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Follow the Money

An intimidating array of individuals and forces wanted President Carter ousted from the White House in 1980. Some were driven by ambition; others by money; and still others by revenge. Together, they were over-powering.

Newly revealed documents, meant to stay hidden from the public, now show the interlocking relationships that operated behind the facade of American democracy: a chilling chapter of the October Surprise X-Files

By Robert Parry

WASHINGTON -- It was the start of winter, December 21, 1992, but the mild Washington weather was still like fall. In a secure conference room, a senior CIA Middle East specialist sat down to give a classified deposition to a special House task force investigating the October Surprise controversy.

The task force had already drafted its report, which firmly rejected allegations that the Reagan-Bush campaign sabotaged President Carter's Iran hostage talks in 1980. The distinguished gray-haired CIA man, Charles G. Cogan, had been called to tie down a loose end or two.

But Cogan started his testimony with a startling recollection. He remembered an off-hand remark that he had heard in 1981, during a meeting between then-CIA director William J. Casey and a prominent Republican, Joseph V. Reed. Cogan said he was finishing a meeting with Casey in the director's seventh floor office at CIA's campus-like headquarters in Langley, Va., when Reed arrived.

Knowing Reed, a longtime top aide to Chase Manhattan's David Rockefeller, Cogan lingered at the door. Cogan said he had a "definite memory" of a comment Reed made about disrupting President Carter's "October Surprise" of a pre-election release of 52 American hostage held in Iran. But Cogan said he could not recall the precise verb that Reed had used.

"Joseph Reed said, 'we' and then the verb [and then] something about Carter's October Surprise," Cogan testified. "The implication was we did something about Carter's October Surprise, but I don't have the exact wording." (Another congressional investigator, who discussed the recollection with Cogan in a less formal setting, concluded that the verb apparently was the past tense of an expletive related to sex.)

Though supposedly seeking evidence of just such a Republican action, the task force lawyers did not welcome Cogan's testimony. Republican lawyer (and former CIA official) David Laufman asked if Cogan had since "had occasion to ask him [Reed] about this?"

Yes, Cogan replied, he had asked Reed about it, after Reed moved to a protocol job at the United Nations. "I called him up," Cogan said. "He was at his farm in Connecticut, as I recall, and I just told him that, look, this is what sticks in my mind and what I am going to say [to Congress], and he didn't have any comment on it and continued on to other matters."

"He didn't offer any explanation to you of what he meant?" exclaimed Laufman.

"No," answered Cogan.

"Nor did he deny that he had said it?" asked another task force lawyer Mark L. Shaffer.

"He didn't say anything," Cogan responded. "We just continued on talking about other things."

And so did the task force lawyers at this remarkable deposition. They even failed to ask Cogan the obvious follow-up: How did Casey react to Reed's remark about doing something to President Carter's October Surprise? Instead, Cogan's testimony, like so many other pieces of incriminating evidence, would be excluded from the final report and locked away with classified information that was intended to stay outside the public's reach.

A Hostile Witness

But the Cogan deposition was one of the "secret" documents left behind, apparently by accident. It was mixed in with unclassified material that I was allowed to examine in an obscure Capitol Hill storage room. (See "October Surprise X-Files" series for more details.)

I also discovered the notes of an FBI agent who tried to interview Joseph Reed about his October Surprise knowledge. The FBI man, Harry A. Penich, had scribbled down that "numerous telephone calls were placed to him [Reed]. He failed to answer any of them. I conservatively place the number over 10."

Finally, Penich, armed with a subpoena, cornered Reed arriving home at his 50-acre estate in Greenwich, Conn. "He was surprised and absolutely livid at being served at home," Penich wrote. "His responses could best be characterized as lashing out."

Reed threatened to go over Penich's head. In hand-written "talking points" that Penich apparently used to brief an unnamed superior, the FBI agent wrote: "He [Reed] did it in such a way as to lead a reasonable person to believe he had influence w/you. The man's remarks were both inappropriate and improper."

