Shultz Denies Later Arms Dealing : Iran Told Last Month It Cannot Buy More, He Testifies

Secretary of State George P. Shultz, contradicting earlier accounts of a Dec. 13 meeting between U.S. and Iranian officials, said Tuesday that he authorized the session to send a message that there will be no further American arms sales to Tehran.

Shultz, in testimony before the Senate Foreign Relations Committee, confirmed that retired CIA official George Cave and a State Department representative, Charles Dunbar, met in Frankfurt, West Germany, with an unidentified Iranian contact last month--more than a month after the President had publicly suspended arms shipments to Iran. Shultz said he and Reagan approved the meeting.

But he emphasized that the purpose of the meeting was not to discuss resumption of the arms-and-hostages relationship with Tehran, as previously reported, but instead to inform the Iranians personally of the President’s decision against further arms sales.

‘No More Arms Sales’

“Our purpose was to get across the point . . . that the Iranians should understand that there would be no more arms sales of any variety,” Shultz said. He said Dunbar was supplied with “talking points” emphasizing U.S. opposition to further arms sales, which the State Department official read aloud during the meeting.

Shultz’s testimony contradicts a statement by Hashemi Rafsanjani, Speaker of Iran’s parliament, on Monday night that Iran spurned “some sort of plan” put forward by Dunbar at the meeting. In a televised interview on CBS, Rafsanjani said Dunbar was told that the Iranians had “lost faith” in U.S. officials because Iran had been deceived about the extent of Israeli involvement in the deal. Iran does not maintain diplomatic relations with Israel.

The secretary also denied earlier accounts of his closed testimony before the House Foreign Affairs Committee that suggested that he went to Reagan after the Frankfurt meeting to halt the continued U.S.-Iranian contacts. Instead, he said he sought an emergency meeting with Reagan at the White House two days later because U.S. officials had learned something in their meeting with the Iranian officials that “truly shocked and appalled” the President.

Contact With Kuwait

Although he did not specify what he told Reagan, it is known that U.S. officials learned during the meeting that Vice Adm. John M. Poindexter, while serving as the President’s national security adviser, had pressed the Kuwaiti government to release 17 Shia Muslim terrorists, in contradiction to the Administration’s oft-stated policy. However, Kuwait’s foreign minister denied on Monday that the United States had pressed for the release of the prisoners.

Shultz acknowledged that the Frankfurt meeting was arranged by the CIA and confirmed reports that he did not approve of a follow-up session that Cave held with the Iranians after Dunbar had returned to the United States. He called Cave’s meeting “inappropriate” but emphasized that Cave did not seek a second session and that he was not accusing the CIA official of doing anything “evil or underhanded.”

He also denied reports that he went to the President to complain about Cave’s meeting.

Testimony Repeated

At the same time, Shultz repeated earlier testimony that White House Chief of Staff Donald T. Regan told him last May that he had no knowledge of direct U.S. arms shipments to Iran--even though Regan was present at a meeting the previous Jan. 17 when the sales were approved by the President.

Shultz, who asserts that he was told virtually nothing by White House officials about the arms sales after they commenced, said he was not proud of his lack of knowledge. “I wish somehow I had found out about these things,” he said.

He also disputed the testimony of Robert C. McFarlane, former White House national security adviser, that the secretary had approved a four-page list of instructions given to McFarlane before he went to Tehran last May. He said he only learned of McFarlane’s trip to Tehran after the fact.

Shultz said that he did approve some instructions but that they were for another proposed meeting in Frankfurt, related to the Iranian arms sales, that McFarlane ultimately did not attend. Shultz did not elaborate about that meeting and was not questioned about whether it indicated that he knew more about the arms sales than he has acknowledged.

U.S. Sales Held Small

Under repeated questioning by the committee members, Shultz said he disagreed with those who contend that the U.S. arms sales gave the Iranians a significant military advantage in their war with Iraq. He said the CIA has estimated that Iran has purchased “billions and billions of dollars” in arms on the world market, most of them from North Korea, whereas U.S. sales amounted to no more than “millions.”

Meanwhile, Rep. Lee H. Hamilton (D-Ind.), chairman of the House committee investigating the Iran- contra scandal, said the congressional investigating committees probably cannot wait until independent counsel Lawrence E. Walsh finishes his probe of the same matter before deciding whether to grant immunity to Poindexter and fired National Security Council staff member Oliver L. North.

North and Poindexter, central figures in the arms deals and the diversion of profits to the Nicaraguan rebels, so far have refused to testify before congressional committees. Walsh has warned that, if Congress grants them immunity before he develops his case, it will create “serious and perhaps insurmountable barriers” if he decides to prosecute the two men.

At the same time, John Patrick O’Hara, director of corporate security for Los Angeles-based Flying Tiger Line Inc., informed the House select investigating panel that he will not serve as its chief of staff, as announced. Casey Miller, a 30-year-old aide to Hamilton, will serve in the position instead, at least temporarily, the committee said.

Staff writer Karen Tumulty contributed to this story.