Walsh Final Report: Part III - The Operational Conspiracy: A Legal Analysis

Walsh Iran / Contra Report - Part III The Operational Conspiracy: A Legal Analysis Part III The Operational Conspiracy: A Legal Analysis The central and perhaps the most important criminal charge developed by Independent Counsel was the conspiracy charge against Oliver L. North, John M. Poindexter, Richard V. Secord and Albert Hakim. According to that charge -- set forth as Count One of the indictment returned on March 16, 1988 -- these four men conspired to defraud the United States by deceitfully (1) supporting a war in Nicaragua in defiance of congressional controls; (2) using the Iran arms sales to raise funds to be spent at the direction of North and Poindexter, rather than the United States Government; and (3) endangering the effort to rescue Americans held hostage in Lebanon by pursuing ends that were both unauthorized and inconsistent with the goal of releasing the hostages.1 1 Count One charged a violation of 18 U.S.C. 371. The bill of particulars in North stated that among the co-conspirators not indicted were National Security Adviser Robert C. McFarlane; CIA Station Chief Joseph F. Fernandez; Fawn Hall, North's secretary; and Robert Earl, North's assistant. The Reagan Administration was unambiguously hostile to this count. In a move that Judge Gerhard A. Gesell described as ``unprecedented,'' the Justice Department in November 1988 filed an amicus brief supporting North's claim that the count was legally insufficient and should be dismissed.2 Subsequently, having been informed by Independent Counsel that the conspiracy count could be tried only if a small amount of classified information were declassified, the Administration refused to release that information. Because there was no way to appeal such a refusal to declassify, Independent Counsel was forced in January 1989 to drop Count One in North and a related charge that the diversion of profits from the Iran arms sales was a theft of Government funds. 2 Memorandum of Law of the United States Filed by the Department of Justice as Amicus Curiae with Respect to the Independent Counsel's Opposition to the Defendant's Motions to Dismiss or Limit Count One (filed November 18, 1988). Although Count One was not tried, it was established as a matter of law that if North, Poindexter, and the others had done what they were charged with doing, they had committed criminal acts. In rejecting the challenges of the Department of Justice and North, Judge Gesell ruled that the count ``allege[d] [a] well-established offens[e]'' and that the activity set forth in the count was criminal.3 He stated: ``The indictment clearly alleges a conspiracy which involved concealing the very existence of the profits of the enterprise from the start and hiding from Congress information relating to the conspirators' assistance for the Contras.'' 4 In addition to holding that the indictment set forth a crime, Judge Gesell also found that his review of the evidence presented to the Grand Jury indicated there was probable cause that that crime had in fact been committed.5 3 U.S. v. North, 708 F. Supp. 375, 380 (1988). 4 Ibid., p. 377. 5 698 F. Supp. 300, 315 (``The grand jury transcript and exhibits reflect solid proof and ample probable cause to indict on each and every count.''). At the heart of the Iran/contra affair, then, were criminal acts of Reagan Administration officials that the Reagan Administration, by withholding non-secret classified information, ensured would never be tried. Yet Judge Gesell's decision marked an important, if incomplete, accomplishment of Independent Counsel. Judge Gesell's decision unambiguously established that high national security officials who engage in a conspiracy to subvert the laws of this country have engaged in criminal acts, even when the laws themselves provide no criminal sanctions. A successful prosecution would have allowed Independent Counsel to present comprehensively the results of his investigation into the operational conspiracy. Much of the evidence of the conspiracy was presented at the trials of the dismembered individual charges of obstruction and false statements but the questions of intent were different, the diversion of funds from Iran to the contras was peripheral rather than central, and the absence of the conspiracy charge deprived the North case of its cohesiveness and completeness. The following discussion is an attempt to present in an abbreviated fashion what would have been Independent Counsel's case at a conspiracy trial of North, Secord, Poindexter and Hakim, and an explanation of the criminal nature of their actions. Overview of Count One In summary the proof would have shown three separate but intertwined activities, each specified in the indictment as an object of the conspiracy. First, using Government resources, the conspirators conducted an unauthorized covert program in support of the contras. Because they feared that Congress would stop them if it knew of their activities and because they feared, as well, the political consequences of that exposure, they deceived Congress about the fact that they were providing this support. By so doing, the conspirators obstructed Congress's legitimate functions of regulating governmental expenditures and overseeing foreign covert actions. Second, North and Poindexter used their Government positions to create a hidden slush fund under the exclusive control of the conspirators. This conflict of interest affected North and Poindexter's actions in numerous ways. On a mundane level, they permitted significant profits to be generated for the benefit of the private members of the conspiracy and less significant benefits to North. On a power-grabbing level, North -- in order to increase the body of funds under his control for covert activities -- used his position to drive down the amount that the U.S. Government received from the Iran arms sales and to inflate the amount that the Iranian purchasers paid the conspirators. Third, by secretly pursuing their own ends, the conspirators outraged the Iranians they were attempting to persuade and thus jeopardized the success of the Iran initiative. In particular, the initiative's goals of establishing improved relations with Iran and securing the release of American hostages held by groups sympathetic to that country were jeopardized by the conspirators' private objective to overprice the weapons in order to secure additional proceeds for unauthorized purposes. The following explanation of the charge of conspiracy to defraud brought against North, Poindexter, Secord, and Hakim begins with a brief discussion of what the crime of conspiracy to defraud the United States is. After that general explanation, each object of the conspiracy will be discussed: first, the evidence as to each object, and then why that object was criminal. Federal Conspiracy Law and Iran/contra The federal conspiracy statute, 18 U.S.C. 371, states that it is a crime to conspire to ``defraud the United States, or any agency thereof in any manner or for any purpose. . . .'' The attempt to carry out the three objectives described above -- in other words, the attempt to interfere in a deceitful fashion with lawful governmental processes -- constituted a classic conspiracy to defraud the United States. Almost a century of case law established that 