of the allegations floating around are false. . . . We have come too far at this time to let the solid operations that [deleted] has built to be jeopardized by elements which we are unable to contro1.8 4 The Task Force Chief and Castillo have very dif- ferent interpretations of this cable. The Task Force Chief says it was a "cease and desist" order, especial- ly in light of the one he had sent in the end of May.85 It is interesting to note, however, what it was he was supposed to cease and desist doing. The Task Force Chief describes the cable as telling Castillo, in effect, to break all contact with the private benefactors." Based on his own testimony, the Task Force Chief assumed Castillo would still continue to get informa- tion to the resupply operation, but would work di- rectly with the Resistance rather than the private benefactors.87 Castillo, in contrast, saw it as saying that what he was doing "to date" was acceptable. The outstanding feature of the cable, from his point of view, was that headquarters was telling him he was not going to get a communicator, but seemed to expect him to contin- ue to be ready to get intelligence information to the resuppliers. "They were satisfying their situation, but not mine," Castillo said.88 As we read the cable, in context, the following points seem to stand out: (1) Headquarters was con- cerned primarily about the current legislative situation in Congress, and with representations that had been made to Congress. The concern, in other words, was political rather than legal. (2) Castillo had to address a tough set of problems on the ground. (3) The cable was not written clearly, if the intent was "cease and desist." Cease and desist orders can be, and often are, written simply without all of this cable's ambiguities. (4) If the Task Force Chief was trying to tell Castillo to use an UNO "cutout" to pass information to the resuppliers, he should have said so clearly. Of course, there would have been no legal difference between working directly with the suppliers or indirectly, through the Resistance. The difference, as seen by the Task Force Chief, was a domestic U.S. political one. We want to make clear, as we interpret the cable, that we are not disputing the Task Force Chiefs statements about his intentions. If we assume both the Task Force Chief and Castillo are telling the truth, as seems likely to us, it would mean that the Chief sent a poorly worded cable that let the sender and receiver reach different conclusions, with each reading his own problems and preferences into its meaning. The 510 problem, in other words, appears to us to have been one of missed communications. That would not be the first time this has happened, nor will it be the last. Administrative errors such as these should not force the end of a career. Congressional Testimony of October 1986 In September, when the Task Force Chief learned of the final airdrops coordinated by Castillo, he assumed that Castillo must have somehow found a way to assist without being in the middle of the operation and thereby placing the Agency at political risk." The political problem came to a head in mid-October, after Eugene Hasenfus' airplane was shot down, when one of the Agency's people learned that Castillo had used a KL-43. Upon relaying that information to the Task Force Chief and Division Chief, an internal in- vestigation was instituted. Assistant Secretary of State Abrams was informed, on October 23, of this potential U.S. Government involvement in this network." Abrams immediately informed the Secretary of State about this surprise turn of events which potentially undercut his prior Congressional testimony and media statements that there was no United States Government involvement with Hasenfus or with the resupply effort. This may have been particularly surprising to Abrams, because the Task Force Chief and the Deputy Director for Operations, Clair George, had been sitting next to him when he gave that unqualified testimony. Ques- tions about George's statements, and the Task Force Chiefs silence in the face of the Assistant Secretary's blanket denials, became a third major focus of the Committees' inquiry into the CIA's role. George had advised the House Intelligence Com- mittee on October 14, 1986, that the CIA was not involved in "arranging, directing, or facilitating" the private resupply missions." Significantly, George stated that he could not speak for the rest of the U.S. Government." Abrams spoke after George and ex- panded the claim, without knowing its falsity, to cover the whole government. The Task Force Chief stayed silent. The Task Force Chief knew Castillo had been "facilitating" the resupply effort in the spring, but may have thought Castillo had not done so in September. In testimony before these Committees, George stated that his denial was based on incomplete infor- mation, that the CIA did not organize or conduct the resupply operations, and that he wanted to protect the CIA. He apologized for the problems caused by his testimony." The Task Force Chief also said that he regretted his silence in response to Clair George's unqualified denial of any CIA involvement, and Sec- retary Abram's denial of any U.S. Government in- volvement in the Hasenfus flight." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 One should not underestimate our concern over misleading testimony. We are satisfied, however, that this was not a byproduct of an orchestrated conspira- cy to keep Congress in the dark. Conclusion The CIA had to work under difficult, politically charged circumstances. To protect the agency, its personnel steered a wide berth around the prohibi- tions of the law. This was particularly difficult to do in an environment in which people were dying for a cause the Administration and the agency supported. There were misunderstandings in management, and errors in judgment, particularly in Congressional testi- mony. But the blame for this situation must rest upon unclear laws, and a vacillating Congressional policy, at least as much as it does upon the career profession- als who were faced with the Herculean task of imple- menting the law. Private Fundraising The private fundraising activities in support of the Contras conducted by Carl R. (Spitz) Channell and Richard Miller received considerable attention in the news reports surrounding the Iran-Contra affair. The fundraising efforts were also the focus of early crimi- nal prosecutions by the Independent Counsel, and were explored somewhat during our public hearings. They have also received significant attention in the Majority's Report, where it is portrayed in a lengthy chapter as a project devoid of proper purposes. We cannot agree with the analysis and conclusions of the Majority Report. We agree that a private fund- raising effort organized and conducted by Mr. Chan- nell raised funds for the Nicaraguan democratic Re- sistance; and we agree that the manner in which the fundraising activities were carried out can be criti- cized. We are in particular concerned that a rather sizable portion of the donated funds appears not to have actually gone to the Contras. But we disagree with the majority's theme that the fundraising activi- ties represented an illegal conspiracy imbued through- out with criminal intent and improper motivations. Based on the evidence, we see the private contribu- tors as being worthy of praise rather than scorn. For the most part, their actions represented good faith activities of well-intentioned American citizens moti- vated by a genuine?and completely legal?desire to do what they could to help the Contras in a time of need. The private actions, especially those of the donors, were patriotic responses in harmony with the policies of the President that were designed to rebut the growing spread of Soviet communism in North America. Our basic conclusions are as follows: ?Channell developed the private fundraising orga- nizations and controlled their solicitations. Colonel North did not solicit money. He did not conspire with Channel] to commit tax fraud. Any suggestion that North deliberately created or nurtured the fundraising network to provide tax write-offs, tax expenditures, or backdoor Federal financing for the Contras, is wholly without support from the evidence. ?President Reagan had nO specific knowledge of the private fundraising efforts. He generally believed the persons he met with had donated to a media campaign designed to generate support for further Contra funding by Congress. ?President Reagan met with individuals in the White House to thank them for their long term sup- port for his policies, not for a particular contribution to Channell's organization. ?This investigation unfairly chastised conservative fundraising efforts that supported foreign policy goals inconsistent with those of the majority of Congres- sional Democrats. However, the Committees failed to investigate parallel fundraising efforts by organiza- tions that support the Communist forces in Central America, and use Members of Congress in their fund- raising. ?Finally, the private fundraising investigation of our Committees needlessly harassed private citizens whose political views happen to be contrary to the views held by the majority, by asking them questions that intruded on their privacy and were irrelevant to the Committees' investigation. The Channell-Miller Network The Channell-Miller fundraising network developed as a result of common interests and chance occur- rences. The Committees have not uncovered evidence that Colonel North sought to establish a private fund- raising group or that he motivated any individuals such as Channel] and Miller to operate the necessary organizations. The evidence demonstrates that Chan- nell was the primary force behind the private fund- raising organizations. Colonel North was a relatively minor participant.9 5 When Channell left the National Conservative Po- litical Action Committee (NCPAC) in 1982 he pos- sessed a valuable asset?a relationship with contribu- tors willing to donate large sums of money to political causes. He formed a network of organizations, one of which was the National Endowment for the Preserva- tion of Liberty (NEPL), incorporated in 1984 as a 501(c)3 tax exempt corporation. According to section 501(c)3 of the Internal Revenue Code, a tax exempt organization must be "organized and operated exclu- sively for religious, charitable, scientific, testing for public safety, literary or educational purposes." Channell also formed several non-charitable organizations around this time period. He formed the American Conservative Trust (ACT) in 1984 as a Federal election political action commit- tee. He also formed the American Conservative Trust State Elec- 511 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H , . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 NEPL was the major organization Channell used for his fundraising in support of the Resistance, and it is the one whose tax exempt status later became of inter- est to the Independent Counsel. Raising Funds for the Resistance The idea of raising money for the Resistance was Channell's. He identified the Nicaraguan Refugee Fund Dinner held in Washington, D.C. on April 15, 1985 as the event that inspired him." Following President Reagan's speech at this dinner, Channell recognized that his contributors were enthusiastic sup- porters of the Administration's Central American pro- gram. Channell initially intended to raise money for an educational media program designed to win Con- gressional support for U.S. aid to the freedom fight- ers. He deviated from his original idea, however, when he realized that his contributors would be inter- ested in donating directly to the freedom fighters in- stead of to a media campaign. Individuals working closely with Channell believed he chose the content of his fundraising themes for the purpose of drawing out the resources of his wealthy contributors." There has been an impression created that Channell was working at North's behest. But Channell solicited money for the freedom fighters (from John Ramsey of Wichita Falls, Texas) two months before he even met Colonel North." Colonel North attempted to dis- courage Channell from raising money for lethal mate- riel for the Contras on at least two occasions." Chan- nell ignored this advice and directly approached Adolfo Calero, leader of the FDN. It was after learn- ing of the Channell-Calero discussions that Colonel North directed the funds to their most efficient pur- pose.100 Channell's Control Another sign of Channell's control over his fund- raising operation was his relationship with his many consultants. Channell surrounded himself with con- sultants who had substantive expertise and access to influential political leaders. In March or April of 1985, he retained Richard Miller and his consulting firm, International Business Communications (IBC). Miller and his partner had a contract with the State Department in which they worked closely with the leaders of the Nicaraguan Resistance and with mem- bers of the Reagan Administration. Channell used tion Fund (ACT-SEF) as a state political action committee to take advantage of state laws allowing corporate contributions to such entities. In 1983, he formed Sentinel to lobby Congress under the terms of Section 501(c) 4 of the Federal tax code. In the Spring of 1986, Channell formed the Anti-Terrorist American Committee as a federal political action committee to focus on Congressional atti- tudes towards terrorism. During this time period (1984-1986) Chan- nell also formed other, less active organizations, including the Channell Corporation which was his original for-profit consulting corporation. See Channel! Dep., 9/1/87, at 62-65. 512 IBC to work on practically every aspect of fundrais- ing efforts for many issues. Channell also retained the services of David Fischer,* Dan Kuykendall, Penn Kemble, Bruce Cameron, Miner and Fraser, the Robert Goodman Agency, Martin Artiano, Eric Olson and others. Channell perceived a division of responsibility among his associates in the fundraising organization. Channell was the creative force and developed the fundraising concepts for his various projects, not all of which related to the Nicaraguan Resistance. Daniel Conrad handled the administrative matters. Miller, Kuykendall, Fischer and the other consultants provid- ed advice. 1?1 The clear indication from the record is that Channell?not North or anyone else?was thor- oughly in charge of the Channell network of organi- zations. White House Role Although Channell was in charge of his network, two kinds of questions have been raised about his relation- ship with the Administration. One is whether the President was using the power of his office to help Channell raise funds for the Resistance. The other deals with the level and legality of North's role. President Reagan Channell used White House briefings and photo opportunities with the President as a way to thank contributors for their support of Administration 02 The individuals who had a photo opportu- nity with the President, however, were not being thanked for a single contribution to Channell's organi- zations. Rather, the President thanked them for their long-term support of his policies. As Channell said, "I don't know of anybody who was thanked by the President solely because of a single act." 103 Channell denies ever telling contributors they could meet with the President if they made a large contribution to his organization.** He did not believe he had any control * David Fischer, a former special assistant to President Reagan, was instrumental in arranging several meetings at the White House for Channell's contributors. The Majority Report suggests that Fischer and his colleagues, Martin Artiano and Richard Miller, were involved in selling meetings with the President for a set fee. While the evidence suggests that Channell viewed his consulting payments to IBC, Fischer and Artiano as fees for White House meetings, it appears that Fischer himself is as unaware of Channell's view. Fischer's retainer agreement with IBC was based on Fischer's understanding that he would provide consulting advice on a large variety of Channell's public education projects, including most notably a project regarding the strategic defense initiative, and a series of messages celebrating the bicentennial of the U.S. Constitution. Fischer's efforts to arrange meetings at the White House represented a small percentage of his work for IBC. **During the public hearings, one contributor, William B. O'Boyle said that Channell told him he could meet with the Presi- dent if he contributed $300,000. See Coors, Garwood and O'Boyle Test., Hearings, 100-3, 5/21/87, at 119. During the same day's Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 over photo opportunities with the President and in fact several requested meetings were not agreed to by the White House.1?4 Colonel North North briefed Channell's potential contributors and directed the disposition of funds after Miller received them. He did not solicit money from contributors and made it his practice not to be present when money was solicited by others. He made speeches to and met with people from whom Channell was trying to raise money.105 North would brief potential contributors on the weapons needs of the Contras and Channell often would followup by asking for funds directly related to Colonel North's briefing. At times, North also prepared lists of humanitarian and military needs of the freedom fighters that he turned over to Chan- nell. We have not received any evidence to suggest that the items North briefed contributors about were actually purchased. Channell never knew if weapons were ever purchased with the money he sent to Conclusions It is fully legal for private individuals to raise money for weapons, and then send that money to bank accounts controlled by the Nicaraguan demo- cratic Resistance. The information to which Channell pled guilty was not about raising money for lethal aid for the Contras per se, but about using a tax exempt corporation, NEPL, to do so. Channell formed sever- al entities in his fundraising network to respond to the hearing, Joseph Coors said he had given money to what he thought was a Swiss bank account controlled by the Contras to buy an airplane for them. The account actually was owned by Lake Re- sources, a Secord-Hakim company. In addition, in the same hear- ing, Ellen C. Garwood said that Channell produced a list of weap- ons, in North's presence, that could be purchased with a contribu- tion from her. We have no reason to believe these kinds of requests were typical. During the hearing, Rep. McCollum made the follow- ing statement, which was not challenged by anybody: It might appear to the casual observer that the three who are here with us . . . are typical contributors to the Spitz Channell organizations or, in the case of Mr. Coors, more directly to the Contras. But from my understanding of the depositions and various taking of testimony that went on and efforts to get statements from folks before, many many contrib- utors were interviewed and deposed and not asked to testify because they did not have a list like was involved with Mrs. Garwood or they didn't have an occasion where they were suggested to them that they might see the President if they gave money and they didn't give to the Lake Resources ac- count. I just simply want to make that clear to everybody who is involved?and I think it needs to be?that these three wit- nesses are not the typical contributors, and in fact, many others gave more money to Mr. Channell's organization. No list was found in those cases. Nobody else was told that they had to see the President or could see the President if they gave money and no other private contributor, at least that we discovered, received or sent his money to Lake Resources. See Id. at 146. complicated tax laws covering charitable and political activities. There is no evidence that indicates North knew about the tax problem, much less conspired with Channell and Miller. This conclusion is support- ed by the fact that Channell did not know of any contributors who donated money because NEPL was tax exempt who would not have donated if NEPL were not tax exempt.'" As for Colonel North's other activities, there is no evidence that North instructed Channell to use NEPL to raise money for the Con- tras.'" In addition, he did not solicit money from contributors.'" There can be no question that North knowingly conveyed the impression that he favored what Channell was trying to do, but there is nothing wrong with the White House openly endorsing pri- vate activities in support of Administration policy. Left Wing Private Fundraising Conservative fundraising organizations have been criticized during this investigation because they have raised money to support policy goals that a majority of the Democratic Members of Congress did not sup- port. Clearly, it is permissible under current law to raise money for foreign political movements, includ- ing military activities. If there were any question about this, the Committees should?for the sake of a balanced, fair record?have devoted similar resources investigating organizations that support left-wing forces in Central America opposed to United States foreign policy that use Members of Congress in their fundraising. Several organizations have opposed United States policy in Central America by sending money and supplies to El Salvador. The most notable is the Com- mittee in Solidarity with the People of El Salvador (CISPES) which Assistant Secretary Abrams de- scribed as an organization that "essentially serves as a front for the FMLN guerrillas in El Salvador".110 According to a 31 page set of State Department cables about these groups that was introduced by Rep. Bill McCollum as a Committee exhibit, CISPES was founded in 1980 by the leader of the Salvadoran Communist Party, Shafik Handal.111 This Washing- ton, D.C. based organization coordinates efforts of a major U.S. support network. CISPES activities are said to include, among other things, a program to send material aid to Central American struggles and "creative harassment" at public appearances and speaking engagements of individuals who support U.S. policy.112 New El Salvador Today (NEST) is an organization that has worked closely with CISPES on fundraising, volunteer training, and other activities."3 NEST has raised funds for projects in areas of El Salvador con- trolled by the Communist insurgents."4 There have been allegations, included in the State Department cables, to the effect that much of the money received by organizations such as these ends 513 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I 1 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 up in the coffers of guerrilla groups, or being used to provide welfare services that help the FMLN's politi- cal program in areas the FMLN controls. According to a State Department interview with former Salva- doran leftist guerrilla leader, Miguel Castellanos, the Western Democracies became the largest source of cash for the guerrillas during the 1980s. Castellanos served on the finance committee of the Popular Forces of Liberation (PFL) in 1978 and defected in 1985. He stated that the guerrilla groups set up insti- tutions to collect donations from leftist humanitarian organizations and use that money without concern for its original purpose. Approximately 70% of the money which purported to go for humanitarian assist- ance actually went for the purchase of arms. Senator McClure introduced an exhibit which is a fundraising letter for CISPES purportedly written over the signature of a Member of Congress." 5 An- other exhibit is purportedly from another Member which states that "NEST is a non-profit, tax-exempt foundation which is sending humanitarian aid to those whose lives are most affected by the violence of the U.S. supported war." 116 The same two Members also hosted a reception for NEST in Washington D. C. on July 10, 1986." 7 By repeating Castellanos' general statement and mentioning the fundraising role played by two Mem- bers of Congress, we do not mean to suggest that we have evidence to prove (1) that Castellanos' general allegation applies specifically to CISPES or NEST or (2) if it applies, that the two Members of Congress knew about the allegation. The point is that we can neither confirm nor deny the allegation because the Committees did not review the subject in its investi- gation. The similarities between the conservative and liber- al fundraising efforts for Central American groups are striking: both used politicians to support their respec- tive causes, both used tax-exempt organizations, both may have donated money which was ultimately used to buy weapons, both supported foreign policy goals inconsistent with the declared Congressional policy. The primary difference between these two fundraising efforts is that the Committees have publicized the conservative fundraising efforts in an attempt to em- barrass the President. If one set of groups was worthy of investigation, then so surely was the other. Overstepping the Bounds With the time it saved not investigating groups on the left, the private fundraising investigation has needless- ly harassed private citizens who happen to hold con- servative foreign policy views. Witnesses were forced to travel long distances and testify concerning money which they legitimately gave to political organiza- tions."" Committee attorneys questioned witnesses about their political activity,"" religious affili- ations,12? educational backgrounds,'21 employment 514 history,122 political lineage,123 roommate's political contributions,124 social associations,' 25 and more. The subpoenas issued to many of Channell's contribu- tors required tax returns, correspondence related to Nicaragua, documents concerning political contribu- tions and other broad categories of personal papers, without any apparent effort being made to limit the material to items that fell within the Committees' le- gitimate mandate to investigate governmental activi- ties. The Committee used its subpoena powers, and the wedge of a reasonable inquiry into private fundrais- ing, to go on a wide-ranging fishing expedition into irrelevant political issues. For example, counsel asked Martin Artiano if he knew who stole the 1980 Carter debate manuals.'" David Fischer, who was responsi- ble for Corazon Aquino's very successful American tour, was asked several questions to determine wheth- er he prevented Aquino from meeting with liberal groups at the Kennedy Library in Boston.'" Counsel inquired of several witnesses whether they had any knowledge of Ambassador Faith Whittlesey's dinner to honor Sir James Goldsmith.'" Counsel also asked about Roy Godson's efforts to counter Soviet disin- formation in Europe.'" Finally, Carl Channell was asked about President Reagan's Strategic Defense Ini- tiative.130 Many other examples could be cited, but these are enough to make the point.* These Committees had *Unfortunately, even the non-partisan reputation of the General Accounting Office (GAO) has been tarnished during this phase of the investigation. The incident does not quite fit in with this list of outrageous questions asked of witnesses, but is too important to Congress for us to let it pass without comment. The Comptroller General of the United States sent a letter on September 30, 1987 to Reps. Jack Brooks and Dante Fascell which concluded that the State Department violated a restriction on the use of appropriated funds for publicity. Unlike its normal procedure with a final opin- ion or report, the GAO issued this letter in time to be used in this report, before its audit was complete and without giving the head of the relevant office or his deputy a chance to hear and reply to the allegations. The opinion fails even to mention, let alone respond to, documentary evidence that conflicts with the conclusions it presents as "facts." We are in no position to say whether the pressure for "timely" publication was generated inside GAO or externally. In any case, the preliminary opinion was then given to the press by counsel in a release with an October 5 embargo date in the name of the two House Democrats who had asked for the audit. See GAO Letter of September 30, 1987 to Reps. Brooks and Fascell, B-229069. In a letter to Representatives Lee Hamilton and Dick Cheney, Lawrence L. Tracy, Colonel, U.S. Army (Ret.), disputes the factual basis for the GAO Report. Tracy worked for the Office of Public Diplomacy for Latin America and the Caribbean from 1984-1986. Col. Tracy believes that Jonathan Miller's memo discussing "white propaganda" was probably an exaggeration intended to curry favor with the White House. In a thoughtful analysis, Col. Tracy com- pares the Office of Public Diplomacy for Latin America and the Caribbean to the public diplomacy campaign conducted by the Carter Administration on the Panama Canal Treaty. "Although many in this country disagreed with the Carter policy, I do not recall anyone in Congress calling on the GAO to investigate a Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 legitimate reasons to ask about private fundraising. If Congress wants to be worthy of trust as an institution, however, it has to restrain itself. Just as the President ultimately has to accept responsibility for the actions of any one subordinate who zealously steps over the line, so too must these Committees bear the responsi- bility for the actions of one of its own staff, even if? or especially because?they were not typical of the Committees' work as a whole. Conclusion Our analysis of the past two chapters has largely been about legal questions. It has shown the Administration did stay within the law. By giving the Administration a clean bill of legal health, however, we do not intend to be endorsing the wisdom of everything it was doing. Notwithstanding our legal opinions, we think it was a fundamental mistake for the NSC staff to have been secretive and deceptive about its actions. The requirement for building long term political support means that the Administration would have been better off if it had conducted its activities in the open. Thus, the President should simply have vetoed the strict Boland Amendment in mid-October 1984, even though the amendment was only a few paragraphs in an approximately 1,200 page long continuing appro- 'propaganda' effort. The public was well-served by the national debate that ensued, for the American people came to understand both the costs and the benefits of the Treaty, and were better able to advise their representatives in Congress of their position on the issue. That is the essence of democracy." (See Appendix D to the Minority Report for Col. Tracy's letter.) priations resolution, and a veto therefore would have brought the Government to a standstill within three weeks of a national election. Once the President de- cided against a veto, it was self-defeating for anyone to think a program this important could be sustained by deceiving Congress. Whether technically illegal or not, it was politically foolish and counterproductive to mislead Congress, even if misleading took the form of artful evasion or silence instead of overt misstate- ment. We do believe firmly that the NSC staff's deceits were not meant to hide illegalities. Every witness we have heard told us his concern was not over legality, but with the fear that Congress would respond to complete disclosure with political reprisals, principal- ly by tightening the Boland Amendments. That risk should have been taken. We are convinced that the Constitution protects much of what the NSC staff was doing?particularly those aspects that had to do with encouraging contri- butions and sharing information. The President's in- herent constitutional powers are only as strong, how- ever, as the President's willingness to defend them. As for the NSC actions Congress could constitutionally have prohibited, it would have been better for the White House to have tackled that danger head on. Some day, Congress's decision to withhold resources may tragically require U.S. citizens to make an even heavier commitment to Central America, perhaps one measured in blood and not dollars. The commitment that might eliminate such an awful future will not be forthcoming unless the public is exposed to and per- suaded by a clear, sustained, and principled debate on the merits. Endnotes 1. McFarlane Test., Hearings, 100-2, 5/11/87, at 9. 2. Id. at 5; North Test., Hearings, 100-7, Part I, 7/9/87, at 264-65. 3. Id. at 264-65. 4. McFarlane Test., Hearings, 100-2, 5/11/87, at 5-6, 21. 5. Id. at 17, 23, 27-28; Poindexter Test., Hearings, 100-8, 7/15/87, at 54-55. See also Poindexter Test., Hearings, 100- 8, 7/16/87, at 89, 101. 6. Compilation of Presidential Documents, May 13, 1987, pp. 526-27; "Excerpts From President's Meeting With Edi- tors," The New York Times, May 16, 1987, p. 6. 7. McFarlane Test., Hearings, 100-2, 5/11/87, at 17 and 22-24. 8. Poindexter Test., Hearings, 100-8, 7/15/87, at 54-55; 7/ 16/87, at 89. 9. Id. 7/15/87, at 54-55; Garwood Test., Hearings, 100-3, 5/21/87, at 131, 132. 10. Poindexter Test., Hearings, 100-8, 7/20/87, at 3. 11. McFarlane Test., Hearings, 100-2, 5/11/87, at 28. 12. Rodriguez Test., Hearings, 100-3, 5/27/87, at 300-02, 312. That testimony is corroborated by Donald Gregg and his deputy, Colonel Samuel J. Watson III. See Gregg Dep., 5/18/87 at 46; Watson Dep., 6/16/87 at 21-24. 13. Rodriguez Test., Hearings, 100-3, 5/27/87, at 299-300. 14. Id. at 315. 15. Gregg Dep., 5/18/87 at 44. 16. Rodriguez Test., Hearings, 100-3, 5/27/87, at 301. 17. Gregg Dep., 5/18/87, Ex. 4. 18. Brady Dep., 10/1/87, at 7-9; Gregg Dep., 5/18/87, at 59; Watson Dep., 6/16/87, at 22-24; Rodriguez Test., Hear- ings, 100-3, 5/28/87, at 324. 19.Gregg Dep., 5/18/87 at 24, 74. 20. McFarlane Test., Hearings, 100-2, 5/11/87, at 20, 21-22. 21. Id., 5/12/87, at 128-30. 22. Thompson Dep., 7/24/87 at 11-12. See also 21-25. 23. Id. at 14. 24. McFarlane Test., Hearings, 100-2, 5/11/87, at 21-22. 25. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 221. 26. Poindexter Test., Hearings, 100-8, 7/15/87, at 73-75. 27. Poindexter Test., Hearings, 100-8, 7/15/87, at 89, 100- 01 28. Memorandum from North to McFarlane, Dec. 4, 1984, Ex. 32, Hearings, 100-2, at 466. 29. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 222. 30. Secord Test., Hearings, 100-1, 5/5/87, at 57-60. 31. North Test., Hearings, 100-7, Part I, 7/8/87, at 167. 32. McFarlane Test., Hearings, 100-2, 5/11/87, at 75; Hearings, 100-7, Part II, 7/14/87, at 211. 515 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 7 33. North Test., Hearings, 100-7, Part I, 7/8/87, at 167. 34. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 210, 222. 35. McFarlane Test., Hearings, 100-7, Part II, 7/14/87, at 248. 36. Poindexter Test., Hearings, 100-8, 7/15/87, at 73-75; 7/16/87, at 100-01. See also, 7/20/87, at 2, 5. 37. Ex. RWO-17, Attachment 1, Sec. 4(4), Hearings, 100- 2, at p. 835. 38. Abrams Test., Hearings, 100-5, 6/3/87, at 131. 39. Id., 6/2/87, at 69-70, 98. 40./d. at 64-65. 41. Id. at 65. 42. Id., 6/2/87 at 97-98, 102. 43. Id. at 102. 44. Id., 6/2/87 at 14 and 6/3/87 at 124-25. 45. Id., 6/2/87 at 45-47. 46. Id., 6/3/87 at 117-18. See also Shultz Test., Hearings, 100-9, 7/23/87, at p. 274. 47. Abrams Test., Hearings, 100-5, 6/3/87 at 117-18. 48. Poindexter Test., Hearings, 100-8, 7/15/87, at 76. See also North Test., Hearings, 100-7, vol. II, 7/13/87, at 114. 49. Task Force Chief Test., 8/4/87, at 83. 50. C/CATF Test., 8/5/87, at 108. 51. For expressions of this concern, see C/CATF Test., 8/4/87 at 93 and 8/5/87, at 130; George Test., Hearings, 100-11, 8/6/87, at 210-212. 52. Task Force Chief Test., Hearings, 100-11, 8/5/87, at 128. 53. Ex. TC-13, Hearings, 100-4 at 130. 54. C/CATF Test., Hearings, 100-11, 8/5/87, at 126. 55. Castillo Test., Hearings, 100-4, 5/29/87, at 51. 56. C/CATF Test., Hearings, 100-11, 8/4/87, at 89. 57. Castillo Test., Hearings, 100-4, 5/29/87, at 79. 58. North Test., Hearings, 100-7, Vol. II, 7/13/87, at 116. 59. Castillo Test., Hearings, 100-4, 5/29/87, at 52. 60. Id. at 8. 61. Id. at 13. 62. Id. at 17. 63. Id. at 11-12. 64. Id. at 13. 65. Id. at 17-18. 66. C/CATF Test., Hearings, 100-11, 8/4/87 at 98. 67. Id. at 95-97. 68. Task Force Chief Test., Hearings, 100-11, 8/4/87, at 97-98. 69. Secord Test., Hearings, 100-1, 5/5/87, at 71. 70. Secord Test., Hearings, 100-1, 5/5/87, at 65-66. 71. Castillo Test., Hearings, 100-4, 5/29/87, at 19. 72. Secord Test., Hearings, 100-1, 5/5/87, at 62; Dutton Test., Hearings, 100-3, 5/27/87, at 233-34. 73. Id at 24. 74. Ex. TC-4, Hearings, 100-4. 75. Castillo Test., Hearings, 100-4, 5/29/87, at 22. 76. Id. at 28-30; Dutton Test., Hearings, 100-3, 5/27/87, at 218. 77. Id. at 54. 78. Id. at 20, 24-26. 79. Id. at 25. 516 80. Task Force Chief Test., Hearings, 100-11, 8/5/87, at 28. 81. Task Force Chief Test., Hearings, 100-11, 8/5/87, at 110-11. 82. Castillo Test., Hearings, 100-4, 5/29/87, at 26. 83. Cable, May 28, 1986, Ex. [C/CATF]-31, Hearings, 100-11. 84. Ex. TC-14, Hearings, 100-4, 5/29/87. 85. Task Force Chief Test., Hearings, 100-11, 8/5/87. at 111-12. 86. Id. at 111-12. See also Ex. 3, Hearings, 100-1, at 426. 87. Task Force Chief Test., Hearings, 100-11, 8/5/87, at 109-11. 88. Castillo Test., Hearings, 100-4, 5/29/87, at 47. See also 27, 41, 44-47. 89. C/CATF Test., Hearings, 100-11, 8/5/87, at 113. 90. Abrams Test., Hearings, 100-5, 6/2/87, at 70. 91. Ex. C/CATF-39, p. 4, Hearings, 100-11. 92. Id., p. 17. 93. George Test., Hearings, 100-11, 8/6/87, at 164, 165, 168. 94. C/CATF Test., Hearings, 100-11, 8/5/87, at 120 95. Channell Dep., 9/17/87, at 49. 96. Channell Dep., 9/1/87 at 167. 97. Miller Dep., 7/3/87 at 61. 98. Id. 99. Id. 100. Id., at 62. 101. Channell Dep., 9/17/87, at 66. 102. Channell Dep., 9/17/87, at 60. 103. Channell Dep., 9/17/87, at 61. 104. Channell Dep., 9/17/87, at 66. 105. Miller Dep., 7/3/87, at 49. 106. Channell Dep., 9/17/87, at 70. 107. Channell Dep., 9/17/87 at 82. 108. Channell Dep., 9/17/87 at 71, 76. 109. Miller Dep., 7/3/87 at 49. 110. Abrams Test., Hearings, 100-5, 6/3/87, at 159. 111. State Department Cable, December 4, 1986, p. 4, Ex. EA-49, Hearings, 100-5. 112. Ex. 38, Miller Dep., 9/16/87. 113. State Department Cable, December 4, 1986, p. 3, Ex. EA-49, Hearings, 100-5. 114. Id. at 2. 115. Ex. EA-48, Hearings, 100-5. 116. Ex. EA-47, Hearings, 100-5. 117. State Dept. cable, p. 3, Ex. EA-49, Hearings, 100-5. 118, Garwood Test., Hearings, 100-3, 5/21/87, at 110-12. 119. Fischer Dep., 8/11/87 at 6. 120. Godson Dep., 9/9/87 at 58. 121. Fischer Dep., 8/11/87. 122, Henry Miller Dep., 8/6/87, at 1-2. 123. Garwood Test., Hearings, 100-3, 5/21/87, at 112. 124. Channel] Dep., 9/17/87 at 27. 125. Henry Miller Dep., 8/6/87 at 40. 126. Artiano Dep., 7/31/87, at 180. 127. Fischer Dep., 8/11/87, at 216-17. 128. Henry Miller Dep., 8/6/87, at 40. 129. Id. at 43. 130. Channell Dep., 9/2/87, at 96, 165. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part IV Iran Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 The Iran Initiative Simple plots make for stirring fiction. Sometimes, amateur historians fall into the temptation of present- ing events as if all lines inevitably and always pointed toward the already known conclusion. That is not the way events happen in the real world. The Iran chap- ters of the majority report create the impression that its authors have fallen into the amateur historian's trap. The narrative tries to simplify events and moti- vations for the sake of a story line. That does a disservice to history. The record ought to reflect the complex motives of the participants in these oper- ations. The motives may be difficult to determine, but papering the difficulties over will not help future gen- erations learn from what happened. The majority report seems alternately to be torn between two theses about the Iran Initiative: that it was strictly an arms-for-hostages deal or that, starting in December 1985 or January 1986, it was driven by a desire to provide funds for the Contras. Additionally, the Iran sections of the report continue the majority's portrayal of the Administration as a gang of law- breakers who would do virtually anything to achieve their objectives, while invoking an exaggerated fear of leaks to keep the truth about activities from Con- gress. This portrayal is patently absurd. The hostages were important to President Reagan. He probably did fall victim to his own compassion, and let their per- sonal safety weigh too heavily on him. But it is clear from all the evidence we have that the initiative was pursued primarily for strategic reasons. We may dis- agree with the underlying assumptions, or with the decision to sell arms, but any honest review of the evidence must acknowledge these intentions, and with the fact that strategic considerations played an impor- tant part in the discussions conducted through the so- called Second Channel. Similarly, the use of residuals to benefit the Contras was certainly seen as a plus?a "neat idea"?by North and Poindexter. But Contras funding never drove the Iran initiative. A sober look at the amount of money involved would make that clear to anyone. At most, the residuals were seen as a peripheral benefit from a policy whose justification lay elsewhere. We shall show in this section of our report that the Administration did, in fact, substantially comply with the legal requirements. Moreover, the decision not to notify Congress was not based on an anti-democratic obsession with secrecy, but was based on the same sound reasoning that led the Carter Administration to the identical decision not to report operations during the Iranian hostage crisis of 1979 and 1980. Summary Overview The United States was taken by surprise when the Shah fell in 1979, because it had not developed an adequate human intelligence capability in Iran. Our hearings have established that little had been done to remedy the situation by the mid-1980's. The United States was still without adequate intelligence when, in 1985, it was approached by Israel with a proposal that the United States acquiesce in Israeli sales of U.S.- origin arms to Iran. This proposal came at a time when the NSC was already circulating a recommen- dation that the United States consider the advisability of such sales to Iran. Long term strategic consider- ations dictated that the United States try to improve relations with at least some of the important factions in Iran. The lack of adequate intelligence about the situation inside Iran made it imperative to pursue any potentially fruitful opportunity; it also made those pursuits inherently risky. United States decisions of necessity had to be based on the thinnest of independ- ently verifiable information. Lacking such independ- ent intelligence, the United States was forced to rely on sources known to be biased and unreliable. Well aware of the risk, the Administration nonetheless de- cided that the opportunity was worth pursuing. To explore the chance for an opening, the President decided to sell arms to Iran.* Some suggest that this decision stemmed from little more than the President's ignorance, the NSC staff's foolhardiness, and private *It is important at the outset to note the small amounts involved. The total arms sold included 2004 TOW anti-tank missiles, 18 Hawk antiaircraft missiles, and some 200 or so types of spare parts for Hawk batteries. Some of the missiles were sold from Israeli stocks with U.S. approval. The remaining materiel came from U.S. stocks. A small amount of perishable intelligence information was also transferred to the Iranians. The amounts involved were trivial, compared to the world arms trade with Iran, which Secretary Weinberger estimated at $10 billion. For the last point, see Wein- berger Test., Hearings, 100-10, 7/31/87, at 166. 519 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 H . . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 greed. We completely reject this interpretation. The initiative was controversial. We disagree with the de- cision to sell arms, and we wish that the whole initia- tive had proceeded with more caution. But despite these reservations, we remain convinced that the deci- sion to pursue some such initiative was not an inherently unreasonable one. The major participants in the Iran arms affair obvi- ously had some common and some conflicting inter- ests. The key question the United States had to ex- plore was whether the U.S. and Iranian leadership actually felt enough of a common interest to establish a strategic dialogue. No one can deny the common U.S. and Iranian interest in opposing Soviet expan- sion. But how much would that community of interest be felt, acknowledged and acted upon? Iran and the United States have compatible goals in Afghanistan. The question was whether such isolated examples could be broadened into something more substantial. The initial dealings with the Iranian government were undermined by the unreliability of the interme- diary, Manucher Ghorbanifar. Nevertheless, Ghorban- ifar did help obtain the release of two U.S. hostages (Rev. Benjamin Weir and Father Lawrence Jenco) and he did also produce high Iranian officials for the first face to face meetings between our governments in five years. At those meetings, U.S. officials sought consistently to make clear that we were interested in a long-term strategic relationship with Iran to oppose Soviet expansionism. The hostages issue was present- ed as an obstacle to an enhanced relationship that would have to be overcome, not as the objective of the initiative. Colonel North made an extensive pres- entation to this effect in February 1986; former Na- tional Security Adviser McFarlane made a similar presentation in Tehran in May 1986. But the Iranian officials brought by Ghorbanifar seemed to be inter- ested only in weapons, and in using the hostages for bargaining leverage. The full extent of the difference between these approaches finally was made obvious to the United States at the meeting in Tehran, which North, McFarlane and others attended at great per- sonal risk. Ghorbanifar appears to have misled both sides in the preparations for that meeting. Afterwards, the United States suspended discussions arranged by Ghorbanifar, except to complete the transactions al- ready underway. After the Tehran meetings, the United States was able to approach a very high-ranking Iranian official using a second channel arranged by Albert Hakim and his associates. Clearly, Hakim had business mo- tives in arranging these contacts. Whatever his mo- tives, he did produce contacts at the highest levels of the Iranian government. Discussions with this channel began in the middle of 1986 and continued until De- cember. They resulted in the release of one further hostage (David Jacobsen), and U.S. officials expected them to result in the release of more hostages. Per- haps more importantly, these discussions appear to 520 have considered the possibility of broad areas of stra- tegic cooperation. However, as a result of factional infighting inside the Iranian government, the initiative was exposed * and substantive discussions were sus- pended. Not surprisingly, given the nature of Iranian politics, the Iranian government has publicly denied that significant negotiations had taken place. The Reagan Administration's Iran initiative repre- sented an attempt to narrow the differences stemming from the Iranian revolution and the intervening years of hostility. Both sides confronted sharp internal divi- sions over the issue of rapprochement. In such a situa- tion, the margin between success and failure looms much larger in retrospect than it may seem while events are unfolding. While the initial contacts devel- oped by Israel and used by the United States do not appear likely to have led to a long-term relationship, we cannot rule out the possibility that negotiations with the second channel might have turned out differ- ently. At this stage, we never will know what might have been. In retrospect, it seems clear that this initiative de- generated into a series of "arms for hostage" deals. But it did not look that way to many of the U.S. participants at the time. In our view, it is simply wrong, therefore, to reduce the complex motivations behind these events to any one simple thesis. Clearly, the participants from different countries, and even those within each country, had different, and some- times conflicting, motives. Without endorsing or agreeing with the use of arms sales as a tactic, we believe that U.S. officials made a risky, but neverthe- less worthwhile effort. To explain why, we shall begin by outlining the strategic importance of Iran. The Strategic Context Iran is the largest country in the Persian Gulf region, an area of vital economic importance to the United States and its allies. It is in a strategic position poten- tially to dominate the world's largest proven oil re- serves and threaten the vulnerable pro-Western states of the Gulf littoral. The most complete public information about this incident ap- peared in a September 29, 1987 New York Times article about the execution of Mehdi Hashemi. The article identified Hashemi as the former director of the office of Ayotollah Hussein Montazeri, "Ayotollah Ruhollah Khomeini's personal choice as his successor in the post of supreme religious guide." The Times also said, (1) Montazeri and Speaker of the Parliament (or Majlis) Hashemi Raf- sanjani were factional rivals, (2) Hashemi was arrested in October 1986, and (3) the Montazeri/Hashemi faction was responsible for a story that appeared in the Lebanese weekly Al Shiraa in early November 1986 describing a May meeting in Tehran between Mr. McFarlane and Rafsanjani. That was the story that led to the Iran arms initiative's unraveling. See John Kifner, "Aide to Khomeini Heir Apparent Is Reported Executed in Tehran," The New York Times, Sept. 29, 1987, pp. Al, A13. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 For the same reasons, Iran is of critical interest to the Soviet Union which, in addition to seeking access to and control of the West's oil supplies, continues in its historic quest for a warm water port. The United States has long recognized these critical and compet- ing interests. At the end of the Second World War, President Truman was willing to threaten military action to force the Soviet Union to withdraw from areas of Northern Iran it had occupied during the war. In defense of its interests, the United States has maintained a naval presence in the Persian Gulf since 1949. 