Shultz Says He Knew ‘Zero’ About ‘Illegal’ Contra Aid : McFarlane Again Disputes Version by White House

Secretary of State George P. Shultz today denied involvement in the diversion of Iranian arms sale profits to Nicaraguan rebels, which he called an “illegal” activity that he knew “zero” about.

At an extraordinary, nationally televised congressional hearing that delved into the Reagan Administration’s worst crisis, Shultz said bluntly that he was “opposed and skeptical” about President Reagan’s decision to sell arms to Iran.

He also told the House Foreign Affairs Committee that there is evidence that Iranians were involved “at least in some fashion in the most recent hostage-taking” of Americans in Lebanon, well after they received U.S. anti-tank missiles and other arms.

In later afternoon testimony, former National Security Adviser Robert C. McFarlane--directly contradicting assertions by top White House spokesmen--said that Reagan gave his approval for an “indirect” shipment of arms to Iran in August of 1985.

McFarlane gave the same testimony last week in a closed session of the Senate Intelligence Committee.

Asked last Friday whether the President had given his approval for such a shipment, White House spokesman Larry Speakes said that Reagan had been informed only after the arms were delivered in September, 1985.

Shultz told the committee that he had fragmentary knowledge of Reagan’s decision to approve the arms sale. But when it came to transferring profits from the sales to the contra rebels resisting the leftist Sandinista government in Managua, Shultz said, his knowledge was “non-existent.”

“My role in that was zero, I knew nothing about it until it came out. . . . From what I have seen and what the attorney general has said, some things took place that were illegal.”

Shultz spoke under oath in two hours of testimony during which he pledged complete cooperation with congressional investigators looking into the affair, as well as with Justice Department investigators.

Shultz was the leadoff witness at the House panel’s hearing, while across the Capitol, the Senate Intelligence Committee quizzed Elliott Abrams, assistant secretary of state for Latin American Affairs, in a closed-door session.

Sen. Dave Durenberger (R-Minn.), the committee’s chairman, said the panel has received most of the documents it is seeking in its inquiry. And he was critical of Shultz and other unnamed Cabinet-level officials whom he said deliberately “ignored what was going on” in connection with the arms sale.

“I don’t think any of them who were aware of the Iran situation did anything other than turn their back on it and pretend that it wasn’t going on, and now they’re all scrambling around to do their own investigation,” he said.

At the White House, spokesman Larry Speakes declined comment on Shultz’s testimony, but said that it had not been cleared in advance. “What we’re going to do is let Shultz do his testifying. Whatever Shultz tells will certainly be his view and as best as he’s been able to determine,” Speakes said.

Asked about Reagan’s first-time statement over the weekend that “mistakes were made” in the affair, Shultz said, “It was a mistake to get involved in the illegal . . . funds transfer.” He said he did not want to appear to be speaking as a judge, but added, “From what I have seen and what the attorney general said, some things took place that were illegal.”

Shultz said that not only was the diversion illegal, but that it served to confuse American foreign policy toward Nicaragua.

Shultz also said that he had not personally appealed to the sultan of Brunei for money to help the contras. But he indicated that other State Department officials did so, and said a law against U.S. military aid to the Nicaraguan rebels “did not preclude activities of the Department of State to solicit humanitarian assistance.”

He said it was “outrageous” if fired NSC staff member Lt. Col. Oliver L. North persuaded billionaire businessman H. Ross Perot to post a cash reward for the release of American hostages in Beirut. “I know nothing about it,” he said of news reports about the reported action.

Shultz was followed in the House committee room by McFarlane, who defended the Administration’s decision to seek a fresh relationship with moderate elements of the Iranian government. But he said that once contacts were made in Iran, it quickly became clear that the Administration would have to provide arms as part of any dealings.

McFarlane said the President gave his authorization in August, 1985, for “small levels of arms to Iran for the purpose of strengthening elements against terrorism.” McFarlane did not mention any other country by name, but Israel has been identified as having sent American arms to Iran during the summer of 1985.

Like Shultz, McFarlane said he had never discussed with Reagan the diversion of Iranian arms sale profits to the rebels in Nicaragua.

But at the conclusion of his prepared statement, McFarlane said that he had been advised while returning from an arms-delivery mission to Tehran at the end of last May “that the U.S. government had applied part of the proceeds from arms transfers carried out in 1986, to support the contra rebels .

“I received no details,” McFarlane said. “In context, I took it from the summary reference that this action was a matter of approved policy sanctioned by higher authority.”