The Lebanese magazine Ash Shiraa reports that the United States has been secretly selling arms to Iran in an effort to secure the release of seven American hostages held by pro-Iranian groups in Lebanon. The revelation, confirmed by U.S. intelligence sources on November 6, came as a shock to officials outside President Ronald Reagan's inner circle and went against the stated policy of the administration. In addition to violating the U.S. arms embargo against Iran, the arms sales contradicted President Reagan's vow never to negotiate with terrorists.
On November 25, controversy over the administration's secret dealings with Iran deepened dramatically when Attorney General Edwin Meese revealed that proceeds from the arms sales were diverted to fund Nicaraguan rebels—the Contras—who were fighting a guerrilla war against the elected leftist government of Nicaragua. The Contra connection caused outrage in Congress, which in 1982 had passed the Boland Amendment prohibiting the use of federal money "for the purpose of overthrowing the government of Nicaragua." The same day that the Iran-Contra connection was disclosed, President Reagan accepted the resignation of his national security adviser, Vice Admiral John Poindexter, and fired Lieutenant Colonel Oliver North, a Poindexter aide. Both men had played key roles in the Iran-Contra operation. Reagan accepted responsibility for the arms-for-hostages deal but denied any knowledge of the diversion of funds to the Contras.
In December 1986, Lawrence Walsh was named special prosecutor to investigate the matter, and in the summer of 1987 Congress held televised hearings on the Iran-Contra scandal. Both investigations revealed that North and other administration officials had attempted to illegally cover up their illicit dealings with the Contras and Iran. In the course of Walsh's investigation, eleven White House, State Department, and intelligence officials were found guilty on charges ranging from perjury to withholding information from Congress to conspiracy to defraud the United States. In his final report, Walsh concluded that neither Reagan nor Vice President George Bush violated any laws in connection with the affair, but that Reagan had set the stage for the illegal activities of others by ordering continued support of the Contras after Congress prohibited it. The report also found that Reagan and Bush engaged in conduct that contributed to a "concerted effort to deceive Congress and the public" about the Iran-Contra affair.
On Christmas Eve, 1992, shortly after being defeated in his reelection bid by Bill Clinton, President George Bush pardoned six major figures in the Iran-Contra affair. Two of the men, former defense secretary Caspar Weinberger and former chief of CIA operations Duane Clarridge, had trials for perjury pending.