CIA Director William Casey told lawmakers Wednesday that his agency, while involved in the secret arms dealings with Iran, played no role in diverting profits from the arms sales to the anti-government rebels in Nicaragua.
But Casey, testifying under oath before a closed, five-hour session of the House Foreign Affairs Committee, also provided legislators with new details about the Reagan administration's clandestine dealings with Iran and the CIA's role in the undertaking.
In particular, sources said, Casey:
* Suggested to legislators that a network of middlemen -- including financiers from Canada -- were involved in the clandestine arms shipments.
* Disclosed that it was the CIA's concerns in 1985 about the legality of the arms shipments that spurred President Reagan last Jan. 17 to sign a secret document, called a "finding, " authorizing the transactions.
* Indicated that White House national security aides, not the CIA, were the main proponents of sending arms to Iran as a means of strengthening relations and securing the release of American hostages.
Afterward, legislators said that Casey, while forthcoming in some areas, was either vague or uninformed about key details of the arms transfers to Iran and the diversion of money to the Nicaraguan contras.
"The director of the CIA hears no evil, sees no evil and certainly speaks no evil of anyone else in the administration, " said Rep. Stephen Solarz, D-N.Y.
One of the biggest surprises of the closed-door session, sources said, was Casey's disclosure that a group of Canadian investors was associated with the secret arms shipments -- and reportedly knew more about the transactions than Casey himself.
One source reported that Casey said that a representative of the financiers called him in September complaining that $15 million the group had invested in the arms deal had not been repaid. Casey said the representative of the group threatened to initiate legal action against the U.S. government and unspecified Iranians if the group did not receive its money, the sources said.
Another committee source said the funds were "front money" commonly used in international arms deals. Buyers usually do not want to put up money before they get the equipment, and sellers do not want to deliver without money. So a third party arranges the transaction and collects a commission for bringing the buyer and seller together.
Committee sources said the question of where the $15 million went did not come up during the hearing because it wasn't asked of Casey.
One committee source said that the representative of the Canadian investors who contacted Casey was a former business associate of the CIA director. "Casey said this guy knew more about Iranian arms sales than he did, " the source said.
WHAT CASEY SAID
Lawmakers said Casey was the clearest during his testimony about what he did not know -- that profits from arms sales to Iran were being diverted to the contras. They said Casey told them he first learned about the diversion shortly before Attorney General Edwin Meese announced it on Nov. 25.
"He said he only knew when Meese told him, " said Rep. Gus Yatron, D-Pa. The New York Times, quoting government sources, had reported Wednesday that Casey had been informed of the diversion of profits a month before it was publicly disclosed by Meese.
Sources at the Senate Intelligence Committee -- which took closed-door testimony from Casey on Nov. 21 and has called him to reappear next Tuesday -- indicated Wednesday they have evidence that Casey knew of the diversion before Meese told him.
Asked if Casey had lied in his House committee testimony Wednesday, one Senate committee source said, "I can't be sure because I don't know for sure what he told the House. But if he said what I'm hearing he said -- ask me that same question next Tuesday."
Rep. Peter Kostmayer, D-Pa., said Casey told the committee that the diverted money was not funneled through Swiss bank accounts set up by the CIA to finance secret operations. Casey said that $12.2 million was deposited into the accounts as payment for the arms, but said that sum represented the actual price of the weapons, Kostmayer said.
Solarz emerged from the session saying he now believes that President Reagan was aware of the diversion of the money to the contras. "I'm very comfortable with the conclusion that the president must have known about the decision to divert these resources, " Solarz said.
But his comments were attacked by both Republicans and Democrats who said that Casey's testimony gave no grounds for concluding that Reagan was involved in the diversion. Rep. Edward Feighan, D-Ohio, called Solarz's assertions "thoroughly irresponsible." And Rep. Michael DeWine, R-Ohio, said, "There is absolutely no evidence that would link the president . . . to any of these illegal activities."
Casey, according to sources, provided the lawmakers with more details about the origin of the CIA's involvement in the arms shipments to Iran.
Casey said that former National Security Council aide Oliver North contacted the CIA in late November 1985 and requested the agency's help in transferring "oil-drilling equipment" from Israel to Iran, sources said. The CIA provided the services of Southern Air Transport, an airline with connections to the CIA, sources said.
Sources said that when the CIA learned that the cargo was not oil equipment but an arms shipment, the agency's deputy director at the time, John McMahon, informed the National Security Council staff that the CIA would not be involved with such shipments again without the president's specific approval.
That concern prompted Reagan on Jan. 17 to authorize, in writing, the secret policy of sending U.S. arms to Iran, lawmakers said.
"What prompted the CIA to ask for the findings, which were issued by the White House on Jan. 17, was . . . what turned out to be an arms shipment to Iran, " one legislator said.
Another said Casey was asked whether he felt that North had lied to the CIA by not disclosing the nature of the shipment from Israel to Iran. Casey's response, according to the legislator, was: "I didn't say he was lying. He might have made a mistake."
North was fired in November upon the disclosure by Meese that up to $30 million in profits from the arms sales had been diverted to the contras -- a possible violation of a congressional ban against lethal aid for the rebels.
AT ODDS WITH MCFARLANE
One source said Casey appeared to refute testimony earlier this week by former national security adviser Robert McFarlane, who told lawmakers that Reagan orally authorized in August 1985 the indirect shipment of U.S. arms to Iran from Israel. McFarlane said the oral authorization allowed Israel to ship arms to Iran in 1985 before the Jan. 17 authorization by Reagan legalized U.S. arms shipments to Iran.
Casey said any such authorization in August of 1985 would have had to have been in writing and the source said Casey said he was not aware of any such authorization. His statement supports the position of White House officials, who have said that Reagan did not authorize indirect arms shipments in August of 1985.
Several lawmakers said that Casey indicated that the CIA had not pushed Reagan to authorize arms shipments, either directly or indirectly.
Rep. Robert Dornan, R-Calif., when asked if the CIA was the main proponent of the arms shipments, replied, "No way."
Dornan also said that he had questioned Casey about whether he intends to remain in his post, over the objections of some lawmakers who have called for his resignation. Dornan said Casey said he would "absolutely" stay.
In other developments, former national security adviser John Poindexter appeared before the House Intelligence Committee and once again refused to answer questions, invoking his Fifth Amendment rights against self-incrimination.
Rep. Lee Hamilton, D-Ind., chairman of the panel, said that one of the main areas of inquiry that remains for Congress is tracking the flow of money from the Iranian arms sales to the Nicaraguan contras.
"I still don't have a clear understanding how the money flowed here, " said Hamilton. "I could not trace the flow of funds."
Senate Intelligence Committee Chairman David Durenberger, R-Minn., expressed similar concerns Tuesday, saying his panel had not yet been able to track down the money.
Said Kostmayer: "There is a tangled web of worldwide financial relationships which will require accountants, more than congressmen, to separate it all out. And I think it will take some time."