Casey, Poindexter Misled Him About Arms Sale--Shultz

Secretary of State George P. Shultz said Monday that he assured U.S. allies this summer and fall that Washington was not selling arms to Iran because he was misled himself by CIA Director William J. Casey and then-National Security Adviser John M. Poindexter.

He conceded that he was uneasy about having misled European leaders and moderate Arab officials about U.S. dealings with Iran, but he said he had not lied to them because he himself had been misinformed. Shultz said he was told twice that the arms sales had been terminated, although, he now knows, they continued.

“In the December (1985) period, my information was that this process had been ended,” Shultz said. He spoke to reporters en route to a meeting with NATO allies.

“There was another period, toward the end of May, when there was something that convinced me to weigh in heavily (against the arms sales), that I was told again” that the operation had been stopped, he said.

He said Casey and Poindexter told him in May that the operation was over. He did not say what action had caused him to renew his concern about arms sales at that time. U.S. allies and others had apparently learned of the dealings through undisclosed channels.

Earlier on Monday, Shultz, testifying under oath before the House Foreign Affairs Committee, said that he knew “zero” about the diversion of Iranian arms funds to the contras in Nicaragua and declared that the transfer of money to the U.S.-backed rebels was “illegal.”

It was the first public declaration by an Administration official that the diversion of funds from Iranian arms shipments to aid the contras violated the law, although Shultz later told reporters that he had not intended to make a legal judgment. “I shouldn’t jump to any conclusions and I’ll take that back,” he said.

Shultz’s testimony again challenged White House suggestions that the arms shipments led to a halt to Iranian terrorism against Americans. Iran was involved “at least in some fashion . . . in the most recent hostage taking” of Americans in Lebanon, where three U.S. citizens have been kidnaped since September, Shultz said.

As the first public accounting of the Reagan Administration’s most serious crisis began on Capitol Hill, Shultz acknowledged that he was extensively briefed by former National Security Adviser Robert C. McFarlane about arms shipments from Israel to Iran in 1985.

But he told the nationally televised congressional hearing that he had only “sporadic and fragmentary” knowledge of the Iranian arms sales after President Reagan formally approved U.S. arms shipments last January.

Although Shultz said he attended a high-level discussion of the plan on Jan. 7, he said he was not informed of Reagan’s final decision--contained in a Jan. 17 intelligence “finding”--to pursue further arms transfers to Iran. And he said he does “kick myself here and there” about not actively pursuing reports that Iranian arms shipments were continuing this year after top officials briefly agreed in December to halt the shipment of arms.

‘It Got Started Again’

When asked by reporters on the flight here if Casey and Poindexter had lied to him, Shultz said: “I don’t know what happened. Maybe they had told it to stand down (discontinue) and it got started again. I don’t know, I don’t have the information.”

Despite the acute embarrassment of the Iran controversy, Shultz said he will reassure the NATO allies that he retains the confidence of President Reagan and that his authority on other issues is undiminished.

“My capacity to work with the President and relationship to him on issues all over the world has been, and is, very strong,” Shultz said. “This (Iran) is a very exceptional situation.”

In a separate investigation into the Iran scandal, the Senate Intelligence Committee continued its series of closed sessions by calling Elliott Abrams, assistant secretary of state for Latin American affairs.

Refuse to Answer

It was not immediately known what testimony, if any, Abrams gave. Two former members of the Administration--Poindexter and National Security Council official Lt. Col. Oliver L. North--refused to answer Intelligence Committee questions, citing their constitutional protection against self-incrimination.

Shultz also confirmed in his testimony that he approved and took part in a State Department effort to persuade the leader of another country--identified by government officials as the sultan of the oil-rich Asian nation of Brunei--to donate several million dollars to Nicaraguan rebels last summer.

“It was a perfectly proper activity for the Department of State, for me to do that,” Shultz said. “There’s nothing illegal about it. There’s nothing improper about it. Quite the contrary. It was the policy of the United States.”

