For weeks Washington’s Iranian arms scandal had spread around the world, stretching to countries as far-flung as Israel and Nicaragua. Then last week the affair reached Canada. The connection emerged in five hours of secret testimony to the House foreign affairs committee by Central Intelligence Agency director William Casey. According to committee sources, Casey said that he first began to suspect that profits from U.S. arms sales to Iran had been diverted to the Nicaraguan contras in early October—more than a month before his previous statements indicated. The tip-off, he said, was a warning from Roy Furmark, a New York-based businessman and associate of Adnan Khashoggi, the Saudi billionaire who had helped to arrange the arms sales. Furmark, Casey said, told him that a group of Canadians who had acted as middlemen in weapons sales last August had not received full payment for their $26million investment—and were threatening to launch a lawsuit that would blow the cover off the clandestine deal.
Casey’s disclosures rocked the already reeling Reagan administration
and sent ripples into Canada. And the complex series of revelations did not end there. Shortly after Casey’s testimony, Khashoggi confirmed in a television interview that one arms shipment, in August this year, was financed by unnamed businessmen in Canada and the Cayman Islands. And Furmark, who had been Casey’s legal client in the 1970s, testified before the Senate intelligence committee—and, behind closed doors, named names. Sources later said that the Canadian financiers who had provided Khashoggi with up to $52 million in credit were Donald Fraser, a Toronto accountant now living in Monte Carlo and serving as president of Khashoggi’s Utah-based Triad America Corp., and Ernest Miller, a Toronto real estate dealer also associated with the Triad group. Persistent efforts by Maclean’s to reach the two men for comment were unsuccessful (page 12).
In Ottawa, Deputy Prime Minister Don Mazankowski said that the government was investigating whether any Canadian laws had been broken, and he announced an RCMP inquiry. He also said that Canada had expressed
“very grave concern” to the United States over its delay in providing information about the Canadian financiers. Later, a protest note was delivered. But in Washington, Senator David Durenberger, chairman of the Senate intelligence committee, said that he and other committee members had earlier advised Canadian Ambassador Allan Gotlieb not to worry, that the Canadian government was not involved. Said Durenberger: “We just said, ‘Forget about it, it’s not a problem for you, go to the racetrack.’ ” Clearly, U.S. legislators were more preoccupied with determining the role of Ronald Reagan himself. Former national security adviser Robert McFarlane told congressional committees that Lt.-Col. Oliver North, the National Security Council (NSC) staffer who was fired over the Iran-contra affair, could not have directed it without higher authority. Said Democratic Representative Stephen Solarz of New York: “The identity of the higher authority is pretty clear to me. I think it is the President of the United States.” By week’s end, some of the pieces of the intricate Iran-contra puzzle had
begun to fall into place. In an ABC television interview aboard his sumptuous private plane bound for Monaco, Khashoggi said that the original impetus for increased contacts with Washington came in mid-1985 from Manucher Ghorbanifar, a shadowy London-based Iranian who was believed to be head of European intelligence for Iranian Prime Minister Mir Hussein Moussavi. Khashoggi said that Ghorbanifar expressed reluctance to deal with the CIA.
But Khashoggi said that he assured him, “We can deal directly with the President”—and put him in touch with Reagan’s adviser, McFarlane.
In subsequent meetings between U.S. and Iranian officials, Khashoggi said, the Americans asked for the release of some hostages and the Iranians requested a U.S. arms shipment. Khashoggi corroborated McFarlane’s testimony earlier in the week that Reagan himself had authorized the first arms shipment to Iran, via Israel, in July, 1985—four months before Attorney General Edwin Meese claims the President knew. And last Friday David Kimche, former director-general of the Israeli foreign ministry, said that the U.S government at the highest level knew every detail of the arms sales to Iran. But that knowledge apparently did not extend to U.S. Secretary of State George Shultz, who told the House foreign affairs
committee that the U.S. ambassador to Lebanon, John Kelly, knew more about the arms deal than he did.
Khashoggi said that there were six arms shipments between July, 1985, and August, 1986, and that he financed them with about $26 million. Congressional sources said that the prospect of big profits is allegedly what attracted the Canadians to the August shipment. It was not clear why Khashoggi needed the support, although despite his vast
assets he was reportedly short of cash. Whatever the reason, although past arms shipments had resulted in the release of two U.S. hostages, no more hostages were freed after the August deal. In response, U.S. officials refused to send more weapons, leading the Iranians to halt payments for the August shipment. Furmark said that led the Canadians, who were repaid only $13 million of their $26 million investment, to threaten to sue Khashoggi.
5 Khashoggi contacted £ Furmark, his partner in I a separate and ill-fated £ attempt to sell arms to Tehran in 1985. Furmark was also a longtime associate of oil tycoon John Shaheen—owner of the controversial oil refinery at Come-byChance, Nfld.—and it was through Shaheen that he had met Casey, who was a lawyer in New York in the 1970s. On Oct. 7, Casey said, Furmark called and told him about the Canadians’
complaints—and about the cash-forcontras deal. Invited to Washington the next day, Furmark told Casey that in attempting to trace the money due the Canadians through a secret Swiss account, he had learned that as much as $19.5 million may have been diverted to the contras. Casey said that he discussed the matter with Admiral John Poindexter, then Reagan’s national security adviser, who promised to look into it. But according to U.S. officials, Poindexter did not report back to Casey.
Still, many experts rejected Casey’s assertion that the CIA played only a minor role in the arms deal. “It could not have been done without the CIA’s authority,” said former CIA official Ralph McGehee. “The CIA was the impetus behind the whole thing.” As a result, influential advisers to Reagan—including his wife, Nancy, and former White House chief of staff Michael Deaver— have reportedly been pressuring the President to fire Casey. They are also calling for the replacement of current chief of staff Donald Regan.
At the same time, White House communications director Patrick Buchanan launched an aggressive defence of the administration. In a newspaper opinion column and a speech, Buchanan condemned Republican legislators for not supporting the President, and he attacked journalists for not remembering that “they’re Americans first and newsmen second.” He also praised North as a “patriot.”
Buchanan was one of many Americans who lauded the ex-marine. Last week North, wearing his full military uniform, appeared before the House foreign affairs committee and again invoked his Fifth Amendment right to refuse to testify on the grounds that he might incriminate himself. In a voice quivering with emotion, North said, “I don’t think there is another person in America that wants to tell this story as much as I do.” In response, several congressmen paid North flowery tributes.
While North became a right-wing hero, Reagan suffered in his silence. Although the President had previously defended the right of North and Poindexter to refuse testimony, last week White House spokesman Larry Speakes said that “the President very much would like to have those two individuals co-operate fully with Congress—to tell the full story.” Many Americans clearly wanted Reagan to do the same. Until he did, suspicion could only grow that the Iran affair would finally end in the Oval Office.
The story you want is part of the Maclean’s Archives. To access it, log in here or sign up for your free 30-day trial.
Experience anything and everything Maclean's has ever published — over 3,500 issues and 150,000 articles, images and advertisements — since 1905. Browse on your own, or explore our curated collections and timely recommendations.WATCH THIS VIDEO for highlights of everything the Maclean's Archives has to offer.