WHAT DID THEY KNOW, AND WHEN?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00552R000201650014-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: July 1, 2010
• Sequence Number: 14
• Publication Date: December 8, 1986
• Content Type: OPEN SOURCE

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ON p AGE . J ..NL~VJ U YVOILI) mr-ruKi
8 December 1986
THE IRA`-C0\ IRA SCANDAL PROMISES TO
SPREAD. TOUCHING OTHER ADMINISTRATION
OFFICIALS. DAMAGING RONALD REAGAN
AND THREATENING HIS PRESIDENCY
the Watergate period had returned: the President's capacity to govern
What did the President's men know, could come to a grinding halt.
and when did they know it? Even if the damage from the scandal
Crucial differences is contained, Reagan's forced preoccu-
By most accounts, the Watergate pation with the issue and growing un-
comparison was plainly overdone. No certainty among U.S. allies, moderates
one seriously suspects Reagan himself in the Middle East and even the Soviets
of masterminding the back-door flow are certain to thwart Reagan's initia-
of arms and money, for instance and
WHAT 010
THEY KNOW,
AND WHENg.1
^ The call to the White House was
unexpected-and most congressional
leaders reckoned that they were about to
be notified of some high-level sackings
related to the botched Iran arms sale.
But then Ronald Reagan entered the
room, and it quickly became clear that
the dimensions of the crisis had changed
dramatically. "I want to relate some
incidents we will immediately tell the
press about," the President said, speak-
ing without notes. He then turned to
Atty. Gen. Edwin Meese-who deliv-
ered news to the stunned audience that
seemed certain to alter the tenor of the
Reagan Presidency for the rest of its life.
Suddenly, the controversy over the
secret arms shipments to Iran and the
subsequent diversion of millions of dol-
lars to the contra rebels in Nicaragua
had mushroomed into a full-blown
scandal-complete with startling
White House staff departures and talk
of shredded documents and tainted
money from secret bank accounts. "It
was serious before," said a senior
White House official. "But now with
the contra connection, the whole thing
has metastasized." Investigators were
being instructed to "follow the mon-
ey," and members of both parties were
calling for a special prosecutor to un-
ravel the mess. Reagan himself ap-
pointed a three-member panel headed
by former Senator John Tower to re-
view the role of the National Security
Council staff, and he ordered White
House aides to cooperate with a Justice
Department inquiry under Meese's
his seeming willingness to press an in-
vestigation hardly suggests a Nixonian
cover-up.
Where Watergate arose out of stark
political interest, the current crisis
seems to have grown from misguided
efforts to advance national goals. Per-
haps most important, where Watergate
reeked of rank criminal actions, it is
still unclear that the secret arms deals
and diversion of funds to the contras
violated any laws (page 25).
That should soon become clearer.
Justice Department investigators are
pursuing leads indicating that NSC
staffer Lt. Col. Oliver North shredded
White House documents and looking
into a New York Times report that for-
mer National Security Adviser John
Poindexter may have destroyed other
White House papers. It was North who
directed the scheme that, for 18
months, sent U.S. arms to Iran and
funneled $10 million to $30 million
back through numbered Swiss accounts
to the contras in Central America. Rea-
gan fired North last week and accepted
the resignation of his boss, Poindexter.
(A replacement could be named this
week.) If it turns out that North actual-
ly did destroy important documents in
the 36 hours before White House secu-
rity officers changed the combination
locks to his office and safe, he could
face an obstruction-of-justice charge,
legal experts maintain.
However the spreading scandal and
investigation finally sort out, there
seems little doubt that the President
has been badly damaged. Aides and
outsiders alike fear the scandal may
have compromised Reagan's ability to
pursue even limited domestic and for-
eign-policy initiatives that might other-
wise have been taken up with the new
Democratic-controlled Congress. Now,
instead of Reagan's setting the agenda,
the coming weeks and months will be
guidance. But Congress was moving taken up with the inevitable hearings
g and investigations into the links be-
quickly on its own: The Senate Intelli- tween arms shipments and contra fund-
gence Committee announced a formal ing. The White House surely will con-
investigation to begin this week and
asked the White House to secure all tinue its strenuous attempts at damage
documents relative to the secret opera- control, but there is growing specula-
tion. Like familiar but unwanted tion that the scandal eventually could
guests,.the haunting old questions from touch other top officials. In that event,
tives overseas, precluding progress on
arms control, the war between Iran and
Iraq and, especially, continued aid to
the contras. In the backwash of the
affair, the administration took pains to
point out that control of foreign policy
had been returned to the State Depart-
ment and Secretary George Shultz, but
even that seemed unlikely to turn
things around. The President "does not
play well going backward." says a for-
mer aide. Under the best of circum-
stances, the U.S. may be in for a frus-
trating period of drift and deadlock for
the rest of the Reagan term. That
would probably benefit no one.
