Rappaport Lashes Out at Wallach : Says His ‘Twisted’ Account of Pipeline Deal Spurred Inquiry

Swiss financier Bruce Rappaport, lashing out at his one-time associate in an Iraqi pipeline project now at the center of an investigation of Atty. Gen. Edwin Meese III, says the most serious allegations in the inquiry have resulted from a “twisted” account of the affair put forth by E. Robert Wallach, a longtime friend of Meese.

Rappaport, in his first public denunciation of Wallach, denied that any pipeline proceeds were to go to the Israeli Labor Party, a proposal cited in a 1985 memo from Wallach to Meese that is the primary focus of an independent counsel’s investigation.

Instead, Rappaport said, under a secret arrangement, Israel itself would have been a one-third partner in the venture, receiving a total of $65 million to $70 million a year in oil or cash.

Sought U.S. Support

Speaking of Wallach and his memo’s references to Labor Party payments, Rappaport, the main promoter of the $1.2-billion pipeline, said: “I don’t know how to read his crooked mind.”

Rappaport retained Wallach because of Wallach’s Washington contacts--chief of whom is Meese--in an effort to obtain U.S. support for the pipeline. In the 1985 memo to the attorney general, Wallach outlined “an arrangement with (then Israeli Prime Minister Shimon) Peres to the effect that Israel will receive somewhere between $65-$70 million a year for 10 years” in exchange for a guarantee that it would not interfere with the pipeline, which was never built.

But Wallach’s memo went on to say that, although it “would be denied everywhere,” a portion of the funds would go to Peres’ Labor Party. Sources say that could constitute a potential violation of the Foreign Corrupt Practices Act, which prohibits U.S. citizens, firms or their agents from bribing foreign officials. The act also says the attorney general may, at his discretion, take legal action if a possible violation appears imminent.

Rappaport’s angry and blunt remarks, made in an interview with The Times, indicate a deep division among the ranks of the principal players in the pipeline dealings. The financier, an extremely private man who has shunned publicity for most of his long and successful career, said he felt compelled to tell his side of the pipeline story to clear up what he called distorted and erroneous reports.

The account by Rappaport, one of only a handful of principals with extensive knowledge of the complicated affair, provides a number of revelations in the labyrinthine tale of international political intrigue. Among other things, Rappaport said:

--Israel was to have received its share of the pipeline proceeds in cash or in oil secretly funneled through a third country. Israel stood to gain hundreds of millions of dollars overall through the project but, because Jerusalem and Baghdad are longtime enemies, it could have received Iraqi oil only through a third country, such as Mexico or Egypt.

--This agreement was never put into writing between the investment group and Israel. It was detailed, in distorted fashion, only in Wallach’s memo to Meese.

--Wallach was paid a total of $150,000 in legal fees in a single payment forwarded to W. Franklyn Chinn, investment adviser to him and to Meese. Questions have been raised about whether Chinn could have used these funds to benefit the attorney general, although Meese’s lawyers deny that he received any such financial gain.

--Former National Security Adviser William P. Clark, initially brought into the affair by U.S. officials as an unpaid private consultant to the government, was to have been paid $500 an hour by Rappaport, who called Clark “an idiot” for later turning against the project.

--The pipeline project is still alive, more than two years after it was believed to have been killed. Rappaport says his attorneys are trying to persuade Bechtel Group Inc., the huge construction firm that was to build the pipeline, “to move on it,” although a spokesman for the company said that “we have no evidence that the project has been revived.”

Rappaport said he was unaware that the attorney general was being informed about any details of the pipeline affair, such as through extensive memos by Wallach. He also said he will give sworn testimony, at a location outside the United States, to independent counsel James C. McKay in his investigation of Meese.

George G. Walker, Wallach’s attorney, said he was puzzled by Rappaport’s criticism of his client. “I don’t know what Mr. Rappaport’s state of mind is,” Walker said. “I don’t understand how he can say that. Bob Wallach wrote him (memos) every day.”

But Rappaport said in the interview that although his office had received numerous memos from Wallach, he was unaware of them at the time because of his travels and busy schedule. He said he did not look at the memos until he was contacted by the special prosecutor and found then that some had not even been opened. “The man loved to write. It was full of what he had for breakfast. It was mainly about himself,” the financier said.

In describing his own role in the negotiations, Rappaport said that when he was seeking an Israeli pledge not to attack the yet-to-be-built pipeline: “I suggested to the Israelis that I would be delighted to help them. This is what in the memo was twisted by Wallach.

