PROFITS OF WAR -- INSIDE THE SECRET U.S.-ISRAELI ARMS NETWORK

10.  The East Bloc

WHILE THE MARKETING of Promis continued as a parallel operation through the mid-1980s, the Joint Committee's main work of selling arms to Iran was also growing. We were combing the world for arms to buy and resell to meet Iran's needs, and it wasn't always easy to find them. Once Yitzhak Shamir became Israel's prime minister in 1983, however, we were able to expand into an unexpected but cooperative new market -- the East Bloc countries. And strangely enough, Robert Maxwell played an important role in this too.

To understand how this turn of events occurred, you have to know something about Yitzhak Shamir.

Unlike Menachem Begin and his Labor Party predecessors, Shamir bears a special hatred for the United States and everything it stands for. Before he became foreign minister in 1981, Shamir had visited the US. only once, for three days. His ardent anti-American feelings stemmed from his conviction that the US. was partially responsible for the massacre of the Jews by the Nazis in the Second World War. Shamir believes that if the US. had sacrificed British interests in the Middle East and reached some type of accord with Hitler on the region, the Jews in Europe would have been allowed to move from the concentration camps to Palestine, and Hitler could have solved the "Jewish problem" without exterminating the Jews.

Despite his reputation as a rightwinger with capitalist leanings, it was Shamir who first tried to open a line of communication between Israel and the East Bloc. The seeds of this radical policy change were sown in the early 1980s when, as foreign minister, Shamir met his Bulgarian counterpart at the United Nations. The introduction was arranged by Shamir's old friend, Robert Maxwell. The Bulgarian quickly learned that Shamir's wife was originally from Sofia and that she longed to visit there again. A visa was arranged for her, and when she returned to Israel, she filled her husband's ear with all the wonderful things her hosts had done for her. When Shamir became prime minister in 1983, he decided he was going to open the East Bloc to Israel and try to wean his country away from its complete dependency on the U.S. The latter was to prove an impossible task.

But after Shamir assumed control, there was greater openness from the Likud Party toward the East Bloc, whereas the socialist Labor Party remained completely closed on the subject. With the door ajar, opportunities presented themselves for a whole new trade-in arms.

Viktor Chebrikov, head of the KGB, gave his personal blessing to the new venture in 1984. He simply saw the merits in the issue. The Soviets' interest was to keep the Iran-Iraq war going, to arm the Iraqis, and to make inroads into Arab money. But to maintain the conflict, Chebrikov realized it was also important to supply the Iranians. He saw that former Soviet policy was lopsided, and he believed much could be gained by starting a relationship with Israel.

Although the Soviets traditionally backed the Arabs, they had by this time started to open up to more imaginative policies. They figured that they could not be known to be selling arms to Iran, because they were already selling to the Iraqis, but, like the United States, they believed that a third country could be used. Poland was ideal. It would help Poland's financial situation, which was in a shambles, and there were merits in having a balanced Middle East policy with a tilt toward Israel because the Soviets thought there should always be a threat to the Saudi oilfields. So Viktor Chebrikov gave the okay to the Polish minister of foreign trade to deal with Israel on the sale of arms to Iran.

It was about this time that I met an Austrian, Dr. Dieter Rabus, who was the son-in-law of the director of a Polish factory that made T-72 tank engines. Rabus knew Robert Maxwell, and the two men helped open doors for Israel to start business deals with the Poles. They made the necessary arrangements, Maxwell even speaking to the Polish defense minister, Gen. Wojciech Jaruzelski; and on our instructions Nick Davies flew to Warsaw, without a visa, early in 1984.

His lengthy discussion with a representative of Cenzin, an office in the Ministry of Foreign Trade that deals with the export of arms, took place at the airport. The two men met in the VIP room, where Davies spent three hours arranging for me to visit.

In mid-1984 I made my first trip to Poland, flying through Vienna. On arrival, I was met at the aircraft's steps by a major in the Polish Intelligence Service, the UB. I had no visa, and I immediately explained I wanted no Polish stamps on my passport. We certainly couldn't afford to broadcast to any official who might see my passport in another country that Israel now had links with Poland. Unlike other arrivals, I was not searched; nor did I have to slip my passport under a one-way mirror and wait. I was given an immigration card with stamps on it, and it was tucked into my passport.

These were among Poland's darkest days. The Solidarity movement had been crushed -- temporarily, as it turned out -- and soldiers were all over the airport. The aura of poverty overwhelmed me as the stretch diesel Mercedes swept through the capital's bleak, grey streets. The limousine drew up at the Victoria Intercontinental, by all reports the best hotel in town. As I checked in, the major hovered anxiously. It had been suggested to me that I drop the occasional "tip" to anyone who was helpful, but how much do you give a UB officer? Do you give him money at all?

I tucked a $20 bill into his hand. He almost fainted. I thought he was going to kiss the ground at my feet. He strode away, beaming.

The Polish spooks were none too subtle. In the wall of my room beside the bed was a small hole through which I could see the lens of a probing camera. I didn't worry about that so much as the lens that was aimed at the toilet seat. I covered that lens with paper.

My host for dinner that evening was a general who was head of military production in the Ministry of Defense. We went to one of the few restaurants available for foreigners. The food was supposedly French style, but I found the deep-fried fare inedible. The general didn't seem too worried -- within ten minutes he was in a happy mood from the slivovitz he had downed.

The bill came to the equivalent of $4. I was about to pay when the general held up a hand of protest.

"No, no," he said. "Do you have a $1 bill?"

