Pursuing the Money Connections

By Ed Magnuson

"Follow the money" was the terse advice the legendary source Deep Throat offered to Reporter Bob Woodward in the movie version of All the President's Men. As the intricacies of the Reagan Administration's Iran-contra supply line were probed last week, the money trail became a source of innumerable leads for reporters (including the Washington Post's Woodward) and investigators for congressional committees who were scrambling to uncover a financing scheme that coiled across three continents. The path led through a complex maze, replete' with international intrigue, conflicting claims by governments and shadowy diversions of funds by mysterious middlemen. There were straw companies set up precisely to obscure the paper trail, and private individuals who acted as "cutouts" to shield the government officials directing them. But throughout the maze investigators repeatedly stumbled across the delicate footprints of the CIA, along with the clumsier presence of Lieut. Colonel Oliver North and an old-boy network of his former colleagues on the staff of the National Security Council.

Even as Ronald Reagan tried to regain control of events in the most serious crisis of his presidency, new revelations about these secret machinations kept him on the defensive. There seemed no quick way to clear up the mysteries stemming from the Administration's admission two weeks ago that up to $30 million in profits from secret shipments of U.S. arms to Iran had been diverted to support the guerrilla warfare of the U.S.-backed contras against Nicaragua's Marxist Sandinista government.

Fragmentary and sometimes contradictory, the revelations included:

o The assertion by Amiram Nir, Israel's adviser on counterterrorism to Prime Minister Yitzhak Shamir, that the U.S. decided what price Iran should pay for the American arms. Although President Reagan has insisted that a third country, presumably Israel, had been "overcharging" Iran for weapons shipments, Nir told his Israeli government superiors about a meeting, probably in Washington early this year (late January or early February) at which North set the price at three or four times the book value of the weapons. Nir claimed that other unnamed White House officials attended the meeting and "no one asked questions" about the inflated price. "I passed the American price to the Iranians and that's all," Nir insisted.

o The Washington Post reported that some proceeds from the Iran sales had been placed in a CIA-managed Swiss bank account also used to fund the rebel forces in Afghanistan as well as Jonas Savimbi's troops fighting the Marxist government in Angola. Citing a "well-placed senior Administration official," the Post claimed the U.S. and Saudi Arabia had each placed $250 million in the account this year. Commingling the Iranian proceeds with these funds was described by the Post's source as a "dumb" mistake by an impatient CIA employee who did not wait for the creation of a separate account. The CIA issued an unusual public denial, insisting it had handled only the $12 million that it repaid the Pentagon as the book value of the arms. The agency said it had not diverted any money to the contras and had not received any profits from the deals with Iran.

o Last spring North gave the State Department the number of a Swiss bank account into which the Sultan of Brunei deposited "several million" dollars for humanitarian aid to the contras. The money had been solicited by Elliott Abrams, Assistant Secretary of State for Inter-American Affairs, with the approval of Secretary of State George Shultz. It is not known how this money was spent.

o Billionaire H. Ross Perot confirmed that he had twice been solicited by North to provide up to $2 million to ransom U.S. hostages held in Lebanon, and had agreed to do so. Both efforts, in 1984 and in May of this year, were unsuccessful. On the second attempt Perot sent $2 million to Cyprus in a scheme to swap cash and hostages at sea; in the same month North and former National Security Adviser Robert McFarlane were following yet another track to free the hostages, flying to Tehran with a planeload of U.S. arms. All this occurred while the President was declaring that the U.S. would never pay ransom for hostages.

As reporters and other probers tried to track the elusive money flow, there were other discoveries, some sensational and perhaps self-serving, that could not be readily evaluated. A CIA agent who claims to have been directly involved in covert U.S. funding of the contras told TIME that a number of his fellow agents fear the Administration intends to deny any responsibility for their actions. The agent knew that what he was doing was unlawful but contends that he was told by superiors, "The President wants this done." Yet no written authorization was given to the agents who carried out the policy. "We're going to take the fall," the agent predicted, because officials higher than North or Poindexter will continue to disclaim any knowledge of the fund diversion.

Lawyers defending twelve international arms dealers who are a waiting trial in a federal court in New York City on charges of planning to sell more than $2 billion in arms to Iran last year also contend that high Administration officials were aware of their plan and secretly encouraged it. They claim they had verbal approval at various times from Vice President George Bush. The CIA and the Justice and State departments all deny having approved the plans of the defendants, but proceedings in the case have been suspended.