521 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 FR. F.R.G. iliflaPest HUNGARY Figure 8-1. Map of Middle East ROMANIA SAN MARINO Belgrade YUGOSLAVIA BULGARIA 0 Sota SOVIET UNION GREE TURKEY TUNIS SYRIA Damascu Amman JORDAN Baghdad !RAO ?Tehran IRAN ? Herat AFGHANISTAN Abadan KUWAIT Armistice Line Bandar-e Abbas SAUDI ARABIA PAKISTAN Tropic of Cancer NIGER Middle East 4. .0 Administrative Boundary Jiddah Port Sudan International boundary o National capital 250 500 Kilometers EN ARAB- PUBLIC n) aei cod t"3Yc-4'ci 1-Administrative N,7, Line PEOPLE'S DEM. t. REP OF YEMEN as' (S. Yemen) SUDAN Mercator Projection NIGERIA ETHIOPIA DJIBOUTI ?Addis Ababa SOMALIA Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 Iran dominates the entire eastern shore of the Per- sian Gulf; it controls the Strait of Hormuz and can threaten the free flow of oil from the Gulf to the industrial economies of the West. In 1987, as part of its effort to disrupt non-Iranian shipping traffic in the Gulf, Iran has used anti-ship missiles and other muni- tions to attack neutral oil tankers, and laid mines throughout the Gulf. U.S. and allied warships have been deployed in the Gulf to ensure that the flow of oil is not impeded. Although less than six percent of U.S. oil consumption transits the Gulf, 24 percent of Western Europe's oil and almost half of Japan's total oil consumption must pass through the Strait of Hormuz. Iran alone supplies some five percent of Western Europe's and Japan's oil. Increased oil pro- duction elsewhere in the world, and the opening of new pipelines to take oil through Turkey, Iran and Saudi Arabia have somewhat reduced the Gulfs rela- tive importance.' Even so, Iran remains able to be a seriously disruptive force to the world's economy. In addition to its importance to oil supplies and oil routes, Iran, whose population of about 45 million is larger than the other Gulf states combined, is in a position to dominate or destabilize the small, weak, pro-Western countries of the Western Gulf coastal region. Recent Iranian policy toward Kuwait exempli- fies the pressure Iran can exert on its neighbors. An aggressive Iran can promote anti-Western Shiite fun- damentalism throughout the Middle East, threatening key U.S. allies such as Israel, Egypt, and Turkey. Events of the last decade have raised the strategic stakes in the Persian Gulf region and given the Soviet Union the chance to expand its influence in an area where it historically has had little. The fall of the Shah, the installation of a revolutionary Islamic regime in Tehran, and the Iran-Iraq war have given the Soviet Union strong incentives to try to improve its position in Iran and the entire Gulf region. A Soviet-dominated Iran would pose an even great- er threat to Western interests than the current radical regime. Such a development, for example, would give Moscow direct land access to warm water ports on the Persian Gulf and Arabian Sea. The Soviet Navy's home ports on the Soviet mainland are frequently ice bound in winter, or provide limited access to the open ocean, making it easier for U.S. and allied navies to contain the Soviet fleet. Soviet land access to a warm water port in this region would seriously endanger U.S. security interests in the entire Indian Ocean region, from the Indian subcontinent to Eastern Africa. On Iran's eastern border, the Soviet aggression in Afghanistan has further skewed the unstable strategic balance of the region, unsettled Iran's neighbor Paki- stan, and left the Soviet Union better-placed to meddle in post-Khomeini Iran. In response to events in the Gulf, the Carter Administration developed a Rapid Deployment Force to demonstrate an increased U.S. resolve to defend U.S. and Western interests there. It was against this background that the Reagan Administration conceived its policy opening to Iran. On May 17, 1985, just before the United States decided to pursue the Iran initiative, Graham Fuller, the CIA's National Intelligence Officer for Near East and South Asia, produced a memorandum, "Toward a Policy on Iran," reporting that the intelligence com- munity was learning of signs of significant internal unrest in Iran and was monitoring "Soviet progress toward developing significant leverage in Tehran".2 By the end of 1985, the intelligence community took a less worried view which was reflected in a new esti- mate published in February 1986.3 By mid-1987, however, press reports were begin- ning to suggest that Fuller's original concern might have been well founded. These reports involved pos- sible Soviet intelligence sites in Iran and a pipeline and railroad through Iran to its long sought after Persian Gulf warm water port.4 Should these ac- counts prove true, the 1985-86 initiative might even- tually be seen as a farsighted attempt to prevent seri- ously troublesome developments that could occur after the factional struggle everyone expects to begin when the aged Ayotollah Khomeini dies, if it has not already begun. Strategic Opening, Or Only An Arms-For-Hostages Deal? The majority report systematically downplays the im- portance of strategic objectives in the Iran initiative. We believe, to the contrary, that the record is unam- biguous on the following facts: (1) that strategic ob- jectives were important to the participants at all times; (2) that the objectives were credible, (3) that they were the driving force for the initiative at the outset, and (4) that without such a strategic concern, the initiative would never have been undertaken. One of the most disappointing forms of evidence- slanting throughout the majority's narrative is that it refuses adequately to present the key witnesses' ac- counts of their own motives, in their own words, from the hearing record. That failure is most glaring in connection with the witnesses' statements about the strategic motives behind the Iran policy. We have no intention of trying to recite all of the evidence here. We are convinced, however, that anyone who reads the material we cite will recognize the bias involved in presenting what purports to be any analysis of the arms sales without including the participants' own explanations of their motivations. The majority may not agree with the Administration's strategic reason- ing, but it is simply unfair to ignore it. The President's words are probably the most im- portant here. Dale Van Atta, a reporter, knew the essential facts of the initiative in February 1986. The President was willing to talk to him on February 24, on the condition that the information not be used until 523 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? 11 . I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 the hostages came home. Van Atta asked the Presi- dent about the hostages. Instead of answering in kind, the President spoke about strategic matters. All right. The Iranian situation. We have to re- member that we had a pretty solid relationship with Iran during the time of the Shah. We have to realize also that that was a very key ally in that particular area in preventing the Soviets from reaching their age old goal of the warm water ports, and so forth. And now with the take-over by the present ruler, we have to be- lieve that there must be elements present in Iran that?when nature takes its inevitable course? they want to return to different relationships . . . We have to oppose what they are doing. We at the same time must recognize we do not want to make enemies of those who today could be our friends.5 The President's own statements were supported by senior officials in his Administration testifying before these committees. For simplicity's sake, we will cite this material by grouping the references under the substantive topics covered. These included: ?establish a new U.S. relationship with Iran, thus strengthening the U.S. strategic posture throughout the Persian Gulf region;6 ?counter Soviet influence in Iran;7 ?lessen Iran's dependence on the Soviet Union and other communist nations as arms suppliers;8 ?open a channel to pragmatic Iranian officials;9 ?wean the Iranian regime away from terrorism;" ?encourage a negotiated settlement of the Iran- Iraq war;"' ?protect the northern tier countries?Pakistan, India and their neighbors?and encourage their inter- est in supporting the Afghan resistance forces;" 2 ?protect the southern tier countries?Saudi Arabia, Kuwait, Jordan, Israel and Egypt; '3 ?improve U.S. intelligence capabilities in Iran;" and ?discourage Iranian arms exports to Nicaragua." As we said earlier, one need not agree with these strategic goals, or agree that arms sales were a good way to achieve them, to recognize their importance to the key players. The Administration felt it was crucial to begin making some inroads into Iran, before that country became embroiled in a succession crisis. The last thing we wanted was to abandon the field to the Soviets. It was important to keep looking for opportunities. Unfortunately, our ignorance of the sit- uation in Iran was such that we had few realistic ways to do so. 524 U.S. Intelligence Weaknesses in Iran Although the motives were clearly present for trying to develop a new relationship with Iran, the means were not. In an important respect, the Iran initiative had at least one of its roots in an intelligence failure. There are two different intelligence issues raised by the Iran initiative. One is that intelligence gaps or weaknesses influenced U.S. decisions. We agree with this point. The other is that intelligence was "cooked" to match the preconceived conclusions of policy makers. We strongly disagree with this charge, to the extent that it relates to the information generated by the executive branch. We do believe, however, that some officials?most notably, Admiral Poindexter and Director Casey?failed adequately to present the U.S. intelligence community's assessment to the President at a crucial moment of decision. Let us begin with the issue of intelligence gaps. Gary Sick, who worked on the National Security Council staff during the Carter Administration, de- scribed the state of U.S. intelligence in Iran when the Shah fell in 1979: I had written a briefing paper for [National Secu- rity Adviser Zbigniew] Brzezinski noting that "the most fundamental problem at the moment is the astonishing lack of hard information we are getting about developments in Iran." I comment- ed that "this has been an intelligence disaster of the first order. Our information has been ex- tremely meager, our resources were not posi- tioned to report accurately on the activities of the opposition forces, on external penetration, the strike demands, the political organization of the strikers, or the basic objectives and political ori- entation of the demonstrators." "6 General Secord, who became Deputy Commander of the hostage rescue task force in 1980 after the unsuc- cessful Desert I operation, confirmed that the lack of intelligence was the reason why his combat-ready task force never made a second effort to rescue the hos- tages.' 7 Faced with the loss of the Tehran embassy and its intelligence secrets, the flight or execution of pro- Western officials and agents, a ruthless secret police network and restrictions on travel to Iran, U.S. intelli- gence efforts had to start again from scratch. Accord- ing to new reports, efforts to rebuild our intelligence capability were further devastated by the 1983 bomb- ing of the U.S. Embassy in Beirut, which killed many of the CIA's leading Middle East experts, and by the abduction of the post-bombing Beirut station chief, William Buckley. Before his death as a result of tor- ture, Buckley was allegedly forced to reveal his ex- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 tensive knowledge of CIA anti-terrorism and other operations in the Middle East. There was near unanimity inside the government on the weakness of U.S. intelligence in Iran. Director Casey reportedly conceded the point, and his former deputy, John McMahon, agreed." Casey believed that the need for intelligence was one of the main reasons for going ahead with the initiative." Robert McFarlane and John Poindexter both lamented the dearth of intelligence on internal Iranian politics and Iranian support for terrorism, which left them vulner- able and "flying blind". In particular, U.S. policy makers lacked the information necessary to assess the influence and bona fides of the Iranian officials with whom they were dealing.20 The core problem was a lack of well-placed human agents within Iran.2' The CIA's Deputy Director for Operations, Clair George, is responsible for clandes- tine human intelligence collection. He freely acknowl- edged that the Directorate was not collecting the information necessary to influence or deal with Iran. In the opinion of some intelligence professionals the CIA's weakness of human intelligence collection re- flects a long-term shift toward a greater reliance on more exotic, technical collection methods, which are considered "clean" and safe compared to the messy business of running human spies. As Admiral Poin- dexter said: The problem is that with technical means of col- lection, there is no way that you can find out about intent as to what the people are planning or doing. The only way you can get that is through human intelligence. A satellite will tell you how many divisions or how many tanks or how many airplanes, but it won't tell you what they are planning to do with that.22 One problem with human intelligence is that it often requires the use of individuals of dubious rep- utations. Despite criticism of the use of Ghorbanifar in the Iran initiative, U.S. intelligence may have no choice but to rely on questionable individuals in future operations. As George told the Committees: "If we only served and dealt with the honest and fair, we would be out of business fairly fast." 23 Poindexter made essentially the same point: "Human intelligence is messy, because you have to deal with people. You don't always know if they are telling you the truth or not . . . . [You] have to deal with pretty despicable characters if you are going to get penetration of these organizations". 24 Faced with this frustrating lack of intelligence, it appears that Admiral Poindexter adopted the view that the Israelis had better information on the situa- tion in Iran. Poindexter was so convinced of this that he even accepted the Israeli view that Iraq gradually was acquiring a battlefield advantage in the war with Iran," even though he knew U.S. intelligence held a contrary view," and the issue would have been open to independent verification. The Issue of "Cooked" Intelligence One of the many dramatic charges Secretary Shultz made about his own Administration involved this as- sessment of the Iran-Iraq war. Responding to Senator Inouye, Shultz said that the failure to separate "the functions of gathering and analyzing intelligence from the function of developing and carrying out policy" 27 resulted in the Administration getting faulty information on which to base its judgments and decisions. I hate to say it, but I believe that one of the reasons the President was given what I regard as wrong information, for example about Iran and terrorism was that the agency or the people in the CIA were too involved in this. So that is one point. And I feel very clear in my mind about this point. And I know that long before this all emerged, I had come to have great doubts about the objectivity and reliability of some of the intel- ligence I was getting." Despite Secretary Shultz's statement, these commit- tees have found absolutely no evidence to support allegations of intelligence bias within the CIA. As Deputy CIA Director Gates has observed, one of the best guarantees against an intelligence bias is the widespread circulation of CIA analyses on Capitol Hill, particularly the intelligence committees' scrutiny of virtually everything the CIA and intelligence com- munity produces." With the exception of one contro- versial 1982 report, neither committee has exhibited any concern over the objectivity of analysis within Casey's CIA, despite the committees' often stormy relationship with the Director.* Shultz is also refuted by former Deputy CIA Director McMahon who, in response to a deposition question regarding the Secre- tary's assertions, said: "It wouldn't happen. This is just so [expletive deleted] outrageous, I can't stand it. That is just so damn false, and I think George Shultz got away with murder on that one." McMahon also said he asked Director Webster "why the hell he didn't challenge Shultz on that." Webster, according The 1982 exception provoked the resignation of Admiral (Ret.) Bobby Inman as a consultant to the House committee. Specifically, Inman?a former director of NSA and a former Deputy Director of Central Intelligence and one of the intelligence community's most respected alumni?gave as his reason for leaving the fact that he had not been consulted on a Congressional subcommittee report criticizing intelligence analyses on Central America. Inman felt that the report, which focused on El Salvador, was "put out on party lines." Inman also underscored, in his resignation statement, that Congressional oversight of intelligence agencies had to be nonpo- litical to earn public credibility. He added that "if the country doesn't establish a bipartisan approach to intelligence, we are not going to face the problems of the next fifty years." See Washington Post, October 15, 1982. 525 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I c.1 ,.?. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 to McMahon, said he did ask Shultz, but "I guess he hasn't heard from Shultz yet."3? Admiral Poindexter's reliance on an Israeli assess- ment that Iran's position was deteriorating in the war with Iraq was particularly controversial. White House Chief of Staff Donald Regan's notes of a November 10, 1986 meeting of top advisers makes it clear that the President was still using the assessment as a justifi- cation for his decision the previous January to sell arms to Iran.3' Poindexter acknowledged, however, that the assessment differed from that of the U.S. intelligence community. Poindexter had the option, of course, of agreeing with such an assessment over the one he was getting from U.S. intelligence. But he and Director Casey should have felt an obligation to high- light that disagreement at the time it was being used to buttress the proposed January 1986 finding. It is clear from Poindexter's testimony that he did not remind the President at the time that this view dif- fered from the majority view within the intelligence community. The evidence seems to suggest strongly, in other words, not that intelligence was "cooked" by U.S. intelligence, but that the views of U.S. intelli- gence were not properly passed up the line and high- lighted to the President. The Israeli Connection The Administration's reliance on Israeli intelligence has raised questions about Israel's role in the Iran initiative. That role probably will never be fully un- derstood. The Tower Commission Report," supple- mented by some new material in the majority narra- tive, lays out the basic outline. We have too little confirmed evidence, however, and too many conflict- ing theories, to sort it all into neat packages. The immediate background to the Iran arms initia- tive had two separate strands in 1984. One strand begins with Ghorbanifar's desire to sell arms; the other with an independent review of U.S. policy toward Iran conducted by the NSC. The two strands came together in mid-1985. Ghorbanifar began trying to approach the United States in June 1984 with the story that he had access to some important figures in the Iranian government who wanted to improve relations with the West. The CIA polygraphed Ghorbanifar, he failed (not for the first time) and the agency issued a "burn notice" to its field personnel and other U.S. intelligence services warning them to treat Ghorbanifar as a known liar. Clair George told the Committees: "You have to work at it pretty hard to get a burn notice out of the Operations Directorate at the CIA." 33 Over the next several months, Ghorbanifar and Adnan Khashoggi, a Saudi arms dealer, reportedly made several attempts to develop a U.S.-Iran arms relationship.34 One of the approaches they made in 1984, according to the Tower Commission, was through a former CIA officer, Theodore Shackley. In 526 that approach, the arms dealers specifically linked weapons to Americans held hostage in Lebanon: Shackley, a former CIA officer, reported that, in a meeting November 19-21, 1984, in Hamburg, West Germany, General Manucher Hashemi, former head of SAVAK's Department VIII (counterespionage), introduced him to Manucher Ghorbanifar. Hashemi said Ghorbanifar's con- tacts in Iran were "fantastic." Ghorbanifar was already known to the CIA, and the Agency did not have a favorable impression of his reliability or veracity. Shackley reported that Ghorbanifar had been a SAVAK agent, was known to be an international deal maker, and generally an inde- pendent man, difficult to contro1.35 Shackley's report went to the State Department but the department was not interested. By January 1985, Ghorbanifar was discussing a po- tential arms relationship that would have involved the United States, Iran and Israel. Participating in these discussions with Ghorbanifar were Adolph Schwim- mer, an Israeli arms dealer who had been an adviser to Prime Minister Peres since September 1984, Amiram Nir, Peres' Adviser on Counterterrorism, and Yaacov Nimrodi, another arms dealer who had been an Israeli defense attache and then an unofficial "con- sultant" in Tehran for a total of 24 years." At least one of these meetings included Roy Furmark, a busi- ness associate of Khashoggi's and an acquaintance of Casey's.37 Israel and the United States were major arms suppliers to the Shah's Iran during the 1970s, and a classified State Department document says Israel had sold some arms to the Khomeini regime in 1981 and 1982.* The arms dealers in the 1985 group had an obvious stake in resuming such sales. At roughly the same time, beginning in early 1984, the NSC staff was beginning to rethink the U.S. pos- ture toward Iran. The net effect of the 1984 efforts was to conclude that the United States neither knew enough about, nor was in a position to have much influence over, future developments in that country. "Early in 1985," the Tower board wrote, "the NSC * According to a November 1986 classified State Department document, in 1981 and 1982, prior to the initiation of Operation Staunch, the Government of Israel asked the United States to approve shipment of certain military items under U.S. control to Iran. Israeli representatives made many of the same points that were made in the 1985 arms sale proposals, including that such transfers would improve access and influence with "moderate ele- ments" and could lead to progress in securing the release of U.S. hostages. The United States stated that certain types of U.S. con- trolled items could be shipped if specific U.S. Government approv- al were obtained, but no shipment of such items was ever ap- proved. In May 1982, Israeli officials acknowledged publicly that Israel had sold substantial quantities of U.S. origin military supplies to Iran. U.S. Department of State, Memorandum from Richard W. Murphy to Secretary of State Shultz, "U.S.-Israel Discussions on Arms Sales to Iran-1980-82," November 21, 1986, S3547. See also Secord Test., Hearings, 100-1, 5/8/87, at 273-74. , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 staff undertook actions aimed at least to improve the government's knowledge about Iran"." One person who got involved with that job was NSC consultant Michael Ledeen. When Ledeen was in Europe in March or April of 1985, an official of a West European country told Ledeen that the situation in Iran was more fluid than it had been in the past. If Ledeen wanted to know more about Iran, the official said that Israel had the best intelligence there of any country in the Western world." Ledeen visited Israel in early May where he met alone for about 45 min- utes with Prime Minister Peres to express the U.S. interest in learning more about Iran. The hostages were not part of this discussion, Ledeen said. Accord- ing to Ledeen, Peres said that Israeli information was not all that outstanding, but Peres urged Ledeen to meet with Shlomo Gazit, President of Ben Gurion University and a former director of military intelli- gence. In that subsequent meeting, Ledeen was asked to carry a request back to McFarlane asking for per- mission for Israel to sell some artillery to Iran.4? During May and June, the NSC staff continued to work on a draft National Security Decision Directive (NSDD). At the end of its analysis of the United States' long and short term goals in Iran, a June 11 draft NSDD recommended "provision of selected military equipment as determined on a case-by-case basis". McFarlane circulated the NSDD draft to Shultz, Weinberger and Casey. Shultz responded on June 29 by saying he disagreed "with the suggestion that our efforts to reduce arms flows to Iran should be ended." Weinberger's July 16 answer was sharper. "This is almost too absurd to comment on," he wrote. "This is roughly like inviting Qadhafi over for a cozy lunch." Only Casey endorsed the "thrust of the draft," but his July 18 response said nothing about arms sales.4' The draft NSDD was never brought to the President's attention and was not adopted. The two separate strands came together in the weeks after the draft NSDD was circulated and before all the answers were in. On July 3, McFarlane met with David Kimche, Director General of the Israeli Foreign Ministry. According to McFarlane, Kimche wanted to know "the position of our govern- ment toward engaging in a political discourse with Iranian officials," and thought the Iranians would ulti- mately need something, namely arms, to show for the meetings.4 2 About July 11, Schwimmer came to see Ledeen. Ledeen testified that Schwimmer claimed he and his colleagues: had been introduced a short time before by Adnan Khashoggi to a very interesting Iranian by the name of Ghorbanifar, and that Ghorbani- far had a lot of very interesting things to say both about Iran and about the intentions of the leading figures in the Government of Iran.43 We do not intend to produce a full recitation of events here, but it is worth pausing at Schwimmer's reported statement that he had just been introduced to Ghorbanifar. The clear implication of the statement, as it was understood by Ledeen, was that Ghorbanifar was a new source of information for the Israelis, even though Ghorbanifar had been meeting with them since January. There is a dispute over Ghorbanifar's exact relationship with Israel, but no one seems to think the relationship was new. North, Poindexter, George and Hakim have said they thought Ghorbani- far was an Israeli agent or asset.44 Hakim specifically said he thought someone working for Nimrodi had recruited Ghorbanifar years before in Tehran.45 Shackley, however, described him as "an independent man" with SAVAK connections (Hakim had also mentioned SAVAK.) The view of Ghorbanifar as being essentially independent would be consistent with his having had a past relationship with Israel, but with different connotations on the extent to which Israel could have controlled Ghorbanifar. The inter- pretation that stresses Ghorbanifar's independence gains some support from the sheer number and varie- ty of methods Ghorbanifar tried to use to approach the United States Either way, however, Ghorbanifar and Nimrodi knew each other during Nimrodi's quar- ter century of service in Tehran. Schwimmer's al- leged representation to Ledeen that he was a new source therefore seems disingenuous, to say the least. So, Israel was more than a passive message bearer at the outset of the initiative. In addition, it weighed in to help keep the initiative on track at several points later. These included, among other things, an August 2, 1985 visit Kimche paid to McFarlane to seek au- thorization for the first Israeli TOW transfer;46 Nir's January 1986 proposal to keep the initiative moving forward at a time when U.S. interest appeared to be flagging,47 and Peres' February 1986 letter to 4 and September 1986 communication with President Reagan.4 9 Shultz V. Shultz Suckers or Big Boys? The question that arises out of all this is whether Israel was playing on U.S. ignorance to draw the United States into the Iran arms transactions. At a November 10, 1986 meeting between the President and his top advisors, Secretary Shultz said, according to Donald Regan's notes, that he "Thinks Israeli [sic] suckered us into this so we can't complain of their sales." 50 Shultz apparently expanded on this point in a private meeting he held with the President ten days later. A briefing paper Shultz brought with him to that meeting stated: Much if not all of the incentive on the Israeli side of the project may well have been an Israeli "sting" operation. The Israelis used a number of justifications to draw us into this operation?in- 527 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 11 ..I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 telligence gains, release of hostages, high strate- gic goals, . . . Israel obviously sees it in its na- tional interest to cultivate ties with Iran, includ- ing arms shipments. Any American identification with that effort serves Israeli ends, even if Amer- ican objectives and policies are compromised." We are inclined to agree with Shultz that Israel was actively promoting the initiative because the initi- ative suited Israel's own national interest. We dis- agree, however, with the idea that the United States was being played for a sucker. We believe the U.S. Government responsibly made its own judgments, and its own mistakes. To show the extent to which U.S. eyes were open, it is worth reviewing a few more items in the Com- mittees' records. In McFarlane's July 13 cable to Schultz about his own meeting with Kimche and Le- deen's meeting with Schwimmer, McFarlane seemed to be more aware than Ledeen that the relationships being described were not new ones. McFarlane said that in the course of his conversation with Kimche it "became clear that [their access to Iranian officials] has involved extensive dialogue for some time." His cable also mentioned Ghorbanifar.52 On the same day, Assistant Secretary Richard Armacost sent a cable to Shultz saying that the U.S. Government con- siders Ghorbanifar to be "a talented fabricator." 53 Shultz told the Tower Commission he read this cable on July 16.54 From early in the initiative, in other words, the U.S. Government had good reason to be wary of Ghorbanifar. Why, then, did the NSC want to pursue this chan- nel at all? North's answer is persuasive. I knew, and so did the rest of us who were dealing with him, exactly what Mr. Ghorbanifar was. I knew him to be a liar. I knew him to be a cheat, and I knew him to be a man making enor- mous sums of money. He was widely suspected to be, within the people I dealt with at the Cen- tral Intelligence Agency, an agent of the Israeli Government, or at least one of, if not more, of their security services. That is important in understanding why we con- tinued to deal with him. We knew what the man was, but it was difficult to get other people in- volved in these kinds of activities. I mean, one can't go to Mother Theresa and ask her to go to Tehran . . . . I know there is a lot of folks who think we shouldn't have dealt with this guy, but at the bottom we got two Americans out that way and we started down a track I think we could have succeeded on. As bad as he was, he at least got it started there.55 The United States also went into the initiative knowing full well that there was far from an identity of interests between the U.S. and Israel. McFarlane 528 mentioned in his cable to Shultz at the start of the initiative, that the risks of failure would be different for the United States than for Israel: "Surely we ought to expect that Israel's fear over any Arab (as opposed to Iranian) fallout would not necessarily co- incide with our own." 56 Shultz's cable of the next day also mentioned that "Israel's interests and ours are not necessarily the same".57 As for the character of the difference between U.S. and Israeli interests toward Iran, several witnesses testified that the United States would like to see a quick end to the Iran-Iraq war, but Israel, at a mini- mum, might find its interests served by prolonged fighting between the two countries.58 This key differ- ence was said by McFarlane to have been openly discussed in his July 3, 1985 meeting with Kimche: [Kimche] said, "Obviously Israel's interests are very different from your own," and pointed out that they have an interest in sustaining the con- flict. We don't. I stressed all of our policy points . . . . They are different in many respects from Israel's. But that was clear on both sides, going in, eyes open. The President was very conscious of that." Another major point of difference was that Israel, like most West European and many other countries, reportedly was selling arms to Iran. The United States was trying to stop the flow of such arms. For that reason, the specific method for trying to establish a relationship, involving arms and hostages, was a par- ticularly risky one for U.S. policy interests. Once again, however, this point was thoroughly argued within the Administration. The point of all this is that Israel had good reasons for wanting the United States to get involved, but the U.S. had its own reasons for listening. The United States decided the initiative was worth pursuing, for all of the reasons we have already noted. To be sure, the U.S. did make important errors of judgment. It was overeager. On occasion, it did listen too uncriti- cally to Israeli advice. But the warning flags were there, and McFarlane at least paid lip service to noting their presence. Any U.S. mistakes, therefore, can be laid only at our own country's feet. As Secre- tary Shultz said before our Committees, "We are big boys and we have to take responsibility for whatever it is we do. We can't say that well, somebody else suggested it to us, therefore it is their fault." Hostages and the Iran Initiative We are convinced, as we have argued, that the Iran initiative started as a desire to pursue a strategic op- portunity, and that these considerations always re- mained important. At the same time, there can be no question?as the President himself acknowledged? Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Chapter 8 that the President's personal concern for the hostages added a sense of urgency that skewed our negotiating tactics, and helps explain the imprudently wishful thinking that led Poindexter and Casey to proceed despite repeated disappointments. It is important to note that the President has an affirmative duty under U.S. law to do everything in his power to secure the release of Americans illegally imprisoned or held hostage abroad. Under the 1868 Hostage Act, invoked by President Carter during the Iranian hostage crisis of 1979-81: Whenever it is made known to the President that any citizen of the United States has been unjustly deprived of his liberty by or under the authority of any foreign government, it shall be the duty of the President forthwith to demand of the govern- ment the reasons of such imprisonment; and if it appears to be wrongful and in violation of the rights of American citizenship, the President shall forthwith demand the release of such citizen, and if the release so demanded is unreasonably de- layed or refused, the President shall use such means, not amounting to acts of war, as he may think necessary and proper to effectuate the re- lease; and all the facts and proceedings relative thereto shall as soon as practicable be communi- cated by the President to Congress." Under the Hostage Act, the President has a posi- tive, legal obligation to take whatever steps may be necessary and proper, short of war, to secure the release of American citizens. Even without the act, however, we observed in our chapters on the Consti- tution that the President has a duty to protect the lives and liberty of Americans abroad. Unfortunately, the duty to protect lives does not always give clear guidance about what to do in spe- cific cases. Taking the wrong steps to save an individ- ual hostage can make hostage taking seem profitable to terrorists. The methods used to save one hostage, in other words, may threaten countless other Ameri- cans traveling or living abroad. We have to acknowl- edge, however, that it is easier to put advice on a piece of paper than to implement the advice in the face of a constant barrage of public criticism, and direct pressure from the hostages' families. As hard as it may be to let any American remain hostage, one was a special case: William Buckley, the Beirut Station Chief. Buckley was rebuilding the CIA's Lebanon station after the disastrous embassy car bombing of 1983. When he was taken hostage, he knew a great deal about U.S. sources and methods in the Middle East and U.S. officials strongly suspected that he was being tortured to force him to divulge those secrets. Mr. CHENEY. I would assume partly on the basis that he was literally one of our own, a man in service to the nation, that there were special feelings on the part of Director Casey for Mr. Buckley as well? Mr. NORTH. It was my understanding that there was not only a professional relationship be- tween Mr. Buckley and Director Casey but a personal one, and that Director Casey felt very strongly about William Buckley. To the very end, Director Casey was anxious to get the body of Bill Buckley home, and certainly the tortured confession. Mr. CHENEY. Would it be fair to say that the situation of the hostages, and especially Mr. Buckley, had an impact at least upon the policy decisions we have been talking about here in connection with the opening to Iran, the decision to ship weapons to the Ayatollah? Mr. NORTH. I believe it did. . . . One of the most difficult things that I experienced in this rather lengthy ordeal, and I am sure it was the same for Mr. McFarlane and Admiral Poindexter and the President, was to see the pictures that we were able to obtain, the videotapes particularly, of Bill Buckley as he died over time, to see him slowly but surely being wasted away.62 This testimony from North certainly makes it easier to understand how concern for the hostages could come to have played too prominent a role in the Iran initiative. DEA Activities We shall digress briefly from the Iran initiative at this point to discuss another effort the Administration un- dertook to gain the release of the hostages in Leba- non. This one involved Drug Enforcement Adminis- tration (DEA) agents and began in early 1985. The majority is highly critical of this effort in its report. This is puzzling to us, because if the DEA operation had succeeded, there would have been no temptation to mix concern for the hostages with the strategically more important talks with Iran. The majority repeatedly describes the DEA activi- ties, which were under North's direction, as an overt attempt to pay ransom for the hostages. Indeed, a number of the points made by the majority depend on the ransom theme. The importance of this claim, to the overall thesis of the majority report is that, if true, it would show a predisposition toward paying ransom that would tend to confirm an interpretation of the Iran initiative as an arms-for-hostages deal. We too would be troubled if ransom were being contemplat- ed. But, according to the evidence received in the Committees' investigation, the DEA rescue plans con- templated bribes as the means to gain the hostages' 529 77-026 0 - 87 - 18 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 release. There was no attempt to pay ransom to the captors. The majority discounts the testimony of one of the two DEA agents involved, whom we shall call Agent 1. The agent clearly stated that the plan was to offers bribes to certain individuals, and not to pay ransom to those who had directed the capture of the hostages. The agent emphasized that none of the captors had solicited ransom. Rather, money was to be delivered as bribes to those who could effect the release of the hostages, not to the people who actually controlled the terrorist organization. The idea was to find indi- viduals who could be paid off without the knowledge of those in control. The money was intended to go directly to these individuals.63 The majority also ignores the account of the De- fense Intelligence Agency (DIA) Major who served on the Hostage Locating Task Force in 1985 and 1986. In January 1986, the DIA Major met with the other DEA agent involved in hostage activities, whom we shall call Agent 2, and with two sources who were assisting the DEA agents. The DIA Major observed that one of the two sources was more prom- ising because of his contacts and superior access to the hostage takers." The DIA Major prepared a memorandum of these meetings, and he testified to its accuracy." According to the memorandum, the more promising of the two sources suggested bribery to free the hostages.66 Furthermore, Agent 2 testified that when one source suggested that the Lebanese hostage takers would release the hostages in exchange for weapons, the agent dismissed the suggestion. Asked whether the subject of weapons was ever raised again, the agent replied: "No, because I think we had told the source that forget it, you know. It has got to be a bribe situation, not a ransom, but a bribe situation".67 In fact, the questions from the majority's own counsel clearly recognized that the plan involved bribery.* A prime example of the majority's attempt to char- acterize the DEA plans as ransom plans is their analy- sis of activities in May and June of 1985. The majori- ty alleges that the plan in that time-frame was to pay ransom money of $1 million per hostage. On the con- trary, three memorandums on the issue, written by Col. North, all clearly described a plan to bribe indi- viduals other than the hostage takers. The bribe money was to be paid to individuals with access and to those who would arrange transportation and safe passage for the hostages. None of these memoran- dums mentioned any ransom payments to the hostage ? The counsel stated during the deposition: "You were trying to bribe these people with money at the same time they were trying to get weapons from North" See Agent 2 Dep., 8/28/87, at 61. Later, the same counsel asked: "How were these people to be released? In other words, was it to be a forcible extraction. Was it to be a bribing. . . to look the other way?" The agent responded: "Brib- ing. It was always bribing. May not even be bribing. It may be they go shoot all the guards." See Agent 2 Dep., 8/28/87, at 109. 530 takers." North's superior, Robert McFarlane, similar- ly described the plan as one of bribery." The majority also claims that the DEA activities were inconsistent with the simultaneous effort to gain the release of the hostages through the Iran initiative. Such a claim is based on the majority's view that at the same time North was arranging to sell weapons to the Iranians to induce them to influence the Hizballah captors to release the hostages, North was offering direct ransom payments to the captors. As shown above, the majority's ransom notion conflicts with the facts. Also, the majority's theme of inconsistent chan- nels for release of the hostages ignores the fact that the DEA activities, which commenced in early 1985, were in existence months before the first sale of arms to Iran in August and September 1985. In any event, the fact is that, notwithstanding the DEA plans as well as other plans for hostage release, the Iran initia- tive did lead to the release of three hostages. Any alleged conflict or inconsistency is based on specula- tion. Given the majority's inclination to criticize every perceived or misperceived activity of the Ad- ministration in its effort to free the American hos- tages, the case can be made that if North had not pursued alternatives to the Iranian arms sales, the majority would have found fault with such failure to find better ways to free the hostages. The last important majority contention is that the activities of the DEA agents were "operational" rather than intelligence-related, and that such activi- ties therefore required that Congress be notified. The facts show that the DEA agents gathered intelligence, planned several operations to free the hostages, and took some preparatory steps for these operations. However, the actual operations to free the hostages did not take place, to a large extent because of events in the Middle East beyond the control of the agents. The participants should, however, have paid closer attention to accounting, funding, and reporting re- quirements, in order to ensure full compliance with the applicable rules and regulations. In the final analysis, the DEA efforts to free the hostages must be viewed in perspective. The Presi- dent was personally committed to do all that he could to bring the hostages home, and there was intense national pressure to do so. Accordingly, the Adminis- tration initiated several alternative programs, includ- ing the plan to use DEA assets in Lebanon. DEA efforts ultimately failed, and in hindsight these efforts could have been better implemented. Nonetheless, the facts show that many involved in these activities acted at great personal risk and with the best of intentions. Moreover, the Administration deserves recognition for its efforts to explore every promising avenue for the release of the hostages. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 The Second Channel It is tempting, knowing Buckley's fate and the depth of the President's feeling, to portray U.S. policy as having become "hostage to the hostages." The hos- tages did become too prominent. Negotiations con- ducted through the First Channel, arranged by Ghor- banifar, never got off the arms-for-hostages track, de- spite repeated U.S. efforts. Once discussions began through the Second Channel, however, they began to take in broader geopolitical issues. Some aspects might potentially have been promising. Others, such as the Da'wa prisoners, should have been turned off from the beginning. The "First Channel" talks between Iran and the United States, from late 1985 through the May 1986 Tehran trip, were arranged and principally conducted by representatives of the Iranian prime minister, who has ties to the more radical elements of the govern- ment. Representatives of the so-called "middle of the road" Rafsanjani faction also appear to have attended some of these meetings. Rafsanjani, generally regard- ed as the number two official in Iran,7? is the Speaker of the Majlis or Parliament and has principal responsi- bility for foreign affairs and the conduct of the war. These early meetings used an unreliable intermediary, Ghorbanifar, who misled both sides and who thereby frustrated the progress of the discussions. The discussions during the Fall of 1986, on the other hand, generally referred to as the "Second Channel" meetings, were sought, arranged and con- ducted by representatives of Speaker Rafsanjani. Raf- sanjani proposed that representatives of the other fac- tions be included in the joint commission that was to be established to pursue the normalization of rela- tions." These changes in the leadership of the negoti- ations appear to have corresponded with an increas- ingly serious willingness on the part of the Iranian leadership to consider renewed strategic cooperation with the United States, although the leadership did not abandon its interest in acquiring arms in return for hostages. The Ayatollah Montazeri, a prominent religious leader who is virulently anti-American and a support- er of radical fundamentalist violence in Saudi Arabia and elsewhere, was excluded from both sets of discus- sions. It was later determined that Ghorbanifar had leaked information concerning the First Channel meetings, including the secret participation of Israeli representatives, to the Montazeri faction. This faction was responsible for disclosing the U.S.-Iran negotia- tions in the Fall of 1986 in retaliation for the arrest of several of its leaders. After the disclosure, factional warfare within Iran and the U.S. public's response effectively ended the discussions. Since then, they have been overtaken by events in the Gulf. Negotiations The initial meetings with the second channel took place secretly in Washington, D.C. over two days in September, 1986. Detailed contemporaneous notes have been made available to the Committees. They show that Colonel North, accompanied by George Cave, a CIA expert on Iran, engaged in two-way discussions of the elements of a new relationship in a way that had not apparently been of interest to the previous channel. The discussions moved from broad, strategic objectives to a number of sensitive and highly specific points. According to the notes, these included the following: ?U.S. and Soviet interests in Iran; ?U.S. and Iranian interests in Afghanistan; ?Iran's objectives in the Iran-Iraq war; ?Soviet objectives in the Iran-Iraq war; ?Intelligence information about deceased hostage William Buckley; and ?Establishing secure communications between the two governments to avoid compromise by hostile third governments. The negotiators also raised the possibility of an ex- panded military supply relationship, but the U.S. par- ticipants made it clear that such a relationship presup- posed resolution of the hostage situation, which was also discussed extensively.7 2 The next significant meetings were held in October 1986 in Frankfurt, West Germany. The U.S. partici- pants were North, Cave, Secord and Hakim. The Iranians made it clear that they wanted the relation- ship to go beyond a "merchant" or "trading" relation- ship.73 The U.S. and Iranian representatives discussed common geopolitical interests extensively, and com- pared available information. The discussion then turned to the extent to which the United States was willing to supply additional weapons to Iran. U.S. negotiators made clear that the weapons Iran had requested could be supplied if the hostage issue was resolved first.74 The U.S. and Iranian negotiators also discussed the Iran-Iraq war, the meaning of an honor- able "victory" for Iran, the status of Iraq's Saddam Hussein. 7 5 North then left the meeting after stating that his "Seven Point" proposal 76 was the full limit of his authority.* The Iranians made a counterproposal. Hakim and Secord were left with authority to try to come to an agreement with the Iranians, subject to approval by the U.S. Government. After some addi- tional discussion, Hakim and Secord reached a new "Nine Point" agreement.77 It provided in substance for the release of one hostage, with a promise to attempt to obtain another, in return for the shipment of some U.S. weapons, instead of insisting on all of * He had to leave suddenly because he had learned that the airplane carrying Eugene Hasenfus had been shot down over Nica- ragua. See North Test., Hearings, 100-7, Vol. II, at 6. 531 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 the hostages as North's original proposal had done. It also included a plan that might result in direct Irani- an-Kuwaiti negotiations over release of the infamous Da'wa prisoners.** The agreement was reviewed by North and Poindexter and Poindexter claims to have briefed the President.78 The evidence indicates, how- ever, that the President was not told about the Da'wa. When he learned about the Da'wa part of the talks later, the President found it repugnant." So do we. It is hard to reach a definitive judgment about the Second Channel meetings. Consider this exchange be- tween Representative Hyde and Admiral Poindexter from the public hearings: Mr. Hyde: The conventional wisdom is that the Iran overture was a policy disaster. Is that not too precipitous a judgment? Shouldn't the jury still be out on that? Because if we do lack good intelligence, we don't really know whether we were getting somewhere or not on the hostage issue or the strategic opening. Is that a fair state- ment? Mr. Poindexter: I think that is a very fair state- ment. I think it is possible if the present people working this problem in government go about it properly, I think it is still possible. One of the interesting things is that we maintained contact with the second channel right up until the day I left the White House and we were alerting the channel as to what we were getting ready to do so that the President's speech, so that his press conference didn't surprise them. We got the Iranian Government to have their ambassador at the U.N. make a statement which referred to the United States in terms that are more favorable than ever had been made public by this particular Iranian Government, because I truly believe that with the second channel that we had established, we were in contact with some people that really wanted to bring about some changes in the Iranian Government that would be much to the benefit of the United States. I am not talking about returning to a situation in Iran that was the same as when the Shah was there, but turning the government around to a direction where we could indeed have a con- structive relationship with them. **At the meeting in Frankfurt, North specifically told the Iranian representatives not what the United States would be willing to do to release the prisoners, but what the Iranians would have to do before the Kuwaitis would release them. See C378. North did not promise then or later to take any affirmative steps on behalf of the United States to seek the release of the Da'wa prisoners. George Cave testified to this effect as well. See Cave Dep., 9/29/87, at 152-53. See also Id. at 56. 