Giving In to "Graymail"

By Steven Holmes/Washington

Ever since the fiasco first popped into the headlines in 1986, millions of Americans have awaited a full exposition of the Iran-contra affair. They whetted their palates with appetizers from the Tower commission and sat with rapt attention through 13 weeks of televised congressional hearings, confident they were experiencing only a first course of the full meal that would follow when special prosecutor Lawrence Walsh brought Lieut. Colonel Oliver North and three alleged co-conspirators to trial.

Last week the public learned that its appetite for a complete explanation of the affair -- and a judgment of who was at fault -- will probably go forever unfulfilled. After spending nearly 25 months and an estimated $13 million investigating North's role in the illegal diversion of profits from a secret Iranian arms sale to the Nicaraguan contras, Walsh suddenly moved to drop the most serious charges against the former National Security Council staffer. The independent counsel's action made it all but certain that the total dimensions of the scandal will never be aired in court.

Walsh gave one big reason for asking U.S. District Court Judge Gerhard Gesell to dismiss charges of conspiracy and theft of Government property against the ex-Marine: intractable problems in protecting classified information contained in documents that both the prosecution and the defense have said are essential to their efforts. Said Walsh: "A continuing problem in the case has been the protection of national-security information in light of this defendant's insistence on disclosing large quantities of such information at trial." Gesell is likely to approve Walsh's request this week.

The special prosecutor's surrender marked a victory for what some experts see as North's strategy of legal "graymail," in which he threatened to reveal some of the nation's most closely guarded secrets if the case against him was pressed. He has applied additional pressure on the White House in the past two weeks by subpoenaing as defense witnesses at least 35 current and former Administration officials, including President Ronald Reagan and President-elect George Bush. If they refuse to testify on the grounds of national security or Executive privilege, North could argue that he is being denied a fair trial. Walsh's capitulation is likely to relieve Reagan and Bush of the need to appear. Since their testimony would relate mainly to the conspiracy charges, Justice Department officials are confident the subpoenas can be quashed.

North still stands accused of a dozen felonies, ranging from pocketing money given to him by contra leader Adolfo Calero that was intended to help obtain release of American hostages in Lebanon to obstructing a presidential inquiry and lying to congressional committees, offenses for which he could be imprisoned for 60 years and fined $3 million. His lawyers nevertheless boasted that they had crippled the prosecution. Crowed North's chief counsel, Brendan Sullivan Jr.: "The heart of its case is destroyed." He hinted that North would continue to use the tactics that had forced dismissal of the theft and conspiracy counts, declaring that Walsh "refuses to recognize that classified information pervades the remaining charges as well."

Walsh's effort to try North on the broad charge of conspiracy was probably doomed from the start. For months the special prosecutor navigated between the fears of the intelligence community that North would expose secrets and Gesell's insistence that North be given great latitude in his use of evidence. Walsh's defeat became inevitable last month when Gesell laid down rules for handling the secret data contained in the 300 classified documents the special prosecutor had planned to use. The judge would permit excision of the covert sources and methods by which the data were obtained. However, the information itself had to be presented virtually verbatim at trial.

Intelligence officials feared that exposure of intercepted messages could tip off a hostile power that its communications channels had been penetrated. Though Walsh promised to avoid unneeded exposure of secrets during the trial, there was no way he could ensure that North would do the same. The New York Times reported last week that on Dec. 21 a high-ranking review board, which included Secretary of Defense Frank Carlucci, Secretary of State George Shultz, CIA Director William Webster and National Security Adviser Colin Powell, refused to release key classified documents covered by Gesell's order even though Walsh had warned that such actions would undercut the prosecution.

To salvage his case, Walsh appealed to Gesell to modify his directive. The judge turned him down last week, leaving the prosecutor with little alternative to dropping the theft and conspiracy counts. The dismissal of those charges makes it virtually certain that Walsh will withdraw similar accusations against former National Security Adviser John Poindexter, retired Air Force General Richard Secord and businessman Albert Hakim, though they too still face a range of charges such as obstructing Congress and offering illegal gratuities to North.

Legal experts are divided on whether the narrower case against North will have better odds for conviction. North's threat to use graymail against the remaining charges could backfire, according to some lawyers. "Right now Oliver North is not viewed as a graymailer; he is viewed as a patriot," says former Watergate assistant prosecutor Richard Ben-Veniste. That outlook could change, Ben-Veniste suggests, as the focus of the case shifts from the unauthorized conduct of foreign policy to the seedier allegations of shredding documents, lying to Congress and diverting money for North's own use.

President Reagan pronounced that Walsh's decision "satisfies our problem, which has been . . . concern about national security." Reagan's critics claim that the President, who has praised North as a "national hero," may have let the ex-Marine off the hook without taking the politically risky step of formally pardoning him. Late last week Senate Majority Leader George Mitchell indicated that he wanted a Senate committee review of Walsh's decision. Already the judge has postponed the planned Jan. 31 start of the trial in the wake of these new developments. If the rest of Walsh's case collapses, the most embarrassing scandal of Reagan's presidency will end as it began -- in confusion and controversy.