I peeled off a note for him, and he strode off through a side door. When he returned, he explained that the manager had been more than happy to make the bill disappear on receipt of $1 -- his salary was only $10 a month.

Poland's education system and medical services were good, but it remained a run-down, impoverished society in which everyone was screwing everyone else, morally and physically. Foreign men never had it so good. You asked a local woman a simple question in a foreign language, somehow making yourself understood on how to get to a certain place and she'd cling to you all the way, regarding you as a potential meal ticket. I didn't involve myself -- with lenses peeping into my hotel room, I wasn't going to risk being compromised.

One day, during my discussions with various defense officials, I became desperate for some fruit. I was told that the only place I might find some was at the black market. The general took me. Even though my visit to Poland was sanctioned, I assumed we were being followed. The black market was a place where desperate Poles sold everything they owned. Anything that was new, such as mink hats or TV sets, had probably been stolen from the factory, I was told. Caviar was on sale -- smuggled out of the Soviet Union by people who had worked there. Suddenly amid the chaos I found a woman who was selling oranges, a dozen of them, smuggled in from Spain by her husband. With the help of the general, she asked me if I wanted half an orange or a whole one. I said I'd take the lot and gave her $5. I'd made a friend for life.

If you knew the right people, you could make a fortune through the unofficial money exchange. The problem for most visitors was that there was a restriction in using the black market. You declared what you had in dollars when you entered the country, and you declared how much was left when you departed. If you'd officially changed only a relatively small amount of dollars, officials assumed you'd bought zlotys on the black market -- and you were in trouble.

The official exchange was 200 zlotys to the dollar. The unofficial black-market rate was about 1,100 zlotys to the dollar. The general got me a special dispensation card allowing me to pay for everything in zlotys. He also worked out a private deal with me. He would buy dollars from me for 1,000 zlotys each. He would then sell them on the unofficial market for 1,100, making himself a nice little profit. I, on the other hand, had that dispensation card, available only to the ruling elite. It meant that, unlike other foreigners, I could buy airline tickets and pay hotel bills with zlotys. And because airline tickets were subsidized by the government -- no matter what the airline -- I could, for example, buy an Austrian airline ticket from Warsaw to Vienna, on to New York, and back to Vienna and Warsaw for $250. And with the right to pay in zlotys, the black-market exchange rate made the airline ticket even cheaper -- a round trip for less than $50!

After my introductory trip to Poland, when I established warm relations with a number of officials and expressed interest in purchasing Soviet-made Katusha shells from them, I returned to Warsaw in the bitterly cold winter of December 1984. As the snow floated down, my hosts greeted me eagerly, and I was left in no doubt that my earlier negotiations had borne fruit. The Poles said they would like to show me the factory that made Kalashnikov AK-47 assault rifles as a prelude to striking a deal. They weren't Katushas, which is what we would have liked, but there was no doubt the Iranians could use the rifles. The Iranians were happy to take anything that went bang.

The factory was in the city of Radom, some 80 kilometers from Warsaw. I thought the journey from the hotel might take an hour and a half. My friend the general, his bodyguard, and the driver of the Mercedes laughed when I mentioned this. I soon found out why. First the diesel fuel in the motor, which had frozen solid in the sub-zero temperature, had to be thawed with a small gas burner placed under the engine. Then we had to travel very slowly along a road that was thick with snow. And, of course, there were police checkpoints.

"Is there a kiosk or a restaurant on the way so I can buy some cigarettes?" I asked.

Once more they burst into laughter. "Where do you think you are -- America?" the general asked.

The journey took four hours. Radom was a rail junction with smoke billowing from tall factory chimneys. Everything was grey, even the snow. At the munitions factory, we were taken to the top floor where the offices were located. I was received by an enormous fat man, who was introduced to me as the manager and who also happened to be the local Communist Party boss. He spoke no English but managed "Welcome, welcome, welcome ... "

I presented him with the three bottles of Johnny Walker whiskey that I had brought, and he led us to a large room, which he explained through a translator was his "gift room." It was full of shelves packed with whiskey.

"These are gifts from our friends," he said. "But there is nothing here from Russia. The Russians don't bring anything worth keeping."

Onto the side of my bottles he stuck a label on which he had written "Israel." Other packages had labels in Polish reading Germany, France, Libya, and Syria. Those packages revealed a lot. You could see from the boss's gift room who was doing business with him.

He brought out four bottles of slivovitz -- potent plum brandy -- and led us to the dining room for lunch. The driver and the bodyguard had to wait in the outside lobby. A table had been prepared -- a grand feast of meats and seafood that would have fed ten Polish families for a week. I sat next to the English-speaking production manager, facing the manager and the general.

Within 15 minutes the general and his Party companion had managed to drain two of the bottles. Meanwhile I talked to the production manager, a soft-spoken, sensible man. He told me about the factory. Many of the residents of Radom worked on the premises, which produced typewriters, sewing machines, and Kalashnikovs. He ordered a woman assistant, who was hovering to make sure our table requirements were met, to bring out a typewriter. A few minutes later a bright yellow manual contraption was placed in front of me.

"Do you make an updated model of these?" I asked, thinking he was showing me an antique.

"Nothing is fresher than this one," the production manager proudly replied. "This has come straight off the production line. These are very popular all over Poland."

When I asked him about word processors, he said they were no good because they were too unreliable. Polish typewriters were the best. Everybody bought them. Nobody was interested in other models, it seemed, and I soon found out why. No others were available.

