Adnan Khashoggi and Manucher Ghorbanifar, the international arms merchants who became central figures in secret U.S. weapons sales to Iran, formed their business alliance after four days of "wheeler-dealer meetings" in West Germany arranged by a longtime friend of CIA Director William J. Casey, according to sources familiar with the participants.
And within two months after Khashoggi and Ghorbanifar were introduced to each other last year by New York oil consultant Roy M. Furmark--recently revealed as a go-between for Casey and Khashoggi--the arms merchants brokered their first U.S.-sanctioned weapons deals involving American-made anti-tank missiles shipped to Iran from Israel.
There has been no indication that Casey knew about the meeting.
According to the sources, the meetings from June 14 to 17, 1985, at the Vier Jahreszeiten Hotel in Hamburg centered on discussions about opening up business dealings with Iran, possibly involving billions of dollars. The potential deals ranged from the sale of farm equipment and oil to the export of military equipment and arms.
Daylong negotiations took place in penthouse suites of the hotel overlooking Alster Lake and in Mercedes-Benz limousines en route to expensive dinners--with time out from the marathon sessions for side trips to a Persian rug sale and late-night bars with striptease shows.
"It was four days of fancy hotels, fancy women, sleazy bars and smoke-filled rooms," one associate of a participant said.
Furmark, who said he had done business earlier with both Khashoggi and Ghorbanifar, told The Times that he recalled no discussions of arms sales during those meetings. However, his account was disputed by others familiar with the negotiations and by statements filed in federal court weeks before the Iran arms scandal broke.
Samuel Evans, an attorney for Khashoggi who also attended the meetings, said in a sworn statement that Khashoggi, Furmark and London-based Iranian businessman Cyrus Hashemi earlier had organized a joint venture called World Trade Group. The company's purposes were to trade petroleum from the National Iranian Oil Co., to distribute agricultural equipment to Iran and to "supply arms to Iran."
Ghorbanifar was seen by the joint venture partners as a valuable link to key trading officials in Tehran, sources said. But their introduction to Ghorbanifar may not have worked out as well as planned for the World Trade partners.
According to sources and an examination of those court records in New York, the resulting Khashoggi-Ghorbanifar union appeared to be the outgrowth of an old-fashioned business double cross. Khashoggi almost immediately abandoned Hashemi in favor of dealing directly with Ghorbanifar, the better-connected Iranian middleman, in the covert arms supply effort.
And the now-deceased Hashemi, cut out of the sanctioned arms deals, secretly contacted the U.S. Justice Department and became a government informant in this country's biggest arms smuggling "sting" operation in history. Months later, the resulting U.S. Customs Service investigation led to arrests of 10 men, including Khashoggi's attorney and a retired Israeli general.
Concern About Iran
About the time of the Hamburg meetings in June, 1985, analysts at the CIA and at the White House National Security Council were reviewing U.S. policy toward Iran. Robert C. McFarlane, then President Reagan's national security adviser, reportedly was concerned that Iran might fall into Soviet orbit.
The concern of McFarlane--who the New York Times reported met in March, 1985, with Khashoggi--was reflected in an NSC memorandum a month later that raised the prospect of giving the Iranians "material aid" and "equipment" to soften their American opposition.
Associates of those who attended the Hamburg meetings said it was "common knowledge" in the international arms community that by June, 1985, the United States was interested in funneling arms to Iran through Israel.
Genesis of Alliance
And the meetings in Hamburg represent the genesis of a business alliance whose partners would serve as financial brokers for the earliest indirect, U.S.-sanctioned arms deals with Iran, the first two of which were sent through Israel.
According to accounts published in Israel, Khashoggi collected $250,000 in commissions from the first two arms transactions, valued at $5 million. An Israeli arms dealer got about $1 million to cover commissions and the costs of leasing a plane (about $250,000) to ship the first 100 anti-tank missiles to Tehran.
