From Many Strands, a Tangled Web

By Jacob V. Lamar Jr.

Special envoys traveling to a hostile nation under false credentials. Ferocious power struggles among Islamic zealots in a country torn asunder by revolution and war. Private arms dealers earning millions in commissions. Mysterious air drops to Central American guerrillas. Secret bank accounts. Hostages.

These are just some of the strands that have been woven together in a bizarre tapestry of intrigue that stretches across two continents and several years. As each day brings fresh revelations about the scheme to skim profits from secret U.S. arms sales to Iran and channel them to the contras in Central America, the tale assumes the drama and sweep of an epic thriller. Some chapters are still murky, and the ending remains to be played out over the next few months, even years, but the story already rivals the most intricate of spy novels.

It could be argued that this tale begins as early as 1980, when Robert McFarlane, then on the staff of the Senate Armed Services Committee, reportedly approached the campaign staff of Presidential Candidate Ronald - Reagan with a plan to spring the American hostages held in Tehran. McFarlane proposed to rely on the services of an Iranian exile. The plan went nowhere, but McFarlane apparently never forgot it.

Or it could be said that the drama started in 1981, just after Reagan came into office, when U.S. officials learned that Israel was ignoring the 1979 American ban on the sale of arms to Iran. At the time Iran badly needed spare parts for the American-made weapons it had acquired during the Shah's reign. In their hour of need the Iranians looked to Israel, which had also supplied weapons to the Shah.

Throughout 1981 and 1982 Israel provided Iran with modest amounts of spare parts, jet-plane tires and brakes, ammunition and radar equipment. The Israelis reportedly set up Swiss bank accounts to handle the financial end of the deals. Despite its embargo, the U.S. appeared to look the other way. Administration officials seemed interested in Israel's notion that the arms sales would help foster ties with leaders in the Iranian military who might topple the regime of the Ayatullah Khomeini. But by mid-1982 the U.S. was pressuring Israel to comply with the ban on weapons sales. Israel said it halted its shipments to Iran, but the transactions had created a network of eager arms agents on both sides.

Two years later and a continent away, another event happened that would set the present crisis in motion. In the spring of 1984 Congress voted to cut off military aid to the contra rebels fighting Nicaragua's Sandinista regime. The Administration tapped a Marine lieutenant colonel at the National Security Council, Oliver North, to keep the contra war alive. Carefully and quietly North began supporting a network of private donors to finance the insurgents. He reportedly called on old allies like retired Air Force Major General Richard Secord to help with the rebel supply network, and he traveled to the contras' camps in Central America to promise them personally that he would not abandon them. "I've got a commitment to those guys," North would say later. "I told them I'd come through for them." Meanwhile, some Iranian leaders began to feel that their nation, exhausted by its four-year war with Iraq and by years of Islamic revolutionary fever at home, needed to end its diplomatic isolation. According to the Repatriation Front, a nationalist anti- Khomeini group operating in Europe and the Middle East that has closely monitored events during the Khomeini reign, the leader of Iran's parliament, Hashemi Rafsanjani, decided to modify his government's anti-West stance. The Iranians might also have hoped that better relations with the U.S. would encourage the Reagan Administration to release at least part of the $1 billion in Iranian assets that the American Government froze in 1980.

The first move occurred in late 1984, when Iran appointed a new, more moderate representative to the International Court of Justice at the Hague. For years Iran had argued in the court that the U.S. should turn over hundreds of millions of dollars in weapons that had been ordered and paid for by the Shah before the 1979 revolution. As the Iranians softened their harsh words against Washington, the U.S. allegedly hinted that it would consider delivering the arms if Iran would agree to end its sponsorship of terrorism against American interests in the Middle East and Europe. According to dissident Iranian sources, Rafsanjani discussed these developments with his mentor Khomeini, who cautioned him against letting Iranian officials negotiate directly with the U.S. By this account, the Ayatullah also offered a finger- shaking warning: "Never trust Americans."