“I would see to it that Israel would get at least a third of what our group would stand to make,” he said he told the Israelis. But he insisted that any payments in oil or cash would be made to the government of Israel, not to any individual or political party.

The pipeline was to deliver 1 million barrels of crude oil a day and the investment group headed by Rappaport was to receive about a third of the daily production at a 10% discount below the spot market price. Based on that formula, the investors expected to make more than $450,000 a day, part of which would be used to pay off the pipeline construction contract.

In discussing Wallach’s memo to Meese, which was made public by the attorney general’s lawyers last month after The Times disclosed its existence Jan. 29, Rappaport said: “I don’t know how to read his crooked mind. I never knew he wrote one memo; he wrote thousands of memos, and I never knew he wrote one. . . .

“He assumed that because Peres is Labor, and because I told him . . . that I would love to do something for Israel . . . he jumped to the wrong conclusion that the money or the oil would go to the Labor Party. But how can oil go to the Labor Party? How could $60 million go to the Labor Party? With all due respect, Israel is not a banana republic. You talk to . . . any leader of a party in Israel and you talk about bribes, and he will throw you out the window.”

In discussing Wallach’s memo to Meese, Rappaport also said that “if Wallach is such a good friend of Mr. Meese as people say . . . why on earth should he set such a trap and and write to him that there is a foreign corruption act violation? I would just say: ‘Look, Eddie, be careful.’ ”

Rappaport also criticized the California-based Bechtel Group for what he described as its inept handling of planning and arrangements for the project.

“They didn’t know what they were doing,” the Swiss businessman said. “They still don’t know what they are doing. I’m telling you, Bechtel screwed up this thing badly.”

‘Acted in Good Faith’

In San Francisco, Bechtel spokesman Tom Flynn said: “We believe we acted in good faith at all times to put together and finance construction of the pipeline, and we don’t understand Mr. Rappaport’s comments.”

And, while Rappaport said he “absolutely” believes that the project is still alive, Flynn said Bechtel disagrees.

Interviewed in his office overlooking Lake Geneva and Mt. Blanc, Rappaport, the 65-year-old head of a number of oil, banking and shipping companies, said his involvement in the pipeline project began in 1984 when he said he was contacted by the Paris-based representative of an oil company who asked if he could find out Israel’s attitude toward such a project.

When he was in Israel to accept an honorary doctorate degree from a university in late 1984, Rappaport said: “I was having lunch with Shimon Peres (and) I asked him what he thought. He said he didn’t see any objections.” At that point he said, there was no consideration of payments. “It was just a (good will) gesture on the part of the Israelis. . . . There were no quid pro quos involved.”

A Way to Promote Peace

Rappaport--who was born in Haifa, Palestine, and has been a friend of Peres for 45 years--said he personally was interested in pursuing the project because he saw it as a way to promote peace in the Middle East.

“Forget the money that could be made,” he said. “International trade is a good guarantee of peace. And here, you have a project that everybody should kiss and bless--it’s good for American companies, it’s good for the area.”

He produced a letter from Peres, dated Feb. 25, 1985, in which the Israeli official said:

“After your visit to Jerusalem of today, I take pleasure in confirming to you upon your request that my government will be ready to give agreed guarantees that it will not cause any unapproved aggression resulting in the interruption of construction of the pipeline or the export of crude oil from the port of Aqaba while the pipeline is completed, estimated 18 months from construction. Whenever your group and Bechtel are ready with their final financial package, we will discuss with you the method of satisfactory guarantee.

“We wish you and your associates the best.”

Iraqis Not Satisfied

A few months later, he said, it became apparent that Peres’ letter was not sufficient to satisfy the Iraqis, who wanted a $400-million pledge to back up the Israeli guarantee not to blow up the pipeline.

“Israel, number one, didn’t have $400 million,” Rappaport said, “and even if they did, we didn’t have a good argument to convince them that they should expose themselves to such a big risk. So, we started to look at what’s in it for them (the Israelis).” It was then that the idea of a secret partnership with Israel was first discussed.

To raise the $400-million guarantee, Rappaport began discussions with banks, insurance companies and investors in Europe and the United States, he said, and decided “that maybe we should go and see the (U.S.) government.”

“I asked a few friends in Europe who would be appropriate for handling things like this in the United States,” he said. “I was given Wallach’s name, and the people called Wallach and set up a meeting.”

