Multimedia Mania/abacus-multimedia-mania.iso/dp/0104/01046.txt

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$Unique_ID{bob01046}
$Pretitle{}
$Title{Iran-Contra Affair: The Report
Chapter 11D  Acceleration of the Initiative:  January 1986}
$Subtitle{}
$Author{Various}
$Affiliation{}
$Subject{north
tows
cia
finding
iran
january
president
casey
nir
ghorbanifar}
$Date{1987}
$Log{}
Title:       Iran-Contra Affair: The Report
Author:      Various
Date:        1987

Chapter 11D  Acceleration of the Initiative:  January 1986

Israelis Add a New Element to the Negotiations:  The Southern Lebanon Army
Prisoners

     In mid-December, 1985, Amiram Nir, adviser to the Prime Minister of
Israel, became involved in the Iran operation; he later became the liaison to
the Americans and Ghorbanifar.  Nir, who reportedly was unaware of the secret
Iranian arms deals prior to this time, had spent the last month exploring
whether American hostages in Lebanon would be released if the Southern Lebanon
Army freed Shiite prisoners.  Nir proposed to his superiors that he discreetly
get the reaction of the Americans to a hostage release initiative along these
lines.

     After being briefed on the U.S.-Israeli Iran operation, Nir began work on
a plan linking that operation with his own plan.  He presented to high-ranking
Israeli officials a proposal that included: (1) a direct sale of TOWs out of
Israeli arsenals to Iran and the simultaneous release of American hostages;
(2) a purchase by Israel from the United States of replacement arms, using the
proceeds from the Iran sale; (3) exerting Israeli influence to obtain the
release of prisoners held by the Southern Lebanon Army; (4) the handling of
all logistics by the Israelis to enable the Americans to deny any involvement;
and (5) the construction of a convincing cover story to explain the release of
the hostages and the prisoners.  Nir then went to London in late December to
meet, for the first time, with Ghorbanifar and one of the Israeli
intermediaries.  The three hammered out a detailed - but tentative - plan
embodying these elements.  The Israeli Government authorized Nir to present
this plan to the United States but made clear that the transaction could occur
only with U.S. agreement to the entire concept and that Israel would assist in
whatever way the Americans requested, but not play a leading role.

Nir Comes to Washington

     On January 2, 1986, Nir flew to Washington to meet with Poindexter and
North at the request of Prime Minister Peres.  In an opening meeting with
North in a hotel, Nir said that he had an idea about how to improve the
progress of the Iranian operation.  Nir met later that morning with
Poindexter, North, and Don Fortier, Poindexter's deputy, and laid out his
plan.  The central features of the proposal were recorded by Poindexter in his
notes: the Israelis would ship to Iran 4,000 "unimproved TOWs"; after the
delivery of the first 500, all five American hostages would be released;
simultaneously the Southern Lebanon Army would release "20-30 Hizballah
prisoners who don't have blood on their hands."  If the American hostages were
released, Israel would ship to Iran the other 3,500 TOWs and Iran would
"confirm" its agreement for "no more hostages [and] terror."  Under the plan,
the United States would replace the TOWs only if the hostages were released.
If the hostages were not released, replenishment was not required and Israel
would have lost 500 TOWs.  If they were freed, then the United States would
replace the 4,000 TOWs, plus the 500 TOWs the Israelis had shipped in 1985.

     Rapid replacement of the TOWs was of particular concern to Nir.  He
emphasized that the number of TOWs would decrease Israel's arsenal when
tension with Syria increased the urgency to keep Israel's arsenal at full
strength.  To address Israel's concerns about readiness, Nir called for the
United States to "preposition" substitute TOWs near Israel as soon as possible
in case a sudden need for them occurred.  Thereafter, the United States was to
proceed with "regular steady replacement" of the TOWs by sale to Israel.  The
Israelis also wanted a U.S. commitment that, if the operation were exposed,
the United States would say it knew of the operation and did not object.

Nir and North Discuss Use of Residuals

     Nir's proposal included another feature:  generating profits that could
be diverted to other covert projects.  This was not a new concept: Nir and
North had talked generally about joint covert operations in November, and
North had told other Israelis in December that the United States wanted to use
profits from the arms sale under discussion at that time to finance U.S.
activities in Nicaragua.

     Poindexter recalled that at either the January 2 meeting or another
meeting with Nir a few days later, "[t]here also was a very brief, general
discussion about some other cooperative activities.  North - who talked alone
with Nir several times during the first days of January - testified to a more
specific discussion about uses for the "residuals":

I recall that we met New Year's day or the day after . . . and it was his
[Nir's] proposal at that point to use the profits by the arrangement they
envisioned, selling Israeli TOWs at a profit, replenishing them with part of
that money, using part of that money for other operations . . . .  I do not
believe he mentioned contras at that meeting, but my recollection is we began
to talk in early January about other joint U.S.-Israeli, and in some cases
unilateral Israeli operations of a certain kind . . . .