In the summer of 1985, Billionaire Adnan Khashoggi,* a Saudi arms dealer, was instrumental in arranging a London meeting with three other influential arms merchants: Yaacov Nimrodi, a former Israeli army colonel and military attache in Tehran during the Shah's reign; Al Schwimmer, the founder of Israel Aircraft Industries, who is a good friend of then Israeli Prime Minister Shimon Peres; and Manucher Ghorbanifar, an Iranian who has close ties to his country's Prime Minister, Hussein Mousavi. Ghorbanifar told the Israelis that the leaders of his country's armed forces belonged to a moderate faction that would be vying for control of Iran after Khomeini died. By helping the Iranian army obtain U.S. weapons, Ghorbanifar said, Israel could open a line of communication with the moderates and help them win the battle for succession.

That summer David Kimche, then director general of Israel's Foreign Ministry, traveled to Washington to discuss the idea with McFarlane, then National Security Adviser, and North. McFarlane was in the mood to listen: though details are sketchy, the White House privately credited Iran with helping win the release *Khashoggi has denied any involvement in the Iranian arms affair.

of the hostages who had been hijacked to Beirut aboard TWA Flight 847 in June 1985. Kimche and the Americans talked about demands of good faith. The Iranians wanted weapons. The U.S. wanted the release of Americans who were being held captive in Lebanon. While McFarlane maintains he did not authorize any arms sales at the time, Kimche returned to Israel believing he had won the Administration's approval.

In late August, Israel sent a planeload of arms to Iran. The cargo consisted mostly of Soviet-made weapons that the Israelis had captured in Lebanon. Though the plane landed safely at Tehran's Mehrabad airport, the arms never got to the Iranian army. They were seized by members of the vehemently anti- Western Revolutionary Guards.

Despite the botched delivery, the next month, an American hostage, the Rev. Benjamin Weir, was freed. In his press conference last week, Attorney General Edwin Meese contended that Reagan did not know about the Israeli shipment until after it had occurred, but he did not specify when the President was told. Reagan telephoned Peres to thank him for his help in winning the clergyman's release. Thus the mold was cast for future swaps involving arms and hostages.

Ironically, the Israelis may have had little to do with Weir's freedom. According to the Repatriation Front, the release was arranged by the Ayatullah Hussein Ali Montazeri, a religious radical and Khomeini's heir apparent. Montazeri was evidently chagrined by his rival Rafsanjani's diplomatic overtures and decided to one-up the mullah by showing that he had sufficient influence to win freedom for an American hostage. "It is clear that the Americans did not understand who they were dealing with," says one knowledgeable dissident. "It seems they thought they were still dealing with one Iranian government, just as they did under the Shah."

In October, John Poindexter, McFarlane's deputy, secretly met with Iranian representatives. Some contend the meeting took place in Geneva; others say Washington. Then, in November, a ship loaded with parts for American-made F-4 jets and helicopters sailed from northern Italy to Israel. The cargo was transferred to a plane carrying Israeli-supplied Hawk antiaircraft missiles for shipment to Iran. The plane was provided by Southern Air Transport, formerly a CIA proprietary airline. CIA Director William Casey told Congressmen two weeks ago that he had approved the use of the plane but thought that the cargo would be oil-drilling parts. As it turns out, the shipment was returned to Israel in February for unknown reasons.

In the fall of 1985 Iran was presumably making payments to Israel through the Swiss bank accounts set up to handle Israeli-Iranian arms sales in the early 1980s. At the same time, Israel was demanding that the U.S. replace the items that had been taken from Israeli stockpiles and sold to the Iranians. But Washington reportedly grew suspicious about the finances. In asking for fresh weapons, Israeli officials claimed that they could not pay full price, but Washington suspected that Iran was paying the Israeli dealers far more than the arms were actually worth. The U.S. urged Israeli officials to drop the arms merchants from the Iran deal and allow Jerusalem to take over the operation.

On Dec. 4, McFarlane resigned and was replaced by Poindexter. Two days later, McFarlane traveled to London to meet with a group of middlemen variously identified as Kimche, Nimrodi and Ghorbanifar. He claims he distrusted these contacts and recommended that the Administration drop any plans for arms sales to Iran. On the same day in Washington, Secretary of State George Shultz and Secretary of Defense Caspar Weinberger persuaded Reagan to hold a meeting to discuss the NSC's proposal to sell arms directly to Iran. Six months earlier, when Weinberger received a CIA report favoring weapons deals with the Iranian army, he penciled in THIS IS ABSURD. Shultz also objected to arms sales but believed that the U.S. should consider pursuing a dialogue with Iran.

