DOCUMENTS GIVE INSIDE LOOK INTO ARMS DEALS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000605440004-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: May 8, 2012
• Sequence Number: 4
• Publication Date: November 29, 1985
• Content Type: OPEN SOURCE

Declassified in Part - Sanitized Copy Approved for Release 2012/05/08: CIA-RDP90-00965R000605440004-2
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29 November 1985
Documents Give Inside .
Look Into Arms Deals
Seized Papers, Tapes Tell of U.S. Sting Operation
That Uncovered Scheme to Sell Weapons to Iran
By WILLIAM C. REMPEL and GAYLORD SHAW, Times Staff Writers
NEW YORK-Amid the dull
noise- of business lunches at the
Grand Hyatt Hotel's darkly elegant
Trumpets: restaurant, three men at,
a back table spread out a world map
dotted with 40 red stars. "Wars,"
explained a short, muscular man,
jabbing a finger at the stars. "Con-
ventional wars, wars of liberation,
guerrilla wars .... "
And opportunities, he added. For
Abbott VanBacker, an entrepre-
neur in the business of selling arms
and munitions, 40 wars meant 80
potential customers. "There are so
many wars going on ... there (is)
a terrific amount of money to be
made in it," he declared.
Focus on Red Star
It was the red star over the
Persian Gulf, however, that com-
manded most attention at this un-
usual business conference-a
meeting to discuss one of the
largest private arms deals ever
attempted in the United States, an
order for $2 billion in military
weapons and spare parts for the
revolutionary Iranian government
of Ayatollah Ruhollah Khomeini in
its war against Iraq.
VanBacker, 61, and his partner,
Alan G. Harvey, 73, the men with
the map, assured _ their potential
customer-the customer would
later recall-that they had a "gold-
en spider web" of business and
political associates. Members of
"our team" could circumvent the
U.S. ban on arms shipments to Iran,
they said.
One part of the team, VanBacker
contended, was a former Cabinet
member. If there were any prob-
lems with federal authorities, he.
would "pull our chestnuts out of,
the fire," VanBacker said.
Matt Mattucci listened intently.
Four days earlier he and his older
brother, Nick, in a show of their
own financial strength as middle-
men representing Iran, had taken
VanBacket and Harvey to their
private bank vault and displayed a
250-pound stack of hundred-dollar
bills-the $10 million VanBacker
said he would need to bribe appro-
priate officials in the U.S. and
abroad. But VanBacker and Har-
vey never completed the deal with
the men they thought were the
ayatollah's emissaries. Instead,
they were snared in the biggest
.undercover sting operation ever
conducted by the federal govern-
ment's Bureau of Alcohol, Tobacco
and Firearms.
The tall, dark and glib Matt
Mattucci turned out to be ATF
special agent Matthew Raffa. His
brother, Nick, was Nicholas An-
gell, a high-ranking ATF official
who, nearing retirement, ignored
orders from Washington and went
under cover to direct the sting. And
their $10 million was briefly bor-
rowed from the Federal Reserve at
a cost of $35,000 a day in interest.
Arms Shipment Halted
VanBacker and Harvey never
got their hands on the down pay-
ment. Although they told the un-
dercover team they had located
supply sources for much of the
$2-billion order, they never had
any of the weapons shipped before
federal agents arrested both men
and a partner on charges of con-
spiracy to illegally export arms to
Iran.
The story of the deal-pieced
together from previously confiden-
tial investigative reports, prosec' -
tors' files, seized business do
ments and hundreds of hours
secretly recorded tapes stored in
Bayonne, N.J., at the Federal Ar-
chives and Records Center-offers
an exceptionally detailed glimpse
of the world of private arms mer-
chants.
The underground arms business
has boomed in recent years. Al-
though the sting involved more
arms than the United States sup-
plies to either Israel or Egypt in a
typi , no one seemed sur-
prised by its size. Since 1979, arms
merchants for the ayatollah had
tapped into sources as diverse as
surplus stores, defense contractors
and America's own military supply
depots to gain what U.S. authorities
call "alarming access" to American
military equipment, everything
from missiles to nuts and bolts.
