by admin » Tue Jun 09, 2015 3:39 am
8. The Ora Group
MY RELATIONSHIP WITH Freddie, although intermittent, remained warm and loving. Despite the rapidly changing events in Iran which kept me busy, she was always in my thoughts. She had given birth to a little girl we'd decided to call Herut. The first time I saw my daughter at the Lisbon hotel Freddie had checked into, I wept with happiness. But I didn't know where our future lay.
With Herut in the care of a nanny in Managua, we had continued to meet throughout 1980 in Portugal whenever we could arrange a date. My schedule was hectic, and Freddie didn't like traveling with the baby, so by mid-1981 she announced that she'd had enough.
"I love you, Ari. I want to be nearer to you," she said during one of our strolls through Lisbon. "I've decided to give up my job and come and live here in Portugal."
I was thrilled. It would certainly make life easier for both of us. My shuttling between Israel, Europe, the U.S., and Iran didn't take me very near Nicaragua. Lisbon, on the other hand, was centrally located in all my travels -- I would meet the Iranians there because Portugal still had diplomatic relations with Iran -- and Freddie felt comfortable there because she had many friends. "Great," I said. "Now we'll be able to see each other more often." "That's a laugh," she said. Her brow furrowed. Something more was wrong.
"Ari," she said, "I want you to leave your job. It's dangerous work, and we just don't get to see you enough."
I knew I couldn't do that. I was excited about the work my colleagues and I were doing for Israel and was feeling very self- important. Besides, what was there for me to do in Portugal?
Despite her disappointment at my reaction, Freddie gave up her job in Managua and moved to Lisbon, where, with the baby in the care of a nanny she brought with her, she started working for the Portuguese national airline, TAP, as a public relations officer. Freddie didn't really approve of my work and continued to press me to leave it, but she agreed to put me in touch with the president of TAP. That meeting eventually resulted in the Israeli government chartering planes out of Portugal to carry weapons to Iran. Suffice it to say, this was not exactly what Freddie had envisioned as the fruits of our relationship when she moved to Portugal.
***
By March 1981, the Joint Committee had set up the necessary mechanisms for handling the secret sales of weapons to Iran that had been promised in the October Paris agreements. A number of trading companies with various names made the contacts with the Iranians and with weapons manufacturers and arms brokers, found out what weapons were needed, arranged the logistics of the shipments, and set up the discreet transfer of millions upon millions of dollars.
Israel was operating under a general agreement of cooperation that Prime Minister Begin had secretly reached in principle with William Casey in August 1980. The details of the weapons sales to Iran had been worked out in December 1980, and David Kimche, the senior member of the Joint Committee, was dealing directly with the CIA's Robert Gates on their implementation. In early 1981, Gates gave the go-ahead for unsophisticated weapons to go to Iran. The arrangements for these sales were handled by the Joint Committee in meetings north of Tel Aviv, with the cooperation of the CIA.
But Gates refused at this early time to allow the sale of sophisticated U.S. electronic equipment to Iran. Our friends in Tehran were desperate to have this materiel for their air force and air and ground defenses, and Israel, of course, wanted to help them as much as possible in their war against Iraq. The Iraqis were still bogged down in southern Iran, neither advancing nor retreating. The Joint Committee felt that Iran could do with more sophisticated weapons -- for a price, of course. So the Joint Committee sent two of its members -- Rafi Eitan and me, both using aliases to New York to start an undercover operation that would acquire the technology the Americans balked at and sell it to Iran.
The New York office was on John Street, in the Wall Street area. Out of it we built a team of about 50 people, many of them small arms brokers who shopped for electronic equipment from U.S. companies and arranged for delivery to Iran. All sales had to be accompanied by end-user certificates, which stipulated that the equipment was going to Israel, that Israel had licensed the broker to buy it, and that it would not be resold to any other country. These certificates were necessary under U.S. law. We had empty pads of such certificates that we would fill out and then send duplicates to the Israeli Ministry of Defense to keep on file in case anyone ever bothered to check.
The electronic equipment, which was not particularly bulky, was usually flown by the IDF's weekly Boeing 707 flight from New York to Tel Aviv, or by El Al cargo. From Tel Aviv, Argentinean charters would carry it to Tehran. If the volume was too great, then we would charter other planes, usually from TAP in Portugal or Guinness Peat in Ireland, to make the Tel Aviv-Tehran run.
Eitan oversaw the whole operation, and I personally spent a lot of my time shuttling back and forth between Tel Aviv and New York, stopping often in Portugal and meeting the Iranians there to receive their latest requests for equipment.
Initially, our overhead was paid for through the Joint Committee's operating budget, which was separate from Mossad's and the IDF/MI's. The Joint Committee became self-sufficient as the slush-fund profits, both from our undercover New York operation and from other sales that were tacitly approved by the Americans, rapidly grew. Since the transactions went through a number of trading companies, we needed a flagship to hold the slush fund. When the Joint Committee was trying to decide what to call this mother company, the name "Ora" came to my mind. Ora means "light" in Hebrew, but I actually was thinking of a young woman who worked in my office in Tel Aviv, with whom I had a bond that wasn't quite love but was more than friendship. Thus was born the Ora Group, which was to handle billions of dollars in the next few years.
The John Street operation was running very smoothly, with electronics ostensibly heading off to Israel, but finding their way to Iran, until one of the employees in the office, a Swiss woman, caught on to what was happening. She spilled the beans to Leslie M. Gelb, who was working out of the Washington bureau of the New York Times. She told him how the office she worked for, which on the face of it was involved in the vague business of imports and exports, kept changing its name and appeared to be sending lots of electronic material to Israel, although there were people in the office speaking Farsi all the time. That was quite true -- Hushang Lavi, who was working with us, and I frequently spoke Farsi.
On March 9, 1982, a New York Times "news analysis" by Gelb blithely noted that, "Israel has been secretly supplying American-made arms to Iran." We quickly learned that Gelb had a source in our own office. Rafi Eitan, with his reputation for ruthlessness, set the dogs loose.
