$Unique_ID{bob01047} $Pretitle{} $Title{Iran-Contra Affair: The Report Chapter 12A The United States Takes Control} $Subtitle{} $Author{Various} $Affiliation{} $Subject{cia north tow price army tows dc/ne ghorbanifar hostages iran} $Date{1987} $Log{} Title: Iran-Contra Affair: The Report Author: Various Date: 1987 Chapter 12A The United States Takes Control The President's decision to sign the Finding on Friday, January 17, 1986, marked the beginning of U.S. control over the Iran arms sales initiative. In November 1985, the United States had acted as a necessary and supporting player to the Israeli plan to ship weapons; the January 17 Finding established that weapons from U.S. stocks would be transported and sold under U.S. control. The Finding also brought the Central Intelligence Agency (CIA) into the initiative in a more substantial way than it had been in the prior shipment. Yet despite the Finding, the CIA would continue to play only a supporting role to the National Security Council (NSC)-sponsored initiative. While providing logistic and technical support - and a mechanism for getting the weapons from the Department of Defense (DOD) under the Economy Act - the CIA deferred to the NSC staff in evaluating the reliability of the intermediaries and the likelihood of success of the initiative. Over the next few months, negotiations among the Iranian representatives, the intermediary, and the American officials continued. The pattern established in the 1985 sales would continue. In February, the United States sold 1,000 TOW missiles to Iran and no hostages were released. Instead, the Iranians insisted on the sale of HAWK spare parts and the United States agreed. Although the arms sales were a failure in achieving the goals set forth in the Finding, they were successful in another way. The Iranians were willing to pay substantially more for the military goods than they cost, and part of the excess filled the bank account of the Enterprise. As North testified, the possibility of using these profits to aid the Contras provided additional incentive to pursue the Iranian initiative. The Finding Is Implemented On January 18, CIA General Counsel Stanley Sporkin, CIA Deputy Director for Operations Clair George, and the CIA Deputy Chief of the Near East Division (DC/NE) met in the White House Situation Room with National Security Adviser John Poindexter, Oliver North, and Richard Secord to define the Agency's responsibilities. Poindexter and North told the CIA representatives that the Finding had been signed and discussed with them the CIA's role in the arms sales initiative. The CIA's "point man," DC/NE, was to arrange for the Agency to acquire 4,000 TOW missiles from the DOD for sale to Iran. He was also instructed to establish a CIA account through which funds could be delivered to the Department of Defense for purchase of the missiles. Although the Finding was directed to the CIA, the Agency's responsibilities as outlined at the meeting put it in a role of lending logistic support for the NSC staff, which would be principally conducting the negotiations. DC/NE recalled that the group discussed a provision in the Finding that instructed the CIA Director not to notify Congress of the covert activity: I think Admiral Poindexter did say that this was a very sensitive undertaking . . . and that the President felt very strongly that the Congress would not be notified until a later date. I took that later date to mean after the hostages were released . . . that after the delivery of the first shipment of TOWs the hostages would be released, meaning all of the American hostages in Lebanon. So we were looking at this . . . as a fairly short-termed thing. At the January 18 meeting, George met Secord for the first time when Secord was introduced as a consultant to the NSC. George knew of Secord's past association with Edwin Wilson, the former CIA officer who was then serving time in a Federal prison for a variety of offenses. George was concerned about Secord's involvement and following the January 18 meeting advised Director Casey of his opinion. George cautioned Casey: "If they are going to ship arms to Iran for hostages . . . don't use Secord." George expressed even greater disapproval when he discovered that Iranian intermediary Manucher Ghorbanifar was to be involved. The exact point at which George became aware of Ghorbanifar's role in the Iran initiative is unknown, although he implied in testimony that he knew either as a result of, or shortly following, the January 18 meeting. Shortly after Ghorbanifar failed a CIA polygraph test on January 11, 1986, George issued a "field notice" [A "field notice" is a fabricator warning issued to specific CIA stations, as