371 makes criminal deceitful schemes to obstruct the lawful functions of Government, either by defeating enforcement of legal restrictions or by using governmental authority to further illegitimate ends. Far from breaking new ground, Judge Gesell's ruling in North simply followed precedent. Fraud is criminal even when those who engage in the fraud are Government officials pursuing presidential policy. The authoritative definition of the crime was set out by the Supreme Court almost 70 years ago in Hammerschmidt v. United States. In that case, Chief Justice Taft, speaking for a unanimous Court, stated: To conspire to defraud the United States means primarily to cheat the government out of property or money, but it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest. It is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation, chicane, or the overreaching of those charged with carrying out the governmental intention.6 6 265 U.S. 182, 188 (1924) (emphasis added). Over the years the Supreme Court has frequently reaffirmed the validity of Chief Justice Taft's definition. For example, shortly before the Grand Jury indicted North and Poindexter, the Supreme Court in McNally v. United States 7 declared that 371 barred deceitful interference with governmental operations. In that case, the Court declared that Congress specifically designed 371 to protect not merely property rights, but the interests of the Government in fair administration of its functions for the benefit of the entire population.8 7 107 S. Ct. 2875 (1987). 8 Ibid., at 2881 n.8, quoting Curley v. United States, 130 F. 1, 7 (1st Cir.), cert. denied, 195 U.S. 628 (1904). See also Dennis v. United States, 384 U.S. 855, 861 (1966) (``It has long been established that this statutory language is not confined to fraud as that term has been defined in the common law. It reaches `any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government.' '') (quoting Haas v. Henkel, 216 U.S. 462, 479 (1910)); United States v. Johnson, 383 U.S. 169, 172 (1966); Lutwak v. United States, 344 U.S. 604 (1953); Glasser v. United States, 315 U.S. 60, 66 (1942). Section 371 extends beyond the traditional concept of a conspiracy as simply an agreement to commit a substantive crime. Early in this century, the Supreme Court held that a conspiracy to defraud the United States need not involve conduct that violates another independent criminal statute.9 From the start of this century, the requisite element of fraud has been construed expansively so as to encompass not only a scheme to cheat the Government out of money, but also -- in fact, especially -- deceitful conduct aimed at obstructing the Government's ability to implement its programs, and to administer its affairs honestly and in accordance with the law.10 9 See, for example, United States v. Keitel, 211 U.S. 370, 393 (1908). 10 See, for example, Curley v. United States, 130 F. 1, 9-10 (1st Cir.), cert. denied, 195 U.S. 628 (1904). Similarly, in interpreting the mail and wire fraud statutes, courts repeatedly have found deceitful interference with governmental operations to be criminally fraudulent. For example, in United States v. Diggs,11 the Court of Appeals upheld the wire fraud conviction of a congressman who had secretly used monies from his clerk-hire allowance to pay certain of his district office expenses. The Court stated that the Congressman did not have ``unfettered power to divert monies intended for one purpose to another, completely unauthorized purpose,'' and concluded that by carrying out this secret diversion Diggs had ``defrauded the public . . . of his faithful and honest services.'' 12 11 613 F.2d 988 (D.C. Cir. 1979), cert. denied, 446 U.S. 982 (1980). 12 Ibid., at 995, 998 (emphasis in the original). While the Supreme Court in McNally rejected the theory on which cases such as Diggs had been prosecuted, the Court emphatically did not conclude that the conduct in those cases was not fraudulent; rather, its holding was based solely on the history of the mail fraud statute, which the Court determined was ``limited in scope to the protection of property rights.'' 107 S.Ct. 2875, 2882. As pointed out above, the McNally Court was careful to distinguish 371 cases brought on the same theory that was rejected as to 1341 in McNally. Mail fraud cases brought under this theory thus remain persuasive authority in interpreting 371. Such basic principles of the law of conspiracy and the law of fraud were applied in an important case growing out of Watergate, United States v. Haldeman.13 Three of President Nixon's closest advisers -- Robert Haldeman, John Ehrlichman, and John Mitchell -- were charged with conspiring to defraud the United States by, among other things, ``attempting to get the CIA to interfere with the Watergate investigation being conducted by the FBI.'' 14 There was no hint in the case that they had been motivated by a desire to enrich themselves, and there was no criminal statute punishing Executive Branch officials for manipulating the Central Intelligence Agency for political reasons. Nonetheless, the Court of Appeals accepted that the Watergate conspirators' ``misuse of the CIA'' defrauded the United States because it denied the Government of its ``right to have the officials of its departments and agencies transact their official business honestly and impartially, free from corruption, fraud, improper and undue influence, dishonesty and obstruction.'' 15 13 559 F.2d 31 (D.C. Cir. 1976), cert. denied, 431 U.S. 933 (1977). 14 Ibid. (quoting jury instructions). 15 Ibid., at 122 & n.255 (quoting jury instruction). In short, long before Iran/contra, it had been established beyond question that deceptive schemes to prevent the enforcement of civil statutes or other Government policies reflected in law -- whatever form such schemes may take -- fall squarely within the ambit of the crime of conspiracy to defraud the United States. The teaching of Hammerschmidt and its progeny can be reduced to the following: It constitutes fraud within the meaning of 18 U.S.C. 371 to breach the public trust by agreeing, through deceitful or dishonest means, to prevent the Government from conducting its operations and implementing its policies honestly and faithfully, and in accordance with applicable legal constraints and guidelines. Under Hammerschmidt and the cases that followed it, a conspiracy must have two elements. First, it must involve ``interfere[nce] with or obstruct[ion of a] lawful governmental function[]. . . .'' 