"Take it," he said, pushing the machine toward me through the plates of food. "This is our gift to you." I didn't have to ask whether the sewing machines were electric, and later I saw the foot-pedal versions the factory produced.

We finally got around to talking about Kalashnikovs. A sample was ordered, and we cut a deal then and there for 100,000. I knocked them down from $95 to $81.50 each. It was a bargain -- spanking new weapons with a cleaning kit and two empty magazines. They were the cheapest Kalashnikovs ever bought.

The factory had to get the go-ahead from Cenzin, the arms export department. But I was assured that as long as they had a sale and there was money coming in from which officials could take their personal cuts, the price at which they were sold was irrelevant.

At about 3:00 P.M., with the deal in the bag and the fat man and the general standing up shouting "L'chaim Israel" -- Long life to Israel -- I decided it was time to go, even if I was being told over and again that Israel and Poland were now blood relatives. The Poles have a long tradition of anti-Semitism, but that seemed to have been forgotten for the time being. They couldn't do enough for me -- even ordering the last of the anti-freeze at the local fire station to be delivered to the factory so it could be poured into the Mercedes to prevent any problems "for our beloved guest" on the return journey.

"What if there's a fire?" I asked.

"If there's a fire," said the production manager, "those irresponsible residents will be thrown into jail for being careless when the fire station was out of anti-freeze."

With the fluid in the car, a "Radom Industries" tie around my neck, a "Radom Industries" photo album under my arm, and the yellow typewriter on my lap, we headed off for Warsaw. I must be jinxed when traveling in other people's cars. Some 30 kilometers along the road, we broke down. It may have been because the Mercedes wasn't used to anti-freeze, but whatever the reason, we found ourselves immobile on the snow-packed road. For the well-sloshed general, there was no problem.

He drunkenly waved down the first car he saw, flashed his ID, told the astonished driver that this was a military emergency, and ordered him to drive us to Warsaw. We left the bodyguard and the driver with the Mercedes ... and the yellow typewriter.

"It's all yours," I whispered to the delighted bodyguard. There was no doubt he would soon be down at the black market selling it.

The driver of the commandeered car was paid well -- I gave him $20, and the general gave him a note to show to the police check points on his return journey to explain what he was doing in Warsaw with Radom registration plates.

Anything could be bought. Even the woman in the phone room at the hotel. There was only one international line available for the whole premises, and I ensured I had it plugged through to my room during the night by paying the woman $5. I told her there would be another payment in the morning if she didn't disconnect me. She came to my room before breakfast, promised that I could have the international line every night, then lay on the bed. She knew about the camera, but didn't seem to care. I knew about the camera and did care. I thanked her for her services, made her another payment for the phone, and ushered her out.

The hotel security officer approached me later and said: "You know the phones are tapped."

"Yes!" I said, "I know."

"For $10 I can arrange to give you the tapes of the phone."

"Look, here's $10 for nothing. I know what I said. I don't need the tapes."

Back in Israel, the Joint Committee decided we needed to put up another smokescreen to cover our dealings with Poland. None of us had any doubts that my visits to Warsaw had been monitored by various intelligence agencies. With the cooperation of the Poles, I pulled in my unfortunate dupe, Arieh Jacobson, and explained that Israel was hoping to buy Katusha shells from Poland to sell to the Iranians. Believing that he would make a fortune, he traveled back and forth to Poland and Vienna, meeting various Poles and Iranians and trying to hammer out a deal. John de Laroque also got arms dealer Richard Brenneke running around on the same kind of futile errands. And all the time, of course, the real negotiations were going on right under everyone's noses.

We continued to purchase Kalashnikovs. But Iran was now desperate for Katusha shells. Although they do not cause much physical damage, they wreak enormous psychological havoc with their terrifying whistling noise. The launchers can be used from the back of a truck, and can be reloaded every minute with 40 shells, which are all fired at once. We estimated that the Iranians had some 1,700 launchers, while the Iraqis had more than 2,000. Clearly, there was an endless need for Katusha shells.

While Israel was running low on supplies, we knew the Poles had Soviet Katusha shells to sell -- but they had only 50,000. We were eventually able to strike a deal in which the Poles sold them to us for $800 each, and we sold them on to Iran for $1,100, including transport fees from Poland to Yugoslavia.

Such inventive deals led Rabus, the Austrian, to call Katusha shells "the dollar machine," a term that was picked up and used frequently in Israeli intelligence. When I first heard it, I must confess I was a bit taken aback. I had originally gone into arms dealing with a political purpose in mind -- stopping Iraq -- but several years later, I saw that it had indeed become a big moneymaking proposition, "a dollar machine," and the original goal had been obscured.

***

While the arms sales were running smoothly, there was chaos on the Israeli political front. The 1984 elections had ended with neither of the two major parties, Labor or Likud, able to establish a government with a majority in the Knesset. Both parties started jockeying for support from the small religious parties on the one hand and the leftist parties on the other. But the leaders, Yitzhak Shamir in Likud and Shimon Peres in Labor, soon realized that these small groups had no loyalties -- they were shifting back and forth to see what they could get. So Shamir and Peres met and came up with a bizarre coalition agreement.

The basic term of the agreement was that the major portfolios would be divided up. For the next four years, Defense would go to the Labor Party and Finance and Housing would go to Likud. But the portfolios of prime minister and foreign minister would be shared by Peres and Shamir, with a swap after the first two years. Peres would be prime minister until 1986, and during those two years Shamir would be deputy prime minister and foreign minister. Then they would switch roles, with Shamir becoming prime minister and Peres stepping into the role of deputy prime minister and taking on the foreign minister's portfolio for two years.