opposed to a "burn notice," which receives world-wide CIA distribution] to senior CIA officials in Europe instructing them to avoid dealing with Ghorbanifar. Only a few days later while in the White House, George was "given the Finding to which, surprise, surprise, the guy I am going to be dealing with or supporting the National Security Council to deal with, is Ghorbanifar." Prior to the signing of the January 17 Finding, George advised North of Ghorbanifar's polygraph test results. He also recalled warning Casey against dealing with Ghorbanifar, but "before I could go through one more fight about Mr. Ghorbanifar, [the CIA] received a Presidential order which . . . ended up meaning we were dealing with Mr. Ghorbanifar." Eventually, Casey designated Charles Allen to oversee Ghorbanifar's activities. North told the CIA officers that the arms sales were imminent. DC/NE moved quickly to implement the plan: on January 20, he instructed the CIA Director of Finance to designate a Swiss bank account that could be used immediately for a large deposit. The finance officer identified a Swiss account number, which DC/NE later forwarded to the NSC. A "clean," or unused, account was originally requested to avoid commingling funds from the sale of TOWs with those used for other Agency purposes. Because the Agency's finance officers needed several days to open a clean account, DC/NE decided to use an existing CIA account customarily available for large transactions. DC/NE told his finance officers to expect a deposit of $30 million. He based this figure on an estimate he had received from DOD of approximately $6,000 per TOW and indicated that the deposit would come from a "private source." DC/NE asked North for a contact at DOD with whom he could arrange to obtain the TOWs. North told DC/NE to contact Secretary Weinberger's military aide, then-Maj. Gen. Colin Powell. When DC/NE telephoned Powell several days later, the general explained that he was aware of the sensitivity of the operation, knew where the weapons were to be delivered, and knew the covert activity was supported by a Finding. Powell named Lt. Gen. Vincent M. Russo as the CIA's contact at DOD. Russo told DC/NE originally that the price would be around $6,000 per TOW, a price with which North had problems. DC/NE recalled North's reaction to that figure: The initial price was precisely - it was Russo telling me it was going to be something around 6,000 per. And I recall telling North that and he recalled - it doesn't make any difference to me [DC/NE] whether they charge three or six or nine - I recall North saying, 'well, that is too high, they must be giving you a brand new missile replacement cost figure, and they should be charging for the oldest model TOW in stock. We don't care if these things in fact work real well. Tell the Army that we want the oldest thing they can find in the warehouse.' So I went back to Russo and said, let me make clear that we don't need the very best, latest thing right off the factory line. The eventual price was approximately $3,400 per TOW, including freight costs. North's attitude that he did not "care if these things in fact work real well" is inconsistent with the goals of opening a broader initiative with Iran and freeing the hostages. Demonstrably antiquated or unworkable merchandise most likely would promote distrust; indeed, the controversy over the November 1985 HAWK shipment had been caused in part by the Iranians' claim that the 18 HAWKs did not meet their expectations. DC/NE next directed a CIA logistics officer to coordinate through the Defense Department for the TOW purchases. DC/NE told the officer that the weapons transfer was a direct arms-for-hostages exchange that would occur soon. The officer stated that the proposed price of the TOWs - $6,000 each - was a reasonable cost for the improved version of the missile. Upon contacting Russo, however, he learned that the CIA could obtain the basic TOW, the oldest one in the Army's stocks, for approximately $3,400 per missile. On January 20, North noted: "Price must be firm for Defense [Department] - Must be less than 6K." Under the figure showing 4,504 TOWs, North jotted, "Nir knows 10K upper limit - Dick [Secord] arrange w/Nir". The notes suggest that Nir and North had agreed that the TOWs sold to Iran must not exceed $10,000 per unit but that the CIA would not pay more than the original DOD price of $6,000 per TOW. In the plan to sell 1,000 of the missiles to Iran in February, North and Nir were expecting to obtain $4 million above the cost of the missiles. When North learned he could obtain the basic TOW for substantially less, the anticipated profit for the Enterprise increased. The Army Executes the