A New Finding Is Prepared

     Poindexter realized from the start that if the United States embraced the
Nir proposal for revitalizing the Iranian initiative, a new covert action
Finding would be essential.  In notes that he wrote on a flight to join the
President in California immediately after the January 2 meeting he jotted:
"Covert Finding - already pregnant for 500."  Poindexter testified that the
"500" was a reference to the TOWs that Israel had already shipped to Iran with
U.S. approval but without a Finding.

     On the same day that Nir advanced his new proposal, North contacted
Sporkin to set in motion the drafting of a new covert action Finding to
authorize the activity.  North told Sporkin he wanted a more expansive Finding
than the one Sporkin prepared in November.  He said it should "cover certain
other activities, that there was a broader concept to the relationship that
was being considered with Iran."

     A first draft of the new Finding, prepared by a CIA staff lawyer who was
told nothing of the November Finding, did not mention the objective of gaining
the release of American hostages.  It did authorize shipment of arms to Iran.
This draft included the standard provision calling for the Director of Central
Intelligence to report the activity to the Intelligence Committees of
Congress.

     On January 3, Sporkin edited the draft Finding, making several
significant changes.  First, he put the provision calling for Congressional
notification in brackets, and above it inserted new language directing that
the Director instead "refrain from reporting . . . until I [the President]
otherwise direct."  Sporkin made this change to present squarely to the
President the alternatives on notification.  Sporkin also changed the
description section of the Finding.  He apparently sent this draft to North
during the day on January 3.  The draft contained no references to hostages.

     North asked Sporkin to meet with him that night to work on the Finding.
Before agreeing to this, Sporkin tracked down Casey - who was vacationing in
Florida - and asked if he should do so.  Casey told Sporkin that he knew
nothing about what was going on, but that Sporkin should meet North and keep
Casey informed.

     At the meeting, North showed Sporkin another draft of the Finding. The
preamble of the North draft included only the nonnotification alternative, a
modification that Poindexter, and - North assumed - the President, approved.
Among other changes were inclusion of a reference to "third parties" and a
reference to "USG" (U.S. Government) - rather than just the CIA - as the
entity authorized by the Finding to act.  Sporkin understood "third parties"
to refer "to the people that were working with Iran, Ghorbanifar," as well as
the Israelis who, Sporkin learned, were involved in the initiative in
November.  The North draft, like the Sporkin draft, contained no reference to
the central quid pro quo for the arms sales - the hostages.

     Later that evening or the following day, North called Casey, and Casey's
reaction to the renewed initiative was positive.  North then reported to
Poindexter that Casey "thought the Finding was good and that this is probably
the only approach that will work."

     The next day, North drafted a cover memorandum for Poindexter to send to
the President with the Finding.  North wrote that Nir had proposed a plan "by
which the U.S. and Israel can act in concert to bring about a more moderate
government in Iran."  He said that under the plan, this goal was to be
achieved by providing "military materiel, expertise and intelligence" to
"Western-oriented Iranian factions."  Providing such items to moderates would
enable them to come to power by "demonstrat[ing] their credibility in
defending Iran against Iraq and in deterring Soviet intervention," North said.

     North's draft cover memorandum described the role to be played by the
United States under the plan:

As described by the Prime Minister's emissary [Nir], the only requirement the
Israelis have is an assurance that they will be allowed to purchase U.S.
replenishments for the stocks that they sell to Iran.  Since the Israeli sales
are technically a violation of our Arms Export Control Act embargo for Iran, a
Presidential Covert Action Finding is required in order for us to allow the
Israeli sales to proceed and for our subsequent replenishment sales.

North's memorandum thus makes plain that he understood that, without a
Finding, the sale of U.S.-made weapons by Israel to Iran would violate the
Arms Export Control Act.

     The memorandum also stated that if the plan were approved and the Finding
signed, Israel would "unilaterally" commence delivery of TOW missiles to Iran
in January, the United States would replenish Israeli stocks in less than 30
days, and five American hostages in Beirut would be released.  The memorandum
made no reference to Nir's proposal regarding release of dozens of prisoners
held by the Southern Lebanon Army, nor to the plan to use profits for other
covert operations.  On Sunday, January 5, North, Sporkin, and Casey met at
Casey's home to discuss the new plan and the draft Finding.  Casey read the
draft Finding along with a draft cover memorandum and voiced his approval.
Sporkin, however, felt uncomfortable about omitting the hostage release
objective from the Finding and raised this concern with Casey.  According to
Sporkin, North explained to Casey that the State Department did not want this
in the Finding because it would create an appearance of a "hostage-for-arms
shipment" and therefore would not "look right."  [Secretary of State Shultz,
in fact, had argued at the December 7 meeting against any arms-for-hostages
trade.]  Sporkin argued that the hostage release aspect of the Finding was a
"very important element" that "ought to be in there."  Casey agreed.

