One more party gained as well: The Nicaraguan rebels netted millions of dollars for their privately financed war, which by mid-1986 was desperately short of cash. Iran was overcharged for shipments of U.S. arms. In theory, when Iran paid up, the Pentagon was reimbursed for the weapons' true cost, and the extra millions were sent to the rebels.
Financial Backers Complain
In practice, Iran balked at the overcharges. The middlemen who pledged their money as security--Khashoggi and his financial backers--were left the losers. By last autumn, they were complaining bitterly to CIA Director Casey, threatening to expose the secret swaps unless they were paid off.
The threats came too late. Already linked by blood and money, the Iran and contra operations collapsed simultaneously of their own weight.
On Oct. 6, 1986, as North was in Germany negotiating the final arms-for-hostage swap, Robert M. Gates, Casey's top aide, was telling his boss of growing suspicions that millions from the arms sales had been funneled to the contras.
At the same time, Rodriguez called a Bush aide with word that a secret contra-supply plane had been shot down inside Nicaragua. Eugene Hasenfus, sole survivor of the crash, exposed enough of the supply network under Nicaraguan pressure to forever blow its cover.
Leaflets Expose Swap
Inside Iran, a militant faction opposed to the U.S. overtures circulated leaflets that week exposing the arms-for-hostages swap. The allegations found their way to an obscure Syrian newspaper, then to a Lebanese magazine, then to the world press.
It rapidly became apparent that Reagan either was lying or was ignorant of the dimensions of his Administration's most sensitive foreign policy secret. The President assured the public that arms had not been swapped for hostages, that less than a planeload of arms went to Iran anyway, and that the arms had no strategic value--all statements that would prove to have been false or misleading.
As he spoke, some of his senior aides were working to destroy evidence of political or legal misdeeds.
White House Chief of Staff Donald T. Regan ordered an official chronology of the Iran affair. North, McFarlane and others wrote a history that omitted word of the diverted millions and pretended that Reagan had never approved the initial arms shipments.
Poindexter blandly reported the doctored history to the press and to the House and Senate intelligence panels in mid-November. A few yards from his office, North and a secretary were shredding stacks of papers on the Iran and contra affairs and rewriting NSC files to disguise key parts of the rebel operation.
North Asks for Time
Atty. Gen. Edwin Meese III, a former criminal prosecutor, also would draw criticism. He set up an interview with North but did not secure potential evidence, which North proceeded to destroy. He delayed the interview when North asked for time to attend church; instead, North met secretly with McFarlane and Secord's lawyer.
Days before summoning the FBI into the case, the attorney general met privately with Poindexter and several times with Casey. No notes were taken, and Meese's recall of some sessions is unclear. He later said that he suspected no criminal wrongdoing at the time.
Meese quickly uncovered, and then made public, evidence that North had diverted money from the arms sales to the contras. That boosted the scandal from a widely judged case of political and legal idiocy to something else, potentially much more serious.
That is how it began. Beginning today, the nation may learn how it ends.