Tasking On January 18, Powell telephoned Gen. Maxwell R. Thurman, Vice Chief of Staff of the Army, with a secret, "close hold" assignment for the Army: to prepare 4,000 basic TOW missiles to be shipped to the CIA. Within a week, the number was increased to 4,508 to cover the 508 missiles Israel had shipped in September that McFarlane had agreed to replenish. Thurman, who was not told the ultimate destination of the missiles or the purpose of the shipment, delegated the responsibility down the chain of command and ultimately to Maj. Christopher Simpson. The instructions were to maintain a degree of secrecy unusual even for weapon transfers to the CIA: no notes; communications only by secure telephone or face to face; and the number of people privy to the operation kept to a minimum. The imposition of such extraordinary secrecy led the Army to bypass its normal system for interagency transfers, with that system's safeguards against underpricing, depleting stockpiles, and affecting defense readiness. Even though the secrecy guidelines were strictly observed, an apparently accidental error in the price became crucial. By inadvertently using the wrong stock number for the TOW, the Army underpriced the missile and created a price differential broad enough to generate a significant surplus of funds for the Enterprise. Pricing the Tow Missiles Simpson went directly to the TOW Project Manager at the Army Missile Command at Redstone Arsenal in Huntsville, Alabama. Powell had been asked to provide a "basic," or "vanilla," TOW - one that had not been manufactured since 1975. The basic TOW, however, had experienced mechanical problems that required the Army to make design modifications. The TOW Deputy Project Manager informed Simpson he had sufficient basic TOWs to meet the order but that the TOWs needed the safety modification, which would add to the expense. Simpson set about pricing the TOWs in what seemed to be a logical manner - he checked the Army's catalogue of inventoried items, complete with national stock numbers and prices. Simpson found the price to be $3,169 for a basic TOW, to which he estimated an additional $300 for the safety modification - a total of $3,469 per missile. Simpson quoted that price to the CIA. There were, however, eight different models of TOWs listed in the catalogue. Unknown to Simpson, when safety modifications became a required feature, the Army created a new stock number for the basic TOW with the modification and a corresponding new, and much higher, price. Using the correct stock number, the Army should have provided the CIA a cost of $8,435 per missile. Although Simpson's testimony is inconsistent on the question of whether he was aware that the Army catalogue price for the basic TOW with modifications was $8,435, there are indications that some officials in the Army became aware of the erroneous price. The original paperwork providing for the transfer of the TOWs from their storage depot carried the correct price, $8,435, not the $3,469 price that Simpson had computed. As the TOWs traveled from the depot to Redstone Arsenal, the price was dropped from the accompanying documentation. By the time the CIA received the first shipment of missiles, the receipt reflected Simpson's price of $3,469. Indeed, while the transfer documents accompanying the first and third shipments from the Army and the CIA carried the Simpson price, the receipts for the second shipment did not reflect any price. Testimony from Army officials about the changing prices in these documents has been inconsistent and inconclusive. Amid the pricing confusion, the CIA received a better missile than it had bargained for. While the Army had basic TOWs in stock, it did not have sufficient parts to perform the safety modification. It tried to sell the CIA a more expensive and later version of the TOW, the improved TOW, or "I-TOW," which did not require modification. However, the CIA would not pay more than the quoted price of $3,469. As a result, the Army had to alter the TOW package, selling the I-TOW launch motor with the basic TOW warhead, which produced a superior product. Army officials included in these pricing decisions have denied any intent to lower the price of the TOWs, and the Committees have found no evidence to the contrary. What is apparent, however, is that in fulfilling the CIA request for TOWs in early 1986, the Army bypassed its usual method of obtaining, pricing, and transferring weapons. The emphasis on keeping the transaction secret, even from those involved in the process, led to a significant pricing error, one that North exploited to the advantage of the Enterprise. Without this pricing error, there would have been a much smaller