There are also conflicting claims that Saudi Arabia facilitated U.S. arms deals with Iran and possibly helped divert the proceeds to Central America as well. Farid Ghadry, a dissident Saudi who claims his information comes from a member of the Saudi royal family, told TIME the Saudis were actually secretly bankrolling both the Iran arms sales and the contras. The Saudi Information Ministry "categorically denied that the kingdom had played a key role in opening negotiations between Washington and Tehran over American arms deals." But numerous observers in the Middle East say the cautious kingdom has been hedging its bets in the six-year-old war between Iran and Iraq. King Fahd reportedly told P.L.O. Chairman Yasser Arafat last month that the approach to Iran was justifiable because "we have our security interests to consider. Anyway, we still give aid to [Iraqi Leader] Saddam [Hussein]." Saudi Arabia is thought to give Iraq about $5 billion a year.

The purported Saudi connection to the contras began, say U.S. sources, after CIA Director William Casey asked King Fahd for such help on a visit to Jidda in February 1984. There are conflicting reports on Fahd's initial response. But by mid-1985 the Saudis' secret aims coincided with those of the U.S. "Since the U.S. was helping Saudi Arabia tame Iran," says Ghadry, "Saudi Arabia would help the U.S. with the contras."

How did this work? According to Ghadry, when U.S. arms went to Iran through Israel, the Saudis paid for them. The money went to Adnan Khashoggi, a billionaire Saudi businessman who was acting as a surrogate for the royal family. Khashoggi, in turn, would pay commissions to the Iranian middlemen and give the CIA the book value of the arms for repayment to the Pentagon. Various bank accounts and straw companies were used to conceal the routing of the funds. The same devious channels, according to Ghadry, were used to pour Saudi money into accounts to fund the contras.

All parties to this alleged scheme, including Khashoggi, Saudi officials and the CIA, deny this was done. Any CIA effort to enlist the Saudis in support of the contras would have violated the Boland Amendment, originally passed by Congress in 1982 to stop the use of any U.S. funds to overthrow the government of Nicaragua, and tightened in 1984 to prevent the Administration from using any other country to provide military help to the contras. Many close observers of Saudi affairs doubt the royal family would take the risk of a potential public exposure of dealing with either Iran or the contras.

Still, in the intricate mixture of public and private actors that is emerging in the Iran-contra scam, a Saudi connection is not at all farfetched. In 1981, when Saudi Arabia faced an uphill struggle to win congressional approval to buy five AWACS radar planes (ironically, for protection against any military threat from Iran), four U.S. officials worked hard to turn the tide. They were North, then a little-known aide at the NSC; Charles P. Tyson, another NSC staffer; Richard Secord, Deputy Assistant Secretary of Defense; and Robert Lilac, a Pentagon official who moved to the NSC, where he became North's boss. The four worked closely with Saudi Prince Bandar bin Sultan to close the deal, which was bitterly opposed by Israel.

Lilac quit the NSC at the end of 1983 to work as a consultant for Prince Bandar, who is the Saudi Ambassador to Washington. Tyson left in March 1983 to work for Khashoggi. The tortuous trail left by both North and Secord, now a retired Air Force general, touches virtually every mysterious point of action in the entire Iran-contra affair.

When Secord left Government service in 1983, he became president of Stanford Technology Trading Group International, based in Vienna, Va. He formed that company together with Albert Hakim, an Iranian-born arms dealer who runs a California electronics firm started up in the 1970s to sell sensitive U.S. technology overseas. Stanford Technology has had intriguing connections in Switzerland. There was a Stanford Technology Corp. in Geneva and a Stanford Technology Services in Freiburg. The Geneva firm had the same address as the Compagnie de Services Fiduciaires (C.S.F.), which the Times of London identified as the repository for $18 million in profits from the sale of U.S. arms to Iran.

Swiss records list Jean de Senarclens, 70, a prominent Geneva lawyer, as the chairman of C.S.F. as well as of the Stanford Technology affiliate in Freiburg. He told TIME that he knows Hakim well but has not met Secord. The Geneva branch of Stanford Technology was liquidated in 1984, he said, adding that the Freiburg branch exists but is "dormant." C.S.F. has a branch in Bermuda, which the London Times described as the eventual recipient of the alleged $18 million in arms profits. From there the money theoretically could have been used to help supply the contras.

There is at least circumstantial evidence linking C.S.F. financing to the contras. Several buyers, including one identified as Secord, are known to have bought three or four Maule aircraft, which are designed for short takeoffs, from Maule Air, Inc., in Moultrie, Ga. The planes cost about $60,000 each. At least one check to pay for the planes was from C.S.F. Investments Ltd. in Bermuda. After the purchase, one of the planes was registered with the Federal Aviation Agency as belonging to American Marketing and Consulting, Inc., a firm in Landover Hills, Md., headed by Secord with former NSC Staffer Lilac as a vice president. Several Maules were spotted by reporters at Aguacate, an airstrip in Honduras known to be a staging point for contra supply operations.