16 The ways in which Poindexter, North, Secord and Hakim interfered with governmental functions are spelled out in more detail below. The secret contra war activity obstructed Congress's control of the appropriations process and its oversight of covert operations. North and Poindexter's self-dealing defeated the public's right to have Government officers pursue officially sanctioned ends, rather than inconsistent private ends. 16 265 U.S. 182, 188. The second element of a criminal conspiracy is that the interference with governmental operations must be accomplished by deceit. In the absence of deceit, an agreement to interfere with governmental operations is not a conspiracy to defraud the United States, although it may constitute some other crime. The conspiracy charged by Independent Counsel involved activities that were shielded by a campaign of lies and deceptions from Government officials who could have disagreed with those activities and might have sought to stop them. It was that deceit which, in Independent Counsel's opinion, made the conspiracy criminal. Over the objections of North and the Reagan Justice Department, Judge Gesell, in the only definitive judicial statement on Iran/contra and the conspiracy law, found that Independent Counsel's view was right. There follows an abbreviated presentation of the evidence that would have supported the conspiracy charge. First, the secret support of the contras; second, the self dealing diversion; and third, the corruption of President Reagan's Iranian initiative. First Object of the Conspiracy: The Secret War Activities The crux of the first charged object of the conspiracy was an agreement to provide military assistance to the Nicaraguan contras and to deceive Congress about the fact that support was being provided.17 Poindexter, North, and their co-conspirators carried out their ``secret war'' in a way calculated to defeat legal restrictions governing the conduct of military and covert operations and congressional control of appropriations, and they concealed their activities from legitimate congressional oversight. 17 Paragraph 13(a)(1) of Count One stated that the conspirators sought to defraud the United States: by impeding, impairing, defeating and obstructing the lawful governmental functions of the United States, including compliance with legal restrictions governing the conduct of military and covert action activities and congressional control of appropriations and exercise of oversight for such activities, by deceitfully and without legal authorization organizing, directing and concealing a program to continue the funding of and logistical and other support for military and paramilitary operations in Nicaragua by the Contras, at a time when the prohibitions of the Boland Amendment and other legal restrictions on the execution of covert actions were in effect. Had the case been tried as indicted, the Government's proof of U.S. secret war activities would have fallen into three broad categories: (1) the organization and direction of a resupply operation to provide the contras with logistical and other support; (2) funding of the resupply operation, including exploitation of the Iran initiative; and (3) attempts to conceal from Congress the conspirators' involvement in these activities. The Evidence Organization and Direction of the Resupply Network During the last half of 1984 and the first half of 1985, North had developed a loose structure for contra support. Secord, responding to contra requests through North, was selling arms. Thomas G. Clines, a Secord associate, arranged for their purchase; Hakim, assisted by Swiss money manager Willard I. Zucker, set up the structure to finance the activities with funds provided to the contras through North and raised primarily by President Reagan and National Security Adviser Robert C. McFarlane. The creation of the conspirators' more tightly organized secret resupply network dated from a June 28, 1985, meeting in Miami, Florida. This meeting was attended by, among others, North, Adolfo Calero (political leader of one contra faction known as the FDN), Enrique Bermudez (commander of the FDN's military forces), Secord, Clines and Rafael Quintero, an associate of Secord. At the Miami meeting, North informed Calero and Bermudez that the contras would no longer be left to decide what arms they would purchase or from whom they would buy them. In the future, North would provide the contras with materiel, and Secord would deliver it to the contras in the field. In addition, North directed that actions be taken to develop and resupply a ``southern front'' along the border of Costa Rica and Nicaragua. Following the Miami meeting, North assumed a central role in the contra war effort. Using Robert W. Owen as a courier, North provided the contras with significant military advice and guidance. At the same time, with the assistance of Secord, North in the following fashion secretly brought into being the resupply operation that he had described on June 28. First, North directed Owen and William Haskell, another North courier, to travel to Costa Rica and help activate a southern military front. Owen and Haskell, aided by CIA Costa Rican Station Chief Joseph F. Fernandez, undertook to build a clandestine airstrip to be used to resupply it. Haskell eventually negotiated the acquisition of property for the strip, which was funded using Swiss accounts controlled directly by Secord and Hakim, and indirectly by North. Within the United States, North attended planning sessions and personally commissioned private individuals to do preliminary site work and engineering tasks necessary for the construction of a usable airstrip. North arranged for Haskell and Owen to be introduced to Fernandez. Fernandez minimized and concealed from his superiors at the CIA the true nature of his contacts with North and North's private representatives. Fernandez and North eventually developed a secret communications network using National Security Agency (NSA)-supplied KL-43 encryption devices, outside normal CIA communications channels. In addition, telephone records show over 100 calls from Fernandez to North during the period August 1985 until November 1986. Under the direction of North, Fernandez and U.S. Ambassador to Costa Rica Lewis A. Tambs used their influence as representatives of the United States to obtain the support of senior Costa Rican officials for the airstrip project. Second, North directed Secord to purchase aircraft capable of resupplying contra forces. From January to August 1986, private parties working on behalf of North and Secord purchased four military aircraft costing approximately $1.8 million, as well as additional equipment for operation of these aircraft. The funds for these purchases came from Hakim and Secord's secret Swiss bank accounts. North took an active part in the purchase of the aircraft. He reviewed and approved a technical proposal for the resupply organization solicited by Secord from Richard B. Gadd, a Secord associate. North and Secord then directed Gadd in November 1985 to approach the Government of Venezuela in an unsuccessful attempt to purchase military aircraft. North used his influence as a Government official to vouch for Gadd's bona fides with the government of Venezuela. Similarly, North exercised final approval on major expenditures for equipment. In January 1986, North personally directed Secord to provide Gadd with over $100,000 for anticipated costs. Later in 1986, North directed Secord to purchase a package of spare parts required by the resupply operation that cost in excess of $200,000. North personally approved the purchase of a fourth military aircraft in August 1986 at a cost of $250,000. When there was a dispute between Gadd and Secord as to the ownership of the aircraft, North resolved it in favor of Secord's Enterprise. Third, North secretly undertook to obtain the use of Ilopango air base in El Salvador for his resupply operation. In a letter dated September 20, 1985, North requested that Felix Rodriguez, an American citizen with close ties to the commander of the Salvadoran Air Force, solicit permission to use the base for his resupply operation. North gave Rodriguez a code name for a representative of Secord who would be assigned there.18 In December 1985, Secord's assistant in charge of Central American operations, Quintero, using that code name, obtained through Rodriguez the consent of the commanding officer. 