He and Casey Planned Secret Unit Outside CIA, North Says : Would Have Used Arms Profits for ‘Certain Activities’ Abroad

Lt. Col. Oliver L. North told congressional investigators Friday that he and the late CIA Director William J. Casey had a plan to establish their own clandestine alternative to the CIA--what Senate investigating committee Chairman Daniel K. Inouye (D-Hawaii) called “a secret government within our government.”

As North described the plan, he and Casey would have used profits from the secret sale of U.S. arms to Iran to run an “off-the-shelf, self-sustaining, stand-alone entity that could perform certain activities” overseas. Unlike the CIA, the secret organization would not have to depend on Congress for its funds or notify lawmakers of its activities.

In an interview, Inouye characterized Casey and North’s so-called “Project Democracy” in a single word: “Frightening.”

Rep. Jenkins Upset

Rep. Ed Jenkins (D-Ga.) said he was upset that the covert machinery established by North, with Casey’s approval, was apparently kept secret from all elected officials in the government--including not only Congress but President Reagan. Without the supervision of elected officials, he said, Administration appointees could give money to whomever they wished, regardless of U.S. policy.

“What I’m disturbed about is that there is not a single official elected by the people of this great nation that had any knowledge of that,” Jenkins said.

Nevertheless, polls showed that North is winning in the battle for public support. His enormous success before the television cameras continued to bring in thousands of appreciative telegrams, a deluge of telephone calls to congressional offices and bouquets of flowers. His appearance has changed the tone of the hearings and has thrown the committee members into bouts of ideological squabbling.

North, whose nationally televised appearance before the committees will resume Monday, was fired last November from the National Security Council for his role as key operative in both the secret sale of U.S. arms to Iran and the diversion of profits to support the contras .

Approval of Superiors

While others in the Administration have attempted to portray North as a renegade, he spent his first four days before the committees insisting that everything he did had been approved by his superiors.

North said he never disobeyed an order from his bosses, former presidential National Security Adviser Robert C. McFarlane, who has already testified, and John M. Poindexter, who is scheduled to appear before the committees immediately after North, breaking his eight-month silence on his own role in the Iran-contra affair. But it was Casey, who died in May of brain cancer, whom North called his chief guide.

Senate committee counsel Arthur L. Liman, speaking to reporters, described North’s rationale as a “Nuremberg defense. . . . Everything he did, he did on orders.”

But unlike the Nazis who were convicted at Nuremberg of atrocities committed during World War II, North has not distanced himself from Administration policy. Instead, he has used his testimony as an opportunity to plead Ronald Reagan’s case before millions of viewers.

North described Project Democracy, the secret operation established by himself and Casey to carry out covert operations, in only the vaguest of terms. He did not specify what he meant by the “certain activities” it was intended to engage in, indicating instead that he had discussed these activities at length with the panel in a closed session the previous night.

A chart found by the FBI in North’s office indicated that he contemplated operations in Africa, the Middle East and South America. Before the exposure of the Iran-contra affair, Project Democracy had purchased a Danish ship that it used in unsuccessful hostage rescue missions, secret weapons shipments and an abortive attempt to exchange semiautomatic Soviet weapons with Iran for a Soviet tank.

Similar to Contra Network

North said Project Democracy’s activities might be similar to the secret, private supply network that he had set up with Casey’s guidance to support Nicaragua’s rebels at a time when direct U.S. government aid was illegal. The rebels received contributions from private citizens and other governments and $3.5 million in diverted profits from the secret Iran arms sales.

“There were other countries that were suggested that might be the beneficiaries of that kind of support, other activities to include counterterrorism,” North said.

Liman, suggesting that North and Casey sought to create a “CIA outside of the CIA,” found it ironic that they called their operation “Project Democracy.”

“Part of democracy here was that there was a law that said the President of the United States should authorize covert operations,” Liman said.

Purchase of Ship

At one point, North suggested to the committees that Project Democracy would carry out its operations only with presidential authorization. Later, however, he acknowledged that he and Casey had not sought President Reagan’s permission for Project Democracy’s major activity--the purchase of the ship.

He justified the ship’s purchase as a venture by the “private commercial companies that were supporting that activity”--namely, the Iran arms sales and the contra supply operation--even though the purchase had been ordered through North by Casey.

“Are you not shocked that the director of central intelligence is proposing to you the creation of an organization to do these kinds of things outside of his own organization?” Liman demanded.

“I am not shocked,” North replied. “I don’t see that it was necessarily inconsistent with the laws, regulations, statues and all that.”

Chairmen Disagree

The chairmen of the Senate and House intelligence committees, whose job it is to oversee the operations of the CIA, disagreed.

“There would be nothing illegal in using private funds as long as it was appropriately conducted with the approval of the President and the knowledge of Congress,” said Sen. David L. Boren (D-Okla.), chairman of the Senate panel. “But to say we’re going to spend private funds based on a decision made entirely by unelected people is completely illegal.”