According to ATF statistics,
prosecutions of illegal arms export
cases in the last year more than
doubled over 1983-84-a tribute
both to Iran's presence in the arms
black market and to successful
undercover investigations by ATF,
the FBI and the U.S. Customs
Service. "But we're only scratch-
ing the surface," one veteran in-
vestigator said. "We're not hurting
the bad guys-not really."
Documents from the VanBacker
case present a picture of both
legitimate and illicit deals, of lucra-
tive opportunities and elusive suc-
cesses, of con men and business-
men, of intrigue and deception, of
political connections and claims of
governmental influence.
For example, the documents
show:
-The arms merchants repeat-
edly claimed that their "paid legal
consultant and adviser" was Rob-
ert B. Anderson, former Treasury
secretary in the (Dwight D.) Ei-
senhower Administration and now
a New York lawyer and interna-
tional banker. The secretly record-
ed conversations were later played
in VanBacker's federal trial.An-
derson was not called to testify, but
he later denied any involvement
with VanBacker.
-VanBacker had business deal-
ings unrelated to the Iran arms deal
with Helen Delich Bentley, former
chairwoman of the Federal Mari-
time Commission under President
Richard M. Nixon and now a first-
term Republican congresswoman
from Maryland who at the time was
running two export firms from her
home and was seeking to supply 7.5
tons of fuses for tank grenades to
Ecuador. Bentley told The Times
that VanBacker was a business
acquaintance with whom she also
unsuccessfully sought to negotiate
oil deals.
-Several of the arms dealers
VanBacker and Harvey ap-
proached to supply portions of the
shipment today face criminal
charges over apparently unrelated
allegations of arms export viola-
tions. They include Dan McLeod of
San Diego, now under indictment
in Florida: H. Leonard Berg of New
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York, facing trial in Brooklyn and various rl""???"'? ?--- nt:VUUU%; UL %'Ju.,,a. 4
Robert Gray of New York, named to determine if I could secure an - In addition, his subpoenaed bust
in multiple federal complaints order for these items." ness records and the investigative
stemming from alleged illegal ex- It was not an unusual exchange. reports of federal agents show that
ports to Argentina, Poland and the . Buyers and sellers in the private VanBacker had established busi-
Soviet Union. arms trade-both legitimate and ness relationships with such for
shady-are routinely brought to- eign officials as Brig. Gen. Ephraim
Began as Routine Probe gether by middlemen. Poran, a former military adviser to
For all its international intrigue, In the weeks that followed, as Israeli Prime Ministers Yitzhak
the VanBacker case began as they negotiated an initial $100-mil- Rabin and Menachem Begin, and
something much different: a rou- lion weapons package, Raffa intro- Mohammad Mashari Abdulaziz al
tine investigation into illegal ma- duced Krejcik and Harvey to "my Saud, a nephew of Saudi Arabia's
chine-gun sales in New York City. older brother, Nick," supposedly an King Fahd.
ATF agent Raffa had been international banker who contend- John Black, a New Jersey ex-
working the streets-buying a few ed that he had previously, negotiat- porter and friend of VanBacker's,
automatic weapons in Queens or ed three big arms deals with Irani- told federal investigators that;
boxes of handguns in Manhat- an agents. while the Shah of Iran was hospi-
tan-when an informant led him to talized in New York in 1979, one o
'Brother Nick' Welcomed the shah's sons called Black in
Robert Krejcik, a Czechoslovakian
emigre. Krejcik and his partner, The two principals of United attempt to locate VanBacker. "H6
Harvey, who operated from the States Motors welcomed "Brother wanted VanBacker's assistance in
10th-floor offices of a company Nick"-a cigarette-smoking, taci- military operation to regain poweri
called United States Motors on turn man who actually was in in Iran, for which the Shah had $54
Manhattan's west side, were offer- charge of ATF operations from million," Black recalled for ATF
ing to sell MAC-10 and MAC-11' Puerto Rico to Maine. Agents joked agents. '+I
machine guns with silencers and no that going undercover was one way With VanBacker's arrivalk,
serial numbers-weapons small for Angell to keep an eye on the Krejcik faded into the backgroun
enough to slip into a jacket pocket expense account of Raffa, who Harvey moved to form a new :
yet capable of firing a 30-shot clip played the role of a free-spending, company-"Van-Harvey Interna- `?
