Cover Stories: The Murky World of Weapons Dealers

By GEORGE J. CHURCH

In any ordinary business, Manucher Ghorbanifar would cut an implausibly mysterious figure. Officially, he has been a shipping executive in Tehran and a commodities trader in France. By his own account he was a refugee from the revolutionary government of Ayatullah Ruhollah Khomeini, which confiscated his businesses in Iran, yet he later became a trusted friend and kitchen adviser to Mir Hussein Mousavi, Prime Minister in the Khomeini government. Some U.S. officials who have dealt with Ghorbanifar praise him highly. Says Michael Ledeen, adviser to the Pentagon on counterterrorism: "He is one of the most honest, educated, honorable men I have ever known." Others call him a liar who, as one puts it, could not tell the truth about the clothes he is wearing.

But in the fraternity of international arms dealers, this Janus-like profile does not make Ghorbanifar extraordinary. That shadowy netherworld teems with other characters who might seem too garish for a remake of The Maltese Falcon. Among them: Sarkis Soghanalian, a 300-lb. Turkish-born Lebanese citizen living in Miami who specializes these days in selling helicopters to Iraq and is said to receive jars of severed human ears from clients; and Sam Cummings, a wisecracking American-born British subject operating out of Alexandria, Va., who is unabashedly -- though so far unsuccessfully -- negotiating to peddle on the world market some $5 billion worth of U.S. weapons left behind when America pulled out of Viet Nam. The most prominent of all, of course, is Adnan Khashoggi, the sybaritic Saudi Arabian whose jet planes, opulent yacht, lavish parties and glamorous companions seem intended to promote his image as the world's richest man.

Khashoggi and Ghorbanifar have emerged as prominent back-channel figures in the series of hush-hush shipments of American-made weapons to Iran that has flowered into the U.S. scandal of the decade. Of all the dubious aspects of that affair, one of the most unsavory is that U.S. national policy became entangled with the maneuvers of private arms dealers. At best, President Reagan and some of his aides, prominently including Lieut. Colonel Oliver North, showed atrocious judgment by plunging into a devious policy without professional diplomatic guidance. At worst, the White House has laid itself open to the nasty suspicion that in the hope of freeing American hostages, it was lured into an operation designed by arms merchants whose motives were mixed at best.

To be sure, Ghorbanifar and Khashoggi insist that their intention in putting American and Iranian officials in touch was to bring about a diplomatic rapprochement between the two countries -- "the biggest historical opportunity of the decade for the free world," as Ghorbanifar modestly puts it. Not that the two were being entirely altruistic, even by their own account; they hoped eventually to earn enormous commissions by brokering trade of all sorts between the U.S. and Iran. To hear Ghorbanifar and Khashoggi tell the story, they raised money to set up the arms sales as a kind of opening wedge and then fell victim to American duplicity that cost them millions. "I have lost $3.7 million of my own money, my own hard-earned money!" screams Ghorbanifar, waving his arms wildly in an interview with TIME. "Be ki begam! Be ki begam!" That is a Farsi phrase meaning "Whom can I tell?" that he interjects virtually every two sentences.

The money that Ghorbanifar and Khashoggi are howling for may have gone through, or perhaps stuck to, the hands of other, still more shadowy arms merchants. The Reagan Administration has said that North diverted some of the Iran arms money to the contras in Nicaragua. Presumably the funds went through a network of arms dealers, supposedly operating with private donations, who supplied weapons to the anti-Marxist rebels all through the two-year period during which Congress had forbidden direct or indirect U.S. military aid. As far as anyone can tell, the contras seem to have got very little in the way of either cash or arms out of this convoluted pipeline.

The various shadowy transactions that North oversaw seem likely to drag the arcane world of the private weapons dealers into its brightest public spotlight ever. Lawrence Walsh, the independent counsel appointed to look into all aspects of Iranscam, has been empowered to investigate the private networks that supplied the contras. The special Senate and House investigating committees that will hold public hearings probably beginning next month intend to probe the role of the arms merchants as well.

Despite the prominence of Khashoggi and Ghorbanifar in the arms-to-Iran scandal, the world of weapons trading is a tripartite universe in which the private dealers occupy a relatively small part. One estimate puts global weapons exports in 1985 at just over $30 billion, not counting black- and gray-market transactions. About two-thirds of the more or less legitimate trade is conducted by governments selling to other governments, usually quite openly. Weapons-manufacturing companies take the remaining business, drumming up sales through their agents. The manufacturers require the approval of their governments, which may or may not be easy to get. Some governments, notably those of the U.S. and West Germany, tightly control arms exports. Others, prominently including Brazil, Argentina and South Korea, have acquired a reputation for selling to just about anybody. In the West, France has a relatively unrestricted client list; the Soviet Union supplies weapons to leftist governments and revolutionary movements throughout the world.