The dogs in this case were a group of South African intelligence heavies, whose job was to ensure the safe transfer of arms from anywhere in the world to South Africa. They were a wild bunch, and because of Israel's friendship with South Africa, it was an accepted arrangement to ask for favors. As Eitan and I made our hurried exit from the United States, the dogs bit.
To this day, I don't know how they did it, but the Swiss woman who blew the operation suddenly found herself being bundled on a cargo plane loaded with arms, bound for Pretoria. Although Eitan was all for killing her, the rest of the committee, including me, said no. Instead, the terror-stricken woman was given a very severe lecture on the realities of life and dispatched to Europe from South Africa. With the journalist's major source silenced, the office closed down, and not a word from either the U.S. or Israeli government, there was nothing left for any other newspaper to follow up on.
***
The blowing of the John Street operation was exactly the kind of thing the Israelis had been worried about from the start of the arms sales in 1981. We were well aware that if there were a mistake and the whole trade were exposed, the U.S. could turn around and point the finger at Israel, bringing world condemnation. Whenever U.S. officials were caught red-handed doing something illegal, they usually lied like crazy and accused everyone else. None of us could forget Watergate. And this was bigger than Watergate.
We took two precautions. The first involved Defense Minister Ariel Sharon, who had been appointed to that position earlier in 1981. He was a great supporter of the weapons sales to Iran, and he decided to try to lobby the U.S. government into reaching strategic agreements with Israel. As it turned out, the two American officials used in lobbying for these agreements were CIA Director William Casey's deputy, Robert Gates, and Robert McFarlane, who at that point was on the National Security Council.
Sharon had been a prominent general but was thrown out of the military in 1970 as the result of an interview he gave to Playboy magazine criticizing then-Prime Minister Golda Meir. He came back on the scene in the 1973 war when, as a reserves general, he saved the day on the Egyptian front. He stayed on in the military for a few more years, until the Labor Party decided not to appoint him chief of the general staff. Disgruntled, Sharon then left the military altogether. However, he still had political ambitions. In the 1977 election he ran for the Knesset as head of a political party called Shlom Zion (Peace to Zion). As soon as his party won two seats in the Knesset, he joined the Likud Party coalition, and became minister for agriculture. In 1981 he had been elevated to the position of defense minister.
But in the interim, between 1975 and 1977, Sharon was a private citizen who was trying to build a fortune dealing in arms in Central America. He had a network of people working with him there, one being the disgraced Mossad agent Mike Harari, who had just left Israel because of his failure in the "Moroccan Waiter Affair," where the wrong man was shot dead in Lillehammer, Norway, during an attempted hit on Ahmed Salame, a Palestinian who had been involved in the massacre of Israeli athletes at the 1972 Olympic Games in Munich. Harari was a close associate of Panama's military intelligence chief, Manuel Noriega.
Sharon's network had been able to provide military equipment from Israel to various Central American countries, including El Salvador, Guatemala, Panama, Costa Rica, and even Mexico. This was never official Israeli government policy, and it was frowned upon by the cabinet itself, but Sharon was too wild a goose for anybody to handle. So Sharon's private network bought their weapons from Israeli government factories and got their export licenses from the Israeli government. Gates had developed a professional interest in the arms network that Sharon and his former intelligence cowboys were operating in Central America. By 1981, Sharon and Harari were running what Harari described as more of a CIA network than an Israeli operation -- and were filling their private bank accounts at the same time.
It was in 1981 that they started supplying a secret army in Central America, the contras, who were trying to destabilize and eventually bring about the downfall of the Sandinista government of Nicaragua, which had come to power in 1979. The contras did not have any money -- Congress was not then willing to fund them -- and desperately needed cash to buy their arms.
Sharon, with all his power, could not force the prime minister or the leaders of the Israeli intelligence community to pay for weapons from the slush fund that had grown out of the Iran arms sales. So, with the backing of Gates and the CIA, some members of the group created their own fund. They did this, according to Harari, by transporting cocaine from South America to the United States via Central America. A major player was Manuel Noriega, who had known George Bush since he had been the CIA chief in the mid-1970s. Hundreds of tons of cocaine poured into the United States, and another handy slush fund was created.
Because of the close relationship between Gates and Sharon and the special relationship between Robert McFarlane and Rafi Eitan, the strategic U.S./Israeli agreement sought by Sharon was reached. The signing of the strategic agreement by Sharon and the U.S. was made public, but the contents were kept secret and are still not available through any Freedom of Information Act requests.
However, one part of it was that any U.S. arms sold to Israel involving technology that was 20 years old or more could be resold at the discretion of the Israeli government. The agreement was very loosely worded -- it could be interpreted to mean that Israel was allowed to resell brand-new American weapons as long as the technology behind them was at least 20 years old.
This was our first ploy to overcome American denials, if any. If Israel were discovered to be selling arms to the Iranians, we would simply brandish the agreement the Americans had signed ... with its gaping loophole.
Our second protection involved the money from the arms sales -- when letters of credit or cash were paid to us to purchase U.S. arms, we simply and quite blatantly ran the sums through U.S. banks.
A letter of credit from the Iranian government would be issued to an Israeli "front" company by a European-based Iranian company through the London or Paris branch of Iran's Bank Melli. It would be endorsed by the National Westminster Bank in England, and we would then ask for it to be transferred to an American bank. Favorites were the Chicago-Tokyo Bank in Chicago, the Chemical Bank in New York, Bank One in Ohio, and the Valley National Bank of Arizona. Then the banks would have to explain these letters of credit, in U.S. dollars, to the U.S. Treasury if they were to accept them. According to U.S. Treasury regulations, letters of credit for sums in excess of $10,000 had to be approved by Treasury.
Since the sales were a U.S.-sanctioned operation, the CIA would have to ensure that Treasury issued an acceptance. Once the letter of credit was approved, it was moved back again to Europe. Except for the John Street operations in 1981 -82, this was to be the way almost all the American-supplied arms sales to Iran were handled from late 1981 until late 1987.
***
The Soviet shootdown in July 1981 of the Argentinean cargo aircraft carrying weapons to Tehran convinced us that we needed a smokescreen to conceal the movement of the massive amounts of weapons we were shipping.
