Casey Guided Him in Covert Tasks--North : Diversion of Funds Viewed as ‘Neat Idea’

Former White House aide Oliver L. North, the central figure in the Iran- contra affair, told congressional investigating committees Wednesday that the late CIA Director William J. Casey guided him in much of his covert operations of supplying arms to Iran and to Nicaragua’s rebels.

In the second day of his sometimes hostile confrontation with the committees, North also said the single most controversial element of his operation--the diversion of Iran arms sale profits to the contras --was a “neat idea” that was proposed to him by Iranian middleman Manucher Ghorbanifar.

Using the profits to assist the contras, North testified, overcame his misgivings about trading arms to a terrorist nation in return for freedom for American hostages held in Lebanon by Iran-linked militants.

Cover-up of Gift

The former White House aide also admitted that he had accepted a gift of a $16,000 security system for his home and later wrote two letters to cover it up. But he insisted he needed the system to protect his family and indignantly denied testimony suggesting he had otherwise personally benefited from the profits of arms sales to Iran and the contras.

North, who will return for at least two more days of testimony, told the committees that his activities on behalf of the contras were “fairly well known” to an array of top-ranking Reagan Administration officials.

Among them, he said, was Secretary of State George P. Shultz, who “took me aside just weeks before I was summarily fired, put his arm around my shoulder and told me what a remarkable job I had done keeping the Nicaraguan resistance alive.” Shultz disputed North’s depiction of the conversation.

Says Weinberger Knew

North also said Defense Secretary Caspar W. Weinberger and retired Army Gen. John W. Vessey Jr., former chairman of the Joint Chiefs of Staff, were aware of his activities, “although they may all deny it.”

He repeated assertions that Elliott Abrams and Alan D. Fiers, who oversee Central America for the State Department and CIA respectively, also understood what he was doing.

And he said he had discussed the contra resupply effort with Donald P. Gregg, Vice President George Bush’s national security adviser. The committees showed North an unsigned note on the vice president’s stationery dated Oct. 5, 1986, the day a C-123 cargo plane was shot down in Nicaragua, which said, “C-123 equals Ollie.” It was not clear who wrote the note.

North, a Marine lieutenant colonel, said that as the coordinator of the secret contra effort, he was prepared to be held responsible if it became public. “I was simply willing to take the fall, if somebody needed a scapegoat,” he said.

But his words and tone made it clear that his willingness to fall on his sword has dissolved over the last seven months into bitterness over his portrayal as one of the leading villains in President Reagan’s deepest political crisis.

North said he had expected that political pressures one day would force him from his job on the staff of the White House National Security Council. But he added: “I never in my wildest dreams or nightmares envisioned that we would end up with criminal charges. It was beyond my wildest comprehension.”

Subject of Walsh Inquiry

For a number of his activities, North is a subject of a criminal investigation by independent counsel Lawrence E. Walsh. He coordinated the contras’ secret military supply network at a time when Congress had banned U.S. government aid to the rebels. And with an investigation under way last November, he shredded a tall stack of documents that could have provided crucial evidence.

It took a grant of limited immunity by the congressional committees--assuring that nothing in North’s testimony could be used as the basis of expected prosecution--to compel North’s testimony. He previously had claimed his Fifth Amendment right against self-incrimination.

Friction between North and the committees continued to build as North’s attorney, Brendan V. Sullivan Jr., claimed that House counsel John W. Nields Jr. was trying to do a “stall job” by unnecessarily prolonging his client’s questioning. The already hostile atmosphere is likely to become even more charged when North is examined by lance-tongued Senate counsel Arthur L. Liman, possibly as early as today.

Defends Aiding Contras

Under repeated challenges from Nields, North defended his decision to put profits from the secret sale of U.S. arms to Iran into a bank account controlled by retired Air Force Maj. Gen. Richard V. Secord, from which it could be sent to Nicaragua’s rebels. Their disagreement centered on whether the money belonged to the U.S. government, which had sold the weapons, or Iran’s Ayatollah Ruhollah Khomeini, who had paid for them.

“We weren’t using taxpayers’ money; we were using the ayatollah’s money,” North insisted.

“It was our money that was going to the contras,” Nields countered.

North said Israeli anti-terrorism official Amiram Nir had first suggested selling the arms at a profit to Iran, primarily to purchase replenishments for U.S. arms initially transferred to Iran by Israel.

Ghorbanifar, who acted as middleman between Iranian and U.S. officials, added the refinement of using some of the profits to support the contras, North said. That, he said, dispelled his reluctance to swap weapons for U.S. hostages being held in Beirut by a faction sympathetic to Khomeini’s regime.

‘Attractive Incentive’

Ghorbanifar, sensing North’s reluctance during a meeting in Europe early in 1986, summoned the Marine into a bathroom and offered what North described as the “attractive incentive . . . that residuals could flow to support the Nicaraguan resistance.” North added that he assumed the idea had the Israeli government’s backing.

North said he also got the approval of John M. Poindexter, then his boss as President Reagan’s national security adviser, “with the concurrence of William J. Casey, and I thought at the time, the President of the United States. I later learned that the President was unaware of that aspect of these (arms) transactions.”