18 In that letter, North explicitly directed Rodriguez not to advise a particular CIA official of the proposed resupply project. North advised Rodriguez, ``AFTER READING THIS LETTER PLEASE DESTROY IT.'' (Letter from North to Rodriguez, 9/20/85, AKW 022740.) Fourth, at North's instruction, Secord through Clines purchased in Europe and delivered to Central America thousands of pounds of arms from December 1985 to September 1986. The cost of purchase and transport of these arms was paid from the secret Swiss accounts. Fifth, North, with the assistance of Secord, secretly directed the actual administration of the resupply project during 1986. Secord hired first Gadd and then Robert Dutton as project managers. Gadd and Dutton, through the corporation Amalgamated Commercial Enterprises (ACE), in turn hired numerous other employees. By the summer of 1986, the resupply operation had over 20 full-time employees whose combined salaries totalled over $60,000 per month. The cost of equipment and salaries for the operation was paid from the Enterprise's secret Swiss accounts. The activities at the Ilopango air base were supervised by Quintero for Secord. Rodriguez served as liaison with the base commander, General Juan Rafael Bustillo. Additional assistance and supervision was provided by the military group detailed to the U.S. Embassy in El Salvador. Gadd and Dutton reported directly to Secord. At the same time, they had frequent -- often daily -- contact with North, from whom they accepted guidance and direction. North frequently gave them orders regarding specific operations, usually in order to accelerate resupply drops to the contras. In April 1986, for example, North commandeered an aircraft provided to the State Department's Nicaraguan Humanitarian Assistance Office (NHAO) by Southern Air Transport (SAT) for the delivery of U.S.-approved humanitarian supplies to Ilopango. SAT was also an Enterprise subcontractor for the delivery of weapons. Contrary to SAT's contract with NHAO and the legal limits on the U.S. humanitarian activities, North directed the aircraft to drop a load of weapons to the southern front of Nicaragua. North was able to accomplish this because the aircraft was being leased by Gadd, pursuant to Gadd's State Department contract (which North had helped Gadd obtain) for delivery of humanitarian aid. North personally coordinated planning of this operation with Secord and Fernandez and Enterprise representatives at Ilopango using their network of KL-43 communication devices. Later in April 1986, it was North and Secord who secretly met at Ilopango with Salvadoran and contra military leaders, as well as personnel of the U.S. Embassy, to resolve disputes regarding the resupply operation and its disappointing lack of success. Contra leaders criticized the quality of the aircraft being used and requested funds with which to purchase their own aircraft. North responded that the aircraft had been donated and that funds were unavailable to purchase alternative aircraft. Under North's and Secord's direction, the resupply operation in 1986 improved and ultimately delivered to the contras in the field in Nicaragua thousands of pounds of arms previously purchased by Secord. North generally received detailed inventories of the lethal supplies provided contra forces. The resupply operation also delivered substantial quantities of nonlethal aid and engaged in projects such as training contra forces in the use of explosives. These operational activities of the Enterprise ended in early October 1986 when an Enterprise aircraft was shot down over Nicaragua, killing three crew members and leading to the capture of Eugene Hasenfus, an American who told his Nicaraguan captors that he was working for the CIA. Funding of the Resupply Operation Funds for the secret war came primarily from three sources: (a) the National Endowment for the Preservation of Liberty (NEPL); (b) the Iran arms sales; and (c) foreign governments. As set forth in the ``Flow of Funds'' chapter of this Report, the total amount of funds deposited in Enterprise accounts in Switzerland was $47.6 million. By the time the Iran/contra affair became public, the Enterprise had given to the contras or had spent on efforts related to the contras approximately $17.6 million of these funds. Foreign Donations From December 1984 through July 1985, the contras paid into Enterprise accounts approximately $11.3 million for a variety of services and goods. Most of these funds came from the Saudis, who contributed $32 million in 1984 and 1985. The Saudi funds were nearly exhausted by mid-1985. After North held his June meeting in Miami, the contras were no longer the direct recipient of such funds. Thereafter, the conspirators directed to Enterprise bank accounts all funds from third countries that had been solicited by U.S. officials on behalf of the contras, even though some of them had been restricted for only humanitarian purposes. In August 1985, North asked Gaston Sigur, an NSC staff officer, to arrange a meeting between North and an official of the Taiwanese government for the purpose of soliciting funds for the contras. Following this meeting, North had Sigur confirm the decision by Taiwan to provide the contras with $1 million. North then directed Robert Owen to deliver an envelope containing the number of an Enterprise account to the Taiwanese official. On September 20, 1985, $1 million was received by the Enterprise. In late 1985, North renewed his request, via Sigur, that Taiwan provide additional funds to the contras. In February 1986, a second transfer of $1 million was received in an Enterprise account. Similarly, in June 1986, when the State Department planned to raise $10 million for the contras from the Sultan of Brunei, North undertook to divert the funds to the Enterprise by giving one of its Swiss account numbers to Assistant Secretary of State Elliott Abrams. Fawn Hall, North's secretary, apparently made a transcription error in the account number so the funds were misdirected and never received. On November 20, 1985, the Enterprise received $1 million from the government of Israel to pay the Enterprise for transporting a number of shipments of weapons from Israel to Iran. That weapons transfer was abandoned after the first shipment. The Enterprise's expenses for that shipment were less than $200,000, but the Enterprise kept the balance. NEPL Beginning in the spring of 1985, North, working primarily with Carl R. ``Spitz'' Channell, the president of NEPL, arranged for this tax-exempt organization to sponsor briefings and receptions designed in part to raise funds for the contras. North gave briefings at the White House and the Old Executive Office Building (OEOB) for audiences of prospective contributors concerning the war in Nicaragua and the needs of the contras. To assist Channell in his solicitation of purportedly tax-deductible contributions, North identified specific military and other needs of the contras. In addition to general briefings for groups of contributors, Channell, his assistant Daniel Conrad, and their business associate Richard R. Miller of