The Iran Deception : REAGAN’S GREATEST CRISIS : CHAPTER 8 : ‘America Cannot Do a Damn Thing’

After six years of magic, President Reagan broke the spell. By deceiving the nation, he and those around him badly damaged his presidency. This traumatic tale is still unfolding, with no end in sight. This is how it developed.

Shah Mohammed Reza Pahlavi and all his billions could not erase Tehran’s 800-year history as one of the earth’s ugliest cities. Set on a sloping plain that was prone to flooding, it had been plagued through centuries of shifting seasons by mud and dust, its architecture even in ancient times as sere as the landscape. And now, as their unmarked Israeli jet plowed through the brown smog on approach to Mehrabad International Airport, Bud McFarlane and Ollie North could easily have observed with satisfaction that the Ayatollah had done nothing to improve the situation.

The airport was ringed by faceless concrete apartment buildings. Many, left half-finished since the fall of the Shah, teemed with squatters. The narrow streets, hopelessly choked with jitneys, were lined on both sides by drainage ditches.

June was but two days away, and Tehran was crawling toward a torrid summer. Those of the city’s 5 million residents who could afford it were moving north for the season to the cooler foothills of the Elburz Mountains, where the Ayatollah Khomeini lives in a villa ringed by anti-aircraft guns.

The airport itself is modern, bustling, even a little festive, right down to the gigantic, permanent banner strung outside the terminal in view of arriving passengers. Those on the jet did not have to rely on retired CIA agent George Cave, a fluent Farsi speaker who had come along as a translator, to see that the greeting was anything but hearty.

“America Cannot Do a Damn Thing,” the banner said--in English and Farsi both.

McFarlane did not need that. By his own later account, he had early misgivings about this trip. They arose when he boarded the jet in Israel and discovered--to what he has said was his surprise--that the aircraft was crammed with 208 boxes of Hawk missile repair kits and other items.

Days before, according to Transportation Department records, two Southern Air Transport Boeing 707s had ferried these items to Tel Aviv in the second American airlift of the year from Kelly Air Force Base; in Tel Aviv they had been unloaded and transshipped by the Israelis. McFarlane and North had joined up there.

McFarlane had been told in April that the Iranian “moderates” were buying U.S. weapons, according to government sources. He simply had not expected to deliver them personally. If everyone followed the script North outlined en route to Tehran, however, the ignominy of doing duty as an arms huckster instead of a global strategist just might be worth it.

By North’s scenario, this time--unlike the others--Islamic Jihad would free the five hostages it still held. There was a schedule for the release, North told McFarlane; the moderates had pledged to it. And if the arms deal did not seal the matter, North had another trump in his deck: H. Ross Perot, the Texas billionaire who had rescued his company’s employees from Tehran after the Shah’s 1979 downfall. Five days before, Perot had dispatched a boat and $2 million in cash to Cyprus to ransom the Americans if necessary.

It was not the first time Perot had offered to write checks for the freedom of U.S. hostages. At North’s request, officials said, he had earlier agreed to put up money to ransom Buckley from captivity, if that could be arranged, and he had worked to free other captives in Lebanon, Africa and Italy as well. North met Perot when the Texas businessman served on a White House intelligence advisory board, and the two had become friends--as well as collaborators on hostage matters.

The White House later would deny it knew of the ransom plans, which appeared incompatible with the President’s adamantly stated refusal to “cave in to terrorist demands.” But Perot would differ about what senior White House officials knew: “My sense has always been,” he told ABC News, “that the people who do these kinds of things in the government are very meticulous in getting approval for their activities.”

McFarlane, North and Cave were joined by Teicher, the National Security Council’s man for Middle East affairs.

Also on the flight, disguised as a crew member, was Nir, the Israeli counterterrorism adviser.

Those who went to Tehran were to meet people McFarlane would call “officials of high influence” and whom Iranian leaders would subsequently describe as low-level lackeys. To break the ice, the Americans bore gifts: a Bible, two pistols and a now-notorious cake--reportedly baked in Israel before takeoff--that was either topped with a decorative key or unadorned but offered as a symbolic key to friendship, depending on the conflicting accounts about such embarrassing details that filtered out later.

The Iranians took the four Americans to the Independence Hotel, once the Tehran Hilton, a formerly opulent white skyscraper on the city’s northern slopes. The next day, and for two more days after that, they talked, waited for the promised release of the hostages, then talked some more.

On June 1, they stopped talking. The hostages were not freed and, McFarlane told lawmakers later, “As anxious as the Iranians were for us to stay, the fact was that they had shown a clear breach of faith.” Back aboard the jet, McFarlane switched on a CIA-issue secure radio and summoned Poindexter half a globe away to report the failure. Perot’s ship was returning to port without any freed Americans. Why would remain a mystery.

For McFarlane’s part, the materiel had been delivered; but the hostage deal, if ever it existed, had fallen through.

McFarlane, North and their party were coming home.

North had lost another hand. But he still had a card he had not turned over. On the flight back to Washington, McFarlane later testified, North slapped his ace on the table.

It was a secret--the final twist of a diplomatic confidence game that the Iranians so far had won hands down. As politically devastating as the weapons sales were to become, this secret would be a far bigger bombshell. It would drive North and Poindexter out of the government and eventually threaten to drag CIA Director Casey and Chief of Staff Regan in their wake.