The biggest mistake the Labor Party made was in thinking they were doing themselves a favor by allowing Finance to go to Likud. At the time, inflation was running wild and Labor was glad to be rid of the headache. But by giving up Finance and Housing, Labor was handing over the two biggest portfolios to Likud.

Calling itself the National Unity Government, the new coalition brought in other parties. These had no bargaining power, but two of them that got portfolios were orthodox parties -- Shas and Mafdal -- whose allegiance was more to Likud than Labor. So the balance of this coalition agreement was in favor of Likud.

There was one other vital factor to be considered. Even though the Defense Ministry was under the control of Yitzhak Rabin, a rival of Peres's within Labor, the intelligence community of Israel was controlled by Likud through various funding arrangements. The key people in the intelligence community had all been changed after Begin took over in 1977. They were now all Likud loyalists, and there was no way they were going to be removed, because the Likud was still in the coalition. So an extremely difficult situation had arisen for Peres, the Labor Party leader. While he had achieved his desperate ambition to become prime minister, even if it was to be for only the next two years, he was taking control of an intelligence community that had no allegiance to him.

The coalition was strange on another level: On the main issues of foreign policy and peace negotiations with the Arabs, the parties were deadlocked. They agreed not to agree.

The level of trust between the two parties was very low. The Joint Committee was, of course, also still controlled by Likud appointees. With the Labor Party of Shimon Peres in power, we had a genuine fear that the Americans or Peres's office were trying to find out where the slush fund bank accounts were held. With this in mind, the director of Military Intelligence at the time, Ehud Barak, instructed the committee to enlist the help of two very influential men -- Robert Maxwell and Viktor Chebrikov, chairman of the KGB.

Arrangements were made for me to meet them in London in the spring of 1985. The meeting was held in Maxwell's office at the Daily Mirror. Maxwell had been cooperating with our arms business for more than a year by then, allowing his businesses to launder money for us and winking as his foreign editor, Nick Davies, carried out assignments for us. But Maxwell never got directly involved in the details of the arms deals. Mostly, his function was to open contact to the East Bloc for us. And that's exactly what he did in this case. For a KGB leader to slip secretly into a British newspaper publisher's office might seem a fanciful notion, but it was achieved with great success. At the time, President Gorbachev was on very friendly terms with Prime Minister Margaret Thatcher, so it was acceptable for Chebrikov to be in Britain.

The meeting was arranged for 8:30 A.M. -- at least an hour before the main editorial staff started arriving. Chebrikov was driven into the ground-level garage at the Mirror building and took an elevator straight to Maxwell's floor. If Chebrikov had been spotted, Maxwell had an explanation ready. He would have instantly admitted the meeting and pointed out that he was backing the new thinking in the Soviet Union. He would say, quite rightly, that he was behind social democracy in the Soviet Union because that was the example the British Labor Party had set.

There was one other person present at that meeting -- Mossad Director Nachum Admoni. Our purpose was to ask for assurances from Maxwell and Chebrikov that large amounts of the slush fund could be banked behind what was still known then as the Iron Curtain. Tucked away in the East Bloc, in the Soviet Union and Hungary, we knew it would be safe, as long as we could get hold of it when necessary. This was why we needed Maxwell, with his connections in the communist countries, and why we needed Chebrikov, with the power he wielded. I had no fear that the Soviets would snap up the funds -- Chebrikov's involvement was as good as receiving a government guarantee.

Maxwell, via his Berlitz Language School, was to be the conduit for moving the money -- the company was teaching languages in the East Bloc under various government institutional names. Chebrikov was happy to receive the money and become its guardian, because it meant hard currency in the bank until such time that Israel decided to pull it out. It was agreed that $450 million would be transferred from Credit Suisse to the Bank of Budapest in Hungary. A firm of accountants in London, who had control over the money on Israel's behalf, would arrange for the transfers. In addition to using Berlitz as a conduit, Israel also used a company called TransWorld, located in Canada -- which sold Promis -- to funnel money to the East Bloc.

It was agreed that the Bank of Budapest would disperse the $450 million to other banks in the East Bloc, and just to be safe we asked for a Soviet government guarantee. If anything went wrong, the Soviet government would make good the money in U.S. dollars, not rubles.

Maxwell was going to do well out of the arrangements. He received a flat fee of $8 million. In addition, whenever one of his companies was involved in transferring arms money, he would receive two percent of the gross. It was to bring him many millions of dollars.

The meeting in Maxwell's office lasted for about an hour. It was an important gathering because it marked a milestone in the relationship we had with the Soviet Union and its satellites. Before we parted, Chebrikov, who was also a member of the Soviet Politburo, gave Admoni a letter to be passed to the Israeli deputy prime minister at the time, Yitzhak Shamir. The contents are not known to me.

A few months later Chebrikov's relationship with Israel got closer in a most unexpected way. In late 1985 the Israelis stole almost a whole MiG-29, which had been standing dismantled in crates in the port of Gdansk in Poland. A Polish general, who had been involved in the Iran arms sales, had been paid to make sure that the plane, due to be shipped to Syria, was actually flown to Israel on a Soviet transport plane that had been used by the Poles for the Iranian arms. So Israel found itself in possession of the secrets of the most sophisticated Soviet MiG fighter to date.

One of the general's juniors found out about the missing crate, and it was reported to the Soviet Union. A furious Mikhail Gorbachev dispatched Chebrikov to Israel in February 1986.