The smokescreen involved the Israelis making deals with a number of private arms brokers and businesspeople throughout Europe. Their companies would be used as a cover for our own operations. The dealers would purchase equipment from around the world and sell it on our behalf to the Iranians. The money would come to us from Iran, and we would open letters of credit to the dealers -- after we had raked off our profit.
One of the arms brokers we dealt with was John Hortrich, an American businessman living in southern France. Like many others we were to employ, he had a murky background but was perfect for the job. He had grown up in Connecticut and gone to medical school, but dropped out. He joined the Marine Special Forces, making it only to the rank of sergeant, and served in Korea as a medic. On his release from the military, he started working as a salesman for Revlon in New York. There he met another, younger, cosmetics salesman, Richard J. Brenneke, with whom he was to keep in contact for many years and who was to figure in the arms-to-Iran story.
Hortrich, according to his own account, was very unhappy working for Revlon. He wanted out. After he married a Cornell graduate, he and his bride decided to settle in the Virgin Islands, where he opened a liquor business, selling to Europe, the United States, and South America. He eventually became the biggest alcohol wholesaler in the Caribbean.
One day in the mid-I970s while on a visit to southern France, he fell madly in love with the young half-French, half- Portuguese proprietor of the small hotel, the Mas Bellevue, where he stayed. Hortrich returned to the Virgin Islands and put a proposition to his wife: that they liquidate the business and go and live in the south of France. With a total of $11 million, they arrived in Nice, and Hortrich decided to go back into business -- with an office in St. Tropez at the hotel Mas Bellevue.
While setting up the office, Hortrich met a prominent French businessman, Bernard Velliot, who was connected to French intelligence. They decided to go into the oil and arms business together, even though Hortrich had no experience in such matters. Velliot introduced Hortrich to various crude-oil and arms brokers and a number of stockbrokers and bankers in Europe. In 1979 Hortrich made a terrible mistake and invested $7 million in cocoa futures. He lost the lot. And since he had set up home in St. Tropez, he had made no money in spite of a lot of bragging. In 1980, he mortgaged his home to Banque Worms in Geneva, and banker Jacques Mathenet, a long-time friend, lent him $300,000.
Meanwhile, the Iranians were holding out their hands to everyone for weapons because the main arms sales to Iran had not begun yet. Some of these requests reached Hortrich's ears through Bernard Velliot. Hortrich managed to contact an Israeli arms dealer, Yitzhak Frank, who was working out of London and was well connected to the Israeli intelligence community. Hortrich asked Frank if he could get hold of F-4s to sell to Iran. As a result of these inquiries, I called Hortrich and decided he was worth trying to recruit into our service. He had a couple of good qualifications -- he was dabbling in arms, and he was desperate for money.
After meeting Hortrich in Nice, I decided we were going to "pick him up" -- our phrase for taking someone on. He was to be used in smokescreen operations as an information and disinformation person, but not in any direct sales negotiations. Whenever we needed someone to enter a deal and screw it up, or someone to leak information in the United States, or make various contacts around the world, he would do it. With the new name we had given him -- John de Laroque -- he was one of the few outsiders we recruited who would not be duped.
With de Laroque in place, we were ready to put up our smokescreen. The idea was to use sleight-of-hand all around Europe to obscure our operations. Arms traders were duped into setting up deals with the Iranians, not realizing that before negotiations ended, everything would fall apart. What we did was create a bogus international arms market in which it seemed that just about every broker and every country was trading with Iran. In hotel lobbies, on park benches, in private homes there were fantastic proposals between hopeful arms dealers and "desperate" Iranians. Telexed lists circled the globe with orders for aircraft, missiles, tanks, bombs, and artillery, accompanied by figures with more digits than telephone numbers. Of course, the deals couldn't be allowed to go too far. As soon as it looked as though an arrangement was drawing embarrassingly close to completion, John de Laroque -- the former John Hortrich -- would step in and put a wrench in the works, and it would be back to square one. To keep the dealers keen, Israel would pay their traveling expenses, though it was well worth the payout to hide the real deals that were going on between Israel and Iran.
***
After the John Street operation had been compromised and we had hastily left the U.S., the Joint Committee decided we should move to Montreal. But after several months there, we found it too out-of-the-way to do our work efficiently, so we moved again -- this time to London.
There the operations resumed smoothly. Matters were helped considerably by the fact that by this time the U.S. had decided it would cooperate in selling American electronic equipment to Iran. Thus, our separate undercover operation was no longer needed, and the Joint Committee was reunited.
My life was divided between Israel, Europe, and the U.S., with side trips to various other parts of the world. I didn't have much time for Freddie and our daughter, Herut, who were living in Portugal.
My job for the time being mostly consisted of shopping for weapons and equipment, handling money, and handling our agents. The others in the Joint Committee in Tel Aviv were in charge of setting up the business structures -- a complex job indeed.
The way the Joint Committee was set up, profits from our arms sales were not funneled back to the budget or the Finance Ministry, where they would have to come under parliamentary supervision. Instead, the idea was that the operating budget of the Joint Committee would be taken from the profits of the arms sales under the supervision of the Mossad comptroller. The profits ballooned almost immediately into a huge extra-budgetary slush fund.
Disbursements were requested from the Mossad comptroller through either of two channels. One was on behalf of the heads of the intelligence community -- the chief of Mossad or the boss of IDF/MI; the other was directly from the Prime Minister's Office, through the first cabinet secretary, Aryeh Naor, or the counterterrorism adviser, Rafi Eitan. The comptroller would then issue the disbursement orders.
In order to have deniability, the people appointed as fronts for these extra-budgetary funds were the signatories for the cut-out companies that were set up in Europe and other parts of the world. These accounts were owned, theoretically, by these companies.
I had been selected as one of three signatories, and the arrangement was that if money had to be released, two out of the three had to sign. Too many signatories would have confused the process; only one would have created difficulties should he or she unexpectedly become incapacitated or die. According to the rules set by the committee, aside from full committee meetings, these three people were not to be in the same place at the same time. Powers of attorney were given by myself and the two others to remaining members of the committee to be used in case of death or other eventualities. Two of us physically had to be at the bank unless two had given full powers of attorney to the bank officer, or to a single member of the selected three.
