Reagan OKd Perot Hostage Ransom Plan--McFarlane

President Reagan, while pledging publicly never to yield to terrorists’ demands, personally approved an unsuccessful scheme to ransom at least two Americans being held hostage in Lebanon in 1985 with $2 million provided by Texas tycoon H. Ross Perot, former National Security Adviser Robert C. McFarlane said Monday.

In addition, McFarlane told Senate and House committees that the President apparently solicited money for the Nicaraguan contras from King Fahd of Saudi Arabia at a time when Congress had banned U.S. aid to the rebels.

McFarlane also testified that Reagan contacted the leader of a Central American country--identified by sources as Honduras--to arrange the release in 1985 of a seized arms shipment intended for the contras.

New Details of Reagan Role

McFarlane’s first day of testimony at the hearings provided many new details of the President’s role in the Iran-contra scandal. It reinforced the view expressed earlier by many members of the committees that Reagan was far more involved than he has admitted in efforts to assist the contras during 1985 and 1986, when “direct or indirect” U.S. military assistance was barred by Congress.

While the President never authorized anything illegal, McFarlane said, he generally directed his White House staff to sustain the contras--”to help them hold body and soul together”--after U.S. aid was cut off by Congress late in 1984.

“The President had made clear that he wanted a job done,” McFarlane said.

At the White House, spokesman Marlin Fitzwater responded by saying: “Let no one believe that the President was involved in asking the staff or anyone else to provide illegal support for the freedom fighters. But similarly, let no one believe that the President has ever backed away from his belief that the people of Nicaragua deserve a chance for democracy.”

McFarlane, who stepped down as Reagan’s national security adviser in December, 1985, said he had no first-hand knowledge of whether the President also approved the diversion of an estimated $3.5 million from the Iranian arms sales to the contras the following year. He quoted his former White House aide, Lt. Col. Oliver L. North, as saying that the diversion had been approved, although North did not say by whom.

Bush Informed

Vice President George Bush was informed of Saudi Arabia’s contributions to the contras, according to McFarlane, but Secretary of State George P. Shultz, Defense Secretary Caspar W. Weinberger and the late CIA Director William J. Casey did not inquire further when he told them that an alternative means of support for the contras had been arranged.

Until Monday, there was never any indication that the plan devised by North to ransom American hostages in Lebanon for $1 million each had presidential approval. The scheme appeared to contradict Reagan’s stated policy against dealing with terrorists and came at a time when Reagan also was trying to win release of the hostages by shipping arms to Iran.

On June 19, 1985, even as the ransom plan was being pursued by McFarlane, North and others at the White House, Reagan told a news conference: “America will never make concessions to terrorists. . . . To do so would only invite more terrorism.”

But McFarlane explained that at the time it was approved by the President, the ransom was not viewed as a shift in U.S. policy. “It involved no government funds, but it did involve bribes of guards and people in the chain from the immediate housing of the prisoners to their ultimate escape from Lebanon,” he said.

Committee counsel Arthur L. Liman produced a memo dated June 7, 1985, in which North told McFarlane that the travel arrangements and operational costs of the ransom mission were to be paid for “from funds normally available to the Nicaraguan resistance.”

This refers to a $50,000 contribution that North solicited from contra leader Adolfo Calero to pay the expenses of Drug Enforcement Administration agents who were assigned--with the approval of Atty. Gen. Edwin Meese III--to carry out the ransom scheme. McFarlane said he was unaware of Calero’s contribution and thought it was being financed solely by Perot.

‘Humanitarian Gesture’

McFarlane also testified that he personally broke the news to the President when Saudi Arabia agreed to give $1 million a month to the contras shortly after the contras’ direct U.S. assistance was cut off late in 1984. He said the Saudis agreed to his request to donate the money “as a humanitarian gesture,” although there was no restriction against spending it on arms.

He said Reagan received news of the donation on a “note card” that he handed directly to the President during a staff meeting in the Oval Office. He said he used the note card to keep other White House aides in the room from being told about the contribution. Reagan expressed his “satisfaction and pleasure” on the note card when he returned it, he said.

As the Administration planned for Fahd’s visit to Washington in February, 1985, according to McFarlane, U.S. and Saudi officials agreed that the President should use the meeting as an opportunity to reiterate the urgent need for funds to sustain the contras.

Increased Donation

Although the subject did not come up in the first meeting between Reagan and Fahd, McFarlane said he is certain that Reagan raised it in a later, one-on-one session with the king in the White House residential quarters. He said his suspicion was borne out a few days later when he was advised that the Saudis had raised their monthly donation to $2 million.

