Walsh Seeks to Drop 2 Key North Charges : Need to Protect Secret Data Cited; 12 Lesser Counts Remain; ‘Pocket Pardon’ Claimed

Independent counsel Lawrence E. Walsh, facing intelligence agency objections to his use of highly classified information, moved Thursday to drop the two central charges of conspiracy and theft against Oliver L. North in the Iran-Contra case.

But former White House aide North, although he would benefit from a dismissal of the “core charges” against him, still faces trial later this month on 12 lesser counts, including obstruction of congressional inquiries, obstruction of a presidential inquiry and making false statements.

Critics immediately charged that the move amounted to a “pocket pardon” for North, but officials at the Justice Department and sources close to Walsh defended the action as justified by the sensitivity of the information that would have been disclosed in prosecuting those charges.

Can’t Tell Whole Story

At the same time, those sources conceded that dropping the conspiracy and theft charges will bar “telling . . . from beginning to end” the story of the diversion of $12 million in Iranian arms sale proceeds to finance the Nicaraguan rebels.

U.S. District Judge Gerhard A. Gesell scheduled a hearing for Monday at which he is expected to approve Walsh’s motion. Such approval is nearly automatic. Legal precedents have held that a trial judge must grant a prosecutor’s motion to dismiss charges unless he finds that the prosecutor has acted in bad faith or contrary to the public interest.

Walsh said that his action, although taken reluctantly, is in the public interest because of “national security” concerns.

In reacting to Walsh’s motion, Brendan V. Sullivan Jr., North’s attorney, said in a sharply worded statement that, “although the heart of its case is destroyed, the independent counsel continues to toy with Col. North.” Sullivan said that Walsh “apparently refuses to recognize that classified information pervades the remaining charges as well.”

Met With Thornburgh

Walsh moved to pare down the case against North, a former National Security Council aide fired by President Reagan, a day after meeting with Atty. Gen. Dick Thornburgh to discuss problems he had encountered with censorship of classified documents that he and his staff had reviewed under judicial supervision.

Walsh sought the meeting to inform Thornburgh of “sticking points” that had developed from the reluctance of an interagency committee of government intelligence analysts to restore censored parts of many government documents, knowledgeable sources said.

Under terms of the Classified Information Procedures Act, the committee had made deletions last month in many of 300 sensitive documents that Walsh intended to use at North’s trial. But Gesell last month ruled that the deletions were excessive.

The judge said that, for North to get a fair trial, he has a right to have jurors view less-censored prosecution documents. For example, Gesell ruled, the names of all U.S. officials and American citizens must be identified, with the exception of CIA agents or anyone else working undercover. He said also that references in the documents to six Central American countries, Iran and Israel should be left intact.

Because of resistance by the interagency committee to Gesell’s order, Walsh earlier this week had asked the judge to reconsider. When that failed, Walsh went to Thornburgh, who by statute has the power to overrule decisions by the panel representing the departments of State, Defense and Justice, the CIA and the National Security Council.

Gave No Indication

However, Walsh gave no indication that he thought the intelligence agencies were acting unfairly, Thornburgh told reporters. Walsh told the attorney general that he planned to drop the main charges.

“It wasn’t Walsh’s plan to ask the attorney general to beat down” the intelligence agencies, a source familiar with his position said.

Thornburgh said that dismissal of the charges was “a useful contribution toward avoiding some very sensitive questions that might otherwise come before the independent counsel and the court.”

President Reagan, who has called North “a national hero,” said that he was pleased by Walsh’s motion. “It satisfies our problem, which has been . . . concern about national security,” Reagan said in brief remarks to reporters.

President-elect Bush refused to comment immediately.

Reagan and Bush both were subpoenaed by North as defense witnesses last week, but dropping the central conspiracy charge could lessen the need for their testimony.

It was understood that U.S. security analysts had softened their earlier objections to identifying certain foreign countries in documents introduced as evidence but still opposed specific references to foreign officials.

Although prosecution, Justice Department and intelligence agency sources were guarded in discussing the kind of information that was most sensitive, one source noted: “Don’t just think about this as introducing a document, and that’s the end of it. The defense is entitled to ask questions (of a witness), and that would produce more disclosure.”

Separate Trials Ordered

Dropping the two central charges will mean that a less complete picture of North’s activities will emerge at the trial. But one government official pointed out that the conspiracy charge became less important when Gesell ruled last fall that North and his three co-defendants must have separate trials.

“Once Gesell ordered severance, the need to link the defendants was less,” one source said.

The 12 remaining counts allege that North made false statements to Congress, obstructed justice by shredding White House documents, participated in a tax fraud conspiracy involving private fund raising for the Contras and illegally accepted installation of a $13,800 security fence outside his home.

If convicted on those charges, North could face a maximum punishment of 60 years in prison and fines of up to $3 million. The two charges proposed for dismissal would not have substantially increased the potential penalty.

Others Facing Trial

The other defendants facing trial after North are John M. Poindexter, President Reagan’s former national security adviser; retired Air Force Maj. Gen. Richard V. Secord, North’s assistant for logistics in the Contra deal, and Albert A. Hakim, an Iranian-born businessman and financial middleman in the deal. Similar conspiracy and theft charges against them are expected to be dropped also.

Sullivan, in his statement for North, said that “it is disgraceful that these charges were brought in the first place and outrageous that they survived nine months after indictment.”

“The independent counsel made these charges, repeated them and embellished them in an effort to vilify North in the eyes of the American public,” he said. “Now, years after the events at issue, nine months after indictment, and after spending more than $13 million, he dismisses them.”

But People for the American Way, a liberal interest group often critical of the Administration, charged that “by hook or by crook, the Reagan Administration appears determined to give Ollie North a ‘pocket pardon’ as a reward for his Iran-Contra activities.”

“The President himself may have ruled out a formal pardon,” the group said in a statement. “But, clearly, his Administration has no stomach for a trial that could endanger the President’s place in history. Lawrence Walsh’s efforts appear to have been sandbagged by this Administration.”

In his comments on returning to Washington from a California vacation, Reagan again indicated that he has no plans to pardon North on the remaining charges. “We’re waiting for the judicial process to go forward,” he said.

Walsh, in his motion, declared that “by far the most difficult classified information problems stem from” the two counts that he asked be dismissed. The prosecutor said that those charges alleged “broad-reaching activities by defendant North that include North’s interaction with a number of intelligence agencies and touch upon a number of highly classified covert programs.”

Walsh said that, although he tried to simplify the two central charges to avoid disclosure of secret data, such efforts “have not eliminated the risk that a quantity of classified national security information would be compromised by a public trial of defendant North” on those counts.