532 I think it is still possible that that may come about." In some respects, the actual results of the Second Channel negotiations?a small shipment of arms, the release of one hostage?were similar to the earlier agreements conducted through the First Channel. Two elements of the Second Channel meetings were different, however. First, although some of the same people participated in meetings held through both of the channels, the Second Channel meetings involved a different, more powerful leadership. Second, the Ira- nians this time clearly seemed to recognize that if the hostage problem could be finally resolved, the United States and Iran had important, mutually compatible interests that might well sustain a substantially in- creased level of cooperation. The precise elements of the strategic relationship being discussed were decidedly mixed, however. Some were beneficial to the United States, such as the exchanges of information over mutual geopolitical in- terests in the region. Others, such as proposed Da'wa release, were not. North may have been correct in saying that the position he endorsed on the Da'wa did not exactly contradict publicly stated U.S. policy." This technical accuracy does not begin to account, though, for the way such a position would have un- dermined U.S. credibility. It is another example of the NSC staff thinking about literal compliance, without adequately considering the long term political conse- quences. Conclusion: The Role of the NSC Staff, and Others The Tower Commission concluded that the Iran initi- ative was pursued with a flawed decision process managed by the NSC staff, and suggested that the procedural flaws were responsible for some of the initiative's substantive errors.82 The Tower board, we believe, underestimated the extent to which major issues were aired and argued before the President from November 1985 through January 1986. But the board was right to say that the lack of regular proce- dures, fostered by an excessive concern for secrecy, short-circuited the process of periodic review and evaluation?both of the substantive desirability of continuing the initiative, and of the decision not to notify Congress. To describe what happened simply in terms of the process, however, leaves some important questions unanswered. It is true that good organization can help make sound decisions more likely. But organization, at best, is a tool. The real flaw in the NSC's Iran negotiations, as well as in the NSC's deceptions of Congress over Nicaragua, came from errors in judg- ment. The question, therefore, is: what can an admin- istration do to ensure that people with the appropriate Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 breadth and depth of judgment are fully involved in the process at the appropriate stages? The majority report seems to want to get at this issue by legislating organization for the executive branch down to the finest detail. We are convinced, however that no one formula will work best for all Presidents. It is important not to let the record be closed with a naked criticism of the NSC staff, such as the one with which we closed our review of the Second Channel negotiations. The NSC's weakness, and the way the Iran initiative and Contra support programs gravitated toward the NSC, point to issues that go beyond this particular NSC and the specifics of this investigation. The NSC staff operated within a con- text that was also a part of the problem. Presidents can use their NSC staffs in a variety of different, and equally valid, ways. One President might prefer a staff that filters and summarizes. An- other might want a more active, more politically at- tuned and more powerful NSC staff. Like the Tower Commission, we do not think it is appropriate to tell Presidents how to arrange the people who work for them. The best organization is the one that works best for the elected official who bears final responsibility. But an administration's style, overall, has to be one that fits together in all of its parts. If the NSC staff is to operate primarily as an honest broker, that imposes responsibilities on cabinet officers chosen for their judgment. If the cabinet officers fail to meet those responsibilities, they end up leaving policy initiation, oversight, substantive review and political review to people who may not have those tasks as their primary strengths. The Reagan Administration has been beleaguered from the beginning by serious policy disagreements between the Secretaries of State and Defense, among others. That in itself in not unusual. The perspectives of those two departments often produce disagree- ments, under many Presidents. One reason Presidents need an NSC staff is precisely to help the President benefit from the differences within his administration, and not suffer from them. We have learned in our hearings that President Reagan has been willing to act decisively to settle policy differences when they are presented to him. He has not been as successful, how- ever, in ensuring that all such important differences are brought to his personal attention. In addition, he has not taken a strong hand in settling issues on which policies, personnel conflicts and turf battles merge. One result has been that some people in the Administration have had an interest in seeing the NSC staff play the role of honest broker, and not being an independent source of power. Their interest coincided with President Reagan's own preference for cabinet government, and for a less independently powerful NSC staff than those of his predecessors. It is ironic that many have looked upon the Iran- Contra Affair as a sign of an excessively powerful NSC staff. In fact, the staff's role in the Iran and Nicaragua policies were the exceptions of the Reagan years rather than the rule. When Robert McFarlane resigned in December 1985, both Chief of Staff Donald Regan and Secretary Shultz were wary of a strong successor. Passing over some widely discussed, and independently powerful people, such as Jeane Kirkpatrick, the President chose McFarlane's deputy, Admiral Poindexter. Press accounts written at the time saw Poindexter's selection in precisely these terms, as a decision to have the National Security Adviser play the role of honest broker.83 This image of the NSC lasted almost until the moment the Iran arms initiative became public.84 Poindexter was seen as a technician, chosen to perform a technical job, not to exercise political judgment. Poindexter is a talented man. In addition to his skills as a naval officer, he is highly intelligent, knowledgeable about international relations, and expe- rienced with procedures in the Reagan White House. He was not the sort of man, however, who normally sought to initiate policy or engage in jurisdictional battles. On the other side of this same character trait, he had little feel for the "people" side of domestic or international political strategy. That would not be a problem, however, as long as he managed to stay in the role of honest broker. Of all people, White House Chief of Staff Donald Regan surely should have known of Poindexter's strengths and weaknesses. He should not have tried to second-guess everything the National Security Advis- er did, but his job in the White House did require him to take note of when issues were likely to cause the President political problems. Even if Regan were not an expert in the substance of the international issues, it was his job to stay on top of the political implications of the NSC staff's activities. That alone should have led him to see red warning flags, and to make a careful check, when North was asked to testify about support for the Nicaraguan democratic Resistance after press accounts and a formal Resolution of In- quiry. He should have had a similar reaction when the NSC never reviewed the decision not to notify Congress about the January 17 finding. One way of looking at Poindexter's mistakes is to say that they were just waiting to happen. Once the NSC staff had to manage two operations that were bound to raise politically sensitive questions, Poin- dexter was not well equipped to handle them. It is not satisfactory, however, for people in the Administra- tion simply to point the finger at him and walk away from all responsibility. For one thing, the President himself does have to bear personal responsibility for the people he picks for top office. But the problem here may not have been who was picked. Instead, it may be that a person chosen to do one kind of a job as National Security Adviser suddenly was thrust into a very different kind of a situation. The question, 533 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 i I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 therefore, is: how did it happen that the NSC came to play so prominent a role in the Iran-Contra Affair? There is no mystery why the NSC staff became so important for U.S. policy toward Nicaragua. North's powerful personality, and disputes within the Restrict- ed Interagency Group before Abrams became Assist- ant Secretary of State, both contributed to North's growing power. But the fundamental reason for the NSC's prominence, beginning in 1984, was the Boland Amendment. Once that amendment was passed, the CIA and State Department were all but read out of the picture. The NSC staff was able to operate under the restriction, and it did. The evolution of the NSC's role in the Iran initia- tive was more accidental. David Kimche brought Is- rael's proposal to McFarlane in August 1985, instead of to the State Department, because he knew McFar- lane well, because the State Department had rejected similar overtures in the past, and because he knew the issue would have to be decided by the President. The NSC staff was asked for flight assistance, instead of State, in November 1985, for essentially the same rea- sons. In January 1986, Amiram Nir saw Poindexter and North partly because Nir and North were their respective governments' counterparts on counterter- rorism and had worked closely together in that capac- ity, partly because the hostages made this a counterterrorism issue, partly because the initiative had already started in the NSC, and partly, or mostly, because Secretries Weinberger and Shultz were strongly opposed to the arms sales. In addition, the CIA was more than happy not to be managing the operation itself. It was content, as former Deputy Director of Central Intelligence John McMahon has said, to play a support role." Clair George, the Deputy Director for Operations, ex- pressed even stronger feelings, as did his whole direc- torate, because Ghorbanifar was being used as the intermediary. After having issued a burn notice on Ghorbanifar once before, Casey asked George to re- evaluate him. The agency reinterviewed Ghorbanifar in late December 1985 and gave him a second poly- graph in January 1986.66 George told North how poorly Ghorbanifar had done, and then told Casey: "Bill, I am not going to run this guy any more,' which means in our language, 'I will not handle him; he is a bum.' " 87 There were a number of reasons peculiar to the particular operation, in other words, that explain why the NSC staff ended up running the Iran initiative. It is important to remember, however, that this function was an aberration. But the NSC lacked not only a person at the top who was picked for policy judg- ment; it also lacked operational experience.* There ? However, the NSC played an operational role in a series of risky foreign activities during the Reagan Administration: the raid on Libya, the freeing of the American students on Grenada, and the capture of the Achille Lauro seajackers. Admiral Poindexter 534 were people with such experience in the line agencies, but their Secretaries were vehemently opposed to the initiative. In the best of all textbook worlds, the department secretaries and other political appointees would ac- knowledge the President's decision and work hard to make sure the decision is implemented professionally. As George Shultz said in his testimony, however, issues never seem to be settled in Washington." Con- cern was rampant throughout the government that trusting anyone to run a policy he or she opposed vigorously was an open invitation to having the policy undermined, through leaks or otherwise. The situation helps explain why the NSC staff, when run- ning a dangerous operation during which hostages could easily be killed, decided to be secretive. There can be no question that the NSC denied Secretaries Shultz and Weinberger some information they should have had. However, if one looks at the record presented in testimony, it is also clear both of the Secretaries had many indications of what was happening. Weinberger did not push as hard he might have done to insist on a policy review, but we do not accept the Tower Commission's conclusion that he simply distanced himself from what was going on. On the other hand, the Tower Commission's assessment of Shultz seems more accurate. He does seem to have distanced himself, and then complained loudly after- ward about what had happened. Let us begin with Weinberger. During our hear- ings, the Secretary of Defense described himself as having been "pretty horrified" at a November 10, 1986 White House meeting, when he heard Poin- dexter give what the Secretary described as Poin- dexter's first general exposition and report on the initiative." In contemporaneous notes, Weinberger also said he was surprised to learn that the President had signed a finding for the initiative in January 1986.9? It would be misleading to treat Weinberger, however, as if he were left in the dark. For example, even though Weinberger did not know the President had signed a finding on January 17, he did attend a meeting at which the finding was discussed the day before, and he did know the Defense Department was shipping weapons to the CIA for Iran in February. He also learned about McFarlane's trip to Tehran from reports even though he had not been told about it in advance by Poindexter, and he knew about the pointed out that nobody (Congress and press included) ever com- plained about the NSC's role in these successful operations. It was not until the problems with the Iran initiative and the Contra assistance program (both highly controversial foreign policy initia- tives) that the NSC's operational role was questioned. Poindexter Test., Hearings, 100-8, 7/17/87, at 167-168. This raises a serious question as to whether the NSC should be legislatively prohibited from ever playing an operational role to assist the President with sensitive and risky activities that the State and Defense Depart- ments bureaucraties might be too cumbersome to react to effective- ly. Approved For Release 20,11/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 October 1986 shipment." When he did not see all of the hostages come out, he could have said it was time to see how the policy was working. In fact, Wein- berger said that he did make the point "all through that year" to Admiral Poindexter. I talked to Mr. Poindexter so many times, and I don't remember whether the President was present at some of those meetings or not. I think he may well have been, but I am not sure of that. But the continued objection was made all through that year with repeated?my repeatedly calling attention to the fact that it wasn't work- ing.92 Weinberger was repeatedly told by Poindexter, however, that the President had made up his mind and it was useless to keep rearguing the point." Weinberger probably could have insisted on a review anyway. Poindexter's past record, however, led others, mistakenly on this one issue, to see him as a person who (a) carried cabinet level messages faithful- ly and (b) was not an inordinate risk-taker. We have to surmise from Weinberger's behavior, therefore, that he accepted Poindexter's characterization and con- cluded that the issue was not important enough to him to be worth repeated pushing. Other battles, over arms control for example, must have been of higher priority. Shultz is more open: to criticism than Weinberger, in our view. For one thing, the Iran initiative directly went against Operation Staunch and other State De- partment programs He had more reason bureaucrati- cally to insist on an active role, and more solid rea- sons than Weinberger to think the initiative might be running counter to the positions he and his depart- ment were charged with enforcing. Secretary Shultz submitted a chronology to the Committees that listed an impressive number of occa- sions on which he was led by Poindexter to think that the United States was not contemplating or engaged in arms sales to Iran.94 Nevertheless, there are also a significant number of occurrences that would have given a more engaged Secretary, or one who wanted to be more engaged, an opportunity to insist upon being fully informed. For example, on December 5, 1985 Shultz was briefed by Poindexter on Iran. In that briefing, Shultz complained about the State Department being cut out of distribution on certain reports. Despite the com- plaint, the reports did not start coming to him.95 From the very beginning of Poindexter's tenure as National Security Adviser, therefore, Shultz was given a strong signal that he would have to be very aggressive to stay on top of all of the relevant infor- mation he would need to know. Then, in January, Shultz all but told the secretive Poindexter that he would let him be the judge of what he thought Shultz should be told about Iran: What I did say to Admiral Poindexter was that I wanted to be informed of the things I needed to know to do my job as Secretary of State. But he didn't need to keep me posted on the details, the operational details of what he was doing. That is what I told him. Now, the reason for that was?I'm not?this is the gist of what I told him. I don't remember the exact words, but that was about it. The reason for that was that there had been a great amount of discussion of leaks in the Administration, justi- fiably so. . . . I felt it would probably leak, and then it wouldn't be my leak." Shultz insisted that he intended and expected to be informed about major issues. But he did leave it to Poindexter to decide which issues were which. On January 7, 1986, the President held a meeting to discuss Amiram Nir's proposal to resume the arms sales with Iran. Shultz, Weinberger, Meese, Casey, Regan and Poindexter were there. Shultz and Wein- berger opposed selling arms to Iran, as they had in past meetings. Unlike other meetings, Shultz said, "it seemed to me that as people around the room talked, that Secretary Weinberger and I were the only ones who were against it." 97 Then, on January 16, Shultz attended a cabinet meeting at the White House. After the meeting, he was invited to come back later in the afternoon for a meeting about Iran. Shultz said he could not attend because he had another engagement. In our hearings, Shultz made a point of complaining that he did not know the meeting was to discuss what became the January 17 finding." But he must have known, after the January 6 meeting, that arms sales and hostages were on the agenda. Weinberger, Meese, Casey, Spor- kin and others attended the meeting, which was held in Poindexter's office. The finding was discussed ex- tensively. Weinberger could have begged off on the same grounds as Shultz, by saying that the President was aware of his view. But the Defense Secretary attended and heard a thorough discussion of the find- ing. Shultz stayed away, did not send a stand-in, and never asked for, let alone insisted upon, a briefing on what had happened. After this sequence, one could certainly understand how Poindexter got the impres- sion that Shultz did not really care to be informed. If this meeting did not give off every signal of a major, policy event, it is hard to know what would. And if Shultz chose not to come or to inquire afterwards, what should Poindexter have been expected to con- clude about how much to tell the Secretary? On February 28, Poindexter told Shultz that hos- tages would be released the following week and that Iranians wanted a higher level meeting, but even after the January meeting Shultz did attend, this news did not prompt Shultz to ask about arms. Shultz also 535 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 approved the Terms of Reference for McFarlane's trip to Tehran on February 28. The trip was delayed repeatedly. Then, on May 3, Shultz received a cable while he was attending a summit meeting with the President in Tokyo. The cable said that the U.S. Am- bassador to Great Britain had learned that a British businessman, Tiny Rowlands, had been approached by Nir to take part in an arms transaction with Iran that had White House approval and included Ghor- banifar and Khashoggi. Don Regan . . . told me that the President was upset and this was not anything he knew about, and Admiral Poindexter told me, I think his words were something like "We are not dealing with these people. This is not our deal." He told Ambassador Price, who called him, that there was, I think his words were, "only a smid- gen of truth in it," something like that.99 It is puzzling to us how Shultz could have been reassured by what Poindexter told him in Tokyo. The phrases "this [as opposed to something else?] is not our deal" and "smidgen of truth" should invite skepti- cism. What is the point of reviewing Shultz's record of disengagement? Shultz and Weinberger left the im- pression in our hearings, whenever they were asked about the subject, that the main reason to have asked for an NSC review of how the Iran policy was being implemented would have been to reargue the Presi- dent's basic decision. But surely, that is not the only obligation a cabinet secretary owes to his President. Full NSC members have a responsibility to remain engaged to make sure (1) that the President's policies are being implemented correctly, with a proper eye for consequences not noted by an agency running an operation, and (2) to insist that the President periodi- cally review important policy decisions, so all power is not left in the hands of the people most committed to pushing forward. If a top official cannot honestly serve his President in this way, raising questions about implementation even when disagreeing with the underlying policy decision, then it is time to think about resigning. Presidents need the judgment and support, even if it is 536 honestly skeptical support, of their top appointees. If the appointees find the policy so repugnant that they can only distance themselves from it, then they are not doing their best to serve. Weinberger did make sure that the Defense Department aspects of the oper- ation were implemented properly. Shultz simply failed to find out about the aspects of the negotiations that directly affected his own department's responsibilities. Everyone who had a stake in promoting a techni- cian to be National Security Adviser should have realized that meant they had a responsibility to follow and highlight the political consequences of operation- al decisions for the President. Even if the cabinet officials cannot support the basic policy, they have an obligation to remain actually involved, if they could manage to do so without constantly rearguing or un- dermining the President's basic policy choice. That is an essential corollary of a system of cabinet govern- ment, with a relatively weak National Security Coun- cil staff. If the NSC staff is not expected to provide independent judgment, somebody else must do so. It is at least theoretically possible that the idea of a strong cabinet government, with a weak NSC staff, will not meet any President's needs in today's interna- tional climate. That is, with the constant pressure of events and the inevitability of interdepartmental dis- agreement, it is possible that future Presidents will decide that some important issues over the course of a full term inevitably will require them to have some- thing more than an honest broker as National Security Adviser. If the need is inevitable, Presidents would be well advised to choose people who are known for their independent skills at understanding the strategic politics of international relations, both domestically and abroad. President Reagan certainly reached this conclusion when he picked Frank Carlucci to replace Poindexter, and we expect that General Powell will also turn out to be a person with the requisite sense of judgment. But Presidents should not simply assume that the Iran-Contra affair automatically proves the inevitable need for an independently powerful NSC staff. President Reagan's approach toward governing automatically requires something from the cabinet that was not supplied in this case. The model, in other words, was never given much of a chance. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 Endnotes 1. Youssef Ibrahim, "New Pipelines Are Reducing Per- sian Gulf's Strategic Role," New York Times, October 7, 1987. 2. Tower at B-6. 3. Iran: Prospects for Near-Term Instability, Special Na- tional Intelligence Estimate (SNIE), February 1986. 4. See Philip Taubman, "Iran and Soviets Draft Big Projects, Including Pipelines and Railroad," New York Times, May 8, 1987; Elaine Sciolino, "A Soviet Overture to Iran Reported," New York Times, June 30, 1987; "Soviets, Iran Seek Accord to Open Pipeline, Rail Links," Washing- ton Post, Aug. 8, 1987; "Iran and Soviets Are Said to Near a Friendship Pact," Wall Street Journal, August 13, 1987. 5. Poindexter Test., Hearings, 100-8, 7/20/87, at 307. 6. Secord Test., Hearings, 100-1, 5/7/87, at 244 and 5/8/ 87, at 272-73, 341-42, 344; McFarlane Test., Hearings, 100-2, 5/13/87, at 222, 244 and 5/14/87, at 273; Poindexter Test., Hearings, 100-8, 7/17/87, at 216 and 7/20/87, at 290. 7. McFarlane Test., Hearings, 100-2, 5/13/87, at 222; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 61; Poin- dexter Test., Hearings, 100-8, 7/17/87, at 210 and 7/20/87 at 290; Tower at B-8, B-90. 8. McFarlane Test., Hearings, 100-2, 5/13/87, at 222, 225; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62; Tower at B-7-8, B-61. 9. Secord Test., Hearings, 100-1, 5/8/87, at 267, 272-73; McFarlane Test., Hearings, 100-2, 5/13/87, at 223; Hakim Test., Hearings, 100-5, at 363; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62; Poindexter Test., Hearings, 100-8, 7/ 17/87, at 210-11, 216-17. 10. McFarlane Test., Hearings, 100-2, 5/13/87, at 224; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62; Poin- dexter Test., Hearings, 100-8, 7/20/87, at 290; Tower at B-8, B-6I, D-12-13. 11. McFarlane Test., Hearings, 100-2, 5/13/87, at 224; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62; Poin- dexter Test., Hearings, 100-8, 7/20/87, at 290; Tower at B-8- 9, B-61, B-89-90, D-12-13. 12. McFarlane Test., Hearings, 100-2, 5/13/87, at 224; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62; Poin- dexter Test., Hearings, 100-8, 7/20/87, at 290; Tower at B-7, B-90. 13. McFarlane Test., Hearings, 100-2, 5/13/87, at 224; North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62; Poin- dexter Test., Hearings, 100-8, 7/20/87, at 290. 14. McFarlane Test., Hearings, 100-2, 5/13/87, at 225; Poindexter Test., Hearings, 100-8, 7/17/87, at 214-16 and 7/ 20/87, at 290; Secord Test., Hearings, 100-1, 5/8/87, at 342; Tower at B-8. 15. North Test., Hearings, 100-7, Vol. II, 7/13/87, at 62. 16. Gary Sick All Fall Down: America's Tragic Encoun- ter With Iran (1986), at 104. 17. Secord Test., Hearings, 100-1, 5/6/87, at 148. 18. McMahon Dep., 9/2/87, at 64-67. 19. See Weinberger Test., Hearings, 100-10, 7/31/87, at 140. See also North Test., Hearings, 100-7, Vol. I, 7/9/87, at 220. 20. McFarlane Test., Hearings, 100-2, 5/13/87, at 229; Poindexter Test., Hearings, 100-8, 7/17/87, at 216. 21. Secord Test., Hearings, 100-1, 5/6/87 at 148-50, 5/7/ 87 at 230-31 and 5/8/87 at 352-55; Poindexter Test., Hear- ings, 100-8, 7/17/87, at 215. 22. Poindexter Test., Hearings, 100-8, 7/17/87, at 215. 23. George Test., Hearings, 100-11, 8/5/87, at 190. 24. Poindexter Test., Hearings, 100-8, 7/17/87, at 215. 25. Memorandum from Poindexter to the President, Janu- ary 17, 1986, p. 1, Ex. JMP-28, Hearings, 100-8. 26. Poindexter Test., Hearings, 100-8, 7/17/87, at 215. See also Weinberger Test., Hearings, 100-10, 7/31/87, at 146. 27. Shultz Test., Hearings, 100-9, 7/23/87, at 52. 28. Id. at 53.. 29. Robert M. Gates, "The CIA and the Making of American Foreign Policy," Speech delivered at Princeton University, September 29, 1987, p. 23. 30. McMahon Dep., 9/2/87, at 27. 31. Regan notes, p. 13, Ex. DTR-41A, Hearings, 100-10. 32. Tower at III-4 to III-8 and B-1 to B-24. 33. George Test., Hearings, 100-11, 8/5/87, at 190. 34. U.S. Senate, 100th Cong., 1st Sess., Select Committee on Intelligence, "Preliminary Inquiry Into The Sales of Arms to Iran and Possible Diversion of Funds to the Nica- ragua Resistance," S. Rept. 100-7, p. 3. 35. Tower at B-3, citations omitted. 36. Lally Weymouth, "Yaacov Nimrodi: A Tale of Arms and the Man," The Washington Post, Dec. 14, 1986, p. H4. 37. Tower at B-11. 38. Tower at B-4. 39. Ledeen Dep., 3/11/87, at 9-11. 40. Id. at 16-19; Tower at B-4 to B-6. 41. Tower at B-9. 42. Tower at B-14. 43. Ledeen Dep., 3/11/87, at 28. 44. North Test., Hearings, 100-7, Vol. I, 7/9/87, at 218; Poindexter Test., Hearings, 100-8, 7/21/87, at 385; George Test., Hearings, 100-11, 8/5/87, at 194; Hakim Test., Hear- ings, 100-5, 6/4/87, at 261 and 6/5/87 at 393. 45. Hakim Dep., 5/25/87 at 58-60. 46. Tower, at B-19. 47. Poindexter Test., Hearings, 100-8, 7/21/87 at 385 and Poindexter notes, Ex. JMP-23, Hearings, 100-8. 48. Letter from Prime Minister Peres to President Reagan, 2/28/86, J7431. 49. Ex. JMP-58, Hearings, 100-8. 50. See Ex. DTR-41 (notes by Alton Keel) and Ex. DTR- 41A (notes by Donald Regan), Hearings, 100-10. 51. Briefing paper for November 20, 1986 meeting, S3921. 52. McFarlane cable to Shultz, July 13, 1985, Ex. GPS-9, Hearings, 100-9. 53. Armacost cable to Shultz, July 13, 1985, Ex. GPS-8, Hearings, 100-9. 54. Tower at B-17. 55. North Test., Hearings, 100-7, Vol. I, 7/9/87, at 218. 56. McFarlane cable to Shultz, July 13, 1985, Ex. GPS-9, Hearings, 100-9. 57. Shultz cable to McFarlane, July 14, 1985, Ex. GPS- 10, Hearings, 100-9. 58. See Secord Test., Hearings, 100-1, 5/8/87, at 273; North Test., Hearings, 100-7, Vol. I, 7/8/87, at 219 and Vol. II, 7/14/87, at 150-51; McFarlane Test., Hearings, 100-7, Vol. II, 7/14/87, at 173-74; Poindexter Test., Hearings, 100- 8, 7/20/87, at 305; Shultz Test., Hearings, 100-9, 7/24/87, at 184-85. 59. McFarlane Test., Hearings, 100-2, 5/13/87, at 175. 537 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 , . . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 8 60. Shultz Test., Hearings, 100-9, 7/24/87, at 185. 61. 22 U.S.C. 1732 as cited by President Carter in Execu- tive Order 12294 affecting private claims against Iranian assets held in the United States, 46 Fed. Reg. 14111 (1981). Both the law and executive order are cited in Dames & Moore v. Regan, 453 U.S. at 675-76. 62. North Test. Hearings, 100-7, Vol. II, 7/10/87, at 22. 63. Agent 1 Dep., 8/12/87, at 191-196. 64. DIA Major Dep., 7/2/87, at 88-90. 65. T3Id. at 94. 66. DIA Major Dep., Ex.1, at 4. 67. Agent 2 Dep., 8/28/87, pp. 57, 109. 68. Memorandum from North to McFarlane, 5/24/85 at 3, 4, North Test., Hearings, 100-7, Part II, Ex. OLN-262; memorandum from North to McFarlane, 6/7/85, at 2-4, North Test., Hearings, 100-7, Part II, Ex. OLN-262; memo- randum titled "DEA support for recovery of American hostages seized in Beirut," Ex. EM-2, Hearings, 100-9. 69. McFarlane Test., Hearings, 100-2, 5/11/87, at 44. 70. Cave Dep., 4/17/87, at 111; Cave Dep., 9/29/87, at 67-69. 71. Allen/Cave memo on the Frankfurt meetings, 11/3/ 86, C09522-23. 72. Memorandum of conversation, Sept.-Oct. 1986 at 1,2,3,6,7,9,17-18, P59. 73. Transcript of Second Channel Meeting at C332. 74. Id. at C366-67. 75. Id. at C367-71. 76. Ex. OLN-308, Hearings, 100-7, Vol. II. 538 77. Ex. OLN-310, Hearings, 100-7, Vol. II. 78. Poindexter Test., Hearings, 100-8, 7/15/87, at 69. 79. Shultz Test., Hearings, 100-9, 7/23/87, at 69; Regan Test., Hearings, 100-10, 7/30/87, at 20-21. 80. Poindexter Test., Hearings, 100-8, 7/16/87, at 216. 81. North Test., Hearings, 100-7, Vol. I, 7/10/87, at 332. 82. Tower at IV-3-4. 83. See, for example, "Primus, Pares and Poindexter," New York Times editorial, December 6, 1985; Mary Belch- er, "White House shift realigns influence in foreign policy. More clout likely for State, Defense," The Washington Times, December 5, 1985, p. 1. 84. Leslie H. Gelb, "How the New Admiral at the White House Fares," New York Times, September 23, 1986, p. 24. 85. McMahon Dep., 9/2/87, at 69-72. 86. George Test., Hearings, 100-11, 8/6/87, at 158. 87. Id. at 160. 88. Shultz Test., Hearings, 100-9, 7/24/87, at 48. 89. Weinberger Test., Hearings, 100-10, 7/31/87, at 150. 90. Ex. CWW-28, Hearings, 100-10. 91. Id. at 143-45. 92. Weinberger Test., Hearings, 100-10, 7/31/87, at 145. 93. Poindexter Test., Hearings, 100-8, 7/31/87, at 42. 94. Ex. GPS-Chronology-B, Hearings, 100-10. 95. Shultz Test., Hearings, 100-9, 7/24/87, at 30. 96. Shultz Test., Hearings, 100-9, 7/23/87, at 6. 97. Shultz Test., Hearings, 100-9, at 33. 98. Shultz Test., Hearings, 100-9, 7/23/87, at 33. 99. Shultz Test., Hearings, 100-9, 7/23/87, at 10. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Iran: The Legal Issues These Committees' hearings and the majority report have trivialized important disagreements over interna- tional policy, and the political relationships between the legislative and executive branches. In an attempt to gain partisan advantage, the majority has focused upon legal disputes, trying to portray the Committees' role as that of prosecutor. We have indicated several times that we have some policy disagreements with the Administration's actions of 1984-86. We disagree, for example, with the decision to sell arms to Iran and to withhold notification to Congress for as long as the President did in this case. We also think it was a political mistake for the President not to have con- fronted Congress over the Boland Amendment in 1984. In neither case, however, do we think the Ad- ministration made serious legal missteps. Our reason- ing with respect to the Boland Amendment was laid out in an earlier chapter. Here, we examine the major legal points raised by the majority in criticism of the Iran initiative. We conclude that the Administration was in subtantial compliance with the law throughout the Iran initiative. Introduction The Iran arms sales involved two different kinds of transactions. The 1985 shipments involved sales, from Israel to Iran, of arms Israel had purchased from the United States. The President gave his verbal approval for these sales,* and the U.S. assured Israel that the weapons could be replenished from U.S. stocks. The August-September 1985 TOW missile sales took place without any direct U.S. participation. A shipment problem in November 1985 brought General Secord into the picture. Ultimately, the CIA also became involved in a minor, peripheral way, because (1) Secord used a CIA proprietary, at commercial rates, to ship the missiles and (2) because CIA personnel became involved in trying to help arrange transship- ment through a European country. Because of the CIA's participation, the CIA's General Counsel, Stan- ley Sporkin, drafted a written Presidential Finding within days of the event that was signed by the Presi- * For the dispute over this point, see Tower, B-19-23. These Committees have developed no important new evidence on the point. dent about December 5, 1985. This is the Finding Admiral Poindexter said he destroyed in November 1986.1 A draft of the Finding has been entered into the Committees' record as an exhibit.2 The 1986 ship- ments, in contrast, all involved the shipment of U.S. arms through a commercial cutout, the Secord-Hakim "Enterprise." All of these shipments were adequately described and fully covered by a written Presidential Finding signed January 17, 1986. The basic law governing most sales of U.S. arms to other countries is the Arms Export Control Act (AECA).3 Under the AECA, the President is re- quired to notify Congress of covered arms sales, and Congress has an opportunity to pass a joint resolution prohibiting major sales, if it can get the President's signature or a two-thirds veto override vote. The AECA also requires special waivers if a sale is to be made to a country, such as Iran, that has been named by the Secretary of State as one that supports interna- tional terrorism.4 Finally, the AECA requires any country that receives arms under the terms of the act, such as Israel, to notify the President of any proposed transfers to third parties or countries, and to limit such transfers to countries or organizations otherwise eligible to receive arms under the terms of the act. Under this provision, transfers from Israel to Iran would be governed by the same notification and waiver requirements as direct sales or transfers from the United States. Similar restrictions apply to the retransfer of arms given to another country under the Foreign Assistance Act (FAA) of 1961.5 Under the AECA and the FAA, sales of munitions valued at less than $14 million are not subject to the formal report- ing requirements outlined in 22 U.S.C. 2753 (d). Arms sales may also proceed covertly under the National Security Act,6 with prices set under the terms of the Economy Act.7 The National Security Act does con- tain rules requiring notification of Congress,8 and the Hughes-Ryan Amendment to the Foreign Assistance Act of 1961 limits the use of appropriated funds to support CIA foreign operations, to ones for which the President finds the operation to be important to the national security.3 The legal issues raised by the arms sales to Iran may therefore be summarized as follows: (1) Did the arms sales of 1985, from Israel to Iran, violate the terms of the AECA or FAA? 539 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 (2) Did the 1985 Israeli sales to Iran violate the requirements for Presidential authorizations or Find- ings under the terms of the National Security Act and the Hughes-Ryan Amendment? (3) Did the 1986 sales violate the National Security Act's requirements for notifying Congress? Our answer to each of these questions is no. We conclude that the Administration was in substantial compliance with the law during each of the Iran transactions. Export Controls and the 1985 Shipments All of the arms transfers before January 17, 1986? that is, the transfers of August, September, and No- vember 1985?were accomplished by Israel's ship- ment of weapons from its own supplies. These weap- ons were originally obtained from the United States and were sent to Iran with the understanding that the United States eventually would replenish Israeli stocks. It is reasonable to assume that the weapons Israel shipped to Iran in 1985 were originally supplied under the AECA or FAA. These two statutes do permit the President or the Secretary of State to consent to re- transfers, provided that certain conditions are satis- fied. Under the Arms Export Control Act, these con- ditions are that the United States itself must be able to sell weapons to the third country directly; that the third country transferee must agree in writing not to retransfer without U.S. permission; and that Congress must be notified. ? The Foreign Assistance Act con- tains provisions similar to the first two above, but no notification provision." It should be noted that while the Letter of Offer and Acceptance" Israel signed in receiving arms in the first instance required it to re- ceive written authorization from the U.S. for re- transfer of weapons to a third party, neither the AECA nor the FAA require a written authorization. In these instances, Israel received oral authorization for the retransfers. Because each of these transactions involved less than $14 million, compliance with the formal reporting requirements of the AECA and FAA is not required.' 3 The retransfer restrictions of the AECA and FAA were intended to cover situations in which the trans- ferring country, rather than the United States, is the sole source of the retransfer request. The laws seek to ensure that such retransfers foster the national securi- ty interests of the United States. But in the case of the Iran arms sales, the Israeli shipments were made with the agreement of American authorities, and Israel was promised and later was given substantially identical replacements. Clearly, the Iran arms sales were pre- mised on U.S. views about America's own national security interests. In short, the substantive purposes of the AECA and FAA were met. 540 An Alternative Route The National Security Act provides an alternative legal route to using the AECA or FAA. Like the AECA and FAA, the National Security Act presup- poses some kind of Presidential determination. Specifi- cally, the determination must be that an action?in this case a retransfer?would "affect" the national security." If the CIA is involved, the so-called Hughes-Ryan Amendment requires a more emphatic Presidential determination. Instead of saying an activi- ty must "affect" national security, Hughes-Ryan says it must be "important." More significantly, this deter- mination must be made personally by the President, and reported in a "timely fashion" to Congress. We believe that the terms under which the Presi- dent may use the National Security Act in fact meet all of the underlying purposes of the AECA and FAA, and that is why Congress has been satisfied to let the one approach be a substitute or alternative route to the other.* The fact is that the 1985 Israeli transactions essentially?and legally?were equivalent to ones in which the United States sold the weapons directly to Iran. The evidence indicates that Israel participated in the 1985 transactions in reliance on U.S. assurances, provided by the NSC staff with the President's ap- proval, that the U.S. would not oppose the transac- tions, and that the U.S. would replenish the arms Israel sent to Iran. The same arms could have been supplied lawfully, however, directly from American stocks. Indeed, the transactions of 1986 did proceed directly, under the authority of the National Security Act and the Economy Act. Assistant Attorney Gener- al Cooper pointed out in his December 17 memoran- dum to the Attorney General: [I]t is apparent that the real nature of the 1985 transactions was a bilateral sale by the United States to Iran, with Israel serving solely as a conduit or facilitator in the execution of that sale. We see no reason to treat the legality of Israel's participation differently than we would treat the participation of any other party that served as a conduit in a lawful covert operation. Had the United States consigned weapons from American stocks to Israel for shipment to Iran, Israel's role would have been exactly equivalent to the role that common carriers and public warehouses play in overt transactions. Because, so far as we know, the weapons that Israel shipped to Iran in 1985 and received from the United States were com- pletely fungible, a similar equivalence is present- ed here. Just as an illegal sale of arms to Iran * There are differences in the formal reporting requirements, to be sure. In some circumstances, we might imagine that such differ- ences could be significant. In this particular retransfer, they were not. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 would not be made legal by using Israel as a conduit, so too a legal transaction could not be made illegal by Israel being used in the same way.15 The Laws Governing Covert Action We turn now to the laws governing covert operation, which were the ones under which the Administration was operating. In our earlier chapter on the Constitu- tion, we argued that the President has the inherent authority to use special agents and to encourage or order covert activities. Once the President begins using appropriated funds, however?including salaried personnel?Congress can put strings on the use of such funds. Congress can, for example, tie the Presi- dent's hands in knots by appropriating money for only one specified operation at a time. For any number of important national security reasons, we noted in the Constitution chapter, the Congress has recognized that the President needs a contingency reserve fund to meet changing conditions during the course of a fiscal year. Once Congress gives the President a con- tingency reserve, there are lines of inherent Presiden- tial authority that Congress may not properly cross. Those lines come into play most importantly in the extremely rare circumstance when the President has legitimate reason to believe that reporting must be withheld. We shall discuss this issue below. For any circumstances outside the extreme, however, Con- gress has put a number of requirements on the Presi- dent that seem to us to pass constitutional muster. For most of the country's history, covert activities were conducted by giving the President a contingen- cy fund, without any additional, explicit statutory au- thorization. The first law codifying this power was the National Security Act of 1947. That law estab- lished the National Security Council and gave it the power, among others, to perform "such other func- tions as the President may direct . . . .In the polite language of the post-World War II diplomatic world, in which covert activities were not acknowl- edged publicly by governments, everyone understood this term to give broad authority to the President to use the NSC as he saw fit. Another title of the same law, however, created the CIA as the government's main body for conducting such activities: It shall be the duty of the Agency, under the direction of the National Security Council . . . to perform, such other functions and duties related to intelligence affecting the national security as the National Security Council may from time to time direct.17 Historically, this language has been understood to au- thorize a wide range of foreign covert activities, in- cluding arms transfers. Covert Transactions The position that covert arms sales could proceed without triggering the requirements of the AECA was expressed as the Administration's interpretation of the law in October 1981. In conjunction with one covert transaction that year, Davis R. Robinson, Legal Adviser to the Secretary of State, wrote: It seems clear that Congress has not regarded the FAA and the AECA as an exclusive body of law fully occupying the field with respect to U.S. arms transfers. There are several illustrations where Congress, having been made aware of transfers to foreign countries outside that body of specific authorities, has reacted by enacting limit- ed restrictions or reporting requirements rather than by prohibiting such transfers altogether." Robinson noted that if Congress had thought the AECA and FAA completely covered the field, it would not have passed the Clark Amendment of 1976, prohibiting covert aid to Angola, or the Hughes-Ryan Amendment establishing separate fmding and notifica- tion requirements for CIA covert operations. Three days after the Robinson memo was written, Attorney General William French Smith forwarded a copy to Director Casey. Smith wrote: We have been advised by the State Department's Legal Adviser that the Foreign Assistance Act and the Arms Export Control Act were not in- tended, and have not been applied, by Congress to be the exclusive means for sales of U.S. weap- ons to foreign countries and that the President may approve a transfer outside the context of those statutes." The Attorney General concurred with this opinion, and Congress was well aware of this fact. Congressional awareness is shown most clearly in a provision of the Intelligence Authorization Act for Fiscal Year 1986. This provision, which became a new section to the National Security Act, reads as follows: Sec. 503. (a)(1)The transfer of a defense article or defense service exceeding $1,000,000 in value by an intelligence agency to a recipient outside that agency shall be considered a significant anticipat- ed intelligence activity for the purpose of section 501 of this Act. (2) Paragraph (1) does not apply if-- (A) The transfer is being made to a depart- ment, agency, or other entity of the United States (so long as there will not be a subsequent re- transfer of the defense articles or defense services outside the United States Government in con- 541 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 junction with an intelligence or intelligence-relat- ed activity); or (B) the transfer--(i) is being made pursuant to authorities contained in part II of the Foreign Assistance Act of 1961, [or] the Arms Export Control Act . . . .20 This act makes it clear, beyond any doubt, that Congress intended some covert arms transfers to occur outside normal AECA channels. It was precise- ly for this reason that it put in a threshold to trigger the reporting requirements under the provisions gov- erning reporting and Congressional oversight of intel- ligence. The General Accounting Office agreed with this conclusion. In a March 1987 report on the direct U.S. arms sales to Iran, the GAO said: Since Congress has explicitly recognized that in- telligence activities may include the secret trans- fer of arms (Intelligence Authorization Act for fiscal year 1986, section 403 [quoted above as section 503 of the National Security Act]), the CIA is authorized by the Economy Act to turn to other agencies for that equipment. Therefore, we believe that the decision to use the Economy Act to provide support for this covert transaction was proper. Transfers of equipment by the CIA and others, including foreign governments, are governed by applicable laws relating to intelligence and spe- cial activities, rather than the Arms Export Con- trol Act, which ordinarily governs overt arms transfers overseas. Consequently, we consider those transfers to be subject to the requirements pertaining to the conduct of intelligence and spe- cial activities. As a general rule, those transfers would not be subject to the pricing or reporting restrictions applicable to overt arms transfers conducted under the Arms Export Control Act.2 Hughes-Ryan Amendment The direct statutory regulation of special activities began only recently, in 1974. In that year, Congress passed the Hughes-Ryan Amendment to the Foreign Assistance Act of 1961. As amended by the Intelli- gence Oversight Act of 1980, Hughes-Ryan reads as follows: No funds appropriated under the authority of this or any other Act may be expended by or on behalf of the Central Intelligence Agency for op- erations in foreign countries, other than activities intended solely for obtaining necessary intelli- gence, unless and until the President finds that each such operation is important to the national security of the United States. [The following was 542 added in 1980 to replace earlier "timely notifica- tion" language.] Each such operation shall be considered a significant anticipated intelligence activity for the purpose of section 501 of the National Security Act of 1947. [Section 501 is the 1980 Oversight Act] 22 As pathbreaking as Hughes-Ryan was at the time, its omissions are at least as important as its coverage for analyzing the Iran arms sales. Hughes-Ryan ap- plies only to those covert operations involving the expenditure of appropriated funds by or on behalf of the CIA. August-September 1985 Transactions Specifically, the omissions of Hughes-Ryan mean that the Israeli's TOW transfers to Iran in August and September 1985?which did not in any way involve the CIA?did not require a covert action Finding under the terms of the law.