Iran Probe Focuses on Fund-Raiser : Channell Accused of Giving Tax-Exempt Funds to Contras

The independent counsel in the Iran- contra scandal is investigating whether conservative fund-raiser Carl R. (Spitz) Channell used money from his tax-exempt foundation to buy arms for the Nicaraguan rebels, sources close to the inquiry said Monday.

Channell, who had the assistance of fired White House aide Lt. Col. Oliver L. North in various projects on behalf of the contras, is being investigated by independent counsel Lawrence E. Walsh for possible violations that include fraud by wire and improper expenditure of tax-exempt funds, the sources said.

The probe of Channell is the most active at this early stage of Walsh’s investigation, according to one source.

Walsh was appointed by a federal court in December to determine whether any crimes had been committed in the sale of U.S. arms to Iran and the diversion of profits to the contras.

Channell ‘Cooperating’

Channell’s attorney, Alexia J. Morrison, said that “we are cooperating” with the inquiry. She declined further comment.

A source, who asked not to be identified, said that investigators are “charging hard” on the Channell matter, which centers on activities of the National Endowment for the Preservation of Liberty, certified by the government in 1984 as a tax-exempt, nonprofit educational foundation.

Sources indicated that wire fraud might involve illegal fund-raising or arms purchases in telephone conversations or other electronic communications across state lines. Another violation might occur if a tax-exempt foundation made expenditures, such as arms purchases, outside its stated purpose, the sources said.

Financed Campaigns

Channell, 41, was national finance chairman of the National Conservative Political Action Committee from 1979 to 1983. In the last two years, the National Endowment for the Preservation of Liberty, the principal organization in a string of Channell-run groups, has raised millions of dollars to finance promotional campaigns in support of aid to the contras and President Reagan’s “Star Wars” missile defense plan.

Channell said the foundation raised $4.2 million in 1985, although his report to the Internal Revenue Service showed only $3.4 million. Late in 1986, Channell claimed to have raised another $7 million that year, but his 1986 IRS report is not due until late this year.

Two of Channell’s principal backers are widows, Ellen St. John Garwood of Austin, Tex., and Barbara Newington of Greenwich, Conn. Garwood has given more than $2.5 million and Newington more than $1.4 million, according to public records and documents provided by a former employee to ABC News.

Spoke to Donors

North, himself under investigation for the diversion of Iran arms-sale proceeds to the contras, helped Channell by speaking to groups of major donors, introducing him to contra leaders and requisitioning a videotape from the Defense Intelligence Agency to be used in a political commercial.

What apparently prompted the independent counsel’s investigation of Channell was an allegation by a former employee of his foundation that about $2.2 million he raised for a project code-named “Toys” went for military aid to the contras.

The former employee, Jane McLaughlin, told ABC News last week that she understood that the money was funneled through a public relations firm, International Business Communications, “so that it would not show on our records. I was led to believe that it was going directly (from IBC) to the freedom fighters.”

Neither McLaughlin nor her attorney, Burton B. Hanbury Jr., could be reached for comment.

Consultant’s Inquiry

Former Rep. Dan Kuykendall (R-Tenn.), a paid consultant to Channell, said he conducted a personal inquiry into McLaughlin’s allegation and satisfied himself that Channell did not buy arms for the contras or do anything else illegal.

He said his conclusion was based in large part on Channell’s personal assurances because he was unable to look at Channell’s expenditure records, which had been subpoenaed by the independent counsel.

“I asked him (Channell) about it and he gave me his word.” Kuykendall said. “I took it because, after all, when a guy is fixin’ to go to the special prosecutor, it’s no time to lie.”

Christmas Presents

Kuykendall said Channell told him that the “Toys” account was to be used to buy Christmas presents for the families of the contras. Although Kuykendall said he was “totally satisfied” that no money was spent on weapons, he said he asked the Channell organization Monday for a printed record of receipts--a request that had so far elicited no response.

“What do you buy for a family in the jungle for Christmas--maybe dolls for little girls?” he asked.

Kuykendall said he also looked into a charge in the Lowell, Mass., Sun that Channell’s organizations received $5 million from the sale of arms to Iran and earmarked the funds to help the contras.

Kuykendall said he was shown photostats of checks documenting that only U.S. citizens had contributed to Channell’s organizations. Channell has called the Lowell Sun charge “outrageous, libelous lies.”

Meanwhile, the House Ways and Means subcommittee on oversight is looking into whether Channell’s foundation and other tax-exempt organizations have violated prohibitions against backing candidates in elections and lobbying for specific legislation.