Behind the Scenes of Secret Iran Deal : Arms Trade: A Shadowy, Sinister World

Times Staff Writer

The international arms bazaar, operated from the back streets and grand boulevards of Paris, London, Geneva and even this sleepy corner of the Cote d'Azur, is a shadowy world of secrets and intrigue, of fanciful rumors and--sometimes--incredible truths.

This is the world that knew long before the American or Iranian publics that the White House and Tehran were engaged in clandestine foreign policy initiatives involving trades in arms and hostages.

And it was from this Mediterranean village resort that a self-proclaimed "retired oil trader" passed along a report late last December to an Oregon associate that newly appointed national security adviser John M. Poindexter had approved the sale of anti-tank missiles to Iran via Israel, news that wasn't publicly known until nearly a year later.

Exploiting such inside information, the denizens of this world planned, plotted and schemed to profit from the secrets that would later shock America.

This is a story about some of those schemes and some of the characters behind them. It is based on federal court records, private documents obtained by The Times and interviews conducted in Europe and the United States with the participants.

It was November, 1985, when Cyrus Hashemi, a wealthy London-based cousin of Iran Parliament Speaker Hashemi Rafsanjani, asked his lawyer to try to locate arms dealers willing to ship U.S.-made weapons and military supplies to Iran in defiance of a longstanding U.S. ban on such trade.

Attorney Samuel Evans, an American living in London who represented both Hashemi and Saudi businessman Adnan Khashoggi, sought contacts in the arms bazaar and was told that not only were weapons available but that some Frenchmen were negotiating with the United States to sanction such sales in exchange for renewed, low-level diplomatic relations between the two countries.

One of those Frenchmen was John de Larocque, 57, a St. Tropez oil trader with links to European and Middle Eastern intelligence sources, who was introduced to Hashemi by Evans.

De Larocque at the time was engaged in a determined campaign to alert U.S. officials that some of his Iranian military contacts were interested in trading military supplies for discussions about normalizing relations--and possibly helping assist in the release of hostages.

Richard J. Brenneke, a De Larocque associate in Oregon, had passed detailed memoranda to officials of the U.S. Department of Defense relaying this interest and adding that Iran was willing to trade Soviet intelligence information and a highly sought Soviet-made tank as well. In December, De Larocque awaited a response from the United States.

Already the closing days of 1985 had been busy among international arms traders and the fringe intelligence operatives who swarm about them like flies at a fruit stand.

Word of Israeli weapons shipments to Iran was rippling through the sensitive marketplace.

And in Geneva, a long-established arms merchant was offered 30 fighter-jets and other equipment for $500 million. Another trader investigated, found out the planes were owned by the California Air National Guard, and shrugged off the offer as another attempt by con men "trying to sell the Brooklyn Bridge."

As usual in this shadowy world, it was hard to separate the fairy tales from the facts.

Hashemi, a fugitive from a U.S. arms-smuggling indictment pending in New York and no stranger to the arms bazaar himself, arranged to meet with an international group of businessmen in Paris to discuss the possibility of an American-approved arms deal with Iran. Among those who attended was another associate of De Larocque--Bernard Veillot of Paris.

According to court records in New York and subsequent interviews with Brenneke and De Larocque, Veillot was a middleman in earlier efforts to bring U.S. and Iranian officials together in 1984.

That effort, code-named "Project Condor-Demavend," for a mountain outside Tehran, ended in failure in October, 1985, they said, because of Iran's reported reluctance to deal with the CIA.

At the Paris meeting in December, Veillot told Evans and Hashemi--without naming the earlier project--about De Larocque's attempt to resurrect Condor-Demavend. And Veillot later told them that Vice President George Bush was considering the proposal.

Hashemi, apparently seeing an opportunity to curry leniency in his pending criminal case, contacted the U.S. Customs Service and the Justice Department through a New York attorney. He asked whether there was any truth to the claim that U.S. policy toward Iran arms trading might be changing. If not, he offered to serve as a double agent and allow Customs agents to witness the arms transaction that he had initiated through Evans in Europe.

U.S. officials told Hashemi what they later repeated in a federal court in New York, that any claim that the United States would sanction sales of arms to Iran was "a fairy tale" and they assigned agents to work with him.

When Bush visited Portland last January, one of his aides was handed an envelope by Brenneke, a Lake Oswego real estate management consultant. Contents of that envelope have since been put into court records in New York, including memos saying that:

--Iran was interested in improving relations with the United States rather than being left with "no choice but to negotiate with the Russians for assistance."

--An unnamed Iranian official had suggested that "elements in Iran could be pressured by the government to assist in the release of the hostages" being held in Lebanon.

--It was known that trade with Iran in military weapons already had been approved by Poindexter, who "issued verbal approval for the sale of 10,000 TOW (antitank) missiles" that would be purchased by a private company from Israel and shipped to Iran. (U.S. officials have since acknowledged that about 2,000 missiles were shipped from Israel by private sources.)

--Iran was willing to provide for the immediate transfer "to a NATO country for the U.S." one of the latest Soviet-made tanks that it had captured from Iraq.