On Jan. 7 of this year, Reagan held a second full-scale discussion. Shultz and Weinberger again argued strenuously against the arms sales, but they left the conference feeling uncertain that they had swayed an enthusiastic Reagan and his equally gung-ho NSC and CIA advisers. Ten days later the President signed a secret intelligence "finding," thus permitting "occasional" arms transactions with Iran in spite of the continuing embargo. He assigned management of the deals to the CIA and instructed Casey to conceal the project from Congress. At the same time, Reagan ordered that intelligence traffic on the arms shipments be kept from the State Department and the Pentagon. While Shultz accepted the blackout as a way to distance his department from a dubious policy, Weinberger requested access to the intelligence on the grounds that he should know what U.S. weapons were being sold to the Iranians.

Poindexter delegated the execution of the arms shipments to North. Shortly thereafter, the National Security Agency, which is in charge of providing international electronic intelligence, began intercepting communications between North and Israeli officials. As the months wore on, the NSC, the CIA and the Pentagon got wind of messages suggesting a connection between the Iran arms sales and covert aid to the contras. But sources in the Reagan Administration say the evidence was "fragmentary," and none of the agencies apparently followed up on it.

In all, four shipments of U.S. arms were made to Iran this year: in February, May, August and October. Amiram Nir, Peres' adviser on terrorism, coordinated the operation from the Israeli end. A former defense correspondent for Israeli television, Nir became a globe-trotting arms agent, meeting frequently with Khashoggi and Iranian operatives in London, Zurich and Tehran. Nir was also in close touch with North, to whom he relayed Iranian procurement requests and any useful information he gleaned from his clandestine meetings.

Meanwhile, Rafsanjani reportedly pursued relations with the U.S. more aggressively. According to the anti-Khomeini Iranian organization, he sent a trusted emissary, Ibrahim Yazdi, to Washington to negotiate with the Reagan Administration. These Iranian sources say that Yazdi, who may have worked with the CIA in the past, gained the confidence of McFarlane and North and invited them to Tehran to meet with the leading moderates.

McFarlane and North did indeed visit Tehran in May. At the same time, the U.S. sent from Kelly Air Force Base in Texas two Boeing 707 jets filled with 90 tons of weapons, including 500 TOW missiles and an unspecified number of Hawk surface-to-air missiles. But whether McFarlane was accompanied by Yazdi to Tehran is unknown. According to Iranian opposition members, the Americans carried Irish passports and were not allowed out of the Tehran airport; Yazdi supposedly told McFarlane and company to wait while he went into Tehran to arrange their entry. When Yazdi had not returned after three hours, the Americans grew anxious. "Three hours at night in Tehran is nothing when you are trying to get papers done," says one Iranian familiar with the episode. "But it seems McFarlane, for a person like him in a country like Iran, panicked."

According to Iranian sources, McFarlane willfully blew his cover to the airport guards. "We are the emissaries of Ronald Reagan," he announced, "and we are here to meet representatives of the Iranian government. If we are not out of Iran (by a certain time) the U.S. Rapid Deployment Forces in the Persian Gulf are ready to rescue us." Rafsanjani, alerted to what was happening at the airport, intervened and the McFarlane entourage was allowed into Iran.

Exactly what McFarlane did in Tehran is unclear. According to a Reuters account, the Americans negotiated for at least three days with parliamentary and Cabinet leaders, including the former student leader who organized the takeover of the U.S. embassy in Tehran in 1979. What is certain is that after several days the U.S. team realized that no hostages would be released and left for home deeply disappointed. The second planeload of arms was never delivered. (Sources in Iran would later claim that the U.S. sent as many as 20 planeloads of weapons when McFarlane visited Tehran.)