difference between the $10,000 per TOW Ghorbanifar was willing to pay and the actual cost of the TOWs - and the diverted profits to the Enterprise would have been minimal. The London Meeting Armed with a low, firm price for the TOWs, North, Secord, and Amiram Nir, an adviser to Israeli Prime Minister Shimon Peres, met with Ghorbanifar in London on January 22, their first meeting following the President's approval of the Finding. North expressed reservations about the operation, explaining that the United States desired a more moderate Iranian regime, a cessation of terrorism by Iran, and the return of the American hostages. In his notes of that date, North recorded a plan that included, in addition to TOWs and intelligence, the release of Hizballah prisoners held by the Southern Lebanon Army for hostages: Phase I A - Provide small piece of Intel B - Iranian Govt will release $40 M C - $10 M sent to (blank) D - 1000 TOWs, Basic Intel Package, Hizb[allah] Prisoners from [Southern Lebanon Army] = hostage release. North testified that he was dissatisfied with the notion of selling weapons to Iran until this meeting with Ghorbanifar. North's stated reluctance is inconsistent with the testimony of Sporkin and others, who described North as a strong advocate for the plan and a leader in getting it adopted by the President. Nevertheless, according to North, the inducement that caused him to embrace the plan was a suggestion by Ghorbanifar to divert profits from the arms sales to the Contra forces. North described his conversation with Ghorbanifar during a lull in the London meetings: Mr. Ghorbanifar took me into the bathroom and Mr. Ghorbanifar suggested several incentives to make that February [TOW] transaction work, and the attractive incentive for me was the one he made that residuals could flow to support the Nicaraguan resistance. He made it point blank and he made it by my understanding with the full knowledge and acquiescence and support, if not the original idea of the Israeli intelligence services, the Israeli Government . . . I think you have seen it in my messages to my superiors, I was not entirely comfortable with the arrangements that had been worked in the summer of 1985 and in the autumn and winter of 1985. I made it very clear. I was after all the person who had the responsibility for coordinating our counterterrorist policy. I had written for the President's words, "We will not make concessions to terrorists." For the very first time in January, the whole idea of using U.S. weapons or U.S.-origin weapons or Israeli weapons that had been manufactured in the United States was made more palatable. I must confess to you that I thought using the Ayatollah's money to support the Nicaraguan resistance was the right idea and I must confess to you that I advocated that. The tape recording of that meeting does not reflect the private conversation which North described. Instead, it reveals that Ghorbanifar discussed assisting the Contras openly, in the presence of North, Nir, and Secord: GHORBANIFAR: "I think this is now, Ollie, the best chance because we never would have found such a good time, we never get such good money out of this. [Laughingly] We do everything. We do hostages free of charge; we do all terrorists free of charge; Central America for you free of charge; American business free of charge; [First Iranian Official] visit. Everything free." NORTH: "I would like to see, . . . some point this, uh, idea, and maybe, y'know, if there is some future opportunity for Central America. You know that there is a lot of Libyan, a lot of Libyan and Iranian activity with the Nicaraguans. McFarlane had been disgusted with Ghorbanifar's direct linkage of hostages to arms in the December 1985 London meeting. The trading was even more explicit in January 1986. The tape reflects that Ghorbanifar demanded that 100 prisoners held by the Southern Lebanon Army be released as part of the quid pro quo for the American hostages. When Nir explained that the Southern Lebanon Army held fewer than 50 prisoners, Ghorbanifar demanded that 50 be released even if more prisoners had to be taken in order to release that number. Poindexter declared that he first learned of the possibility of diverting arms sales proceeds from North in early February 1986. He said that following North's meetings in London, North briefed him on progress being made domestically by CIA and DOD in procuring TOW missiles. Poindexter recalled North casually mentioning, "Admiral, I think I have found a way that we can provide some funds to the democratic resistance [Contras] through funds that will accrue from the sale of arms to the Iranians." Poindexter claimed that he considered the diversion to be "a very good idea" that he approved orally after only a few minutes conversation. Poindexter stated that the diversion was merely an implementation of the President's policy and a decision Poindexter had authority to make without consulting the President. Nevertheless, Poindexter admitted knowing that public revelation of the diversion's approval by him would result in his leaving the Administration, although he said that he "probably underestimated" the effect public knowledge of the operation would eventually have on the Administration. Poindexter stated that he made the diversion decision without consulting the President in order to give the President "deniability." He acknowledged, however, that he had never acted that way before and that he had a reputation for keeping his superiors informed. What had begun as an initiative to obtain the release of the American hostages had now assumed a second, inherently conflicting goal. The Finding set forth a policy of selling weapons in order to obtain the release of hostages and to secure an opening to Iran. Use of the arms sales to aid the Contras created an incentive to charge the highest price the Iranians would pay while selling the least expensive equipment, a policy unlikely to win Iranian confidence or the hostages' freedom. On January 24, North prepared a sophisticated "notional timeline" for Poindexter under the name "Operation Recovery," which proposed the transfer of TOW missiles and intelligence information to Iran in exchange for the release of the American hostages. "Operation Recovery" reflected the ambitions of the planners who recently met in London. An agreement was reached that the TOWs were to be shipped to Iran in four increments of 1,000 missiles, with an additional 508 TOWs delivered to Israel as replenishment for that country's stocks. On February 8, the Southern Lebanon Army was to release 25 Hizballah prisoners after Iran received the first 1,000 TOWs. On February 9, "all U.S. Hostages [were to be] released to the U.S./British or Swiss Embassy" and "a second group of Hizballah [was to be] released by [the Southern Lebanon Army]." The following day, as preparations were underway to deliver the second increment of TOWs to Iran, Hizballah was to release certain other hostages. The notional timeline also made reference to another ambition of the planners: "February 11, Khomeini steps down." Following this sequential release of prisoners for arms, the United States would deliver the final two increments of missiles. The last deliveries were to be in exchange for hostages of other nationalities and the recovery of hostage William Buckley's remains. Logistical arrangements for the TOW shipment soon began to materialize: North communicated with DC/NE about DOD pricing, and Secord evaluated technical requirements for the Southern Air Transport 707s for transporting the arms to Israel. On January 27, North received confirmation of a TOW price from DC/NE which covered the shipment of 1,000 TOW missiles: "$3,469 per item for all units - load out cost: for all costs: $3,700,000." On the evening of January 29 in the Old Executive Office Building, North held his first meeting of individuals involved in the Iran initiative: Noel Koch of DOD, Allen and DC/NE of CIA, and Richard Secord. DC/NE had thought he was the sole CIA contact in the NSC operation, but he learned at the meeting that another CIA officer, Allen, was already involved. The discussion turned to logistical requirements. The CIA was responsible for transporting the TOWs from domestic storage facilities to Kelly Air Force Base in Texas, where Secord would accept delivery and fly them via Southern Air Transport in two separate shipments to Israel. Secord would arrange for Southern Air Transport personnel to fly the cargoes on Israeli chartered aircraft from Tel Aviv to Bandar Abbas, Iran, as originally agreed with the Government of Iran. Both North and Secord described Secord's role as a "commercial cut-out." As North testified, Secord: . . . negotiat[ed] prices, delivery schedules, arrangements, and General Secord then became the person who went back and paid the Government of the United States, through the CIA, exactly what the Government of the United States wanted for the commodities that it provided . . . General Secord was an outside entity who had been established as an outside entity many, many months before inoorder to support the Nicaraguan resistance. DC/NE agreed with using Secord as the cut-out because "I wasn't particularly anxious for an Israeli Government entity to know what my account was." But DC/NE said that he did not know that using the "cut-out" created an opportunity for siphoning funds to unrelated projects.