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Robert McFarlane revealed to the Iran-Contra panel Monday that...

By E. MICHAEL MYERS and ANNE SAKER

WASHINGTON -- Robert McFarlane revealed to the Iran-Contra panel Monday that President Reagan had a far greater role than previously known in efforts to help the Nicaraguan rebels keep 'body and soul together' when Congress banned U.S. aid.

The former national security adviser said Reagan knew Saudi Arabia chipped in millions of dollars for the Contras in 1984 and 1985, and Reagan interceded with a third country -- said by a panel source to be Honduras -- that had seized a shipment of Contra military supplies purchased with the Saudi money.

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McFarlane said he gave explicit directions to his staff that the Contra supply operations be conducted within the law and recounted how he told aide Lt. Col. Oliver North that some of his plans might be illegal.

In what could draw other administration figures into the Contra cash connection, McFarlane said North told him that he had received approval for the diversion of profits from the U.S. arms sales to Iran for the Contras -- but McFarlane said North did not tell him who approved the scheme.

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McFarlane is the second witness to quote North as saying he believed he was operating with approval from superiors. Last week, Richard Secord, while saying he had no first hand knowledge of what the president knew, said North told him he had discussed the Contra diversion with Reagan.

In long-awaited testimony during the second week of hearings by the House and Senate committees investigating the scandal, McFarlane offered a White House insider's view on efforts to keep the Contras armed and to sell U.S. weapons to Iran.

Last week, the panel's first witness, retired Air Force Maj. Gen. Secord, described for four days his role in implementing the initiatives, providing a never-before-seen glimpse into the world's arms bazaar and secret Swiss accounts.

McFarlane also conceded that he suspected the U.S. overture to Iran was never going to reap the benefits promised by Israel -- an opening into Tehran's radical Islamic government and freedom for the American hostages held by pro-Iran extremists in Lebanon.

He recounted that from Israel's first suggestion about arms sales in early July 1985 -- and his discussions with the president from that time -- the hostages were a critical factor in all negotiations.

He also said Reagan approved the first Israeli arms shipment before the weapons went to Tehran in August 1985. That dating contradicts Reagan's statements to his Tower Commission in which he first said he approved the shipment before it left Israel, then said the approval came after it landed in Tehran and finally said he could not remember when he approved it.

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McFarlane said he also contributed to a false chronology of events when the scandal first was revealed to 'gild' the president's role in the dealings.

McFarlane opened his testimony with a lengthy history of U.S. involvement with the rebels, administration frustration when lawmakers pulled shut the official purse strings and White House endeavors to provide moral -- and later financial -- support for the Contras.

Frequently gulping water from a glass on his left and occasionally consulting with attorney Leonard Garment on his right, McFarlane responded in a quiet monotone to queries by chief Senate counsel Arthur Liman.

In rambling testimony about his now-famous secret mission to Tehran in May 1986, McFarlane said the negotiations with Iranian officials over the exchange of arms for hostages degenerated when the Iranians dickered over the number of Americans to be released, then demanded that the United States pay for the remaining hostages' upkeep.

'It was not like opening the door to China (and) dealing with Chou En-Lai?' asked Liman. 'No,' said McFarlane with a rueful smile.

The 1959 graduate of the U.S. Naval Academy and retired Marine colonel is a central figure in the arms sales to Iran and the diversion of sales profits to the Contras, a CIA-formed force fighting to overthrow Nicaragua's leftist Sandinista government.

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In his opening statement, McFarlane said:

'The president repeatedly made clear in public and in private that he did not intend to break faith with the Contras. He directed that we make continued efforts to bring the movement into the good graces of Congress and the American people and that we assure the Contras of continuing administration support -- to help them hold body and soul together -- until the time with Congress would again agree to support them.'

Reagan made that charge to his administration when Congress passed the Boland Amendment, which from October 1984 to October 1986 prohibited the State Department, the Pentagon and the CIA from providing direct or indirect military support to the rebels.

Thus, the National Security Council under McFarlane and his successor, John Poindexter, became 'the agency of last resort' to carry out the president's wishes, McFarlane said.