When a subsequent arms sale collapsed and tied up $10 million in investor funds, Furmark acted as a go-between, seeking help from Casey on Khashoggi's behalf. Furmark told The Times that he met Casey three times this fall. The New York businessman has known Casey and Khashoggi for about 20 years.
Khashoggi and Ghorbanifar have denied that they earned any profits from the arms deals. They said they agreed to be middlemen in the interest of peace in the Middle East.
Khashoggi and his partners in World Trade Group spent long hours in negotiations with Ghorbanifar and others over Iranian oil contracts and proposals to take over the Caterpillar tractor production and distribution facilities in Iran that had been closed since the Ayatollah Ruhollah Khomeini had seized power from Shah Mohammed Reza Pahlavi.
According to Furmark, negotiations also focused on complex barter arrangements that involved a $1-billion proposal to trade Iranian oil "for a multitude of products," such as food, pulp and paper products and other commodities scarce in the war-torn country.
Furmark held a 10% share of World Trade Group, whereas Khashoggi and Hashemi each owned 45%, with Hashemi serving as chief executive.
However, the venture collapsed when Khashoggi abandoned the partnership to team with Ghorbanifar in August, 1985.
One former associate of Hashemi said the Iranian businessman "made a big mistake" when he let Khashoggi meet Ghorbanifar. "At that point Khashoggi no longer needed Hashemi. He could deal direct," the source said. But Furmark told The Times that the partnership failed because he and Khashoggi "lost faith in Hashemi."
Hashemi, Khashoggi and Ghorbanifar were all acknowledged arms dealers at the time they met. Hashemi, in fact, was under indictment in New York for his role in shipping arms to Iran during the 1980 hostage crisis at the American Embassy in Tehran. The former Iranian banker at that time also was working with the Jimmy Carter Administration to make contacts with officials in the new Iranian government. Federal authorities said, however, that he used his role to conceal illicit arms deals.
After being cut out of the Khashoggi-Ghorbanifar arms deals in 1985, Hashemi continued to pursue separate weapons deals with Iran through a successor partnership, Bayway. He was represented in that venture by Khashoggi's attorney, Evans, who told Hashemi that U.S.-sanctioned arms sales could be arranged, court records show.
In December, Hashemi went to federal law enforcement authorities and offered to help undercover customs agents snare an international band of arms dealers in return for favorable consideration of his still-pending indictment.
In April, 1986--shortly before McFarlane and Lt. Col. Oliver L. North of the National Security Council staff flew to Tehran with a planeload of arms and spare parts--customs agents working with Hashemi arrested Evans, retired Israeli Gen. Avraham Bar-Am and Khashoggi business associate Nico Minardos on charges of conspiracy to ship arms to Iran.
Three months later, Hashemi died suddenly of previously undiagnosed leukemia. Hearings into whether federal prosecution should continue against Evans, Bar-Am, Minardos and 12 other international defendants are scheduled for today in New York.
In 1980, Ghorbanifar--reportedly a former agent of Savak, the shah's secret police--fled Iran after he was linked to a coup attempt by Iranian air force officers. The coup was preempted by a series of arrests and executions. One former air force officer who told The Times that he was among those who plotted to topple the Khomeini regime recalled that Ghorbanifar used the code name "Zusanni" in the abortive campaign.
Today, Ghorbanifar's relationship with the Khomeini government appears to be excellent.
In a television interview last week, Ghorbanifar and Khashoggi said they were in Hamburg only for a Persian rug sale. But associates of participants in those meetings said the rug sale represented only "an hour's diversion" after strenuous negotiations one afternoon.
Khashoggi, who was being pressed by creditors throughout 1985, reportedly inspected millions of dollars in antique Persian rugs, many of them previously owned by the shah.
"They took limousines out to some warehouse on the river and looked at rugs. Some of them were huge and incredibly expensive," a source said. "Khashoggi bought a couple the size of bath mats."
Times staff writer Bob Drogin contributed to this story.