The KGB chief met with Yitzhak Shamir, then deputy prime minister and foreign minister, and it was agreed that the aircraft parts would be flown back to the Soviet Union, that relations between Israel, Poland, and the Soviet Union would continue, and that nothing of the episode would be made public. The Polish general, meanwhile, was given political asylum in the U.S. following the intervention of the chief of Mossad, in return for the Americans receiving photos and details of the plane.

It was while Chebrikov was in Israel that the cordial relations between him and Shamir were cemented. Chebrikov paid only a courtesy call on Prime Minister Peres -- he was not too keen on talking to the Labor Party because he felt they were being controlled by the U.S.

The KGB chief found common ground between Soviet interests and the Likud Party, particularly when he realized the strength of Shamir's anti-American attitude.

As a result of the Chebrikov meeting in Maxwell's office and Shamir's new friendship with the KGB man, things started moving very fast with the communist bloc -- Poland, North Korea, Vietnam, and others -- in terms of arms purchases and money transfers. On receipt of their weapons, the Iranians continued to hand out a fortune, which Israel quickly moved to the East, using Maxwell's companies.

It worked like this: The Iranian Bank Melli would issue a letter of credit on behalf of one of Israel's arms companies -- they were all run under our mother company, Ora -- and we would ask the foreign transfers department of the National Westminster Bank in London to guarantee it. We would deposit it in a Western European bank until cashing day came along, and the money would then be sent to the East Bloc. Direct cash payments moved faster, of course, going immediately through Maxwell's companies. If Israel acted on behalf of the Americans, selling their weapons to Iran, the money was paid into a CIA account at the International Bank of Luxembourg. When extra funds were needed by Shamir for Likud Party purposes, Maxwell's companies were used to bring the money out again. It would go to bank accounts in Luxembourg and Geneva, payable to Likud.

***

With all the new financial arrangements neatly in place, and with Israel's relationship with Warsaw cemented, we received a request from GeoMiliTech, a Washington-based CIA "cutout," or front company, run by former Gen. John Singlaub and his friend, Barbara Studley. GMT had an office on Weizman Street, Tel Aviv, run by Ron Harel, who presented himself as a former fighter pilot colonel in the Israeli air force, although in reality he was a former helicopter navigator.

By phone, the Joint Committee checked with Robert Gates if it was okay for us to deal with GMT. He told us he would be happy for that to happen. What GMT wanted was East Bloc weapons for the contras, who were fighting the Sandinistas in Nicaragua.

When the Poles heard their weapons were needed for a rightwing guerrilla group, they were very hesitant -- but then came back and agreed to sell us anything we wanted as long as it was in stock. There was one condition: that they, in return, receive U.S. equipment requested by the Soviets -- two General Electric engines of the type fitted in U.S. tanks. I didn't know how the U.S. was going to react to that, but put the Polish request to Ron Harel. America's response did not take long: the CIA was in agreement.

On May 15, 1985, Nick Davies drew up the list of weapons the contras wanted. It was:

5,000 AK-47 M-70 automatic rifles totaling $1,050,000; 50,000 spare magazines for the rifles totaling $450,000; 5 million rounds of 7.62mm ammunition, $550,000; 200 60mm mortars (commando type), $310,000; 5,000 60mm mortar shells, $185,000; 100 81mm mortars, $525,000; 2,000 81mm mortar shells, $104,000; 1,000 anti-personnel mines, $68,000. Total cost to GMT: $3,242,000, which included a tidy profit for us. (For example, the AK-47s we sold for $225 had each cost us only $81.50.)

The Poles, of course, did not want to be identified as the suppliers and said they would provide arms that were either unmarked or of Yugoslav origin. We found out later from our contacts that GMT actually got $5 million for the deal and that their books showed that $5 million had been paid to Ora. In fact, we had been paid "only" $3,242,000. It would be interesting to know what happened to the difference.

For the Iranians that year, 1985, we bought from the Poles a large number of RPG (rocket-propelled grenade) launchers, RPG-7 rockets, AK-47 ammunition, SAM-7 anti-aircraft missiles, 60mm mortars, 81mm mortars, and naval materiel. The Iranians continued to insist on Katusha rockets, but the Poles and the Yugoslavs couldn't supply more than 50,000. The Iranians pointed out that North Korea produced Katusha rockets and that perhaps Israel could get them from there. Israel's relations with that country were non-existent, but I worked on a simple philosophy: There was always a way.

I told my Polish contacts at a meeting in mid-1985: "You broker for us with the North Koreans, and we'll buy."

Cenzin called the North Korean military attache to their office to meet me. He refused. He had no authority, he said, to meet with Israelis. He did finally come to the Cenzin building, but insisted on sitting in a separate office while my Polish contacts ran back and forth relaying messages from me. He continued to refuse to see me, and I decided enough was enough. I got up, acted insulted, and told the Poles I was going back to my hotel.

"But what about the North Korean?" I was asked.

"Fuck him," I replied. "And tell him what I said. Oh, please also relay to him that I'm sitting on a billion dollars, which is probably larger than the annual North Korean budget."

Two hours later the Poles came to pick me up. The attache, they said, had telexed P'yongyang and he was now permitted to meet me face to face. I insisted I would only meet him in my hotel room.

The attache, a slightly built, serious-faced man in his mid-40s who spoke Korean and Polish, arrived with a Polish-English translator. While mouthing niceties, he made his political points: "We have nothing against Jewish people, except for the fact they suppress Palestinian rights. Americans we don't like. The atrocities committed by Americans in my country are unbelievable. My parents were both killed by American bombs."

