Channell's High Connections

By Jacob V. Lamar Jr

"There are thousands of young men and women in Nicaragua who are waiting to join the contras. Only they don't have the arms and the equipment to take them on board. So we know what our job is. And God bless all of you."

The speaker was Ronald Reagan. The event: a talk in the Roosevelt Room of ; the White House to American donors to the contra cause last June -- four months before the end of Congress's ban on U.S. military aid to the Nicaraguan rebels. Until last week the President's forthright praise for private donors to the contras provoked little legal controversy, and his assertions that he assumed their contributions were for nonmilitary purposes went largely unquestioned. But that is certain to change in the wake of last week's guilty plea by Fund Raiser Carl ("Spitz") Channell, who became the first person to be convicted on criminal charges under the 1978 special-prosecutor law.

In a surprising move, Independent Counsel Lawrence Walsh worked out an arrangement with Channell to plead guilty to one count of conspiracy to violate the laws governing tax-exempt foundations, and to agree to cooperate in the investigation. An aggressive, persuasive operator, Channell, 41, was one of the most successful fund raisers in Washington. His nine foundations and political-action committees collected nearly $8 million last year for conservative causes.

According to Walsh, Channell's National Endowment for the Preservation of Liberty took in more than $2 million from just three donors between April 1985 and May of last year. Contributions to N.E.P.L. were tax deductible, based on the group's claim that the money was for "educational and charitable" purposes. But Channell last week admitted that some of the funds were used to supply weapons to the contras.

Channell named two co-conspirators. One was Richard Miller, president of International Business Communications, a public relations firm that Channell claims funneled $1.73 million of funds from N.E.P.L. to a Swiss bank account to aid the contras. The other was Lieut. Colonel Oliver North, the former National Security Council aide and chief architect of the secret contra supply network.

The White House acknowledges that the President held several meetings with some of Channell's major donors. At his press conference in March, Reagan claimed that he had believed he was congratulating citizens who had contributed funds for pro-contra commercials. "I met with them to thank them, because they had raised money to put spot ads on television in favor of the contras in an effort to try and influence Congress to continue giving aid," claimed the President.

But skeptics point to a message sent by North to then National Security Adviser John Poindexter last May: "The President obviously knows why he has been meeting with several select people to thank them for their 'support for democracy' in CentAm." To some, the remark indicates that Reagan was aware that Channell was doing more than drumming up money for TV ads.

North was critical to Channell's contra fund raising, meeting with potential contributors at the Old Executive Office Building and briefing them on the dangers of the Sandinista regime. Elliott Abrams, Assistant Secretary of State for Inter-American Affairs, also lectured groups of N.E.P.L. donors. Abrams told TIME last January that there was nothing wrong with his helping Channell's fund-raising efforts, since the money was being used for humanitarian aid.

Channell's donors were often elderly conservatives like Ellen Garwood, a Texas widow who reportedly gave $1.97 million to N.E.P.L. Channell evidently told them their gifts would provide humanitarian aid to the contras. But some of the funds were directed to what was called Project Toys, which provided military aid. Donors claim that some money went to support Channell's high- flying life-style (stretch limousines, expensive restaurants, first-class trips). In addition, the foundation made two questionable payments, totaling $17,500, to Channell's roommate, Eric Olson.

Channell also paid a retainer of $20,000 a month to David C. Fischer, a former Reagan aide, to help arrange meetings between N.E.P.L. donors and the President. Until he left the White House in March 1985, Fischer was a longtime personal assistant to Reagan, with a small office right next to the Oval Office, and he retained his White House pass until last November. Channell bought influence from another former presidential aide, Lyn Nofziger, who had a contract with N.E.P.L. reportedly worth $240,000 a year.

Even if Channell testifies that the President or others in the White House knew that some of the contributions were being used for arms, it would probably be difficult to implicate them on tax-fraud charges. But a Walsh staffer says that other legal issues might be involved. The Neutrality Act makes it a crime to participate in military activities against a nation at peace with the U.S., though that may not apply when the operations are authorized by the President.

Whether or not the Channell case leads to criminal indictments of top officials, the line of investigation could cause considerable discomfort in the White House. And the inquiry into the private network of pro-contra donors is only one of many different paths that Walsh is pursuing in the labyrinth of dubious deeds involving Iranian arms deals and secret aid to the Nicaraguan rebels.

With reporting by Anne Constable and Alessandra Stanley/Washington