International Business Communications (IBC), arranged private briefings by North to individual prospective contributors. The private briefings were given from June 1985 to late September 1986 in a variety of locations, including North's office at the OEOB. Prior to some of these briefings, Channell or Conrad advised North of the amount of money that would be solicited from a particular contributor immediately following the private meeting. North would then include in some of his briefings a discussion of the need for specific pieces of military equipment and their cost, knowing that contributors to whom this information was provided would be immediately solicited to purchase the items he had discussed. North thanked those who gave contributions to NEPL, either in person, by telephone, or in writing on official NSC stationery. As further inducement to contribute to NEPL, North and Channell told some prospective contributors that, if they donated a specified amount to the contras, they would be given private meetings and photo opportunities with the President. North and Channell arranged several such meetings between contributors and President Reagan. Between June 1, 1985, and November 25, 1986, North and his NEPL partners raised approximately $6.3 million for the contras, and transferred $3.3 million to Calero and to the Enterprise for contra expenses. To conceal both the source of this money and his own participation, North personally directed that approximately $1.7 million be transferred from NEPL through IBC to corporate bank accounts in the Cayman Islands, and then ultimately to Enterprise bank accounts in Switzerland. Exploitation of the Iran Arms Sales The Iran arms sales were the major source of the Enterprise's funds for the secret war activities. In all, the Enterprise received slightly more than $30 million for the sale of Government arms and returned only $12.2 million to the United States. At least $3.6 million was to fund the Enterprise's resupply operation in support of the contras. Concealment Soon after the June 1985 meeting in Miami, a series of congressional inquiries sought to determine exactly what the U.S. Government, and North in particular, were doing on behalf of the contras. McFarlane, Poindexter and North responded by actively deceiving committees of Congress with a series of false statements and by other efforts to ensure that Congress would never find out about the secret contra military support. The first false statements came in McFarlane's September 5, 1985, letter to the House Permanent Select Committee on Intelligence, a letter on which McFarlane, Poindexter, and North all worked. The letter contained false denials of North's fund-raising activities and his provision of tactical advice to the contras, as well as a false assurance that no one on the NSC staff had ``violate[d] the letter or spirit'' of the Boland prohibition on military aid. September 12, 1985, and October 7, 1985, letters under McFarlane's signature, both jointly drafted by North and McFarlane, contained similar false statements. McFarlane's replacement by Poindexter as national security adviser on December 4, 1985, did not alter the pattern of deceit. North continued to work to prevent dissemination of information about his activities. On June 16, 1986, North sent Fernandez a KL-43 message that stated in part: I do not think we ought to contemplate these operations without [Quintero] being on scene. Too many things go wrong that then directly involve you and me in what should be deniable for both of us.19 19 KL-43 Message from North to Fernandez, 6/16/86, AKW 004389. On May 15, 1986, Poindexter sent this computer message to North: I am afraid you are letting your operational role become too public. From now on I don't want you to talk to anybody else, including Casey, except me about any of your operational roles. In fact you need to generate a cover story that I have insisted that you stop.20 20 PROFs Note from Poindexter to North, 5/15/86, AKW 021378. North responded to Poindexter on the same day with a computer note that said ``Done.'' North subsequently had Robert Dutton inform Enterprise employees in El Salvador that the resupply operation had been taken over by a new entity known as ``B.C. Washington.'' 21 21 Nevertheless, on June 10, 1986, Poindexter reminded North via computer: ``I still want you to reduce you visibility.'' (PROFs Note from Poindexter to North, 6/11/86, AKW 021426-27.) In the summer of 1986, Congress renewed its inquiries. On July 21, 1986, responding to a House resolution of inquiry, Poindexter sent letters to two committee chairmen, stating that McFarlane's 1985 letters to Congress accurately described the activities of the NSC staff. When members of the House Intelligence Committee questioned North in person, he falsely denied his contra-support activities. The deception continued after one of the resupply organization's planes carrying Hasenfus was shot down in October 1986. Congress was about to authorize resumption of contra support by the CIA, with an appropriation of $100 million. Administration officials denied any connection with the aircraft. In October and November 1986, North altered, destroyed, and removed documents and official records relating to the resupply operation. On November 23, 1986, he lied to the attorney general to conceal Secord's operation and his own responsibility in directing the secret resupply activities and the control of the funds used to finance them. Between November 22 and 29, 1986, Poindexter unsuccessfully tried to delete from the White House computer system all of his communications with North. Finally, on December 8, 1986, McFarlane told the House Foreign Affairs Committee that he was unaware that the government or citizens of Saudi Arabia had been involved in financing the contras. The Secret War Activities as a Conspiracy to Defraud the United States The contra-support activities of the conspirators were charged as criminal because they were designed to deceive Congress and to obstruct and frustrate Congress's constitutional powers. The essence of the crime was not the provision of support for the contras per se, nor were the conspirators charged simply with conspiring to violate the Boland Amendment as such. Rather, the essence of the crime was the deceit of Congress. In the language of the indictment, North violated 371 not simply by agreeing to ``organiz[e]'' and ``direct[]'' the program of military support for the contras, but by agreeing to organize and direct the program ``deceitfully and without legal authorization,'' and by ``concealing'' that program (emphasis added). In other words, what the conspirators did was criminal because United States Government support of the contras was a matter within congressional oversight and a matter that Congress could legitimately legislate about and because the conspirators used fraud to keep Congress from discharging these responsibilities. In particular, the conspirators' plan to fund the contras and keep Congress from finding out about that funding interfered with governmental functions in two ways specified in the indictment: by contravening specific ``legal restrictions governing the conduct of military and covert action activities'' and more generally by defeating ``congressional control of appropriations and exercise of oversight for such activities.'' Legal Restrictions on Covert Action In recent years, spurred by revelations of controversial covert actions undertaken without sufficient accountability, Congress and the President have erected a complex web of restrictions, rules, and notification requirements to assure that past abuses by our intelligence agencies are not repeated. Congress has also enacted specific restrictions on covert action in particular regions.22 The most pertinent of these restrictions is, of course, the Boland Amendment, which essentially prohibited expenditure of U.S. funds in support of the contras. But the Boland Amendment must be understood in the context of the entire system of restrictions on covert action adopted since 1970. 