But the hard-ball tactics worked. When Reed finally consented to an interview, task force lawyers treated him with kid-gloves. Penich took the interview notes and wrote that Reed "recalls no contact with Casey in 1980," though Reed added that "their paths crossed many times because of Reed's position at Chase." In 1979, Reed had spearheaded the Rockefeller lobbying to get the shah admitted into the United States for cancer treatment, an event that led to the seizure of the U.S. Embassy in Teheran.

As for the 1981 CIA visit, Reed added that as the newly appointed U.S. ambassador to Morocco, he "would have stopped in to see Casey and pay respect." But on whether Reed made any remark about obstructing President Carter's October Surprise, Reed claimed he "does not specifically know what October Surprise refers to," Penich scribbled down. The task force lawyers did not press too hard.

Most glaringly, the lawyers failed to confront Reed with a key piece of evidence that would have impeached his contention that he had "no contact with Casey in 1980." According to sign-in sheets at the Reagan-Bush campaign headquarters in Arlington, Va., which the task force had obtained, Reed saw Casey on September 11, 1980.

On that visit, Reed accompanied David Rockefeller; Owen Frisbie, Rockefeller's Washington lobbyist; and the late Archibald Roosevelt, a Chase adviser and a legendary CIA veteran of Middle East operations, including the 1953 plot that restored the shah to the Peacock Throne.

'Flying Dutchman'

In the quarter century after that CIA operation, David Rockefeller's bank profited handsomely from the shah's deposits. But when the shah was ousted in January 1979, Chase faced serious exposure as the new Islamic government ordered $6 billion pulled from Chase's vaults.

Besides the money, Rockefeller and his aides were furious at President Carter's treatment of the shah. Former Secretary of State Henry Kissinger lamented that the shah had been turned into a real-life "Flying Dutchman," fleeing from one temporary shelter to another, from Egypt to Morocco to Mexico to the United States to Panama, before returning to Egypt where the shah died on July 27, 1980.

But Cogan's testimony about the Reed-Casey conversation also pointed the way toward a major investigative avenue that the task force had little desire to go down. The shah's family (the Pahlavis) had close financial ties not just to Rockefeller and Chase Manhattan but to William Casey's personal business circle.

According to a 1984 CIA memo given to the task force, Casey recruited his old World War II spy chum John Shaheen and Iranian banker Cyrus Hashemi in 1979 to sell off property in New York City belonging to the shah's Pahlavi Foundation. At that time, the radical Islamic government in Teheran was claiming that property as its own and the shah's family was desperate for the cash.

The early Casey-Shaheen-Hashemi partnership on this Iranian business deal was important, because in 1980 Hashemi became one of President Carter's principal intermediaries on the hostage crisis and Casey was in charge of Ronald Reagan's campaign. The Casey-Shaheen-Hashemi connection made the October Surprise allegations far more credible.

Though Cyrus Hashemi died in 1986, his older brother, Jamshid, testified under oath before the task force that Cyrus had arranged July 1980 meetings in Madrid where Casey discussed the hostages with a radical Iranian mullah, Mehdi Karrubi. Jamshid's testimony was at the heart of the October Surprise charges that Casey derailed President Carter's hostage talks.

But the House task force cast aside the CIA memo and concluded that there was "no evidence" that Casey had met Cyrus Hashemi before the 1980 election in November. In the public report, the task force briefly mentioned the CIA memo, but deleted the identity of the foundation. The word "Pahlavi" was excised, thus obscuring the significance of the information.

A Marcos Bagman

Also missing from the report was evidence that Cyrus Hashemi had worked with Casey ally Shaheen on other lucrative business schemes tied to the Pahlavi fortune. For instance, FBI wiretaps of Cyrus Hashemi's New York City office in fall 1980 discovered that Shaheen and Hashemi were planning to invest millions of dollars to establish a bank together, possibly in Hong Kong with Philippine investors. (See's "Bill Casey's Iranian.")

