FOCUS ON CONTRA FUNDING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000504880002-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: February 23, 2012
• Sequence Number: 2
• Publication Date: May 3, 1987
• Content Type: OPEN SOURCE

Declassified in Part - Sanitized Copy Approved for Release 2012/02/23: CIA-RDP90-00965R000504880002-8
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CHICAGO TRIBUNE
3 May 1987
Focus on contra
funding
Saudi link to rebels studied on eve of hearings
J By James O'Shea
'9' and Michael Tackett
Chicago Tribune
WASHINGTON-In May, of 1984,
President Reagan invoked his emer-
gency powers and approved the sale
of 400 Stinger anti-aircraft missiles to
Saudi Arabia despite strong congres-
sional opposition.
Within 30 days, according to Rob-
ert McFarlane, the President's nation-
al security adviser at the time, $1
million a month began flowing from
the Saudis into a secret bank account
set up for the benefit of the Nicara-
guan contras, the rebels Reagan has
called the "moral equal of the Found-
ing Fathers."
In early 1985, King Fahd of Saudi
Arabia had a private "working"
breakfast with Reagan at the White
House. As Fahd's plane left the U.S.
for home that Feb. 15, the adminis-
tration announced plans to improve
Saudi Arabia's air defenses through
the sale of a $250 million weapons
system.
One week later, according to
McFarlane, the Saudis' monthly con-
tributions to the contras doubled.
Congress will open hearings Tues-
day on the roles the President, many
other administration officials and the
Saudis played in the secret efforts to
fund the contras' war against Ni-
caragua's leftist Sandinista govern-
ment.
Congressional investigators believe
the Saudis contributed $30 million to
$40 million to the contra cause be-
fore the administration's clandestine
efforts collapsed under the weight of
disclosures of a plot to divert profits
from the sale of U.S. arms to Iran to
the contras.
White House officials said nothing
has been found to link the Saudi con-
tributions to the contras with the ex-
traordinary sale of the Stingers, whose
legality has been questioned in Con-
they said, was unaware that North's oper-
ation had veered out of control and the
President did not know about the diver-
sion of arms,sales profits to the contras.
But by emphasizing the President's ig-
norance of the diversion, administration
officials obscured an important point:
The diversion was only one element in a
wide-scale drive to keep the contras alive.
There also were secret bank accounts and
dummy corporations set up on three
continents; there were coordinated resup-
ply missions and dangerous low-flying
weapons drops; and there were public
fundraising efforts, television commercials
and solicitations of foreign governments
such as the Saudis.
Indeed, a growing body of evidence
that will be examined by the congression-
al committees over the next several
months suggests that the Stinger sale was
just one example of the President's drive
to make the contra operation the center-
piece of his worldwide fight against com-
munism. He started stumping for the
contras from the day he took office, and
some aides, following Reagan's lead,
adopted the contra cause as a personal
obsession.
Each new detail about the operation
seems to add a chapter to a political
thriller that has riveted the nation's capi-
tal.
McFarlane, anguished over his failure
to tell investigators all he knew, attempt-
ed suicide. CIA Director William Casey,
disabled by a brain tumor, has been un-
able to elaborate on his role, but congres-
sional committees wanted to send a doc-
tor to conduct an independent
examination of his condition.
McFarlane's successor as Reagan's na-
tional security adviser, Rear Adm. John
Poindexter, and North have been driven
from their jobs by the scandal, and both
have taker. the 5th Amendment rather
than discuss their actions.
North's secretary, Fawn Hall, a willowy
part-time fashion model who dated the
son of a contra leader, said she jammed. a
White House paper shredder while de-
stroying, on North's orders, a mound of
sensitive documents.
Like the President, key Cabinet officers
such as Defense Secretary Caspar Wein-
berger and Secretary of State George
Shultz have adamantly denied any knowl-
edge of the diversion of funds. But none
has been questioned thoroughly about his
overall knowledge of the secret war effort.
Over the next few months, that could
change. Although the Iran arms sales
sparked the congressional investigations,
sources on the House and Senate select
committees said the hearings will lead to
a sweeping inquiry into the administra-
tion's orchestrated attempts to skirt the
will of Congress, possibly breaking the
law in the process.
Lawrence Walsh, the special prosecutor
whom Reagan appointed to investigate
the 'White House involvement in the af-
fair, also has expanded his mandate to
include the entire contra aid program. He
is investigating whether administration
officials violated conspiracy laws that
make it a crime for "two or more people
to commit any offense against the United
States or any agency thereof, in any man-
ner or for any purpose."
On Wednesday, Carl "Spitz" Channell,
a private fundraiser for the contras,
pleaded guilty to conspiring to defraud
the government, the first prosecution in
the Iran-contra affair.
Channell named North as a govern-
ment official with whom he conspired,
but he named no other government offi-
cials.
