$Unique_ID{bob01089} $Pretitle{} $Title{Iran-Contra Affair: The Report Chapter 27A Rule of Law} $Subtitle{} $Author{Various} $Affiliation{} $Subject{government congress funds money power law constitution executive branch control} $Date{1987} $Log{} Title: Iran-Contra Affair: The Report Author: Various Date: 1987 Chapter 27A Rule of Law SIR THOMAS MORE: The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal . . . . WILLIAM ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: Oh? And when the last law was down, and the Devil turned round on you - where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast - Man's law, not God's - and if you cut them down - and you're just the man to do it - d'you really think you could stand upright in the winds that would blow then? - A Man For All Seasons by Robert Bolt Too many laws were "cut down" in the Iran-Contra Affair by officials who, like Roper, decided that the laws inhibited pursuit of their goals. This process began when members of the National Security Council staff decided "to take some risks" with the law, in John Poindexter's words, in order to continue support for the Contras. At the end, as Oliver North acknowledged, they were engaging in conduct such as lying to Congress that they knew was plainly "wrong." The Committees were charged by their Houses with reporting violations of law and "illegal" or "unethical" conduct, and if the Committees are to be true to their mandates, they cannot hesitate to draw the inevitable conclusions from the conduct these officials displayed during this affair. The judgments of these Committees are not the same as those required of the Independent Counsel. He must decide whether there was criminal intent behind any violation, whether there are any extenuating circumstances, and whether prosecution is in the public interest. The Committees express no opinions on these subjects and our comments in this section are purposefully general so as not to prejudice any individual's rights. Our focus is not on whether the technical and demanding requirements of criminal statutes have been met, but on whether the policy underlying such statutes has been frustrated. Moreover, the list of statutes implicated by the Iran-Contra Affair is not exhaustive. Because of the importance of the Boland Amendment to this investigation, this Report considers the applicability of that Amendment to the NSC in a separate chapter. The only issue under the Boland Amendment that is addressed in this chapter is the legality of the diversion. The Boland Amendment aside, however, the Committees find that activities in the Iran-Contra Affair, including the diversion, were conducted and later covered up by members of the NSC staff in violation of the Constitution and of applicable laws and regulations. Use of Donated Funds to Evade Congress' Power of the Purse Overview The Committees find that the scheme, taken as a whole, to raise money to conduct a secret Contra-support operation through an "off-the-shelf" covert capacity (the Enterprise) operating as an appendage of the NSC staff violated cardinal principles of the Constitution. Several witnesses at the public hearings contended that the covert action to support the Contras did not violate the Boland Amendment because it was financed by contributions, not appropriated funds. The Boland Amendment by its terms, they maintained, only prevented the President from spending appropriated funds to support the Contras. But that ignores a greater principle. The Constitution contemplates that the Government will conduct its affairs only with funds appropriated by Congress. By resorting to funds not appropriated by Congress - indeed funds denied the executive branch by Congress - Administration officials committed a transgression far more basic than a violation of the Boland Amendment. The power of the purse, which the Framers vested in Congress, has long been recognized as "the most important single curb in the Constitution on Presidential Power." The Framers were determined not to combine the power of the purse and the power of the sword in the same branch of government. They were concerned that if the executive branch had both the power to raise and spend money, and control over the armed forces, it could unilaterally embroil the country in war without consent of Congress, notwithstanding Congress' exclusive power to declare war. When members of the executive branch raised money from third countries and private citizens, took control over that money through the Enterprise, and used it to support the Contras' war in Nicaragua, they bypassed this crucial safeguard in the Constitution. As Secretary of State George Shultz testified at the public hearings: "You cannot spend funds that the Congress doesn't either authorize you to obtain or appropriate. That is what the Constitution says, and we have to stick to it." The Power of the Purse and the Constitution Article I, Section 9, Clause 7 of the Constitution, the appropriations clause, provides: No money shall be drawn from the Treasury, but in consequence of appropriations made by law. The appropriations clause was intended to give Congress exclusive control of funds spent by the Government, and to give the democratically elected representatives of the people an absolute check on Executive action requiring expenditure of funds. The Framers viewed Congress' exclusive power of the purse as intrinsic to the system of checks and balances that is the genius of the United States