Independent counsel Lawrence E. Walsh's investigation into the Iran-contra affair is attempting to build a criminal case based on the premise that Marine Lt. Col. Oliver L. North's secret network illegally turned public funds into private profits, according to informed sources.
The way those profits -- about $15 million from the secret sale of U.S. weapons to Iran -- were spent is expected to be a central part of the broad conspiracy case that Walsh is developing.
In a 1986 deal that grew out of the Iranian initiative, for example, Albert A. Hakim, a private businessman who served as the chief financial overseer for the North network, took what the Senate committee's chief counsel, Arthur L. Liman, called a "whopping commission" of $860,000 out of Swiss bank accounts holding profits from the Iranian arms sales. He then desposited the commissions into bank accounts set up for himself and two other associates.
Retired Air Force major general Richard V. Secord, Hakim's business partner and North's chief operative in the secret network, has insisted in congressional testimony that the arms-sale profits belonged to their "enterprise," not to the government.
Walsh's prosecutors, however, are expected to contend that the funds belonged to the U.S. Treasury and that their diversion for the use of the private intermediaries, the Nicaraguan contras and other purposes amounted to misuse of public money and other violations of the federal criminal code.
In the two criminal cases brought thus far in the scandal, involving illicit fund-raising for the contras, Walsh's prosecutors used a longstanding law against conspiracy to defraud the U.S. government -- which was at the heart of the Watergate cover-up case.
But in other cases under investigation, they also are considering federal racketeering laws, which increasingly have proven to be effective in prosecuting political corruption cases around the country.
The RICO (Racketeer Influenced and Corrupt Organizations) statute, which was first deployed to combat organized crime, has gained much wider use in recent years. It has been invoked against police officers, judges, governors, members of Congress, white supremacists and black nationalists, Croatian terrorists and Japanese conglomerates.
"It is now the prosecutive tool of choice in sophisticated organized crime, white-collar crime, political corruption and terrorist cases," said G. Robert Blakey, a Notre Dame University law professor and former Senate lawyer, who was the architect of the 1970 RICO law. "It's sort of a statute for all seasons."
Six weeks of congressional hearings on the Iran-contra affair have produced evidence that veteran prosecutors said would seem to be well-tailored to a RICO prosecution. RICO indictments often amount to a complicated tangle of different crimes such as obstruction of justice, bribery, extortion, mail fraud, wire fraud, money laundering and other violations, which in this context are referred to as "predicate crimes." The Senate-House inquiry has turned up numerous allegations along those lines.
"Evidence of criminality exists in this case," said Sen. George J. Mitchell (D-Maine), a member of the Senate Iran-contra panel and a former federal judge.
He cited the testimony of Fawn Hall, North's former secretary, about the hurried shredding and altering of sensitive White House documents last November, which could form the basis for obstruction-of-justice charges.
Sources familiar with Walsh's investigation say he is undecided about whether to use RICO or the older conspiracy law, which has been tested in cases going back past the Teapot Dome scandal in the 1920s.
In either event, prosecutors could bring together under a single indictment a diverse group of defendants, not all of whom necessarily had to be aware of what each of the others did.
Either way, the sources add, Walsh and his prosecutors are seeking to establish that Secord, his partner Hakim and other associates, such as former CIA officer Thomas Clines, were legally "agents" of the U.S. government when they acted as intermediaries in the Iran arms transactions --
and as such had no right to treat the profits as they, or North, saw fit.
"Ordinarily, an agent doesn't own the property he is handling for his principal," explained one source close to the Walsh investigation. "And once you start holding funds belonging to someone else and begin acting as though they were your own, you start getting into trouble."
In fact, some investigators said, what Secord has called "the enterprise" -- an international network of operatives masked by Swiss bank accounts, secret code names and clandestine meetings -- was very much like a government-owned "proprietary," and the operation's spending should have been subject to federal rules and regulations.
Instead, executives of the operation helped themselves to expense accounts while Hakim, as the money manager, doled out commissions and subdivided other profits into separate accounts for himself, his partners and North's family, according to testimony.
Secord has denied that he was "an agent of the U.S. government" and has insisted that he and his associates were "technically" free to sell the missiles and other military equipment to anyone they wanted, not just Iran. At the same time, he has said he was acting in accord with what he assumed to be the wishes of President Reagan, conveyed to him through North.
"Secord and Hakim are in a dilemma," said Sen. David L. Boren (D-Okla.), chairman of the Senate Select Committee on Intelligence and a member of the Senate's Iran-contra panel. "They seem to be trying to have their cake and eat it too."
Boren said the two are asserting that they were acting on government instructions and simultaneously claiming that the money belongs to their enterprise. Their testimony, however, Boren noted, shows they paid no income taxes on such proceeds.
"They can't have it both ways," Boren said. He said they should either admit it's taxable income or return it to the governmemt.
Secord's use of the title, "the enterprise," was "just too precious," Blakey said. The RICO statute makes it unlawful "for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity."
An "enterprise" under RICO can be an individual, a partnership, a corporation, a union or a "group of individuals associated in fact." The "pattern of racketeering" essential to any prosecution is defined as the commission of two or more racketeering acts -- in other words, two or more "predicate crimes" such as obstruction of justice, bribery, extortion, mail fraud, wire fraud or "travel fraud," which is the transportation in interstate or foreign commerce of money obtained by fraud.
"Is it applicable to Irangate?" Blakey asked. "Of course. You don't have to have a terribly fertile imagination to see how. There are defenses to this, but if you sell government property, the profits belong to the government. They're not yours to spend. And if you spend money that belongs to the government, you are guilty of defrauding the government."
Blakey said "North & Co." will doubtless contend that the real sale "occurred when the government's property was transferred to Secord & Co. and that subsequent sales were private."
If Secord and his associates were in fact "the 'agents' of the American government," Blakey added, "these profits belong to the government. If the money wasn't used pursuant to government regulations, it should have been turned over to the Treasury. They didn't turn that money in. They diverted it for what they think were public purposes. But it wasn't appropriated by the Congress, and if not, that's not a public purpose . . . . They could be indicted, tried and convicted and, under RICO, the profits of the illicit transactions would be forfeited to the government."
The penalties under RICO are stiff, a maximum of 20 years in prison compared with five years under the conspiracy-to-defraud-the-government law. RICO cases also give prosecutors more leeway in showing a diverse pattern of criminal offenses -- something that judges tend to restrict in traditional conspiracy cases.
"Judges don't like, and frequently won't permit, allegations of other crimes in a conspiracy-to-defraud-the-government case," said another RICO expert, Paul Coffey, deputy chief of the Justice Department's organized crime and racketeering section. "For instance, if you've got a money-laundering case, you won't get in evidence of murders, hijackings and arson. But, in RICO, you don't have to connect the crimes to each other, just to the enterprise. The 'pattern' they must be a part of is that the separate crimes are intended to further the purposes of the enterprise."
But, Blakey points out, there is also a "downside" to labeling defendants as "racketeers" when the description doesn't seem to fit. North, if he should be indicted, "is going to sit there with all his medals on," Blakey said.
He said he would be inclined to bypass RICO for a regular conspiracy-to-defraud-the-government case and then seek return of the profits later in a civil suit.
"You would have to prove they had an intent to defraud the government and if they could throw up a sufficient smoke screen, saying they had no intent to defraud, they could walk," Blakey said. "But when you start shredding documents, so much for your good-faith defense. All these code names and clandestine meetings are going to undermine your defense, too."