"Presidency that worked"
By themselves, the secret Iran arms
deals might have hobbled the President
temporarily. But the disclosure last week
that North funneled profits from the
deals through numbered Swiss bank ac-
counts to the contras thrusts at the very
heart of the Reagan Presidency. "This
puts at risk the major accomplishment of
this administration, which was a real
sense of competence," says Representa-
tive Dick Cheney (R-Wyo.), deputy
chief of staff to President Ford. "For
once, we had a Presidency that worked."
If that popular perception has been
badly damaged, it may count as the
greatest tragedy in the entire affair. For
the first time in a generation, the Presi-
dency under Reagan was viewed at
home and abroad as strong and vital.
and Reagan himself was seen as a kind
of healing figure who restored luster
and dignity to the office. It is a sad
irony now that Reagan, like Jimmy
Carter before him, found his biggest
stumbling block in Iran. In wrapping
two of his most controversial foreign-
policy initiatives-Iran and Nicaragua
-in an aura of scandal and potential
illegality, the current crisis seems to
have stripped Reagan of his near magi-
cal charm and credibility. An ABC
News poll last week showed that a
huge 80 percent believe Reagan knows
more about the Iran-contra affair than
he has admitted to date. His popularity
rating also dipped an additional 4
points last week to 53 percent-way
down from the stupendous 67 percent
rating just two months ago.
Now, for the first time, the very deli-
cate question of age also is being raised
46W
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friend and former high-ranking White
House aide, "is that Ronald Reagan is
beginning to look like he's drifting
along and letting old age overtake
him." Reagan is 75, the oldest Presi-
dent ever. Whether his age has become
a factor in daily decision making at the
White House, the President's detached
management style no longer seems ap-
propriate given the damage to his repu-
tation for leadership and competence.
For those around the President, the
fallout has also been heavy. "People are
hammering their desks down around
here," says a top White House official,
"and trying to climb under them." Chief
of Staff Donald Regan, who once exulted
when the press described him as "assis-
tant President," seems to have adopted a
classic "Who, me?" attitude when asked
whether he had any knowledge of the
goings-on. And things could get worse
yet. Vice President George Bush, who
has remained strangely silent in the
whole affair, will surely suffer the heavi-
est political damage, especially if new
disclosures link more administration of-
ficials to the secret shipments of arms
and money that North directed from the
White House basement.
As for the losers, it's a pretty good
bet they haven't all been counted yet.
As Democrats geared up investigations
into the affair this week, the Justice
Department's separate criminal inquiry
had already expanded well beyond
North and the NSC staff. CIA agents
and Director William Casey have also
come under scrutiny, and the investiga-
tors want to know what role they might
have played in facilitating the flow of
arms and money between Iran and
Central America. The investigators al-
ready have seized records from North
and Poindexter. But that may be just
the beginning of a bigger puzzle.
Meese, who is interviewing Reagan,
Bush and cabinet officials as part of the
extraordinary Justice Department in-
quiry, said North was the only person
who had "precise knowledge" of the
deals and Poindexter knew only "gener-
ally" about them. It's unclear how
Meese could have made that determina-
tion so quickly since, as even he says, "all
of the information is not yet in." For
their part, some legal experts believe
Meese may already have compromised
himself, and Democrats who don't buy
the North-Poindexter scenario are call-
ing for appointment of an independent
counsel, or special prosecutor.
The full story probably will take
months to come out. But even now it's
clear that the decision-making loop al-
most certainly went beyond North,
with some well-placed intelligence
sources indicating that as many as "10
or 12" administration officials may
have known about the secret operation.
NSC sources say staffers like North
must submit one-page reports at the
activities for superiors, and it's impossi-
ble he could have concealed the secret
operation from everyone. Whether he
did or not, it still seems unlikely that
North could have singlehandedly di-
rected the unwieldy operation that sent
U.S. arms to Iran and money flowing
back to Central America through dis-
creet Swiss bankers. "Directly using
taxpayer money to violate the law,"
fumes David Durenberger (R-Minn.),
chairman of the Senate's Select Com-
mittee on Intelligence. "It is way be-
yond our most creative imaginations."
Perhaps unsurprisingly, the strange af-
fair that is now causing Ronald Reagan
so much trouble began with a few un-
exceptionable goals.
As far back as 1983, after Iranian
complicity in the bombing of the U.S.