     Apparently around this time, North also revised the cover memorandum to
the President.  He deleted the statement that the contemplated Israeli sales
were a "technical violation" of the Arms Export Control Act and included a
sentence expressly recommending that "you exercise your constitutional
p[r]erogative to withhold notification of the Finding to the Congressional
oversight committees until such time that you deem it to be appropriate."

     On Monday, January 6, North hand-carried the draft Finding and cover
memorandum to Attorney General Meese for his review.  North discussed it with
the Attorney General and his deputy, D. Lowell Jensen.  Attorney General Meese
approved the Finding and the "procedures we were using," according to North.
Attorney General Meese does not recall the meeting, but is "satisfied that it
took place."  Jensen testified that North presented the papers for
"informational" purposes only, and that the Attorney General was not asked
for, and did not offer, any opinion.

The President and Advisers Consider the New Proposal

     At the morning national security briefing on January 6, Poindexter told
the President of the Nir proposal.  The Vice President, Regan, and Don Fortier
were also present.  The President "indicat[ed] he was in general agreement"
with the proposal and decided there would be a full NSC meeting the following
day on the proposal and the Finding.  Poindexter presented the President with
the January 6 draft of the Finding at this briefing. Poindexter did not intend
that it be signed at this point because it had not yet been "fully staffed"
and discussed among the President's national security advisers.  But the
President, not realizing that the Finding was only a proposal for discussion,
read it and signed it, reflecting his agreement.

     At the full NSC meeting on January 7 were the President, the Vice
President, Secretaries Shultz and Weinberger, Attorney General Meese, Casey,
Poindexter, and Regan.  While Secretaries Weinberger and Shultz continued to
object strenuously, all others favored the plan or were neutral.  Secretary
Weinberger, who said he had no advance knowledge about the subject, found it
to be "very much a re-run" of the December meeting, except that now the
President decided to go forward with the plan:

I made the same points, George Shultz made the same points.  Bill Casey felt
that there would be an intelligence gain, and there was also talk of the
hostages as one of the motivating factors, . . . but the responses of the
President seemed to me to indicate he had changed his view and had now decided
he wanted to do this.

There is no record that the Vice President expressed any views.

     At the meeting, Attorney General Meese provided a legal opinion that the
arms sales could be done legally with Israel making the sales and the United
States replenishing Israel's stocks.  Secretary Weinberger again objected that
the proposed transaction would violate the Arms Export Control Act; the
Attorney General responded that there were mechanisms outside the AECA through
which the operation could proceed legally, including "the President's inherent
powers as Commander in Chief, the President's ability to conduct foreign
policy . . . . "  Meese referred to a 1981 written legal opinion by Attorney
General William French Smith stating that the CIA could legally sell to third
countries weapons obtained from the Defense Department under the Economy Act.
On this authority, he "concurred with the view of Director Casey that it would
be legal for the President to authorize arms transfers pursuant to the
National Security Act."

     Secretary Shultz felt that it was very clear that the President wanted to
go forward with the plan.  To the Secretary of State, the lack of opposition
"almost seemed unreal," and he left the meeting "puzzled, distressed."  What
Secretary Shultz did not know was that the President had signed a Finding on
January 6.  That act, an indication of the President's resolve, was not
mentioned.

North Proceeds With Plans for Replenishment

     That day, North called Nir in Israel and said that the United States was
prepared to proceed with Nir's plan, subject to certain conditions. North said
that both the President and Secretary Weinberger had agreed to the plan.
North gave Nir this encoded message:

1.  Joshua [President Reagan] has approved proceeding as we had hoped.

2.  Joshua and Samuel [Secretary Weinberger] have also agreed on method one
[replenishment by sale, as opposed to "method two," replenishment by
prepositioning].

3.  Following additional conditions apply to Albert [Code name for
operation?].

     A.  Resupply should be as routine as possible to prevent disclosure on
our side.  May take longer than two months.  However, Albert says if crisis
arises Joshua promises that we will deliver all required by Galaxie
[apparently C 5A cargo plane] in less than eighteen hours.

     B.  Joshua also wants both your govt and ours to stay with no comment if
operation is disclosed.

4.  If these conditions are acceptable to the Banana [Israel] th[e]n Oranges
[U.S.] are ready to proceed.

Neither of the "additional conditions" proposed by the U.S. side dealt with
the substance of the operation.  North's notes reflect that the purpose for
"routine" resupply spread over a period of months was to enable the purchases
by Israel to be broken "into lots of less than Cong[ressional] limit" and to
avoid "raising eyebrows."  The "no comment" proposal would enable the United
States - even after the operation was publicly exposed - to avoid
acknowledging its central role.