To avoid placing all the golden eggs in one basket, 200 bank accounts were opened in 27 reputable banks around the world, but at any given time only about a quarter of these accounts were active. Accountants in Vienna, London, Sydney, New York, and Tel Aviv had the power to shift these monies from account to account once every few months, but they had no power to draw money. This was a safeguard to ensure that funds did not go astray and end up in an account that nobody else knew about -- it was insurance against the individual accountants, who were changed within their firm from time to time. Anyone on the track of the money would have trouble keeping up.
By 1983 the slush fund was running like a well-oiled machine. Once a year the 200 numbered accounts in Europe would be changed, and the names of the paper companies would be altered. The only name that was never changed was that of the holding group, Ora.
The unwritten rule we operated under was that Israel would not go directly to the arms manufacturers or the weapons industries. Whenever we deemed it necessary to buy American equipment from the United States, either from the manufacturers or from stocks held by the U.S. military, we would approach the designated CIA people. They in turn would purchase the arms and place them at the ready for our collection in warehouses. These were usually at Marana, a CIA airbase near Tucson, Arizona. The first batch of weapons was flown out of there in October 1981. If, on the other hand, we were buying U.S. materiel from NATO stocks in Europe, the hand-over would be at Liege, Belgium. Israel would fly in chartered cargo planes to pick up the materiel, and then the aircraft would return to Tel Aviv. From there they would either fly directly to Tehran or to a second country before carrying the weapons on to Iran. Sometimes a third country would be used. In 1983, for example, to cover our tracks -- and as a lesson learned from the downing of one of our planes -- aircraft loaded with arms landed in Western Australia, en route to Tehran, with the permission of the Australian Security Intelligence Organization, which knew what was on board.
Other favorite countries used in the smokescreen were Guatemala, Peru, Kenya, Paraguay, and South Africa. If Paraguay was used, the planes flew on to South Africa -- the same route normally taken by the CIA when shipping arms to South Africa. So Paraguayan officials who were aware of the South African trade assumed that an aircraft landing in Asuncion and filled with weapons was on its way to South Africa, when in fact its final destination was Iran.
The division of the spoils depended on the origins of the weapons and the costs involved in shifting them. Everyone did well out of the trade. The Americans made their profits by selling to us, we made our profits by selling to the Iranians, and the Iranians got their weapons -- although the price they had to pay was astronomical.
In the beginning, Israeli end-user certificates were given to the CIA for the weapons, but after mid-1982 the practice stopped. When we bought equipment from European countries, however, they would not release it without Israeli end-user certificates to cover themselves from their own parliaments -- even though they knew that the materiel was going to Iran. The countries involved were Austria, Belgium, and Sweden -- until that country's prime minister, Olof Palme, said no.
Britain was also involved, but Margaret Thatcher's government had a slightly different way of carrying these things out. Unknown to the British people, their government had been supplying military equipment to the South Africans for years. Mossad files are full of incidents of Liberian-registered ships leaving Southampton loaded with artillery shells and electronics for South African fighter aircraft. Prime Minister Thatcher allowed the use of the same channels to supply materiel for Iran. The equipment at first included spare parts for Chieftain tanks and later Marconi radar equipment and electronics for the American F-4 planes that the Iranians had.
***
With these arrangements in place and working well, and a huge disinformation campaign going on in Europe with arms dealers and would-be dealers, we also needed a network of trusted agents around the world to help keep the operation running. I had already found a good operator in the man we were now calling John de Laroque. There was one other major player in the network -- Nicholas Davies, the London Daily Mirror's foreign editor.
Davies had been recruited by Mossad in the 1970s. The connection had come through a former British Special Airborne Service (SAS) officer, Anthony Pearson, who ran a company called Strategic Intelligence Services. The firm, located in the mid-1970s at 55 Sutherland Street, London SW1, provided espionage services to Israel, among others.
Pearson was known for recruiting mercenaries out of Lafayette, Louisiana, and sending them to remote parts of the world. In southern Sudan in the early 1970s his men helped the Moslem government's troops in fighting against the Christian-Animist revolutionaries. In the Seychelles in November 1981, some of his men participated in an unsuccessful coup, getting only as far as the airport, where they were arrested for bringing in AK-47s in golf bags. According to Mossad files, Pearson also could arrange an assassination for $50,000 -- splitting the fee with the hit man, who would be recruited in Louisiana.
When I met him, Nick Davies was involved with the Pearson group, but not in its more exotic adventures. He simply took photographs and made reports on Arab nations while he was on overseas journalistic assignments and passed them on to Mossad. At the time, Davies was married to an Australian-born actress, Janet Fielding, who had starred in the Dr. Who television series. He was paying child support and alimony to his first wife, and he was also making substantial payments on old debts from an unsuccessful printing business he'd tried to set up in the 1970s. Israeli intelligence knew he was hungry for money, and suggested I meet him to sound him out for assignments in our arms-dealing operations.
We met for the first time in the lobby of London's Churchill Hotel in the first half of 1983. Pearson and an associate, a former colonel in the Jordanian Army named Mohammed Radi Abdullah, were also present. Davies struck me as just what we had in mind -- intelligent, well-traveled, and a charmer. In addition, he had a taste for the good life, which meant he'd always need money, and he was close to Robert Maxwell, who at that time did not yet own the Daily Mirror, but did have a relationship with Israeli intelligence.
At an opportune moment, I told Davies, "We're looking into you working for us on a full-time basis."
"Do you want me to leave my job at the Mirror?" he asked. The tone of his voice suggested that was the last thing he wanted to do.
"No," I said, "of course not." I didn't need to tell him that his job was a perfect cover.
"By the way," he said, "you know Mr. Maxwell is trying to buy the Mirror."
"Yes," I said, "I know." The whole of the Israeli intelligence community knew. And we were all hoping he would succeed.