Embassy and the Marine barracks in
Beirut, the Reagan administration had
tried and failed to negotiate with Irani-
ans to curb terrorism and secure the
return of hostages. By 1985, with' their
fortunes waning in the terrible war
with Iraq, the Iranians seemed ready to
deal-at least according to the Israelis.
The Israelis had maintained discreet
relations with some Iranians since the
fall of the Shah in 1979, cementing
closer ties with shipments of weapons,
a common coin of friendship, or at least
tolerance, in the Middle East. In late
1985, the weapons traffic between the
two countries seems to have been pick-
ing up steadily-perhaps with tacit ap-
proval of the White House.
An example: In August, 1985, two
Israeli arms dealers named Yaacov
Nimrodi and Al Schwimmer made a
shipment of arms to Iran with the ap-
proval of the Israeli government. The
U.S. insists it didn't know about the
shipment, which violated its own em-
bargo of arms to Iran. But the Israelis
have said they were acting with U.S.
approval. Whatever transpired, less
than a month after the shipment,
American hostage Benjamin Weir was
released by Iranian-backed terrorists in
Beirut, and Reagan telephoned then
Prime Minister Shimon Peres to thank
him for his assistance. And coming
right on the heels of Iran's intervention
in June, 1985, to release hostages from
a hijacked TWA jet, the release of Weir
emboldened Reagan and his aides to
attempt further contacts.
Approach to Iran
At a December meeting of Israeli
arms dealers in London, David
Kimche, then director of Israel's For-
eign Ministry, told Robert McFarlane,
who had just resigned as Reagan's na-
tional-security adviser, that moderates
in Iran would be willing to talk with
the U.S. but wanted arms before they
would do so. However, North already
had begun shipping arms to Iran the
month before. Again, whether McFar-
lane or anyone in the White House
knew is the hottest question in Wash-
ington. But this, according to key intel-
ligence sources, is what happened:
In November, 1985, North had asked
CIA Director Casey to help arrange a
delivery of oil-drilling parts to Iran.
according to Senator Durenberger, but it
turned out that the shipment included
weapons. Casey, who was briefed fre-
quently on the Iran and contra overtures,
says he was aware only of "gossip"
about the funneling of money. In any
event, even before McFarlane showed up
in London, a CIA-chartered company
called Southern Air Transport had fer-
ried Hawk antiaircraft and TOW anti-
tank missiles from Israel to Iran.
Iran later returned the Hawk mis-
siles because the munitions were obso-
lete, but once again, it's unclear who in
the administration knew what was real-
ly going on or if a lieutenant colonel
really was running the nation's foreign
policy from the White House basement.
Another example: In December, on the
same day McFarlane was in London
discussing arms shipments to Iran,
Shultz and Defense Secretary Caspar
Weinberger were meeting with Reagan
to try to block the idea, Weinberger
calling it "absurd." The three met
again on January 7. Finally, 10 days
later, Reagan signed the necessary or-
der, called a "finding." North, it
seemed, had won at last.
And the arms shipments soon picked
up. Between February and June, 1986,
Boeing 707s shuttled out of Kelly Air
Force Base in San Antonio, Tex., with
180 tons of military cargo bound for Tel
Aviv and then possibly Iran. But that
apparently wasn't enough. U.S. News
has learned of a classified intelligence
report showing that, since 1983, Iran has
received more than 51.5 billion in mili-
tary equipment from Western coun-
tries-a vast amount that may already
have tipped the balance in the seven-year
Iran-Iraq War in favor of the Ayatollah
Khomeini. Diplomatic sources also have
told U.S. News that Saudi Arabia was
encouraged by North or
someone else in the U.S. to
finance at least one pur-
chase, apparently resisting
at first but then giving in.
The deal in question was
brokered by Saudi arms
merchant Adrian Kha-
shoggi, the sources said. De-
tails of the transaction are
unclear, but the sources say
that the Saudis were told
ahead of time that some
money would be siphoned
off for the contras. If so. it
may have been the first time
the bizarre link was made
between the bearded mul-
lahs in Iran and Ronald
Reagan's cherished "free-
dom fighters."