in a three-second burst. Corvette-driving playboy. tional"-to funnel the expected
Raffa posed as the security di- Raffa told the arms merchants cash payments from Iran into for=
rector for an international compa- that, with Nick on board, greater eign corporations and banks as par? -
ny who occasional)for arranged t. Irish financing was possible, and the deal of a plan to "throw off the hounds."
ny coy- could grow. What began as a $1,500 The arms dealers explained in
gun buys machine-gun deal was about to secretly recorded conversations'-
Republican Army. On St. Patrick's evolve into a $2-billion scheme to that their identities and the nature
Day, 1983, the agent agreed to pay equip an entire army. of their business could be concealed;
Krejcik $1,500 for a sample ma- While Harvey and Krejcik had from official scrutiny by processing
chine gun. dabbled previously in international the money through a succession o>
In mid-April, at the Plaza Hotel's arms and military supply deals- companies, ultimately ending in a .
paneled wood-d Krejcik Oyster Bar, elope attempting to sell Cobra helicop- country such as Saudi Arabia'
handed Krea white d envlaye ters to Iraq, Boeing 747 cargo where VanBacker said financial
stufd ., as ment for with 10 more0 ma hine guns. planes to Libya and machine guns secrecy could be guaranteed.
for exam-
ers to Greece
il
th
,
enc
s
Advice on Transactions
But Krejcik injected a new element wi
s-a claim that he ple-the biggest export deal for
rivate discussions
to their dealin
i
In
g
n
could supply military weapons and which they obtained U.S. govern-
as well as the light rifles ment approval was the sale of 10
equipment machine guns if Raffa could line up to Belgium.
customers. Looking for a partner with wider
A t
ex
Refers to Commissions
Raffa wrote in his report:
"Krejcik abruptly began to discuss
the sale and commission I would
make if I were to sell other prod-
ucts .... He began to jot down
these figures on an advertisement
for Guinness Stout."
Among the "other products"
were 60 fully equipped Cobra at-
tack helicopters ($6 million each),
four C-130 transport planes ($26
million each), 20,000 rocket-pro-
pelled grenades ($3.8 million),
40,000 hand grenades ($360,000),
10,000 MAC-10 machine guns ($10
million) and a number of M-48
Army tanks ($1.2 million each).
With a practiced casual air, Raffa
assured Krejcik that he would "ask
around at the United Nations and at
' "
connections an grea ex
ence, they turned to VanBacker-
the man Harvey called "the gener-
al," a former shoe salesman from
Scranton, Pa., who had traveled
throughout Europe, Africa and the
Middle East as a representative of
an engineering and construction
firm, developing impressive inter-
national business contacts.
No Novice to Big Deals
The $2-billion order represented
a mammoth. logistical challenge,
but VanBacker was no novice to
large export deals. Court records
disclose that he had engaged in a
wide variety of international busi-
ness negotiations-attempting, for
example, to market military field
hospitals to Africa, a complete
munitions factory to the Philip-
pines, bulletproof vests to Peru and
heavy-duty, trucks to the Peoples
recorded
p
by investigators, Harvey and Van-
Backer agreed that they would
seek Anderson's advice on how to
structure those transactions.
Harvey first mentioned Ander-
son's name to Raffa at a lunch on
April 29, boasting that the former
Cabinet member was "on our pay-
roll" to help tailor future export
documents. To an ATF agent, it
was a particularly startling remark
because ATF, as a branch of the
Treasury Department, was under:
Anderson's administrative control
in the 1950s.
The investigators later inter- _4
cepted a phone conversation in
which VanBacker told Harvey that
he had just met with "our friend,
Mr. A." In court, Harvey later said,,!
Mr. A was a reference to Anderson.
In the conversation with his
partner, VanBacker said he had
asked Anderson to serve as their
"adviser, counselor" in the Iran
arms deal. VanBacker, in a brief
telephone interview from federal
prison, recently denied that Ander-
ILI
Confinuwu
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son was par. of uic aria: sc,icu.c.
What agents overheard on a tele-
phone wiretap in July of 1983,
however, was VanBacker's claim to
Harvey that Anderson "would like
to have a piece of the profits. He's
already declaring himself in."
Sought Reassurance
Raffa and Angell pressed for a
meeting with Anderson, saying
they were reluctant to pay any of
the $10 million stored in their
safety deposit vault until they were
confident that Anderson could help
resolve problems that might arise
in exporting the weapons.