Shultz said he did not discuss the donation with the sultan during a three-hour visit he made to Brunei last June. Another official said Shultz sent at least one message to the sultan urging the donation, but that the lead role in the effort was played by Abrams.

‘Lead Responsibility’

Shultz confirmed that Abrams had “the lead responsibility” for arranging help to sustain the contras during a period when Congress had prohibited military aid to the contras.

Administration officials told The Times last week that Shultz had taken a personal role in persuading Sultan Muda Hassanal Bolkiah to donate the funds. The officials said the money was funneled through a secret Swiss bank account linked to North, who was fired two weeks ago.

“Obviously a country that you go to is probably going to want to do that secretly, and so you have to have a way of doing it,” Shultz said in a reference to the Swiss bank account. “I knew that there was such a way because we had been discussing the subject and trying to figure out pursuant to the law and in accordance with the law how we might get some funds to (the contras).”

Humanitarian Aid

Shultz characterized the Brunei contribution as humanitarian aid--which was not affected by the congressional ban then in force against military aid to the contras. Other State Department officials have said that, because they do not know what happened to the funds after they entered the Swiss bank account, it is not clear what kind of aid the money was used for and Shultz himself conceded Monday that the ultimate disposition of the money remains unclear.

Shultz nonetheless drew a firm line between the State Department efforts to solicit money from other countries for the Nicaraguan rebels and North’s diversion of profits from Iranian arms sales to the contras fighting the leftist Sandinista government in Managua.

“It was a mistake to get involved in the illegal . . . funds transfer,” Shultz said, adding later that “insofar as the diversion of funds is concerned, if that took place, then that was not a legal thing to do. That was a violation of the law.”

First Time Under Oath

Shultz, telling lawmakers that his testimony was the first time in his 10 years as a Cabinet official that he had been asked to swear formally to tell the truth, said he was prepared to cooperate fully with the committee in its probe into the affair. But Shultz, who was forced to limit his testimony to just two hours because of a scheduled White House meeting with the leader of Zaire, said that some information could only be discussed in secret sessions.

Shultz, who flew to London on Monday afternoon en route to his first meeting with NATO allies since the Iranian arms shipments were disclosed, will provide further information to the committee in a closed session after he returns to Washington.

While committee members generally treated Shultz respectfully, many expressed amazement that the Administration’s top foreign policy officials were not more closely involved in such key decisions.

“You can’t run foreign policy successfully by bypassing your secretary of state, and the secretary of defense, the Joint Chiefs of Staff, the National Security Council and the Congress,” committee Chairman Dante Fascell (D-Fla.) told Shultz. “And I’m sorry that you’ve been put in that position.”

Extracts a Joke

Shultz, under pressure to explain how the NSC staff could engage in such activities without informing higher officials, managed to extract one joke from the situation when Rep. Dan Mica (D-Fla.) complained that North still sits on an interagency group to combat terrorism.

“I don’t think he sits, still,” Shultz cracked. “He never sits still.”

Shultz argued that it was “outrageous” for ousted NSC aide North to ask billionaire H. Ross Perot to give a $2-million cash reward for the release of American hostages in Beirut, but he said he was not informed of the move and “so far as I know the President wasn’t informed.”

North ‘Had Key Job’

But in Detroit, Perot said that he has been involved with efforts to ransom hostages under four different presidents. “Under this Administration, Oliver North had the key job,” Perot said at a informal press conference. “I go back to the time that Alexander Haig (as an NSC aide under former President Richard M. Nixon) was the key guy, was my interface.”

Shultz disclosed that he has already been questioned by Justice Department officials looking into the Iranian arms sale and diversion of funds to the contras and that he had turned over documents to the FBI.

“I believe a review of the classified record . . . will support the statements I have made and it will also show that my knowledge of what took place was sporadic and fragmentary and materially incomplete,” Shultz said. “Insofar as any question . . . of diverting funds, my knowledge was not fragmentary. It was non-existent.”

Norman Kempster reported from London and Tom Redburn from Washington. Also contributing to this story was Times staff writer James Risen in Detroit.

Related stories, Pages 22-27.