In turn, Brenneke wrote, he and his partner (De Larocque) would like an exclusive license to trade any U.S. weapons with Iran.

The partners later would send additional data to Bush via the American Embassy in Paris, data that they said included an intelligence document on the state of the Iran-Iraq War as analyzed by a high-ranking Iranian air force officer.

"I knew the vice president sat in on the NSC (National Security Council) meetings and I wanted him to have the choice of taking some action if it was politically good for him," de Larocque said.

A few weeks after handing the first envelope to Bush, however, Brenneke received a polite "thank-you-for-your-letter" reply from Lt. Col. E. Douglas Menarchik, a Bush aide:

"The U.S. government will not permit or participate in the provision of war materiel to Iran and will prosecute any such efforts by U.S. citizens to the fullest extent of the law."

It was dated Feb. 6, 1986--ironically, three weeks after President Reagan secretly suspended enforcement of the Arms Export Control Act to permit shipments of arms to Iran.

Meanwhile, Hashemi was cooperating with U.S. Customs agents who had launched a transatlantic investigation of Evans, De Larocque, Veillot and, a group suspected of conspiring to trade arms illegally. That group ultimately grew to 17 international businessmen, including retired Israeli Gen. Avraham Bar-Am and Beverly Hills actor Nico Minardos, also a business associate of Khashoggi.

Apparently without the Customs agents' knowledge, however, Hashemi simultaneously was bargaining with the CIA to offer his services as a contact with Iran to help the United States gain the release of American hostages in Lebanon. One of Hashemi's attorneys, former Atty. Gen. Elliot Richardson, told Thames Television in London that he had arranged for Hashemi to meet an unnamed CIA official last January in a New York hotel.

In his role as an Iranian arms buyer, however, Hashemi and the Customs agents working with him seemed to be frustrated by repeated assurances from prospective arms sellers that the United States ultimately would sanction the proposed deal.

In a secretly recorded telephone call as early as December, 1985, for example, Evans told Hashemi:

"As far as official approval in the West . . . (it) has to be there or (the deal is) not going to happen. . . . It just stands to reason that the 39 (F-4 fighters jets) have to be known about. There's no way that they could (be shipped to Iran) without the acquiescence of the (U.S.) officials. . . . It has to represent government policy."

When Evans raised similar arguments in subsequent recorded conversations, Hashemi finally shouted in frustration that such claims were ridiculous.

But Minardos, recorded by a hidden video camera at Hashemi's New York apartment after returning to the United States from a meeting in Rome with U.S. Ambassador Maxwell M. Rabb, repeated those claims months later.

Minardos reported that he had told Rabb about Iran's interest in opening up channels of discussion with the United States and had asked the ambassador to confirm that his country sanctioned some arms trades with Tehran.

"I told Max I don't want to do anything against America," Minardos was recorded telling Hashemi last March. He also told Hashemi and the undercover customs agents about meeting with Israeli Ministry of Defense officials in Tel Aviv: "I'm positive they have (made a deal with America). I'm positive America knows (about arms sales to Iran)."

Answered one of the undercover agents: "This is not the case."

The Hashemi-aided federal sting investigation culminated last April in the arrests of Evans, Minardos, Bar-Am, De Larocque, Veillot and five others in a highly publicized sweep that required the cooperation of authorities in Bermuda.

Israeli authorities complained that Bar-Am and three Israeli businessmen were virtually "kidnaped" when they were arrested on nebulous Bermuda immigration violations at the urging of U.S. officials and deported to New York.

Customs Commissioner William von Raab, however, called the arrests a blow against terrorism. He called the accused men "brokers of death" who would have armed the "bloody hands of international terrorism."

One of those invited to fly from Europe to Bermuda to complete the fictitious arms deal was De Larocque. He failed to make the plane.

"I talked to my sources in Iran and they told me Hashemi was working with the Customs Service," De Larocque explained. "I had better things to do than vacation in Bermuda."

Hashemi told a Farsi-language publication in London shortly before his sudden death from undiagnosed leukemia last July that he had, in fact, informed Iranian authorities before agreeing to take the informant's role. Iranian officials approved, he said.

Today prosecution of that case has been severely complicated by recent disclosures that--during the months these would-be arms merchants were negotiating with Hashemi over a contrived arms deal--agents of the White House were shipping millions of dollars of real weapons and military equipment to Iran.

Justice Department officials concede that this case--as well as others--will have to be reevaluated as a consequence.

Meanwhile, trading in arms and information in the international arms bazaar continues.

Documents obtained by The Times from one of those traders show that U.S. intelligence agents are continuing to negotiate with Iran over the T-72 Soviet tank it captured from Iraq. As recently as March 28, a two-man British inspection team made a late-night visit to an uncertain location inside Iran to examine the tank, escorted by a regimental commandant.

In a report to the U.S. Army intelligence officer who hired them, the inspectors reported:

"Although inspection was conducted after 2100 hours, 20 minutes drive east from hotel, we were treated as VIPs and all questions were answered in a courteous manner. . . . (We) did not detect any deliberate attempts to misinform."

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