In the hectic arms trade with Iran in the 1970s, the broad security interests of the U.S. government were confused -- and sometimes overwhelmed -- by the personal financial interests of American weapons merchants who swarmed to Tehran.
The shah himself complained that he sometimes was unable to tell whether various weapons systems were promoted to further U.S. policy or to generate profits for defense contractors and fees for their representatives.
"You Americans pretend to be so righteous," fumed the ruler when U.S. Senate investigators were alleging corruption by Iranian military commanders in connection with defense contracts.
"But," he continued in the presence of a high American official, "it's hard for me to believe that your MAAG officers [the military advisory group at the U.S. Embassy] haven't already been hired by American companies and aren't under their influence . . . . Are they giving me real advice or just promoting companies?"
Documents, contracts and interviews with U.S. and Iranian officials, military men and businessmen portray a booming arms trade characterized by hard-sell techniques, questionable payments and possible conflicts of interest -- all of which raised cost of the weapons to the Iranian government.
In one example of the controversy surrounding the arms trade of that period, the Justice Department's criminal division is now investigating business activities of the secretary of defense's personal adviser in Iran from 1973 to 1975. The investigators are examining whether these activities violated conflict of interest laws.
The adviser is Richard R. Hallock, who was sent by Secretary James R. Schlesinger to provide him and the shah with an evaluation of the proliferating arms programs. While in Iran, he also signed multimillion-dollar contracts with the shah's government. Thus, his company was serving both.
When Hallock went to Iran in 1973, his company, Intrec, was under contract to the Pentagon. In July 1974, Hallock signed contracts on behalf of Intrec to provide the Iranian military with research, planning assistance, training and advice, according to copies of the contracts obtained by The Washington Post.
Efforts to reach Hallock at his California home were unsuccessful. A business associate, Michael Levin, said these charges have been "laid to rest in the past" and attributed them to defense contractors who want to take revenge on Hallock for recommending cuts in military programs benefiting them. But according to several Pentagon officials, the case has been investigated by a special counsel to Defense Secretary Harold Brown, and by the Pentagon's general counsel and was forwarded to Justice late in 1979 for possible prosecution.
In December 1974, three months after he stepped down as chairman of the Joint Chiefs of Staff. retired Adm. Thomas Moorer made a trip to Tehran during which he performed work as consultant for Stanwick International Inc., a company with a multimillion-dollar contract to manage repairs on Iranian navy ships.Top Iranian military men expressed astonishment to U.S. officials at the abrupt switch in Moorer's role from uniformed military leader to businessman.
Moorer said consulting for Stanwick was "a one-shot" thing, "just for the one trip," for which he received "several hundred dollars" a day plus some expenses.
He met with Iranian naval officers but he "never talked about the [Stanwick] company by name."
Explaining his view of the matter, Moorer said, "I have to make a living and only do the things I'm most qualified for."
In an example of the extensive use by defense companies of retired top officers as paid employes, Bell Helicopter Co. hired Army Gen. Hamilton Howze -- considered the father of the air cavalry doctrine -- to help direct its sales program. In the midst of the sales campaign, Howze went to Iran to lecture Iranian army commanders at the Command and General Staff on "Air Mobile, Concepts and Helicopter Combat Tactics."
Afterward a film demonstrating the merits of Bell's Huey Cobra was shown. Howze went back to Iran in 1972 when Bell showed off new helicopters for the shah and his top generals. Subsequently, the Iranian government bought more than $1 billion worth of Bell helicopters.
A long list of generals and senior naval officers in the U.S. MAAG office at the Tehran embassy were recruited by giant aerospace, defense and electronics firms.
Maj. Gen. Harvey J. Jablonsky, MAAG chief from 1965 to 1968, was sent back to Iran in 1970 by Northrop Corp. to work on an advanced $225 million telecommunications system into which Iranian military installations were tied.
Air Force MAAG chief Maj. Gen. Harold L. Price returned to Iran to work for Philco Ford, which had completed Iran's "Peace Ruby" aircraft warning system and had moved on to installing new cables for the Tehran phone system.
Navy MAAG chief Capt. R. S. Harward stayed on in Iran to work for TRACOR, an Austin, Tex., firm producing sensors and aircraft equipment. Later he moved over to Rockwell International, which among other business in Iran had a contract to build the supersecret CIA supported IBEX intelligence monitoring system.
The conflict-of-interest law did not prohibit this sort of post-retirement employment for U.S. military officers.
In 1972, the stage was set for Tehran to become this target of the U.S. arms industry by the decision of then-President Nixon to provide the shah with virtually any conventional weapon he desired. With the oil revenues generated by the sharp petroleum price increases of 1973, the shah had the money to finance this buildup.
But strong pressure also came from defense companies anxious to find a new market to replace the one lost through the winding down of U.S. procurement for the Vietnam war.
For example, Bell Helicopter officials saw a need in October 1971, to obtain Iranian military and civilian business for the company's U.S. plants, where "sustaining work loads are increasingly needed," according to documents published by the Senate Banking Committee.
