THE CRISIS IN THE WHITE HOUSE : Diverted Iran Money Poses Legal Issue: Were U.S. Public Funds Used?

Justice Department experts Tuesday came up empty-handed in early efforts to determine whether Lt. Col. Oliver L. North’s alleged channeling of millions of dollars in Iranian arms funds broke any U.S. laws, despite senators’ assertions that his actions violated at least three federal statutes.

“A central question,” one official said, “is, ‘Did the profit (from arms sales) belong to the U.S. government?’ ” And, this official said, the answer may be no.

Officials involved in the legal scrutiny emphasize that the research is far from complete. Moreover, they say that the four to five close aides at the department who assisted Atty. Gen. Edwin Meese III in his personal inquiry have been focusing on efforts to determine what took place before trying to fix any criminal responsibility.

“We wanted to develop the definitive story of what happened from Day One because there were as many different versions as there were people” involved, one official said. “There was a picture of an Administration in disarray and what was needed was a determined, effective effort to put it all together.”

Indicating that the legal scrutiny had just begun, the FBI on Tuesday night still had not officially entered the complex case, as officials there and at the Justice Department pondered what the statutory basis would be for the FBI to become involved.

On Capitol Hill, however, there was far less doubt about whether North’s alleged actions had run afoul of federal law. Sen. Sam Nunn (D-Ga.), for example, said that the channeling of Iranian funds to finance efforts by the contras to topple the Sandinista government in Nicaragua probably amounted to a misappropriation of taxpayer funds.

But Executive Branch experts on relevant laws countered that taxpayer funds may not have been at stake in the secret operation, noting that the money involved came from a foreign source.

The Foreign Assistance Act prohibits expenditure of any appropriated monies by or on behalf of the CIA for foreign covert operations without the President’s specific approval. The problem is that the $10 million to $30 million that Meese estimated had been funneled to the contras was not “appropriated money,” but rather funds furnished by the Iranian arms buyers.

New federal restrictions on money-laundering also do not seem to apply, Executive Branch lawyers said. Numbered Swiss bank accounts appear to have been used as a vehicle to channel the funds to the contras, rather than to convert them to personal use.

As an example of the difficulties of successfully prosecuting such cases--even when personal gain is alleged--Justice Department officials cited last year’s acquittal of a retired Air Force general tried on federal charges that he embezzled money from a Swiss bank account administered to finance Air Force spying.

In July, 1985, a West Palm Beach, Fla., jury acquitted Maj. Gen. Richard B. Collins, who had been charged with six counts of embezzling $19,000 in interest from the secret account.

The prospect of any criminal charges against North’s superiors--former National Security Adviser Robert C. McFarlane and his successor, John M. Poindexter, whose resignation was announced Tuesday--appeared to hinge on whether any legal action is taken against North, who was fired. Meese indicated that both men at some point had at least general knowledge that the money was being channeled and failed to call it to the attention of authorities.

Establishing that they had knowledge of a felony and failed to report it--invoking the seldom-used misprision of a felony statute--would require proving first that North was guilty of a felony, officials noted.

During a briefing in which he was considered unusually forthcoming in addressing such highly sensitive issues, Meese made clear that the investigation is still far from complete and did not rule out convening a federal grand jury on the matter.

The aides who participated in the earlier personal inquiry by the attorney general were political appointees close to Meese, presumably chosen to ensure confidentiality, but the current probe is being handled by a broader range of attorneys.

The American Civil Liberties Union, however, urged Meese to remove himself from the matter and seek appointment of an independent counsel.

“The attorney general is not in a position to ensure an impartial investigation,” said Morton Halperin, director of the ACLU’s Washington office.

Citing White House statements that Meese had certified the legality of shipping arms to Iran, Halperin said that one of the key tasks of the criminal investigation “must be to determine the extent to which high-level officials were involved or had knowledge of the illegal activity. Only an independent counsel can carry out such an investigation.”

Meese said that the question of whether to seek an independent counsel will be decided if his department investigation determines that any law has been broken and that the people involved are covered by the Ethics in Government Act. Department officials indicated that North is not covered by the act but that McFarlane and Poindexter are.

Meese’s investigating team, made up entirely of political appointees, includes assistant attorneys general and special assistants to the attorney general, a Justice Department source said. Meese declined to name members of the team, but one key participant is William Bradford Reynolds, the controversial assistant attorney general for civil rights and a key adviser to Meese.

Although the FBI has not been officially involved in the investigation so far, FBI Director William H. Webster met with Meese frequently in the last few days. But department and FBI officials declined to state whether he has taken part in the early stages of the investigation.