22 In addition to the various versions of the Boland Amendment, discussed below, see, for example, the congressional cut-off of funding for military actions in Angola (the ``Clark Amendment,'' P.L. 94-329, Title IV, 404, 90 Stat. 757 (1976), 22 U.S.C. 2293 note) and Cambodia (P.L. 93-51, 87 Stat. 134 (1973)). Responding to ``allegations of substantial, even massive wrong-doing within the `national intelligence' system,'' the special Senate investigating committee known as the Church Committee found in 1976 that ``presidents and administrations have made excessive, and at times self-defeating, use of covert action,'' and that these uses were in large part attributable to Congress's ``fail[ure] to provide the necessary statutory guidelines to carry out their necessary missions in accord with constitutional processes.'' 23 23 U.S. Senate Select Committee to Study Governmental Operations With Respect to Intelligence Activities, Final Report, Book I: Foreign and Military Intelligence, S.Rep. No. 755, 94th Cong., 2d Sess. 1, 425 (1976) (hereafter, ``Church Committee Report''). Recognizing that covert action remained necessary in ``extraordinary circumstances involving grave threats to U.S. national security,'' and that the nature of covert action made it impossible to ``assur[e] public participation in assessing each covert action,'' the Church Committee was insistent that ``the mechanisms of executive branch review and control and of legislative intelligence oversight must serve'' to prevent abuses of covert action.24 The result of the Church Committee's 18-month investigation was a series of interlocking restrictions on covert actions that, in combination, required that significant covert actions be supported by an explicit presidential authorization and reported to the relevant congressional oversight committees. 24 Ibid., pp. 446-47. At the time of the Iran/contra operational conspiracy, the central pillars of this structure were the Hughes-Ryan Amendment of 1974 and Executive Order 12333, as supplemented by National Security Decision Directive 159. The Hughes-Ryan Amendment, responding to the same revelations of ``excessive'' and ``self-defeating'' use of covert action that led to the creation of the Church Committee, prohibited expenditure of funds to support covert action operations by the CIA abroad unless and until the President finds that each such operation is important to the national security of the United States and reports, in a timely fashion, a description and scope of such operation to the appropriate committees of the Congress. . . .25 25 P.L. 93-559, 32, 88 Stat. 1804. The remedy of the Amendment was to require (1) formal approval and certification by the President -- thus preserving political and legal accountability by the President for covert action -- and (2) the provision of timely information to the Congress so that it can oversee and, if necessary, take action concerning, such covert activity. While the Hughes-Ryan Amendment initially applied only to the CIA, in 1980, Congress modified Hughes-Ryan. It left intact the limitation of the Finding requirement to CIA covert activities.26 But it recodified the congressional-notification requirement as part of the newly enacted 50 U.S.C. 413. Between 1984 and 1986, 413 required that appropriate congressional authorities be ``informed of all intelligence activities which are the responsibility of, are engaged in by, or are carried out for or on behalf of, any department, agency, or entity of the United States,'' and thus imposes a reporting requirement for both CIA and non-CIA covert operations.27 26 22 U.S.C. 2422. (Repealed by 8/14/91, P.L. 102-88, Title VI, 601, 105 Stat. 441.) 27 50 U.S.C. 413(a)(1) (1982). In addition to these statutes, executive orders -- most recently Executive Order 12333 -- have long forbidden Government agencies other than the CIA from carrying out covert actions unless there is a presidential determination that the use of some agency other than the CIA ``is more likely to achieve a particular objective.'' 28 National Security Decision Directive 159 requires that this determination be in writing. Since the Executive Branch is required to keep the intelligence oversight committees of the Congress ``fully and currently informed of all intelligence activities which are the responsibility of, are engaged in by, or are carried out for or on behalf of, any department, agency, or entity of the United States,'' 29 these executive orders have given Congress an additional means of keeping itself informed of covert activities in the Executive Branch. 28 The version of this prohibition in effect at all times relevant to Count One is found in Part 1.8(e) of Executive Order 12333, 46 Fed. Reg. 59941, 59945 (Dec. 4, 1981). Similar restrictions have applied since President Carter promulgated Executive Order 12036, 43 Fed. Reg. 3674 (1978). 29 50 U.S.C. 413(a)(1) (1982) (emphasis added). Taking the Hughes-Ryan Amendment and Executive Order 12333 together, the law governing accountability for covert action is clear: Personal presidential accountability and reporting to Congress are the rule for all covert actions. In addition to this basic structure of restrictions on covert military actions, Congress placed additional limitations on covert assistance to the contras in Nicaragua, principally through a series of laws known as the ``Boland Amendments.'' They are relevant primarily as the law the conspirators were determined to evade. There were four different versions of the Boland Amendment in the years 1982-1986. Only the last two applied during the period relevant to Count One. Section 8066(a) of the Department of Defense Appropriations Bill, enacted in the Further Continuing Appropriations Act of 1985,30 was in effect from October 12, 1984, to December 19, 1985. It provided: 30 P.L. 98-473. During fiscal year 1985, no funds available to the Central Intelligence Agency, the Department of Defense, or any other agency or entity of the United States involved in intelligence activities may be obligated or expended for the purpose or which would have the effect of supporting, directly or indirectly, military or paramilitary operations in Nicaragua by any nation, group, organization, movement or individual. The second relevant Boland Amendment was enacted on December 4, 1985, as part of the Intelligence Authorization Act for fiscal year 1986.31 In effect until October 18, 1986, this statute provided: 31 P.L. 99-169. Funds available to the Central Intelligence Agency, the Department of Defense, or any other agency or entity of the United States involved in intelligence activities may be obligated and expended during fiscal year 1986 to provide funds, materiel, or other assistance to the Nicaraguan democratic resistance to support military or paramilitary operations in Nicaragua only as authorized in section 101 and as specified in the classified Schedule of Authorizations referred to in section 102, or pursuant to section 502 of the National Security Act of 1947, or to section 106 of the Supplemental Appropriations Act, 1985 (P.L. 99-88). The ``classified schedule'' authorized a limited amount of funds for communications equipment and communication training for the contras.32 Neither the classified schedule nor any of the statutes enumerated permitted the provision by the Government of lethal materiel for the contras' military or paramilitary efforts. The Boland Amendments were always provisions in appropriation acts. They did not provide for criminal sanctions. 