Some Contras Aid Diverted to Honduras, GAO Finds

Almost $1.2 million in U.S. funds intended as “humanitarian” aid for Nicaraguan rebels was paid to the armed forces of Honduras instead, congressional investigators said Wednesday.

The General Accounting Office, a congressional watchdog agency, said that at least $3.6 million more of the aid ended up in bank accounts in the United States, the Bahamas and the Cayman Islands. And much of the money went to U.S. companies and individuals instead of to the Central American suppliers for whom it was intended, the GAO said.

“There is enough evidence to be concerned that humanitarian assistance may not be reaching the intended beneficiaries,” Frank C. Conahan, GAO’s director for international affairs, told the House Foreign Affairs subcommittee on Latin America.

Rep. Michael D. Barnes (D-Md.), the subcommittee chairman who ordered GAO to investigate the $27-million humanitarian aid fund, said that he was “shocked” by the agency’s findings and added, “As a lawyer, I’m absolutely convinced that there is evidence of criminal activity here.”

Barnes, a leading opponent of President Reagan’s request for $100 million in additional aid for the rebels, known as contras , waved a photocopy in the hearing room and said, “I have here a copy of a check for $450,000 made out to the commander in chief of the Honduran military.

“It’s fairly evident that the funds are not going where they were intended to go, nor where the State Department thought they went,” Barnes said.

Republican members of the panel disputed his conclusions, although they did not challenge the GAO’s findings. “I’m not convinced that this is a smoking gun,” Rep. John McCain (R-Ariz.) said.

State Department spokesmen and officials at the Honduran Embassy refused to comment on the GAO report, saying they had not been given enough time to study it.

But other U.S. officials said that, while they considered some of the charges misplaced or exaggerated, the payments to the Honduran military are “a serious problem,” in the words of one source.

They said that the Hondurans had insisted on a share of the funds in the non-lethal aid program as the price for allowing the largest rebel army, the Nicaraguan Democratic Force, to operate from Honduran territory.

Rebels Confirm Payments

A spokesman for the contras denied that the payments had been made. “This is all a fiction with the purpose of strangling U.S. support for the resistance,” the spokesman, Bosco Matamoros, said. Other rebel officials, however, privately confirmed the payments.

The GAO report was released amid furious maneuvering before another vote in Congress on Reagan’s aid request, scheduled for later this month. Reagan appealed again for the aid in his news conference Wednesday evening, saying: “It’s time for an up-or-down vote on freedom in Nicaragua.”

In an effort to win more support for the contras, CIA Director William J. Casey told a group of congressmen that a Soviet reconnaissance plane recently has begun flying missions over Nicaragua. White House spokesman Michael Guest later confirmed Casey’s remarks and identified the plane as an AN-30, a twin-engine turboprop based at Managua’s international airport and carrying the markings of Aeroflot, the Soviet commercial airline.

“We presume it is being flown by Soviet pilots,” Guest said. “The Soviets would probably not allow locals to fly these particular planes.”

He said the Administration recently declassified secret intelligence about the reconnaissance flights, apparently for use in the debate over aid to the contras.

Aid Opponents Pleased

Barnes and other Democrats on the House subcommittee cheerfully acknowledged that they hope the GAO findings will strengthen opposition to the aid.

Rep. Gerry E. Studds (D-Mass.), noting that Reagan once called the contras the equals of America’s Founding Fathers, gleefully announced: “Our Founding Fathers did not maintain bank accounts in the Cayman Islands.”

The GAO report was based on the agency’s examination of eight U.S. bank accounts into which the federal Treasury had paid $12.2 million of $14.1 million in aid disbursed up to May 10.

The payments to the Honduran military were made out of a Miami account that belongs to Supermercado Hermano Pedro, a small food market in the Honduran capital of Tegucigalpa that is the contras’ largest single supplier, according to accounting documents made available to The Times.

The grocery store received $6.6 million from the U.S. aid fund from November, 1985, until May 10, GAO director Conahan said.

Last November, the supermarket received a U.S. payment of $896,122 for food that it said it had provided to the contras. Two days later the supermarket drew checks on the account for $742,939 made out to “The Armed Forces of Honduras,” the GAO said.

Checks, Payments Made

In January, the Treasury made a payment of $411,974 to the supermarket’s account. Two days later, a check for $450,000 went to “The Commander in Chief of the Armed Forces,” GAO officials said.

“Virtually all payments made from this account were funds provided the company by the Treasury,” Conahan said.

Congressional sources said it is not clear whether the $450,000 was intended for the personal use of the commander, who was then Gen. Walter Lopez Reyes, or by the armed forces as an institution. They said the check was endorsed by another military official.

Conahan said the GAO was not able to determine whether the supermarket had delivered all the food that the United States paid for.

Four of the bank accounts were owned by brokers who were authorized to receive payments in the United States for several of the contras’ smaller suppliers in Central America.

Documentation Faulty

“We thought we would find payments by these brokers to the suppliers who have provided the documents (billing the State Department),” Conahan said. “We did not. . . . Payments were made to parties that in no way provided documents.”

The largest broker’s account received $3.3 million from the U.S. aid fund and $660,000 from other sources but disbursed only about $150,000 to the contras’ suppliers, he said. The account paid $380,000 into bank accounts in the Cayman Islands and the Bahamas--and $3.4 million to companies and individuals in the United States. Conahan said that the GAO has been unable to identify most of the individuals or companies, which he said did not appear in standard business directories.

Conahan also refused to identify Honduras publicly as the country that received the payments, saying that the State Department had warned him that information was classified. But Barnes revealed the name of the country.

Barnes said he has turned the GAO information over to the Justice Department for possible prosecution, and said his panel will continue its investigation. He said he plans to subpoena the records of one of the Cayman Islands banks that received funds. Aides identified the bank as BAC International, which they said is owned by Nicaraguan nationals.