In response to McFarlane’s testimony, Saudi Ambassador Prince Bandar ibn Sultan said he stood by his earlier statement that his government sent no aid to the contras. He added:

“During the visit of King Fahd to Washington in February, 1985, the issue of aid to the contras was not raised or discussed either by King Fahd or President Reagan. We have nothing further to add.”

A report submitted to McFarlane by North on April 11, 1985, indicated that the contras had by then received $24.5 million from the Saudis--with $17 million of it spent on arms and munitions. It is believed that the Saudis ultimately donated more than $30 million.

McFarlane, who claimed to know nothing about North’s efforts to obtain contributions from private American citizens, said he knew of only two other countries that were encouraged by U.S. officials to donate to the contras. He did not name them, but sources identified them as Israel and Taiwan.

Israel, which McFarlane referred to only as “Country No. 1,” was approached by him before the Saudis contributed. Once the Israelis declined, apparently fearing that a donation might undermine the assistance they receive from Congress, McFarlane said they were never approached again.

‘That’s Up to Them’

McFarlane said he did not know whether the approach to Taiwan--Country No. 3--ever produced a contribution. When he received a memo about the Taiwan approach from White House aide Gaston Sigur, he responded: “If they want to make a contribution, that’s up to them.”

Neither the President nor his aides ever asked any of these countries in so many words for the money, according to McFarlane. He said he had a strict rule that his aides should emphasize the contras’ need for money but not ask for money or promise anything in return.

“It became a kind of litany of mine in staff meetings: (Do not) solicit, encourage, coerce or broker, and it was applicable to everyone on the staff,” he said.

Nor did U.S. officials act as a conduit for the money, he said. In the case of Saudi Arabia, he said he supplied an official of that country with a 3-by-5 card listing the name of a Miami bank used by the contras and their account number.

Relayed to Reagan

McFarlane said he relayed to the President all information he received on efforts to continue funding the contras after the U.S. aid cutoff.

Although he was not usually told about individual arms shipments, McFarlane said, Reagan intervened in 1985 with a Central American “head of state”--identified as then-President Roberto Suazo Cordoba of Honduras--to free a boatload of arms that had been seized by that country.

He said the job of keeping the contras alive after the congressional aid cutoff fell to the National Security Council staff because assistance from both the CIA and the Pentagon was specifically prohibited by law and the State Department was uninterested in it.

“This occurrence was not an example of the NSC staff eagerly grabbing power from other departments and agencies,” he said. “And it was not the right agency, as subsequent history revealed.”

Documents Altered

McFarlane’s worst moments came late in the day, when Liman slowly extracted an admission from the former presidential adviser that he had misled Congress about the true extent of North’s ties to the contras, even altering official documents to cover up damaging evidence.

That occurred in August, 1985, after three congressional panels had peppered McFarlane with queries about reports that North illegally had provided the contras with military and fund-raising aid.

McFarlane said he ordered a search of NSC files for evidence of misdeeds and found six documents--each suggesting to “an objective reader” that North had violated Congress’ ban on U.S. aid. One stated that the rebels had “responded well to advice” on forming military units. A second urged efforts to raise cash for the rebels from private sources.

But North, when confronted by McFarlane, convincingly denied any wrongdoing. North argued that the military advice to which the rebels had “responded well” came from retired U.S. military officers hired by the contras and not from North himself.

Tells ‘Misgivings’

“I did have misgivings” about North’s actual aid to the rebels, he testified. “I felt that it was likely that an officer of the qualifications and excellence of Col. North, when he was down visiting in Central America, probably did extend advice.”

But under questioning, McFarlane admitted that he never acted on those misgivings. To the contrary, he said, he allowed North to prepare doctored versions of two of the six documents. One of the altered versions eliminated references to private fund-raising and stated instead that Congress should be urged to restore direct U.S. aid to the rebels.

The altered documents, McFarlane said, never were substituted for the official and more damaging versions. An effort by some lawmakers to review the suspicious documents was unsuccessful, and McFarlane said he later destroyed the doctored versions.

‘Too Categorically’

Apologetically, McFarlane told the committee Monday that he had allowed North to deny “too categorically” the allegations raised by Congress.

Liman asked: “But if you gave the responses that were less categorical, your chances of getting aid (from Congress) might be jeopardized?”

McFarlane replied: “I suppose that’s true.”

He also admitted that he, North and other NSC aides tried to “gild the President’s motives” in approving arms shipments to Iran when they wrote a misleading chronology of the Iran affair last November.

Approved in Principle

Among other false entries, he said, he “acceded” to a statement that Reagan did not know of or approve the first shipment of U.S. arms to Iran, made by Israel in August, 1985. In fact, he said, Reagan had approved the shipment in principle weeks before.

The President has said that he cannot remember whether he approved the Israeli-borne shipment.