At the edges of this huge market are the free-lancers. They buy anywhere % they can, sometimes from Communist countries. Nor are they often choosy about their customers: some seem to have dealt with both sides in the Iran-Iraq war. Since 1980, that conflict has put a huge prop under a sagging business. The arms trade has been falling off in recent years, partly because world weapons pipelines are full and partly because governments are increasingly crowding the individual dealers out of what sales opportunities are left. But the demand from the Persian Gulf combatants for weapons to use against each other has created a flourishing market for all branches of the arms trade.

In practice, those branches are not rigidly separate. Government military attaches and agents of weapons companies frequently work closely together to drum up business, and some later cash in on their experience and contacts by becoming private dealers. Governments occasionally use the private merchants to arrange sales that they cannot make openly. The standout example is Israel. Its government-owned arms industry depends heavily on foreign sales to defray research-and-developme nt expenses. Indeed, military sales account for a quarter to a third of Israel's industrial exports. But many potential customers are countries that have no diplomatic relations with the Jewish state. So the Israeli government relies on private citizens to set up deals with middlemen representing the buyers. Two Israelis who played major roles in the sale of U.S. weapons to Iran are Yaacov Nimrodi, 60, a former intelligence agent who built up extensive contacts in Iran during his ten years as military attache in Tehran, and Al Schwimmer, 69, the American-born founder and longtime chairman of Israel Aircraft Industries, who has continued to arrange weapons exports since his retirement.

TIME has obtained a memo written by an Israeli arms merchant to the Tel Aviv Ministry of Defense that offers some intriguing hints about how secret arms deals are set up. In the fall of 1984, when the U.S. was still trying vigorously to stop the flow of arms to Iran, the merchant met with Iranian representatives in Geneva and relayed to Israel a list of weapons they wanted to buy, including air-to-air missiles and spare parts for tanks. One hitch: the Iranians also wanted some jet engines overhauled. "British firms were providing this service . . . but some have now been caught by the Americans and cut off from spare parts," the agent reported. The Bedek division of IAI, said the agent, was eager to take over the work "as long as they had some sort of engine factory between them and the end user." The merchant's solution: "a cooperative venture between (a) U.K. firm and Bedek where all of the U.K. firm's business is funneled to Bedek and the Iranian engines are lost in the lot." The Defense Ministry said no.

There have been published reports that at about the time this memo was written, Ghorbanifar approached Theodore Shackley, a former high official of the CIA, to suggest a trade of U.S. weapons for American hostages. Ghorbanifar indignantly denies this. His account of how the deal started: though a refugee, "I still had ties to Iranian businessmen and government purchasing officers." They told him that a detente with the U.S. might be possible. "I had brokered many business deals," says Ghorbanifar. "I wondered whether I could broker a diplomatic deal as well." If successful, Ghorbanifar would become the "first mutually trusted agent of renewed thriving commerce between the two" nations. "I had been thinking about the idea," he added, "when I met Adnan Khashoggi in early 1985."

Khashoggi says he met the Iranian after Roy Furmark, a New York businessman and associate of Khashoggi's, ran across Ghorbanifar in January 1985 while attempting to arrange a billion-dollar swap of Iranian oil for various Western commodities. A friend of Ghorbanifar's set up a lunch appointment for the two. Khashoggi has given different versions of what he heard over that lunch. He told Barbara Walters of ABC-TV that Ghorbanifar represented himself as head of intelligence gathering in Europe for the Khomeini government. But he told TIME that this was incorrect. His explanation: "I simply assumed that a man with that kind of access to the Iranian Prime Minister must be one of his senior intelligence chiefs. Now I have more accurate information."

Khashoggi, says Ghorbanifar, saw "enormous" profit potential in a U.S.-Iranian rapprochement. The Saudi wheeler-dealer turned to Israel to act as diplomatic broker; he asked then Prime Minister Shimon Peres to use his good offices to put Iranians and Americans in touch -- but first to look into Ghorbanifar's background. Was Khashoggi suspicious? No, Khashoggi told TIME, but the Americans would be: "The problem with the U.S. is that it does not have the resources to check out somebody like Ghorbanifar. The Israelis do."