In late July, two months after the McFarlane mission, Father Lawrence Jenco was released, and the arms trade was revived. In August another shipment of 500 TOWs and Hawks was sent from Texas to Tel Aviv and on to Tehran, and the White House told the State Department to expect the release of several more hostages. In the fall three more Americans in Beirut were kidnaped. In October, the U.S. sent yet another arms shipment to Iran; less than a month later, Hostage David Jacobsen was released. But only a few days before his release, a Lebanese Arabic journal, Al Shiraa, broke the story of the Reagan Administration's dealings with Iran, and the whole scheme began unraveling.

What remains a deep mystery, however, is what happened to the money Iran paid for its arms. Meese said last week that Israel sold Iran $12 million worth of weapons at a price that included a markup as high as 250%, or $42 million. The Israelis in turn, Meese said, paid back to the CIA the "exact amount" owed to the U.S. Government for the weapons plus the cost of transportation, an estimated $12 million. The CIA then repaid the Pentagon. According to Meese, the profits from the deal -- that is, the difference between the cost owed to the U.S. and the price charged by the Israelis, which is anywhere between $10 million and $30 million -- were deposited into numbered Swiss bank accounts that were "under the control of representatives" of the contras. The Attorney General claimed that Israeli middlemen had put the slush funds directly into the contra account. "No American," he said, "handled any of the funds that went to forces in Central America."

But who determined the markup on the arms, and who set up the Swiss contra ! account? The Israelis contend they neither set the price for the weapons nor managed the accounts. According to Israeli sources, an Iranian straw company in Switzerland deposited its payment for the arms in an escrow account just before the shipment was made. After the delivery, the Iranians reimbursed the Israelis through a Swiss bank for the book value of the cargo, plus generous insurance and freight charges. The Israelis, in turn, used part of these funds to pay the U.S., depositing its payment into a Swiss account sent up by the CIA, which passed the funds on to the Defense Department.

Meanwhile, the Iranians transferred some or all of what remained in escrow to a Swiss account. Whether the Iranians then moved the funds into the contra account is not known, but the Israelis stoutly deny that they made the deposits. "The Americans cheated on us," says an Israeli source. "They didn't tell us anything about money transferred to the contras. They only said they needed the money quickly and asked us to pressure the Iranians. Now we know why."

Adolfo Calero, head of the 10,000-member Nicaraguan Democratic Force, the largest contra group, insists that his forces have received little if any of the funds and strongly denies any knowledge of Swiss bank accounts. A senior U.S. Administration official agrees. "There were no such large infusions of cash," he says. "The contras were constantly short of things. No question they were hurting."

But some Western diplomats in Central America say senior contra officials have been known to keep private bank accounts around the world. The accounts have been used, these sources say, to deposit funds from private supporters, most of them right-wing Americans, but including such diverse sources as the Saudi Arabian government and right-wing groups in Europe.

The entire flow of money from Iran to the contras may have been overseen by a loose but complicated network of arms dealers and other powerful men with ties to Government officials. By coordinating the moves among such a quasi-board of directors, someone like North could avoid the bureaucratic tangles and congressional oversight that might thwart secret operations. Aside from other players, the Saudis may have taken a major role, though they deny it. According to the New York Times, the Saudis and the U.S. began in 1983 to discuss supplying arms to the contras. Those involved included North, Secord and Secord's business partner, Albert Hakim, a former Iranian businessman who had ties to the Saudis. At some point within the past year the contra supply effort apparently became intertwined with the Iranian arms deals.

Some U.S. officials believe the arms-sale profits were handled by the men who had helped North supply the contras over the past two years. One possibility is that the funds were used to finance the string of airlifts that have delivered supplies to the rebels during the past few months. Those flights received unwanted publicity two months ago, when a C-123K air-transport plane was shot down over southern Nicaragua and an American crew member, Eugene Hasenfus, was captured and tried by the Sandinistas. But most of the supplies, according to a knowledgeable source, consisted of boots, clothing and small arms.

North's entangling alliances and their implications will be investigated by federal agencies and congressional committees alike. The trail promises to lead through the Middle East and Central America, and from private citizens to Government officials. But no matter how much mystery surrounds North's dealings now, there seems to be a consensus on one issue: the cast of characters believed to have aided Oliver North is sure to keep growing.

With reporting by Roland Flamini/Jerusalem, Johanna McGeary/Washington and William McWhirter/ Geneva