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Report: Army Underpriced Missiles, Unwittingly Helping Iran-Contra Scheme

July 30, 1987

WASHINGTON (AP) _ The Army was not part of a scheme to overcharge Iran for TOW missiles and to use the profits for the Nicaraguan Contra rebels, but it unwittingly aided such a goal, a House panel reported Thursday.

The 51-page Armed Services Committee report said Army officials charged too little when they, in effect, sold the weapons to the CIA.

The lower cost to the spy agency therefore increased the potential profits when the CIA supplied the TOWs to Iran at prices that were inflated - according to testimony at the Iran-Contra hearings - by up to 600 percent.

Had the Army followed proper procedures, it would have charged the CIA $4,819 per missile instead of billing the agency $3,469 each, the report said.

But it also said the Army had no rational basis for pricing the weapons anyway.

Army Maj. Larry Icenogle of the Defense Department’s public affairs office said he had no comment on the report.

The Iran-Contra committees have heard testimony that significant portions of the eventual profits went to middlemen and the remainder to a business enterprise run by operatives of Lt. Col. Oliver L. North, the National Security Council aide who was fired for his role in the affair last November.

The enterprise, run by former Air Force Maj. Gen. Richard Secord and his business partner, Albert Hakim, used only a fraction of the profits for the Contras.

″There was no conspiracy or conscious effort on the part of the Defense Department to hold the price of the TOW missiles low in order to generate ‘profits’ that could be used to aid the Contras,″ the report said.

But in this instance, the price was held down anyway because it was plucked from the wrong line of a giant Army data base by a major, who knew nothing of the destination, the report said.

Panel chairman Les Aspin, D-Wis., said in a statement that Army procedures make it almost impossible to find the right price, and led in this case to ″soap opera-like confusion.″

The regulations require that the price charged should be the last price paid for the item. If the weapon came off the production lines from 1960 to 1970, the figure would be the 1970 contract price - which might be much higher or lower than the average price paid over the decade.

The report indicated that the transfer of TOWs from military stocks did not follow normal procedures, leading to several embarrassing incidents.

For instance, the general who was in charge of Army logistics summoned an assistant, Maj. Chris Simpson, to locate the TOWs. Simpson telephoned Col. James B. Lincoln, the TOW program manager stationed at Redstone Arsenal in Alabama. Lincoln began ″having some doubts.″

″He checked his Pentagon telephone directory to ascertain that Simpson was who he said he was,″ the report said. ″In a telephone exchange with Simpson that week, Lincoln said he felt it was necessary to bring his superior ... into the picture. Lincoln said Simpson told him he could not inform his superior. Lincoln responded that he simply would not execute the order″ without telling his boss.

Lincoln’s boss was informed of the operation on a secure telephone.

Simpson had another problem. He was told to remain close-mouthed about the operation, but more and more people kept getting involved.

At one point, Simpson needed advice of Army lawyers. But instead of focusing on the point he raised, they began worrying about the Intelligence Act requirement that Congress be notified of intelligence operations involving $1 million or more in military equipment.

The lawyers said that while the CIA was responsible for the notification, ″the Army had a moral responsibility not to help some other agency break the law.″

A memo was drafted on the requirement and given to Maj. Gen. Colin Powell, then chief military aide to Defense Secretary Caspar Weinberger and designated overseer of the Pentagon weapons transfer.

Powell recalled he ″bucked″ the memo over to National Security Adviser John Poindexter. That turned out to be the wrong move, since he was a chief architect of the plan to keep Congress uninformed on the sales.

″Powell says he heard nothing back from Poindexter,″ the report said.

Another time, the CIA added Hawk radars to its request. Simpson found only two of the model existed in the United States.

″Simpson learned ... he wouldn’t be able to supply them to the CIA even if the agency put an order through proper channels because the Army didn’t own the radars,″ the report said.

″They were owned by Iran,″ the committee pointed out, and ″impounded because of the U.S. policy against shipping weapons to belligerents.″

About 500 of the 2,008 TOWs delivered to the CIA contained a defective battery, the report noted, that could cause the missile to fly erratically.

Simpson gave the TOW transaction the name Operation Snowball because it was snowing the day in early 1986 that he was looking for a title. A later request to supply Hawk anti-aircraft missile parts was dubbed by Simpson as Operation Crocus, because it came last spring.

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