The bank deal took final shape two days after President Reagan Inauguration and the near-simultaneous release of the 52 American hostages whom President Carter had failed to free. On January 22, 1981, Shaheen opened the Hong Kong Deposit and Guaranty Bank with $20 million that had been funneled to him through a Rockefeller-connected lawyer in Geneva, named Jean Patry.

The bank sported on its board other powerful world players, including Herminio Disini, known as Philippine President Ferdinand Marcos's personal bag man. Indeed, a Shaheen lawyer told me that Shaheen flew to Manila in early 1981 to meet face-to-face with Marcos, the man whom Shaheen considered really "in charge." The lawyer said the Hong Kong bank was a way for Marcos "to get his hands on some of the Arabs' Euro-petrodollars."

In 1980, Marcos also may have delivered secret payments to Casey. According to a letter revealed in the Philippines after Marcos's overthrow in 1986, President Reagan wanted files about those payments back before Marcos fled to Hawaii. The letter, purportedly written by Marcos's executive assistant, Victor Nituda, stated that Sen. Paul Laxalt, R-Nev., "expects all documents checklisted during his last visit or the deal is off." One of the files was marked "1980 SEC-014, Funds to Casey." Another file was slugged "1980 SEC-015, Reagan Funds Not Used."

While in exile in Hawaii, Marcos reportedly boasted to visitors that he gave $4 million to Ronald Reagan's 1980 campaign, contributions that would have violated federal election laws -- and might explain why Marcos was allowed to profit off the Hong Kong bank.

From 1981-84, Hong Kong Deposit and Guaranty did pull in hundreds of millions of petrodollars, just as Marcos had hoped. The bank also attracted high-flying Arabs to its board of directors. Two directors were Ghanim Al-Mazrouie, the Abu Dhabi official who controlled 10 percent of the corrupt Bank of Credit and Commerce International, and Hassan Yassin, a cousin of Saudi financier Adnan Khashoggi and an adviser to BCCI principal Kamal Adham, the former chief of Saudi intelligence.

Though Cyrus Hashemi's name was not directly connected to the Hong Kong bank, he did receive cash from BCCI. An FBI wiretap of Hashemi's office in early February 1981 picked up an advisory that "money from BCCI [is] to come in tomorrow from London on Concorde."

The Missing Millions

In 1984, the Hong Kong Deposit and Guaranty collapsed and an estimated $100 million disappeared. The crash put Shaheen in hot water again, but he died of liver cancer in 1985 so the bank's loss was buried with him, in his estate. The biggest loser in the deal -- the mystery $20 million investor from 1980-81 -- apparently did not want any publicity.

The House task force figured out who the bank's benefactor was. But, again, the House report left out this intriguing fact.

The $20 million that had capitalized Hong Kong Deposit and Guaranty, the money that was funneled through the Rockefeller lawyer in Geneva, had come from Princess Ashraf, the shah's strong-willed twin sister. The House task force interviewed Ashraf and accepted her bald statement that the $20 million was just a routine business investment.

In 1980, however, the deposed princess was one of Jimmy Carter's most implacable enemies. She blamed the President for failing to save the shah. His overthrow then led to the murder of her son. Ashraf suspected, too, that President Carter's team was desperate enough to trade the ailing shah for the hostages. According to The Shah's Last Ride by William Shawcross, she snubbed White House chief of staff Hamilton Jordan when their paths crossed in Panama in early 1980.

That Princess Ashraf was supplying $20 million to Cyrus Hashemi's American business partner, John Shaheen, while Hashemi was supposedly helping President Carter resolve the hostage impasse would normally be seen as evidence of a pay-off. So, too, might BCCI's curious Concorde money flight.

But as it turned out, the task force's chief counsel, E. Lawrence Barcella Jr., had worked as a lead attorney for BCCI in the late 1980s. BCCI paid Barcella and his firm more than $2 million, and the lead partner in the firm was former Sen. Paul Laxalt. Not the BCCI money, nor Ashraf's $20 million, nor the Philippine files were mentioned in the House report. The task force, it seemed, had no interest in following the money.

@Copyright 1995