President Reagan has said that he
thought Channel] was raising money for
television ads to promote the contras and
knew no other details. Sen. Daniel
Inouye (D., Hawaii), chairman of the
Senate select committee on Iran and Nic-
aragua, seemed to contradict the Presi-
dent, saying that Reagan was quite
knowledgeable about efforts to raise funds
for the contras.
From late 1982 to October, 1986, Con-
gress passed a variety of legal restrictions
on military aid to the rebels, including a
ban on spending U.S. funds for "direct or
indirect aid to military, or paramilitary
aid to Nicaragua."
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Administration critics say it is hard to
believe that a program of such scope, in-
tensity and coordination operated like a
symphony without a conductor.
"Lieutenant colonels don't run foreign
policy. The commander in chief does,"
said Rep. Ronald Coleman (D., Tex.),
who tried unsuccessfully in June, 1986,
to force the White House to inform Con-
gress about North's activities.
"I'm totally convinced that Col. North
was following orders and following what
he thought was the policy of the United
States," he said.
There is considerable evidence that
Casey, Reagan's longtime confidant, was
instrumental in running the contra war
from the CIA's suburban Virginia head-
quarters, said a Republican select com-
mittee member.
For its part, the State Department pre-
sided over a dramatic increase in requests
for foreign aid to Central American na-
tions. Some requests soared more than
1,400 percent from 1981 to 1986. In
Honduras, where the U.S. constructed
military bases and airstrips, U.S. aid rose
359 percent, to $16c`3 million in 1986,
from $37 million in 1981.
The Defense Department participated
in a military build-up that included the
stationing of American troops in Hon-
duras and frequent military exercises,
often close to the Honduras-Nicaragua
border. At times, the exercises were coor-
dinated with other diplomatic moves
against Nicaragua, a nation with which
the U.S. is formally at peace.
Congress will share some responsibility
as well. Vacillating between enactment of
explicit aid cutoffs and loosely drafted
contra aid legislation, the legislators gave
the administration plenty of loopholes.
The effort to learn the truth about the
key elements in the controversy is in its
sixth month, and a general picture has
emerged about the Iran arms sale and the
contras' war. But the hearings are likely
to provide the critical details that have
been lacking in reports from a presiden-
tial review board, congressional com-
mittees and the media.
Investigators continue to struggle to an-
swer these questions:
? Was North really a renegade or was
he acting on the authority of superiors,
even the President?
? Did any administration officials brief
the President on the plan to divert
money to the contras?
? How much did administration offi-
cials know about the efforts to privatize
U.S. foreign policy in Central America?
? What really happened to the millions
of dollars raised through contributions for
the contras?
On the money trail, investigators have
gone to extraordinary lengths to
penetrate a maze of secret Swiss bank
accounts and sham corporations.
But major breaks in the investigation
came only after some key people were
granted.limited immunity from criminal
prosecution in exchange for their testi-
mony.
Just two weeks ago, for example, the
lawmakers filled some of the major gaps
in their knowledge by using immunity to
compel testimony from Albert Hakim, an
Iranian-born U.S. citizen and business-
man who helped move funds through the
Swiss accounts.
Poindexter, considered by many to be
the most crucial witness because of his
close working relationship with the Presi-
dent, also has been granted immunity.
North probably will be granted immunity
soon.
In a breakthrough for the congressional
committees, retired Air Force Maj. Gen.
Richard Secord, who also helped coor-
dinate the program and is a business
partner of Hakim, agreed to testify and
will be the leadoff witness for the
hearings. Committee members said he
knows as much about the contra resup-
ply operation and the Iran arms sales as
any private citizen.
Suspicions linger that millions of dol-
lars in private contributions for the con-
tras and U.S. arms sales profits were pil-
fered by arms traders and fundraisers
drawn to the secret White House opera-
tion by the lure of profits.
The hearings and reports on U.S. fund-
ing of the war against Nicaragua have
made headlines in recent months, but the
origins of the controversy really date to
1979.
At the time, Nicaragua was ruled by
Anastasio Somoza, a corrupt and brutal
dictator who once allegedly sent his
mother to the U.S. with $1 million for
the re-election campaign of President
Richard Nixon.
Over the years, the U.S. had poured
millions of dollars in foreign assistance
into Somoza's treasury. Yet when a pop-
ular rebellion led by the Sandinistas drove
Somoza from office in 1979, Ni ag s
had a per capita annual income of only
$897, and 60 to 70 percent of the popu-
lation was illiterate.
At first the U.S., which had backed
Somoza until it was clear to everyone
that he was finished, supported the new
regime.
Congress voted to send the new leaders
of Nicaragua more financial aid than any
other nation in the world, only to learn
that the Sandinistas were supplying
weapons to guerrillas trying to topple the
U.S.-backed government in neighboring
El Salvador. President Jimmy Carter then
cut off financial aid.
