The White House yesterday denied the suggestion by Sen. Daniel K. Inouye (D-Hawaii) that a memo initialed by former national security adviser John M. Poindexter shows that President Reagan had been briefed about using proceeds from the Iran arms sales to finance other covert activities.
White House spokesman Marlin Fitzwater told reporters that Reagan said "he had never been briefed on diversion of funds or any excess funds" from the Iranian arms sales and said that Inouye's characterization of the memo was "totally inaccurate."
A senior administration official said that Reagan, after seeing newspaper headlines about Inouye's statement, was "disturbed" at the implication that he had been briefed about diversions and directed Fitzwater to respond. The president had said last week that he would not comment further on the Iran-contra affair until the congressional hearings were finished.
The White House statement coincided with a flareup over Inouye's comments along partisan lines in the congressional committees during another day of testimony by former national security aide Lt. Col. Oliver L. North. Shortly before the noon recess, Rep. Dick Cheney (R-Wyo.), senior Republican on the House committee, challenged Inouye, chairman of the Senate select committee, for his statement about the Poindexter memo.
Inouye said Sunday on CBS News' "Face the Nation" that the committees had "an important document" which indicated that Poindexter had briefed the president on the use of "residuals," as North has called the profits from the Iran arms sales. Inouye went on to say, "That memo does not speak of diverting the residuals for the use of the contras; it says using the residuals for other covert activities."
The document is a Sept. 15, 1986, memorandum from North to Poindexter that apparently was written in preparation for Reagan's meeting with then-Israeli Prime Minister Shimon Peres. A heavily edited unclassified version of the memo made public by the committees suggests that Poindexter should brief Reagan about "initiatives" contained in a classifed attachment. Next to the word "approve," are Poindexter's initials and a notation, "Done."
"Mr. Chairman, I've read that memo very carefully this morning and I don't find any reference in there at all to the notion of generating profits from selling arms to Iran, nor do I find any reference to the use of those profits in the memo that allegedly went to the president," Cheney said during the committee meeting. "I would suggest that the president could have read it from cover to cover and not have had any knowledge of any alleged diversion."
Later, in a brief interview, Cheney further disputed Inouye's statement, saying the memo made no mention of either "residuals" or "profits." Both Inouye and Cheney have seen the unclassified version of the memo, about which Poindexter is likely to face sharp questioning when he testifies this week.
Cheney emphasized that he was not being critical of the news stories, which he said "reported the impression left by the chairman," but said he thought it was important "that someone on the committee stand up and challenge this impression on the record."
Though Fitzwater's and Cheney's comments were similar, the congressman said his remarks had not been coordinated with the White House. He said he did not even know the White House had made a statement until told about it by a reporter hours after his verbal clash with Inouye.
Replying to Cheney during the hearing, Inouye defended his Sunday statement and said he was trying to "make it very clear" to the administration that a response to the memo would be necessary.
"I did not want to suddenly thrust it in their faces," Inouye said. "They have now time to come up with a response. I thought I was playing it rather fair with the administration."
A senior administration official said that Reagan believed otherwise. He said the president had become "disturbed" when he read the headline on a Washington Times account of Inouye's comments on CBS. The headline said, "Committee holds 'a smoking gun,' chairman reveals." The story did not use the words, "smoking gun."
But the official said that Reagan was so concerned about the implications of Inouye's comments and "smoking gun" headline that he thought it necessary to break his self-imposed rule of not commenting on matters turned up by the investigating committees.
Fitzwater, accompanying the president on a political trip to Indiana, confirmed that Reagan was briefed by Poindexter before his meeting with Peres but said the White House has "no way of knowing" whether Poindexter used the memo cited by Inouye. Fitzwater said the document was intended as a background paper for Reagan in advance of the Peres visit.
"That memo never mentions diversions or residuals," Fitzwater said. "The characterizations of that memo, as they relate to the president, are totally inaccurate. There is no way from reading that memo that you can conclude that it discusses diversions or residuals. The president was never briefed on diversions or any other excess funds."
Fitzwater said the memo was provided to the congressional committees last March by the White House. He said it contained three tabs. He said Tab 3 was directed at Reagan and discussed covert operations; Tab 2 went to the late William J. Casey, the director of the Central Intelligence Agency, and discussed funding but not diverted Iranian money; Tab 1 was undefined but probably was directed at Poindexter.
When reporters asked Reagan about the Inouye statement, he responded, "Marlin told you" and declined further comment.
The president traveled to Indianapolis as part of a continuing campaign for his "Economic Bill of Rights," which includes a balanced-budget amendment to the Constitution and line-item veto authority.
In a speech to the National Association of Counties, Reagan denied that he is trying to "distract attention from other events in Washington." He said "the truth is just the other way around. There are those who would like to distract attention from the real business of government -- putting an end to unrestrained spending."
"And while I'm getting a few things off my chest, something else has been bothering me lately," he said. "Critics have claimed that in opposing our administration on the issues, they're at some kind of an unfair disadvantage -- that this presidency is somehow based more on personality than on policy.
"Well, the truth is no president can remain popular unless he retains the fundamental support of the American people on the issues. So I invite my critics -- I welcome my critics -- to go after me on the issues just as hard as they please. We'll let the people decide who's right and who's wrong."