32 In addition to the communication equipment and training, the 1986 Intelligence Authorization Act permitted United States employees to provide ``advice'' to the contras, including advice on the ``effective delivery and distribution of materiel.'' (Senator Durenberger, 131 Cong. Rec. S16074 (1985).) However, the agencies could not ``engage in activities . . . that actually amount to participation in the planning or execution of military or paramilitary operations in Nicaragua by the Nicaraguan democratic resistance, or to participation in logistics activities integral to such operations.'' (H.R. Rep. 373, 99th Cong., 1st Sess. at 16 (1985).) While the two versions of the Boland Amendment differed slightly, they shared a common purpose: Congress clearly intended to oversee U.S. support for contra military operations, to limit the amount spent on such assistance and, indeed, during certain periods relevant to this indictment, to prohibit such assistance entirely. As Representative Boland, the principal sponsor of the Amendment, explained during the final debate for the fiscal year 1985 Boland Amendment, it did not leave open loopholes for covert U.S. support for the contras. Congressman Boland stated that the Amendment ``clearly ends U.S. support for the war in Nicaragua. . . . There are no exceptions to the prohibitions.'' 33 33 130 Cong. Rec. H11980 (1984). While the activities of the conspirators fell within the prohibitions of the Boland Amendment, its precise interpretation was not critical to the criminality of the conspiratorial objective charged in Count One. Rather, the indictment charged that the defendants conspired to defraud the United States ``by . . . obstructing the lawful government functions of the United States, including compliance with legal restrictions governing the conduct of military and covert action activities.'' The crux of the crime of conspiracy to defraud the United States, as the cases cited earlier make clear, is not a conspiracy to violate some particular provision of law. The essence of the crime, rather, is to ``interfere with or obstruct one of [the Government's] lawful governmental functions by deceit, craft or trickery. . . .'' 34 34 Hammerschmidt, 265 U.S. at 188. Even if the conspirators' actions somehow had fallen within a loophole in the Boland Amendment, the entire operation of the Enterprise to support the contras was deliberately designed to defeat the restrictions on covert action Congress had enacted to prevent its ``excessive'' and ``self-defeating'' abuse. The Enterprise, under the direction of the NSC staff, provided support for the military and paramilitary activities of the contras outside the CIA, without the presidential Finding required by Executive Order 12333 or the reporting to congressional intelligence committees required by 50 U.S.C. 413. To the extent that CIA resources were coopted by the Enterprise for use in this venture, that too was done without a presidential Finding, as required by the Hughes-Ryan Amendment. And, of course, the entire funding operation was at best a deliberate and deceptive attempt to evade the plain intent of the Boland Amendment. Against this extensive background of congressional investigation, legislation and Executive action to control and limit covert action in general, and covert military support for the Nicaraguan contras in particular, the system of preserving presidential accountability and congressional oversight over covert action constituted a lawful function of the United States. The Boland Amendment, moreover, shows at the very least that Congress had expressed its interest in strictly supervising covert action in Nicaragua as an exercise of that function. North was one of the NSC team making drafting suggestions to Congress to liberalize Boland. The conspirators were fully aware of Congress's efforts to exercise its oversight function, and the danger of serious retaliation, including the end of all hopes for congressional support for the contras. Accordingly, they deliberately did their utmost to defeat the system by deceitfully concealing their operation from Congress, and acting without a formal presidential Finding. Congress's Appropriations and Oversight Functions The second way in which the secret contra-support efforts interfered with governmental functions is that they denied Congress its legitimate role of regulating Government expenditures and of overseeing covert activities. Our constitutional order emphatically reserves the powers of taxing and spending to Congress. That ``the power of the purse belongs to Congress'' is fundamental to our system of government.35 The Appropriations Clause of the Constitution 36 provides that ``No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law'' -- thus guaranteeing that money may not be spent for purposes that have not been approved by the representatives of the people. The Boland and Hughes-Ryan Amendments are specific exercises of Congress's power to deny funds to programs disapproved by Congress. 35 L. Tribe, American Constitutional Law 256 (1988). 36 Article I, 9, cl. 7. But Congress also has a broader responsibility in foreign affairs. No less an authority than James Madison argued that Congress had plenary authority over foreign affairs.37 The conspiracy charge was not, however, premised on such an extreme position. It was based instead on the uncontrovertible and non-controversial proposition that Congress has some role to play in foreign affairs. 37 6 J. Madison, Writings, 138, 147-50 (Hunt ed. 1910), cited in L. Henkin, Foreign Affairs and the Constitution, pp. 82-83 (1972). As Professor Henkin summarizes Madison's argument: Basically, . . . Congress is the principal organ of government and has all its political authority, in foreign affairs as elsewhere, except that specifically granted to the President (alone or with the Senate). The determination of foreign policy and the control of foreign relations lay with Congress under the Articles of Confederation and, with particularized exceptions, the Constitution left them there. The powers of Congress are not limited to domestic ``law-making,'' narrowly conceived: witness, to Congress is expressly given the most important foreign affairs power, the power to declare war. . . . (Ibid.) The congressional powers to regulate foreign commerce,38 to define offenses against international law,39 to raise and support armies,40 and to tax and spend ``for [the] common defense,'' 41 make it apparent that Congress has a major role to play in defining foreign policy cooperatively with the President. Although Congress has not prohibited covert foreign operations, it has put in place requirements of reporting and accountability that enable it to exercise substantial control over particular operations when necessary.42 The Constitution provides Congress with a key role in determining whether resources should be committed to foreign adventures, such as those engaged in by the Iran/contra conspirators. 