Constitution. James Madison, the principal architect of the Constitution, explained: The House of Representatives alone can propose the supplies requisite for the support of government. They, in a word, hold the purse . . . . This power of the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure. Col. George Mason, another Constitutional Convention delegate, stated, ". . . the purse and the sword ought never to get into the same hands, whether legislative or executive." This concept has been a guiding constitutional principle for 200 years. As President Reagan stated at an October 22, 1987, press conference: "The President of the United States cannot spend a nickel. Only Congress can authorize the spending of money." Congress' exclusive control over the expenditure of funds cannot legally be evaded through use of gifts or donations made to the executive branch. Were it otherwise, a President whose appropriation requests were rejected by Congress could raise money from private sources or third countries for armies, military actions, arms systems, and even domestic programs. The Government may, of course, receive gifts. However, consistent with Congress' constitutionally exclusive power of the purse, gifts like all other "miscellaneous receipts" must, by statute (31 U.S.C. Section 484) be placed directly into the Treasury of the United States, and may be spent only pursuant to a Congressional appropriation. [The significance of this proposition is explained in a major General Accounting Office publication on Appropriations Law, which serves as a guide for Government officials: "Once money is deposited into a "miscellaneous receipts" account, it takes an appropriation to get it back out. E.g. 3 Comp. Gen. 296 (1923); 2 Comp. Gen. 599,600 (1923). Thus, the effect of 31 U.S.C. Section 484 is to ensure that the executive branch remains dependent on the Congressional appropriations process . . . [it] emerges as another element in the statutory pattern by which Congress retains control of the public purse under the separation of powers doctrine." See 51 Comp. Gen. 506,507 (1972). (Principles of Federal Appropriations Law, United States General Accounting Office, Office of General Counsel, pp. 5-65).] The Constitutional process that lodges control of Government expenditures exclusively in Congress is further enforced by the Anti-Deficiency Act (31 U.S.C. Section 1341) which prohibits an officer of the United States from authorizing an expenditure that has not been the subject of a Congressional appropriation, or that exceeds the amount of any applicable appropriation. Thus it provides: An officer or employee of the United States Government may not make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation; or involve [the] government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law. Violations of the Anti-Deficiency Act are made crimes by 31 U.S.C. Section 1350. [Use by the Executive of gifts to pay for programs not funded by Congress is also prohibited by the doctrine against augmentation of appropriations, which the GAO also explained: "The prohibition against augmentation is a corollary of the separation of powers doctrine . . . . To permit an agency to operate beyond [its appropriation] with funds derived from some other source without specific congressional sanction would amount to a usurpation of the congressional prerogative. Restated, the objective of the theory against augmentation of appropriated funds is to prevent a government agency from undercutting the congressional power of the purse by circuitously exceeding the amount Congress has appropriated for that activity . . . ." (Id. at pp. 5-62.)] Use of the Enterprise to Mask the Fact that the U.S. Government Had Taken Control of the Donations The constitutional scheme, which these laws amplify, is thus a simple one. Congress is dependent upon the executive branch to execute the law it passes; and the executive branch is dependent upon Congress to appropriate the funds to carry on its activities. This mutual dependence is at the heart of the system of checks and balances. The Constitutional plan did not prohibit the President from urging other countries to give money directly to the Contras. But the Constitution does prohibit receipt and expenditure of such funds by this Government absent an appropriation. This prohibition may not lawfully be evaded by use of a nominally private entity, if the private entity is in reality an arm of the Government and the Government is able to direct how the money is spent. The law with respect to when a nominally private company is an arm of the Government such that expenditure of its funds is governed by rules applicable to expenditure of Government funds is summarized in Motor Coach Industries, Inc. v. Dote, 725 F.2nd 958, 964-65 (4th Cir. 1984). There, the Court articulated a multifactor approach for resolving when an ostensibly private entity like a trust is a Federal entity: We must consider, at a minimum, the purposes for which the trust was established; the public or private character of the entity spearheading the trust's creation; the identity of the trust's beneficiary and administrators; the degree of control exercised by the public agency over disbursements and other details of administration; and the method by which the trust is funded. Lake Resources, the flagship of the Enterprise, was created by Richard Secord and Albert Hakim at North's request in July 1985. North did not like the way Contra leader