* In fact, no written Find- ing was made at that time. Nonetheless, there is evi- dence indicating that the August-September and No- vember 1985 shipments were carried out pursuant to the oral authorization of the President. In fact, the Hughes-Ryan Amendment contains no requirement that this Finding be reduced to writing or that it be articulated in any particular form. The main purpose of the Presidential finding requirement is to ensure that the President himself decides, before each such operation, whether the national security justified its being carried out. An oral authorization therefore sat- isfies the Hughes-Ryan finding requirement.** We do believe it would be better to reduce covert action Findings to written form, so as to memorialize the undertaking and to avoid any confusion in imple- mentation and notification. Certainly, all of the 1985 arms shipments should have been preceded by a writ- ten Finding or Findings. Paying more attention to * It should be noted that Executive Order No. 12333 on United States Intelligence Activities (Dec. 4, 1981, 46 Fed.Reg. 59941) extended the finding requirements of Hughes-Ryan to the "intelli- gence community." As we have already pointed out in the Boland Amendment chapter, however, this language, and the earlier lan- guage of the Oversight Act of 1980, were crafted deliberately to exclude the NSC, which was the only U.S. government agency involved in even tangentially in the August-September shipments. ** This is the position taken by Assistant Attorney General Cooper in, Cooper Memorandum, "Legal Authority . . . ", n. 15 infra, at 7-8. In the President's National Security Decision Direc- tive (NSDD) 159, dated January 18, 1985, there is a provision stating that the appropriate procedure for Presidential approval of covert actions is a written Presidential Finding. (See Ex. BGS-15, Hearings, 100-5.) However, this procedure, having been instituted for the internal use of the President and his intelligence advisers, cannot be considered to be legally binding on the President. Writ- ing about Executive Order 12333, which if anything must have greater binding authority than a classified NSDD, Cooper said: Activities authorized by the President cannot 'violate' an executive order in any legally meaningful sense, especially in a case where no private rights are involved, because his authorization creates a valid modification of, or exception to, the executive order. Id. at 14. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 formalities could have eliminated a number of legal issues which have been raised. But this criticism of the White House's past administrative practices is not intended to suggest that the shipments themselves did not meet the legal requirements. November 1985 Transaction One difference between the summer and the Novem- ber shipments in 1985 was that the CIA did play a role, albeit a minor one, in November. It should be emphasized that this shipment consisted of a mere 18 HAWK missiles, and the CIA did not pay for their transportation. CIA officials merely referred North and Secord to a CIA proprietary airline, and this airline transported these missiles in a single plane as a strictly commercial transaction with full payment by Secord's enterprise to the airline. No CIA funds fi- nanced the shipment. The CIA's only direct role in this shipment was to facilitate overflight clearances from foreign governments. Thus, the CIA provided logistical support for a secret initiative conducted by the NSC staff. There has been an inordinate amount of attention paid to the CIA's role in the November 1985 ship- ments. The underlying. theory seems to have been (a) that the CIA and others in the Administration knew the November 1985 shipment was illegal and (b) that attempts to "cover up" the 1985 "illegalities" explain the altered chronologies, shredding and other events of November 1986. We consider both the theory and the underlying premise to be unfounded. For one thing, we do not consider the November 1985 ship- ments to have had legal problems, except possibly ones of a technical, minor sort. Allegations that the CIA covered up an illegal action have been fueled by the mysterious disappear- ance of a cable Duane (Dewey) Clarridge allegedly sent to Country 15 on November 22 and one alleged- ly sent back to him from the same country the next day. The officer sending the second cable has said it informed headquarters that he had learned from Gen. Secord that the flight would contain HAWK mis- siles." There have been questions about what hap- pened to these cables. Clarridge specifically denies ever having received the second one, and said that so do the Deputy Director for Operations and others in the DDO's office who would normally have received a copy. 24 Clair George, the DDO, confirmed this testimony." Moreover, Clarridge said, he did not think the difference between HAWKs and oil-drilling parts was all that significant from the agency's point of view, since both were embargoed items." We do not believe that support of this sort rises to the level of a CIA covert action that would require a Finding under Hughes-Ryan. The action, at most, should be treated as being de minim& In any event, there is evidence that the President orally approved this HAWK shipment from Israel to Iran, and a writ- ten Finding was made within days. Then-CIA Gener- al Counsel, and now U.S. District Judge, Stanley Sporlcin, who had as much experience interpreting Hughes-Ryan as any other federal official, testified that when CIA Deputy Director John McMahon told him to draft a Finding to cover the CIA's involve- ment, Sporlcin thought a Finding was not required by law in this instance, even though he agreed it was prudent.27 According to John Poindexter, who in early December 1985 succeeded Robert McFarlane as Assistant to the President for National Security Af- fairs, the President signed the Finding, probably on December 5, 1985.28 By its terms, the Finding ratified the prior actions that the US. government took to obtain the release of the American hostages. The November-December 1985 Finding reflected in written form that the President had been briefed before the shipments on the efforts made to obtain the release of the hostages, and that the President himself had found that these efforts were important to the national security of the United States. Therefore, in both the oral Findings referred to earlier, and the written Finding itself, the President accordingly rati- fied all prior actions and directed further actions to be taken. As for the 1986 arms transfers, the President's writ- ten Finding of January 17, 1986 clearly and obviously satisfied Hughes-Ryan for all of them. These Findings covered both the U.S. sales to Iran, and the portion of the May 1986 transaction that replenished Israeli stocks for the 1985 transfers. Timely Notification Our closing pages on the Constitution contained an extensive analysis of why Presidents have the inherent power, under exceptional circumstances, to defer noti- fying Congress of a covert operation. Congress wisely recognized this fact when it passed the Intelligence Oversight Act of 1980. The Oversight Act was an outgrowth of the the proposed intelligence charters of the 1970s, which we outlined in our chapter on the Boland Amendments. In this chapter, we shall concentrate on one aspect of that law, the requirement for Administration reports to Congress about intelligence activities. That law appears in the statute books as a new section 501 of the National Security Act." Under section 501(a), the Director of Central Intelligence or the heads of other agencies or entities involved in intelligence ac- tivities,* are required to keep the intelligence commit- tees of Congress "fully and currently informed of all intelligence activities," including "any significant an- * We showed in the Boland Amendment chapter that the lan- guage in the Oversight Act deliberately excluded the NSC from these requirements. 543 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11I . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 ticipated intelligence activity." However, section 501(a) further provides: [I]f the President determines that it is essential to limit prior notice to meet extraordinary circum- stances affecting vital interests of the United States, such notice shall be limited to the chair- man and ranking minority members of the intelli- gence committees, the Speaker and minority leader of the House of Representatives, and the majority and minority leaders of the Senate. This is the provision that permits an Administration to limit advance notification to a so-called "Gang of Eight." The law also specifically contemplates a situa- tion, however, in which notifying the Gang of Eight might be too risky. Consider this wording from sec- tion 501(b): The President shall fully inform the intelligence committees in a timely fashion of intelligence op- erations in foreign countries, other than activities intended solely for obtaining necessary intelli- gence, for which prior notice was not given under subsection (a) and shall provide a statement of the reasons for not giving prior notice. [Emphasis added.] While we agree with the majority that the idea of "timely" notification almost always envisioned a short time period, the rare conditions under which prior notification has been withheld could not possibly have been defined in calendar or other precise statutory terms. As a result, the decision not to notify must of necessity rest on Presidential discretion. The constitutional basis for withholding notification was recognized in, but, of course, does not depend upon, the "preambular" language of section 501: To the extent consistent with all aprflicable au- thorities and duties, including those conferred by the Constitution upon the executive and legisla- tive branches of the Government, and to the extent consistent with due regard for the protec- tion from unauthorized disclosure of classified in- formation and information relating to intelligence sources and methods . . . [the intelligence com- mittees are to be kept informed of various intelli- gence activities]. Thus, section 501 acknowledges that reporting re- quirements cannot limit the constitutional authority of either the executive branch or the legislative branch, and further recognizes the need to protect sensitive information from disclosure. The legislative history of the Oversight Act firmly supports our interpretation of its language. Consider the following explanation of the pending conference report on the Oversight Act by Rep. Boland, then the Intelligence Committee chairman: 544 When prior notice is not given to the committees or to the smaller group of eight, the conference report makes clear that the full Intelligence Com- mittees must receive reports on the covert oper- ation "in a timely fashion."3? Clement J. Zablocki, then Chairman of the House Foreign Affairs Committee as well as a member of the Intelligence Committee, pointed out: In addition, the legislation makes the fundamental recognition that in extraordinary circumstances advance information on covert operations might be withheld from the Select Committees on Intel- ligence, provided the President informs the com- mittees in a timely fashion and provides a state- ment of the reasons for not giving prior notice. Mr. Speaker, this recognition of the need for limited exceptions to prior reporting of covert operations is fully consistent with the Committee on Foreign Affairs amendment to Hughes-Ryan. I therefore welcome its inclusion in the confer- ence report. Such exceptions are absolutely essen- tial to a strong intelligence community and im- portant for U.S. security. Such exceptions will also help the American in- telligence community to maintain the extraordi- nary secrecy necessary in intelligence activities and promote cooperation from the intelligence communities of friendly countries.31 William Broomfield, Ranking Republican on the Foreign Affairs Committee, observed: Henceforth, in extraordinary circumstances af- fecting vital national interests?the President will be allowed to defer reporting to Congress on CIA covert action operations abroad. The key word here is defer. The President is not excused forever from letting us know about such activi- ties. This is not an abdication of our oversight responsibility. We are just allowing him to post- pone his reporting in those rare instances where, for example, prior disclosure would jeopardize the lives of the personnel or the methods em- ployed in a particular covert action activity. As the conference report notes?"If prior notice of a covert operation is not given, the President must fully inform the select committees in a timely fashion and provide a statement of the reason for not giving prior notice." Is that unreasonable? It seems to me common sense dictates that we allow the President this flexibility so that he can effectively discharge his constitutional responsibility to conduct foreign policy. In this connection, let us not forget that covert action is an important and sometimes vital aspect of foreign policy and has been utilized by , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Presidents all the way back to George Washing- ton. A number of my colleagues have expressed con- cern about how often a President might invoke the deferred reporting option provided by this measure. A look at the record to date is illumi- nating in this regard. Since the passage of the Hughes-Ryan Amendment in 1974, there has been only one known covert action that was not reported to Congress prior to its initiation. Our committee was subsequently briefed on that action and learned that the reason for the de- ferred reporting was because the President felt such prior notification could jeopardize the lives of the personnel involved in that action. More- over, participants in this successful operation? which we all applauded when we became aware of it?agreed to participate in the action only after being assured that there would be no prior disclosure to Congress.3 2 Essentially the same interpretation was put on the bill by Rep. Les Aspin, who was then a member of the Intelligence Committee. What makes Aspin's statement particularly important is that it came from a member who was unhappy with what he perceived as the bill's "vague" language. After describing, and complaining about, the provision to limit notification to the chairmen, Aspin then went on to note: "There is, second of course, the possibility, and I guess the statutory possibility that the Administration can, in effect, just waive the whole thing".33 There can be no question from the legislative histo- ry, in other words, that the statute contemplated situ- ations in which the President would not give prior notification. The remaining question is, how long is "timely"? We would maintain that the answer must vary with circumstances. To weigh circumstances re- quires one to use discretion; that function, therefore, must, belong to the President. Was 11 months too long for President Reagan to have withheld notification of the Iran arms sales? We think so; he could have purchased what Rep. Henry Hyde has described as some good political "risk insur- ance" early by coming to Congress and getting Con- gress on board.* On the other hand, we are also well aware that President Carter withheld notification for about six months in a parallel hostage crisis. In fact, President Carter, in his four years in office, withheld notification two or three times?about the same number of times and for roughly the same kind of * U.S. House of Representatives, Permanent Select Committee on Intelligence, Subcommittee on Legislation, 100th Cong., 1st Sess., Hearings on HR. 1013, HR. 1371, and Other Proposals Which Ad- dress the Issue of Affording Prior Notice of Covert Actions to the Congress, April 1 and 8, June 10, 1987, p. 30. waiting period as President Reagan.** In any event, whenever it finally comes time to notify, the Presi- dent will have to pay a significant political price if Congress is not persuaded by the reasons the Presi- dent gives for having withheld notice. Conclusion We conclude that the Administration was in substan- tial compliance with the law during each of the Iran arms transactions. The arms sales of 1985 from Israel to Iran did not violate the terms of the AECA or FAA. It is reasonable to assume that the weapons Israel shipped to Iran in 1985 were originally supplied under AECA or FAA. These two statutes permit the President or the Secretary of State to consent to re- transfers. In these instances, oral authorization was given for the transfers. Moreover, the formal report- ing requirements do not apply because each of these transactions involved munitions valued at less than $14 million. The AECA and FAA seek to ensure that such retransfers foster the national security interests of the United States. The Israeli shipments were made with the agreement of American authorities and were premised on U.S. views about America's own national security interests. The substantive purposes of the AECA and FAA were met. Moreover, the 1985 Israeli sales to Iran did not violate the requirements for Presidential authoriza- tions or Findings under the National Security Act and the Hughes-Ryan Amendment. The National Security Act provides an alternative route apart from the AECA and FAA under which the Administration was in compliance with the law during the 1985 trans- actions. The terms under which the President may use the National Security Act meet all of the underlying purposes of the AECA and FAA. Therefore, Con- gress has been satisfied to let the one approach be a substitute or alternative route to the other. The Hughes-Ryan Amendment contains no require- ment that Presidential Findings be reduced to writing. The November-December 1985 Finding reflected in written form that the President had been briefed before the shipments on the efforts made to obtain the release of the hostages, and that the President himself had found these efforts were important to the national security of the United States. Therefore, in both the oral Findings of 1985, and the written November- December 1985 Finding, the President accordingly ratified all prior actions and directed further actions to be taken. With regard to the 1986 transactions, the President's January 17, 1986, Finding clearly satisfied the Hughes-Ryan Amendment. ** These examples were discussed previously in the closing sec- tion of chapter 4. As was there pointed out, in one of the cases Canadian participation was conditioned on a U.S. agreement not to notify Congress until Americans hidden in the Canadian Embassy were safely out of Iran. 545 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Finally, the 1986 arms sales did not violate the National Security Act's requirements for notifying Congress. Certainly, the National Security Act re- quires agencies involved in intelligence activities to keep the intelligence committees of Congress "fully and currently informed of all intelligence activities." However, the law specifically contemplates situations in which notifying the appropriate Congressional members might be too risky. The act requires that in instances in which the President has not given prior notice of intelligence operations, he must inform the intelligence committees in a "timely" fashion. The decision not to notify must rest on Presidential discretion. The reporting requirements of the National 546 Security Act cannot limit the constitutional authority of the President to withhold prior notification of covert activities in exceptional circumstances. In this case, the lives of hostages were at stake such that premature notification was extraordinarily dangerous to the lives of American citizens. We conclude that, in circumstances such as these, the President must have the discretion to determine when notification is "timely." If Congress, after the fact, disagrees. with the way in which the President has exercised his discretion, the appropriate remedy is a political and not a legal one. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 9 Endnotes 1. Poindexter Test., Hearings, 100-8, 7/15/87, at 18. 2. Ex. SS-4, Hearings, 100-6. 3 .22 U.S.C. 2753. 4. 22 U.S.C. 2780 5. 22 U.S.C. 2314. 6. 50 U.S.C. 401 et seq. 7. 31 U.S.C. 1535. 8. 50 U.S.C. 413. 9. 50 U.S.C. 2422. 10. See 22 U.S.C. Sec. 2753(a). 11. See 22 U.S.C. Sec. 2314(e). 12.See Offer and Acceptance Form, Ex. CWW-7, Hear- ings, 100-10. 13. See 22 U.S.C. Sec. 2753(d). 14. 50 U.S.C. 403 (d)(5). 15. Cooper Memorandum for the Attorney General, "Legal Authority for Covert Arms Transactions to Iran," December 17, 1986, pp. 16-17 reprinted as Ex. EM-69, Hearings, 100-9. 16. 50 U.S.C. 402. 17. 50 U.S.C. 403. 18. "Memorandum of Law on Legal Authority for the Transfer of Arms Incidental to Intelligence Collection," by Davis R. Robinson, Legal Adviser, Department of State, October 2, 1981, p. 5. 19. Letter from Attorney General William French Smith to William J. Casey, Director of Central Intelligence, Octo- ber 5, 1981, reproduced as Weinberger testimony, exhibit 1. 20. 50 U.S.C. 415. 21. U.S. General Accounting Office, Report to the Chair- men, Senate and House Select Committees Investigating Iran Arms Sales, "Iran Arms Sales: DOD's Transfer of Arms to the Central Intelligence Agency," March 1987, p. 8. 22. 22 U.S.C. 2422. 23. See Eggleston narrative in Sporkin Test., Hearings, 100-6, 6/24/87, at 220. 24. See Clarridge Test., Hearings, 100-11, 8/4/87, at 15. 25. George Test., Hearings, 100-11, 8/5/87, at 201-03. 26. Clarridge Test., Hearings, 100-11, 8/4/87, at 17, 19. 27. Sporkin Testimony to Tower Commission, Jan. 9, 1987, pp. 7-8. 28. See Ex. SS-4 Hearings, 100-6; Poindexter Test., Hear- ings, 100-8, 7/15/87, at 12, 17. 29. 50 U.S.C. 413. 30. Congressional Record, September 30, 1980, p. H10044, emphasis added. 31. Id. at H10045. 32. Id. 33. Id. at H10047. 547 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ..1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 The Use or "Diversion" of the Iran Arms Sales Proceeds "What did the President know, and when did he know it?" That was Senator Howard Baker's famous crystallizing question about President Nixon from the Senate Watergate hearings of 1973. Political tensions were heightened in the Iran-Contra Affair when the same question was asked about the so-called "diver- sion" of funds from the Iran arms sales to the Nicara- guan democratic resistance. The very term "diver- sion," given currency by Attorney General Edwin Meese's press conference of November 25, 1986, had the sound of illegality. Beginning with the first public revelations about the Iranian arms sales in early November 1986, reaction in the United States was a mixture of curiosity, puz- zlement, And controversy. The Attorney General's press conference added a new dimension to the furor. The prospect that money had been sent to the Con- tras during the period of the Boland Amendments greatly intensified the scrutiny the Iran initiative re- ceived in the media. Speculation ran unchecked. The Attorney General put the amount that might have been diverted at $10 million to $30 million.1 Members of the Congressional investigating committees sug- gested that the amount might have been as high as $50 million.2 Ultimately, the diversion received more scrutiny than any other aspect of the Iran-Contra Congressional investigations. The evidence is overwhelmingly clear, however, that the President did not in fact know about the diversion, despite Democratic wishes to soft-peddle the point by attacking Adm. Poindexter's credibility. In addition, the use of the word "diversion" itself assumes that the funds belong to the United States. We shall show later in this chapter that the legal questions surrounding the ownership of the proceeds from the Iran arms sales are by no means settled. Before we can reach these points, however, it is first necessary to explain what the diversion was, how it came about, and how much was transferred. What Was The Diversion? What has dome to be called the diversion was simply a transfer of a portion of the proceeds of the Iranian arms sales to the private Contra resupply operation under the direction of Gen. Secord. The funds came from two different sources. The initial diversion ap- pears to have been from Israeli funds. In late 1985, after the sale of HAWK missiles by Israel to Iran, North informed Secord that the Israelis would not ask for the return of the unused transportation expense and that Secord could use it for other purposes. Secord testified that he used it for the Contra project and so informed North.3 After the United States began selling Iran its own arms in February 1986, the transfers took place out of the portion of the Secord-Hakim funds that were left after the so-called "Enterprise" paid the U.S. Govern- ment all that it was owed under Economy Act prices,* and after other immediate, operational ex- penses. This remaining money has been referred to as the "excess," the "profits," or the "residuals," with each characterization resting on a different point of view about the ownership of the funds. The American arms sales to Iran were carried out under a January 17, 1986, Finding signed by the President. Sales purposely were not organized as a direct government-to-government transfer. Rather, the operation was dependent on middlemen. Col. North, Gen. Secord, Albert Hakim, Adm. Poindexter, Clair George of the CIA, Attorney General Meese, and all others associated with the initial planning of the Iranian covert operation described it in the same manner: the United States would sell arms to Gen. Secord, acting as a commercial cut-out, who would in turn sell the arms to Manucher Ghorbanifar, who would in turn sell the arms to the Iranians. From the American standpoint, the organizational structure was desirable for several reasons. It gave the U.S. Gov- ernment some distance from the operation, which would provide maximum protection and plausible deniability. It also satisfied the Attorney General's and Secretary Weinberger's legal concerns about pro- ceeding under the terms of the Arms Export Control Act. The Economy Act established the basis on which the Department of Defense, in February 1986, sold the CIA 1000 TOWs for $3.7 million dollars, or $3,700 per TOW. The price to be paid by the Iranians *See Chapter 9 for a discussion of pricing under the Economy Act. 549 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 was not statutorily limited, however. Ghorbanifar ap- parently offered $10,000 per TOW as early as August 1985. This price eventually became the purchase price Ghorbanifar paid to Secord in late February 1986. It should be noted that $10,000 per TOW was not an exorbitant price. The replacement cost in 1986 of the TOW missiles utilized in the arms sales was approxi- mately $8,000.* Under these arrangements, there was an obvious surplus. Ghorbanifar had paid Secord, the commercial middleman, the agreed-upon price of $10,000 per TOW, and Secord had paid the CIA the Economy Act price of $3,700 per TOW. The surplus on the February transaction after transportation and other expenses was on the order of $6.3 million. How Did The Diversion Happen? The concept of transferring a portion of the excess proceeds from an arms sale to another project was not a new one. Gen. Singlaub explained that he and North had discussed this concept in connection with arms sales to an entirely different country in early 1985.** When the Israeli arms sales to Iran begin in 1985, the U.S. was aware that the Iranians were paying relatively high prices for the arms compared to what Israel had paid for them. This meant that the United States could reasonably conclude that some funds were being put to other uses by Israel. Secord and North were both aware that the Con- tras needed money. By late 1985, they had both been involved in obtaining funds and arms for the Resist- ance. The specific decision to transfer a portion of Iranian arms sales proceeds to the air resupply oper- ation was the result of a number of factors, one of which was General Secord's involvement in both op- erations. The first time a possible surplus came to North's attention was after the November 1985 sale of *U.S. General Accounting Office, Report to the Chairmen, Senate and House Select Committees Investigating Iran Arms Sales, Iran Arms Sales, DOD's Transfer of Arms to the Central Intelligence Agency, March 1987, p. 11. The replacement cost is difficult to calculate with specificity. The basic TOWs sold in February were obsolete and were to be replaced by an improved model. "Singlaub Test., Hearings, 100-3, 5/20/87, at 76. Typical of the majority's tendentious treatment of the evidence in its diversion chapter is how much it tries to make out of the so-called "Singlaub- Studley" plan for transferring arms sales proceeds to anti-commu- nist insurgents. Yet, after a three page discussion of this plan, the majority states: "The Singlaub-Studley plan was not implemented. . . ." The majority continues " . . . but the idea of using sophisti- cated U.S. weapons to finance arms . . . was known to those working to support the Contras before any proceeds from U.S. sales of arms to Iran were first received." A careful reader will note that the majority is thereby admitting that the first diverted funds, those obtained by Israeli sales of arms to Iran, were received before the Singlaub-Studley plan was tabled in December, 1985. One can only wonder why the majority is intent on glossing over this aspect of the history which the majority itself develops, and instead assigning another intellectual patrimony to the diversion. 550 HAWK missiles from Israel to Iran. Secord had been provided with $1 million by the Israelis to cover transportation for the missiles from Israel to Iran. When the Iranians expressed dissatisfaction with the initial delivery, further deliveries were stopped, and Secord had spent only $200,000 of his retainer. Secord testified that the $800,000 surplus was eventu- ally spent on the Contra resupply project.4 Hence, the initial diversion appears to have occurred with Israeli funds. It set the pattern for the future. Secord testified that he had not viewed the Iranian operation as generating any profits for him or his partners. His foremost concern, he said, was having sufficient capital reserves to ensure continued oper- ations.5 When, as it turned out, the sales generated money in excess of that needed for adequate reserves, he was more than receptive to the suggestion that he send the excess funds to the resupply operation. Col. North had a similar divergence of interests. As strong as his commitment was for the success of the Iranian operation, it was equally strong for the Contras. When surpluses were available, he was unmistakably motivated to advise Secord to use them for the Nica- raguan democratic resistance. According to Col. North's public testimony, the idea of sending the Contras some of the surplus gener- ated by the direct U.S. to Iran arms sales was offered by Ghorbanifar in late January. Earlier that month, or perhaps in late December, North had discussed with Nir the possibility of using excess funds for joint U.S.- Israeli operations, but said that this discussion never involved using the money for the Nicaraguan resist- ance.6 North testified that during a January meeting in London, Ghorbanifar spoke with North in a hotel bathroom and specifically suggested using the surplus for the Nicaraguan resistance.7 North saw an excel- lent opportunity to get the Khomeini regime, which was openly supporting the Sandinistas, to unwittingly arm the Contras. He thereafter set prices sufficient to create a surplus and encouraged Secord to send all available surpluses to the Resistance. After the end of our hearings, the Committees received an unsworn, unverified, and unverifiable document purporting to show that North first conceived of a diversion to the Contras by early December. An Israeli chronology claimed that North told Israeli supply officials in New York on December 6 that the Contras needed money, and that he intended to use proceeds from the Iran arms sales to get them some. When North was asked about the December 6 meeting, he reiterated that he did not recall discussing the Contras with anyone involved in the Iran initiative before the late January meeting with Ghorbanifar.8 We are inclined to believe North in this dispute, largely because his testimony was sworn and he was granted immunity from all charges arising out of the testimony except that of perjury. Ultimately, howev- er, this dispute is of little importance because even if Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 the idea was expressed in early December, it never went beyond North until after the January London meeting. Poindexter testified that he first heard of the idea when North asked him to authorize it in Febru- ary.9 North testified that he first mentioned the idea to the Director of Central Intelligence, William J. Casey, at about the same time, in late January or early February, after the post-finding London meeting." In addition, North and Poindexter both testified that no one else in the U.S. Government was told about a diversion before this time. What that means is that the diversion cannot possibly have been a consideration for people at the policymaking level before North's January London meeting with Ghorbanifar.? How Much Was Diverted? The most reasonable calculations show that approxi- mately $3.8 million of proceeds from the Iran arms transactions was spent for the support of the Nicara- guan Resistance.* During the period that the "Enter- prise" received income from the Iranian transaction (November 1985 through November 1986), it also had other funds available for support of the Resistance that totaled $3.4 million. Much of this money came from foreign and private domestic donations specifi- cally earmarked for the Contras. During that same period of time, the "Enterprise" spent approximately $7.2 million in support of the Contras. If one subtracts the $3.4 million in non-Iran funds designated for the Resistance, then the remainder of the $7.2 million, or $3.8 million, was the total amount of the diversion.** ? The Committees have, indeed, received evidence that the Janu- ary 17 Finding was revised several times in January 1986 to reflect U.S. strategic goals more clearly. In addition, hearing testimony specifically showed that the "commercial cutout" arrangement was designed to mirror the previous Israeli arms sales structure for security reasons, after the U.S. had decided to make direct sales to avoid legal questions under the Arms Export Control Act. In short, both the Finding and the transactions were restructured for reasons unrelated to the diversion, which could still have been accom- plished just as readily even if Israel had continued to be either the seller or had been the intermediary. *The partners in the "Enterprise" also paid themselves $1.2 mil- lion in "commissions" out of the Iranian proceeds. That sum can be considered to have been "diverted," but it is hard to see it as an expenditure for the benefit of the Contras and the Committees have not done so. "The majority's statements about the amount of money diverted represent what appears to be an amusing political compromise. The majority says that "at least" $3.8 million . . . in arms sales profits were used for the Contras. Yet the reader is given no factual basis whatsoever for the conclusion that more than $3.8 million was diverted, a fact apparently indicative of the continuing disagree- ment between parts of the majority about what the Committee's records show. Since we accept the $3.8 million number as a maxi- mum, the majority view of the Committee actually is that $3.8 million was diverted. Who Authorized The Diversion? The diversion was authorized by Poindexter. The Committees were careful when taking testimony on this point to make sure that the principal witnesses would testify in private session before they had a chance to hear the crucial public testimony of this particular point. Thus, Poindexter testified in private session, before North's closed session or public testi- mony, that he had authorized the diversion at North's request." North corroborated this point in his own executive session testimony before he could have known anything about what Poindexter had said.f Poindexter also testified that he believed he had the authority to make the decision on his own to approve the use of the Iranian arms sales surplus for the Nica- raguan Resistance11 He said that because he had worked for the President for a number of years, he felt he knew what the President would want to have done in this situation. Poindexter stated that to him, the diversion appeared to involve the use of what could be considered either third-country funds, or private funds, to support the Contras, and that he believed the President favored the use of such private or third-country funds to support them. Therefore, in his view, the President would have agreed to the use of surplus funds in such a manner. However, Poin- dexter said, because he thought it would be politically (as opposed to legally) controversial to use the funds to support the Contras, he decided not to inform the President of it so the President could truthfully deny knowledge if the diversion were revealed." The President has stated, however, that he would not have consented to the diversion had he known t North Dep., 7/1/87, at 7. The majority purports to show a conflict between Poindexter and North over the question of the time lapse between when North requested approval of the diversion and when Poindexter approved it. Obviously, the majority is con- ceding here that North did request approval from Poindexter, and that Poindexter gave it. Moreover, even a casual reader of North's testimony will see that North had no specific recollection of how long it was before Poindexter got back to him. North said, "I don't recall specifically on this case?but my normal modus operandi on making a proposal such as that would be to go over and sit down with the Admiral . . . . Normally the Admiral would like to think about it . . . . (North Test., Hearings, 100-7, Vol. I, 7/10/87, p. 297, emphasis added). Counsel then asked: "Did you?do you recall how long after you first told him about this orally he got back to you?" North responded: "No, I don't. I guess it was a matter of weeks?or days or weeks certainly, because by February, we did it." (Id. at 298, emphasis added). Curiously, the majority ignores this testimo- ny, which would conflict with its preordained conclusion. tt North also testified in private session that he assumed until November 21, 1986, that the diversion had the President's approval. On November 21, he said, he learned from Poindexter that it did not. See North Dep., 7/1/87, at 7, 25. Poindexter testified in private session, before North's, that he had specifically decided not to tell North that the President had not approved the decision. Poindexter thus corroborates North on the essential point, although he did not recall the November 21 conversation to which North testified. See Poindexter Dep., 5/2/87, at 72; 7/2/87, at 17. 551 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1 . 1 .. I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 about it. He has also stated that in his opinion, Admi- ral Poindexter did not have the authority to make the decision without the President's approval. The Committees have received no documentary evidence or testimony which shows that any other U.S. Government official approved or in any other way was involved in agreeing to the diversion. Col. North testified that Director Casey knew about, and was supportive of, the diversion, but North did not suggest that Casey's approval was either sought or required.' 3 The President Knew Nothing About The Diversion The evidence available to these Committees shows that the President did not know about the diversion. The President has made this point repeatedly. The Committees have received sworn testimony support- ing the President on this point from four individuals with first-hand knowledge, and from another individ- ual who directly corroborates some of this key testi- mony. The plain fact of the matter is that the Com- mittees have no testimony or documentary evidence to the contrary. Poindexter Adm. John Poindexter stated under oath, in executive session and during the public hearings of the Commit- tees, that he had not told the President about the diversion." He did so even though he knew that he had thereby deprived himself of an important defense against possible criminal prosecution." Poindexter also testified that he was certain that the "April 4" diversion memorandum, the only surviving memoran- dum that documents the proposed diversion, did not go to the President." The Committees have received no testimony or documentary evidence that contra- dicts Poindexter's testimony on these points.* *The striking thing about the majority's deeply flawed effort to impeach Poindexter's testimony on the President's knowledge of the diversion is that it not only adduces no evidence to contradict that testimony, it completely ignores directly relevant corrobora- tive evidence (provided by Paul Thompson and presented below). Lacking hard evidence, the majority baldly speculates that it was "totally uncharacteristic" for Poindexter not to have told the Presi- dent about the diversion and that therefore, the majority implies but is apparently afraid to state, Poindexter must have done so and lied to the Committees. The majority selectively uses evidence concerning Poindexter's background and character. To suggest that Poindexter was new in the job, and would therefore not have made this decision by himself, the majority states that the "diversion decision" was made "only two months" after Poindexter became National Security Adviser. The reader is not told of Poindexter's directly relevant testimony that he had served first on the NSC staff and then as deputy national security adviser for a total of 51/2 years, and therefore felt confident that he knew how the President felt about Contra policy and private and third country fundraising, of which Adm. Poindexter considered the diversion an example. This, he explained, made him confident he knew what the President would approve without being asked. (Poindexter Dep., 5/2/87, at 552 Thompson The Committees have also received sworn testimony which directly corroborates Poindexter's testimony. Cmdr. Paul Thompson, formerly the NSC General Counsel and assistant to Adm. Poindexter, testified in an executive session deposition as follows: Q: Were you ever asked by Admiral Poindexter to do any legal research relating to the question of the use of proceeds of sales of United States weapons? A: No. Q: Have I made that question general enough so you would construe it to include any aspect of the law related to a diversion such as the one we believe actually occurred? A: Yes, that's sufficiently broad. I asked the Ad- miral that same question myself on November 25th (1986), why he didn't ask me to do legal research on that issue. Q: What did he say? A: He said he didn't want me, to involve me in that aspect of the operations. Q: Did you have any further discussion on that with him? A: No. Well, I did. I asked him whether he told the President or not. Q: What did he say? A: No. After the questions about researching the law, the deposition turned to who authorized the diversion. Q: Did you ask him whether or not he had au- thorized the diversion? A: No. I didn't ask him in those concrete terms. I asked him, after I asked if he had told the Presi- dent and he said no, he went on to say the reason he didn't tell the President he said he felt confi- 70-71, 75.) The majority also makes a "chain of command" argu- ment, suggesting that Poindexter would be unlikely to have acted outside of that chain. Yet the majority ignores the fact that Poin- dexter testified under immunity, in private before North appeared, that he alone approved the diversion as a command decision and that he gave this testimony knowing full well, as he said, that he had thereby deprived himself of an important defense against per- sonal criminal liability. (Poindexter Dep., 5/2/87, at 72-75.) Finally, the majority's character argument utterly ignores the fact that Poin- dexter was clearly the single most secretive witness the Committees heard from, a man for whom keeping secrets from long time col- leagues and associates was a matter of habit. In short, Poindexter was just about the most likely witness, from a character point of view, to have made a decision to keep the diversion from the President. , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 dent the President would approve it. But it was an interesting few moments because he had for himself as the naval officer and as the command- ing officer of the ship, whatever you want to call it, he had a standard of what we call inescapable responsibility in the Navy which means you are inescapably responsible for what any member of your, staff does. I was unable to tell whether or not he was just generally aware of the diversion and North's knowledge of the diversion or whether he was more extensively aware of it. . . . Q: But you apparently were concerned enough about it to ask him both why he hadn't told you and whether or not he had ever asked you to do any legal work that might have borne on the subject; am I right? A: Well, sure. I was?I saw that as a prime reason for his resignation or his request to be transferred and one of my missions was to help him out in all areas, and I was really just asking the question why didn't you ask for my help in this area. Q: When did the conversation occur, what date? A: November 25th. . . . [or] . . . during the course of that week . . . I guess it was the 25th. '7 North Lt. Col. Oliver North also testified that he had not told the President of the diversion. North testified further that he did not have any indication that the memorandums he had written to seek approval for the diversion had ever been forwarded to the Presi- dent. (The memorandums were written to Poindexter and not to the President.*) North testified that none The majority gives an incomplete account of the testimony of James Radzimski. All available physical evidence and testimony either fails to support or directly contradicts Radzimski's testimony, as the majority correctly notes. But the majority ignores the fact that Radzimski clarified his account of certain key events in his second deposition. Radzimski specifically admitted then that he had no independent recollection of any cover memorandum from Poin- dexter to the President being part of any April diversion memoran- dum on the Iran initiative, a point the majority appears to have forgotten. See Radzimski Dep., 8/11/87 at 71-72. Radzimski also admitted that, if any such document had ever existed, three sepa- rate actions, involving at least two different secure systems to which different groups of individuals have access, would all have to have been taken to remove all record of its existence. See Id. at 73-77. Nor could Radzimski explain why he would have seen, as he claimed, "non-log" NSC documents such as the diversion memo- randum which never would have entered the NSC document con- trol system in the first place. The fact is that Radzimski's testimony was not deemed credible by the Committees, and he was therefore not called to testify despite a premature announcement that he would be so called. of the memorandums returned to him on this subject had any indication that they had been seen or ap- proved by the President. North said: I did not send them (the memorandums) to the President, Mr. Nields. This memorandum [refer- ring to the April 4 diversion memorandum, ex- hibit OLN-1] went to the National Security Ad- viser, seeking that he obtain the President's ap- proval. There is a big difference. This is not a memorandum to the President." I want to make it very clear that no memoran- dum ever came back to me with the President's initials on it, or the President's name on it or a note from the President on it. None of these memorandums [seeking approval of the diversion, written to Poindexter]. I do have, as you know, in the files that you have of mine, many, many of my memorandums do have the President's initials on them, but none of these had the President's initials on them.' 9 Col. North admitted at the hearings that he had misled Gen. Secord when he told him that the Presi- dent was aware of the diversion in order to enhance the General's enthusiasm for the project.2? North also admitted that he had made a comment about the di- version to Poindexter once as they were leaving a meeting with the President, but stated that he be- lieved the President had not heard the remark.** Diversion Memorandums Although their accounts of how the diversion was authorized were consistent, North and Poindexter had different recollections about the extent to which the diversion had been documented. North said he be- lieved he had written five memorandums seeking ap- proval of diversions, but that he had later destroyed them. Poindexter said he did not recall seeing most of these memorandums, although he thought it was pos- sible that he had seen the original of the surviving April diversion memorandum and then had destroyed the section that dealt with the diversion." However, the references to the diversion apparently usually oc- cupied one or two paragraphs in a multipage docu- ment. Given the amount of paper normally flowing through the National Security Adviser's office, it **Id. Through what is a surprising oversight, to put it mildly, the majority's account of North's testimony about the President's tele- phone call to him on November 25, as it relates to the diversion, completely omits North's testimony about Earl's statements about that telephone call. North testified that he did not recall having said to Earl that the President had said "It is important that I not know." North continued: "I am sure that what I said (to Earl) was basically what I told you yesterday . . . [I] wouldn't have charac- terized it the way you have just indicated [Earl testified], I don't believe." (North 7/8/87, at 93). In short, North's first hand account disagreed with Earl's hearsay testimony, and North denied having given Earl the account Earl recalled. 553 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 would not be surprising if Poindexter had simply for- gotten or overlooked these references.