A Pentagon official knowledgeable about the overseas arms business describes how representatives of U.S. defense companies have moved from one lucrative market to another. "The same men who were in Saigon, and later Tehran, are now in Saudi Arabia, Egypt and Morocco," he said.
Arms marketing to Iranians was so far flung it even took place in Moscow. For example, a U.S. military attache there provided a briefing on Soviet air power -- and also put in a plug for Grumman's F14 fighter plane -- during a Moscow visit of Gen. Mohommad Khatami, commander of Iran's air force and brother-in-law of the shah. A Grumman report takes credit for getting the attache to give the briefing.
A Grumman report, published by the Senate Foreign Relations multinational subcommittee, disclosed, "The U.S. military attache staff in the U.S.S.R. gave a briefing to the Iranian commander-in-chief [Khatami] on the U.S.S.R. air threat" at the urging of a friend who worked for Grumman. The report added that "interest in the F14 was conveyed in a follow-up . . . to H.I.M. the Shah."
Even those critical of the performance of the U.S. defense contractors acknowledge that the shah's extravagant ambitions to make Iran a great military power contributed to the problems.
A former MAAG official recalls a session during which the shah leafed through the definitive international manual on naval vessels, "Jane's Fighting Ships," tapping the multimillion-dollar vessels he wanted. "It was as if he was going through a Sears Roebuck catalogue," the U.S. official said.
However, the shah was displeased with the huge arms commissions in which some of his top generals and members of his family participated, albeit secretly. His concern was that these commissions, rather than coming out of profits of the companies paying them to generate business, was added to the cost of the weapons paid by the Iranian government.
A Pentagon employe, Dean Stewart, recalled in 1973 memo that the Iranian ruler was especially angry about payment of commissions on weapons deals between the two governments. "The shah is said to be unhappy about independent agents running around his country on commission even though the aircraft being purchased go through the U.S. government," he wrote.
When U.S. Senate investigators disclosed that Northrop and Grumman paid commissions to private agents of $2.1 million and $24 million, respectively, in connection with their sales of F5 and F14 fighter planes to Iran, the shah ordered his top procurement officer to get the money back from the companies.
Northrop initially denied making such payments, but procurement chief Lt. Gen. Hassan Toufanian threatened to ban the company from doing further business in Iran. Northrop then arranged to make repayment.
When Toufanian flew to Washington in January 1976 to protest practices of the contractors to then-Defense Secretary Donald Rumsfeld, Northrop's Jablonsky was at Andrews Air Force Base with an envelope containing a company check for $2.1 million made out to the Imperial Government of Iran.
Jablonsky was unable to deliver the envelope at Andrews because of tight security, but succeeded in doing so later at Toufanian's Watergate Hotel suite, according to one who was present.
Toufanian's Jan. 19, 1978, cable to the shah sent from the Iranian Embassy in Washington -- a copy of which has been obtained by The Post -- reported that Northrop president Tom Jones has returned the commission money "to show his good intentions as to his commitments."
Grumman agreed with Toufanian to repay the Iranian government its $24 million in commissions through deliveries of spare parts. However, Grumman canceled this agreement after the shah's ouster in 1979 on grounds that the promise to compensate Iran with spare parts had been made only in expectation of further weapons sales -- a possibility ruled out by the revolutionary Iranian government.
Once the commitment to the Iranian government was canceled, the U.S. company settled lawsuits brought by its private business agents for unpaid commissions. Grumman agreed to pay them $11.9 million, with a promise of $4.4 million more if the Iranian government dropped its claims, according to company documents on file with the Securities and Exchange Commission.
The controversy over Hallock's role in Iran was born out of the conflict and intrigue that flourished in the arms trade on the 1970's.
It was Schlesinger's recognition in mid-1973 that the arms sales were getting out of hand that led him to turn to Hallock, a former colleague at the Rand Corp.
Hallock is described by admirers and critics alike as a brilliant, hard working military analyst who was secretive about his mission -- to examine Iran's long-term needs and capabilities and to measure them against its arms purchase program.
His job was to advise the shah and his top military men, and report their reaction and his findings to Schlesinger.
The Iranian government provided him with a house, car, driver and bodyguards -- all standard accoutrements for a top level special Pentagon adviser in that country.
Hallock, in his first year, proposed sharp cuts in billion-dollar military electronics programs for air defense and intelligence monitoring. He developed a close rapport with the shah and his inner circle of military advisers.
In July 1974, he signed contracts with the Iranian government committing his firm, Intrec to provide services to the vice minister of war and office of the supreme military commander.
In early 1975, a special assistant for Iranian affairs, Erich von Marbod, was named to the Pentagon's International Securities Affairs office. He arrived in Tehran in September 1975 with a mission similar to Hallock's. The two men clashed, and it was then that Hallock's role as personal representative of Schlesinger ended, according to the Senate Foreign Relations Committee report on arms sales to Iran.
In January 1977, Toufanian released a letter stating that Hallock was no longer employed by the Iranian government.