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A petty turf battle within the CIA turned a potential opening to Iran into a misbegotten arms-for-hostages deal that fell apart because of the squabbling and led to disclosure of the Iran-contra scandal. That is the contention of one of the factions that are still feuding hotly over the foreign policy disaster. As reports circulated about the imminent retirement of CIA Director William Casey, who is suffering from brain cancer, the agency itself is agonizing over its handling of the Iran initiative.

In this version of how the Iran affair unfolded, the CIA turf argument evolved into a dispute over whether to trust Manucher Ghorbanifar, the expatriate Iranian merchant and middleman who had offered to help the U.S. establish contacts in Iran. CIA activists in the agency’s counterterrorism program supported the use of Ghorbanifar but eventually were outmaneuvered by the agency’s Middle East operations officers, who waged a campaign to discredit the Iranian. Once Ghorbanifar was cut out of the delicate negotiations and the operatives at the Iran desk had prevailed in their efforts to have the U.S. bargain directly with Iranian officials, the whole enterprise went sour. Infuriated, Ghorbanifar then urged an Iranian faction to leak the story of the whole sorry affair.

Ghorbanifar’s value went far beyond negotiating a hostage swap. So say several CIA sources and, not surprisingly, Ghorbanifar as well. Insists one operative: “For years we had tried to recruit, to no avail, a simple Islamic revolutionary guard. Nobody in Iran wanted to touch the U.S., especially the CIA. Then this guy ((Ghorbanifar)) comes in and delivers for discussions practically anyone we ask for.”

U.S. dealings with Iran have been portrayed as an overture to moderates led by Speaker of the Parliament Hojatoleslam Ali Akbar Hashemi Rafsanjani. Actually, CIA sources say, Ghorbanifar had persuaded the entire political leadership of the Islamic republic, including Prime Minister Mir Hussein Mousavi and Ayatullah Hussein Ali Montazeri, designated successor to Ayatullah Ruhollah Khomeini, to assent to secret contacts with the U.S. Two reasons: the Iranians feared the Soviet threat more than any from the West; and they hoped that American arms would soon follow improved relations with the U.S.

This story is supported by Mansur Rafizadeh, a former high official in SAVAK, the Shah’s secret police. Long a double agent serving both SAVAK and the CIA, Rafizadeh worked solely for the CIA after the Shah fell from power in 1979. According to Rafizadeh, Ghorbanifar first came to the CIA’s attention in late 1980 when the Carter Administration was desperate to win the release of U.S. hostages from the seized American embassy in Tehran. George Cave, a retired CIA agent then working under a contract with the agency, asked Rafizadeh if Ghorbanifar could help. The former SAVAK agent advised Cave that Ghorbanifar was “one of the cleverest businessmen I have known. He has the habit of coming in as a partner and then taking over the whole operation.” Rafizadeh told Cave that Ghorbanifar would never agree to work as a subservient CIA agent. “Then forget it,” Cave replied. In a 1981 memo to CIA headquarters, Cave described Ghorbanifar as “unreliable.” Contends Rafizadeh: “Anyone who refuses to take orders from the CIA is considered unreliable.”

Cave’s negative view of Ghorbanifar failed to prevent the Iranian from becoming the linchpin of the covert operation. By November 1985 the Israelis, who had checked out Ghorbanifar at the request of Adnan Khashoggi, a Saudi Arabian businessman who deems himself a peacemaker, had convinced the NSC staff that Ghorbanifar was too well connected in Iran to be ignored. The NSC undertook the Iran initiative, with the now obviously disastrous results.

To the CIA fell the task of logistical support, including transport, banking and hiring specialized agents. CIA Director Casey entrusted the task to the counterterrorism section, which in January 1986 he put under the direction of his longtime favorite, Duane (“Dewey”) Clarridge. Charles Allen, the agency’s chief analyst for counterterrorism, was made Clarridge’s deputy.

These moves were resented by the Iran desk, including Larry Larkin, one of its senior officers. Aware of the friction and needing the expertise of the desk’s operatives, Casey offered them part of the action: they were asked to assess Ghorbanifar. Larkin first attempted to recruit Ghorbanifar as a CIA contract agent, which would put the Iranian under his control. When Ghorbanifar refused, Larkin and his colleagues set out to discredit him. This deepened Ghorbanifar’s long-standing distrust of the CIA.

The CIA sources contend that it was mainly the operatives at the Iran desk who transformed the idea of an arms-hostage exchange, originally ^ conceived as a test of mutual goodwill, into a principal objective of the dialogue with Tehran. This mistake eventually left the initiative mired in Iranscam. Says a recently retired senior CIA official: “Covert operatives despise grand strategy. They prefer tangible results that make them look good.” The arms swap was sharply opposed by both Clarridge and Allen.

When former National Security Adviser Robert McFarlane, North and the CIA’s Cave flew into Tehran with a planeload of U.S. arms last May, Cave still distrusted Ghorbanifar and managed to underscore doubts about him in McFarlane’s mind as well. While in Tehran, Cave bypassed Ghorbanifar to cultivate a direct contact with Speaker Rafsanjani. He was sufficiently successful that McFarlane, too, felt he no longer needed Ghorbanifar.

“The President has instructed me to return home with all the hostages,” McFarlane told Ghorbanifar. The middleman insisted there had been a deal to deliver only two of the four Americans. “We reached an agreement and shook hands yesterday,” Ghorbanifar protested. Replied McFarlane: “There is no agreement. Unless you produce the four hostages for me today, I am returning to the United States.”

The American group returned home empty handed. The U.S. later delivered TOW antitank missiles directly to Iran, instead of through Ghorbanifar and Khashoggi as had been done before, and reduced the price from $12,000 to $8,000 each. An angry Rafsanjani called Mousavi to declare, “Your friend Ghorbanifar is a thief.” Ghorbanifar, feeling betrayed and threatened by a CIA frame-up, then freed his Iranian associates to leak the news that created the scandal.

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