He would not tell who introduced him to Wallach, saying only that it was “an important American in Paris.”

Wallach Got $150,000

Rappaport said Wallach was paid a $150,000 retainer but was not offered any percentage or partnership in the pipeline deal. At Wallach’s request, Rappaport said, he deposited the $150,000 with Chinn.

He said Chinn--who was handling accounts for Wallach and Meese at the time--went to London to arrange the payment. The two men met at Champney’s, “a place near London where I go to lose weight from time to time,” and discussed the matter over a 500-calorie lunch.

“Wallach called me up and said that he (Chinn) is his financial adviser. He wanted me to give his fee to this guy, so I did. I was a little surprised. . . . I thought it was a little strange,” Rappaport said. But, he said, “as long as I satisfy the creditor, that’s good enough for me. We have a receipt, and that’s it.”

“That’s how he came into the deal, as a lawyer,” Rappaport said of Wallach, whom he retained in February, 1985. In answer to a question, Rappaport said: “I didn’t know until after that that he had these close ties to Meese.

“I don’t know Meese. I never met him, and I don’t know why he (Wallach) needed him,” Rappaport said. “I can only guess . . . that if Wallach was supposed to get us some help in Washington . . . he had to get somebody to get us in to Mr. McFarlane,” a reference to then-White House National Security Adviser Robert C. McFarlane.

He said he did not know at the time that Meese had helped Wallach arrange a meeting with McFarlane or that Wallach was sending regular memos to the attorney general about the pipeline project.

Wallach was able to arrange a meeting of Rappaport, McFarlane and himself on June 24, 1985, at Meese’s request, sources say. McFarlane assigned one of his NSC aides to the project, directing him to find a way to insure the pipeline so it could be financed and built.

At the meeting, Rappaport and Wallach sought U.S. assistance in putting together the $400-million insurance package. “I think it was McFarlane who suggested that we have a special budget for certain things of this kind,” Rappaport said. “Now I don’t want to open up Pandora’s box. I don’t know exactly what he meant. But these things apparently needed the President’s approval.”

Avoiding a High Profile

In July, sources say, McFarlane asked former National Security Adviser Clark to take a look at the project as an unpaid private consultant to the government. At one point, Clark was asked to go to Baghdad to represent U.S. interests in the project, but as a private citizen to avoid a high U.S. profile.

Sources say Rappaport was to have paid for the trip, although Rappaport said in the interview that “I wasn’t very impressed with him (Clark)” and later thought him to be “an idiot.” Rappaport said Clark agreed to be paid $500 an hour for his work on the project in a previously undisclosed letter to Wallach.

In the letter, dated July 11, 1985, Clark wrote: “Dear Bob: Confirming our conversation, I shall undertake representation of Mr. Rappaport . . . in Baghdad regarding the aspect of the Iraq project.” Clark added that he would confer with members of the NSC before his trip.

The Geneva businessman stressed that he had reservations about Clark’s abilities, saying that “I didn’t think that he fit the job” of national security adviser earlier in the Reagan Administration. He said he met Clark in Antigua in 1981, and “there were lots of reasons why I wasn’t impressed,” although he did not elaborate.

Clark Unavailable

Clark could not be reached for comment Saturday.

By mid-August, however, Clark got hold of a secret CIA dossier critical of Rappaport and, less than a month later, formally withdrew from the project without ever going to Baghdad. He recommended that the NSC pull out as well.

Rappaport, who says he has never seen the dossier, said he was angered and mystified by its existence. The financier, whose office is cluttered with pictures of various foreign ministers and heads of state, described himself as a friend of the late William J. Casey, who was director of central intelligence at the time of the pipeline dealings.

As for Clark, he said: “Now, how the hell can a man like this kill a project without bothering to investigate?”

It was apparently on Clark’s advice in December of 1985 that John M. Poindexter, the last presidential national security adviser to work on the project, killed the U.S. role in the entire pipeline affair.

Despite his relationship with Casey, Rappaport did not go to the CIA director for help to revive the pipeline efforts, although he said he was frustrated to witness the demise of a unique chance to advance efforts toward Mideast peace.

“I don’t like to ask favors,” Rappaport said. “I do favors.”

William C. Rempel reported from Geneva and Gaylord Shaw from Washington. Staff writers Ronald J. Ostrow and Michael Wines in Washington and Dan Morain in San Francisco contributed to this story.