* In any event, the Committees have no evidence to suggest that any of these North memorandums, which were addressed to Poindexter, ended up going to the President. The Committees actually have some docu- mentary evidence supporting the testimony that they did not go to the President. Poindexter's practice on some occasions was to brief the President orally with respect to what he considered to be the key points of lengthy memorandums, such as the one supporting the January 17 Finding.22 That is probably what he did with the April diversion memo, using the "Terms of Reference" portion that did not contain a reference to the diversion." Regan and Meese The case for the view that the President did- not know about the diversion does not rest solely on the corroborated, sworn testimony of Poindexter and North. The Committees also have sworn testimony from former Chief of Staff Donald Regan and Attor- ney General Edwin Meese concerning the President's reaction when he was told of the diversion. According to Regan's graphic description, the President's reaction was: Deep distress, deep distress. You know, the ques- tion has been asked, I've seen it in the paper time and time again: did the President know? Let me put it this way. This guy I know was an actor, and he was nominated at one time for an Acade- my Award, but I would give him an Academy Award if he knew anything about this when you watched his reaction to express complete surprise at this news on Monday the 24th. He couldn't have known it." At his deposition, Regan testified as follows: Q: And do you recall what the President's reac- tion was [to learning about the diversion]?" A: Horror again, and?thinking back on it, it is hard to?it is like a person was punched in the The majority makes a strained effort to fabricate a conflict between Poindexter and North over whether North was told not to create written records of the diversion. To do this, the majority must ignore Poindexter's testimony at his private deposition, given before North's appearance, that he might have seen the diversion memorandum at or about the time it was written. (Poindexter Dep. 5/2/87, at 178-179; see also Poindexter Test., Hearings, 100-8, 7/16/ 87, at 111-113). Further, at the hearings, as the majority also fails to note, Poindexter stated: "I do recall telling (North) when I took the decision the first time that I didn't want anybody else to know about it. I don't recall telling him not to put it on paper, but . . . I thought (Colonel North) understood from earlier discussions with him, to limit the amount of paper that he prepared . . . . (Id. at 114, emphasis added). Poindexter testified further that North "prob- ably" prepared the diversion memorandum at his request. (Id. at 114-115). 554 stomach. I mean, the air goes out of him, crest- fallen. You know, a slumping in the chair sort of thing. A real blow had been delivered here that not only was there this possibility [of a diver- sion], but that they?people responsible were pri- marily 011ie North, for whom the President had high regard as a staff person, and the Attorney General told the President that Admiral Poin- dexter had some type of inkling of this and should have investigated but didn't.25 Attorney General Meese testified at his deposition: Q: And what was the President's response [to being told about the diversion]? A: Well, he was very much surprised. I would say shocked, as was Don Regan. Q: Do you recall what he said, the President? A: I can't remember exactly, but it was some expression of surprise.26 Meese's testimony at the Committees' public hearings on this point was to much the same effect.27 Conclusion From all of this evidence, it is clear the President did not know about the diversion. A contrary conclusion would have to be based on the view that a series of individuals, including the President, decided to engage in a criminal conspiracy to cover up the Presi- dent's knowledge and then to lie about it in a well- coordinated manner in sworn testimony, much of it given under grants of immunity protecting the witness from use of the testimony against him for anything except a perjury prosecution. The Committees have no evidence of any kind that would lend the slightest support to this contrary view. Who Else In The Government Knew About The Diversion? Col. North testified that he told Robert McFarlane about the diversion at the end of the trip to Tehran in May 1986. McFarlane was by then a private citizen, and there is no indication he participated in, planned, or authorized the diversion. McFarlane has corrobo- rated North's testimony on this point. In addition, North testified, and Robert Earl agreed, that Earl knew about the diversion." North also testified that Director Casey knew about the diversion. Casey denied knowledge of the diver- sion to Members of Congress shortly before he en- tered the hospital. In addition, when Director Casey learned that there was a possibility that someone had diverted funds from the Iran arms sales to the Con- tras, Col. North assured Director Casey and Deputy Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Director Robert Gates that the CIA was not involved in the diversion. Finally, Casey tried to alert Poin- dexter to the possible problems that were presented by such a diversion and suggested he seek legal coun- sel to deal with the situation. These can either be seen as efforts indicating that Casey did not know about the diversion, or as efforts to convey an understand- ing to Gates and others suggesting that he did not know about it in order to conceal the fact that he did. Whether or not Casey knew, and we are inclined to believe that he did, one thing is clear. Casey's knowl- edge, or lack thereof, is not in any way indicative of what the rest of the CIA may have known about the diversion, since it is quite clear that Casey had infor- mation that he shared with no one else there. The Committees have no substantial evidence that other CIA personnel did know about the diversion. The CIA analysts and operatives who were involved in the Iran operation did have reason to know that there was a spread between the cost of the weapons pur- chased from the Government and the price being charged the Iranians for them. However, their evi- dence on this point was equivocal and made it diffi- cult for them to know how large this spread was in some of the transactions. In addition, the fact that there were several intermediaries meant that even though they knew there was a potential for a "diver- sion," in the sense that there would be excess funds, they did not know where the excess funds were going. In this connection, it is important to remember that the National Security Council, not the CIA, actu- ally managed the Iran arms sales operation. There- fore, the CIA did not have reason to follow the details in the way they would have done had they had been managing the transaction themselves. We have no reason to disbelieve the consistent, unequivo- cal denials of CIA personnel that they did not become aware of any possible diversion of funds to the Con- tras until very late in the day, and did not know that NSC personnel were involved in the diversion of funds. Finally, the Committees have no evidence to sug- gest that other U.S. Government officials were aware of the diversion. Did The Diversion Cause Or Interfere With The Iran Initiative? The Iranian government clearly paid higher prices for U.S. weapons than the United States would have charged other governments. From this, some have drawn the conclusion that the diversion must inher- ently have interfered with the Iran initiative, because better relations between the two countries could not be based on higher than necessary prices for U.S. weapons.* In addition, some have suggested that gen- erating surplus funds for the Nicaraguan Resistance was the main motive for moving ahead with the sales. The question of motive was considered at length in the previous chapter. What we have just shown about the diversion only strengthens what was said there. In our view, the record supports neither of these posi- tions. Since there is no evidence that the President or any other major U.S. government decisionmaker knew about the diversion through the time of the January 1986 Finding, it would make no sense to argue that their thinking was influenced by this con- sideration. The previous chapter also gives the lie to the idea that the diversion, or "overcharging," adversely af- fected the success of the Iran initiative. If the Second Channel representatives were upset at the prices, ne- gotiations would hardly have proceeded as we have described. In fact, Gen. Secord specifically testified that he was told by Iran that the price was not an important issue for the Second Channel." As we have already noted, the price was not much higher than the replacement cost. In any case, the Iranians were in a war, they needed the weapons, and there was no other place to buy them. As Adm. Poindexter pointed out, the Iranians had already paid Israel es- sentially the same premium price the United States charged. He therefore did not think they would be concerned about the U.S. price.30 North's testimony corroborated this point: The fact is that we knew that the Iranians would pay even more than we charged, from intelli- gence that we had gathered. We knew that during the first channel, for example, Mr. Ghor- banifar had a little frolic and diversion of his own going in which he had pocketed at least some for himself, if not for others, a considerable sum. And that even the prices we charged, he further inflated. And so we judged that risk [the risk to the hos- tages from overcharging] to be minimum given that they would be?basically pay whatever they could to get these items or weapons from the source that?whatever source they could." For these reasons, both Poindexter and North re- jected the idea that the diversion materially affected the prospect of achieving a new relationship with the Iranian Government.32 The concern the Iranians ex- pressed about overcharging in connection with the Hawk shipment is not necessarily to the contrary. *Interestingly, some of the same people who make the argument that the diversion hurt the chance for the Iran initiative's success, also want to say that the initiative had no chance for success in the first place. It is as if they know the policy must be bad for some reason, so why not offer some inconsistent reasons to see if any can be supported. 555 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I II I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 They were concerned that their own representative, Ghorbanifar, was profiting from the overcharging. This does not mean that the United States could not have continued to charge these same prices, since the Iranians had no practical alternative but to pay them.3 3 Some Legal Questions Growing Out Of The Diversion The technical legal questions surrounding the diver- sion appear to us to turn on the issue of ownership.* If the money was rightfully the property of Gen. Secord and Albert Hakim, then it follows that they were free to donate the excess proceeds to the Resist- ance, or use it in any other legal manner that they wished. They may have felt a moral obligation to use the money as suggested by North, but they would have been under no legal obligation to do so. If, however, the funds belonged to the United States, it follows that the money should have gone into the Treasury of the United States and could only be sent to the Nicaraguan Resistance under the terms of an authorized disbursement. Sending the money to the Contras would not technically have been a viola- tion of the Boland Amendment even under these con- ditions, because the funds were not appropriated. But if the funds were technically the property of the United States, then the Executive had no authority to direct how it would be spent, except under an appro- priation or some other legal authorization. Substantial legal arguments can be made to support and oppose each of the conclusions about who owns the Enterprise's funds. In support of the view that the funds belonged to the United States, it can be argued that Secord was acting as an agent of the United States. The facts that the price to Iran for the arms was set in consultation with North, that the United States selected Iran as the ultimate buyer, that the United States anticipated that the sales would trigger Iranian help in the release of American hostages held in Lebanon, that Secord and Hakim represented them- Three transactions are at issue. In February 1986, Ghorbanifar provided Khashoggi with four postdated checks for $3 million each. Khashoggi deposited $10 million in the Lake Resources ac- count controlled by Hakim and Secord. The CIA then received its contract price of $3.7 million for 1,000 TOWs and certified the availability of the funds to DOD. The certification and payment of the amount to DOD initiated the transfer of the TOWs to the custody of Secord, who arranged for their transportation and deliv- ery to Iran. Thereafter, Iran transferred $7.85 million to the Lake Resources account, which was supplemented by $5 million from Israel stemming from the abortive HAWK missile shipment in November 1985. Khashoggi was repaid $12 million from Lake Resources, leaving a profit for the Enterprise of $6.3 million, less the cost of transportation of the TOWs. The same general method of financing was employed in the transfer of 1,008 TOWs and HAWK spare parts in May 1986, August 1986, and October 1986. The aggregate surplus to the Enterprise in dispute approximates $8.5 million. 556 selves as spokesmen for the United States at various times, that Secord did not expect to make a profit from his services, and that North and Secord both expected that any surpluses would be used to further U.S. interests, all support the contention that Secord was an agent and that the surplus funds were the property of the United States." On the other hand, there are substantial facts to support the conclusion that Secord was purely an independent contractor, with his own risks of profit and loss. Secord was never designated formally, in writing or otherwise, as a U. S. agent. Any argument that they were agents has to be based on a theory of constructive trust, rather than from some facts that will show an explicit, written trust relationship. In addition, Secord claims that although North gave him suggestions and he listened, he made all the decisions and therefore had the control." One relevant fact that would support the conclu- sion that the United States did not have an automatic claim to the funds would be the fact that the CIA and DOD were paid the full amount the law requires for the arms, and refused to transfer the weapons until full payment was received. That fact would not settle the issue, however, because the price the Defense Department set was based on the knowledge that the first buyer was another Government agency, the CIA. The real question of ownership does not turn on the relationship between Defense and CIA, but between the CIA or NSC, on the one hand, and the Enter- prise, on the other. It does seem relevant, on Secord's side of this argu- ment, that the Enterprise assumed all of the major financial risks of the operation. For example, if the arms were destroyed during the shipment because of an air crash or otherwise, there was no agreement that the CIA would restore to the Lake Resources account the payment previously received. Similarly, if Iran was dissatisfied with the arms and refused to pay?as occurred with the transfer of Israeli arms in November 1985?there was no understanding that the CIA would repurchase the arms for the amount previ- ously paid.3 6 We have not attempted to resolve this legal ques- tion of ownership, because it is not within the charter or province of the Congressional Investigation Com- mittees to do so. It is a matter for the courts to decide. We do, however, believe that even if Secord and Hakim were not agents under the technical terms of the law, they nevertheless received the arms sale proceeds only because there was an expectation be- tween themselves and North, based on trust, that they would put the money toward mutually agreed-upon public ends. Whether legally required to do so or not, therefore, they ought to feel some moral obligation to turn the surplus over to the United States, after de- ducting reasonable costs and compensation for serv- ices. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Conclusion The diversion has led some of the Committees Mem- bers to express a great deal of concern in the public hearings about the use of private citizens in covert operations in settings that mix private profits with public benefits. We remain convinced that covert op- erations will continue to have to use private agents or contractors in the future, and that those private par- ties will continue to operate at least partly from profit motives. If the United States tries to limit itself to dealing only with people who act out of purely patri- otic motives, it effectively will rule out any worth- while dealing with most arms dealers and foreign agents. In the real world of international politics, it would be foolish to avoid dealing with people whose motives do not match those of the United States. Nevertheless, we do feel troubled by the fact that there was not enough legal clarity, or accounting controls, placed on the Enterprise by the NSC. Whether viewed with foresight or hindsight, and regardless of its legal status, the decision to use part of the proceeds of the Iran arms sales for the benefit of the Contras was extremely unwise. Even if the diversion is determined by the courts to have been legally permissible, it was the result of poor judgment on the part of U.S. Government officials. The deci- sion to proceed with the Iran arms sales was itself fraught with great potential for controversy and dis- agreement. There was no sound basis whatsoever for adding to the political risks of the operation by bring- ing into it another hotly debated aspect of American foreign policy. It was equal folly not to tell the President of the planned use of the proceeds of the arms sales. The question of legality aside, the President should have been given the opportunity to exercise his own good judgment to instruct the participants not to allow the diversion. The diversion decision was not the first time an unwise operation has been undertaken in the conduct of American foreign affairs, and, unfortunately, it un- doubtedly will not be the last. At a minimum, the decision should generate a fuller awareness in the executive branch of the serious negative ramifications of risky and short-range decisions that have not had a full airing in the Presidential office, let alone in the halls of Congress. The decision also serves to underscore the tremen- dous pressures placed on the Chief Executive and his staff in carrying out an effective and coherent foreign policy in Central America or elsewhere when Con- gress unnecessarily and unwisely abuses its power of the purse to manage foreign affairs with an inconsist- ent on-again, off-again policy. Congress needs to learn that to be an effective participant in the field of for- eign affairs, it must afford Presidents from either party the latitude to plan and implement an effective foreign policy based on clear decisions that are free from annual change. When Congress learns this, the world will be more stable for us and our allies. 557 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 10 Endnotes 1. Attorney General's Press Conference of Nov. 25, 1986, pp. 2, 7; Ex. EM-54, Hearings, 100-9. 2. Sara Fritz and Doyle McManus, Inquiry Traces Mil- lions in Iran Sales to Contras, The Los Angeles Times, March 7, 1987, at A-1. 3. Secord Test., Hearings, 100-1, 5/6/87, at 95-96. 4. Secord Test., Hearings, 100-1, 5/6/87, at 95. 5. Secord Test., Hearings, 100-1, 5/7/87, at 158, 162. 6. North Test., Hearings, 100-7, Part I, 7/10/87, at 296. 7. North Test., Hearings, 100-7, Part I, 7/8/87, at 106; 7/ 10/87, at 295-96; Part II, 7/14/87, at 164-65. 8. Id., at 295. 9. Poindexter Test., Hearings, 100-8, 7/15/87, at 35; Poin- dexter Dep., 5/2/87, at 69-70. 10. North Test., Hearings, 100-7, Part I, 7/8/87, at 139. 11. Poindexter Dep., 5/2/87, at 70-71. 12. Poindexter Dep., 5/2/87, at 70-73; Poindexter Test., Hearings, 100-8, 7/15/87, at 35-37. 13. North Test., Hearings, 100-7, Part I, 7/8/87, at 115, and 7/9/87, at 240, 245. 14. Poindexter Dep., 5/2/87, at 70-71; Poindexter Test., Hearings, 100-8, 7/15/87, at 37-38. 15. Poindexter Dep., 5/2/87, at 72-73. 16. Poindexter Dep., 5/2/87 at 232. 558 17. Thompson Dep., 7/24/87, at 66-68, 70, 71. 18. North Test., Hearings, 100-7, Part I, 7/7/87, at 13. 19. Id. at 12. 20. Id. at 26. 21. Poindexter Dep., 5/2/87, at 178-79; Poindexter Test., Hearings, 100-8, 7/15/87, at 44-45. 22. See Poindexter's handwritten notes, Ex. OLN-60, Hearings, 100-7, Part II. 23. Poindexter Test., Hearings, 100-8, 7/15/87, at 44-45. 24. Regan Test., Hearings, 100-10, 7/30/87, at 29. 25. Regan Dep., 7/15/87, at 62. 26. Meese Dep., 7/8/87, at 144. 27. Meese Test., Hearings, 100-9, 7/28/87, at 251. 28. Earl Dep., 5/2/87, at 32. 29. Secord Test., Hearings, 100-1, 5/6/87, at 134. 30. Poindexter Dep., 5/2/87, at 183-84. 31. North Test., Hearings, 100-7, Part II, 7/13/87, at 89. 32. Poindexter Dep., 5/2/87, at 183-84; North Test., Hearings, 100-7, Part I, 7/9/87, at 215. 33. North Test., Hearings, 100-7, Part II, 7/13/87, at 89. 34. See 3 Am. Jur. 2d, secs. 17-22. 35. Secord Test., Hearings, 100-1, 5/7/87, at 250. 36. See Uniform Commercial Code, Sec. 2-401; 2-501; 2- 509. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part V Disclosures and Investigations Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I , .1 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 From the Disclosure to the Uncovering On Tuesday, November 4, 1986 the New York Times carried a front page story disclosing a portion of the Iran initiative.' Only three weeks later, on November 25, 1986, the Attorney General of the United States announced that officials of his department had discov- ered a diversion of funds from that initiative to the use of the Nicaraguan resistance. This chapter de- scribes our view of the events of November 1986. We reach three principal conclusions. First, the President's decisions about how much to disclose were motivated by his effort to balance the need for protection of hostages and secret diplomatic discus- sions with the public's need for information. Second, once the President decided that the Administration did not have a complete picture of the Iran initiative, the Attorney General undertook an aggressive effort to obtain the facts. He then made the information available promptly to the President and to the public. Third, the President and the Attorney General discov- ered and disclosed the essential facts, despite efforts on the part of certain members of the NSC staff and others to cover up certain events, including the diver- sion. There is no evidence that the President directed, encouraged, or in any way condoned this coverup, a point the majority spares no effort to gloss over. In our opinion, the Attorney General and his associates did an impressive job with a complicated subject in a very short time. Far from being inept, or parties to a cover up, the Department of Justice was responsible for uncovering the diversion of Iran arms sale pro- ceeds to the Contras. Early November The Iranian initiative was disclosed for political rea- sons by high level dissident Iranian religious officials. The New York Times report was based on a report from a Lebanese weekly, Al-Shiraa. Its report was in turn based on a politically inspired leak from Iranian dissidents bent on retaliation for efforts by the Iranian Government to curb their support for wide scale ter- rorism and possibly to reach an accommodation with the United States. At least one of the key dissidents has recently been executed by that Government.* For more details see asterisk in Chapter 8, at 520. American officials had learned of the pending dis- closure of McFarlane's May trip to Tehran at a secret meeting in Europe a week before the disclosure ap- peared in the press. Their immediate concern was for the lives of remaining American hostages. They also wanted to continue the secret discussions, as did offi- cials of the Government of Iran. In addition, there were serious questions about the impact of the disclo- sures on a significant American ally, Israel. During the week after the New York Times story, there were vigorous disagreements within the Admin- istration about what, if anything, the Administration should disclose about the Iran initiative. As the situa- tion was later described by former Chief of Staff Donald Regan: I recall discussing with other members of the staff, "The cover is blown here. We have got to go public with it. We have got to tell the Con- gress, we have got to tell the American public exactly what went on so they were aware of it." Mr. Smilijanich. What did Admiral Poindexter recommend? Mr. Regan. [His recommendation was] Absolute- ly not. It was later reported in local papers here that we had a shouting match. . . [W]e did have a difference of opinion?a strong one. . . . His reasoning was a good one, that Jacobsen had just come out as a hostage, North was preparing to go to London and actually did go to London that first weekend in November?what was it, the 8th or 9th, in through there [to meet with Iranian officials]?and there's a possibility of two more prisoners coming out, two of the original ones, and maybe even the additional three, the later ones. And why blow that chance? We got to keep the lid on this, we got to deny it, we're endangering their lives. And then I might add here, a very dramatic thing happened. I recall it vividly. Jacobsen had a Rose Garden ceremony welcoming him back. He had said in his remarks he had cautioned the media about discussing this. On the way back, as the President and he were mounting the steps to 561 77-026 0 - 87 - 19 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ?.1 1.. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 the colonnade to go back into the Oval Office, there were shouted questions from the media about, "What are you going to do about the hostages, what about the others that are there?? And Jacobsen turned and very emotionally said, "For God's sake, don't talk about that, that is exactly what I have been saying, you are endan- gering lives of the people I love, these are my friends." That made quite an impression on the President. And even though that same day I urged him again to get this story out, he said, "No, we can't Don,' he said, "We can't endanger those lives." And he didn't.2 Regan's testimony shows the Administration's con- cern for the hostages. North's notes of a meeting with Iranian representatives on November 7, three days after the New York Times story, show both the desire to continue the negotiations and a concern for the hostages: ?"Holding to no comment- -We recog.(nize) that public statement, RR admit- ting mtgs. w/ [2d Channel] wd be dangerous for you and Speaker ?Need to know WTF going on ? Press release ? [Second Channel] told in Frankfurt 2 host (two hos- tages)." November 10-20 Public pressure for an account of the Administration's dealings with Iran led during November to meetings, a speech and press conference by the President, and testimony by various Administration officials before Congressional committees. Questions were raised both inside and outside the Administration about the Ad- ministration's compliance with civil statutes governing Executive-Legislative branch relations in the conduct of covert activities and arms transfers. The President and his advisers continued to grapple with the ques- tion of how to balance the diplomatic concerns just described with the need for public disclosure.* According to Regan's notes of a November 10 meeting, the President opened the discussion with a statement to the effect that "as a result of media, etc. must have a statement coming out of here. . . . Some things we can't discuss because of long term consider- ations of people with whom we have been talking about the future of Iran." 3 At that same meeting, Poindexter made a presenta- tion on the history of the Iran initiative, that omitted *It is interesting to note that while the President and his staff were wrestling with the question whether to disclose the mission and thereby jeopardize the hostages, the leader of the Government of a close ally in that part of the world had a senior aide call North to ask the President and Poindexter to flatly deny that there had been an operation such as the one reported about McFarlane in Tehran. Earl Dep., 5/30/87, p. 74-75. 562 or misstated certain facts. Poindexter also noted cor- rectly the fact that the Iranians wanted to continue contacts despite news reports.4 Poindexter noted that North had met with Iranian representatives the previ- ous weekend, that "Iranians happy with our no com- ment. Raf will have to speak out due to world press comments." 5 At a later point, the President noted: "We should put out statement. . . but cannot get into q & a re hostages so as not to endanger them." 6 In the period between November 10 and November 21, the Administration continued to try to balance its concern for the hostages and the Iranian initiative with the need for public disclosure. The President addressed the nation on November 13, and then agreed to answer questions concerning this matter on November 19. The drafting of the speech, and the Presidential press conference preparation on these issues, were done by the National Security Council staff acting under Admiral Poindexter's direction. Some of the information provided during those events was incorrect. However, the speech, and the Presi- dent's answers at the press conference, provided basic information concerning the initiative from the Presi- dent's point of view while attempting to withhold certain information in order to protect diplomatic sen- sitivities such as the role of the Israeli Government.7 There is evidence that the President and most re- sponsible Administration officials were trying to keep the public record accurate. For example, the White House issued an immediate correction with respect to one factually incorrect statement the President made at the November 19 press conference. Regan testified that this inaccurate statement resulted from the Presi- dent's confusion about what information could be re- vealed without causing national security problems.8 By this time, however, Secretary Shultz had conclud- ed?based on the November 13 speech and November 19 press conference answers?that the President was being misled on some key facts by certain members of the NSC staff, and sought a meeting with the Presi- dent to explain this to him in detail. The meeting occurred on November 20. During Shultz's meeting with the President, they reviewed what Shultz believed were a number of inaccurate or misleading statements the President had made concerning the Iran initiative.* The State De- Regan Test., Hearings, 100-10, 7/30, at 23-25. The majority's effort to show that the President made inaccurate statements at his press conference completely ignores the fact that Israel's involve- ments in U.S. sales of arms and direct sales of arms were then regarded as diplomatic secrets which should be concealed to pro- tect Israel's security. Several of the President's other arguably inac- curate statements made then were clearly based directly on infor- mation given to the President by certain members of the NSC staff. 4'The majority makes much out of the Secretary's "battle royal" with the NSC to get out the true facts. It is worth noting in this connection how much of the disagreement at the time rested on matters such as differing interpretations of intelligence reports, stra- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 partment briefing paper prepared for this occasion went through these matters in considerable detail, in- cluding comments on such matters as the legality of various arms transactions, possible political connec- tions which might be drawn between Iran and Nicara- gua, and so on.9 The points in Shultz's briefing paper were designed to give the President what Shultz be- lieved to be a more accurate picture of the political history and rationale for the Iran arms deal. Shultz described the meeting as "a long, tough discussion, not the kind of discussion I ever thought I would have with a President of the United States. But it was bark off all the way." 10 Testimony and Chronologies The need for additional, detailed information on the Iran initiative was intensified by the need to testify before the Intelligence Committees on November 21. It became clear that the Administration had only an incomplete "institutional memory" on the origin and conduct of that highly compartmented initiative and that different participants had conflicting memories of certain key 1985 events. The events surrounding the creation of false and misleading chronologies have been discussed in detail during the hearings and there is no need to review the matter here. These chronologies misstated the fact of the President's authorization for the 1985 arms ship- ments, the Israeli participation in those shipments, and contemporaneous knowledge by United States Gov- ernment officials of the nature of those shipments. It is sufficient to note that the preparation of these mate- rials was almost exclusively the work of then present and former members of the NSC staff, particularly North and McFarlane. Their false presentation of these events appears to have been acquiesced in, either knowingly or unknowingly, by Casey and Poindexter. The later versions of the chronologies, and the dis- cussions of draft Congressional testimony, led some Justice Department officials to realize that they did not know some of the significant facts about the initia- tive. (The Department had been involved only tan- gentially in the initiative and in responding to issues raised by the public disclosure.) The Department offi- cials also realized that certain other facts concerning the 1985 arms sales were disputed among the partici- pants. In response to these Justice Department con- cerns, Casey altered the draft testimony he had pre- tegic motives and similar matters of judgment. Only with hindsight is it clear that concerted efforts to slant the facts, rather than honest differences of recollection or judgment, were involved in many cases. This is a fact that a dispassionate student of events would be well advised to consider. pared for November 21 to omit false statements that might otherwise have been made.* Justice Department Investigation On the late evening of November 20, 1986, Justice Department officials alerted Attorney General Meese about the factual dispute between various participants in the Iran initiative on certain key events surround- ing the 1985 arms sales. They indicated "that a lot of people had different recollections and that the situa- tion was pretty well fouled up because of that." There was no suggestion of intentional wrongdoing, and Meese did not think that was the situation de- scribed to him then. The majority report agrees.** On the morning of November 21, Meese suggested to President Reagan that the President should author- ize Meese to conduct an investigation to pull together an account of all the facts. The reason was to support a review of the initiative at a meeting of the National Security Planning Group scheduled for Monday, No- vember 24, 1986. Accordingly, the investigation was conducted over the weekend of November 21-24, 1986.12 At that time, the Attorney General had no reason to believe that any crime had been committed.t The simple fact is that the statutes that might possibly have been bypassed by the arms sales were not crimi- nal statutes.if For those who would argue that the investigation should have been a criminal one from the first, it is worth noting that a Justice Department Criminal Division memorandum?prepared independ- ently and dated November 22, 1986?reviewed these *The majority are at some pains to show that North attempted to falsify this Casey testimony. North claimed his proposed changes were a reaction to CIA drafts, and that he and Casey made changes to remove affirmatively untrue statements before the Department of Justice intervened. We are uncertain whether to believe North on this point or not, but note that exhibits OLN-28, OLN-29, and OLN-30 tend to support his version of events. **"Cooper did not know who was right or wrong. (Maj. Rept., Ch. 19)." The majority states that Meese had been apprised of the specifics of this dispute earlier on Nov. 20 by Deputy Attorney General Burns after Burns had been informed of the problem by State Department Legal Adviser Abraham Sofaer. The facts are otherwise. Meese and Burns spoke on an unsecured car telephone line while Meese was en route to the airport. Burns was very general in describing the problem while Meese was equally general in assuring him that as a result of the meeting he had just left problems had been resolved. (Meese Dep., 7/8/87 at 174-175) Meese was not given specific information showing the inaccuracy of the proposed testimony at that point. In any event, within a few hours, Justice Department officials who stayed involved in the process discovered the conflict and informed Meese, who decided that the Casey testimony should be altered. See Meese Test., Hear- ings, 100-9, 7/28/87, at 266-267. f The Attorney General has extensive criminal investigation and prosecution experience. See Meese Test, Hearings, 100-9, 7/28/87, at 263. 11 Indeed, the Attorney General discussed the matter with FBI Director Webster on Friday afternoon and both agreed it would be premature to involve the FBI in an investigation at that point. 563 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 statutes and reported no basis for criminal prosecution based on information then available.*** The Attorney General's brief investigation received exhaustive scrutiny during the course of the hearings, both during his own testimony and that of Assistant Attorney General Charles Cooper. That investigation has been criticized on a number of points. We think the criticisms are without merit. The Attorney Gener- al assembled a team of competent attorneys, two of whom in addition to him had been confirmed for their jobs by the United States Senate, and all of whom had directly relevant responsibilities within the De- partment of Justice for national security matters, to conduct the fact finding inquiry." On November 21, the Attorney General personally requested that the National Security Council make available to his staff all relevant documents concern- ing the Iran initiative." The investigating team pro- ceeded to interview all material witnesses with re- spect to the 1985 arms sales." Witnesses were repeat- edly instructed by then that the President's interests would be best served if the Attorney General were given a full and accurate account of what hap- pened." Yet McFarlane, North and Poindexter made false, misleading, or inaccurate statements to, and con- cealed directly relevant information from, the Attor- ney General and his representatives. Despite this, the Attorney General's investigation uncovered "the es- sential facts that are still the essential facts today." 17 Although the Committee majority makes much of its purported discovery of "the Enterprise," that network of shell corporations and secret bank accounts really represents the mechanics of the diversion the Attor- ney General discovered, and little else. In the course of the review of documents on No- vember 22, Justice Department officials discovered a memorandum that showed a plan that part of the Iranian arms sales proceeds were to be used to sup- port the Nicaraguan Democratic Resistance, but pro- vided no evidence that the plan had been carried out. ***Meese Test., Hearings, 100-9, 7/28/87, at 200. The majority makes a halfhearted effort to imply that the FBI or the Criminal Division of the Department of Justice should have been called in earlier than they were, possibly even as early as November 21. The majority's reasoning ignores the following points. The "facts" on which the majority relies, such as the Casey testimony and possible Arms Export Control Act violations were not criminal in nature, at least so far as could reasonably be determined at the time. Even more importantly, the majority utterly ignores the fact that the Attorney General specifically testified that he had consulted former FBI Director Webster and the FBI top leadership after the disclo- sures occurred and had been assured that their view was that Meese had acted properly; Webster also took this position at his confirmation hearings. See Meese Test., 7/28/87, pp. 281-282, 291- 292). Finally, the majority ignores the fact that the head of the Criminal Division, also a political appointee, testified that his con- cerns about Criminal Division involvement, which were not ex- pressed to the Attorney General at the time, were based on existing Criminal Division court actions unrelated to the Iran initiative and to management issues, not matters of propriety or judgments about evidence of criminal conduct. See Weld Dep., 7/16/87 at 13-20. 564 They immediately arranged to interview North the next day, Sunday, and waited until the end of that interview to confront North with the memorandum. Meese specifically testified to North's surprise on being shown the memorandum. After North had con- firmed that a diversion of funds had in fact occurred, the Attorney General and his associates undertook to determine who knew about, and who might have authorized, such a diversion.* We think that the suggestion that the Attorney General's investigative procedures changed in some irregular manner after the discovery of a possible diversion is particularly unfair. We encourage any reader who is interested in this issue to review the colloquy on this subject between the Attorney Gener- al and Senator Mitchell in which Senator Mitchell raised this issue and then dropped it after the Attor- ney General directly challenged him for doubting Meese's testimony about *The allegation has also been made that Department officials disregarded other "evidence" which came to their attention con- cerning the possibility of such a diversion, such as the use of Southern Air Transport in both the Iran and Contra operations. The question is moot because the Justice Department in fact quick- ly discovered the first hard circumstantial evidence that members of the NSC staff had been involved in a diversion, the diversion memorandum itself. However, a close examination of this alleged "evidence" shows that it was speculation communicated in a vague, general way which related to a physical or political connection rather than to evidence of financial diversion. See Sofaer Dep., 6/ 18/87 at 68-70; Meese Test, Hearings, 100-9, 7/28/87, at 270-71, 277; 7/29/87, at 414-415. Although there was some speculation by officials at the Department of State and the Central Intelligence Agency (based on price differentials) about some type of a diver- sion, there was no evidence to suggest that the funds had gone to Nicaragua, or that the disposition of any surplus was being directed by certain members of the NSC staff. The majority attempts to bootstrap the fact that some of this vague information may have been conveyed to the Attorney General into an attack on the truthfulness of the Attorney General's account of his meeting with Director Casey on November 22. The members of the majority are much bolder in a report which the Attorney General never saw before it went into print than they were when he testified and therefore could respond to similar cheap shots. Suffice it to say that the Attorney General has consistently and credibly recounted events at this meeting where appropriate in his testimony in various forums, including our public hearings. See Meese Tower Board Test, 1/20/87, at 32-33; Meese Dep., 7/8/87 at 121-123; Meese Test., Hearings, 100-9, 7/28/87, at 113-115) He testified he made a deliberate decision to protect his investigation by not asking Casey for information before confronting North; in our view, this was a correct and successful decision. See Meese Test., Hearings, 100-9, 7/28/87, p. 278. **Meese Test., Hearings, 100-9, 7/29/87, p. 331-334. The majority ignores the fact that virtually all of the interviews involved lasted only a few minutes, took place hurriedly between other meetings, and involved only a couple of basic questions: who knew of the diversion and who authorized it. (See Meese Test., 7/28/87, p. 280) The majority also ignores the fact that Meese's accounts of these meetings have been corroborated in substance by the living partici- pants who have been questioned by the Committees. The majority's sporadic efforts to suggest conflicts are strained, to put it mildly. A classic example of the majority's reaching is their statement "Meese met alone with Regan and the President." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 The Attorney General's November 25 press confer- ence report was based principally on admissions made to him on November 23 by North. At the press con- ference, the Attorney General repeatedly made clear that there were a large number of matters on which his information was uncertain and subject to addition- al review and correction." At that time, Justice De- partment officials were not aware of any document shredding or altering by North and others. As McFar- lane testified, although he did not participate in the shredding he did not inform Meese that North had told him it might occur." Similarly, Justice Depart- ment officials had no immediate way to determine that several of these officials gave them misleading or inaccurate answers to their questions. The majority's pointless cavilling about this press conference is very much indicative of the quality of their work in this area. As noted, despite this attempt at a coverup by certain NSC officials, the Attorney General's investi- gation turned up the facts that are still the essential ones today. There is no evidence that the President directed, encouraged, or otherwise in any way condoned a coverup. We reject as completely unsupported by the record any suggestion that the Attorney General or his staff ignored signs of potential criminal behavior or consciously sought not to obtain information in an effort to assist or protect the President. After intense scrutiny, by two Congressional committees with a very large staff, it is clear that the Attorney General and his staff conducted themselves honorably and dis- closed to the President and the public their findings without regard to any political damage which would ensue.* On December 4, 1986, at the request of the Attorney General, a motion was filed with the Special Division of the Court of Appeals for the District of Columbia Circuit seeking the appointment of an Independent Counsel. 565 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I !I . I . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 11 Endnotes 1. Ihsan A. Hijazi, "Hostage's Release Is Linked to Shift in Iranian Policy," New York Times, November 4, 1986, Al, A10. 2. Regan Test., Hearings, 100-10, 7/30/87, at 21-22. 3. Regan notes of November 10 meeting, Ex. DTR-41-A, p. 1, Hearings, 100-10. 4. Regan Test., Hearings, 100-10, 7/30/87, at 23. 5. Ex. DTR-41A, p. 5, Hearings, 100-10. 6. Ex. DTR-41A, p. 9, Hearings, 100-10. 7. See p. 562. 8. Regan Test., Hearings, 100-10, 7/30/87, at 24-25. 9. Ex. GPS-45, Hearings, 100-9. 10. Shultz Test., Hearings, 100-9, 7/23/87, at 44. 11. Meese Test., Hearings, 100-9, 7/28/87, at 267. 12. It is noteworthy that Judge Sofaer, on whose suspi- cions and speculation the majority narrative relies extensive- ly, often without describing them as such, testified that he began to suspect a coverup on the afternoon of November 20. (Sofaer Dep., 6/18/87, at 41-42). This seems as good an 566 indication as any that the Attorney General acted in a timely fashion. The majority's innuendo that the Attorney General did not move aggressively on this matter is utterly belied by the fact that, for example, one of his staff spent until dawn on November 22 reviewing intelligence reports. See Cooper Test., Hearings, 100-6, 6/25/87, at 24-27 and passim. 13. See Meese Test., Hearings, 100-9, 7/28/87, at 281. 14. Id. at 268. 15. Ex. CJC-1, Hearings, 100-6; Ex. EM-42, Hearings, 100- 9. 16. Meese Test, Hearings, 100-9, 7/28/87, at 269. 17. Meese Test., Hearings, 100-9, 7/28/87, at 201, quoting Secretary Shultz. 18. Meese Test., Hearings, 100-9, 7/28/87, at 269, "at least 40 instances." 19. McFarlane Test., Hearings, 100-2, 5/11/87, at 180-81, 183. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 NSC Involvement in Investigations Introduction The majority chapter entitled "NSC Involvement in Criminal Investigations and Prosecutions" raises questions about the connection between the work of the National Security Council and traditional law en- forcement activities. Unfortunately, the majority com- bines carelessly assembled information about matters which any fair-minded person would conclude raise no important issues, with scattered and conclusory judgments about matters where real questions of judg- ment exist. Because of the necessity for accurate and, timely information about threats to persons or property posed by those who may wish to cause harm for reasons connected to the foreign policy of the United States, the national security community must some- times be involved in pending criminal investigations undertaken by domestic law enforcement agencies. The real question is not whether but when and how much involvement is appropriate. To answer this question requires a close examination of the reasons for such involvement and the manner in which such involvement is responded to by law enforcement offi- cials. The record of the various investigations discussed by the majority shows that law enforcement agencies outside the NSC, from the Department of Justice, to the FBI and Customs Service, responded in an appro- priate manner to requests for investigations prompted by such reasons. In addition, the record of several of the investigations in which NSC personnel became involved reveals that NSC involvement in these ac- tivities, at least at their preliminary stages, was appro- priate. However, their involvement in others was questionable at best. The circumstances of each case will determine whether such involvement was appropriate. We en- courage each reader to examine the facts of each investigation carefully to make this determination. In order to set the record straight, we provide a brief review of the investigations related to the Iran-Contra affair in which the NSC staff was involved. Basically, the majority alleges that certain Adminis- tration officials, particularly Colonel North, became improperly involved in a number of investigations relating to Contra activities. However, the majority's highly critical analysis is based on a flawed methodol- ogy. In view of the majority's intent to show that Col. North acted improperly, it is noteworthy that the majority in most cases declined to ask Col. North himself, during six days of public testimony, about these allegations against him. During the Committees' investigation, the majority obtained information on these matters from witnesses who were in contact with North, but North was never asked to give his side of these events. The majority uses selected entries from North's written notes of conversations and meet- ings, but even though these entries are often abbrevi- ated and cryptic, the majority declined to ask North to explain them. Instead, the majority attempted to interpret what these notes "suggest." In light of this flawed methodology, the majority's conclusions re- garding purported interference with various investiga- tions cannot be considered objective. Moreover, the following brief discussions of several of these investi- gations demonstrate some additional problems. Miami Neutrality Act Investigation The majority has analyzed a charge that a Miami investigation of an alleged conspiracy by a pro-Contra group to violate the Neutrality Act was impeded by officials of the Department of Justice. The majority has concluded that the investigation was not aggres- sively pursued. However, a review of the facts clearly shows that the charge of interference was based on one witness's testimony, which was contradicted by all of the other witnesses. Further, any delays in the investigation were caused by legitimate problems. David Leiwant, an Assistant U.S. Attorney in Miami, has claimed that he overheard one side of a telephone conversation on April 4, 1986, between U.S. Attorney Leon Kellner in Miami and someone at the Department of Justice, in which Kellner was ad- vised that the Department wanted him to go slow on a pending investigation of possible Neutrality Act vio- lations. According to Leiwant, after the phone con- versation ended, U.S. Attorney Kellner stated that the Justice Department wanted the investigation to go slow and to be kept quiet. Kellner reputedly made these statements with a sneer, suggesting that he would ignore these requests.' 