Davies was interested but couldn't decide for sure whether he wanted to become involved in the arms game. Taking photographs for Mossad was one thing. Getting caught up in brokering massive amounts of weapons was something else. But his interest was such that he asked me to his house for lunch, where I met his slim and very attractive wife. He seemed anxious to please Janet, and I got the impression he was afraid of losing her. From a purely mercenary point of view this was good; it made him vulnerable.
I arranged a trip to Israel for him -- the Israeli military spokesman's office had a practice of inviting journalists from around the world on free trips to Tel Aviv. I went to his beach-side hotel in Tel Aviv, and we reached an agreement. He would cut off all other unofficial "business" relationships, including those with Pearson and Radi, and he would be used as a London office conduit for arms, our contact man for various Iranian and other deals. His home address would be used on stationery, and during the day his direct office phone number -- 822-3530 -- to which only he had access as the Daily Mirror's foreign editor, would be used by Israel's Iranian contacts. The Foreign Desk never had a truer definition.
After we officially signed him up, and it was agreed he would work in liaison with me, his financial worries ended. Over the years he was to receive more than $1.5 million on an official basis from Israel -- all of it coming from the slush fund -- but he was also able to rake off other amounts by making sure, for example, that contracts were drawn up with certain dealers. His earnings were paid to him, and he deposited them into bank accounts in the Grand Cayman, Belgium, and Luxembourg.
What he did with the money was none of our business, but we did know that his second wife, Janet Fielding, divorced him and sued for £50,000 and that he said he paid her off. The money he received enabled him to pay his debts to the banks, but he didn't spend his money in an obvious way. Following our advice, he kept his office car, a silver Ford Escort, provided by the Mirror. But he did buy a four-story house at 1 Trafalgar Avenue, in the Elephant and Castle area of London. The phone number -- 231-0115 -- was important, because the premises were used by us as an office.
It wasn't long before Davies was traveling the world for us -- to America, Europe, and Iran. And he was very good at what he did. We would phone him, sometimes two or three times a day, on the foreign editor's phone, mostly collect calls from pay phones, hundreds of calls that bypassed the Daily Mirror switchboard. When he answered, he would just say, "Nick Davies."
Davies was called in only if we needed to use our "London office." When a request came in from the Iranians, we would judge which country was best suited to provide the requested weapons and who was in the best position to talk in that country on our behalf. In Davies's case, he would call dealers or the supplier and introduce himself as a representative of the Ora Group, an Israeli company based in London. He would set up a meeting, usually for a weekend, and he would fly to the capital city concerned and set up the deal, arranging for the number of weapons to be supplied and how payment was to be made. The dealers or manufacturers he contacted would often call Israel, if they had any contacts, to verify that he was genuine. There was a memo in SIBAT, the Ministry of Defense's foreign sales office, that any questions about Davies and other key members of our arms network should be referred to me.
***
The sales and the smokescreens worked brilliantly. We became very good at setting up the deals, disguising them, and delivering the goods. There were deals going on all the time in the years from 1981 to 1987, far too many to enumerate. But the 1983 deal for TOW missiles serves as an excellent example of the kind of operation we were running.
The Iranians wanted to get hold of this weapon, an electronically guided anti-tank missile. The Iranians knew that the only way to stop the waves of Iraqi-operated Soviet tanks crossing the border was to get their hands on TOWs. Israel had 4,000 TOWs in stock, and they were getting old. Their power supplies were due to run out in two years, in 1985.
In late 1983 I traveled to Iran, using the same "boarding-card swap" as before, and met the speaker of the Iranian Parliament, Hojjat El-Islam Ali Akbar Hashemi Rafsanjani. We spent some time discussing the politics of the region. Then Rafsanjani got down to business, telling me quite frankly, "We are growing desperate. The Iraqi forces look like they're overrunning us. We must have weapons that can stop their tanks. You know what I'm talking about. We want your TOW missiles."
A deal was later struck with my old friend Sayeed Mehdi Kashani. Iran would get the 4,000 TOWs for $13,000 each, and they would be shipped from Israel direct to Bandar Abbas on a Liberian-registry ship. Kashani, however, asked for $800 extra to be charged on each TOW; bringing the total that Iran had to pay to $13,800 each. The added $800 per missile was to be paid into a separate account in Europe. Kashani insisted it was a special fund for the revolution, whatever that meant.
The Joint Committee decided on two moves before the sale went ahead: putting into action a big deception or disinformation campaign and obtaining explicit permission from the Americans for the sale, even though theoretically we had general permission to make such sales.
The explicit permission was given to a committee member over the phone by Gates, and it was taped in our office. The deception campaign we came up with worked like this:
We arranged for a French-registry, twin-engined Cessna to fly to Tel Aviv's Ben-Gurion Airport and cause a stir by trying to land without identifying itself or requesting permission from the control tower. Predictably the control tower took the necessary steps, and within minutes the unidentified aircraft found an Israeli fighter jet on each wingtip. This time the occupants had no hesitation in revealing who they were -- one was Kashani, the other a Frenchman, Jean-Paul Yves. They were permitted to land, but were instantly detained until the purpose of their flight could be determined. It was a weekend, and I was summoned from home to go to the airport to establish what they were doing in Israel. I held back a grin as I saw Kashani sitting in an office, his Philippine passport on the desk in front of him.
The prearranged plan for the two men to draw attention to themselves had worked. The two were eventually allowed into the country, but security men followed them to their hotel. The word quickly went around that two arms dealers, with $70 million to spend, had arrived in Tel Aviv in the hope of purchasing weapons from Israel for sale to Iran. It had been left to me to make sure that the right people heard about it.
I approached an Israeli arms dealer, a former lieutenant colonel in the Israeli military, Arieh Jacobson, who had been introduced to me by a former major, Israel Goldsmith. I told Jacobson that Israel had to do a secret deal with Kashani for the sale of 4,000 TOW missiles to Iran and that there could be a nice financial spinoff for whoever could arrange it.
Jacobson was very impressed by the proposition and was keen to get involved in the deal. He told me he would work on it with another arms dealer, former Brig. Gen. Abraham Bar David. With dreams of making a fat profit, they went to SIBAT, and supposedly secret discussions began. But word leaked out, and it wasn't long before half the world heard that two arms dealers were in Israel trying to negotiate the purchase of TOW missiles.