     Nir and North also discussed terms for replenishment sales.  By this
time, the Chief of the Israeli Procurement Mission in New York and Noel Koch,
Principal Deputy Assistant Secretary of Defense for International Security
Affairs, had been designated as the Israeli and American contacts for
hammering out the details.  Nir told North that Israel could not use the money
the Iranians had paid for the 504 TOWs shipped in 1985 to buy replacements
because this money was not available.  On this point, North's notes state:
"Regarding the first 504, it was agreed that the $ was used for other
purposes."  Over the next few days, Nir told North that Israel could pay only
$5,000-$5,500 per missile and that the Department of Defense, using a
replacement cost figure, was demanding that Israel pay more.

     On January 9, Nir and North discussed how to use the money Iran would pay
for the TOWs.  North jotted the following calculation:

     $10 M total

     2.5 to Ops

     1.5 to Gorba

     $6 M avail for 4500

The note indicates that Israel was to receive $10,000 per TOW from Iran, or
$10 million for the first 1,000 TOWs.  From this sum, $2.5 million was to be
diverted to "Ops," which North testified were the joint Israeli-U.S. covert
operations previously discussed with Nir.  Another $1.5 million was to go to
Ghorbanifar.  The remaining $6 million would be available to pay the United
States for the replacement TOWs.  If this scheme were followed for each of the
four planned shipments of 1,000 TOWs, $10 million would go for other covert
operations and Israel would have $24 million to spend on replacement TOWs -
enough to purchase 4,000 missiles at $6,000 each, or 4,500 missiles at a price
of $5,333 each.

     The next day, January 10, Koch and North conferred about replacement of
the Israeli TOWs.  North's notes reflect that one option they considered was
selling Israel Improved TOWs "at cos[t]."  The reference to Improved TOWs is
significant because Israel was planning to send basic TOWs to Iran. Thus, the
proposed transaction would substantially upgrade Israel's arsenal at no cost
to that country.  The possibility that this might be an objective of the
operation had caused some CIA lawyers discomfort.

     After this conversation, Koch queried DOD Deputy Director Rudd about TOW
prices.  He apparently asked if it would be possible to ship 4,000 Basic TOWs
to Israel or Iran for $12 million, or at a price of $3,000 per TOW. Rudd later
told Koch that while this quantity was available, the lowest price at which
basic TOWs had previously been sold was $6,800 per missile.

     In addition to the price, Koch was concerned about secrecy and
Congressional notification.  He knew that if the total value of the purchase
exceeded $14 million, a Congressional notification would be required.  Rudd
told Koch a notification that the Israelis were buying 4,000 basic TOWs would
be tantamount to announcing that the missiles were intended for another
purchaser; informed persons would know the Israelis would have no use for more
basic TOWs than it already had.

     Rudd counseled that the best way to get missiles secretly from the
Defense Department to Iran would be to "go black" - that is, make it a covert
operation with Defense selling the missiles to the CIA under an Economy Act
transfer and the CIA transferring them to Iran pursuant to an intelligence
Finding.  Koch conveyed this conclusion to North and Weinberger's military
aide, Lt. Gen. Colin Powell.  "Going black" appeared to overcome two
difficulties in the replenishment issue:  (1) maintaining secrecy and avoiding
Congressional notification, and (2) avoiding the strictures of the AECA.

     On January 12, Koch met the head of the Israeli Procurement Mission at
National Airport in Washington to continue negotiations on price.  Koch
reported on this meeting to North and to Powell, who suggested that Koch meet
with Secretary Weinberger.  Koch met with the Secretary the next day. He
described the Secretary as "generally agitated over this" and believed "this
thing . . . was a very foolish undertaking."  Koch commented to Secretary
Weinberger, "'Do we have a legal problem with this?  Is somebody going to go
to jail?' and [the Secretary's] response was in the affirmative.  But I did
not take that seriously."  In a subsequent conversation with Koch, North
apparently expressed a hope that the matter could be solved and the initial
steps of the operation finished in time for the President to refer to the
freeing of the hostages in his State of the Union message later in January.
North jotted in his notes:  "Try to get results by State of Union."

Legal Problems Identified With Replenishment Approach

     While North continued to work with the Israelis on the replenishment
problem, CIA lawyers were raising legal objections.  One prepared a memorandum
for Sporkin identifying the restrictions and various notification requirements
that the Arms Export Control Act and Foreign Assistance Act placed on
third-country transfers.  The lawyers concluded that weapons that had earlier
been acquired from the United States under either of these acts could not be
sold to Iran without "U.S. consent, notice to Congress, and the eligibility of
the third country recipient for U.S. aid."  Because the planners had
determined there would be no notice and because Iran's terrorist activities
rendered it ineligible, the Israeli sale/U.S. replenishment approach was not
feasible.  However, the lawyers concluded that a sale of weapons from DOD
stocks to the CIA under the Economy Act, followed by a CIA sale to Israel or
Iran, would be legal.  A Presidential Finding would be required.

Ghorbanifar Fails Polygraph

     Ghorbanifar returned to Washington in January for his new polygraph. The
examination was conducted at the CIA on January 11 and lasted five hours.  The
CIA polygraph operator concluded that Ghorbanifar lied on 13 of 15 items on
which he was questioned.  According to George, "The only questions he passed
were his name and his nationality."