I
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 Even now, ~lApproved For Release 2010/07/01: CIA-RDP90-00552R000201650014-4 for North. record
it's unknown to investiga Pentagon officials to transfer ~W [OW P Y
titank missiles to the CIA. nossibty and maybe others, some of the cutouts
n
tors when the decision was from U.S. Army arsenals in Anniston.
made to establish the link, Ala., and Texarkana. Tex.
when the secret Swiss ac- The weapons. valued at between S3
counts were opened or even million and $4 million. were flown by
how many secret shipments the CIA on leased aircraft to Israel.
of arms and cash payments where an Israeli arms broker and in-
to the contras were made. other man acting as hanker reimbursed
"I can't give you the pre the CIA. The arms broker took control
cise dates,' he said. CIA of the missiles and the CIA placed the
Director Casey was equally money in an already established Swiss
"fuzzy" on the question of account to reimburse the Pentagon,
details, congressional
sources say. In a closed- while the broker was mak-
door briefing to the House ing delivery in Iran. Under
Select Committee on Intel- pressure to obtain arms in
ligence. Casey said the CIA the draining war with Iraq,
had set up a "sanitized Swiss bank ac- the Iranians had already
count to receive money from the Irani- agreed to pay S 19 million
an sale." But Casey said he didn't know for the weapons. That mon-
who decided to set it up, who handled e}, too. went into num-
the transactions and whether any com- bered Swiss accounts and
missions were paid to middlemen. was disbursed as follows:
Those questions loom large in the 53 million to S4 million,
Justice Department investigation, and plus a fee. to the financier
analysts from the National Security who paid the CIA: $3 mil-
Agency have already begun reviewing lion to the arms broker for
intercepted radio traffic from Iran in an arranging the deal, and-
attempt to learn dates, times and the clincher-S12 million
amounts of the arms shipments and to a Swiss account con-
payment of money. Meese has stated trolled by the contras.
that some "intercepts" helped uncover In hindsight, it's not all
the secret North operation. And if as strange as it may seem.
NSC sources say North was
North really did destroy White House responsible for "two ac-
documents crucial to the investigation, counts. Nicaragua and
it's likely the NSA tapes will provide counterterrorism." Even
the links to any other administration his detractors say Ollie
officials who may have been involved in North was an energetic and
the operation. Casey has said privately enterprising operative. and
that "no one will go to jail" because of like the President he
the scandal. But he has been one of the served, he believed passion-
administration's most ardent contra ately in the contra cause.
supporters. and since it was the CIA's When the S19 million Ira-
bank account through which the secret nian windfall came his way,
money was funneled, the Justice De- the sources said. North
partment inquiry is focusing closely on may have thought. "What
better way to dispose of it"
the role of both the CIA and Casey. than on the Nicaraguan
Despite the understandable confu rebels After all. Congress
sion, some details are known about the had blocked all shipments
operation. Between S 10 million and S30 of weapons to the contras,
million is believed to have gone to the and in April, 1984, the CIA was down
contras. although some sources have said to its last $1 million of congressionally
the amount may be as high as 5100 authorized funds for the rebels: the
million. Congressional intelligence contras were desperate. Almost from
sources. while they still have only a hazy the very day the congressional ban on
view of most of the secret dealings, have so-called lethal aid to the contras took
come up with a rough breakdown of effect, the Reagan administration had
some of the money, and it provides a used a wide range of "cutouts," or back
fascinating glimpse of the quicksilver channels, to put guns in contra hands.
world of the international arms bazaar. With money provided by wealthy
According to the sources. one transac- Americans who believed in the cause
tion worked like this: The NSC ordered and other financial support from U.S.
allies like Israel. Saudi Arabia and Tai-
wan, North and retired Air Force Gen.
Richard Secord directed the cutouts,
commercial cargo carriers and private
(page 22) messed up. And now, more of
the secret deals are starting
light.
After the plane carrying American
Eugene Hasenfus was shot down Octo-
ber 6 in Nicaragua, Sandinista investi-
gators seized telephone records regard-
ing the safe house where Hasenfus and
others involved in the secret contra-
resupply effort had been living. Hasen-
fus, who has been sentenced to 30 years
in prison in Nicaragua for crimes
against the government, has said he
was working for the CIA. Whether
that's true, there's no doubt he was
working for some well-placed officials
in the United States. Not only did the
Sandinistas find Secord's home and of-
fice-telephone numbers at the safe
house, they also found North's old of-
fice-telephone number at the White
House. Most damning of all, particu-
larly in light of the revelations about
secret Swiss banks, was a Swiss busi-
ness card with a scribbled bank-ac-
count number on it. It's not known if
it's the same bank account as the one
controlled by the CIA, but the coinci-
dence is awfully intriguing to those in
Congress. "I asked Casey whether he
knew about it, and he said no," Duren-
ber_sid of the secret contra money.
"Maybe I was talking into his bad ear."
Was it legal?