While McFarlane said he frequently recited a litany to his staff not to 'encourage, coerce or broker' private financial deals for the Contras, he said he sometimes had to rein in North, who helped organize the rebels' private supply network.

In apparent response to McFarlane, the White House reissued Reagan's responses to questions put to him May 5, in which he said: 'There was no illegal fund -- as far as I know at this point. I knew, as everyone else, I think, knew that out there in the country there were people that were contributing privately and in groups, giving money to aid the Contras.'

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'I don't know how that money was to be used and I have no knowledge that there was every any solicitation by our people with these people.'

On the wall of the House Foreign Affairs Committee room were huge blowups of the pages from the U.S. Code bearing the Boland Amendment and related law.

McFarlane said he first learned about the diversion of profits from U.S. arms sales to Iran when he and North returned to Israel from the Tehran trip. At a later meeting, he suggested to North that there could be a 'problem' with the diversion, but he said North assured him that all legal ramifications had been addressed.

However, on Friday, Nov. 21, 1986 -- the weekend before Attorney General Edwin Meese disclosed the diversion scheme -- McFarlane said he was driving home with North and their conversation turned to the operation.

Liman: What did he tell you about a shredding party?'

McFarlane: 'Just that there had to be one.'

On Sunday, Nov. 23, Meese asked to meet McFarlane at McFarlane's downtown Washington office at the Georgetown Center for Strategic and International Studies. While McFarlane waited for Meese, North arrived and said there was 'one matter that concerned him' -- the channeling of money to the Contras.

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McFarlane said he asked North: 'Well that was approved, wasn't it?'

He said North responded: 'You know I wouldn't do anything without approval.'

Last Wednesday, Secord testified that North had said that he had several conversations with Reagan in which they discussed that it was 'very ironic' that 'some of the ayatollah's money was being used to support the Contras.'

McFarlane said North also expressed concern about a 'memorandum he had done for Admiral Poindexter' and North said, 'I must seek what can been done about that memo.'

McFarlane said he again asked North after the diversion was revealed Nov. 25 whether the operation was approved, and North said it was.

'Did he say 'I missed one?'' Liman asked, referring to document shredding.

'Something to that effect,' McFarlane responded.

North's secretary, Fawn Hall, has told a federal grand jury that there were 'shredding parties' at the NSC to destroy documents -- and so many papers were stuffed into the machine that it broke. Investigators have been able to recreate many of those documents through computer records.

In the spring of 1984 -- as official U.S. money was about to run out - a representative of another country, which McFarlane inadvertantly identified as Saudi Arabia, offered to chip in $1 million a month for the Contras.

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McFarlane said he considered such an offer legal under the Boland Amendment, since the contribution was not 'coerced' or 'brokered' by U.S. officials but was offered freely.

He said that within a day or two of the offer, he informed Reagan about the contribution during a regular national security meeting. McFarlane said he passed a 3-by-5-inch notecard to the president telling him of the new money, and after the meeting, Reagan handed the card back with a note expressing his 'satisfaction and pleasure that this had occurred.'

In 1985, when the Saudis offered to contribute another $25 million to the Contra cause, McFarlane said he informed the president in a similar fashion and received a similar response.

Reagan also intervened personally when a shipment of weapons bound for the Contras was stopped in another Central American country, McFarlane said, and the weapons eventually reached their destination.

When the Saudi money began flowing, McFarlane said, North supplied the bank account number at a Miami institution where the cash could be deposited.

McFarlane described North as deeply committed to the Contras and the energy North brought to his job was sometimes difficult to control, but he 'always responded to guidance.'

North's enthusiasm prompted him to write a memo to McFarlane asking about ways to replace a Contra helicopter shot down in combat. McFarlane said he disapproved any private 'brokering' as illegal -- but in the meantime, North was arranging with conservative fund-raiser Carl Channell to raise the money for a replacement.

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Channel was convicted nearly two weeks ago of conspiracy to defraud the government in using tax-exempt donations to supply the Contras. Channell named North as a co-conspirator.

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