     After the test, a CIA officer reported in a memorandum to Casey, McMahon,
and Clair George:  "Ghorbanifar is a fabricator who has deliberately deceived
the U.S. Government concerning his information and activities.  It is
recommended that the Agency have no dealing whatsoever with Ghorbanifar."
Afterwards, Ghorbanifar showed up at Ledeen's house "furious" and "hurting"
because the questioning was more expansive than he had expected and because he
claimed to be physically injured by the examination techniques.

     The following day, the Chief of the CIA's Iran branch briefed George and
the Chief of the Near East Division (C/NE) on the negative results. They
instructed him to have no further contact with Ghorbanifar or Ledeen. George
viewed the polygraph results as confirming his view of Ghorbanifar and
declared to Casey that the Operations Directorate would have nothing more to
do with the Iranian.  He told North of this decision on January 13. A few days
later, the Operations Directorate disseminated a notice saying the CIA would
do no more business with Ghorbanifar.

     Ghorbanifar's polygraph failure, however, did nothing to squelch his
relationship with Casey and the NSC staff.  Indeed, North - who "wanted"
Ghorbanifar to pass - had braced himself for a negative result.  He told
Ledeen beforehand that the CIA would make sure Ghorbanifar flunked because
they did not want to work with him.  Casey, notwithstanding Clair George's
advice to terminate the Ghorbanifar relationship, found a way to deal with
Ghorbanifar outside the normal Operations Directorate headed by George. Casey
ordered Charles Allen, who was the CIA's senior antiterrorism analyst, to meet
with Ghorbanifar "to determine and make a record of all the information that
he possessed on terrorism, especially that relating to Iranian terrorism -
just take another look at this individual."  In George's view, Allen virtually
became the case officer for Ghorbanifar.  To George, there could not have been
a "better mismatch" between Allen - who had no experience managing an agent -
and Ghorbanifar - who was especially "complex" and difficult to control.

     Allen spent five hours with Ghorbanifar at Ledeen's home on January 13
"to assess Subject's access to Iranian Government leaders" and to obtain
information from him on terrorists.  Ghorbanifar set out several areas in
which he wished to work with the U.S. Government and the CIA, including the
ongoing White House effort to gain the release of the hostages in Lebanon; the
blunting of Iranian-, Libyan-, and Syrian-sponsored terrorism; and assisting
in the overthrow of Qadhafi.  Allen thought some of Ghorbanifar's specific
proposals worth pursuing, but he considered several of them outlandish, not
worthy of exploration, and "very, very filled with hyperbole."

     During this session, Ghorbanifar told Allen that funds generated through
the projects he was discussing could be used for "Ollie's boys in Central
America."  Allen recorded this remark in his handwritten notes of the meeting
as "can fund Contras."  He did not, however, refer to it in his memorandum to
Casey and others on the session.  He later explained that at the time he did
not "consider it important or even relevant to my particular mission," that he
did not discuss it with anyone else, and that he "promptly forgot it."

     On January 14, Allen briefed Casey on his session with Ghorbanifar.  He
told Casey that Ghorbanifar was "very hard to pin down," "very flamboyant,"
"very clever, cunning."  Indeed, Allen called him a "con man," to which Casey
jokingly responded:  "Maybe this is a con man's con man then."  For the
moment, Allen said, he was given no further assignment concerning Ghorbanifar.

Restructuring the Deal

     In mid-January, the plan for the operation was restructured in two
significant respects.  First, weapons to be shipped to Iran would come from
U.S. - not Israeli - stocks.  Second, at the direction of Poindexter, Casey,
and North, Richard Secord was brought into the operation as a "commercial
cut-out":  a conduit for the money to be paid by Iran to the United States for
the missiles.  This latter change enabled the "diversion" of funds to support
the Contras, which had already begun in November with the use of a part of the
Israelis' $1 million deposit to Lake Resources, to continue in a more direct
manner.

     A one-page, unsigned memorandum dated January 13, 1986, updated Casey on
the "TOW for Hostage deal."  The memorandum shows that legal obstacles and the
high cost of Improved TOW missiles were pushing the planners toward
transforming the deal into one in which the Iranians would receive basic TOWs
sold by DOD to CIA under the Economy Act.  After a review of the problems with
other methods, the memorandum stated:

Therefore they want to use the second option under which CIA would buy 4,000
basic TOWs from DOD for $21 million.  As far as Defense is concerned these
purchases would be for general CIA uses . . . .  The money for the Iranian
account would be transferred to the Israelis.  The Israelis would transfer
that money to a CIA account to pay for this purchase of the Tows from DOD, the
shippers would move the Tows to the Israelis who would then move them on to
the Iranians.