2.
In January, 1981, President Reagan in-
creased pressure on Nicaragua. Adminis-
tration officials fired Carters remaining
assistant secretary of state and transferred
his principal deputy for Central America
to Katmandu, Nepal.
In March, Reagan issued an intelligence
finding calling for intensified covert ac-
tions in Central America. Alexander
Haig, then Reagan's secretary of state,
publicly linked the revolution in Nicara-
gua to the guerrilla war in El Salvador.
Both nations, he said, were Central
American pawns of communism ex-
ported by Cuba and the Soviet Union.
U.S. Policy toward a fledgling revolu-
tion in a disorganized and poor nation in
Central America suddenly was elevated to
an integral part of the administration's
global war against communism.
By the end of 1982, Congress had se-
cretly approved $19 million for paramili-
tary operations in Central America.
In secret testimony before congression-
al intelligence committees, later made
public, CIA Director Casey said the $19
million was needed to organize a 500-
member paramilitary force that would
help "interdict" the flow of arms from
Nicaragua to the guerrillas in El Salva-
dor. Actually, said one source involved in
the program, the idea was to harass the
Sandinistas with military attacks and
keep Nicaragua's new leaders so busy
fighting that they would have little time
for anything else.
But the administration could not open-
ly admit to such a goal because of the so-
called "Boland Amendment," a measure
attached to a funding bill that said U.S.
financial aid could be used only to help
interdict the flow of arms into El Salva-
dor. None of the money was to be used
in attempts to "overthrow" the Sandinis-
ta government.
Casey did not have to create a force of
counterrevolutionary soldiers. A group of
former members of Somoza's despised
National Guard already had been orga-
nized by the military rulers of Argentina.
The U.S. merely supplied the money and
tactical intelligence information.
At first the war went well for the rebels.
The contras moved from training camps
in Argentina to Honduras, and weapons
flowed to them. They launched a few at-
tacks across the Honduras-Nicaragua
border to blow up bridges. In response
the Sandinistas declared a national emer-
gency, stepped up their military forces
and censored the press.
But something that Casey and the
others had not foreseen occurred in
April, just a few weeks after the contras
started their offensive. Argentina attacked
the Falkland Islands and went to war
with Britain. Britain won with U.S. help,
anventine support of the contras
Lacking direction, the contra move-
ment fell into disarray.
In mid-1983, the CIA, frus..,..ed with
the contras' lack of p , stepped in
to exert more control. The CIA financed
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a growing rebel force dependent on the
hospitality of Honduras, one of Ameri-
ca's closest allies in Central America. Yet
Honduran officials were uneasy at the
prospect of a disorganized, unhappy
group of Nicaraguan outcasts camping
out on their border.
Within weeks, the CIA ordered the
contras to launch an offensive into Nica-
ragua, according to Edgar Chamorro, a
former contra official. Reagan approved a
plan calling for increased U.S. involve-
ment in Central America, including a
possible quarantine of Nicaragua. In a
July speech on Central America, he said:
"More Cuban and Soviet supplies have
arrived in Nicaragua, and this cannot be
allowed to continue."
The next month, Gen. John Vessey,
chairman of the Joint Chiefs of Staff,
flew to Venezuela, Panama and Hon-
duras for talks with senior officials of
those countries, and U.S. aircraft carriers
began exercises in the Caribbean and off
Central America's Pacific Coast.
Concerned about deepening U.S. in-
volvement in Nicaragua, Coneys cap-
ped contra funding at $24 million in late
1983 and tacked another restrictive prov-
ision to the Boland Amendment, prohib-
iting any agency from exceeding that
ceiling for "direct or indirect aid to mili-
ttor paramilitary operations in Nicara-
gua.,, the CIA already had taken some
steps in Nicaragua that would lead to se-
vere problems on Capitol Hill.
By early 1984, according to contra
spokesman Chamorro, Duane e
a CIA operations officer, was giving e
rebels detailed military instructions, in
contrast with the CIA's public statements
about simply stopping the flow of
that Congress placed on funding for the
rebels, according to congressional investi-
gators.
The Defense Department, for example,
began supplying the CIA with ships,
planes and funds at nominal rates for use
in the covert war. U.S. troops on
"training maneuvers" built radar installa-
tions in Honduras that the contras could
use after the exercises ended. Honduran
airstrips were improved, and reports sur-
faced suggesting that the CIA was ap-
proaching Israel and Saudi Arabia for fi-
nancial help.
The administration and Casey denied
that they had sought outside financial
help from allies such as Israel and the
Saudis. But by this time, it had become
clear to the administration that Congress
would balk at further funding.
In May, 1984, the House voted to cut
off further contra aid.
After the vote, White House spokes-
man Larry Speakes said the administra-
tion would not accept any legislation that
would terminate the U.S. program in
Nicaragua.
