Canada Puts Mounted Police on Case of Alleged Arms Financiers

The U.S.-arms sales scandal spread to Canada on Friday as the Tory government launched a formal investigation into allegations that private Canadian investors financed at least part of the secret deal with Iran.

Government officials said the inquiry, to be conducted by the Royal Canadian Mounted Police, initially will focus on six people. These include two Toronto men who reportedly lent $40 million to Adnan Khashoggi, the Saudi arms dealer who has acknowledged arranging several arms shipments to Iran.

Deputy Prime Minister Don Mazankowski also told angry opposition members, in a fractious morning session at the House of Commons, that External Affairs Minister Joe Clark had “expressed very grave concern” to U.S. Secretary of State George P. Shultz because he had not been informed of any Canadian involvement. The two men met Thursday in Brussels, where they attended a NATO ministers conference.

Mazankowski said that Shultz gave Clark little additional information about Canadian involvement, however. “My understanding is that the information, if he had any, was at best very sketchy,” Mazankowski said.

U.S. State Department spokesman Pete Martinez said he could not comment on Clark’s exchange with Shultz, or on any aspect of the arms-sales controversy.

‘Canadian Connection’ Aired

The so-called Canadian connection came to light Wednesday, when CIA Director William J. Casey told a closed meeting of the House Foreign Affairs Committee that Roy M. Furmark, a New York energy consultant who has worked in Canada, first alerted him on Oct. 7 that Canadian investors were threatening to file lawsuits to recover money they had put up for the arms deal.

Several government officials said that the police investigation will be focused on two men identified in Friday’s Wall Street Journal as Donald Fraser, an accountant, and real estate agent William Miller, both of Toronto. Neither could be reached Friday.

Fraser and Miller have business dealings in the Cayman Islands. Khashoggi has said that financiers in Canada and the Cayman Islands paid money into a Swiss bank account to pay for two shipments of American arms that Israel sent to Iran.

Canada’s Ministry of External Affairs has asked the Israeli ambassador, Eliashiv Ben-Horin, to provide information on the transaction, officials said. Ben-Horin could not be reached Friday.

Denied Further Details

A similar request was made to the U.S. ambassador, Thomas M. T. Niles, but Mazankowski said the U.S. Embassy had answered that “it is impossible in the current circumstances to provide any further specific information.”

Tom van Dusen, Mazankowski’s special assistant, said the Royal Canadian Mounted Police also will investigate “as many as four other” people, whom he refused to name. Staff Sgt. Dennis Rich of the mounted police said he could not talk about details of the investigation.

Officials said it was unlikely that financing an arms deal with Iran would have violated Canadian law. It is illegal to actually ship arms from Canada to Iran, however, and at least four Canadians have been charged with smuggling military equipment to Iran since 1982.

The “Canadian connection” dominated newspaper headlines and radio and TV talk shows Friday, as well as the political debate in Parliament.

Herb Gray, House leader for the Liberal Party, the chief opposition party, said in an interview that the disclosure was “very embarrassing” to Prime Minister Brian Mulroney’s government.

‘It Makes You Wonder’

“The government has tried to make political capital out of its relations to the Reagan Administration, and it now appears the U.S. didn’t even take us seriously enough to inform us,” Gray said. “It makes you wonder how seriously the U.S. takes relations with its best friend and neighbor.”

Van Dusen denied that the deal was a political problem at home or with the United States, however.

“The government doesn’t see any embarrassment in this,” he said. “Casey wasn’t telling the U.S. State Department, so how could our American contacts tell us? If George Shultz didn’t know, how could he tell us?”