Kashani and Yves eventually left empty-handed. The world learned that Israel would have no part in selling TOWs to Iran, but it was also leaked that Bar David and Jacobson would be continuing their negotiations with the Iranians. Officially there had been no deal. In the eyes of the world the Israeli government had put its foot down.
No one, especially not Bar David or Jacobson, knew that the whole scenario had been one big smokescreen, because, while Kashani and the former Israeli officers were negotiating madly, and telexes were flying back and forth around the world, the TOW missiles were quietly shipped to Iran. It was a brilliant piece of deception that meant duping a number of our own people, and I know that when those involved learn for the first time how the wool was pulled over their eyes, they are not going to be at all happy. But everyone who deals with arms, officially or unofficially, can expect to be tripped up once in a while.
The payout arrangement for that first shipment, totaling $55,200,000, was designed to hide that massive sum. It was agreed that the money would be spread out through various branches of the Allied Irish Bank.
Under the agreement drawn up by Kashani and Omshei, we were not to touch the money until the TOWs reached Iran. In fact, our committee paid the Israeli Ministry of Defense only $3,000 for each missile -- a total payment of $12 million. Kashani's account received a total of $3,200,000. A further $800,000 was used for transport and insurance. The rest, $39,200,000, was profit for the slush fund.
As far as the world was concerned, Israel -- and the Americans -- had clean hands, but on the war front, the reality was that the Iranians were blasting the Iraqis with U.S.-made TOWs. Once they got through the first 4,000, another 4,000 were to come from NATO stocks in Europe, followed by a further 4,000 from the U.S., coming through Guatemala and Australia -- 12,000 TOWs in all up to 1987. These, we believed, eventually changed the face of the war.
* * *
Iran was so grateful for Israel's assistance that the committee was told, "Anything you want from us, you have only to ask." And there was something we, and the Americans, were very interested in getting our hands on. The battle tank most used by the Iraqis was a Soviet T-72. However, a number of the more advanced T-80s had already been sold to Iraq. The Soviets were, in fact, using the conflict to battle-test them, and these were what we wanted.
In 1985, the Iranians captured three T-80s, two riddled with holes, the third with damaged chains only. We told the Iranians we'd like to have that one. They happily obliged, and the tank was shipped to us from Bandar Abbas. We shared knowledge about the T-80 tank with the Americans at technical DIA and IDF/MI conferences, but we never revealed that we had actually got hold of a T-80. The Americans were told that the information came from two Jewish immigrants from the Soviet Union who had worked as engineers at the T-80 plant.
***
While our slush funds grew steadily, unusual overhead costs diminished the profits. True, we were selling weapons to the Iranians with a 50 percent to 400 percent mark-up on the exfactory price, but the actual cost of procuring and delivering them was high, too. There was a huge network of arms brokers to be paid, money to be handed over to those involved in "smokescreen" deals, bribes to be paid to politicians and civil servants, campaign "donations" to be made around the world, and other expenses. The "donations" sometimes cost more than the weapons themselves.
Contributions were even made from the slush fund, albeit indirectly, to U.S. politicians, including Democrats on the Iran-contra panel. This may be one reason that the full story behind the Iran-contra scandal never materialized. Even though Israel leaked details about some of Oliver North's activities, the Democrats, many of whom were well aware of what was going on, kept quiet about the huge flood of arms that had been running to Iran through Israel. Tel Aviv, not wanting its own arms deals with Tehran to be exposed, had paid them off through various, often convoluted, contributions to the American Israel Public Affairs Committee (AIPAC). I don't know who at AIPAC knew the ultimate source of these contributions, but it was clear someone did.
In Britain our committee passed money in the same fashion to the Jewish Reform Movement, confident that this money would be channeled to the Conservative Party. Because of the friendship with Britain, the Mossad European operations headquarters was moved in 1982 from Paris to London and set up in a building on Bayswater Road.
A further example of the very special friendship that Israel established with Britain came when the Falklands war erupted. Israel froze the sale of weapons to Argentina, despite existing contracts for Kfir aircraft. As a result, the British government, covertly but officially, reimbursed Israel for its losses on the contracts. Of course it was known throughout the intelligence community that Israel was also keeping British politicians happy through the Jewish Reform Movement's Torah Fund. The friendship soured, however, in 1988, when Margaret Thatcher supported the sale of military equipment for unconventional warfare to Iraq. It was particularly abhorrent for Israel that her son was involved in it.
Aside from the contributions being made in the United States and Britain, payments were being made all around the world, and those who received them kept their mouths shut -- even in faraway Australia. Australia was often used by the Joint Committee for "parking purposes," aircraft refurbishment, and stationing of slush-fund monies. In 1982 I first visited Australia to hire an accounting firm and open accounts in four major banks. Eventually monies deposited in Australian banks reached the amount of approximately $82 million U.S.
Starting in early 1986, 12 C-130 aircraft we had purchased from Vietnam were shipped to Western Australia for repairs and refurbishment. In 1987, while the Iran-contra hearings were going on in the U.S. Congress, some of the arms going to Iran were temporarily parked in Western Australia. Approximately 60 containers of artillery shells from North Korea were parked in Fremantle Port. Four thousand TOW missiles that went from the U.S. to Guatemala were shipped to Western Australia and held for approximately two months at a naval base on Stirling Island. Silkworm missiles purchased from China for Iran were also parked at Stirling Island for approximately two months.
In February 1987 a "contribution" was made to the West Australian Labor Party by our U.S. counterparts in the CIA. In gratitude for the use of Australian soil for the transfer of arms to Iran, Richard Babayan, a contract operative for the CIA, received a check for $6 million U.S. from Earl Brian, who was acting on behalf of Hadron, a CIA "cut-out." Babayan traveled to Perth and stayed at the home of Yosef Goldberg, an Australian businessman of Israeli origin who was well connected to Israeli intelligence and to the local Labor Party headed by Brian Burke, then premier of Western Australia. Babayan handed the check to Goldberg, who in turn gave it to Alan Bond in his role as the guardian of the John Curtin Foundation funds. This money was passed on by one of Robert Maxwell's companies in Australia to be held by the Pergamon Press Trust Fund in Moscow. Babayan later corroborated the details of this operation in a sworn affidavit.
