Iran-Contra Affair
The Reagan administration's secret sale of missiles to Iran, whose proceeds were diverted to fund Nicaraguan rebels Congress had explicitly refused to pay for.
In November 1986 a Lebanese magazine called Ash-Shiraa reported that the United States had been secretly selling weapons to Iran. Washington denied it, then confirmed it, and over the following weeks a second and far stranger fact emerged: some of the money from those sales had been routed to the Contras, the rebels fighting Nicaragua's Sandinista government, at a time when Congress had passed a law forbidding exactly that.
Two covert operations, run out of the National Security Council staff in the White House basement, had been quietly wired together.
Half one: arms to Iran
The United States had no relations with Iran, had backed Iraq in the Iran-Iraq War, and had a declared policy of never negotiating with terrorists or arming states that sponsored them. Iran was under an American arms embargo and desperate for spare parts for the American-made military it had inherited from the Shah.
Seven Americans were being held hostage in Lebanon by groups with Iranian ties. Beginning in 1985, through Israeli intermediaries, the administration sold Iran TOW anti-tank missiles and Hawk air defense parts, in the expectation that Tehran would lean on the kidnappers.
It half-worked, in the worst possible way. Three hostages were released and three more were taken, because a market had been created. This is the standing objection to hostage deals, demonstrated cleanly.
Half two: money to the Contras
Nicaragua was the administration's other preoccupation. Reagan called the Contras the moral equivalent of the founding fathers; Congress, presented with evidence of atrocities and of CIA mining of Nicaraguan harbors, passed the Boland Amendments between 1982 and 1984 cutting off funding for the purpose of overthrowing the Sandinistas.
The staff response was to fund them another way: soliciting money from third countries, from private donors, and, in the arrangement that gave the affair its name, marking up the Iranian arms sales and sending the surplus to the Contras. Lieutenant Colonel Oliver North of the NSC staff ran the operation and later described the diversion as a neat idea.
The reckoning
North and his secretary shredded documents; his superior, National Security Adviser John Poindexter, testified that he had deliberately withheld the diversion from the president so that Reagan would have deniability. The Tower Commission reported in February 1987, congressional hearings ran through that summer with North testifying in uniform to a large television audience, and an independent counsel, Lawrence Walsh, spent six years on prosecutions.
Fourteen people were charged and eleven convicted, including Poindexter, North, and later Defense Secretary Caspar Weinberger. North's and Poindexter's convictions were overturned on appeal because their immunized congressional testimony had tainted the evidence against them. In December 1992, on his way out of office, President George H. W. Bush pardoned Weinberger and five others, which ended the investigation before it could reach how much Bush himself, as vice president, had known.
Reagan's own role has never been fully established. He was told about the arms sales, and his own diary shows it. Whether he knew about the diversion is genuinely unresolved. In March 1987 he gave the least evasive line of the whole affair, telling the country that his heart still told him no arms-for-hostages deal had taken place but the facts and evidence told him it had.
The echo
The constitutional question is the one that lasts. Congress holds the power of the purse, and the entire point of the Boland Amendments was to stop a policy the elected legislature had decided against. The response was to run the policy on off-budget money from foreign governments and arms markups, which if permitted means the appropriations power does not constrain the executive at all.
Nobody went to prison for it. That outcome, more than the operation itself, is what set the precedent, and it is why every subsequent argument about covert action, executive privilege, and whether the president can be held to account by anything other than an election runs back through the winter of 1986.