One apparent front for gunrunning to the contras was a firm called Corporate Air Services, which has a small office at a rural grass-strip airport in Pennsylvania. At least some of the private American pilots and crewmen who have been dropping arms and other military supplies to the contra forces this year got paychecks from this company. The crewmen included Eugene Hasenfus, who was seized and imprisoned by the Sandinistas after a C-123K cargo plane was shot down in Nicaragua on Oct. 5 and two other Americans were killed. Hasenfus claimed that the CIA directed the extensive resupply operation, which contra leaders say possibly involved up to 70 flights at a cost of nearly $3 million. Hasenfus said two men identified to him as CIA agents managed the military supply missions out of Ilopango air base, a tightly secured military airfield in El Salvador.

Telephone records in San Salvador show that numerous calls were made from a safe house used by the American gunrunners to Secord's office at Stanford Technology as well as to a number formerly used by North at the NSC and to a CIA agent at the U.S. embassy in San Jose. Says a Western diplomat in the region about the CIA field agent: "If he was involved in the operation, then people higher up were too."

The downed C-123K had been used in 1984 by the CIA and the Federal Drug Enforcement Administration in a sting operation designed to show that the Sandinistas were dealing in cocaine. The CIA's hand is evident in other secret air operations related to the Nicaragua conflict. Southern Air Transport is a Miami firm that was wholly controlled by the CIA until 1972. The State Department confirmed that it had used Southern Air to fly part of the legal $27 million in nonmilitary supplies from the U.S. to the contras. The department said it had no responsibility for the fact that after unloading this permissible cargo in Ilopango or Aguacate, the same planes picked up military supplies and dropped them to the rebels in Nicaragua. The State Department's Abrams concedes that U.S. officials were aware of the arms deliveries but, he argues, implausibly, that who directed or paid for such flights was "none of our business."

The "cutout" tactic of using private citizens and front companies was apparently North's transparent method of keeping supplies flowing to the contras after the congressional ban. Although North had met regularly with contra leaders in El Salvador and Honduras, he withdrew from this visible activity after the military ban. Instead he dispatched Robert Owen, 33, a former congressional aide to Indiana Senator Dan Quayle, to maintain these contacts. In November 1985, U.S. embassy personnel in Honduras introduced Owen to high Honduran military officials as a White House envoy. In fact, Owen had no official Government position. Last year North got Owen a job as a consultant at the State Department office that administered the contras' nonlethal aid. "That was to pay Rob back for all the work he'd done for the program," says an Administration official.

Despite North's efforts, contra leaders and others in Central America insist with good reason that nothing close to $30 million in Iranian arms profits was spent on military supplies or equipment. "The whole operation was held together with string," says William Wehrell, a pilot who flew supplies to the contras this year. "We couldn't even afford a proper navigational system to make sure that we dropped our loads to the right people."

Adolfo Calero, one of the three leaders of the United Nicaragua Opposition, said last week in Miami that his organization became so broke during the congressional cutoff that it is now $2 million in debt. Calero claimed that the contras rarely received any cash from the U.S. Government. The nonlethal aid arrived, he said, in the form of "goods and services," and the contras were asked to keep records on the deliveries.

Actually, U.S. directors of the humanitarian-aid program feared that cash contributions might easily be diverted from their intended purposes. There were solid grounds for that concern. The General Accounting Office, an investigative arm of Congress, reported last week that the State Department was unable to account definitively for some $17 million of the $27 million that Congress had authorized for the program. The GAO claimed that a small amount was actually spent on military equipment; an Administration source confirmed this but blamed a mistake by a contractor. In another example of undocumented spending, diplomats familiar with the project say that $900,000 had been paid indirectly to officials in Honduras as bribes to win approval to ship supplies through that country. Explained one official: "You can't fight these kinds of wars in the Third World without key people getting greased."

Asked who had financed the military supplies to the contras during the ban on such help from the U.S. Government, Calero replied, "There are things I just don't want to know. My father always said, 'Don't let people confide in you. They will confide in other people too, and you will be blamed.'" As the Iran-contra scandal unfolds, many in the Reagan Administration may eventually resort to the same know-nothing defense.

He knew secret Swiss numbers.

To the U.S., some of the flights were "none of our business."

With reporting by Reported by Johanna McGeary, Elaine Shannon/Washington