     North met with Ledeen and Ghorbanifar that evening to discuss the plan.
Ghorbanifar proposed that he would buy the TOWs from the United States -
rather than from Israel - for $10,500 each.  He said this was the same price
he had paid the Israelis for the 504 TOWs in 1985.  Ghorbanifar stated that he
had "officially offered" the same rate to the Israelis for this deal, but that
they now were asking for different terms.  Ghorbanifar said that he had $40
million for the 4,000 TOWs, and that out of that sum he expected to receive -
or at least wanted - $500,000.  Ghorbanifar also explained that the total
deal, negotiated with Nir before Christmas, called for the Israeli U.S. side
to provide 4,000 TOWs, the release of 100 Hizballah prisoners held by the
Southern Lebanon Army, and intelligence.

     After this meeting, North called Koch and raised the idea of designating
Secord as the person to whom the United States would sell the TOWs.  North's
notes suggest that DOD would sell missiles directly to Secord with no
involvement of the CIA and that Secord would deliver the TOWs to the Israelis.
On the morning of January 14, North received a call back from Koch who
expressed concern about how Secretary Weinberger would react to using Secord.
North's notes of the call state:  "Secretary will blanch."

     Both Poindexter and Casey, however, approved Secord's pivotal role in the
operation.  According to Secord, Poindexter invited him to the White House,
told him the President had approved a renewed arms transaction with Iran, and
asked for his assistance.  On January 14, Casey told North, according to
North's notes, that "Secord Op [is] O.K."

     North met with Poindexter that evening.  They discussed inserting Secord
into the transaction as an "agent for the CIA . . . .  Under this arrangement,
the Iranians would receive missiles from Israeli stocks; and Secord, acting as
an agent for the CIA, would simultaneously buy basic TOW missiles from DOD and
sell and ship them to Israel as replacements.  The CIA would not actively
participate in the operation.  Poindexter directed North to discuss this
approach with Casey.  This plan called for the private North/Secord enterprise
in lieu of the CIA.  The CIA would have a role in name only.  The Economy Act
authorized intergovernmental transfers of weapons, but would not permit DOD to
sell directly to Secord unless he were designated an "agent" of the CIA.

     The barrier to the plan was Secretary Weinberger.  Although Casey was on
board, Secretary Weinberger continued to raise objections both to the plan and
to Secord's involvement.  In a PROF message to Poindexter on January 15, North
wrote:

Casey believes that Cap [Weinberger] will continue to create roadblocks until
he is told by you that the President wants this to move NOW and that Cap will
have to make it work.  Casey points out that we have now gone through three
different methodologies in an effort to satisfy Cap's concerns and that no
matter what we do there is always a new objection.  As far as Casey is
concerned our earlier method of having Copp [Secord] deal directly with the
DOD as a purchasing agent was fine.  He did not see any particular problem w/
making Copp an agent for the CIA in this endeavor but he is concerned that Cap
will find some new objection unless he is told to proceed.

     In the same PROF message, North indicated that the "most recent proposal"
to use Secord as an agent for the CIA depended on the Israelis' agreeing to
pay a higher price than they were then offering the United States.  The
message suggests that North, knowing that Ghorbanifar was willing to pay
$10,000 a TOW to the Israelis, was seeking to have more of the residual profit
flow to the American side rather than to Schwimmer and Nimrodi.

     Minutes after writing this PROF message, North met with Sporkin to
discuss Secord's role.  Sporkin interrupted this meeting to telephone one of
his staff lawyers, George Clarke, to discuss whether there would be any
"problems or reporting requirements" with the North/Poindexter proposal to use
Secord as an "agent" of the CIA but to otherwise leave the CIA out of the
operation.  North came on the line to exhort Clarke to endorse this approach.
According to a "memorandum for the record" written by Clarke, the conversation
went as follows:

1.  At approximately 1420 hours today I received a secure line telephone call
from the General Counsel.  He wanted to discuss whether I saw any problems or
reporting requirements with a proposal to have DoD provide weapons to a CIA
"agent" who would pay for the weapons with money supplied by a friendly third
country.  The agent would then supply the weapons to the intended recipient
country.  The agent would have no connection with CIA other than to act as a
"middle man" with our authority.

2.  I told the General Counsel that I would feel more comfortable if CIA were
directly involved in the activity and that it would be essential that we act
in furtherance of a traditional covert action objective . . . .

3.  Despite repeated urgings to concur in variations that would have DoD
provide the weapons without other than token CIA involvement, I did not do so
. . . .

Sporkin recalled an "argument with one of my people" about whether there was a
way to structure the transaction without the CIA's getting involved. "The
answer was no way."