Just two days before the vote, Richard
Murphy, the U.S. assistant secretary of
state for the Middle East, had been dis-
patched to Saudi Arabia with a letter to
King Fahd from Reagan expressing U.S.
support for the Saudis. The State Depart-
ment, in what was described as an "echo
of the Reagan letter," stepped up U.S.
criticism of Iran, a move that had been
sought by the Saudis.
One week later, the President exercised
his emergency powers and supplied the
Saudis with 400 Stinger missiles, twice
the number they had requested. Overall,
the sale involved about $40 million worth
of equipment.
A State Department spokesman said
CIA had directed the 1983 mining of the contras by Murphy.
harbors in Nicaragua. Later in the year it The President said he used his "emer-
was learned that the agency had helped gency" powers because of Iranian air at-
write and publish a manual instructing tacks on oil tankers in the Persian Gulf
the contras in political assassination. But Rep. Lee Hamilton (D., Ind.), the
Congressmen charged that these actions chairman of a House subcommitee on
violated the Boland Amendment, and the Middle East, questioned whether the
they portrayed as "hypocritical" Reagan President properly used his emergency
administration claims that it was not Powers.
trying to overthrow the Sandinista gov- About one month later, secret contrib-
emment. utions of $1 million a month "from a
Undaunted, Reagan stepped up his re- foreign official" began flowing into a
quests for financial aid for the contras, Cayman Islands bank account for the ad-
asking Congress to approve an additional ministration-backed contras, McFarlane
$21 million for fiscal 1984 and $28 mil- told a presidential investigative panel
lion more for fiscal 1985. early this year.
Reagan soon went on the offensive According to several accounts, McFar-
with a nationally televised speech in lane told congressional investigators the
which he portrayed the Sandinista gov- Saudis were the source of the money.
ernment as a threat to the entire Western Between May, 1984, and February,
Hemisphere. He said the U.S. had a 1985, the Saudis allegedly paid $8 million
into the secret account, and the adminis-
"moral duty" to support the contras, tration publicly announced that it would
whom he referred to as "freedom fight- seek congressional approval to deliver a
ers." total of 1,200 Stingers to the Saudis.
Behind the scenes, McFarlane had ap- Although White House officials deny
pointed North, then an obscure lower- there was any direct connection between
level National Security Council staff the arms sales and the contributions, a
member, to direct the administration's former diplomat said such a transaction
contra aid effort. would have involved a great deal of
The administration devised several subtlety. "No one would have to say if
techniques to bypass the $24 million lid you do this, I will do that. That is not
3.
the way it is done. I hey would use peo-
ple and messages in a way that both sides
would understand what needed to be
done."
In early February, 1985, about two
weeks before Fahd was to visit the White
House, Murphy, the same diplomat who
had carried Reagan's message of support
to Saudi Arabia the previous May, an-
nounced that the administration had
temporarily suspended proposed weapons
sales to all Middle Eastern countries, in-
cluding the Saudis.
The announcement came at a time
when Reagan, concerned about congres-
sional threats to cut all funding to the
contras, was publicly stumping for his
contra aid package with major speeches
and appearances before pro-contra
groups.
Two weeks after Murphy announced
the arms sale suspension, Fahd met with
Reagan twice during a U.S. visit from
Feb. 10-13, including a private breakfast.
There were several Middle Eastern issues
that could have been discussed. About
two weeks after the meeting, though, the
Saudis doubled their contributions to the
contras, according to testimony McFar-
lane gave early this year to the Reagan-
appointed Tower Board reviewing the ad-
ministration's arms sales to Iran.
The administration also announced
that it would resume its drive for the
sales of missiles and F-15 airplanes to the
Saudis.
By that time, Congress had voted to
end all aid to the contras and to place
strict limits on the CIA's role in the op-
eration. Determined to keep the pressure
on the Sandinistas, the administration de-
cided that the National Security Council,
an advisory body, was not covered by the
funding restrictions.
Last Thursday, the Senate Select Com-
mittee on Intelligence was given a report
that indicated North proposed a contri-
bution to the contras by an Iranian po-
sing as a Saudi prince that was "dis-
cussed personally with President Ronald
Reagan and National Security Adviser
Robert McFarlane as recently as June,
1985."
The report, supplied by FBI Director
William Webster, was based on an inter-
view an FBI agent conducted with North
on July 18, 1985, at the White House.
The report suggests that North spoke di-
rectly with the President about private
donations to the contras from specific
people during the congressional ban.
Plugging into an established network of
arms dealers, soldiers of fortune, finan-
ciers and pilots, the National Security
Council became the operational arm of
the government's effort, and Lt. Col. Oli-
ver North was its untitled commander.
Declassified in Part - Sanitized Copy Approved for Release 2012/02/23: CIA-RDP90-00965R000504880002-8