Their insistence finally angered
'VanBacker, who complained in an-
other intercepted telephone con-
densation with: Harvey that the
arms buyers were "asking us to
compromise a former official ....
He is a member of the team, he will
acknowledge that he is interested
in covering our best interests, peri-
od.. He will not compromise himself
to two people ... who -could be
ATF stoolie&"
In an interview, Anderson said
that VanBacker exaggerated their
relationship, calling VanBacker's.
recorded claims "sheer. mytholo-
gy." He told The Times that J.
Collins Coffee, a New York busi-
ness consultant, brought VanBack-
er to his office several years ago to
discuss a security firm Coffee
wanted Anderson to help set up.
"I -said hello to him and maybe
visited for 10 or 15 minutes and he
left .... I never saw the man
before or after," Anderson said.
"I've never been involved in a
thing with him in my.life."
Help for VanBatker Alleged
However, longtime Anderson
friend John P. Sheffey III, a former
State Department official, told The
Times that Anderson called him
and "asked me to put VanBacker in
contact with someone in Washing-
ton who knew how to procure
weapons."
Sheffey, who was once an aide to
Anderson, said he was told that
VanBacker was interested in ob-
taining missiles. As "a favor to
Anderson," Sheffey called retired
four-star Gen. John R. Deane Jr.,
who once headed the U.S. Army
Materiel Command.
Deane said that he met Van-
Backer at LaGuardia Airport in
New York, where VanBacker
asked about Dragon and TOW
anti-tank missiles but was "vague
about what ' . he wanted .... He
didn't say who he was sending to."
Deane said he repeatedly advised
VanBacker that he would need
proper export documents before
attempting any international sales.
many times that he figured I wasn't
the kind he wanted," Deane said.
Anderson said that he could not
recall asking Sheffey to help Van-
'No Recollection'
"John Sheffey is an honest, up-
right great guy .... and if he said I
called him, I wouldn't deny it,"
Anderson said. But he added: "I
have no recollection of it."
In the summer of 1983, with
VanBacker adamantly opposed to
introducing Raffa or Angell to
Anderson, the agents moved ahead
with the arms deal. With the help
of Air Force .logistics specialists
who catalogued the equipment and
parts required to wage. a 30-day
desert war, they put together a
5I-page shopping list of weapons,
spare parts and military equipment.
VanBacker and Harvey, - who
received the. list from Raffa at the
same Grand Hyatt lunch where
they reviewed the map with 40 red
stars, later broke it down into
product types-from explosives to
heavy combat equipment and air-
craft parts. Then they contacted
selected dealers and -suppliers for'
price quotations. No one dealer wps
to know how large the total order
was, they agreed in recorded con-
versations.
To fill the fabricated $2-billion
Iran order, VanBacker and Harvey .
sought suppliers for such items as
Cobra helicopters in Florida, tanks
in California and M-16 rifles in
Connecticut. VanBacker booked a
flight to London to search for spare
parts for F-4 jet fighters. Inquiries
for price quotes also went out to
.Gray, Berg and McLeod, among
many others.
Sidestepping U.S. Rules
To ship the weapons to Iran, the
arms suppliers would have to cir-
cumvent the requirement that the
export of all items on the U.S.
Munitions List-everything from
missiles to tank parts-must re-
ceive government approval even
for shipment to friendly nations.
Licenses are granted only when
the recipient government certifies
that it will not re-export the arms
without U.S. authorization. And
Iran is among countries banned
from receiving virtually any U.S.
weapons and technology.
VanBacker proposed to bribe
foreign officials to sign certificates
falsely claiming that shipments
were intended for their country. In
various recorded conversations,
VanBacker said he could get a
phony certificate from Liberia in
exchange for a Mercedes Benz-or
from Saudi Arabia, but the price
would be too high.
Harvey considered using a contact
in Brazil, a plan that was scrapped
when the contact's business part-
ner, U.S. millionaire George M.
Perry, was found murdered in
upstate New York, his body float-
ing in Lake Tiorati. State investi-
gators said Perry's Brazilian busi-
ness partner had been engaged in a
$1-billion arms deal in Europe with
a nephew of the ayatollah, a deal
that had collapsed six months earli -
er.