567 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 d? I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Leiwant's account of this incident is unsupported by any other evidence. In fact, every other person who was present at the meeting when the telephone conversation allegedly took place denies Leiwant's version of events. In addition to Leiwant, five people were present at this meeting in U.S. Attorney Kellner's office on April 4, 1986?Kellner, Chief As- sistant U.S. Attorney Richard Gregorie, Executive Assistant U.S. Attorney Ana Barnett, Special Counsel Lawrence Scharf, and Assistant U.S. Attorney Jeffrey Feldman, who was handling the investigation. All have denied Leiwant's claim that Kellner received a telephone call from the Justice Department instruct- ing Kellner to go slow.2 Leiwant has speculated that the alleged Justice De- partment call may have come from D. Lowell Jensen, Stephen S. Trott, or Mark M. Richard,3 but each of these three officials denies any such conversation and further denies knowledge of any attempt to impede this investigation.4 Leiwant himself concedes: "I was listening to it [the alleged telephone conversation] with half an ear. . . ." 5 Also, he is certain that he never heard Kellner tell Feldman to go slow.6 It is noteworthy that Leiwant failed to discuss with his superiors this disturbing telephone conversation which he purportedly overheard.7 Instead, Leiwant began to discuss this matter with outsiders, even though he had neither requested nor received the required departmental approval to disclose anything about this ongoing investigation.8 Within days of the April 4, 1986, meeting, Leiwant called two Washing- ton Post reporters in Washington, D.C. According to his testimony, he mentioned to both of them that he might have information about the Contras and Nicara- gua. Since they were not very interested, he purport- edly did not say much.3 Then, in August 1986, Leiwant leaked his allegation to John Mattes, a defense attorney who represented Jesus Garcia, the informant who provided early infor- mation about the alleged Neutrality Act violations. Mattes' client was awaiting sentencing on a federal conviction, and he could have benefited if his infor- mation led to new indictments." Then, Leiwant told two investigators from the Senate Foreign Relations Committee. Later, Leiwant told his story to U.S. Sen- ator John Kerry." The publicity generated by Leiwant's actions led to these Committees' inquiry. Leiwant has alleged the Neutrality Act investiga- tion was proceeding too slowly." Similarly, the ma- jority has claimed that the investigation was not ag- gressively pursued. These allegations ignore several important factors. Assistant U.S. Attorney Feldman, who was as- signed to handle the investigation, was relatively inex- perienced. Moreover, the information his investigation was eliciting was disorganized and, in some respects, unreliable. Feldman himself described the case as a "confused mess." 13 For instance, a polygraph of 568 Jesus Garcia, the convicted felon who provided early information about the reported conspiracy, was incon- clusive and showed deception on an important issue. Garcia later admitted he had lied about that issue." One of the two FBI agents assigned to the investiga- tion testified that Garcia provided inaccurate informa- tion," and the other agent testified that Garcia did not have a great deal of credibility." Another example of evidentiary problems was the information provided by witness Jack Terrell. Most of Terrell's information was found to be based on hear- say rather than his direct observation." Feldman's superiors felt that the investigation needed additional work, and that the case was not sufficiently devel- oped to be presented to a grand jury." Furthermore, the delay in the progress of the inves- tigation was affected by the press of other investiga- tions.19 In this regard, it is noteworthy that the Miami U.S. Attorney's Office is recognized as one of the busiest in the nation, with limited resources to apply against an ever-increasing criminal caseload. Southern Air Transport investigation The majority also raises questions, in another chap- ter of their report, about the handling of an FBI/ Customs investigation of Southern Air Transport. The FBI, at least, began an investigation of Southern Air Transport for possible violations of the Neutrality Act after the shootdown of the Hasenfus aircraft. Howev- er, Southern Air Transport also provided the air transportation services for most of the Iran initiative. This initiative continued after the Hasenfus shoot- down and in fact produced one hostage in early No- vember 1986, after a shipment of arms involving Southern Air Transport. Whatever the reader concludes about the propriety of the actions of the NSC staff in requesting a delay, the record is clear that the Department of Justice and FBI officials who granted it acted entirely properly. They were told that the delay was required for the purpose of protecting the Iran initiative. They checked to determine whether the ongoing investiga- tion would be impeded, and were told it would not be. They granted a delay conditioned on the conclu- sion that the ongoing investigation would not be af- fected, and asked that it be resumed promptly, as it was." The Attorney General specifically testified that when he was asked to grant a delay, he was not told of any connection between White House officials and Southern Air Transport's work in the Contra resupply operation, or of Southern Air Transport's involvement in this operation.21 instigation of investigations The majority claims: "North attempted to exploit his contacts with the FBI to attempt to instigate or Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 intensify investigations of people and organizations perceived as threats to the Enterprise. He was ulti- mately assisted in this effort by Richard Secord and Glenn Robinette." 22 These statements by the majority are false, as we shall show below. The first instance cited by the majority appears to have been based on a good faith but mistaken belief about FBI jurisdiction. The other two instances cited by the majority, where the FBI became involved in a matter in which North had an interest, were based on either legitimate human con- cerns or a legitimate desire to protect the life of the President of the United States. In the latter instance, it is abundantly clear that North did not "instigate or intensify" any investigation at all. In the first instance cited by the majority, North appears to have suggested, in conversation, an FBI investigation of certain individuals based on a suspi- cion that a foreign government was secretly financing or supporting a lawsuit against various United States citizens, a matter about which it would have been legitimate for North to inquire for national security reasons and, which if true, might have constituted a fraud on the courts of the United States. North, a nonlawyer, was flatly told that the FBI did not have the legal authority to investigate such a matter, and did not pursue the request. The second instance discussed by the majority is based on North's request for an investigation of van- dalism and harassment directed against him. The FBI investigation occurred in May and June, 1986. North requested the investigation because of incidents of vandalism that had been directed against him at work and at home which he believed might be related to the actions of foreign intelligence sources. There is no doubt that the incidents of harassment in fact oc- curred, and the FBI appears to have concluded that they might have been associated with the dates of ". . . Congressional votes on Contra aide (sic) . . ." 23 They, together with threats against North's life which occurred at about this time, were sufficient to motivate North to have a sophisticated security system installed around his home at precisely this time.24 While North may have been completely wrong about the source or nature of the vandalism which was being directed against him, we do not find any- thing in the record to suggest that North's conduct was based on anything other than a good faith belief that this harassment might have been based on such actions. Given North's position in government, and the nature of his official duties, this possibility could not be completely discounted. We therefore see noth- ing improper in North's having asked the FBI to investigate even though some of the persons who were to have been interviewed for information might have been connected to or involved in political oppo- sition to North's Contra activities, since such persons were logical sources of information necessary to a proper investigation. The FBI, in turn, appears to have acted to determine whether there was any possi- bility that North's concerns might have a reasonable basis and then to have dropped the matter. But it is the third instance cited by the majority which we find particularly egregious. This instance concerns an FBI investigation of Jack Terrell based on the possibility that Terrell had threatened the life of the President. The majority snidely suggests that North was responsible for using the FBI to investi- gate Terrell. They say: "North ultimately hit on a better formula [for having such investigations con- ducted], with Secord's assistance." 25 The facts clear- ly show just the opposite, and the majority has so clearly disregarded the facts we are forced to ques- tion its motives. Significantly, it was the FBI which first independ- ently obtained information about a possible threat against President Reagan. This information came from a classified source in mid-1986.26 The FBI concluded that the threat "probably" came from Jack Terrell, a mercenary who had been associated first with Contra forces, and then with pro-Sandinista forces.27 The FBI therefore sent a request to various federal law enforcement and national security agencies, including the NSC, specifically asking them for information concerning Terrell, according to testimony by FBI Executive Assistant to the Director Oliver B. ("Buck") Revell." The majority completely omits to mention that the FBI asked the NSC for information concerning Terrell. By coincidence, North was aware that Terrell was assisting the plaintiffs in a lawsuit against Secord and others and that Glen Robinette was involved as an investigator for Secord in that lawsuit. However, North and Robinette had never previously discussed Terrell, according to Robin- ette." North called Robinette and asked if he had any information about Terrell. Robinette said yes, and North asked him to provide it to the FBI. North did not ask Robinette to limit his cooperation with the FBI, or to withhold any information from them, ac- cording to Robinette.3? Robinette thereafter met with the FBI and assisted them in establishing surveillance of Terrell.* In any event, the FBI shortly thereafter discontinued contact with Robinette and surveilled Terrell until it concluded that he was not a threat to the President.** *Robinette specifically denied that he was asked to wear a "wire" for surveillance purposes; as a former electronic surveillance specialist, he was certain he would have remembered such a re- quest. (Robinette Dep., 11/5/87, at 34-36.) **Revell Dep., 7/15/87 at 32, 36. When interviewed by the FBI in connection with the Terrell matter, North disclosed Robinette's activities for Secord in connection with the Florida civil lawsuit brought by Honey and Avirgan in which Secord was a defendant. (7/25/86 FBI Report of 7/22/86 interview of North, at 2.) North acknowledged his involvement in U.S. Nicaraguan policy, but denied Secord "works for him." In short, North appears to have 569 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 1 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 In all of this, we are unable to discern anything that resembles a politically motivated effort on North's part to harass Terrell. The FBI's information concern- ing the threat was real, obtained independently of North, and pursued with national security agencies in the normal manner. The fact that North knew of Terrell by reputation is nothing but coincidence, and we think it is extraordinarily unfair to imply that Colonel North or General Secord acted in this in- stance in any manner inconsistent with their obliga- tions as citizens or employees of the United States. We think it is unfortunate that the majority is so bent on pressing the thesis of this chapter that they have included misleading information about this incident in an effort to try to reinforce it. Clearly, the majority would not want to suggest that anyone who had potentially useful information about a threat to the life of the President should withhold it for fear of later being accused of political harassment. The "Reward a Friend" Investigation The majority has alleged that North and other gov- ernment officials tried to influence the sentencing of a former official in a Central American country, who had pleaded guilty to two felony counts in the United States. The official had allegedly provided assistance as a "friend of the U.S." in Central America. Yet, the only purported result of government support of the official was his reassignment to a minimum security prison." Such reassignments are commonly requested and granted. truthfully disclosed the associations and bias of Robinette, the infor- mation source North provided here. North's other reported state- ments, which the Committee did not ask him about during the hearings, appear to relate to the Neutrality Act issues and were not relevant to the FBI's investigation of Terrell. Id. North denied responsibility for "funding, arming, or administrating Contra pro- grams." Id. at 3. North stated that he was not involved with any covert operations being run in the United States./d. 570 This official had previously received official recog- nition for his services to the U.S. in the region. The majority notes that North was concerned that if the official was dissatisfied with his sentencing in 1986, he would "break his longstanding silence about the Nic[araguan] Resistance and other sensitive oper- ations." 32 The majority further notes that North wanted "to keep the official from feeling like he was lied to in the legal process and start spilling the beans." 33 The majority is unable to concede that the official, assistance to the U.S. may have involved le- gitimate intelligence operations. Instead, the majority boldly asserts that the NSC staffs "ultimate motive appears to have been a desire to prevent disclosure of certain questionable activities." Significantly, the ma- jority never asked North to address the issue of the official's assistance to the U.S. Accordingly, the ma- jority's suggestion of a cover-up of "questionable ac- tivities" should be recognized as pure speculation. The Fake Prince The majority's main allegation regarding the "fake prince" is that in 1985 Col. North interfered with the FBI's bank fraud investigation of this "Saudi prince," because North was attempting to develop this individ- ual as an asset in the Iran initiative and in Contra activities. (The "prince" was ultimately discovered to be an Iranian imposter.) North allegedly interfered because during an FBI interview he requested that an upcoming FBI interview of the "prince" be delayed for several days, so as not to interfere with the "prince's" intended donation to the Contras. Howev- er, the FBI report notes: "In no way does North want to interfere with a criminal prosecution of the prince And the majority concedes that North subse- quently "backed down" on this request. Moreover, this alleged "interference" had no effect on the pros- ecution of the "prince" for bank fraud. Following a plea of guilty, the "prince" was imprisoned." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 12 Endnotes 1. Leiwant Dep., 6/2/87, at 12-14, 30. 2. Kellner Dep., 4/30//87, at 18-20; Gregorie Dep., 7/17/ 87, at 19, 20; Barnett Dep., 7/17/87, at 38-42; Scharf 7/17/ 87, at 15-17; Feldman Dep., 4/30/87, at 68-70. 3. Leiwant Dep., 6/2/87, at 11, 39 4. Jensen Dep., 7/6/87, at 58, 59; Trott Dep., 7/2/87, at 9; Richard Dep., 8/1/87, at 92, 93. 5. Leiwant Dep., 6/2/87, at 13. 6. Leiwant Dep., 6/2/87, at 30, 31. 7. Leiwant Dep., 6/2/87, at 44, 45. 8. Leiwant Dep., 6/2/87, at 29. 9. Leiwant Dep., 6/2/87, at 33-36. 10. Feldman Dep., 4/30/87, at 5, 6, 10. 11. Leiwant Dep., 6/2/87, at 26-32. 12. Leiwant Dep., 6/2/87, at 26, 27. 13. Feldman Dep., 4/30/87, at 68. 14. Feldman Dep., 4/30/87, at 10, 17, 18. 15. Currier Dep., 5/5/87, at 13, 14. 16. Kiszynski Dep., 5/5/87, at 12. 17. Feldman 4/30/87, at 37, 38. 18. Gregorie Dep., 7/17/87, at 31-33; Feldman 30/87, at 81-83; Kellner Dep., 4/30/87, at 46. 19. Kellner Dep., 4/30/87, at 117, 118; Gregorie 17/87, at 39, 42, 44. 20. See Memorandum from William Webster to Mr. Clark, October 31, 1986, regarding Southern Air Transport, cited at Meese Test., Hearings, 100-9, 7/28/87, at 274. 21. Meese Test., Hearings, 100-9, 7/28/87, at 237-274. 22. Majority Report, typescript, Chapter 5, at 44. 23. FBI file 246-967, P. 2 of 6/11/86 WFO teletype to FBI Director. 24. See the testimony of Glenn Robinette, Robinette Test., Hearings, 100-6, 6/23/87, at 1-52, passim.; North Test., Hearings, 100-7, Vol. I, 7/8/87, at 126-32. 25. Majority Report typescript at 47, Ch. 5. 26. Revell Dep., 7/15/87, at 25-26. 27. Revell Dep., 7/15/87, at 26, 31. 28. Revell Dep., 7/15/87, at 26. 29. Robinette Dep., 11/5/87, at 33. 30. Robinette Dep., 11/5/87, at 33-34. 31. Richard Dep., 8/19/87, at 130. 32. North PROF note to Poindexter, 9/17/86. 33. North PROF note to Poindexter, 9/17/86, Ch. 5, at 33. Dep., 4/ 34. FBI Interview Memorandum, 7/18/85, Ex. OLN-264, North Test. Hearings, 100-7, Part II. Dep., 7/ 35. Memorandum of Interview of Nicholas Harbist, 5/ 22/87. 571 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part VI Putting Congress' House in Order Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 The Need To Patch Leaks Throughout the majority report, much is made of the Administration's concern for secrecy. That concern is portrayed almost exclusively, if not exclusively, as the desire of some lawbreakers to cover the tracks of their misdeeds. We agree that the National Security Council staff, under Admiral Poindexter, let its con- cern over secrecy go too far. We should not be so deceived by self-righteousness, however, that we dis- miss the Admiral's concern as if it had no serious basis. Our national security, like it or not, does depend on many occasions on our ability to protect secrets. It is easy to dismiss the specific Iran arms sales decisions about executive branch compartmenta- lization, and about withholding information from Congress for almost a year, as having been excessive. Everyone on these Committees would agree with that conclusion. But unless we can understand the real problems that led the NSC staff to its decision, future Administrations will once again be faced with an un- palatable choice between excessive secrecy, risking disclosure or foregoing what might be a worthwhile operation. Time after time over the past several years, ex- tremely sensitive classified information has been re- vealed in the media. Predictably, both Congress and the Administration have blamed each other. In fact, both are culpable. It is important for these Commit- tees to recognize this truth forthrightly. As Secretary Shultz said, quoting Bryce Harlow, "trust is the coin of the realm." 1 But trust has to be mutual. Some people on these Committees seem to want to bring criminal prosecutions against former Administration officials for not speaking candidly to Congress. It is true that the business of government requires the Ad- ministration to be considered trustworthy by Con- gress. But so too must Congress prove itself trustwor- thy to the Administration. We do not mean, by our focus on congressional leaks, to suggest that we turn our eyes from the same problem in the executive branch. Executive branch leaks are every bit as serious as legislative branch ones. But as long as there is a consensus on this point, we do not feel a need to dwell on it here. At the end of this chapter, we will recommend legislation to help address the issue of executive branch leaks along with our suggestions for the legislative branch. There is much less consensus in Congress, however, about leaks from the legislative branch. Those prob- lems are real. As Representative Hyde wrote in a recent article, the fact that the executive branch leaks more, does little to get Congress off the hook. Proven Congressional transgressions admittedly are relatively rare, but so are proven executive- branch leaks. In truth, only a handful of leaks ever have been definitively traced to their source, so lack of proof establishes nothing. A partial Senate Intelligence Committee study often quoted by Mr. Beilenson reportedly found that journalists referenced congressional sources only 8-9 percent of the time, but cited Reagan Admin- istration officials 66 percent of the time. Report- ers may not be entirely candid about their sources. But generously assuming that Congress has 2,500 people with clearances as opposed to 2.2 million in the executive branch and the mili- tary, reliance on the Senate study forces us to conclude that Congress maintains just over 0.1 percent the number of executive branch clear- ances, but is responsible for 8-9 percent of the leaks on national security issues. Specifically, on average, a cleared person in Congress is 60 times more likely than his counterparts to engage in unauthorized disclosures.2 We believe that these problems?rather than a desire to cover up a supposed lawlessness whose existence we do not concede?contributed significantly to the Administration's posture in 1985-86. Protecting Secrecy in the Early Congress To put the issue in perspective, it is worthwhile to consider how the country's Founders dealt with the problem. Those hardheaded realists understood that breaches of security during that perilous revolution- ary period could mean the difference between life and death. Consequently, only five members of the Second Continental Congress sat on the Committee of Secret Correspondence, the foreign intelligence direc- 575 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Il .. I . .. I . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 torate that was mentioned in our earlier historical chapter. The Continental Congress was especially careful about protecting sources and methods. For example, the names of those employed by the Secret Corre- spondence Committee were kept secret, as were the names of those with whom it corresponded. Even then, there was concern about Congress keeping a secret. As a result, when the Committee learned that France would covertly supply arms, munitions and money to the revolution, Ben Franklin and another Committee member, Robert Morris, stated: "We agree in opinion that it is our indispensable duty to keep it a secret, even from Congress. . . . We find, by fatal experience, the Congress consists of too many mem- bers to keep secrets." To underscore the importance of protecting sensi- tive information, the Continental Congress on No- vember 9, 1775, adopted the following oath of secre- cy which should still be in effect today: Resolved That every member of this Congress considers himself under the ties of virtue, honour and love of his country, not to divulge, directly or indirectly, any matter or thing agitated or debated in Congress before the same shall have been determined, without the leave of the Con- gress, nor any matter or thing determined in Congress, which a majority of the Congress shall order to be kept secret. And that if any member shall violate this agreement, he shall be expelled this Congress, and deemed an enemy to the liber- ties of America, and liable to be treated as such, and that every member signify his consent to this agreement by signing the same.3 This oath was not taken lightly and no less a revo- lutionary figure than Thomas Paine, the author of "Common Sense," was fired as an employee of the Continental Congress for disclosing information re- garding France's covert assistance to the American Revolution. Interestingly, Congress then resorted to its own covert action and passed a blatantly false resolution repudiating Paine's disclosure.4 Obviously, the Founding Fathers realized that there are some circumstances when a well-intentioned "noble lie," as Plato put it, is a necessary alternative to the harsh consequences of the truth. They also believed in pun- ishing leakers, a practice their modern counterparts in both the executive and legislative branches need to emulate more consistently. Let us move forward in history now, to the early years of the Constitution. President Washington learned quickly that once information is shared with Congress, it is up to Congress?often the opposition *For an earlier discussion of this committee, including this quota- tion, see supra, ch. 3, p. 470. 576 party in Congress?to decide when or how it will be made public. During the time the Federalists controlled the House, they enforced a rule that excluded the public during any debate concerning material sent to the House by the President "in confi- dence." After the Republicans gained control, they changed this rule to allow the majority to vote for public debate on confidential communi- cations on an ad hoc basis. Soon thereafter, the House voted to lift an injunction of secrecy they had placed on some letters sent by the President "in confidence." A similar rebellion of sorts took place in the Senate after the Jay Treaty was conditionally ratified. The President wanted the treaty kept secret until all negotiations were com- plete. The Senate voted, however, to rescind its injunction of secrecy, although it continued to enjoin "Senators not to authorize or allow any copy [to be made] of the said communication . . . ." Both Senators Pierce Butler of South Carolina and Stevens T. Mason of Virginia smug- gled copies out of the Senate chamber, apparent- ly before the secrecy injunction was lifted, and on the same day that the Government planned to make the treaty public, the Republican Aurora beat it to the punch by printing an abstract of the terms.3 The Leaky 1970s Some things never change and as we celebrate our constitution's bicentennial, Congress is still prone to unauthorized and sometimes damaging disclosures. The worst period in recent history was during the 1970s, when the legitimacy of the CIA and covert operations were under attack. What follows are some examples of alleged congressional leaks during that period. Rather than rely on classified material, we have chosen here to protect still secret information by relying on accounts from secondary sources. The in- clusion of this material is not meant to confirm or deny the veracity of the specific disclosures alleged. We begin with a 1972 example from Arthur Maass' book, Congress and the Common Good. On April 25, 1972, Senator Mike Gravel (D. AK) asked unanimous consent to insert in the Congres- sional Record excerpts from a top-secret National Security memorandum. The 500-page document concerning policy options in the Vietnam War had been prepared for Richard Nixon in 1969 by the National Security Council staff under Henry A. Kissinger. The senator's normally routine re- quest was blocked temporarily by minority whip Robert P. Griffin (R. MI). The Senate met on May 2 and 4 in closed executive sessions to con- sider Gravel's request, but no decision was Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 reached. Then on May 9, Gravel, without ad- vance notice, read into the Record, during debate on the annual State Department authorization bill, excerpts from the memorandum dealing with proposals to mine North Vietnamese ports, an action that had been announced by the President on the previous day. Senator Griffin, who en- tered the chamber during Gravel's statement, criticized him for acting before the Senate had disposed of the question. The Senator responded: "I have an obligation to the American people . . . to let the American people have the infor- mation that he [Richard Nixon] has." Congressman Ron V. Dellums (D.CA) then ob- tained from Gravel a copy of the full document which he placed in the Congressional Record on May 11, by simply asking unanimous consent to extend his remarks in the Record without giving any hint of their contents.6 Maass' book followed this example with two others from the committees that investigated the CIA. In January 1976, the House Intelligence Commit- tee, under Chairman Otis G. Pike (D. NY) sought to make public a report containing information that the White House considered to be top secret. The House intervened, voting 246 to 124 to block the committee from releasing its report until the President certified that it did not contain informa- tion that would adversely affect the nation's intel- ligence activities. Whereupon Daniel Schorr of CBS News, having obtained a copy of the report presumably from a House member or staffer, gave it to the Village Voice, which published it, thereby frustrating an overwhelming majority of the House. Schorr was subsequently fired by CBS and became a cult hero on the college lec- ture circuit, commanding top fees for one-night stands. . . . The Senate Intelligence Committee chair- man, Frank Church (D. ID), went to the full Senate in November 1975 for approval of release of the committee's report on CIA involvement in assassination attempts against foreign leaders. The report included secret information that the Presi- dent believed should not be made public. The Senate met in executive session, that is, secret session, and when considerable opposition to re- lease of the report developed, more opposition than Church had anticipated, he and the Demo- cratic majority adjourned the session without a vote, and the committee released the report on its own authority.7 It is clear that leaks during this period were often motivated by an animus toward the CIA's mission in general or as a way of killing individual operations. The same Daniel Schorr who leaked the Pentagon Papers to the Village Voice wrote about leaks in a 1985 Washington Post article. "The late Rep. Leo Ryan," Schorr wrote, "told me (in 1975) that he would con- done such a leak if it was the only way to block an ill conceived operation." 8 In fact, wrote former Direc- tor of Central Intelligence William Colby, "every new project subjected to this procedure [informing eight congressional committees] leaked, and the 'covert' part of CIA's covert action seemed almost gone." 9 The Still Leaky Congress During the Reagan Years By the late 1970s, the House and Senate had formed intelligence committees, reducing the number of com- mittees to which intelligence agencies had to report. That clearly improved the situation, but it did not cure all problems. Senator Joseph Biden, then a member of the Select Committee on Intelligence, sounded a bit like the late Leo Ryan in a 1986 Brit Hume article from The New Republic. Biden reported- ly said he had "twice threatened to go public with covert action plans by the Reagan administration that were harebrained."1? In 1984, according to an article by Robert Cald- well, CIA officials briefed the same Senate Select Committee on Intelligence about information indicat- ing that the Government of India was considering a preemptive strike against Pakistan's nuclear facility. When word of the briefing leaked, the operation was halted. According to Caldwell, the leak showed India that it had a security breach at a high level. The breach was discovered and a French intelligence ring was put out of business." The Senate Select Committee on Intelligence was one of the bodies to which the President would have had to report the Iran arms sales. Of course the Presi- dent could have limited the report to the committee chairmen and ranking minority members as well as the party leaders of the House of Representatives and Senate. The problem with this scenario is that some senior members of the committee have been suspected of leaking, as was discussed in the Committees' hear- ings." The House committee has also been the source of some damaging disclosures. Bob Woodward's book, Veil, describes one incident that allegedly hap- pened after members of the committee had sent a secret letter to President Reagan to protest an oper- ation about which Director Casey had just briefed them. Representative Clement J. Zablocki, the chair- man of the House Foreign Affairs Committee and a member of the House Intelligence Committee, had reviewed the . . . finding and the letter to Reagan. The sixty-nine-year-old lawmaker leaked 577 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I] .t I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 to Newsweek that the letter to Reagan about the yet unnamed operation in Africa was a plan to topple Qaddafi . . . . Newsweek reporters went back to House Foreign Affairs Chairman Zablocki after the Libya plan was denied. Zablocki went to House staff mem- bers, tipping them that he had been a source for Newsweek He was set straight, but the House Intelligence Committee chairman, Edward Boland, decided to take no action against Za- blocki, since leaks were epidemic.' 3 Complaints and investigations about subsequent inci- dents involving the House committee so far remain at the informal stage. To complete this picture of the world about which Poindexter had to make judgments: on November 3, 1985?in the weeks just before the November arms transaction?a Washington Post article by Bob Wood- ward broke a story about a "CIA Anti-Qadhafi Plan Backed."" Director Casey responded to this article with a blistering letter to the President about execu- tive and legislative branch leaks. The Washingtonian magazine, accurately in our view, linked the atmos- phere in the White House immediately after this leak to the decision not to notify Congress about the Iran arms sale." It may be that not all these reported details about named Members of Congress are true. True or not, they fit in with a real pattern. As such, they form part of the background Director Casey and Admiral Poin- dexter had to consider in November 1985. It seems clear, with 20/20 hindsight, that Casey and Poin- dexter overreacted. They may even have used the Post story as a convenient peg in their ongoing battle over secrecy with Secretary Shultz and others. But even if they did overreact, it is irresponsible to dis- miss their fears as being simply irrational, power hungry or nefarious. Yes, some foreigners?Ghorbanifar, the Israelis, Khashoggi, the first and second Iranian channels?did have to know what was going on. That is the nature of any secret international dealing. The issue is how much should be told to anyone who did not have a need to know to complete the operation successfully. The simple fact is, we had no way of knowing wheth- er our sources in Iran were endangering their lives by dealing with us. Judging from the thousands executed in the early days of the Khomeini regime and the recent execution of Mehdi Hashemi, the threat seemed real enough." Nor could we know whether the slightest misstep might get the hostages killed. Certainly, such threats against the hostages lives have been a part of the hostage takers' media events, and Kilburn's death was real. Given the track record, no one in Congress or the executive branch can afford to be smug about these concerns. Trust is a two-way 578 street, and each end of Pennsylvania Avenue had good reasons to doubt the other. Problems In These Committees Past leaks contributed to decisions that in turn led to these investigations. The leaks did not stop, however, when the committees started to work. The Commit- tees began with every good intention. Recognizing that it was dealing with highly sensitive information, the leadership made a concerted effort to prevent leaks. The complexity and short time frame of the probe, however, led to a decision not to compartmen- talize sensitive information. Consequently, everyone on the joint staff of some 165 people had multi-com- partmented clearances and access to the highest levels of classified material. The same access held true, of course, for the 26 members of the two Select Com- mittees. Given the number of people with access to these secrets, it is surprising there were not more revelations. We are reluctant to identify leaks with too much precision, because confirmation may help adversaries sort out the ones we consider harmful. Suffice it to say that the types of leaks included misleading the media on the nature of a witness' secret testimony several days before he appeared as a public witness as well as revealing intelligence collection methods, the identities of undercover personnel, and the names of a number of countries which, in one way or another, were trying circumspectly to be helpful to the United States in a variety of foreign policy undertakings. Needless to say, these disclosures, and others, are causing these and other countries to have serious res- ervations about future cooperation with the United States. That turn of events should give us real pause. This is a highly interdependent world. It no longer is possible for the United States to go it alone, whether to combat terrorism or contain Soviet/Cuban expan- sionism in Central America. Consider one example. On Friday, May 29, the Committees took testimony in closed executive ses- sion from "Tomas Castillo," the former CIA station chief in a Central American country. At the end of Castillo's testimony, the following colloquy took place: Mr. RUDMAN. I just want to make one com- ment. It is my understanding that the [declassi- fied] transcript is going to be made available sometime tomorrow to the press. Chairman HAMILTON. That is correct. Mr. RUDMAN. It is also my understanding that under the rules of Congress and the Intelligence Committees that it would be inappropriate for any members or staff or anyone else to comment , Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 on these proceedings without specific permission in some way from the chairman. Chairman HAMILTON. That is correct. Under the rules of the House Committee at least, you cannot release classified information without a vote of the committee and in the Senate my un- derstanding is it is a similar procedure. Chairman INOUYE. That is correct.' 7 Despite these explicit statements, articles appeared in May 30 newspapers with May 29 datelines accurately summarizing the testimony, and quoting named mem- bers of the Committees giving broad characterizations of the testimony.* The declassified transcripts were not available until Sunday night, May 31. There were no Committee votes in the interim. Some of these revelations by staff and Members, as well as current and former Administration officials, occurred during intense questioning and cross exami- nation of witnesses and appeared to be inadvertent. Such mistakes, however, suggest in retrospect that this nation's security interests would have been much *See, for example, R.A. Zaldivar and Charles Green, "CIA sta- tion chief wasn't renegade, congressmen say," The Miami Herald, May 30, 1987, p. 16A; Fox Butterfield, "Ex-C.I.A. Officer Tells of Orders to Assist Contras," The New York Times, May 30, 1987, p. 7; Associated Press, "Contra role told by ex-CIA agent," Chicago Tribune, May 30, 1987, p. 5. Interestingly, The Washington Post, the same newspaper that publishes Bob Woodward's intelligence disclo- sures, distinguished itself from the others this day by refusing to publish certain classified information. The Post also gave no details about Castillo's testimony and quoted Sen. Rudman refusing to give information. Dan Morgan, "Higher-Level CIA Officials May Be Subpoenaed on Contra Aid," The Washington Post, May 30, 1987, p. A9. better served had we decided to take more testimony in closed session. Potentially damaging slips of the tongue could then have been redacted before a tran- script was made available to the public. As a consequence of this probe, and that of Judge Walsh, this nation's intelligence community could be facing the same situation it confronted more than a decade ago after the Church and Pike Committees investigations. Leaks from those inquiries seriously de- bilitated our overall intelligence capabilities and it took us over a decade to repair the damage. A rerun of that sorry chapter would have grave national secu- rity implications, coming on the heels of a series of very damaging spy scandals epitomized by the Walker family case. What happened to Castillo's testimony, which was open to all Committee members and many staff, con- trasts sharply with the executive session deposition of Admiral Poindexter on May 2, 1987. The two select Committees recognized that the Admiral's testimony on the diversion of funds was the pivotal, and poten- tially most explosive political question of this whole investigation. As a result, extraordinary steps were taken to protect the information. Specifically, only three staff attorneys and no Members of either Com- mittee participated in the secret questioning. The suc- cess of these procedures speaks volumes on how to protect secrets. In the final analysis, as Chairman Hamilton noted in a perceptive article on protecting secrets that appeared in the September 4, 1985 Con- gressional Record, "Leaks are inevitable when so many people handle secrets."" The most effective way of ensuring secrecy is to restrict access to sensitive infor- mation to just a handful of responsible people. 579 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 11 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 13 Endnotes 1. Shultz Test., Hearings, 100-9, 7/23/87, at 52. 2. Henry J. Hyde, "How To Reduce The Leaks, Case for a Joint Intelligence Committee," The Washington Times, October 12, 1987, pp. D1, D4. 3. U.S. Central Intelligence Agency Bicentennial Pub- lication, Intelligence in the War of Independence, published by the Nathan Hale Institute (1976), p. 14. 4. Edward F. Sayle, The Historical Underpinnings of the U.S. Intelligence Community, reprinted by the Intelligence Publishing Groups Inc., from 1 Journal of Intelligence and Counterintelligence (1986). 5. Sofaer, War, Foreign Affairs and Constitutional Power at 96-97. 6. Arthur Maass, Congress and the Common Good (1983), p. 241. 7. Id. at 243. 8. Daniel Schorr, Cloak and Dagger Relics, The Wash- ington Post, November 14, 1985, A23. 580 9. William Colby, Honorable Men (1978), P. 423. 10. Brit Hume, Mighty Mouth, The New Republic, Sep- tember 1, 1986, p. 20.. 11. Robert J. Caldwell, "Button the loose lips in Con- gress," The San Diego Union, July 26, 1987, pp. 1,8. 12. Meese Test., Hearings, 100-9, 7/29/87, at 350-51. 13. Bob Woodward, Veil: The Secret Wars of the CIA 1981-1987 (1987), pp. 158, 160. 14. Bob Woodward, CIA Anti-Qadhafi Plan Backed, The Washington Post, November 3, 1985, pp. Al, A19. 15. Barbara Matusow, "Woodward Strikes Again," The Washingtonian (Sept. 1987), pp. 114, 234. 16. See Chapter 8 of the Minority Report, "The Iran Initiative," at p. 520. 17. Castillo testimony, May 29, pp. 85-86. 18. Hon. Lee H. Hamilton, Protecting Secrets, Congres- sional Record, September 4, 1985, pp. E3855-56. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part VII Recommendations _ Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ? 11 d , I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Recommendations The majority report reaches the conclusion, accurate- ly in our opinion, that the underlying cause of the Iran-Contra Affair had to do with people rather than with laws.* Despite this laudable premise, the majori- ty goes on to offer no fewer than 27 recommenda- tions, most involving legislation and several of them multifaceted. Some of the recommendations unfortu- nately betray Congress' role in the legislative-execu- tive branch struggle by proposing needlessly detailed rules for the organization of the executive branch. At the same time, the majority recommendations barely touch the problem of leaks, and say nothing at all, to no one's surprise, about Congress' misuse of massive continuing appropriations resolutions to conduct for- eign policy. We do not intend here to give a detailed critique of the majority recommendations. We do believe that requiring the President to notify Congress of all covert operations within 48 hours, without any excep- tions, would be both unconstitutional and unwise.** Many of the remaining recommendations seem to us to be unconscionably meddlesome. No good reasons are offered for prohibiting military officers, such as General Powell, from being National Security Advis- er. No good reasons are offered for having the Na- tional Security Council produce regular staff rosters for Congress. And so forth, and so on. It all strikes as more of the same: an attempt to achieve grand policy results by picking away at the details. In the spirit of offering recommendations, however, we are pleased to present some of our own. Recommendation 1: Joint intelligence Committee Congress should replace its Senate and House Select Committees on Intelligence with a joint committee. Congress has realized that limiting the number of people with access to sensitive information can help protect the information's security. The House and Senate took worthwhile first steps to limit the number of Members and staff engaged in intelligence over- sight by establishing Select Committees on Intelli- ? See Chapter 8 in the Minority Report at 532-536. ** See the Minority Report, Chapter 4 at 477-478, and Chapter 9 at 543-545. gence. Unfortunately, as we have seen, security still is not tight enough. The time has now come, therefore, for taking the next logical steps. Given the national security stakes involved, Con- gress and the Administration must find a remedy for restoring mutual trust. One major step in that direc- tion can be taken by merging the existing House and Senate intelligence committees into a joint committee, along the lines of legislation (H.J. Res. 48) sponsored by Representative Henry Hyde and a bipartisan group of 135 cosponsors (see Appendix C). Such a commit- tee need not have the 32 Members (plus four ex- officio) and 55 staff now needed for two separate committees. Fewer Members, supported by a small staff of apolitical professionals, could make up the single committee. In recognition of political reality, the majority-party membership from each House would have a one vote edge. A joint intelligence panel would drastically dimin- ish the opportunities for partisan posturing and sub- stantially reduce the number of individuals with access to classified and sensitive information. This would not only minimize the risk of damaging unau- thorized disclosures but would also significantly in- crease the likelihood of identifying leak sources? something that rarely occurs now because so many people are in the "intelligence information loop." Fur- thermore, with the possibility of discovery so much greater, potential leakers would be strongly deterred from unauthorized disclosures. To achieve both efficiency and secrecy in congres- sional consideration of intelligence matters, a Joint Intelligence Committee must have legislative as well as oversight jurisdiction. Otherwise, the two Houses would not give the Joint Committee the deference the two existing intelligence committees enjoy. Neither would the intelligence agencies have the budget-based incentives to cooperate with the Joint Committee as they have now with the two select committees. Inad- equate jurisdiction might also prompt the various committees in each House with historical interests in intelligence to reassert themselves. That could trigger increased fractionalization of the congressional over- sight process, with the concomitant proliferation within the Congress of access to sensitive intelligence information. 583 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II .1 I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Recommendation 2: Oath and Strict Penalties for Congress. To improve security, the Joint Intelligence Committee (or the present House and Senate committees) should adopt a secrecy oath with stiff penalties for its violation. Creating a joint committee will not by itself guaran- tee the security of intelligence information. Also es- sential is committee self-discipline. Earlier, we pointed out how the reputations of the Senate and House Intelligence Committees have been sullied by leaks from Members or staff. As the importance of congres- sional oversight, and the reputation for leaking, both grow, foreign intelligence agencies are discouraged from unguarded cooperation with the United States. Change is therefore urgent both to stanch the flow of leaks and to symbolize to foreign countries that Con- gress is serious about preserving the confidentiality of secrets. One significant change that would help further both goals would be to require an oath of secrecy for all Members and staff of the intelligence committees. Such an oath would not be an American novelty. As we have already noted, the Continental Congress' Committee on Secret Correspondence required all of its members and employees to pledge not to divulge, directly or indirectly, any information that required secrecy. The proposed oath should read: "I do solemnly swear (or affirm) that I will not directly or indirectly disclose to any unauthorized person any information received in the course of my duties on the [Senate, House or Joint] Intelligence Committee except with the formal approval of the Committee or Congress." The Committee Rules should be amended to compel permanent expulsion from the committee of any member or staff person who violates his or her oath. While proceedings remain pending, the accused would be denied access to classified information. The rules of the House and Senate should also be amended to provide that the Intelligence Committee would be authorized to refer cases involving the unauthorized disclosure of classified information to the Ethics Com- mittees. The rules should make it clear that the Ethics Committees may recommend appropriate sanctions, up to and including expulsion from Congress. This approach is well within the Constitution's ex- pulsion power and the power of each House to set rules for its own proceedings. The power of each House of Congress to expel Members for misbehavior by two-thirds vote is virtually uncircumscribed. His- torically, fifteen Senators and four Representatives have been expelled. Fourteen of the Senators were expelled for supporting the Confederate secession. The fifteenth, Senator Blount, was for conspiring with Indian tribes to attack Spanish Florida and Louisiana. The House and Senate also have considered and re- fused expulsion on twenty-four occasions for charges as varied as corruption, disloyalty, Mormonism, trea- 584 sonable utterances, dueling, and attacking other Mem- bers of Congress. Expulsion decisions of Congress are probably beyond judicial review.2 Any set of recommendations that limits itself to Congress would not be adequate to respond to the problem of leaks. Therefore, we recommend a more balanced approach that would stiffen the penalties for others who participate in this activity. Recommendation 3: Strengthening Sanctions Sanctions against disclosing national security secrets or classified information should be strengthened. Current federal law contains many provisions pro- hibiting the disclosure of classified information, but each of the existing provisions has loopholes or other difficulties that make them hard to apply. The section that covers the broadest spectrum of information, "classified information," only prohibits knowing, un- authorized communication to a foreign agent or member of a specified Communist organization.3 Another set of provisions contains no such limit on the recipient of the information, but applies only to information related to the national defense.4 For some specified information, unauthorized disclosure or transmission is criminal under any circumstances.5 The transmission of other "information relating to the national defense" to an unauthorized person is also illegal if a person has reason to believe the informa- tion would be used to injure the United States or to benefit a foreign nation. The problem with these pro- visions is that they cover only "information relating to the national defense" rather than the full range of national security information whose secrecy the gov- ernment has a legitimate reason to protect.6 A third set of provisions in current law is limited to nuclear weapons production.7 A fourth is limited to information about ciphers or communications intelli- gence.5 This is the law that the National Security Agency Director, General William E. Odom, believes should be applied more vigorously against both feder- al employees and the press.