Yet McFarlane would accept the secret with equanimity. According to his own account, he would not raise it with President Reagan when he personally briefed him on the Tehran mission a few days later. McFarlane would tell no one for the next six months, until after Meese stumbled across it when he searched through North’s files after the scandal broke.

The secret, McFarlane later testified, was that the United States had gained something from the Iranian dalliance after all. It had made money--millions of dollars--by inflating the price of the weapons sold to the Iranians. The money was in a Swiss account. And if the Iranians would not help America in the Middle East, then at least their money would help the contras fight the Sandinistas in Nicaragua.

When North revealed the diversion of profits to the contras, “I received no details,” McFarlane later told a congressional committee. “In context, I took it . . . that this action was a matter of approved policy sanctioned by higher authority.”

The Tehran team got home almost a year to the day after William Buckley reportedly had died.

Meese told reporters after his probe that the cash rake-off from the Tehran arms shipments totaled $10 million to $30 million. But congressional investigators later said Meese’s estimate was high: About $4 million to $10 million was probably skimmed, they said.

Some suspect that the rake-off may have involved only one of the three 1986 shipments. But that is in dispute.

The contras received at least $10 million in private aid from all sources in 1986, Administration officials said. How much of that came from the Iranian arms deal remains unclear.

Reliable reports had it that the cash from the Iranian arms shipments was placed in a Swiss bank account controlled by North, Secord and Albert A. Hakim, an Iranian-born American arms dealer and a partner with Secord in a company called Stanford Technology Corp., which deals in military equipment. But where the money went from there--if anywhere--is anybody’s guess. There has been speculation that the money flowed into secret accounts in Panama and the Cayman Islands that have been linked to the Nicaraguan rebels and to Secord’s various companies, but evidence is lacking.

“We can construct the money flow up to a point; we can show where a certain amount of money is unaccounted for,” one intelligence source said this month. “But we can’t show where it went.”

In retrospect, that was not surprising. Along with the Iranian and contra operations, the Administration’s penchant for sleight of hand had been growing.

At roughly the same time that North was said to have been diverting millions from the Iranian arms sales to the contras, Shultz and Assistant Secretary of State Elliott Abrams were working the contra cause on the other side of the globe. After meetings in London and Washington, Abrams--on Shultz’s orders--won a pledge of $10 million for the Nicaraguan rebels from the unspeakably wealthy sultan of Brunei, a Delaware-sized kingdom on the island of Borneo that rests atop a seemingly endless supply of oil.

The donation was apparently the only one that State Department officials collected for the contras in a year of passing the diplomatic hat; and Abrams, the department’s Latin affairs chief, was uncertain what to do with the cash. A helpful North offered him a Swiss bank account number, and Abrams gave the number to the sultan.

“Ollie controlled the bank account,” one official later said. “And no one knows what Ollie did with the money.”

The White House would attempt still other weapons shipments later that summer. But arms caches dispatched in July and August appear to have stalled en route--in Israel, Spain or other still-secret way points. The shipments never made it to Tehran, one knowledgeable official said. Why remains a mystery.

It is known that the American-Iranian courtship, long simmering with mistrust, reached a flash point that summer over a universal issue: money. Arguments over financing or paying for weapons may have scotched the deliveries; the same disputes later would play a fateful role in the Iran operation’s demise.

Despite the snafu, one more hostage--Father Lawrence Jenco--would be freed in late July and would carry to President Reagan a confidential message from his kidnapers. He would also turn over a videotape of another hostage pleading that the White House bargain with his captors.

The tape was of David Jacobsen, the next--and last--man whose liberty would be bought with U.S. arms. As his freedom was being bargained, Shultz was blasting the Soviet Union in a speech to Arab leaders for not acting “as forcefully as we” in blocking the flow of arms to Iran.

“The bottom line is we traded guns for bodies,” one wondering official said as the operation was revealed this fall. “Each time they promised us six (hostages), and each time we got one. Iran kept jerking ‘em around every time.

“Ollie was completely out of control on this.”

Then, on Sept. 9, American educator Frank Herbert Reed was hustled into a car in West Beirut. Three days later, accountant Joseph J. Cicippio was abducted from the campus of American University, where he worked. Within days, callers representing three radical pro-Iranian groups claimed responsibility for the kidnapings. In the space of one week, they had undone the successes of the previous 12 months.

Five weeks later, they would seize still another American in Beirut, writer Edward Austin Tracy. By that time, North, Poindexter and the CIA would be opening the pipeline for yet another shipment of arms, bringing the total to 2,008 TOW missiles and 504 Hawks, plus repair parts, radar components and other supplies. The last shipment was timed to arrive Oct. 27.

The White House hoped once again that in a single bold stroke it would bring freedom to American captives--now all seven of them.

It was to be the sixth cache of American arms sent to the Iranians. In 14 months, a closely held diplomatic move had become a high-stakes game with players scattered from Iran to Central America to Brunei. A single “good-faith” gesture had spawned enough weapons dealing to occupy several Swiss bank accounts and nurse a Central American war to boot.

But the pipeline had become too big, too unwieldy. It was too well-known, not just among Iranian factions jockeying for a share of Khomeini’s legacy, but among American officials who opposed the whole idea.

At this point, it would take very little to send it crashing down.