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$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.