Even now, North added, “I don’t think it was wrong. I think it was a neat idea.”

Casey, North said, was particularly enthusiastic, describing it as the “ultimate irony” that Khomeini should end up underwriting the contras.

Consulted CIA Chief

Casey’s name came up dozens of times in North’s testimony, and he indicated that he consulted the CIA director before making most big decisions. “Although Col. North certainly worked for the National Security Council . . . he had two employers,” said Sen. Warren B. Rudman (R-N.H.). “One was Bill Casey, and the other was the national security adviser.”

According to North’s testimony, it was Casey who:

--Enlisted Secord to help run a private contra supply network after Congress had cut off government aid to the rebels.

--Directed North to set up an “operational account” from which he could dole out money to contra leaders.

--Gave North a ledger with instructions to keep detailed records of cash flowing in and out of the account, and then ordered him to destroy the ledger when it appeared the operation was about to be exposed.

Advice on Arms Dealers

--Told North not to allow the contras to deal with questionable arms dealers in Central America.

--Encouraged North to develop a “full-service covert operation,” supporting the rebels with humanitarian aid and with weapons.

--Warned North to get a lawyer as the extent of his activities were becoming public.

--Suggested that he obtain secure communications devices to prevent eavesdropping.

--Told North to carry the means to commit suicide when he traveled to Iran in May, 1986, so that he would not be vulnerable to abduction and torture.

Perhaps the most significant of Casey’s directions was his suggestion that Secord help run the contra supply operation.

‘Casey Suggested Secord’

“Director Casey is the one who had suggested Gen. Secord to me as a person who had a background in covert operations, a man of integrity, a West Point graduate, a man who had experience in these kinds of matters--and who was a man who, by Director Casey’s definition--got things done,” North said.

Previous witnesses have testified, however, that Secord, who also ran the arms sales to Iran, may have kept hundreds of thousands of dollars in profits from his dealings with the contras and the Iranians.

Although North said he had encouraged Secord to take “just and fair and reasonable compensation,” he acknowledged that he did not keep close track of how Secord spent the profits. He said he was surprised to learn from earlier testimony that $8 million remains in bank accounts controlled by Secord and his business partner, Albert A. Hakim.

Misled Congress Members

Under intense grilling by Nields, North admitted that he intentionally misled members of Congress on several occasions about his role in providing military assistance to the Nicaraguan resistance. He said he helped prepare two false letters to Congress by Robert C. McFarlane, Poindexter’s predecessor as Reagan’s national security adviser, and also lied directly to members of the House Intelligence Committee.

“I misled the Congress--face to face,” he said. “I prepared documents that were erroneous, misleading, evasive and wrong.”

He defended his fabrications as necessary to avoid news leaks and to protect the Nicarguan resistance from further setbacks.

“Lying does not come easy to me,” he said. “ . . . But I think we all had to weigh in the balance the difference between lives and lies . . . . I did so with the purpose of hopefully avoiding the very kind of thing that we have before us now and avoiding a shut-off of help to the Nicaraguan resistance and avoiding an elimination of the resistance facilities in three Central American countries.”

Inouye’s Sharp Response

That drew a sharp response from Sen. Daniel K. Inouye (D-Hawaii), chairman of the Senate investigating committee. Noting that he himself had received the Distinguished Medal of Intelligence, Inouye said the Senate and House intelligence committees have not been responsible for a single national security breach since they were organized eight years ago.

“Most of the leaks in this city come from the other side of Pennsylvania” Avenue, where the White House is located, Inouye said pointedly.

North again defended his actions as entirely within the law although he admitted to some “serious judgment errors.” He said his own judgment that he acted properly was supported by the vast majority of the nearly 50,000 Americans who have written him recently.

In two days of testimony, North has stressed repeatedly that he never acted without orders, and he twice pointed to the congratulations he received from Shultz as evidence of how enthusiastically top Administration officials had supported him.

State Dept. Comment

State Department spokeswoman Phyllis Oakley read a statement asserting that Shultz’s remarks “concerned only North’s efforts to keep up the morale of the resistance leaders. The secretary was not indicating either his knowledge or approval of the activities to which North has recently testified.”

North said he was certain that Shultz meant otherwise.

He also repeated his assertions that Abrams was fully aware of the true nature of his activities. When a supply plane for the contra resistance crashed last Oct. 5, North said, Abrams never asked him whether he had a role in the supply network.

“He didn’t have to ask me,” North said. “He knew.”

The embattled Abrams, who has denied involvement in the supply network, said in a statement: “I have testified at length about what I knew and did not know, what I thought and did not think. All of the areas involving me which arose in the testimony today were covered in my testimony.”

North asserted that he was “not trying to drag in a whole bunch of people in the ‘Ollie North dragnet’ here.”

But some in the Administration disagreed. “Ollie seems to be trying to cover himself by naming every senior official he ever talked with,” one Administration official complained. “Thank God he stopped where he did.”

Staff writer Doyle McManus also contributed to this story.