FBI and IRS investigators questioned IRS’s role in helping Oliver North in the Iran-Contra execution and cover-up

The investigations into the Iran-Contra affair were repeatedly crippled and hindered on multiple fronts, with information being withheld and agencies obstructing the efforts. While the obstructions of agencies like the NSA and CIA are somewhat well known, another agency can now be added to that list – the IRS. Materials from a file maintained by the Office of Independent Counsel (OIC) under Lawrence Walsh show that a team of two FBI Special Agents, a Special Agent with the IRS and two lawyers wanted to investigate the IRS for playing a role in first enabling elements of the Iran-Contra affair and then attempting to sweep it under the rug.

As it turned out, the IRS and tax fraud had played a crucial role in the conviction of two people associated with Iran-Contra. The issues raised by those investigations, their trials and eventual guilty pleas became significant for the investigation and prosecution of Oliver North. Carl Channell and Richard Miller both plead guilty to conspiracy to defraud the United States, a charge that also loomed over Oliver North for his part in directing and aiding their efforts to raise funds for the Contras. Soon after their guilty pleas were received, however, “high ranking officials of the IRS” expressed concern over the pleas. This was seen as problematic, as this view was contrary to the one arrived at by the OIC and its investigators, the court, Channell and Miller themselves. In addition to that, the concerns ran contrary to the IRS’s previous conclusions.

According to the Findings of Fact from SALWASSER v. COMMISSIONER:

The conditional exemption granted NEPL was revoked by the Internal Revenue Service by letter dated April 30, 1987. That letter stated in part:

On April 29, 1987, the Independent Counsel filed a Criminal Information with the United States District Court for the District of Columbia. On the same date Carl R. Channell, president of your organization, plead guilty to this Criminal Information. This plea is an admission to the facts and all charges contained in the Criminal Information.

In addition, on the basis of our review of your activities and financial records, we conclude that you are not operated exclusively for purposes described in section 501(c)(3) of the Code. You have made substantial expenditures for nonexempt purposes, you have engaged in prohibited political campaign activities, engaged in substantial legislative activities, operated for private purposes, and permitted your net earnings to inure to the benefit of those in control of your operations. Further, you have failed to file your annual return, Form 990, for the year ending December 31, 1984, and have not supplied requested information as required by section 6033 of the Internal Revenue Code.

On the basis of these matters, I am hereby revoking the letter of December 12, 1984, referred to above, effective May 25, 1984, your date of incorporation.

According to the OIC file (and confirmed in various FBI and other government documents), there was never any real doubt about Oliver North’s role in the fundraising. His efforts had been “instrumental” in inducing “contributions for direct military assistance to the Contras.” According to the OIC report, the key issue, however, wasn’t whether or not Oliver North had done something illegal, but whether they could prove that he had known it was illegal.

Finding consistent evidence that Oliver North knew it was illegal would prove to be difficult. The OIC Report, dated July 20, 1987 and referencing a meeting conducted on July 7, 1987, says that Robert Owen, identified in the OIC’s final report as “North’s personal courier to the Contras,” seemed to provide the evidence needed by stating that in 1984 he had told Oliver North that such use of a tax-exempt organization was illegal.

It’s unclear what “testimony” is being referred to, as it may refer to either literal testimony or his previous interviews with the OIC. In a previously SECRET interview conducted by the OIC,  however, the day after the OIC report was issued Robert Owen claimed that he never discussed the legality of it with Oliver North. Owen said he assumed that the Colonel already knew it was illegal, and therefore there was no need to discuss it.

The statement alleges that although he and North didn’t discuss the legality of trafficking in arms through a non-profit organization, they did agree that non-profits “would be used only for non-lethal aid.” It would appear, however, that if this agreement did take place, they both violated it. It appears that Owen’s answer may have surprised the investigators, who were expecting him to repeat his apparent allegation about a 1984 conversation in which he had told Oliver North that it would be illegal to use the non-profits for lethal aid. The investigators repeated the question, and Owen gave essentially the same answer.

Regardless of how much North knew, the linchpin in the legal theory was rather simple. However, senior officials began working to undermine the legal theory after the guilty pleas which named North as an unindicted co-conspirator, and agreements to cooperate and testify, were submitted by Channell and Miller. This would become part of the basis for the desire of the FBI and IRS Special Agents and lawyers to investigate the IRS.

The high-ranking IRS officials argued that “lethal aid for the Contras could conceivably be considered permissible and tax-deductible under a broad interpretation of the meaning of ‘charitable contribution’.” The controlling definition for “charitable contribution” can be found on the first page of this 1985 IRS document. Readers are encouraged to look at the definition and arrive at their own conclusion.

This move from senior IRS officials not only undermined the guilty pleas of Channell and Miller (who, although they had pled guilty in 1987, wouldn’t be sentenced until July 1989), it was also “very damaging to a possible indictment of North.” In a series of meetings, senior officials from IRS insisted that there hadn’t been any recent findings from IRS about whether or not lethal aid could be considered tax deductible. This position ran contrary to the findings of the OIC, whose investigation had documented that the IRS had “required assurances from General Singlaub’s tax-exempt organization, USCWF that the organization would not be involved in providing arms, cash or military supplies to foreign revolutionaries or actions that would violate the U.S. Neutrality Law.”

Additional investigation revealed that the IRS had granted tax-exempt status to organizations involved in Iran-Contra in as little as five days. The OIC report noted that “granting a tax-exempt status to an organization generally takes a great deal of time, and it appears that some intervention must have been made with the IRS to circumvent the normal procedure for these organizations.” According to documents taken from Oliver North’s office, he may have played a role in creating at least one of these organizations.

The report concludes by noting that it was premature to assume the IRS had been involved, but that there was more than enough evidence to indicate they needed to investigate further.

Given the failings and obstructions of previous investigations, as well as the apparent desire by senior officials at IRS to first aid Oliver North and then obstruct proceedings against him, the issue should not be considered settled by the official reports. Only a public evaluation of the full information can resolve the questions raised in the OIC report. Additional FOIA requests have been filed to obtain more of the primary source documentation. In the meantime, you can read the OIC report here.