* ? * The following is quoted from Molly Moore, "Prosecution of Media for Leaks Urged," The Washington Post, Sept. 3, 1987, p. A4: "I don't want to blame any particular area for leaking," said Odom, who added, "There's leaking from Congress . . . there's more leaking in the administration because it's bigger. I'm just stuck with the consequences of it. Leaks have damaged the [communications intelligence] system more in the past three to four years than in a long, long time." Odom said he has encouraged the administration to use an obscure law that prohibits disclosures of "communications intelli- gence." Odom said he has referred several cases involving news leaks to the Justice Department since 1985 but said the department has declined to prosecute any of them. The department said it has not prosecuted any so far. . . . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Finally, a fifth provision?also limited in the infor- mation it protects?makes illegal the disclosure of agents' identities. This law is also restricted to disclo- sures by someone who (a) has authorized access to the identity from classified information or (b) is en- gaged in a "pattern of activities intended to identify and expose covert agents" with reason to believe the publicity would impair the foreign intelligence activi- ties of the United States.9 The latter limitation means that the agent disclosure law does not cover most normal press disclosures, such as the ones we men- tioned earlier about reports based on these commit- tees' work, because they are not normally part of a pattern or practice of identifying covert agents. In order to close these loopholes, Rep. Bill McCol- lum has introduced a bill (H.R. 3066) co-sponsored by all the other Republican members of the House Iran Committee. The bill is limited to current and past federal employees in any branch of government. For these people, the bill would make it a felony know- ingly to disclose classified information or material (not just specific national defense information) to any unauthorized person, whatever the intent. Another approach that would supplement the McCollum bill would be to introduce substantial civil penalties for the knowing disclosure of classified in- formation to any unauthorized person. The penalties might range from administrative censure to a perma- nent ban on federal employment and a fine of $10,000. The advantage of giving the Justice Department the option of using a civil statute would be (a) that the standard for proof would be the preponderance of evidence rather than proof beyond a reasonable doubt and (b) the law could stipulate that contested viola- "Generally, when I'm with a group of journalists, I can usually see two or three people who fall in the category of those who probably could be successfully prosecuted," Odom told the reporters. The following material, from the same press briefing, is from Norman Black, "Gen. Odom blames leaks for 'deadly' intelligence loss," Associated Press dispatch published in The Washington Times, Sept. 3, 1987, pp. 1, 12: Asked to provide examples, Gen. Odom said he didn't want "to get specific right now and compound the things, but a number of sources have dried up in some areas which you are all familiar with, in the past year or two. A number of years ago there was a case that had to do with a Damascus communication. . . It was a leak. It attributed this thing to an intercept. And the source dried up immediately," Gen. Odom said. Asked then about Libya, he replied, "Libya, sure. Just deadly losses." tions should be heard in secret, without a jury. These procedures should not encounter constitutional diffi- culties in light of the Supreme Court's broad endorse- ment of controls on the disclosure of classified infor- mation in Snepp v. U.S.? Recommendation 4: Gang of Four Permit the President to not the "Gang of Four" in- stead of the "Gang of Eight" in special circumstances. Representative Broomfield has introduced a bill that, among other things, would permit the President on extremely sensitive matters to notify only the Speaker of the House, House Minority Leader, Senate Majority Leader and Senate Minority Leader. Under current law, limited notification means notification of these four plus the chairmen and ranking minority members of the two intelligence committees. On the principal that notifying fewer people is better in ex- tremely sensistive situations, we would be inclined to support legislation along these lines that would ratify what has already come to be an informal occasional practice. Recommendation 5: Restore Presidential Power to Withstand Foreign Policy by Continuing Resolution Require Congress to divide continuing resolutions into separate appropriations bills and give the President an item veto for foreign policy limitation amendments on appropriations bills. The way Congress made foreign policy through the Boland Amendment is all too normal a way of doing business. Congress uses end of the year continuing resolutions to force its way on large matters and small, presenting the President with a package that forces him to choose between closing down the Gov- ernment or capitulating. Congress should give the President an opportunity to address the major differ- ences between himself and the Congress cleanly, in- stead of combining them with unrelated subjects. To restore the Presidency to the position it held just a few Administrations ago, Congress should exercise the self-discipline to split continuing resolutions into separate appropriation bills and present each of them individually to the President for his signature or veto. Even better would be a line-item veto that would permit the President to force Congress to an override vote without jeopardizing funding for the whole gov- ernment. 585 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II II . I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Chapter 14 Endnotes 1. See In re Chapman, 166 U.S. 661, 669-670 (1897). 2. See Powell v. McCormack, 395 U.S. 486, 507 n. 27, 548- 549 (1969). 3. 50 U.S.C. 783. 4. 18 U.S.C. 793 (d) and (e) and 794. 5. See New York Times v. Sullivan, 403 U.S. 713, 737-40 (1971); U.S. v. Morison, 604 F. Supp. 655 (1985). 586 6. Gorin v. U.S., 312 U.S. 19, 28 (1941); U.S. v. Dedeyan, 584 F. 2d 36 (4th Cir., 1978). 7. 18 U.S.C. 2274, 2277. 8. 18 U.S.C. 798. 9. 50 U.S.C. 421. 10. 444 U.S. 507 (1980). Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Part VIII Appendixes Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 APPENDIX A IL RAN U CORPORATION 1,00 PA.? Lwow 110 rmi I.-. Al.r.o. CA 110906 11311 September 25, 1987 Representative Lee H. Hamilton Chairman House Select Committee to Investigate Covert Arms Transactions with Iran United States Capitol Washington, D.C. 20515 Representative Dick Cheney Ranking Minority Member House Select Committee to Investigate Covert Arms Transactions with Iran United States Capitol Washington, D.C. 20515 To the Chairman and Ranking Minority Member of the Committee: The enclosure to this letter, entitled "Reporting Obligations and Funding Restrictions Affecting Intelligence Departments, Agencies and Entities of the United States," is submitted to your Commit- tee through the U.S. Senate Select Committee on Intelligence. I have prepared the enclosed statement in reply to your letter of September 3, 1987 (Enclosure 1). That letter requested my observations and recollections of the legislative history of intelligence law that: o "might be helpful to the Committee in its evaluation of whether any laws were violated by members of the executive branch in the Iran/Contra affair"; and/or o "relate to the concept of an 'intelligence agency' or 'intelligence entity' as traditionally understood by Congress or the Chief Executive." In preparing a response to your letter, I have reviewed my records pertaining to the legislative history of both enacted intelligence legislation and executive orders for the period 1974-1984. Based upon this review and my experience as the longest continuously-serving consultant to the Senate Select Committee on Intelligence in the period 1976-1984, I have prepared Enclosure 2. My review of pertinent records brought to my attention a related issue: whether authorizations for covert activities to be conducted under the direction of the National Security Council should be subject to a preceding legal opinion respecting the conformity of the proposed activity to United States law. In 1974 I reviewed the legal authority for the conduct and control of foreign intelligence activities of the United States, under sponsorship of the Intelligence Pinel of the Murphy Com- mission, with the cooperation of the NSC staff and general counsels of the various intelligence agencies. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 2 At that time I posed for the Commission's Intelligence Panel a set of issues relating to legal authority and accountability. In particular, I invited the Commission to consider whether the National Security Act of 1947 should be amended to require, before NSC authorization of covert activities, an opinion as to the activity's legality under the laws of the United States and obligations of the United States under international law. Enclosure 3 provides a copy of the Murphy Commission Intelligence Issues Paper, "Legal Authority for the Conduct and Control of Foreign Intelligence Activities," as revised on November 22, 1974. See in particular pages 18 to 22, Issue 010 at pp. 21-22, and Appendix 2. The Chairman of the Intelligence Panel and the Commission, Ambassador Robert D. Murphy, did not favor my proposal to estab- lish a Legal Adviser to the National Security Council, both because the Attorney General was the principal legal adviser to the President and because of possible impairment of presidential freedom of action respecting U.S. covert activities. The National Security Council is by statute responsible for the direction of CIA's performance of "such other functions and duties related to intelligence...." Had a system of mandated legal review and an NSC Legal Adviser been established in the 1970s, it is entirely possible that the need for your Select Committee would not have arisen. I am pleased to learn that the present Special Assistant to the President for National Security Affairs, Mr. Frank Carlucci, has established the position of Legal Adviser to the NSC in January 1987. This initiative assures the availability to the NSC of a legal officer. It does not by itself mandate legal review of proposed covert activities prior to Presidential finding and NSC direction. Intelligence activities of the United States can and must be conducted under the rule of law in a democratic society. I trust that the enclosed review of intelligence laws and Congressional oversight practices will assist your Committee as it completes a difficult task. Respectfully submitted, A 7,14..c., Ai; ? William R. Harris 16641 Marquez Terrace Pacific Palisades, CA. 90272 590 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 3 Enclosure 1, Letter from Rep. Hamilton and Rep. Cheney to William R. Harris, Sep. 3, 1987. Enclosure 2, William R. Harris, "Reporting Obligations and Funding Restrictions Affecting Intelligence Departments, Agencies, and Entities of the U.S." Sep. 25, 1987. Enclosure 3, William R. Harris, "Legal Authority for the Conduct and Control of Foreign Intelligence Activities," Issues Paper, Commission on the Organization of the Government for the Conduct of Foreign Policy, November 22, 1974. 591 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 "RAND CORPORAT ION 16*. S..?. 'os.. MS Ir., **wt.. CA 10?00 71311 Senator David L. Boren Chairman Senate Select Committee on Intelligence SH-211 Hart Senate Office Building Washington, D.C. 20510 Senator William S. Cohen Vice Chairman Senate Select Committee on Intelligence SH-211 Hart Senate Office Building Washington, D.C. 20510 To the Chairman and Vice Chairman of the Senate Select Committee on Intelligence: September 25, 1987 By letter of September 3, 1987, the Chairman and Ranking Minority Member of the House Select Committee to Investigate Covert Arms Transactions with Iran requested my assistance regarding: - Legislative history of intelligence laws that might "be helpful to the Committee in its evaluation of whether any laws were violated by members of the executive branch in the Iran/Contra affair." - "[A]ny observations or recollections that relate to the concept of an 'intelligence agency' or 'intelligence entity' as traditionally understood by Congress or the Chief Executive..." Between January 1976 and December 1984 I served as a consultant to the Senate Select Committee on Intelligence and its prede- cessor committee. In that capacity, I reviewed and sometimes revised drafts of the oversight charter of the Committee (S. Res. 400 in 1976) and intelligence legislation including the Intell- igence Oversight Act of 1980 (50 U.S.C. sec. 413). Drafts of legislation were prepared in unclassified form, but as work product of the Intelligence Committee. Accordingly, I am trans- mitting to you my response to the House Committee in conformity with my secrecy agreements with your Committee executed in 1977 and 1984, and in accordance with Committee Rules. Please advise me if and when you release the accompanying letter to the House Select Committee to Investigate Covert Arms Trans- actions with Iran. Res ectfu ted, ? William R. Harr s 16641 Marquez Terrace Pacific Palisades, CA. 90272 End: Ltr. to Rep. Hamilton and Rep. Cheney w/ Enc1.1, 2, and 3. 592 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 1.0.+?11111 ? MI,. ???,.....k.,0.4 AAP * 0100.10 WV/ Allier mica MOORS MIAS tOUse 11104111. Osow WerliC00,11101 egwvAles P sou** trAIIACIVUTTS es Amount Noma AMIN NORM. Ja MOP COVOISit w Nut swims, (IINO, DKr C0M15111. CAI"' MILLIS. SIMI POICTOo U.S. HOUSE OF REPRESENTATIVES SELECT COMMITTEE TO INVESTIGATE COVERT ARMS TRANSACTIONS WITH IRAN UNITED STATES CAPITOL WASHINGTON. DC 20515 1202) 225-7902 September 3, 1987 Mr. William R. Harris The Rand Corporation 1700 Main Street Santa Monica, CA 90406-2138 Dear Mr. Harris: soggily j Wig %LW'S .011 COUIVAI 14.14g? e et t 'Ode& wow& wwwout Ome ?wows} 0 SIAM* Alleamt? MOGI IPA WA COLA 0,400410 uoktionr. pow heiscom cot We understand that you participated in the deliberations and forging of events that culminated in the 1980 Intelligence Oversight Act, as a consultant to the Senate Select Committee on Intelligence. We further understand you played a role in the drafting of President Carter's Executive Order governing the intelligence community. We believe your expertise in these intelligence law matters might be helpful to the Committee in its evaluation of whether any laws were violated by members of the executive branch in the Iran/Contra affair. In particular, we would be grateful for any observations or recollections that relate to the concept of an "intelligence agency" or "intelligence entity" as traditionally understood by Congress or the Chief Executive. A letter to the Committee addressing these and related issues regarding the history, intent, or scope of the IOA and President Carter's Executive Order would be much appreciated. DC/ts Sincerely, Lee H. Hamilton Dick Cheney _L SID Pti0O DIM ICJ DEVELOPMENT I airSaabrAli Ile , z iti 1.o. /ePa i. g 1 . E .a 5,s .Otc'ocio!..1 .3.afie, ,%gaelcztr, S.E ., ?,1".- = t . en z ? 0 lit -A .. z f - I C a t- Et V& A tioi-1 f. c TIACTS I iFift CSIC LIPRARI ...0 Liitis: 0 1 - C.) i a a a -... E 593 77-026 0 - 87 - 20 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Enclosure 2. REPORTING OBLIGATIONS AND FUNDING RESTRICTIONS AFFECTING INTELLIGENCE DEPARTMENTS, AGENCIES, AND ENTITIES OF THE UNITED STATES Prepared Statement of William R. Harris In reply to a request of the U.S. House Select Committee to Investigate Covert Arms Transactions with Iran September 25, 1987 The views expressed are those of the author in his individual capacity. They neither represent the U.S. Senate Select Committee on Intelligence nor The RAND Corporation, with regard to the issues considered. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 2 REPORTING OBLIGATIONS AND FUNDING RESTRICTIONS AFFECTING INTELLIGENCE DEPARTMENTS, AGENCIES. AND ENTITIES OF THE U.S. INCLUSION OF THE NATIONAL SECURITY COUNCIL AND STAFF WITHIN THE SCOPE OF CONGRESSIONAL_ INTELLIGENCE OVERSIGHT UNDER S. RES. 400 (1276). H. RES. 668 (19771. AND EXECUTIVE ORDER 12036 (1978). The Senate established, by S. Res. 21, the Senate Select Commit- tee on Government Operations with Respect to Intelligence Activi- ties (the Church Committee) in January 1975. This Committee con- conducted broad-ranging investigations and drafted proposed intelligence oversight legislation that resulted in establishment of the present Senate Select Committee on Intelligence in May 1976. Preceding S. Res. 21, President Ford signed into law P.L. 93-559, including as Sec. 662 of the Foreign Assistance Act of 1961 [22 U.S.C. 2422] the Hughes-Ryan Amendment. This required a presi- dential finding ("important to the national security") preceding any expenditure of funds for covert operations of the Central Intelligence Agency. It did not specify any reporting duty of the NSC or its staff. It did require the President to report each "finding" to the "appropriate" committees of the Congress "in a timely fashion...." This resulted in reporting of presidential findings to the full membership of the House and Senate Armed Services Committees, to the Defense Subcommittees of the Appropriations Committees, and to the House Foreign Affairs Committee and the Senate Foreign Relations Committee. [See Gary J. Schmitt, "Congressional Oversight of Intelligence," Spring 1985.] Subsequent to the establishment of the Senate and House Intelligence Committees in 1976 and 1977, respectively, the "appropriate" committees included more than 150 members. My records indicate that in 1975, a staff attorney of the Senate Select Committee on Government Activities with Respect to Intelligence Activities, Ms. Martha Talley, prepared for the Committee a draft "Intelligence Oversight Act of 1975." The committee's draft legislation was not introduced in that year, but is indicative of the scope and intent of the oversight legis- lation that the Senate approved (S. Res. 400) the following year. The draft Intelligence Oversight Act of 1975 contained both proposed amendments to Senate rules (sec. 4 through 10) and proposed legislation (sec. llff.). Proposed Section 6(a)(1)(B) [Sec. 3(a)(2) of S. Res. 400] provided jurisdiction over intelligence activities of all other departments and agencies of the Government...." The scope of proposed legislative oversight reflected the exper- ience of a committee responsible for investigating intelligence activities of the entire government. The committee did in fact 595 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 i Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 3 investigate intelligence activities of the Postal Service, the Internal Revenue Service, and other agencies outside the intelli- gence community whose activities raised issues of legality or propriety. The analysis of Section 6 prepared by Ms.Talley for the Committee in 1975 indicated: "The Committee would have oversight and legislative jurisdiction of intelligence activities engaged in by the following agencies, their successors, employees, subcontractors, and proprietaries: 69 ? ? ? "7. National Security Council, and its subcommittees, panels and working groups with authority to deal with intelligence, counterintelligence, internal security, and related matters". My records indicate that Senate Select Committee completed a revised Staff Draft S. Res. on December 31, 1975, to establish a Senate Committee on Intelligence. Sec. 8 retained government-wide jurisdicLion and pi-oposed (per the suggestion of a Senator who served on the Joint Committee on Atomic Energy) a duty of "each department, agency, or instrumentality of the government" to keep the Committee "fully and currently informed with respect to all intelligence and counterintelligence poli- cies, programs, and activities which are the responsibility of, or are planned, supervised, financed, or carried out by, such department, agency, or instrumentality...." The "currently and fully informed" standard was derived from Section 202 of the Atomic Energy Act of 1946 [42 U.S.C. 2252]. In January 1976 the Office of the U.S. Senate Legislative Counsel prepared a redraft of S. , titled the "Intelligence Oversight Act of 1976:' Section 6(a)(1)(B) retained jurisdiction over the "intelligence activities of all other departments and agencies of the government...." This language was retained in Sec. 3(a) of S. Res. 400. Sec. 13, which, as later modified, became Sec. 11 of S. Res. 400, proposed a duty for the head of each department or agency of the United States to keep the Senate intelligence oversight committee - 596 "fully and currently informed with respect to all intelligence activities which in any respect are the responsibility of or are planned, supervised, financed, or engaged in by such department or agency." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 4 The above-quoted language, preserving the exact language of Sec. 11(a) of the draft Intelligence Oversight Act of 1975, appeared unworkable to representatives of intelligence agencies in early 1976. In early 1976, the Special Counsel to the Director of Central Intelligence, Mitchell Rogovin, proposed alternative reporting language in a meeting with William R. Harris, a Consultant to the Senate Committee. My records indicate that the Rogovin-Harris substitute read: "...it shall.. .be the duty of the head of each depart- ment and agency of the United States to keep the Committee on Intelligence Activities fully and currently informed with respect to intelligence activities which are the responsibility of such department or agency." This language retained a reporting duty for each department or agency of the United States, without restriction to agencies of the intelligence community. It was later amended by Senatorial initiative to add the phrase "including any significant anticipated activities...." before its introduction on March 1, 1976 (with 19 co-sponsors) as S. Res. 400. On April 9, 1976, the Senate Rules Committee favorably reported S. Res. 400, and on May 19, 1976, the Senate considered, amended and approved S. Res. 400 by a vote of 72 to 22. Sec. 11(a) provided: "It is the sense of the Senate that the head of each department and agency of the United States should keep the select committee fully and currently informed with respect to intelligence activities, including any significant anticipated activities, which are the responsibility of or engaged in by such department or agency;..." Sec. 14(a) defined "intelligence activities" to include intelligence, counterintelligence, covert or clandestine activities (without specific restriction to an intelligence agency's sponsorship), and internal security intelligence. Sec. 14(b) included in the definition of "department or agency" any federal organization, including any "committee, council, establishment, or office within the Federal Government." [For parallel definitions adopted by the House Permanent Select Committee on Intelligence, see H. Res. 658 of July 14, 1977, Rule XLVIII, sec. 10(a) and (b)]. Despite misgivings on constitutional and other grounds, "(p)rior notice to the Intelligence Committees of significant covert actions programs has been the practice since 1976..." Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I 1 1 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 5 [See prepared statement of William G. Miller, former Staff Director, Senate Select Committee on Intelligence, Sep. 22, 1983, HPSCI Hearings, Comm. Print, 1984]. On July 14, 1977 the House of Representatives established the House Permanent Select Committee on Intelligence, adopting H. Res. 658 by a vote of 247 to 171. The House Committee juris- diction paralleled that of the Senate Committee, without re- striction to agencies of the intelligence community. The following month staff assistants of the President asked the staff of the Senate Select Committee on Intelligence to review a draft Executive Order on intelligence activities. With amendments, some suggested by the Committee staff, this became President Carter's Executive Order 12036 of January 24, 1978. Section 3-4 of E.O. 12036 [43 F.R. 3674 at 3689-90] provided for reports to the intelligence committees of Congress. It applied to the "Director of Central Intelligence and heads of depart- ments and agencies of the United States involved in intelligence activities." It utilized the "fully and currently informed" standard of the Atomic Energy Act and S. Res. 400 of 1976. It included a duty to report on significant anticipated activities "which are the responsibility of, or engaged in, by such depart- ment or agency." In sum, the legislative history of enabling resolutions of 1976 and 1977 for the present intelligence oversight committees of Congress indicate legislative intent that Any head of a depart- ment, agency or institution that is involved in intelligence activities report to these committees. The initial draft of 1975 explained an intent to include the National Security Council within the purview of the reporting duties. Executive Order 12036 of January 1978 applied to all departments and agencies of the United States, and impliedly would cover the National Security Council staff were it to have proposed to engage in "significant anticipated activities" during application of this Executive Order in 1978-1981. EXCLUSION OF THE NATIONAL SECURITY COUNCIL AND STAFF FROM THE SCOPE OF MANDATORY REPORTING DUTIES UNDER THE INTELLIGENCE OVERSIGHT ACT OF 1980. In 1978 the Senate Select Committee on Intelligence, through a subcommittee chaired by Senator Walter Huddleston, introduced draft legislation that, were it enacted, would have reduced the scope of mandatory reporting to heads of departments, agencies or other entities of the intelligence community. On February 9, 1978, Senator Huddleston and 19 co-sponsors introduced S. 2525, the National Intelligence Reorganization and Reform Act of 1978. Representative Boland introduced S. 2525 in the House as H.R. 11245 on March 2, 1978. 598 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 6 As a proponent of streamlined, mission-oriented legislative charters, I did not actively participate in drafting the 263-page 1978 charter legislation (S. 2525) or the initial 172-page 1980 charter legislation (S. 2284). Section 151(g) of S. 2525 required reports to the intelligence oversight committees by the "head of each entity of the intelligence community...." The 1978 Senate charter legislation (S. 2525) introduced the concept of an "entity" of the intelligence community, but did not include the term in its definitions. Sec. 104(16) did define the "intelligence community" without any express inclusion of the NSC or its staff, and impliedly exempted that Council and staff from mandatory reporting. A limitation of mandatory reporting duties to the head of each "entity of the intelligence community" remained in the provisions of S. 2284, the National Intelligence Act of 1980, introduced by Senator Huddleston, Chairman of the Subcommittee on Charters and Guidelines, on February 8, 1980. See Section 142(a). Rep. Boland introduced a companion bill, H.R. 6588 in that same month. As opposition to detailed legislative charters developed in the executive branch (objecting to reporting other than "in a timely fashion") and in the Congress, the Senate Select Committee Staff Director approved my review of the 172-pagesfor the purpose of abbreviation and simplification consistent with protection of civil rights and safeguards. I consulted with Keith Raffel, John Elliff, and others of the Committee staff between February 14 and March 19, 1980, first to make technical changes in S. 2284 as drafted, and second, to produce streamlined charter legislation. It was during the first phase of review in late February 1980 that I identified the failure of S. 2284's oversight provisions to provide for mandatory reporting of NSC intelligence activities. I proposed to extend the reporting duties of Section 142(a) beyond the head of each "entity of the intelligence community," for the express purpose of including the National Security Council and its staff within the scope of reporting duties respecting intelligence activities, including "signifi- cant anticipated intelligence activities...." Neither Mr. Keith Raffel nor Mr. John Elliff, who had partici- pated in the work of the Subcommittee on Charters and Guidelines, favored express inclusion of the National Security Council in the reporting duties under Sec. 142(a) of S. 2284. Neither claimed that the NSC was covered by the phrase "intelligence community." It is clear from the pertinent text on Congressional oversight of intelligence activities that neither the NSC nor its staff was covered. In particular, section 103(12) defined "intelligence community" and "entity of the intelligence community" to mean -- (A) the Office of the Director of National Intelligence; (B) the Central Intelligence Agency; 599 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I ..1 . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 (C) the Defense Intelligence Agency; (D) the National Security Agency; (E) the offices within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs; (F) the intelligence components of the military services; (G) the intelligence components of the Federal Bureau of Investigation; (H) the Bureau of Intelligence and Research of the Department of State; (I) the foreign intelligence components of the Department of the Treasury; (J) the foreign intelligence components of the Department of Energy; (K) the successor to any of the agencies, offices, components, or bureaus named in clauses (A) through (J); and (L) such other components of the departments and agencies, to the extent determined by the President, as may be engaged in intelligence activities." Specific requirement of reporting by the National Security Council raised constitutional issues relating to "executive priv- ilege" and separation of powers. It was my position that, unless the mandatory reporting duties included the NSC and its staff, there was a foreseeable risk of the NSC managing covert opera- tions through the NSC staff itself, without a specific duty to report on such activities to the oversight committees of the Congress. The Charter and Guidelines Subcommittee staffers indicated that the President would not authorize this change in customary practice, precisely because, upon discovery, the Congress would enact legislation requiring mandatory reporting by the National Security Council or the President regarding its activities. At this point (on a day in February 1980 that I cannot ascertain from my records), I took the issue to the staff director of the Senate Select Committee, William G. Miller. Any change of the nature I was proposing would reopen constitutional issues of concern to the Attorney General and the Counsel to the President. Mr. Miller reminded me that both Vice President Mondale and David Aaron, the Deputy Special Assistant to the President for National Security Affairs, served with the Committee. The President would not permit, I was advised, the conduct of covert operations by the NSC staff itself. I reminded the staff director that intell- igence charters must be designed to function under changed and partly unforeseen circumstances, well beyond the service of officials who knew the precise reasons for legislative action. The staff director decided to leave sec. 142(a) as it stood. Hence, I did not reiterate my proposed redraft when I summarized a set of possible amendments to S. 2284 on March 4, 1980. I did recommend providing the President additional flexibility, 600 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 8 under "extraordinary circumstances," to delay from 48 hours to 30 days notice to the full oversight committee membership, so long as prior notice were provided the leadership and committee chairmen and vice chairmen (sec. 125 of S. 2284). This was a proposed amendment that was not adopted. On March 17, 1980 Representative Aspin introduced H.R. 6820, a much abbreviated intelligence bill. It retained the provisions of S. 2284, effectively exempting from mandatory reporting duties the NSC staff, even if they were engaged in intelligence activities. Sec. 102(a) stated: "The head of each entity of the intelligence community shall keep the intelligence committees fully and currently informed of all intelligence activities which are the responsibility of, are engaged in by, or are carried out for or on behalf of, that entity." On March 19, 1980 Keith Raffel, William R. Harris, et al., of the SSCI staff completed a streamlined, simplified National Intelli- gence Act of 1980. Labeled "Draft C" (expectably following drafts "A" and "B"), it covered in 30 pages much of what S. 2284 initially covered in 172 pages. It retained the concept "entities of the intelligence community," and once again excluded the National Security Council and Staff from its list of "entities" [sec. 101(b)(1 through 12)]. This draft provided an impediment to, if not a guarantee against potential unreported, self-executed NSC covert operations: Section 103(b) provided that special activities be "conducted only by the Central Intelligence Agency," except when the President determined that another agency should support an activity. Whatever the merits of streamlined intelligence charters might have been, the consensus in support of any charters legislation had disinte- grated during the earlier drafting of detailed charters (S. 2525, and S. 2284). On April 12, 1980 the House Committee on Foreign Affairs provided for consolidated reporting of presidential findings, and favorably reported H.R. 6942. This retained the Hughes-Ryan Amendment, but reduced the reporting requirement from eight to the two intelligence committees of Congress. On April 17, 1980 the Senate Committee on Foreign Relations held hearings on the role and accountability of the Special Assistant to the President for National Security. Whatever concerns the Foreign Relations Committee had did not result in legislation to require reports to the Congress on activities of the National Security Council or its staff. On April 17, 1980 the Senate Select Committee reissued a revised draft of S. 2284. Shortly thereafter, the executive branch submitted to the Senate Select Committee a document labeled "Agreed SSCI-Executive Branch Condensation of S. 2284." This document generally reflected agreements, but also set forth 601 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 9 executive branch preferences for legislative charters where issues remained unresolved. Section 132 retained a mandatory reporting duty for "the head of each entity of the intelligence community...." Of some interest, section 111(c) of the so-called "Agreed SSCI- Executive Branch Condensation" specified that the Title not be construed to prohibit any department or agency from collecting, processing, or disseminating information if otherwise authorized to do so. Hence, the understanding of the executive branch (which had an interagency committee on intelligence charters in operation throughout enactment of the IntelligenceOversight Act of 1980) and the Senate Committee that drafted the legislation was that duties imposed by this Title not be applied to other entities of the federal government merely because they collected, processed, or disseminated intelligence information under other existing authority. Hence, the National Security Council, authorized by the National Security Act of 1947 to evaluate the quality of intelligence and otherwise authorized by the Presi- ident, did not become an "intelligence entity" merely by reason of collecting, processing, or disseminating information. The Senate Select Committee considered S. 2284 in executive ses- sion on April 30, and thereafter on May 1, 6, and 8, 1980. Senator Inouye proposed an amendment restricting prior reporting of significant anticipated covert activities under "extraordinary circumstances" as determined by the President. [See 50 U.S.C. sec. 501(a)(1)(B)]. Senator Wallop and Senator Moynihan proposed further reporting on significant intelligence failures. [See 50 U.S.C. sec. 501(a)(3)]. See S. Rpt. 96-730 for a summary of these amendments. Oz 11;_t f!l, 1980 thc Senate Select Committee on Intelligence unanimously approved S. 2284 as amended, containing primarily the provisions for legislative oversight and provisions to protect the identities of agents. On May 15, 1980 the Committee issued S. Rpt. 96-730, to accompany S. 2284, the Intelligence Oversight Act of 1980. This report indicated that "references to 'any' department, agency, or entity in subsection (a) impose obliga- tions upon officials to report only with respect to activities under their responsibility, subject to the procedures established by the President under subsection (c)." [S. Rpt. 96-730, May 15, 1980, p. 7]. On June 3, 1980 the Senate took up consideration of the Intelli- gence Oversight Act of 1980, S. 2284. A colloquy on the Senate floor represented concerns of the Counsel to the President. Lloyd Cutler, and General Counsel of CIA, Daniel Silver, that diverging executive-legislative views on executive privilege and on manda- tory reporting be contained in the floqr debate. The Senate adopted the Intelligence Oversight Act by a vote of 89-1. The Senate's provisions for legislative oversight [what became subsections 501(a) through (d)] were not contained in the House 602 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 10 Bill, H.R. 7152. In the September 1980 Conference, members of the House Intelligence Committee (Rep. Boland and others), the House Armed Services Committee (Rep. Price and others), and the House Foreign Affairs Committee (Rep. Fascell and others) agreed to the Senate provisions for Sec. 501, with a supplementing amendment [sec. 501(e)]. This amendment indicated that duties to protect intelligence sources and methods did not authorize the withholding of reports to the intelligence committees of the Congress. See the House Conference Report 96-1350, on S. 2597. The Senate (on Sept. 19th) and the House (Sept. 30th) agreed to the Conference Report. President Carter signed the Intelligence Authorization Act for FY1981, on October 14, 1980. Title V, the Intelligence Oversight Act of 1980 [P.L. 96-450, 94 Stat. 975], provides in Sec. 501(a) [50 U.S.C. 501(A)]: "The Director of Central Intelligence and the heads of all departments, agencies, and other entities of the United States involved in intelligence activities shall -- (1) keep the Select Committee on Intelligence of the Senate and the Permanent Select Committee on Intelligence of the House of Representatives...fully and currently informed of all intelligence activities which are the responsibility of, are engaged in by, or are carried out for or on behalf of, any department, agency, or entity of the United States, including any significant anticipated intelligence activity.... (2) furnish any information or material concerning intelligence activities which is in the possession, custody, or control of any department, agency, or entity of the United States and which is requested by either of the intelligence committees.... (3) report in a timely fashion...any illegal intelligence activity...." Notwithstanding efforts in 1980 to broaden its scope of coverage, what became Section 501(a)(1) of the Intelligence Oversight Act of 1980 did not represent a legislative effort to include operations of the National Security Council or its staff within the mandatory reporting duties of this subsection. Sec. 501 of the Intelligence Oversight Act did not prohibit the conduct of "special activities" by the staff of, the National Security Council. A precursor draft (Draft "C" of March 19, 1980) that would have prohibited covert operations other than by CIA except by Presidential determination, was not enacted. 603 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 ....1 . I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Over a three year period from the initial drafting of S. 2525 in late 1977 through enactment of the Intelligence Oversight Act on October 14, 1980, the linked reference to "department, agency, or entity" engaged in intelligence activities developed a meaning widely understood in the executive and legislative branches. This phrase of legislative art applied exclusively to the intell- igence agencies or specialized intelligence collection components of the U.S. intelligence community. This definition did not include within its scope other entities of government that supervised the intelligence "entities" or summarized and dissem- inated their products. Indeed, the legislative history of the Intelligence Oversight Act of 1980 applies only to such of an "entity" activities as are "under their responsibility, subject to the procedures established by the President under subsection [5013(c)." [S. Rpt. 96-730, May 15, 1980, p. 7]. SCOPE OF "DEPARTMENT. AGENCY. OR ENTITY" INVOLVED IN INTELLIGENCE ACTIVITIES SUBSEQUENT TO THE INTELLIGENCE OVERSIGHT ACT OF 1980. EXECUTIVE ORDER 12333 (1981) On December 4, 1981 President Reagan implemented section 413 of the Intelligence Oversight Act of 1980, by signing Executive Order 12333 [46 F.R. 59941], "United States Intelligence Activities." Section 3.1 provided for the implementation of Congressional oversight. It established "[t]he duties and responsibilities of the Director of Central Intelligence and the heads of other departments, agencies, and entities engaged in intelligence activities to cooperate with the Congress in the conduct of its responsibilities for oversight of intelligence activities 110 Section 3.4(e) defined "intelligence activities" to mean "all activities that agencies within the Intelligence Community are authorized to conduct pursuant to this Order." Section 3.4(f) specified agencies or organizations of the "Intelligence Community," excluding from the listing the National Security Council and its staff. It is notable that the Executive Order followed the established scope of the Intelligence Oversight Act of 1980, and also notable that the principal coordinator of the Executive Order, Kenneth DeGraffenreid, cane to the NSC staff from staff work at the U.S. Senate Select Committee on Intelli- gence, where he served during enactment of the Intelligence Oversight Act. SEC. 801(A) OF THE INTELLIGENCE AUTHORIZATION_ACT FOR FY1984 AND SUBSEQUENT INTELLIGENCE AND DQD AUTHORIZATION ACTS The Intelligence Oversight Act of 1980 and the 1981 Executive Order implementing it define intelligence activities of depart- ments, agencies or entities with exclusive regard to entities of the "intelligence community." This establishes a presumption 604 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 12 that only "intelligence community" entities are intended to be covered by other intelligence-related legislation utilizing this phrasing. But the presumption may be rebutted by evidence of actual legislative intent to the contrary. The October 20, 1983 amendment (Boland) to the Intelligence Authorization Act for FY1984 [P.L. 98-215, sec. 801(a)] pro- hibited obligating or expending funds for the Central Intelli- gence Agency "or any other department, agency, or entity of the United States involved in intelligence activities" for covert assistance to military operations in Nicaragua. [Roll Call 403, Cong. Rec. p. H8426]. The Intelligence Authorization Act for FY1984, Sec. 108 [P.L. 98- 215) authorized not more than $24 million to CIA, DOD "or any other agency or entity of the United States involved in intelli- igence activities which may be obligated or expended for the purpose or which would have the effect of supporting, directly or indirectly, military or paramilitary operations in Nicaragua...." The specific legislative history of these or subsequent Boland Amendments is not known to me. Consequently, I would not seek to evaluate whether the presumption of a limitation to entities of the "intelligence community" as defined in Executive Order 12333 has been rebutted by the specific legislative history of these Acts of Congress. Acts of Congress requiring evaluation of legislative intent include: Sec. 106 of Title I of the Intelligence Authoriza- tion Act for 1987 [P.L. 99-569] providing that funds available to the [CIA, the DOD] "or any other agency or entity of the United States involved in intelligence activities may be obligated and expended during fiscal year 1987 to provide funds, material...."; and Sec. 9045 of the DOD Appropriations Act for FY 1987 [P.L. 99 -591] prohibiting expenditure of funds available to CIA, DOD "or any other agency or entity of the United States involved in intelligence activities...." INTELLIcENCE AUTHORIZATION ACT FOR FY1985. TITLE VIII. SEC. 801 Sec. 801 of Title VIII of the Intelligence Authorization Act for FY1985 provided, without regard to the agency or entity sponsor- ing the activity that: "No funds authorized to be appropriated by this Act or by the Intelligence Authorization Act for fiscal year 1984 [Public Law 98-215] may be obligated or expended for the purpose or which would have the effect of supporting, directly or indirectly, military or paramilitary operations in Nicaragua by any nation...." This prohibition is not in any way limited to entities of the intelligence community. Similarly, section 2907 of Title IX of P.L. 98-369 [98 Stat. 1210, 22 U.S.C. 2151] prohibits the mining of ports or tern- Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 I I I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 13 tonal waters of Nicaragua, without limit to an entity of the intelligence community. SENATE EXERgISE OF INTELLIGENCE OVERSIGHT ACT JURISDICTION JURISDICTION IN 1984 OVER THE BUREAU OF VERIFICATION AND INTELLIGENCE. U.S. ARMS CONTROL AND DISARMAMENT AGENCY This review of legislative history relating to "departments, agencies, and entities" involved in intelligence activities would be incomplete without noting the practices of the intelligence oversight committees since enactment of the Intelligence Over- sight Act in 1980. The two oversight committees have a special stake in the Intelligence Oversight Act of 1980, particularly because it treats their access to the information required for effective legislative oversight. To the best of my knowledge, in the period 1980 through 1983 the intelligence oversight committees treated Section 501(a)(1) as if it covered only entities within the intelligence community, as defined in President Reagan's Executive Order 12333 (1981). In the spring of 1984 the Senate Select Committee on Intelli- gence, whose staff had drafted section 501(a) of the Intelli- gence Oversight Act, first applied that section to an "entity" outside the intelligence community. During preparation of the Intelligence Authorization Act for FY1985, the Committee reviewed the requirements and capabilities of the Bureau of Verification and Intelligence of the U.S. Arms Control and Disarmament Agency (ACDA). On behalf of the Chairman of the Budget Subcommittee (Senator Wallop) of the SSCI, in the spring of 1984 I reviewed the legislative history of the Intelligence Oversight Act of 1980, and prepared a letter to the Director of ACDA, advising the Director of the Committee's assertion of jurisdiction under the Intelligence Oversight Act of 1980. To the best of my knowledge, after review of my proposed assertion of oversight jurisdiction by the staff director, the Committee Chairman, Senator Goldwater, signed the letter to the ACDA Director in the spring of 1984. Predictably, the Director of the Arms Control Intelligence Staff of CIA objected informally to the assertion of oversight juris- diction, on the grounds that ACDA was not a part of the "intelli- gence community" as specified in E.O. 12333. There was, however, a statutory basis for the assertion of jurisdiction. Section 37 of the Arms Control and Disarmament Act (the Derwinski Amendment of 1977) provides the Director of ACDA legal responsibility for verification of compliance and noncompliance with arms control agreements. The Bureau of Verification and Intelligence performs statutorily-required intelligence assessment functions under Section 37 of the Arms Control Act. The Director of ACDA accepted the Senate Select Committee's assertion of oversight jurisdiction in 1984. 606 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 14 CONCLUDING MARKS In the period 1975-1978, Congressional investigations of intelli- gence activities encompassed entities of the entire federal government, and proposals for mandatory reporting to the Congress mirrored that broad jurisdictional concern. Commencing in 1978, the intelligence oversight committees adopted the procedure of enacting separate intelligence authorization acts for all entities of the "intelligence community" engaged in national intelligence or counterintelligence. Concurrently, from. 1978 onwards, draft legislation proposing mandatory self-report- ing by heads of intelligence departments, agencies, or entities encompassed expressly specified departments and agencies and other "entities" that performed classified missions within the "intelligence community." Proposals in 1980 to extend the scope of "entities" to include the National Security Council and its staff were expressly rejected in the course of streamlining what became the Intelligence Oversight Act of 1980. This legislative history establishes a presumption that parallel or subsequent legislation including the phrase "departments, agencies, or entities" engaged in intelligence activities applies to entities of the "intelligence community" and not the National Security Council or its staff. But the presumption may be rebutted by any specific legislative history of a later Act of Congress if that legislative history indicates unequivocal intent to prohibit the expenditure of any federal monies by any entity of the federal government. I am simply not aware of the precise legislative history of restrictive legislation that originated in the House of Representatives in 1983 and later years. Whatever the specific findings may be regarding the scope of legislative restrictions in 1984 and thereafter, a general principle must apply to all intelligence activities conducted in a democratic society: Intelligence activities and related covert activities conducted in the national security interests of the United States, must be conducted under and subject to the rule of law. I trust that the foregoing review of intelligence laws and Congressional oversight practices will assist your Committee as it completes a difficult task. Respectfu William R mitted, Harris 607 Approved For Release 2011/05/25 : CIA-RDP89T00142R000500610001-7 . 