Walsh Assails White House on Case Dismissal : Iran-Contra: Counsel questions letting spies block prosecution of spies. A congressional study is suggested.

Independent counsel Lawrence E. Walsh, in a report to Congress sharply critical of both the White House and Atty. Gen. Dick Thornburgh, declared Monday that the Bush Administration caused severe “injury to national security” by provoking the dismissal last month of the Iran-Contra case against former CIA official Joseph F. Fernandez.

Walsh declared that Thornburgh had violated the principle “that all persons are accountable to the law” when he blocked disclosure of sensitive documents needed for the trial of Fernandez, a former CIA station chief in Costa Rica.

Thornburgh, relying largely on the judgment of the CIA and other intelligence agencies, concluded that it would harm national security to disclose documents that a federal judge had held were needed for Fernandez’s defense.

As a result, U.S. District Judge Claude M. Hilton dismissed all charges against Fernandez on grounds that he could not receive a fair trial.

Walsh, nearing the conclusion of his third year as the Iran-Contra prosecutor, said in his “second interim report to Congress” that he had sought to see President Bush personally about the severity of this problem but was blocked by White House aides.

In asserting that Thornburgh’s concern over national security was misplaced, Walsh said:

“We suggest that the injury to national security flows from support of illegal activities undertaken by former CIA officials, and not from their investigation and prosecution.”

Walsh said that the case of Fernandez “exposes a potential conflict of interest” when intelligence agents are subject to investigation while their colleagues are permitted to influence whether the case proceeds.

Fernandez was accused of illegally helping former White House aide Oliver L. North resupply the Nicaraguan Contras and then lying to federal investigators about his secret assistance.

Walsh reiterated in his report that the alleged secrets involved three CIA facilities in Central America and U.S. programs that already are generally known to the public.

“The outcome in (the) Fernandez (case) calls into question whether . . . important officials in the intelligence community who are subject to prosecution . . . can be tried for crimes related to their official duties,” he said.

“Under the present law, this depends largely on the good faith and priorities of the intelligence agencies.”

Walsh recommended further congressional study of the Classified Information Procedures Act, which Congress enacted in 1980 to regularize methods for dealing with federal prosecutions in which classified documents are needed. Under this act, the attorney general can determine that certain documents may not be disclosed in court, even at the risk of dropping a federal prosecution. Thornburgh was the first attorney general to take such action.

Walsh said Congress should study “the need for more exacting standards and procedures to protect criminal prosecutions from unwarranted interference by the intelligence agencies.”