Harvey ruled out using England,
saying: "They're too starchy." Both
men agreed that their preference
would be to get the phony docu-
ments from Egypt where the
"commission" could be 8% to 12%
of the total shipment price.
Use of'Brlbes
Besides phony export docu-
ments, other schemes were under
consideration. by the arms mer-
chants..They could circumvent
U.S. export controls, they said, by
hiring a ship's captain willing to
detour to Iran in mid-voyage.
Whatever plans, were employed,
VanBacker emphasized, it would
require "baksheesh"-bribes-
paid in advance to foreign officials.
As negotiations neared the cru-
cial moment-when the $10 million
would be handed over to VanBack-
er and Harvey as down payment on'
the $2-billion order-Angell ex-
pressed. doubts to the arms dealers
about the plan's details. VanBacker
and Harvey eagerly offered assur-
ances about the reliability of their
plan and the people who would
support it-"our family," Harvey
liked to call his associates.
Among others in the "family."
according to VanBacker, was CIA
Director William J. Casey. In con
versations recorded by govern-
ment agents and later discussed in
court, VanBacker said, for instance,
that he had a "close relationshin"
with Case z, and "I can go down to
Casey's office and talk with him all
day long." A CIA spokesman who
checked with Casey said: "He has
never heard of Mr. VanBacker."
Angell testified that VanBacker
also showed him his address book
containing handwritten entries for
Deane, whom he described as one
of his "associates" who "could help
out in various aspects" of the arms
deal. In a conversation recorded by
agents affe-F-Me arms merchants
the $10 million, Van-
Backer added: "Gen. Deane doesn't
work for nothing." Deane called
VanBacker's assertions "a god-
damned lie."
None of the records seized from
VanBacker's office revealed evi-
dence of any business dealings with
.Casey or Deane..
3
eontinaed
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The records did disclose that months before taking on the.bogus.
Bentley, while in the export busi-' Iran order, VanBacker had signed a
ness a year before.her election to $162-million contract with Zagla-
Congress, sought price quotations viras, - who then claimed td be a
Greek general and who federal
from VanBacker on. a contract to investigators now suspect is a for-
supply about $1.5 million in gre- mer military adviser to deposed
nade fuses to Ecuador. She said in... Nicaraguan strongman Anastasio
an interview, that this deal fizzled, Somoza, to supply Cobra helicopter
as did several non-munitions deals gunships. VanBacker used the
she talked about with . VanBacker signed purchase order of "Marshal
after she went into private business GeneralZaglaviras" &impress up-
following her tenure as head of the on Raffa his ability to handle large
Maritime Commission from. 1969 to arms deals.
1975: Shortly before the ATF agents.
Among VanBacker's other asso- ended their charade . on July 26,
ciates was Douglas Zaglaviras, who. ? 1963, VanBacker offered one par-
was seized, by FBI agents in New ticularly revealing insight into the
York last month and charged with code of the illegal arms merchant
plotting to illegally import and sell when a hidden recorder taped him
2,000 heat-seeking missiles. A few saying.-
"I've been in many questionable
situations .... The only things I.
won't do, and I will "tell: you here
and now, is direct jeopardy to this
country's survival. I . won' do it.
Otherwise ....
"
After their arrests, Harvey and
Krejcik pleaded guilty to weapons
and conspiracy violations. Harvey
cooperated with authorities and
served a brief sentence; Krejcik is
still in prison.
VanBacker demanded a jury tri-
al, and his attorney attempted to
portray him as a man prone to
exaggeration and "on the fringe of
the arms trade." He was convicted
of conspiracy charges and sen-
tenced to two years in Allenwood
federal prison camp in Pennsylva-
nia.
In a subsequent appeal, another
VanBacker lawyer argued that his,
client's "only guilt was overact
,v
ing.
"He painted himself as a major
arms dealer akin to that of (famous
World War I-era European muni-
tions dealer) Sir Basil Zaharoff,
attorney Aaron J. Jaffe told' th`h
U.S. 2nd Circuit Court of Appeals..
"He postured, posed and.
puffed . . He declaimed friend=
ship with the famous and the,
powerful. Names flowed from his
lips like a torrent' ..... His sole
deliverable weapon was conversa-
tion."
The appeal was denied.
Times staff writer John Goldman
in New York and researcher Doug
Connor in Los Angeles contributed
to this article.
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