Adolpho Calero was spending the donations received earlier, and he wanted more control over expenditures. By North's own admission, Lake Resources was to be an "off-the-shelf" company to conduct a "full service covert action" in support of the Contras and other governmental projects. North referred to it in his PROF messages to Poindexter as "our Lake Resources company." North was responsible, directly or indirectly, for virtually all the income of Lake Resources and the other companies in the Enterprise, and he had the power to direct its expenditures. North instructed Secord to spend money for airplanes, an airstrip, and munitions for the Contras and Secord did. He instructed Secord to spend money on radios for a political party in a foreign country and Secord did. He instructed Secord to spend its money for a ship to conduct an intelligence operation and Secord did. He instructed Secord to spend cash in support of a Drug Enforcement Agency operation to free U.S. hostages and Secord did. North had secure communication devices in his office and those of all principal operatives in the covert action. Using these devices, North was able to maintain control of the most minute details of the operation. On one occasion, he even instructed pilots on the coordinates to be used in a weapons drop to the Contras inside Nicaragua. Lake Resources was created for the very purpose of conducting Government operations while evading the Congressional appropriations power. In describing Director of Central Intelligence William Casey's plan for an off-the-shelf covert capacity, North testified: Q: Do you remember giving testimony about the fact that Director Casey wanted something that he could pull off the shelf and that is why he was excited about the fact that you were now able to generate some surpluses that could be used? A: That is correct. Q: Why don't you give us a description of what he said, or as you understood it, what he meant by pulling something off the shelf? A: Director Casey had in mind, as I understood it, an overseas entity that was capable of conducting operations or activities of assistance to U.S. foreign policy goals that was a stand-alone. Q: Self-financed? A: That was self-financing, independent of appropriated monies and capable of conducting activities similar to the ones that we had conducted here. The concept of an off-the-shelf covert company to conduct operations with funds not appropriated by Congress is contradictory to the Constitution. The decision to use the Enterprise to fight a war with unappropriated funds was a decision to combine the power of the purse and the power of the sword in one branch of government. Referring to the concept of having independently financed entities conduct covert actions to avoid Congressional review, Secretary Shultz said: "This is not sharing power, this is not in line with what was agreed to in Philadelphia. This is a piece of junk and it ought to be treated that way." As former Secretary of State Henry Kissinger recently wrote with particular reference to the use of the proceeds of the Iranian arms sales: On the formal level the case is obvious. The Executive branch cannot be allowed - on any claim of national security - to circumvent the Congressional prerogative over appropriations by raising its own funds through the sale of government property. Legal Advice The President may have received support for use of third country funds from a decision at the June 1985 National Security Policy Group meeting, which he attended, to seek the advice of Attorney General William French Smith before any funds were obtained from third countries. At that meeting, Secretary Shultz warned that solicitation of third-country funds that the Government could control might be an "impeachable offense," attributing this opinion to Chief of Staff James Baker. Casey disagreed and offered to obtain an opinion from Attorney General Smith. When Casey approached the Attorney General the following day, however, he drew the question narrowly, asking only whether Nicaragua's neighbors could be urged to help the Contras. The Committees have received evidence that Attorney General Smith gave an oral opinion that this would not be unlawful. As noted above, the Constitution does not prohibit a President from urging foreign countries and private citizens to give money to causes which the President supports, so long as this Government does not take control of the money. But no representatives of the Justice Department were ever asked to express an opinion that it was constitutional for members of the executive branch to do what they did here - raise money from third countries and private parties, put the money in an entity controlled by the Executive, and direct its expenditure for projects of the executive branch. Nor did any legal officer of the Government ever suggest that it was lawful or constitutional to divert proceeds from the sale of U.S. property for purposes forbidden by the Congress. The oral, on-the-spot advice of Attorney General Smith to Casey that Central American countries could be approached may in the transmission have been given a broader interpretation. The Committees simply do not know. But the Iran-Contra Affair cannot stand as a precedent for bypassing the constitutional requirement for appropriations. Securing funds, without Congressional authorization, to fund Government programs run by Government officials, is a direct violation of the Constitution that cannot be condoned.