When he was a young boy, the attache and many other parentless children had been evacuated to an orphanage in Poland during the Korean War. He'd spent most of his childhood in that institution. Between his reminiscing, we talked rockets -- Katusha rockets. North Korea could let us have 200,000, but he conceded that the only person with the authority to close the deal was the North Korean defense minister. And no, it wasn't possible for me to talk to him by phone -- everything had to be done by telex. I insisted I meet the defense minister personally.

The attache chuckled. "He cannot come to Poland. And we cannot let an Israeli citizen visit Korea. It has never been allowed."

"OK, but if you want a deal, he and I have to meet."

"Not possible on your Israeli passport."

The Poles offered to give me a Polish passport, which would get me into North Korea. I rejected this. Traveling to North Korea would mean flying over the Soviet Union, and if anything went wrong, I wanted the protection of my own country. After more telexing, I was told the defense minister might be able to come to Poland to see me at a later date. I pointed out that was too far off, and I told the attache, "We'll remain friends -- but I don't think we can do business."

I made plans to return to Israel. There were no more deals I could strike with the Poles -- we'd wiped them out of everything. But at 10:00 P.M. my Cenzin contact showed up at the hotel.

"Ari," he said, "I have good news for you. You can go to North Korea."

I was told that the North Koreans had issued a visa for me. The Soviets had already been contacted by the Poles, and the Soviet Embassy in Warsaw had issued a one-month transit visa to fly over the Soviet Union to P'yongyang. We had to leave in the morning. We would fly from Warsaw to Moscow and then fly on to Chabarovsk, in the eastern Soviet Union, in time to connect with the once-a-week flight to P'yongyang.

I hadn't been given permission by my superiors to go to North Korea, but I felt the deal was so important that I had to make an "executive decision." I phoned a Mossad contact in Vienna and asked him to tell the committee my travel plans.

My Cenzin friend and I flew with the Polish airline LOT from Warsaw to Moscow. The Aeroflot flight to Chabarovsk left two hours late, and then the plane made an unscheduled stop somewhere in the middle of the Soviet Union. When we finally touched down at the tiny airport at Chabarovsk, we were too late to make the onward connection. The plane to P'yongyang had gone. And that left us with a few big problems.

For a start, my Polish companion was terrified.

"What are we going to do?" he asked me, an Israeli who had never been to this part of the world before. "The people who live in this region are uneducated barbarians. We'll be murdered in our sleep."

"Don't worry," I said, staring around the bleak airfield at the soldiers on guard duty. "We probably won't be able to find anywhere to sleep anyway." Although we were into summer, a chilly wind swept across the runway.

A second problem was money. I had only U.S. dollars and zlotys. The Pole had only zlotys. We went into the stark terminal building. Rosy-cheeked people with Mongolian features stared at us as if we were visitors from another planet.

"Is there a telephone here?" I asked.

But of course there wasn't. However, with the help of an airport official we found a telex machine and, with some difficulty, managed to punch out a message to the Pole's office.

Within two hours we had an answer back. A Cenzin official who received the message acted promptly and contacted the North Koreans. They in turn sent a message back to Warsaw asking the Poles to inform us that a plane would be sent from P'yongyang the following day to pick us up. Things were looking brighter.

We had also found out that there was an Intourist hotel in town. For a pack of Marlboros, one of the airport officials drove us into the center, a sprawling cluster of drab concrete buildings.

The matronly woman at the hotel reception desk waved away the $100 I offered and physically turned away at the sight of the zlotys. Then I produced a Parker ballpoint pen, indicating it was for her. She fell in love with it and used it to sign us in, a single room for each of us, with food included.

Later, as we stood in my room discussing how we would spend the next few hours, there was a knock on the door. A burly man entered, a Muscovite who spoke perfect English. He shook hands and introduced himself as the chief of district security -- in other words, the local KGB boss. He wanted to know how an Israeli had got this far and had managed to get a visa to North Korea.

That evening he took us out on the town, which wasn't much to see, unless you liked watching people drink vodka. I wasn't sad to say farewell to Chabarovsk the following morning as I boarded the North Korean military plane that arrived exactly on time.

The North Korean defense minister himself came to the P'yongyang airport to meet us after the two-hour flight. He was proud to welcome us to his very modern city, a relief after the drabness of Chabarovsk.

I cut a deal for 200,000 Katusha shells. Israel would deposit the money in U.S. dollars in a numbered bank account in Austria -- the North Koreans were not willing to be paid through East Bloc banks. And then the shipping would start from P'yongyang direct to Iran. The charge would be $600 each, and for shipping to Bandar Abbas there would be an additional $15 a shell, insurance included. More shells could be provided, he said, but it would take some months.

In the meantime, I asked the defense minister if he could arrange for me to go to Vietnam to buy more. After three days a visa to Vietnam had been arranged. I said I would put it to use in about six weeks or so after I'd returned to Israel.

A month later, I went back to Poland, picked up a visa to travel through the Soviet Union, and flew from Moscow to Hanoi. On my shopping list were not only Katushas but a number of American C-130 Hercules cargo planes -- war booty left by the South Vietnamese army after the war. I spent two weeks in Ho Chi Minh City, setting up the purchase of 400,000 Katusha shells and a number of SAM-7s, payment to be coordinated through the Vietnamese Embassy in Warsaw.