1 I Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 APPENDIX B John Norton Moore 824 Flordon Drive Charlottesville, Virginia 22901 August 4, 1987 The Honorable Daniel R. Inouye Chairman, The Select Committee on the Secret Military Assistance to Iran & the Nicaragua Opposition SH-722 Hart Senate Office Building Washington, DC 20510-1102 Dear Chairman Inouye: During the course of the Iran-Contra bearings Lieutenant Colonel Oliver North apparently inadvertently created the impression that 'I had provided him with legal advice concerning the constitutionality and scope of the so-called ?Boland- Amendment? that has been at the center of the beatings, although he seems to have implicitely corrected this in later testimony, Since I had not provided any such legal advice, I immediately 'called his counsel and sent a letter to correct this apparent misimpression. Enclosed is a copy of the letter that I would appreciate your making part of the hearing record. As a national security lawyer -- indeed one who has sought to pioneer the new field of national security law -- I have long urged the establishment of a strong legal office in the National Security Council (NSC) staff, with involvement in all activities of the NSC. When Commission was appointed I wrote a letter to Chairman Tower urging establishment of such an office. It was a natter of great satisfaction for me to see that the Commission recommended such an Office, that the President singled this recommendation out as one of the recommendations be believed most important to the Nation, and that Assistant to the President for National Security Affairs, Frank C. Carlucci, has moved vigorously and effectively to implement this recommendation. This is, I believe, one of the most important structural changes- in the national security process to emerge from the Iran-Contra affair and I hope that your Committee will endorse this change. As I am sure the Committee is aware, there is a great difference in levy:ming roles in being consulted for legal advice prior to events and a variety of lawyering roles, including public comment on the law, after events have transpired. Prior to events, effective lawyering should provide, among other things, advice that prevents persons acting in good faith from having future legal problems and advice that includes the creative potential of legal-system options for serving the national 608 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 The Honorable Daniel K. Inouye August 4, 1987. Page 2 interest. In contrast, after events have transpired, lawyers have an obligation to work for due process in protecting individuals who have acted in good faith, and in educating the public about important issues. In this latter connection, it is noteworthy that the hearings produced diametrically opposed interpretations of the applicable 'Boland Amendment' from public servants, all of whom seem to have conscientiously sought to serve the nation. Surely a major lesson of the Iran-Contra affair has been the great need for the structural change that has now been made of a strong legal office in the NBC to provide legal advice in advance as to significant MSC *activities. JNM:kww Enclosure: as stated ohn Norton Moore cc: Mr. Brendon Sullivan Mr. Eugene C. Thomas, President, American Bar Association Richard A. Merrill, Dean, University of Virginia School of Law Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 John Norton Moore 824 Flordon Drive Charlottesville, Virginia 22901 July 9, 19117 Mr. Brendon Sullivan Williams & Connally 17th and Eye Street, N.W. Washington, D.C. 20003 Dear Mr. Sullivan: It has come to my attention that your client, Lieutenant Colonel Oliver North, may have inadvertently created the impression by his testimony this morning that I have provided him with legal advice regarding the constitutionality and scope of the so-called 'Boland Amendment that has been at the center of the current Iran- Contra controversy. This may have been implicitly corrected this afternoon, when I am told he testified that he had received legal advice on this issue only from the present Counsel to the President's Intelligence Oversight Board, but I would appreciate your correcting the record should any doubts remain. As you are no doubt aware, I served as a Special Counsel for the United States in the Nicaragua case before the International Court of Justice. Subsequently, in my personal capacity. I have written and spoken widely about the war in Central A =rim including a book, The Secret War in Central America (published by University Publications of America earlier this year), and several addresses on the legal issues delivered before members of the press and congressional staff at the White House. There have, of course, been a multiplicity of 'Boland Amendments' concerning Nicaragua dating back to December 1912.0n more than one occasion in years past when I have been asked to address some of the legal issues involved in the Central American controversy 1 have expressed the view that I did not believe U.S. support for the Contra program conflicted with the 'Boland Amendment-referring at the time, of course, to earlier versions and events then known. Certainly this is reflected in my published writings and is a conclusion concerning these earlier 'Boland Amendments that seems well supported by the record. I have been told that Colonel North was frequently called upon to address similar audiences, and although I don't recall encountering him in that context, it is quite possible that he heard me express such views on the i'Boland Amendment,' and he is likely to be familiar with my published writings. He may also have been familiar with my Opinion Editorial ''Government Under Law and Covert Operation? published in the Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Mr. Brendon Sullivan July 9, 1987 Page 2 Washington Times on February 24, 1987, in response to the Iran-Contra controversy that docs make the point that the scope of the 1984-11S 'Boland Amendment' has been embroiled in a dispute. For the record, however, prior to the public disclosure of the current Iran- Contra controversy late last year I had not even had occasion to examine the 1984- 85 "Boland Amendment.' and thus I am certain that I did not provide Colonel North or anyone else with a legal opinion' about its constitutionality or whether it encompassed the National Security Council. The first time I have had occasion to even preliminarily review the range of domestic legal issues involved in the Iran- Contra affair was during the writing of an opinion editorial on the issues after the affair had become public. Although the 'Boland Amendment' at issue in the current controversy seems to mc, on the basis of a preliminary review, to contain relevant ambiguities--and at least one separation-of-powers constitutional scholar whose judgment I respect has expressed doubts to me about the constitutionality of at least certain interpretations of the amendment?I have not at this time personally taken a definitive position on these important issues which would, of course, among other things require a careful review of the legislative record. I have, however, on numerous occasions expressed my view in response to media inquiries, after the Iran-Contra affair had become public, that the relevant 'Boland Amendment' may well be ambiguous, and to the extent that it is, well recognized principles of due process and separation of powers would require that it be interpreted to protect Executive Branch flexibility. Thus, while I had not had occasion to review the pertinent 'Boland Amendment' prior to the Iran-Contra affair becoming public knowledge, and have still not had an occasion to do a careful legal analysis of that amendment and its voluminous legislative history, it is my preliminary judgment on reviewing that amendment that it may well be ambiguous in several key respects. It is also my judgment that there are strong policy reasons why any significant ambiguity should be construed in favor of continued Executive Branch authority. Certainly, when Congress does act in an area of sensitive presidential power, such as the conduct of covert activities, it must do so clearly. Any other conclusion does a serious disservice to separation of powers and the dedicated men and women who serve to implement foreign policy in the Executive Branch. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 , ...t . Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Mr. Brendon Sullivan July 9, 1987 Page 3 I have no doubt but that Colonel North's reference to me this morning was a consequence of misunderstanding. and I have no desire to add to his burdens at this difficult time. But as a lawyer, I am sure you can appreciate my concern that an inaccurate impression not be left that I have participated in providing legal counsel to Colonel North on the 'Boland Amendment* or any other national laws involved in the Iran-Contra affair. It would not be inaccurate for Colonel North, or any other individual, to note that on numerous occasions, including in my recent book The Secret War in Central Anterica,1 have publicly expressed my conviction that United States assistance to the Contras is consistent with the norms of international law as reflected in the United Nations and Organization of American States Charters. This is premised upon a factual recognition of covert Nicaraguan armed aggression against El Salvador and other democracies in the region dating back to at least 1980?a conclusion affirmed on several occasions by both the House and Senate Intelligence Committees. This armed aggression?which predated by well over a year the United States decision to provide similar assistance to the Nicaraguan opposition in an effort to deter the ongoing effort to overthrow the government of El Salvador?violates article 2(4) of the United Nations Charter and numerous other prohibitions against aggression. It gives the United States a right of collective defense under Article SI of the United Nations Charter and, indeed, may create a legal obligation under Article 3 of the Rio Treaty to assist El Salvador to meet the armed attack. Enclosed is my Opinion Editorial `Government Under Law and Covert Operations.' as well as a just completed piece The Iran-Contra Hearings and Intelligence Oversight in a Democracy.* This latter piece raises important issues that, I believe, should be addressed as to whether the current public hearings are the most appropriate mechanism for intelligence oversight of covert operations. Approved For Release 2011/05/25 CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Mr. Brendon Sullivan July 9, 1987 Page 4 It is important to keep in mind that the views I have expressed over the years on these aubjccts are my own, and in particular should not be attributed to the United States Government. the American Bar Association. the University of Virginia School of Law, or any other organization with which I am or have been affiliated. Thank you for your assistance. With best wishes. oh?'n. Norton Moore JNM/sb Enclosures: (1) 'Government Under Law and Covert Operations' published as The Rule of Law for the Covert' (2) "The Iran-Contra Hearings and Intelligence Oversight in a Democracy' cc: Mr. Eugene C. Thomas, President, American Bar Association Dean Richard A. Merrill, Dean. University of Virginia School of Law Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Government Under Law and Covert Operations by John Norton Moore? The level of rhetoric about law violation in the Iran-Contra affair has been high. Some of the public debate has even assumed criminal violation, with prominent members of Congress speculating as to length of sentence and calling for Presidential pardons. Yet the discussion has been as void of specifics about such violations as it has been pregnant with allegations. Without knowing all the facts and the full context of actions it is not possible to make responsible legal judgment. It is important, however, that the debate proceed in a more complete context of assumptions about government under law. Both the important principle of due process and real-world complexities of the. rule of law for covert operations suggest that the level of rhetoric should be restrained as we focus more clearly on the enduring issues. First, no one involved in the Iran-Contra affair should be presumed guilty of law violation--much less criminal violation--until found guilty by a court of law. Just as our democratic system requires that government officials operate within the law it also provides that they be accorded a presumption of innocence until a duly constituted court finds otherwise. Similarly, it should be clearly understood that appointment of an independent counsel does not demonstrate law violation. The Ethics in Government Act, which Congress courageously did not apply to itself, has an extraordinarily loose standard for the appointment of such a counsel. This has been borne out by most such counsel reporting that no law violations have occurred within their mandate. It should also be understood that there is a major difference between civil and criminal responsibility. Criminal responsibility flows only from violation of clearly applicable pre-existing criminal statutes. Indeed, if individual criminal--or even civil--responsibility flowed inexorably from all nonconformance with statutes the members of Congress would be guilty of multiple offenses as they repeatedly ignore their own budget act. Most importantly, the structure of law as it applies to covert operations is highly technical and complex and the public debate has been as simplistic as the law is complex. For example, the public discussion of legal issues has assumed that the Arms Export Control Act applies to presidentially authorized special activities. Special activities, however, for reasons of their extreme sensitivity and secrecy, have their own legal structure and it may well be that this Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 and many other laws enacted for quite different settings do not apply to such activities. Given the strong constitutional underpinnings of special activities as presidentially directed, if particular statutory restrictions are constitutionally valid at all, certainly they would need to be unambiguous in their application. Similarly, much of the public discussion has assumed that the failure to provide notice to the intelligence committees constitutes a violation of the shall inform 'in a timely fashion' language of the Intelligence Oversight Act of 1980. But this ambiguous language papered over a serious underlying constitutional dispute between Congress and the Presidency as to whether the President must notify Congress of all special activities. Moreover, Congress conceded by the Act that not all such activities must be reported in advance and in that setting the more reasonable interpretation of *timely' would seem to relate functionally to the reason for great secrecy rather than a mechanical passage of time. The Carter Administration seems to have interpreted the Act this way as it spent months planning the Iran hostage rescue operation with no reporting under the Act. _These Executive Branch concerns about reporting all- special activities in advance to committees of Congress reflect enduring policy concerns about the ability of Congress as an institution to maintain secrecy. This institutional concern has been shared by the constitutional framers, George Washington as our Nation's first President, and by numerous administrations since, both Democratic and Republican. Moreover, a policy requirement for extraordinarily sensitive covert operations is to hold knowledge to the smallest possible group whether in or out of Congress. Informing members of Congress of all such operations not only increases the absolute number of persons with information but may also have a multiplier effect as Executive Branch personnel associated with Congressional relations become involved. Whatever the policy wisdom of not reporting, certainly the failure to report under the ambiguous Intelligence Oversight Act is not a legal scandal, and it is probably within the President's power both as a matter of statutory and constitutional law. To the same effect, most of the numerous 'Boland Amendments' limiting assistance to the Contras clearly do not apply to the activities in question and the one that may be applicable has been embroiled in a dispute as to whether it applied to activities of the National Security Council and, more importantly, is by its terms fact-sensitive, including whether particular funds were available to an agency or entity of the government within the meaning of the law. Whatever the policy wisdom of proceeding in the face of legal ambiguity (as well as other policy issues in linking the Iranian and Contra operations), policy shortcomings do not show that those who 2 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 II 11 . I....!. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 acted did so illegally. Whatever the final resolution of a host of technical legal issues raised by the affair, due process suggests that the professional reputation of our public servants not be lynched by a post-Watergate mob that convicts of criminal violation when there may be no law violation, civil or criminal. We should remember that the essence of McCarthyism is the unfounded allegation. Second, whatever the final resolution of legal and policy issues in this case, the Administration should take this occasion to appoint a full-time general counsel to the National Security Council staff. After years of criticism by international lawyers who urged the addition of legal experts to the National Security Council, Dr. Zbigniew Bruzinski added an excellent lawyer to the staff who served about half-time as a legal specialist and that legal presence has been continued and augmented under the Reagan Administration. There should, however, be a clearly designated full-time general counsel on the staff with an office of one or two national security law specialists and that office should operate under procedures that ensure its involvement in all national security activities, overt and covert. It is simply a fiction that all national security issues, particularly those arising in crisis management settings, will inevitably be reviewed by general counsel in the major department:. The absence of full involvement of knowledgeable lawyers in national security decisions has for years harmed our national foreign policy under both Democratic and Republican administrations. Such involvement is not required solely to prevent illegal actions, as important as that may be. but also to provide relevant policy advice on associated political and implementation issues. If such an enhanced presence were needed two decades ago, it is now imperative given the extraordinary growth of national security law over the last two decades. In the future any foreign policy makers who do not seek legal counsel before a significant new activity have only themselves to blame for subsequent legal problems. Third, our Nation is likely to have no ability to conduct covert operations if it conducts its post-mortem of failed operations as the Iran affair has been handled. It is understandable, and probably desirable, once the public concern about the Iran-Contra affair had reached the level of hysteria, that the Administration request appointment of an independent counsel and Congress establish special Senate and House Committees to investigate. For the future, however, we should use the capable mechanisms established by law during the 1970s' sweeping reorganisation of intelligence oversight. That is, allegations about illegality and other improprieties in special operations should be investigated solely by the Senate and House Select Committees on Intelligence,, the President's Intelligence 3 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Oversight Board, and the Attorney General. Following such investigations any illegal conduct should be made known to the American people. In the meantime, an Adminstration and the Congressional Committees should -neither confirm nor deny" allegations about special activities. We cannot expect as a Nation to retain the ability to conduct covert operations if allegations about such operations, perhaps leaked by our adversaries, can trigger a public orgy of self-flagellation. That is, a pattern of public disclosure and multiple investigations about the specifics of special activities, triggered simply by allegations of policy mistakes or legal impropriety, would cripple our ability as a Nation to have options that may sometimes be needed to avoid either war or capitulation to a ruthless enemy with no such constraints. There is an additional reason that public debate is not the appropriate forum to reach conclusions about covert operations. By the nature of such operations an Administration is usually not able to disclose the detailed information and precise context in which it acted-without disclosing intelligence sources and methods or betraying those who have trusted us perhaps at great personal risk. Thus, inevitably public debate about special activities is a struggle in which the American government as a whole must defend itself with both hands tied behind its back. The result is likely to be not an informed public but a misinformed public condemning its leaders on partial information. Finally, and perhaps most importantly, we must understand and deal with an underlying structural problem of enhanced Congressional activism triggering unintended confrontations with the Presidency during national security crises when the Nation can least afford to be immobilizing itself. In significant measure this structural weakness contributed to escalation of the Iran-Contra affair rather than damage limitation. During the 19502 and 1960s Congress acted with the Presidency to deter potential adversaries, in resolutions such as the 1962 Cuban Resolution. In a post Vietnam- Watergate setting, however, Congress has more frequently sought to constrain American actions. Frequently these constraints, which have hugely multiplied in the last two decades, have undermined rather than enhanced deterrence. Certainly the to-date double reversal of Congress on support for the Contras is not a stable basis for a coherent American policy or credible deterrence. Even more seriously the pattern of Congressional activism has fueled potentially catastrophic constitutional confrontations with the Presidency as Congress has aggressively embodied in legislation, such as the War Powers Act and the Intelligence Oversight Act, its views of appropriate Congressional powers. Yet in each case its view differed 4 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 from the Presidential view and the President cannot, either as a matter of effective conduct of the Presidency or consistency with his oath to uphold the Constitution, simply acquiesce in what may be felt by the Executive Branch to be a usurpation of separation of powers. In this setting it is not surprising that strongly committed Executive Branch officials, however mistakenly, might seek to interpret ambiguities in favor of Presidential prerogative and stable policy. Nor is it surprising that real-world inadequacies and ambiguities for protecting secrecy in current oversight mechanisms for sensitive special activities would encourage a risky policy choice in withholding prior notice from Congress. Most dangerously, a continuation of Congressional activism in legislating Congress's version of separation of powers in foreign policy?legislation that constitutionally cannot alter the underlying constitutional reality.. may some day trigger a direct constitutional clash between Congress and the President in a national security crisis when the Nation has no margin for error. Surely government under law requires a more sensitive accommodation of separation of powers in foreign affairs than Congress writing its own ticket. Congress should, as part of the general introspection from the Iran-Contra affair, reflect on its own contributing role. At minimum our Nation needs a mnre effective legal structure to protect our most sensitive categories of national security information from either Congressional or Executive Branch leaks. Such reform could enhance broadened participation both in policy formulation and oversight of sensitive special activities. More broadly, Congress and the President should establish a joint Executive-Congressional Commission appointed half by the President and half by Congress to explore non-binding guidelines--as opposed to rigid statutory constraints?that both branches might accept aCrOSS a spectrum of foreign policy process issues, from the war powers to intelligence oversight reporting, to encourage the Congressional-Executive consensus on procedures for interbranch coordination our Nation must have for an effective foreign policy. No governmental task is more imperative for our national security. 'John Norton Moore is Walter L. Brown Professor of Law and Director of she Center for Law and National Security at the University of Virginia School of Law. Formerly he served as Counselor on International Law to the Department of State and Chairman of the American Bar Association Standing Committee on Law and National Security. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 The Iran-Contra Hearings and Intelligence Oversight in a Democracy by John Norton Moore* From George Washington to Ronald Reagan American presidents have understood the importance of intelligence. Following the surprise attack at Pearl Harbor and the American involvement in global war, the nation built and has maintained a strong foreign intelligence capability. Without such a capability, verification and thus arms control would be virtually impossible, enhanced fear of surprise attack would reduce stability and require higher arms expenditures, the nation would be largely defenseless against foreign intelligence operations, the national defense effort would bc blinded, and the nation would lose a range of options between diplomacy and war. But just as our democracy requires an effective foreign intelligence capability, so too it requires careful oversight of that capability. Covert activities, particularly, must be undertaken only after a careful vetting to ensure that they are truly in the national interest and are authorized according to law. Intelligence failures, such as the recent Iran-Contra affair, must receive careful review so that the same mistakes will not be repeated. And any allegations of illegality or impropriety, of course, must be promptly investigated. Intelligence oversight, however, is not like oversight of the social security program or the Department of Agriculture that can proceed fully in the open. Rather, it must respect the requisite secrecy of the intelligence process. Failure to do so can severely harm the nation's capabilities in intelligence. No one can review the evidence to date in the' Iran-Contra affair without understanding that serious mistakes were made, particulary, the repeated--but understandable--mistake made by virtually all the democracies to seek to bargain with terrorists for the release of hostages seized just for that purpose by radicals who trample both democracy and human rights. That mistakes were made, however, does not justify further mistakes in our process of oversight. Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 In my judgement the nationally televised Iran-Contra hearings are--and will be regarded by history--as a serious mistake in efforts at intelligence oversight. The motivation of the hearings and the professionalism of the distinguished panel of some of the Nation's most able legislators is not in doubt and is not the issue. Rather, the issue is whether publicly televised oversight hearings are the best form of oversight of covert operations taking into account both the need for effective intelligence and effective oversight. The answer is a clear no. The Iran-Contra hearings are a bad precedent in intelligence oversight for at least five reasons. First, to publicly reveal the details of failed American intelligence operations--of which the Iran- Contra affair is not the first and will not be the last--will have a severe chilling effect on the ability of the nation to carry out intelligence functions in the future. Will other nations be willing to cooperate with the United States in secretive operations_ if they believe such operations can become public knowledge? Will vital sources of human intelligence become more difficult for the United States to recruit? Will foreign intelligence services be as willing to share information with the United States or to suggest possible opportunities for United States intelligence? The answer to all these and other such questions is surely negative for effective American intelligence if other nations perceive that our process?or even possible process?of oversight review of failed intelligence is to hold nationally televised hearings relishing in the details of all aspects of the operations. Second, because of the difficulty of fully discussing covert operations publicly?or they would not need to be covert--and the inevitable need to protect sources and methods, any public debate is likely to be distorted and one-sided in which the intelligence community--and the Executive branch as a whole?may well be unable to fully present the case for their actions. For this inescapable reason it is as likely that public debate about failed intelligence operations will misinform as that it will inform. The broadside against the President's Intelligence Oversight Board that emerged during the hearings is a good example. The Board was created in the wake of the Church Committee hearings as a mechanism for ensuring intelligence community compliance with law, and particulary in recent years it has had an important impact. Moreover, it seems to have been the only entity within the United States Government to have even raised the legal issues during continuation of the failed operations. For its effort, however, it and its legal counsel were publicly pilloried (and not on the merits but 2 Approved For Release 2011/05/25 CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 on an attack against the counsel's credentials). Even more wrongly, the Nation has been presented with a distorted view of an important check in the process of intelligence oversight. Third, the hearings, while nominally in pursuit of legislative oversight, in many respects have the appearance of a clockwork orange trial by grand inquisitors for the titillation of a national audience. While the constitutionally permitted purpose of Congressional hearings is solely to support legislative function, the overall hearings give a strong impression of greater interest in demonstrating individual impropriety or wrongdoing. As such, the hearings are dangerously close to an abuse of Congressional power. Even more importantly, no court yet conceived has thought of interrogation of those called before it by multiple accusers, some with what could be regarded in other settings as a conflict of interest in demonstrating wrongdoing. Nor does due process permit preparation of the accusers case in secret or denial of the right to cross-examine or make a full statement. Even more importintly, the interrogation proceeds in an atmosphere of prejudgment about the law. And the judging panel reveals startling asymmetries in knowledge of the legal complexities of the case and opinions about the law. Many simply assume that shredding of intelligence documents proves criminality. Others make the assumption, without legal analysis, that one or more of a confusing array of Boland Amendments has been violated. Yet shredding does not prove criminality, and there are very fundamental legal issues concerning the relevant Boland Amendments, most particularly whether their real ambiguities concerning scope of applicability were intended by Congress to prohibit efforts at third nation or private support for the Contras and whether any ambiguities should be and would be interpreted in favor of continued Presidential power. Despite an absence of findings about the law, judgments about witnesses are solemnly delivered before a national television audience with no opportunity for rebuttal. Despite the professionalism and integrity of the Iran-Contra hearing panel and staff, nationally televised hearings such as this one do present pressure for personal or partisan advantage to which lesser legislators might succumb. If failed intelligence operations are in the future to be tried by this new televised star chamber, then we will inevitably destroy the careers of fine Americans whose crime has been to misread an ambiguous stream of congressional pronouncements or, indeed, even to do their investigative duty as required by the law. As the Nation bitterly learned in the McCarthy Committee hearings, trial by adversary televised congressional hearings may destroy the reputations of fine 3 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Americans at little gain in legislative knowledge. It is a precedent we should carefully review and that Congress should limit. Fourth, if the Iran-Contra hearings are to provide broader legislative investigation of compliance with legal constraints on private sector support for competing factions in the Central American War, then they should do so on an even-handed basis. It is inevitable that an inquiry focusing solely on support for the Contras, and ignoring the extraordinary efforts by and on behalf of the Sandinistas and the FMLN guerrillas in El-Salvador, will have the appearance of an ideological imbalance. If one is a fit subject for a publicly televised national inquiry, it is hard to imagine the grounds on which contending efforts are to be ignored in such an investigation, if, of course, there is a genuine legislative purpose in such hearings as opposed principally to a focus on allegations of individual wrongdoing. Finally, the displacement of the normal intelligence oversight mechanisms established after the Church Committee hearings can only weaken those mechanisms that must do the important job of intelligence oversight on a day to day basis. This objection also applies to investigation of failed intelligence operations by an independent counsel. Our current intelligence oversight mechanisms are workable and include the bipartisan House and Senate select committees on intelligence, the Attorney General, and the President's Intelligence Oversight Board. If we are to strengthen these agencies in their oversight role they must- be permitted to conduct the review of failed operations and investigation of any illegalities or improprieties. As long as that review includes review by a bipartisan Congressional entity, there cannot be any serious concern that an Administration will simply cover up its own failures. The public need to know can be fully met by issuance of public reports where evidence of illegalities or other improprieties should be revealed. And certainly legislative facts needed for the legislative process can be assembled in the existing bipartisan select committees as well as in a public ad hoc committee. For the future, American Presidents should simply neither confirm nor deny allegations concerning covert operations and should refer allegations of improprieties or illegalities in such operations to the normal oversight mechanisms. And Congress, which fully participates in that process, should endorse it as the appropriate mechanism. No other. Nation seems to have had the poor judgement to review its intelligence failures completely in public. The Federal Republic of Germany has a small Parliamentary Oversight Committee 4 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 to provide intelligence oversight. Other democracies have similar effective yet secret processes. Nothing inherent in democracy or our desire for effective oversight requires that we periodically publicly cannibalize our intelligence processes or subject those who have served the nation to trial by television (the Tower Commission may well be correct that even our two selFct committees should be consolidated). Underlying the mistake in investigating the Iran-Contra failure by public ad hoc Congressional Committee is a more pervasive problem. The framers intended that checks and balances apply to all branches. Congress included. While it is not clear in the Iran-Contra hearing that Congress has overstepped its legal bounds, it is dangerously close to usurping both executive functions in intelligence and judicial functions in assessment of any individual wrongdoing. Yet there seem to be few real-world checks on growth of legislative power in the foreign affairs field, and elsewhere Congress has passed laws, such as the War Powers Resolution, that arc, at least in part, clearly unconstitutional. The growing confrontation across a broad range of foreign policy issues between Congress and the Presidency is increasingly harming the foreign policy effectiveness of the Nation. The problem is serious for effective American foreign policy and is getting worse. As one possible remedy I believe that the Congress and the President should establish a Congressional-Executive Commission, half appointed by Congress and half by the President, to review the full range of issues in Congressional-Executive coordination in foreign policy. Such a Commission should review not only the constitutional underpinnings and legal issues but issues of appropriate constraints on the exercise of Congressional power, particulary issues of effectiveness and effect on deterrence, and modalities of enhancing consensus between Congress and the President on a bipartisan basis. Whatever the resolution of the broader range of issues we should abandon the sad precedent of review of failed intelligence operations by public ad hoc Congressional Committee. *The writer is Walter L. Brown Professor of Law at the University of Virginia School of Law and a former United States Ambassador. 5 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 APPENDIX C I. 5. Depietrrt.;:: - z` Legir! Of".lcc of the Asisi..r The Honorable Lee H. Hamilton Chairman Select Committee to Investigate Covert Arms Transactions with Iran U. S. House of Representatives Room H-419 Capitol Washington, D.C. 20515 Dear Mr. Chairman: In a letter to the Attorney General of September 23, 1987,, you solicited suggested changes in ,"law, policy or-procedure" which might help avoid another Iran/Contra situation. We appreciate this opportunity to comment and to suggest a change which is not new, but which is especially propitious in view of the Iran/Contra matter and investigation. The Congress should take one step which would decrease the likelihood of a recurrence. We believe that the creation of a joint Congressional Intelligence Committee, such as that proposed in both the 99th and 100th Congresses by Congressman Henry J. Hyde, would go far toward eliminating the environment which might contribute to a future Iran/Contra situation. Reducing the total number of persons with access to classified information and storing that information in a single, secure repository would strengthen Executive branch confidence in the Congress' legislative role in the intelligence process. Congress, in turn, would clearly benefit from this increased confidence by the receipt of timely and detailed reports of intelligence activities, and a renewed ability for in-depth cooperation. Aside from the establishment of a joint intelligence committee, the Department believes that the introduction of any other legislative measures is unnecessary. I hope you would agree that the Iran/Contra matter was an exceptional situation which lends scant support to the proposition that a massive revision of the intelligence statutes is required. 624 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 2 In addition, attempts to effect a wholesale revision of these statutes would require tremendous time and effort with no guarantee of beneficial results, as this is an area of constitutional law which remains uncertain at the core. In contrast, the creation of a joint intelligence committee is a practical measure which could be implemented swiftly and with obvious positive results. The Department of Justice is prepared to assist in whatever way we can in working with the Congress to establish such a committee. Sincerely, JohH R. Bolton Assistant Attorney General 77-026 0 - 87 - 21 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 APPENDIX D Lawrence L. Trac - Noventher 6, 1987 Representatives Lee H. Hamil (D-IN) and Diek Cheney (R-W1), Select C mmittee to Investigate Covert Arms Tra. ?icns with H-419, The Capitee, Waehington, C C.. 20r1S Ceur Sirs; I write this letter to shed light on what I believe may to a relevant portion of your report on the "Iran-Contra" hearinge--t!.e work -r ee the Office of Public Diplomacy for Latin America and "-- Caribbean at the Department of State. During the final days of the hearings, Congressman Dante Fascell (D-FL.) made e number of references to the Office, and later, with Congressman Jack Brooks (D-TX.), epcneored a report by the General Accounting Office (GAO) which made serious and erroneous accusations about the Public Diplcmacy Office. As a former member of the Office, I want to set the record straight, and thereby help you in the preparation of your final report. Although I am currently doing consulting work for the Department of Defense, no one in the Administration has asked me to write this letter, and I have not cleared it with anyone in government. Lot me fret establish my bona fides to comment on the ,IA0 an0 the Office of Public Diplomacy. I was an army Colonel, asLi,4nc2 to the Office of the Deputy Assistant Secretary of Defense for :nter-American Affairs from June 1980 until December 1982. : then assigned, at the request of the Department of State, to the recently-created Office of Public Diplomacy, where I s.:rved cc Senior Defense Advisor to Ambassador Otto Reich until my retirement from active duty and departure from government in May 1986. uring the 20 months that I was at the Department of State, I gave over 200 speeches or. Central America, created the display of captured wapons and documents that President Reagan opened on March 12, 1936, en.l was the principal author of the Administration'r two meet widely-distributed publications, The Soviet-Cuban Connectiee in Central America and the Caribbean (the "Blue Book") and The Cone to Democracy in Central America (the "Silver Book";. : also developed the now-famous slide presentation that Lt.Col Oliver North and others in government used extensively to brief the public. The GAO Report, or Legal Opinion, makes the very serious charge that the Office of Public Diplomacy engaged in "prohibited, covert pr:paganda activities designed to influence the media and the petlie to support the Administration's Latin Amgrican policies". The evidence supporting this accusation is dubious, the methodology of the "investigation" questionable, and it is surprising that two experieneed Congresemen would endorse such a flawed analys17. the errors of the report below, but I would fit 626 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 like to comment on the dangerous underlying assumption of the CAC finding, which appears to be that the Executive Branch has no right to inform the public of developments in the foreign policy sphere. In a democracy, it is a fundamental responsibility of the elec':' ..eaders of the nation to keep the electorate informed of the dan;e:.: facing the country and the responses being taken by these elected leaders to solve such problems. If an Administration dissemina'us false inform-at:on to the public, that is indeed propaganda, and the Gong:ess and the mudia have a solemn responibility to 4; all in their power to put an end to such dishonest practices. But an intensive effort to inform the public is both a right and a:. obligation of any Administration, and it has been exerci2 frequently in the past. The GAO Report appears to be an attempt limit this Inhc:e:-.t .:!!..t1,2uty of the Executive Branch. An excellent example of an intense public diplomacy campaign ried out by the Executive Branch on a foreign policy problem was, that conducted by the Carter Administration on the Panama Canal Traty. President Carter felt deeply about the issue, and decided to go directly to the American people with his side of the controversial issue. It was a political success. Although many in this coulitry disagreed with the Carter policy, I dc not recall anyone in Congress calling on the GAO to investigate a "propaganda" effort. The public was woll-served by the national debate that ensued, for the American people came to understand both the costs and the benefits of the Treaty, and were better able to advise their representatives in Congress of their position on the issue. That is the essence of democracy. :t was for the same objective--increasing public awareness of a i-aue--tLat the Public Diplomacy Office was formed in .7..:14 1983. It was clear to those of us working in Central American affairs that the public was not well-informed on the area, had little knowledge of U.S. policy objectives in Central America, an.! awareness of the threat posed to U.S. security interest:, by Soviet expansionism in the region. It was concluded that we in the government were at fault, for we had failed to develop the means by which we could communicate the issue of Central America clearly to the American people. Hence the decision to create an inter-agency ?:rganization that would draw talent from throughout the Reagan Administration, with a presidential mandate to get the story to the American people of what was happening in Central America. The decision was made to place the organization in the State Department. The Public Diplomacy Office did not engage in "prohibited, covert propaganda activities", as the GAO alleges, but did indeed carry out an aggressive campaign to increase public knowledge about Central America. As the debate over aid to the "Contras" intensified, so did our efforts to let the public know who these young Nicaraguans were, why they were fighting, and what the corisequenceo could be for U.S. security if the Soviet Union succeeded in establishing a "Cuba" in Central America. Even critics of the Administration acknowledge that the Office performed effectively, and I am proud of the role played in helping to educate the public of the dangers faced by thio country because of Soviet amtition and Sandinista dup'1-"-y 627 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 11 Approved ForRelease2011/05/25 : CIA-RDP89T00142R000500610001-7 Given .the criticism of the Office by the GAO, perhaps we did too good a job, as there are apparently some in Congress who wish to keep the public in the dark. Having travelled throughout this country speaking on Central America, I can assure you that the American people want more, not less, information about a region the know intuitively could soon become a battlefield for their sons. The respected Roosevelt Center for American Policy Studies, in Its 1227 study, Trouble at our Doorstep, found that the American people telieve that neither the government nor the media are providin3 with sufficient information upon which they can make common son:..:2 judgements about Central America. The Congress has been unswerving in its declarations that J.S. interests cannot be permitted to be threatened by a permanent Co.t military presence in Central America. Having served in Vietnum, dc :.ot want to zee young Americans fight and d:2 Central America in the future because the Congress is unwilling to send arms to young Nicaraguans who are willing to fight for their country, and thereby fight our battle for us. The CAC Report apparently was inspired by the discovery of a memo written in March 1935 by Jonathan Miller of ou-r Office to Pat Buchanan in the White House, in which Miller spoke of a "White Propaganda" campaign. Among the triumphs for the Office, according to the memo, were the placing of an article by Dr. John Cuilmartin of Rice University in the Wall Street Journal, and arranging a favorable . story on the "Contras" by Fred Francis of NBC. The CAC concluded from this memo, apparently without checking with either G,p:ilmartin or Francis, that this constituted "covert propaganda". Had the GAO looked beyond the memo, the investigators would %ave discovered that Cr. Guilmartin, as Lt. Col. Guilmartin, had been one of the United States Air Force's leading authorities on helicoitLr doctrine and tactics, and that any newspaper would have teen haprj to publish his expert opinion on the military implicatio.1 of delivery of MI-24 HIND D gunships by Moscow to the Sandinistaz. As a consultant to the Public Diplomacy Office, he had done ?a o.p:rt study for us on the subject, and submitted the Op-Ed piece to the Journal on his own, with no help asked or required from us. Th-r. allegation that we helped Fred Francis establish contacts with "Contra" leaders is laughable. Fred is one of the best conncotc2 reporters in Washington, with far better and more extensive contacts with the the "Contra" leadership than anyone in the Public Diplomacy CfLce. required no help from us. Why did Miller include such statements in his now-celebrated memo to Buchanan? He was probably exaggerating our accomplishments in effort to curry favor for the Office with the White House, not :An uncommon tactic in the bureaucratic battles of Washington. Jonathan a sardonic sense of humor, and he may have been "Just as he told Ambassador Reich in October 1987 (See Washinoton Post, Cc:toter 11, 1937). Certainly, a memo of this nature 'sd be perceived as a "smoking gun", but it should have been the beginnin4, not the end, of the investigation trail. The GAO appears to presume ;u:lt, then looks for "facts" to fit the a Priori assumption. 628 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Approved For Release 2011/05/25: CIA-RDP89T00142R000500610001-7 Media accounts claim that the State Department and Secretary of State George Shultz were not happy with the Public Diplomacy Office because it supposedly took orders from the National Security Council, not the Department Of State. The Office was an inter-agency creature, and certainly had close, almost daily contact with the NSC. But we worked within the State Department, and no one in the Office ever had any doubt but that we wcrked for George Shultz. There wa: probably resentment on the part of some in the Department about the creation of the Office, for it implied that the traditional means of informing the public about foreign affairs--the domain of the State Department's Bureau of Public Affairs?had been found wanting. At the wcrking level, however, we found little hostility, and in fact the Foreign Service Officers working thE Central American issue were happy to see an intensive campaign mounted to tell the public the truth about Nicaragua, and of Soviet and Cuban efforts to neutralize the United States by creating a state of perpetual crisis in the Western Hemisphere. It is doubtful that Otto Reich would have been appointed to the prestigious and critical post of Ambassador to Venezuela if he had displeased the Secretary of State by doing an end run to the NSC. Shultz, in fact, made it a point to swear Otto in as Ambassador to Venezuela personally, somewhat of a rarity for the Secretary. In closing, let me say that it would be a setback for our form of participatory democracy If a future President of eithor party is precluded from telling the American people what threats his Administration perceives, and what responses are being taken t: 7::t these challenges. I hope your Committee encourages, rather than discourages, the maximum flow of information to the public atzot Central America. Legislative muzzling of the Executive Branch will weaken our democracy, which must be based on an informed ,n4 articulate electorate. Sincer lYi Lawrence L. Tracy 424(''?'geVer0

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