38 Art. I, 8, cl.3. 39 Ibid., cl. 10. 40 Ibid., cl. 12. 41 Ibid., cl. 1. 42 22 U.S.C. 2422 (Repealed by 8/14/91, P.L. 102-88, Title VI, 601, 105 Stat. 441); 50 U.S.C. 413 (1982). Congress thus has a right as part of its oversight function to demand information about covert activities. It also has a right as part of its appropriations function to deny funding to covert activities. Both functions were impaired by the actions of the Iran/contra conspirators. In other words, Congress's powers are impaired not merely when Government officials deceitfully fund foreign military activities that Congress has specifically refused to fund (as was the case with the Boland Amendment); Congress's powers are also impaired when Government officials deceitfully fund and conduct foreign military activities and scheme to prevent their actions from coming to congressional attention by fraud, concealment, deception and disinformation. Thus, even if it were the case that the conspirators in some way avoided violating both the Boland Amendment and the specific legal controls over covert action, the broader problem with their deceitful activities would have remained: The conspirators, aware of statutory efforts to limit and allow Congress to monitor funding for the military operations of the contras, chose to hide their activities from Congress -- with the aim of ensuring that Congress would not have the opportunity to consider whether to close such a loophole. The entire point of their pattern of deceit and evasion, Count One charged, was to defraud the United States by acting unilaterally and thereby thwarting the normal processes of constitutional government. The Boland Amendment was Violated The applicability of Boland to the actions of North and others was an issue of importance when the Iran/contra affair became public. The majority and minority reports of the Select Committees reached opposing conclusions as to whether Boland had been violated.43 43 Compare Report of the Congressional Committees Investigating the Iran-Contra Affair, pp. 395-410 (majority report; Boland Amendments violated ``in letter and spirit'') (hereinafter cited as majority report); Ibid., pp. 489-500 (minority report; Boland Amendments not violated) herein cited as Minority Report). As previously noted, the conspirators were not charged with having conspired to violate the Boland Amendment. Nonetheless, it is clear that the conspirators did violate that statute. As Independent Counsel argued prior to the North trial,44 Independent Counsel could as a matter of law have framed the conspiracy charge in that fashion, and its evidence at trial would have proved that the conspirators violated the Boland Amendment. 44 Government's Memorandum of Points and Authorities in Opposition to Defendant's Motions to Dismiss or Limit Count One (filed October 25, 1988), pp. 48-82. More to the point, the Boland Amendment entered into the conspirators' motivations for lying to Congress: It was certainly the critical part of the statutory framework that they were either violating or evading. It was central to the statements of both McFarlane and Poindexter to Congress that the NSC staff was in compliance with both the ``spirit and the letter'' of Boland. While the Boland Amendment went through four versions, the relevant statutory language was clear and never changed. Many of the activities in which the conspirators engaged -- including provision of weapons and funding for weapons, strategic and tactical advice about the conduct of military operations, and supervision of the Enterprise's resupply efforts -- were unambiguously prohibited to those entities covered by the Amendment.45 The description of its breadth of application did not change at all in the period covered by Count One. Both versions of the Boland Amendment in effect from October 12, 1984, to October 18, 1986, expressly applied to the Central Intelligence Agency, the Department of Defense, and ``any other agency or entity of the United States involved in intelligence activities.'' 46 45 There may be doubt about the peripheral coverage of the Amendments -- for example, as to whether the Amendment in effect in fiscal year 1986 barred provision of logistical advice to the contras. 46 Section 8066 of Department of Defense Appropriations for fiscal year 1985, as enacted in P.L. 98-473; Section 106 of the Intelligence Authorization Act for Fiscal Year 1986, P.L. 99-569. The Select Committees' disagreement centered on whether the NSC was covered by the Amendment. In determining, however, whether there was a conspiracy to violate the Boland Amendment, that question need not be reached, for two reasons. First, the Boland Amendment explicitly covered the CIA, and co-conspirator Fernandez, as the station chief in Costa Rica, was a CIA employee. His activities are discussed in greater detail elsewhere in this Report, but in short, by his efforts to facilitate construction of a clandestine airstrip in Costa Rica for contra resupply, his promises to contra leaders of military supplies, and his role in carrying out those promises, Fernandez -- on instructions from North -- did precisely what he was barred from doing by Boland. Second, North himself was covered, since his salary was paid by the Department of Defense, another entity specified by the Boland Amendment. The legislative history of the Boland Amendment clearly explains that its prohibitions applied to all Defense Department funds -- including those used to pay salaries.47 47 For example, during the final debate on the Boland Amendment, Representative Boland stated that the Amendment ``clearly prohibits any expenditure, including those from accounts for salaries and all support costs.'' 130 Cong. Rec. H11980 (1984). More broadly, the NSC itself was covered. The critical question was whether the NSC was covered as an ``entity of the United States involved in intelligence activities.'' The NSC was such an entity. The National Security Act of 1947, the statute that created the NSC,48 charges it to ``assess and appraise the objectives, commitments, and risks of the United States in relation to our actual and potential military power, in the interest of national security. . .'' -- virtually a definition of strategic intelligence.49 More specifically, the Act then establishes the CIA -- the archetypal ``agency involved in intelligence activities'' -- ``under the National Security Council,'' and assigns the CIA the responsibility of ``coordinating the intelligence activities of the several Government departments and agencies in the interest of national security . . . under the direction of the National Security Council.'' 50 48 The same Act also establishes the NSC staff. 50 U.S.C. 402(c). 49 50 U.S.C. 402(b)(1) (1982). 50 50 U.S.C. 403(a), (d) (emphasis added). The basic operating charter of the NSC during the years in que