On inquiring about the C-130s, I was taken to a military airfield outside Ho Chi Minh City. The huge aircraft sat there, sad, silent relics of a war that had brought so much death and devastation. I clinched a deal to buy 85 of the planes, but I did not have the technical know-how to choose the best ones. In December, a team of experts from the Israeli Air Force and Israel Aircraft Industries was flown to Warsaw and then, with a Polish representative, traveled to Vietnam. They spent a month in Ho Chi Minh City checking over the aircraft and arranging for their shipment.

With their wings, engines, and propellers dismantled, the aircraft were shipped to various countries for repairs. As a safeguard, the crews of the Liberian vessels involved were changed in mid-ocean, so that when they arrived at their destination they were unable to tell anyone where the vessel had originated. Twelve of the aircraft ended up in the care of North West Industries in Canada; others went to Western Australia; still more were shipped to Israel. It was a massive operation, but Iran got its planes. The Vietnamese had sold them to us for $200,000 each. It cost us $2 million each to fix them up. We sold them to Iran for $12 million each.

The Americans didn't get a cent, even though originally these were their aircraft. According to the Geneva Convention, any military equipment you capture is yours, so the Vietnamese were free to sell them to whomever they wished. The Americans could not believe how Israel had had the gall to go to Vietnam, buy U.S. made planes, repair them, and sell them for a fortune.

In times of war, sometimes you win, sometimes you lose. And sometimes after the event you go on losing.

***

While I was traveling through Poland and across the Soviet Union in 1985, an interesting situation was developing on another front. Israel and Nicaragua were engaged in undercover contact on the possibility of reopening diplomatic relations. These secret talks with the Sandinista government had actually begun three years earlier.

In 1982, the Nicaraguan government had reached a tentative agreement with Israel under which they would cut ties with the PLO and the Israelis would help the Sandinistas in the U.S. Congress -- Israel would act as a go-between with the Sandinistas and the Democrats. But this plan did not come to fruition. Ariel Sharon, then defense minister, was involved with a group of businesspeople in Central America, who were supplying arms to the contras in their efforts to overthrow the Sandinista government.

Just before the announcement of the renewal of diplomatic ties between Israel and the Sandinistas, Sharon decided to take a private holiday on the border between Nicaragua and Honduras, close to the contra camps. A more unlikely holiday spot I could not imagine. Sharon's actions, of course, sabotaged the exchange of ambassadors between Israel and Nicaragua. The Sandinistas didn't realize that although Sharon was a government minister, he was also an independent entity as far as his relationship with the contras was concerned. The question must be asked whether he took his holiday at the suggestion of the CIA, which was supporting the narco-terrorists in their push to overthrow the Nicaraguan government.

Now, three years later, as a result of our dealings in Warsaw, the Poles, who were in contact with the Sandinistas and who had technical advisers in Managua, came up with an interesting proposal. They suggested that Israel should balance the struggle by supplying the Sandinistas as well -- without U.S. involvement.

The Sandinistas needed an air force, and they had no money to set one up. Israel was very interested in the Polish idea, and so Tel Aviv proposed that, even though official diplomatic relations with Managua were cool, a number of Soviet-built MiG-23s be purchased in Angola, with the Poles acting as brokers. The Soviets couldn't sell the Nicaraguans any planes because the U.S. had threatened to invade the Central American country if they did.

But now Israel was planning to go behind America's back. The proposal was that we spend $28 million from the slush fund to buy the Sandinistas eight used MiG-23s held by the Angolans. The Poles would maintain them. There was a lot of interest in this deal, but despite the fact that they had initiated it, suddenly the Poles changed their minds, suspecting that the Israelis were trying to set the Sandinistas up. If the MiGs arrived in Nicaragua while the war fever against the Sandinistas was heating up in Washington, we would be giving the U.S. government the excuse needed to invade, the Poles believed.

"We suspect Israel is acting as a U.S. lackey," I was told by one of my Polish contacts. The deal fell through. Fortunately, it did not damage our overall relationship with Poland.

***

In December 1985, I was on one of my frequent trips to Poland. I had just spent some time with Freddie and Herut, but now they had gone for a visit to her family in Nicaragua. As I lay in bed trying to sleep in a freezing cold hotel room in Warsaw, the phone rang. I reached out into the darkness and grabbed the handset. The caller's chilling, final words haunt me still.

"They're dead, Ari ... Freddie and Herut are dead."

I have experienced much in my life. I have taken the bad with the good. But I cannot clearly describe how I felt then ... in that midnight moment something in me died too.

I sat up in the darkness. Sweat poured from my body. I knew even then that it was not an accident.

She was traveling to visit a friend, I was told, a woman doctor who was working in a number of newly established clinics in the villages of Nicaragua. The car Freddie was driving had been hit by a stolen truck in a head-on collision. The driver had escaped in another car and was never found.

There was a funeral in Nicaragua. I didn't go. I was too shattered by loss and guilt. I had never spent enough time with either of them.

It is painful for me even today to think of Freddie and Herut. At the time, I was in shock. I knew no other way to escape from it than to throw myself into my work.

***

Because I was the junior member of the committee, I was the gofer who had to physically search the world for aircraft and weapons that could be bought by Israel and sold to Tehran. Other committee members did their work by phone and telex. The summer before Freddie's and Herut's deaths, in August 1985, we had learned that the Ethiopian government of Mengistu Haile Mariam had a number of old F-4 and F-5 U.S. jets that were grounded because of their poor condition. Even though relations with Israel had been cut in 1978 as Mengistu leaned toward the Soviets, Israel had remained in contact with Addis Ababa.