Despite the high costs involved, profits were still made on the sales to Iran. At various times the fund reached peaks of more than $1 billion. At its height it stood at $1.8 billion, with money constantly coming in and going out -- a huge turnover that would have made a successful conventional enterprise very envious. The Likud leaders running the government intended to use the money for three main purposes.
The first was to finance activities of Yitzhak Shamir's faction of the Likud Party. Between 1984 and 1989 no less than $160 million was funneled to Shamir's faction, handled by the deputy minister in the Prime Minister's Office, Ehud Ulmart, who was very close to the prime minister. Other funds were contributed to the whole Likud Party, especially to its 1984 and 1988 election campaigns. That amount totaled about $90 million.
Second, the slush fund helped finance the intelligence community's "black" operations around the world. These included funding Israeli-controlled "Palestinian terrorists" who would commit crimes in the name of the Palestinian revolution but were actually pulling them off, usually unwittingly, as part of the Israeli propaganda machine.
A key player in some of these operations was the former Jordanian Army Col. Mohammed Radi Abdullah, the man who was with Pearson and Davies when I made our approach to Davies. Today in his early 50s, Radi was decorated by King Hussein of Jordan for his bravery in the 1967 Middle East war. However, his family fell out with the king because they were not willing to participate in the mass slaughter of Palestinians by the Jordanian Army in 1970. The family emigrated to London. The colonel married a woman related to Saddam Hussein and went about setting up a number of companies, including shipping offices in Cyprus and Sicily.
Radi became known as a businessman who championed Arab and Palestinian causes in Europe. But he missed his homeland and the days when he was lauded as a hero. He fell to the ways of the West, started drinking heavily and spent a fortune on gambling and women.
In the mid-1970s, to recoup his losses, Radi went to work for Pearson, who was supplying intelligence information to Israel. With Radi's unwitting help, Pearson began to acquire intelligence about Palestinian organizations in Europe. The way he did it was by selling arms to those organizations. An arms dealer named John Knight, who ran a company called Dynavest Limited, located at 8 Waterloo Place, London SWI, and another dealer who operated out of Sidem International Limited, Appleby House, 40 St. James Place, St. James Street, London SWI, acquired arms from Yugoslavia. They would sell them to Radi, who would in turn sell them to the Palestinian terrorist, Abu Nidal, and other Palestinian groups. Radi was unaware of Pearson's Israeli connection, as were the others involved.
While it may seem curious that Pearson, a man working with Mossad, was encouraging a Jordanian to sell weapons to Israel's enemies, it was actually all part of a very cunning plot. In doing business with these groups, Radi learned what they were going to use their weapons for and unsuspectingly passed the information on to Pearson. Pearson, in turn, passed on to Mossad the intelligence about the movements of the groups and the number of weapons they had.
Based on Radi's unwitting tips, over a two-month period 14 or 15 Palestinians were wiped out. Word went out among the Palestinian groups that Radi was working for Israeli intelligence and, fearing for his life, he took a trip to Baghdad and presented his case to Abu Nidal himself. Abu Nidal believed his story that he had been used -- which he had -- and put the word out that Radi was "clean." The blame was placed on Yasser Arafat's group -- Palestinian factions at that time were warring among themselves.
Radi went back to his drinking and womanizing, and the money he made selling arms for Pearson all drained away. At that very vulnerable point, in 1978, Pearson stepped in again and offered Radi a £200,000 loan. This time, Pearson made it quite clear to him that the money was coming from an Israeli source. The desperate Radi accepted the loan and was recruited to work for an antiterrorist group in Israel run by Rafi Eitan.
The group's methods were rather unconventional, one could say heinous, but it had operated successfully for years. An example is the case of the "Palestinian" attack on the cruise ship Achille Lauro in 1985. That was, in fact, an Israeli "black" propaganda operation to show what a deadly, cutthroat bunch the Palestinians were.
The operation worked like this: Eitan passed instructions to Radi that it was time for the Palestinians to make an attack and do something cruel, though no specifics were laid out. Radi passed orders on to Abu'l Abbas, who, to follow such orders, was receiving millions from Israeli intelligence officers posing as Sicilian dons. Abbas then gathered a team to attack the cruise ship. The team was told to make it bad, to show the world what lay in store for other unsuspecting citizens if Palestinian demands were not met. As the world knows, the group picked on an elderly American Jewish man in a wheelchair, killed him, and threw his body overboard. They made their point. But for Israel it was the best kind of anti-Palestinian propaganda.
In 1986, Radi was involved in another slush-fund black operation -- the well-documented attempt to blow up an El Al plane. Or at least what was publicly perceived to be an attempt. In fact, it was a cold, calculated plan conceived by Rafi Eitan to discredit the Syrians. At a secret meeting in Paris, Eitan told Radi that he wanted to implicate the Syrian Embassy in London in terrorism and have all the Syrian diplomats thrown out of England. Radi had a 35-year-old cousin, Nezar Hindawi, living in London, who had two things going for him -- he was friendly with the Syrian Air Force intelligence attache in London, and he had a problem with an Irish girlfriend who told him she was pregnant.
Radi went to his cousin and offered him $50,000. At the same time he told Hindawi that he wanted him to do some work on behalf of Palestine that would also rid him of his troublesome girlfriend.
"This money I'm offering you," Radi told Hindawi, "is from our Syrian brothers on behalf of the Palestinians. We want to blow up a Zionist plane. All you have to do is make sure the girl gets onto an El Al plane with explosives in her bag."
Radi arranged for his cousin to meet the Syrian intelligence officer, and Hindawi later came away with the clear impression that what he was doing was for the Arab cause. In accordance with his briefing, Hindawi told his 32-year-old girlfriend, Ann-Marie Murphy, a chambermaid at the Hilton Hotel on Park Lane, that he loved her and wanted to marry her. He was eager to introduce her, his future bride, to his old Palestinian parents who lived in an Arab village in Israel. He told her to go and visit them and receive their blessing. Then, when she arrived back in England, they would get married. Overjoyed, she agreed to go, not realizing that the address he gave her in Israel was bogus.
