House Panel Says Shultz Fought ’83 Move : NSC Takeover of State Dept. Agency Told

National Security Council officials, overriding objections from Secretary of State George P. Shultz, effectively commandeered a State Department agency in 1983 to marshal political and public-relations backing for the Nicaraguan rebels, the House Iran- contra investigative committee said Friday.

Internal Reagan Administration documents, released by the House panel on Friday, detailed bureaucratic sparring between Shultz and former National Security Adviser William P. Clark over the State Department’s Office of Public Diplomacy for Latin America, organized in July, 1983, to promote the contra cause.

In the thick of the battle, Shultz wrote President Reagan to insist that he be recognized as the President’s “sole delegate” for carrying out Central America policies, only to be informed by Reagan that “no single agency” could handle the job alone.

Two months later, Clark’s handpicked choice to head the new Public Diplomacy office, Otto Reich, was installed in the post. Reich is now ambassador to Venezuela.

“It was in the State Department,” House Iran-contra committee spokesman Bob Havel said of the public diplomacy office Friday. “But the documents show that it reported to the National Security Council staff.”

North Met With Reich

The White House and State Department papers released Friday show that NSC aide Oliver L. North met frequently with Reich and other public diplomacy officials, as well as with public relations strategist Richard R. Miller and Carl R. (Spitz) Channell, a conservative fund-raiser.

The public diplomacy office later was found to have awarded more than $400,000 in no-bid contracts to a firm controlled by Miller, who, with Channell, pleaded guilty in May to federal income-tax fraud charges.

The charges stemmed from more than $3 million in fund-raising for the contras said to have been secretly performed by the two men at North’s behest. Miller set up a Cayman Islands bank account at North’s instruction to “launder” the money as it passed from U.S. donors to contra accounts.

Miller’s firm, International Business Communications, mounted a series of political and public-relations blitzes for the contra cause, including television and newspaper ads aimed at congressional districts whose representatives were considered vulnerable to public pressure to support the Nicaragua rebels.

The House panel Friday released a State Department inspector general’s report on the department’s contracts with the IBC. The report concludes that many of the contracts were unnecessary, that they were improperly awarded without competitive bidding, that one contract was improperly classified as secret and that the contract awards were rife with irregularities.

Contracts to Miller Stopped

Reich’s successor as head of the public diplomacy office stopped awarding contracts to Miller and a third associate, Frank Gomez, after taking over the office in 1986.

The House committee documents indicate that Shultz vigorously fought efforts by Clark and his National Security Council staff to take control of parts of the Administration’s Central America policy, but often with little success.

One document shows that NSC staff member Walt Raymond, one of whose duties was to devise programs to openly promote democracy, recommended that Reich be named to the public diplomacy post in the spring of 1983.

In a memorandum to Clark, Raymond warned that “State is increasingly restive over Public Diplomacy representatives’ being presidential representatives” reporting to the NSC but noted that Reich would work closely with Shultz and other State Department officials.

Shultz met a week later with the President, apparently to complain about Clark’s interference in Central American policy and dispatched a note to Reagan calling the Administration’s management of the policy “a mess.”

He attached a proposed flow chart for Central American policy in which Reagan was the top decision-maker, Shultz was directly beneath him and the interagency group of White House officials who made policy recommendations was at the bottom.

Reagan’s response to Shultz’s “thoughtful memorandum” stated that “it is sensible to look to you, as I do, as the lead Cabinet officer” on Central America issues, but “in coordination with Cap, Bill Casey and others,” referring to Defense Secretary Caspar W. Weinberger and former CIA Director William J. Casey.

Reagan also attached a flow chart to his memo. His chart also placed the President at the top, but instead of Shultz in the No. 2 spot, Reagan placed a box labeled “NSC” and “NSPG,” the initials of a Cabinet-level group that reviews major policy options.