After back-channel lobbying and help from the Poles, I was told that an audience had been arranged for me with Chairman Mengistu himself. I traveled to Addis Ababa with an Israeli Air Force expert, and we were invited to inspect the aircraft before we saw the Ethiopian leader.

We were driven to a steamy airfield outside the capital where 12 forlorn F-4s were parked, their bodies rusting, engines dead, tires rotted.

"I don't fancy going up in one of those," I told my companion. He kicked one of the wheels. Flakes of rust fell away. "Let's see," he said. "Our people are very good."

Mengistu, who had risen up through the military, greeted us warmly. A thin, handsome man in his late 40s, he struck me as an intellectual who honestly believed in his Marxist revolution. His country was poverty-stricken, he conceded, "but when the revolution is on track, everything will be all right."

We got down to discussing the planes right away.

"You are welcome to the F-4s," he said. "The price is $250,000 each."

He added that the money should be paid in advance to a Swiss bank account.

I told him I would get back to him. As we were about to leave, he mentioned there were 19 F-5 aircraft for sale, too. My colleague and I went back to the airfield and inspected the planes. This time he shook his head.

"No hope whatsoever," he said. "But, with a lot of work, the F-4s can be fixed."

On our return to Tel Aviv I contacted the Iranians. They weren't willing to buy the jets until after Israel had refurbished them. But the Israeli government wasn't going to fix them up without an Iranian commitment to buy. We had reached a stalemate ... until the Poles came up with a solution. They would find a financier for the planes. I traveled back to Warsaw, where I was introduced to Hans Kopp, a Swiss businessman and the husband of the Swiss minister of justice.

Over dinner, I asked him, "Isn't there going to be a problem for you? According to Swiss law, there must be no financing for arms because you're a neutral country."

He laughed. "Don't worry about it, my friend. It's a grey area. The financing will come through 'paper' companies."

While still in Warsaw, I called one of my Iranian contacts, Dr. Omshei. I extracted a commitment from him that if the Ethiopian F-4s were to be repaired to a reasonable condition, the Iranians would accept them. The Poles then arranged a three-sided meeting between Mengistu, Kopp, and myself. With the Swiss financier, I flew back to Addis Ababa. We negotiated Mengistu down to $150,000 a plane.

He continued to talk about the hopes he had for his revolution.

"It doesn't look too good at the moment," I told him.

He shrugged. "There is a price to pay for every revolution," he said.

Mengistu gave me a secret bank account number in Switzerland, and I flew back to Tel Aviv. There, arrangements were made for a logistics team to travel to Ethiopia, truck the planes to the port of Asmara and then move them to Israel for refurbishing. It was a big logistics problem, but as my earlier companion had said, our people were very good.

The 12 planes were going to cost a total of $1,800,000, and we were happy to be using a middleman's money, because we were sensitive that, even though the aircraft were more than 20 years old, the Americans might still get upset. Using someone foreign was perfect.

What we decided was this: Hans Kopp would "paper out" -- document a false trail -- $1.8 million to a French aircraft broker, SFAIR, which had offices in Paris and at Marseille airport. The man the deal was papered through was Daniel J. Cohen, technical manager of SFAIR at Marseille. (Coincidentally, Dan Cohen was the alias Gates often used.) We asked him to put the money into a special account at Banque Worms in Geneva. In the documentation, the deal looked like it was concluded with SFAIR. In fact, the money moved secretly onward to Mengistu's account, which was handled by General Trust Company, with offices at Badener Strasse 21, in Zurich.

Before the money was deposited, Israel reached an agreement that Kopp would actually be paid $250,000 for each plane -- meaning he was making $100,000 on each. But without him, the deal might not have gone through, particularly as the export to Iran was going to be run through him.

Everyone realized that it could be a year before the aircraft were in a fit state to be sent to Tehran. Apart from the financial side, there was still a lot of groundwork to be covered.

As soon as the money was deposited with GTC, Israel, in coordination with the Ethiopian Embassy in Italy, sent an Air Force logistics team to Addis Ababa. During the transit of the F-4s to Asmara, we reached a deal with the Iranians that the refurbished versions, with new engines, would be sold to them for $4 million each.

While all this was going on, another fantastic smokescreen was started up to disguise the true negotiations. John de Laroque paid the expenses of arms dealer Richard Brenneke to fly from Portland, Oregon, to Europe, where he became involved in looking for financing for 19 F-5s from Ethiopia. Intelligence agents from other nations watched carefully, unaware that a real deal had already been struck. To add to our good fortune, Brenneke bragged to a U.S.-based correspondent for the Swiss magazine SonntagsBlick that he was involved in buying the planes through Hans Kopp's office.

The magazine gave the story prominence. Kopp immediately sued the publication because the reality was that he had done no deals with Brenneke and had no intention of doing so. He'd already finished his work. Kopp pursued the suit as a show because of the position his wife held.

Apart from those who were duped, everyone did well. Iran had a new supply of aircraft, Kopp made his profits, the Poles got brokering fees, Mengistu boosted his bank account, and the Israeli slush fund ballooned. The Israel-Iran Joint Committee paid $1 million per plane to Israel Aircraft Industries for the refurbishing, and that, along with other costs, including the purchase, brought the outlay on each aircraft to $1.5 million. But we sold them to the Iranians for $4 million each. Our profits were deposited in the bank accounts we set up around the world.

Once again, the Americans didn't get a penny out of it. The jets were over 20 years old, and under the strategic agreement that had been signed with Israel we had every right to buy and re-sell them.

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