Despite all the fascination with the
cloak-and-dagger aspect of the secret
deals between Iran and the Nicaraguan
rebels, it has profound legal ramifica-
tions. There is a long string of laws that
may have been broken by government
officials directing the operation. U.S.
export laws are the most obvious, but
there are others that bar arms ship-
ments to sponsors of terrorism, such as
Iran. Despite the Reagan administra-
tion's contention that it knows of no
instance since U.S. overtures began
where Iran has been involved in terror-
ism, State Department sources have
told U.S. News that a still classified
intelligence report cites definitive evi-
dence of Iran's role in recent terrorist
acts. Iran remains on the State Depart-
ment's list of terrorist regimes.
More important for the administra-
tion is the potential that the North op-
eration violated the Boland Amend-
ment, which in 1984 prohibited the
U.S. from taking "direct or indirect"
action to destabilize the Sandinista re-
gime. Congress is sure to address the
question, perhaps even this week. For
North and whoever else turns out to be
implicated in the scandal, the most
troublesome laws are likely to be the
old tried-and-true criminal statutes ap-
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plied in the nation's courtrooms every
day. Legal experts say there could be
violations of fraud, conspiracy and cur-
rency laws, and that's just for starters.
Of course, if it turns out North did
shred documents sought by Justice De-
partment lawyers, he may also be liable
on a charge of obstruction of justice.
Charges of cover-up and tainted
money still have a lively resonance in
the halls of Congress. and the magni-
fied perception of dirty deeds and dis-
array may impel Democrats to action.
"Do we have to read every statute with
Talmudic exactitude?" asks an angry
House Democratic leader. "What does
all this say about the reliability of this
administration to carry out our laws?"
Given the level of outrage over the
North affair, it is almost certain that
some kind of legislation will be pro-
posed either forbidding the NSC from
any operative role or requiring some
congressional oversight.
But more important than specific
laws and responses is the political fall-
out from the scandal. It is hardly an
exaggeration to say it has, at least for
now, changed the landscape. Bush
plainly has the most to lose, and any
direct link to the scandal would proba-
bly finish him as a viable GOP candi-
date for 1988. It may be that no Repub-
lican will be helped by the scandal, as
some say. But if any are, they'll proba-
bly be Senate Majority Leader Bob
Dole and his predecessor, former Sena-
tor Howard Baker. The Democrats,
meanwhile, sense that their chances of
claiming the White House in '88 have
received a boost in the past
week, but it's too early to
tell for sure who benefits
most. If the "age question"
gets more currency in the
next two years, and Reagan
fails to pull out of the tail-
spin, a younger candidate,
such as Gary Hart of Colo-
rado, or a competent detail
man, such as Mario Cuomo
of New York, might seem
especially attractive.
Overseas, the impact may be difficult
to fathom, but the immediate omens
aren't good. America's allies sometimes
wonder about all the fuss that attends
such U.S. scandals-and the current
affair may be no different. But as the
potential scope of the crisis was begin-
ning to sink in, Western European offi-
cials were starting to worry. "We are in a
decisive situation in East-West rela-
tions," says Horst Teltschik, adviser to
West German Chancellor Helmut Kohl.
"There is a good chance to get agree-
ments with Gorbachev, and a weak Pres-
ident is not as able to get agreements as a
strong one."
Though no official sign has come yet
from the Kremlin, it may
not be long before the Sovi-
ets decide to write off the
administration as too weak
to sell an arms agreement of
any kind at home. Mean-
while, if the U.S. has effec-
tively opened the gates for
huge shipments of arms to
Iran, relations can only dete-
riorate with moderate states
in the Middle East that fear
the spread of Iranian-inspired Islamic
fundamentalism. And if Reagan can't
mend relations with Congress, it's un-
likely he'll find a way to continue sup-
port for insurgencies in such places as
Angola and Afghanistan. As for Nicara-
gua, the U.S. is scheduled to deliver the
remaining $40 million of the $100 mil-
lion authorized for the contras by Con-
gress after Reagan's arm-twisting earlier
this year, and the White House had
planned to ask for an additional $200
million to $300 million next year. Says
Representative Dave McCurdy (D-
Okla.), who played a key role in the last
debate over aid to the rebels, "The con-
tras are on their own now."
And so, as it turns out. may be Ron-
ald Reagan. If the President is to rally,
many friends and foes insist, he may
have to abandon his detached manage-
ment style and get more directly in-
volved-perhaps calling for a special
prosecutor himself, almost certainly
banging heads and even firing other
members of his White House staff. It
was Reagan whose easy style and will-
ingness to delegate did so much to re-
habilitate the Presidency after the
seeming weakness of Jimmy Carter and
the dark days of Watergate. It would
be the ultimate irony now if those same
qualities result in events that cripple his
administration in its last two years. ^
by Brian Duffy with Steven Emerson,
Dennis Mullin, Gloria Borger and
Kenneth T. Walsh in Santa Barbara
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