     After this meeting, Sporkin prepared a paper for Casey.  He advised that
the "preferred way to handle the proposal" was for the CIA to take control of
the materiel through an Economy Act transfer from DOD before it was moved to
the Middle East.  Sporkin wrote that he could find no precedent for the
purchase of materiel from DOD by someone acting as a CIA "agent," where the
CIA had no other role in the transaction.  Sporkin's paper did not address
whether the CIA, after acquiring the arms from DOD, could deal with an
intermediary, such as Secord, rather than directly with the foreign country
recipient.  One of Sporkin's main concerns was the question of notifying
Congress:

The key issue in this entire matter revolves around whether or not there will
be reports made to Congress.  Each of the Acts involved - the Foreign
Assistance Act, the Arms Export Control Act, and indeed the National Security
Act as amended - have certain reporting provisions in them.  While the
National Security Act provides for a certain limited reporting procedure, it
is my view that there may be other ways of making a suitable report by
exercise of the President's constitutional prerogatives.

One such possibility would be not to report the activity until after it has
been successfully concluded and to brief only the chairman and ranking
minority members of the two Oversight Committees.  This would maximize the
security of the mission and reduce the possibility of its premature
disclosure.

Later that afternoon, North spoke again with Sporkin, who urged that the
"final proposal" be "run by" the Attorney General.

     At 2:30 p.m. that day, North received a call from Nir.  The conversation
again focused on the financial aspects of the transaction. North's notes refer
to a 25 percent cut to be paid to "other Iranians" and a 15 percent cut to
"accountant," the code name for Schwimmer.  Most significantly, the two
discussed Secord's receiving more for the TOWs than he would have to pay to
DOD.  North wrote:  "7500 each to Copp. 5300 each to DOD."  Using these
figures, and assuming that the deal would involve 4,000 TOWs, Secord would
receive $8.8 million over his cost of buying the missiles from DOD.

     The next day, January 16, North continued to try to find a way to start
the part of the operation that would lead to the release of the American
hostages, namely, the shipment of 1,000 TOWs to Iran.  At Poindexter's
request, North first contacted McFarlane to find out what the understanding
had been on replenishment of the first 504 TOWs, an issue that continued to be
a sticking point for Israel.  McFarlane replied that the United States had
undertaken to sell, over time, "requisite TOWs to replace the TOWs that they
sent for Weir."  In his notes of this phone call, North wrote:  "The objection
in law [is] based on Arms Export Control Act."  North passed this information
to Poindexter, along with an explanation that replenishment had been blocked
because the Israelis lacked sufficient funds to purchase Improved TOWs and
because bureaucratic problems had prevented a purchase of basic TOWs.

     North came up with a modified plan to get the operation moving.  He
proposed to Poindexter that Nir deal directly with Ghorbanifar and receive $10
million for the first 1,000 TOWs to be shipped by Israel.  Schwimmer and the
Iranian officials would be "cut-out" from the expected profits, and a much
larger sum would be available to Nir for replenishment or other uses. North
also proposed that Secord purchase 504 TOWs from the United States and ship
them to Israel as replenishment for the 1985 transactions.

     That same afternoon, Poindexter convened in his office a meeting of
senior administration officials to discuss the structuring of the transaction,
the continuing objections of Secretary Weinberger, and the proposed Finding.
Present were Secretary Weinberger, Casey, Attorney General Meese, Sporkin, and
possibly North.  [Poindexter recalled that Shultz was also present.
Poindexter Test., Hearings, 100-8, at 35.  Shultz testified that he was not,
Shultz Test., Hearings, 100-9, at 33, and Sporkin testified that he was told
Shultz had been invited but could not make it.  Sporkin Test., Hearings,
100-6, at 149.  Weinberger had no recollection of attending this meeting.
Weinberger Test., Hearings, 100-10, at 141.]  The Attorney General said Israel
should not ship weapons out of its stocks and recommended that the United
States instead sell directly to the Iranians.  Restructuring the operation in
this way, he explained, would avoid the restrictions of the Arms Export
Control Act, including Congressional reporting requirements.

     Sporkin recalled that no decision was made at the meeting and that
Secretary Weinberger wanted additional time to examine the revised structure
of the plan:

[A]s we were breaking up, the Secretary of Defense said that I want to review
all this.  I want to have my lawyers look at it and to see if that analysis is
correct.  And so the meeting broke up without there being any decision made.

The next day, I received a call from the Director - I think it was the next
day - in which he said that he received a call from the - from the Secretary
of Defense, who said that his people have looked it over and they agree with
the analysis and they have signed off on the project.

Secretary Weinberger was unable to recall, or find anyone at the Defense
Department who had performed, any such legal review.

President Signs A New Finding

     Poindexter now arranged to get the President to sign the Finding.  At the
January 17, 1986 national security briefing attended by the President, the
Vice President, Regan, Poindexter, and Fortier, Poindexter discussed the plans
and referred to a new cover memorandum.  The President did not read the
memorandum, but he signed the Finding.  To indicate the President's decision,
Poindexter wrote "RR per MP" on the approval line of the memorandum.  At the
bottom of the memorandum, he also wrote:  "President was briefed verbally from
this paper.  VP, Don Regan and Don Fortier were present."

