Arms For the Ayatullah

By Ed Magnuson

Despite a ban, U.S. weapons are still flowing

From the outside, the brick-faced building looked like any other shop in prosperous, suburban Stamford, Conn. Above the broad plate-glass window, a large painted sign read simply PERSIAN RUGS. But inside there were no customers looking at the dusty piles of carpets. Instead, behind a curtain in the rear of the shop, telex machines, shortwave radios and computerized communications gear hummed continuously. Business was brisk, and it had nothing to do with rugs. The shop was a front for the illegal sale of U.S.-made weapons and aircraft parts to the government of Iran's Ayatullah Ruhollah Khomeini.

The Stamford store was opened in 1980 by Balanian Hashemi, a wealthy Iranian businessman who had fled his country after the fall of the Shah. Although he had lost favor with the mullahs, Hashemi had no qualms about making money from their revolution. As thousands of Iranians gathered daily in the streets of Tehran to shout "Death to America!" and even after a gang of students took over the U.S. embassy, holding 52 Americans hostage for 444 days, Hashemi was selling U.S. arms to Iran. Ordered by the Iranian military to be more discreet, Hashemi closed the shop last year. He now directs his U.S. and international arms operations from London.

Hashemi is not alone in pursuing the illegal arms trade with Iran. TIME has learned that hundreds of millions of dollars' worth of U.S.-made military equipment continues to flow to Iran each year, despite a State Department ban on all arms sales to that country. The suppliers include at least a score of American companies as well as international arms dealers operating in the U.S. In addition, large quantities of American arms sold legally to such allies as South Korea and Israel are being resold to Iran in clear violation of written agreements with the U.S.

American officials privately admit that the traffic in U.S. arms for Iran is out of control. Says a Customs agent responsible for halting illegal high-technology exports at Los Angeles International Airport: "There is a large and active movement to ship illegal arms and weapons-systems parts and spares to Iran." A Pentagon intelligence agent in Washington notes that "whatever the dollar value, it is far more than any of us think."

Customs officials say they are unable to stem the tide because they have neither the manpower nor the technology they need. They accuse the Commerce Department of often approving licenses for materials after Customs has seized them. All the agencies involved claim that the State Department lacks a clear policy. Says a senior Customs official: "As long as you can keep Defense, Commerce, Customs and the Office of Munitions Control separated, the Ayatullah's purchasing agents have it made."

The State Department seems to be unaware of the scope of the illicit deals. "We have heard these rumors of U.S.-supplied restricted military items getting to Iran for years," says Barbara Schell, the desk officer responsible for Iran, "but there is no proof." American diplomats insist that they do not secretly condone the shipment of arms to either of the belligerents in the three-year-old Iran-Iraq war.

Yet the Iran traffic is far beyond the rumor stage. TIME has seen proof in the form of hundreds of documents provided by Carlos Vieira de Mello, an international arms dealer who worked with the purported rug merchant, Hashemi. TIME has also examined secret records from the State Department's Office of Munitions Control and papers from private arms companies showing that U.S. tank engines and fighter-plane spares were routed to Iran through Canada and Britain. The records indicate that much of the trade is directed from London.

Iran's dependence on the U.S. for military supplies stems from the Shah's purchase of some $17 billion in American munitions between 1970 and 1979. This huge stockpile of sophisticated U.S. weaponry, which included 80 F-14 fighters so advanced that they were sold to no other foreign country, fell into the hands of the Ayatullah's revolutionary government after the collapse of the Shah's regime in February 1979. To promote ties to the moderate government of Mehdi Bazargan and the armed forces, the Carter Administration conducted secret negotiations with Tehran, creating a framework for the subsequent delivery of most of the $5 billion worth of military supplies ordered by the Shah. Explains a former high U.S. intelligence official: "We were desperate for any contact at all."

American military advisers, TIME has learned, traveled secretly to Iran in the summer of 1979. They test-fired two Hawk antiaircraft missiles for the Iranian air force and offered to repair Iran's Hawk defensive system. The Carter Administration also authorized some major U.S. arms manufacturers to continue sales of military equipment to Iran covertly. This, in turn, encouraged private arms dealers to continue supplying Iran. All official cooperation with Iran ended when the embassy in Tehran was seized. Carter impounded $300 million worth of spare parts that the Shah had paid for, and ordered a complete boycott of American trade with Iran.

The President's decision had little effect on the world's arms merchants. In the week after Carter announced the boycott, some 300 U.S. and Western European companies contacted Tehran with offers to sell munitions and other banned items. After the Iraqi invasion in September 1980, the Iranian air force set up an office in London's exclusive Kensington district to coordinate its purchases.

Ironically, although the Ayatullah and his followers are violently anti-Israel, one of the countries that has violated the U.S. boycott most blatantly is Israel. When Iraq invaded Iran, the Tehran regime urgently needed U.S. supplies. Former National Security Adviser Zbigniew Brzezinski confirmed in his recently published memoirs that the Carter Administration clandestinely offered to supply spare parts to Iran in return for the hostages' freedom. "We learned, much to our dismay," he wrote, "that the Israelis had been secretly supplying American spare parts to the Iranians, without much concern for the negative impact this was having on our leverage with the Iranians on the hostage issue."

Edmund Muskie, who was then Secretary of State, complained to Israel about the arms sales, but the government of Prime Minister Menachem Begin responded that it had sold Iran only $300,000 worth of spare tires for F-4 fighter planes. It promised, in any event, to stop all future military sales. Yet, according to U.S. intelligence sources, Israel was also selling tank parts and ammunition to Iran. In 1981, after the release of the U.S. hostages, Israel resumed its military sales to Iran without Washington's approval.