As far as Hindawi knew, the woman was going to be sacrificed. All he had to do was tell her that he wanted her to take a bag of gifts to his parents. But because he didn't want to risk her being stopped for having too much carry-on luggage, he would arrange for a "friend" who worked at the airport to pass her the bag when she entered the El Al departure lounge. She would pass through the regular Heathrow security checks and then be given the package containing the bomb.
Hindawi had been told that a Palestinian cleaner would pass the deadly package to Ann-Marie. In mid-April 1986, he kissed her goodbye and watched her walk through passport control to what he expected would be her death, along with that of all the other 400-plus passengers on board the El Al jumbo jet.
In the El Al departure lounge, an Israeli security man dressed in casual clothes -- the "Palestinian cleaner" -- passed the girl the parcel. She took it. But within seconds she was asked to submit to a search. The security people, who were in on Rafi Eitan's plan, could not afford any accidents. When the bag was opened, plastic explosives were found in a false bottom.
Ann-Marie was rushed off to be interrogated by British security. Sobbing, she told the story of the rat of a boyfriend. Police arrested Hindawi at the London Visitors Hotel, between Notting Hill and Earl's Court, after his brother convinced him to give himself up. He spilled the beans and told them that a Syrian intelligence officer had asked him to carry out the task. But Radi was not implicated. He was under MI-5 protection. As a result, Margaret Thatcher closed down the Syrian Embassy in London. Rafi Eitan had had his way, Hindawi was jailed for 45 years, and Ann-Marie went home to Ireland where she gave birth to a daughter.
These were the kinds of black operations our slush fund was financing.
***
The third and last main purpose for the slush-fund money was to finance the housing projects in the West Bank and Gaza Strip for Jewish settlers who had been taking over Palestinian land there. Since many members of the U.S. Congress saw these housing projects as a provocation that would impede peace in the Middle East, a lot of U.S. aid to Israel prohibited the use of the money for building in the West Bank. As part of the coalition, the Labor Party, keen to participate in a peace conference, was also against a government project for West Bank housing.
The answer, as far as Likud was concerned, was to draw on the slush fund. Tens of millions of dollars were used in the West Bank and the Gaza Strip to help build the foundations for new Jewish settlements and to buy the land from the Arabs. Although much land was simply confiscated and more taken through condemnation for government purposes, many Arabs, forbidden by the PLO to sell land to the Jews in the West Bank, nevertheless did so at inflated prices, even though they were putting their lives at risk should they be caught.
What they did was sell to various foreign Jewish front companies that were actually financed by the joint Committee. Many West Bank Arabs became wealthy selling their land, taking the money and emigrating to other countries. As far as Likud was concerned, it was money well spent, because it was encouraging the Arabs to emigrate, while leaving land for the Jews to move onto. Their houses would also be subsidized by the slush fund.
Whenever money was to be disbursed in a big way for the West Bank, the aid of Rabbi Menachem Schneerson, the Lubavicher Rebbe, whose court is in Brooklyn, New York, was enlisted. He gave his blessing, and through his financial institutions, large amounts of money were funneled to Drexel Burnham, the now bankrupt brokerage house where crooked stockbroker Michael Milken built his junk-bond fortune. At times, billions of dollars paid out by the Iranians for arms they were going to receive -- along with profits from earlier deals waiting to be disbursed -- were held at various interest rates by Drexel on behalf of our front companies after they were funneled through American banks. These large deposits added to Drexel's stature, and Drexel's share of the profits from these deposits helped it underwrite huge quantities of junk bonds.
As long as there were always large amounts on deposit, there was no problem. But in 1987, the committee and Schneerson parted ways. This happened partly because Schneerson's allegiance to the Likud Party was brought into question and partly because of the formation of the orthodox Shas Party, which was at odds with the Rebbe. Shas was controlled by an Iraqi- Jewish rabbi, Ovadia Yousef, who had been the Sephardic chief rabbi of Israel. The Likud Party always considered Yousef's support essential because he had a great following in Israel's Middle Eastern Jewish communities. Up to 1987, some of the profits made for the slush fund by Drexel were used to finance the Lubavicher yeshevot (colleges), but this was stopped, and that money went instead to the Shas yeshevot.
At the same time, the joint Committee was afraid that because the funds were being held in the U.S. at Drexel, they might be frozen, if and when the Israelis and the Americans found themselves at odds. For all these reasons, the committee decided to withdraw the funds from Drexel and from the Lubavicher court's control. This only added to Milken's growing troubles, and ultimately contributed to the fall of Drexel.
* * *
From March 1981 to the end of 1987 Iran spent the incredible sum of more than $82 billion on equipment sent from the United States, Israel, Europe, South America (especially Brazil and Argentina), and South Africa. The Iranians gratefully received it all -- old tanks, aircraft (including old French Mirages from Argentina, TOWs, electronics, radar systems, small arms, artillery, Hawk air-to-ground missiles, Chinese Silkworm missiles, North Korean Scud missiles, Katusha shells captured in Lebanon by Israel, cannons -- hundreds of thousands of tons of weaponry, whether it came straight from the factory or was the remnant of some long-dead war. Vast profits were made by the middlemen.
Iran, maintaining an army of approximately 800,000 men, faced a formidable Iraqi military force which was adding to its already well-equipped arsenal from the Soviet Union and France. Iraq was soaking up sophisticated weapons -- MiG fighters, SU fighters, and French Mirage 2000s. Like the Iranians, they too were spending a fortune. As arms suppliers, the Western world and the Soviet Union could rub their hands together in glee.
As someone has pointed out, if a question had been put to a computer about what needed to be done to: 1) get the Arabs off Israel's back; 2) part the Arabs from their money; 3) keep the Iranians contained, and part them from their money; 4) keep the oil flowing; 5) make sure the world recycled its old military equipment; 6) keep the Soviets happy; and 7) make a lot of arms dealers and defense contractors rich, it could not have come up with a better solution than the Iraq-Iran war.