     The January 17 Finding was almost identical to the draft Finding
presented to the President on January 6.  The only change was the insertion of
the words "third parties" in the list of entities to be assisted by the CIA.
The Committees have received from NSC files a copy of the January 6 version of
the Finding that bears Sporkin's handwritten insertion of this phrase.
Sporkin testified that this change was made merely to make the first paragraph
of the Finding symmetrical with the second, which already contained a
reference to "third parties."  He said that the term did not refer to Secord
but to Ghorbanifar and other Iranian intermediaries.

     The cover memorandum, which North prepared and Poindexter signed,
contained the same summary of the Nir proposal that North had included in his
January 4 draft cover memorandum.  However, the new memorandum stated that for
legal reasons the operation should not be conducted as Nir proposed and should
instead proceed with sales of arms from the CIA through an agent directly to
Iran.  Following the advice Attorney General Meese had provided the previous
day, the memorandum stated:

We have researched the legal problems of Israel's selling U.S. manufactured
arms to Iran.  Because of the requirement in U.S. law for recipients of U.S.
arms to notify the U.S. government of transfers to third countries, I do not
recommend that you agree with the specific details of the Israeli plan.

The memorandum outlined the new plan to make direct sales from the CIA to
Iran through Secord, who was identified only as "an authorized agent":

The objectives of the Israeli plan could be met if the CIA, using an
authorized agent as necessary, purchased arms from the Department of Defense
under the Economy Act and then transferred them to Iran directly after
receiving appropriate payment from Iran.

This new method was to accomplish the 4,000-TOW transaction that Nir had
originally proposed.  The memorandum stated:

Therefore it is proposed that Israel make the necessary arrangements for the
sale of 4000 TOW weapons to Iran.  Sufficient funds to cover the sale would be
transferred to an agent of the CIA.  The CIA would then purchase the weapons
from the Department of Defense and deliver the weapons to Iran through the
agent.  If all the hostages are not released after the first shipment of 1000
weapons, further transfers would cease.

     As was the case with North's earlier draft, the cover memorandum to the
President from Poindexter stated that "[t]he Israelis are very concerned
[about] Iran's deteriorating position in the war with Iraq" and "believe it is
essential that [Israel] act to at least preserve a balance of power in the
region."  In fact, Secretaries Weinberger and Shultz and Deputy Director
McMahon all subsequently testified that this assessment of the state of the
Iran-Iraq conflict was contrary to U.S. intelligence estimates.  Secretary
Weinberger stated:

I certainly did not have the view that Iraq was winning or anything of that
kind.  Quite to the contrary.  As a matter of fact, it was basically Iraqi
military strategy not to pursue any kind of decisive military end . . . .

Secretary Shultz said that while there was an intelligence estimate in
mid-1985 suggesting that the Iranian position was deteriorating, he and others
in the State Department had objected to it and by early 1986 there was a
"reassessment" to the effect that Iran was viewed as "very much the aggressive
country in the war."  McMahon made the same point:  "I don't have the vaguest
idea where Poindexter got the idea that the Iraqis were about to take over
Tehran.  It just wasn't in the cards."

     The cover memorandum also gave the President a lineup of the varying
positions of his advisers on the proposed operation:

You have discussed the general outlines of the Israeli plan with Secretaries
Shultz and Weinberger, Attorney General Meese and Director Casey.  The
Secretaries do not recommend you proceed with this plan. Attorney General
Meese and Director Casey believe the short-term and long-term objectives of
the plan warrant the policy risks involved and recommend you approve the
attached Finding.

     Defense Secretary Weinberger testified to the Committees that he was
unaware that a Finding had been signed.  However, he recalled that around
January 18, Poindexter told him the President had decided to sell 4,000 TOW
missiles to Iran and instructed him to make the missiles available.

     Secretary of State Shultz testified he was unaware even of the
Presidential decision to sell the weapons.  He recalled a luncheon with the
President's other top advisers on January 17, during which he expressed
opposition to what he thought was still an unapproved plan to sell weapons to
Iran.

     According to the Tower Board, in his diary entry for January 17, 1986,
the President wrote:  "I agreed to sell TOWs to Iran."

Conclusion

     With the signing of the Finding, the Administration was embarked on an
arms-for-hostages initiative with Iran in which the United States - not Israel
- would play the lead role.  The President set this course over the continued
objections of his Secretaries of Defense and State, and notwithstanding the
CIA's renewed determination that the Iranian intermediary, Ghorbanifar, could
not be trusted.

     In a change from the 1985 arms deals, Poindexter, Casey, and North had
structured the transactions planned for 1986 in a manner that would leave the
United States in possession and control of the large "residuals" that would
flow from the sales.  Secord and the Lake Resources Enterprise were
established as a conduit for the money paid for the missiles by Iran.  North
and Nir had several ideas about how these profits would be used.  Foremost in
North's mind was the potential for diversions to the Contra effort.