According to documents seen by TIME, Israel handled most of its sales through Faroukh Azzizi, an Iranian arms merchant who lives in Athens. The papers show that Azzizi purchased U.S.-made Tow missiles from Israel in November 1982. The shipment went to Amsterdam before reaching Tehran. Says a senior Western diplomat in Brussels: "Israeli and American claims that Israel made only a single, isolated sale are pretty disingenuous." The Israeli government firmly denies any wrong doing. Said Defense Ministry Spokesman Nachman Shai last week: "We have not violated any agreement between the U.S. and us that forbids selling American-made weapons or Israeli-made weapons under U.S. license to Iran."

Another major supplier of munitions to Iran is South Korea. Computer printouts from the U.S. Office of Munitions Control show that in a recent twelve-month period Korean Air Lines and two government-controlled South Korean companies made 60 separate purchases of Hawk missiles and related parts. On the basis of their intelligence sources, U.S. Customs officials contend that these missiles were destined for Iran. Defectors from the Iranian air force confirm that South Korea has provided these parts as well as spares for the Iranian F-4s. One of them told TIME, in addition, that Agusta, an Italian company operating under agreements with the State Department and Fort Worth-based Bell Helicopter Textron Inc., supplied Iran with Chinook choppers in violation of U.S. licensing rules. Says a Pentagon official: "A lot of countries are buying far more supplies than their air forces could ever use. But we have no way of monitoring resales."

Private arms dealers like Hashemi and De Mello account for much of the sales to Iran. At Iran's insistence, Hashemi set up various business entities to try to conceal his U.S. connections: his R.R.C. Co. in Stamford with its rug-shop front; a subsidiary in London; a separate company, Zoomer Fly Ltd., also in London. Hashemi's brother Cyrus, who was president of the now-defunct First Gulf Bank & Trust, helped finance the Zoomer Fly operation.

According to De Mello, a Brazilian citizen who is listed as president of R.R.C., most of the equipment purchased in the U.S. by his firm came from subcontractors who supply major American defense firms. Many of the sales aroused little attention because the equipment was of a type that also has civilian uses and thus can be sold legally under some interpretations of the vague U.S. trade rules. It included radar, navigational equipment and radio parts. When R.R.C. found that U.S. Customs officials rarely checked crates of this equipment, it began to address them openly to the Iranian air force. It also began to include in the crates such clearly banned items as spare parts for fighter planes, including engines and generators. The process became so easy, contends De Mello, that "after subcontractors sold parts to us two or three times, knowing they were being shipped to Iran, and saw that no one had been arrested, they began dealing directly themselves and cut us out."

One who did so was Don Rvocco, an American who owns Ramco International Inc., a major aviation-parts company in New Jersey. Once a supplier to De Mello and Hashemi, Rvocco began arming the Iranian air force directly, and currently has large contracts with it for the supply of U.S. spares and equipment. Ramco records show equipment being sent out of the country for Iranian air force C-130s, and last week U.S. authorities stopped Ramco electronics and aviation parts headed out of the country. Rvocco insists that he has shipped only legitimate dual-use supplies: "There is not a single transaction they can trace to us that is improper." Both De Mello and Hashemi are under investigation by federal agencies for their arms trading.

Customs officials admit they lack the expertise to identify military parts that are illegal to export. An agent in Washington reveals that for two years one U.S. firm sent crates marked TRACTOR ENGINES from Boston to Iran. Even though the crates had been inspected, it took a new inspector with military experience to note that the engines were equipped with superchargers. They were replacements for the engines used in U.S.-built M-60 tanks.

Even when a part number on invoices correctly identifies the material in a crate as a banned military item, Customs agents have no easy way of knowing it. The Treasury Department does not have a formal arrangement with the Defense Department to verify that the parts numbers are on lists of contraband items. Says a Customs agent in Washington: "Usually, I call a friend at the Pentagon and ask him to look up the numbers for me as a favor."

Parts that are easily identifiable, such as missile tubes and ammunition, are generally shipped under inaccurate labels to countries where inspection is nonexistent or lax. Among the favored destinations: Switzerland, Austria, Hong Kong, Singapore and The Netherlands. In Amsterdam, says an intelligence officer, "the stuff can arrive one night and be gone the next morning, and the boxes are never opened."

The underlying problem is that the U.S. has shown little zeal in enforcing the ban on arms sales to Iran. Concedes a high-level State Department official: "It is true that we have not done all we can to stop Israel's reexport of U.S.-made equipment to Iran." The unofficial Administration attitude seems to be that the sale of arms to Iran does little damage to U.S. interests. Says a State Department official: "We don't give a damn as long as the Iran-Iraq carnage doesn't affect our allies in the region or alter the balance of power. Why save Iranians from themselves with Customs resources needed to protect Americans from the drug traffic?"

That is a dubious basis for Government policy. If the U.S. can justify selling arms to Iran, it should not have a firm public policy to the contrary. If, as all relevant high officials insist, the Administration does not condone such sales, then the confusion among agencies, and the illegal trade, should be stopped. As it is, the real benefactors are the illegal arms merchants, who have long flourished in the U.S.

--By Ed Magnuson.

Reported by Jonathan Beaty and Raji Samghabadi/New York and Thomas A. Sancton/Paris

With reporting by Jonathan Beaty, Raji Samghabadi, Thomas A. Sancton This file is automatically generated by a robot program, so viewer discretion is required.