Rep. Louis Stokes (D-Ohio), chairman of the House Intelligence Committee, said there was no precedent for the CIA to establish its own shadow operation--”none whatsoever.” He described it as “just another extension of their effort to avoid the laws of the land.”

At Casey’s request, North ordered Albert A. Hakim, one of the private entrepreneurs whose businesses conducted the Iran arms sales and contra supply operation, to buy the Danish ship Erria in April, 1986. Hakim spent $315,000 for the ship.

CIA Was to Lease It

The Erria was to be leased to the CIA as a floating platform from which to broadcast propaganda into Libya. The White House, flushed with the success of a surprise air strike on Tripoli in mid-April, was secretly drafting a series of operations to confuse and destabilize the regime of Libyan leader Moammar Kadafi.

North boasted that his Project Democracy proved much more efficient than the mammoth CIA apparatus.

“We couldn’t find a ship in the entire CIA inventory or the United States Navy that was able to do it,” North said. “The director of central intelligence came to me and within, I think, 72 hours we had a ship.”

Hakim planned to lease the Erria to the CIA for six months for $1.2 million, North testified. But the agency rejected the figure as too high, and the CIA, according to a memo introduced into the congressional hearing record, later told Poindexter that it “will have nothing to do with the ship.”

CIA-Backed Adventures

North later sent the Erria on a series of CIA-backed covert adventures, including plots to ransom U.S. hostages out of Lebanon, trade Soviet rifles to Iran for a sophisticated Soviet tank and ship $2.1 million of Polish and Portuguese arms to the contras.

None of the projects, it appears, had received a presidential “finding”--an authorization signed by Reagan. Such findings are required by law for covert CIA operations.

Jenkins asked North who owned the $8 million in profits from the Iran arms sales that remain in the Swiss bank accounts of the companies that managed the sales. He said he thought the companies should pay their bills and give whatever remained to the contras.

When Jenkins noted that Hakim, in earlier testimony, opposed that idea, North replied: “Give me 10 minutes with Mr. Hakim.”

Jenkins: “You think if you have 10 minutes that you can get Mr. Hakim to turn over that $8 million?”

North: “If I could meet with anybody without a bunch of lawyers around, I reckon I could, sir.”

Concerned With Principle

But Jenkins insisted he was more concerned with the principle than the money itself. “I’m worried,” he said, “about the next person that has control over this account.”

Jenkins also challenged the legality of the Administration’s policy of soliciting money from other countries for Nicaragua’s rebels at a time when Congress had banned direct U.S. government support.

Jenkins said such solicitations threatened to compromise the United States in future dealings with those countries, which notably included Saudi Arabia and Brunei. Scoffing at North’s suggestion that those countries contributed because they supported the spread of democracy in Central America, he noted that none of them had a democratic government itself.

In earlier questioning, North sought to dispel Liman’s suggestion that he was the driving force behind the Iran arms sales. Liman said documents indicated that North persisted even after Reagan and McFarlane were expressing doubts that the Iranians would secure the release of U.S. hostages held in Lebanon by a Shia Muslim faction sympathetic to the Tehran regime.

Not Principle Advocate

“I don’t believe I was the principal advocate,” North insisted. “I would simply observe that, like some of my other activities, the opposition that I heard was far more muted while we were doing it than it ever was after it failed, or after it was exposed.”

He described himself as someone the Administration had tapped “to take the spear” if the operations were exposed. White House officials knew that publicity would generate a political firestorm, in part because the arms-for-hostages trade with Iran ran directly counter to the President’s much-touted vow not to negotiate with terrorists.

North also denied earlier testimony by Hakim that he was under pressure to get the hostages out in time for last November’s congressional elections, when Republican control of the Senate hung in the balance.

‘May Have Said That’

“The President of the United States never told me that, nor did any other person,” North said. “I may have said that to Mr. Hakim to entice him to greater effort, but I certainly didn’t hear that from the President. . . . The President’s concerns for the hostages outweighed his political ambitions or political concerns.”

In particular, North said, Reagan was moved when he saw videotapes of the “rather lengthy ordeal” suffered by hostage William Buckley, the CIA station chief in Beirut who died in 1985 after being kidnaped and tortured.

North said Buckley was brutally treated, “and we were able to see him slowly but surely being wasted away. . . . It was awful, to say the least.”

Dealings With Contributors

The investigators also probed North’s dealings with wealthy private contributors to the contra effort. North vigorously denied that he had participated in what Sen. Warren B. Rudman (R-N.H.) earlier described as “the one-two punch”: a White House briefing by North on the contras’ needs followed by a direct pitch for money from fund-raiser Carl R. (Spitz) Channell.

North bristled at suggestions that the donors may have been duped by his slick presentation. “I was explaining exactly what the situation was in Central America and how it would affect the national security of the United States of America,” he said.

Staff writer Michael Wines contributed to this story.