Khashoggi says the Israelis gave him a favorable report, but wanted to see for themselves if Ghorbanifar could make good on his boast that he could ^ deliver "practically anyone" in the Iranian government. Khashoggi set up a meeting in Hamburg in April 1985, telling Ghorbanifar that some Americans wanted to meet senior Iranian officials. Actually, Khashoggi brought two Israelis: Schwimmer and David Kimche, then director general of the Israeli Foreign Ministry. "If I had told them the truth," says Khashoggi, Ghorbanifar and the Iranian officials "would not have come." Khashoggi will not identify the Iranians Ghorbanifar produced, but says that when they walked into the room, "there was no doubt. This guy (Ghorbanifar) could deliver."

A series of meetings followed throughout Europe between Iranians, Israelis and, according to Khashoggi, CIA officials. (The CIA has consistently maintained it did not get involved until much later.) On July 1, 1985, Khashoggi sent a 47-page report on the meetings to Robert McFarlane, then U.S. National Security Adviser, with a covering letter recommending that the U.S. work through him to improve relations with Iran. So far as is known, that was the first formal proposal for U.S.-Iranian contacts made to a high official in Washington. It was in effect seconded by Kimche, who walked into McFarlane's office two days later with a proposal for contacts through Israel. (Israeli officials have insisted that their role in the U.S.-Iran affair began in late May or early June only when American officials asked for help in efforts to free American hostages in Lebanon.)

In August, Kimche was back to report that the Iranians were asking for arms, as Khashoggi and Ghorbanifar must have known they would. Kimche offered to have Israel ship the weapons if the U.S. would replace them. McFarlane says he obtained President Reagan's approval, and the Israeli deliveries began in late August. The shipments were arranged largely by Nimrodi on the Israeli side, with Ghorbanifar acting for Iran. Khashoggi was the financier. He put up $5 million in 1985 to pay Israel and was repaid by the Iranians.

Once the shipments were under way, Ghorbanifar claims, he made 76 trips between Europe, the U.S. and the Middle East to keep the negotiations on track. When McFarlane, North and other American negotiators flew to Iran last May with a planeload of weapons, Ghorbanifar says, he chartered the jet and paid for the group's stay in Tehran. McFarlane says he does not know who paid but assumes the bill was split by the U.S. and Iranian governments. Ghorbanifar also charges that Khashoggi was cut out of several of the deals on orders from McFarlane. The former National Security Adviser replies that he never had anything to do with Khashoggi but did recommend, after meeting Ghorbanifar in London in December 1985, that the U.S. have no more dealings with any middlemen. Whatever the fact, Khashoggi had to be brought back into the arms deals in 1986, when the U.S. began shipping weapons from its own stockpiles and once more needed the Saudi to supply bridge financing. Khashoggi rounded up investors who put $15 million into a May shipment that went sour, leaving them in the hole (see chart).

The suspicion, of course, is that some of the money went to the contras. A Senate Intelligence Committee report that leaked last week charges that it was Ghorbanifar who first suggested to a CIA contact in March 1986 that money paid by Iran be funneled to the Nicaraguan rebels. Ghorbanifar furiously denies that he had anything to do with money for the contras -- and in fact it is hard to see how he could have gained anything from the diversion. The Senate committee report, he charges, reflects "lying under oath" by "some U.S. officials in trouble (who) were trying to deflect the heat off themselves and onto me." He insists that he has been caught in a dispute betwen two CIA factions vying for influence in Iran. One faction, he says, botched the diplomatic initiative by trying to make its own deal in Tehran, and is now trying to cover its tracks by launching a smear campaign against him.

The account sounds hard to believe. But then, who would have imagined even three months ago that the U.S. would get caught slipping arms to the Ayatullah's regime? In the byzantine world of the weapons dealers, it is as hard to determine what is truth and what is disinformation as it is to disentangle the mixture of visionary and conniver in the personalities of Ghorbanifar and Khashoggi. As investigators probe deeper into the scandal, Americans can only hope that Washington's policy does not prove to be as devious as the arms merchants say it was -- and as their own maneuvers often seem to be.

CHART: TEXT NOT AVAILABLE.

CREDIT: TIME Diagram by Joe Lertola

CAPTION: A DEAL THAT WENT SOUR

DESCRIPTION:Color illustration: Four panels detailing exchanges of money and arms amongst cartoon figures.

With reporting by Ron Ben-Yishai/Jerusalem and Raji Samghabadi/New York