The US government secretly sold arms to Iran and funneled the money to Nicaraguan rebels

Two secret operations that became one scandal

Iran-Contra began as two separate secrets, run by overlapping people for different reasons, until a single discovery joined them. The first secret was an arms-for-hostages deal: starting in 1985, the Reagan administration secretly approved the sale of American anti-tank and anti-aircraft missiles to Iran, then subject to a US arms embargo, partly in hopes that Tehran's influence over Iran-linked militants in Lebanon would help free American hostages held there. The idea originated with Manucher Ghorbanifar, an Iranian arms dealer and former Savak agent whom the CIA distrusted enough to polygraph three separate times (he failed all three) yet who became the deal's chief broker regardless. Israel delivered the first 96 American TOW anti-tank missiles to Iran on 20 August 1985 and 408 more on 14 September; a hostage, the Reverend Benjamin Weir, was freed the following day, and 18 HAWK anti-aircraft missiles followed that November. The second secret was a funding operation: a National Security Council staffer named Lt. Col. Oliver North was running money and weapons to the Contras, the rebel force fighting Nicaragua's leftist Sandinista government, at a time when Congress had explicitly voted to stop the government from doing exactly that.

On 3 November 1986, a small Lebanese magazine called Ash-Shiraa broke the first secret, reporting the Iran arms sales. As Justice Department officials began reviewing National Security Council records in the days that followed, North and his secretary, Fawn Hall, spent part of the evening of 21 November feeding roughly a foot and a half of documents through an office shredder, an episode investigators later treated as an effort to destroy records rather than routine housekeeping. Three weeks later, on 25 November, Attorney General Edwin Meese held a press conference to reveal the second: that money from the Iran sales had been diverted to the Contras. It was that second announcement (not the arms sales themselves) that turned a foreign-policy embarrassment into what the National Security Archive has called the biggest government scandal since Watergate.

The Enterprise, and where the money actually went

The mechanism North built to move the money became known, in his own testimony, as “the Enterprise.” Working with a retired Air Force general, Richard Secord, and an Iranian-American businessman, Albert Hakim, North arranged for the Iran arms sales to be priced above cost, with the markup and the residual profits routed through Swiss bank accounts and front companies rather than back to the US Treasury. Independent Counsel Lawrence Walsh's 1993 final report found that more than $47 million flowed through accounts controlled by North, Secord, and Hakim, money that in significant part was used to buy weapons, ammunition, and supplies for the Contras at exactly the moment Congress had cut off that avenue.

North kept meticulous, and ultimately incriminating, records of the operation. Justice Department investigators later found a memo he had written to Poindexter that laid out, in North's own hand, how profits from the Iranian arms sales had been diverted to a Swiss account and used to resupply the Contras, one of the central documentary pieces of evidence in the case against him.

The Enterprise's activities extended beyond bookkeeping into secret diplomacy. In May 1986, North and Robert McFarlane (who had resigned as National Security Adviser five months earlier but returned for the mission) flew into Tehran as part of a small US delegation traveling on an Israeli aircraft with forged Irish passports, carrying a Bible inscribed by President Reagan and a cake baked in the shape of a key, gifts intended to symbolize the opening of a new relationship. The mission collapsed after four days in a dispute over whether Iran would free hostages or receive missiles first. Some of the Enterprise's proceeds went to North personally: Walsh's investigation documented a $16,000 home security system that Secord and Hakim arranged for North's house and a $200,000 trust fund they set up for his children, benefits North had not disclosed to Congress.

Two investigations, two verdicts on Reagan

Two official inquiries examined the affair within a year of its exposure, and both were unsparing about the operation while diverging on the president's personal culpability. On 1 December 1986, Reagan appointed the Tower Commission (former Senator John Tower, former Senator Edmund Muskie, and former National Security Adviser Brent Scowcroft) to review the NSC's role. Its report, issued 26 February 1987, described a national security process that had operated with almost no paper trail, no formal decision memos, and no effective oversight, and it faulted Reagan's “management style” and detachment from the details of his own administration's operations.

A separate, larger inquiry followed: a joint House and Senate select committee held televised hearings from May to August 1987, at which North and Poindexter testified under grants of use immunity, meaning their testimony itself could not later be used against them in a criminal trial, a detail that would prove decisive years afterward. The committees' final report, issued 18 November 1987, went further than Tower's in its judgment of the culture involved, concluding that officials had treated the law “not as setting boundaries for their actions, but raising impediments to their goals,” and holding that ultimate responsibility “must rest with the President” on the theory that “if the President did not know what his National Security Advisers were doing, he should have.”

“Officials viewed the law not as setting boundaries for their actions, but raising impediments to their goals.”

Neither investigation found direct evidence that Reagan personally knew of or approved the diversion of funds to the Contras specifically, as opposed to the broader Contra-support effort and the Iran arms sales, which he had authorized. Poindexter himself testified that he deliberately kept the diversion from Reagan, telling investigators he wanted to preserve the president's “plausible deniability”, while adding that he believed Reagan would have approved of it had he been told.

The Independent Counsel's final word

Walsh submitted his Final Report on 4 August 1993, nearly seven years after his appointment. Its conclusions were unambiguous about the scope of what had occurred, even where individual prosecutions had failed to reach a final verdict: that senior officials, with the knowledge of Reagan, Bush, Secretary of State George Shultz, Secretary of Defense Weinberger, and CIA Director William Casey among others, had conducted the Iran initiative in ways that violated laws and executive orders, and that “senior Reagan Administration officials engaged in a concerted effort to deceive Congress and the public about their knowledge of and support for the operations.”

On Reagan specifically, Walsh's report drew a careful distinction consistent with the Tower Commission and congressional findings: the president had not been shown to have criminally participated in the diversion, but had, in the report's words, “set the stage for the illegal activities of others by encouraging and, in general terms, ordering support of the contras during the period when funds for the contras were cut off.” On Bush, then vice president, Walsh found he had been “fully aware of the Iran arms sales” and involved in seeking third-country funding for the Contras, though no evidence supported a criminal charge against him. Bush had told television interviewers in January 1988 that he had been “out of the loop” on the Iran initiative, but a personal diary he had kept since 1986 (and did not turn over to investigators until December 1992, years after it was first requested) included an entry dated 5 November 1986 that described himself as “one of the few people that know fully the details.” Walsh's final report concluded that Bush had shown little intention of cooperating with the inquiry.