When I appeared before the Senate Select Committee on Intelligence in open session on October 23, 1996, I reported that, at the request of then-Director of Central Intelligence John Deutch on September 3, 1996, I immediately initiated an inquiry into allegations that stemmed from a three-part series called ''Dark Alliance'' that was published in the San Jose Mercury News in August 1996. That series discussed the drug trafficking activities of several individuals who had been implicated in cocaine trafficking in California. As you know, the series also suggested that the Nicaraguan Contras--described as ''CIA’s Army''- -benefited from the drug trafficking activities of Ricky Ross, Danilo Blandon, Norwin Meneses, and others, and that these activities were responsible for the emergence of crack cocaine in South Central Los Angeles and elsewhere in America. The series also intimated that CIA may have been involved in drug trafficking--or at least had knowledge of those activities and may have given its approval for them.

On October 23, 1996, I promised Congress and the American people to have my Office ''conduct as thorough a review as possible of all available information [and] report what we find candidly and completely.'' I am pleased to be able to come before this committee today and say that we have done that.

On December 17, 1997, we published our classified Report of Investigation Volume I - called ''The California Story'' - that specifically focused on CIA knowledge of, and actions taken regarding, the individuals and events that were the focus of the Mercury News series. A little over a month later - on January 29, 1998 - we released this report in an unclassified version following a classification review by the Agency.

I believe those of you on the Committee who have read the classified version of Volume I and have had the opportunity to compare it with the unclassified version will agree that the information about this matter that is now publicly available does not differ in any significant way from that presented in the classified report. Our purpose is to provide the American public with the relevant facts without compromising information relating to the national security that the DCI is - by law - bound to protect.

Our report presents an exhaustive array of facts and allows me to reiterate what I said before the Senate Select Committee on Intelligence in 1996: ''[W]e will present the unvarnished truth as we find it and will do so to the best of our abilities.'' Today, I can say that we have done that.

We reviewed an estimated 250,000 pages of documents and used the information gleaned from these documents to conduct over 365 interviews of persons on four continents. These interviews included current and former Directors and Deputy Directors of Central Intelligence, current and former senior Agency staff personnel, secretaries, communicators, logistics personnel, operations officers, attorneys, present and former CIA assets, contractors, law enforcement personnel, former Contra leaders, convicted drug traffickers, and others.

Our investigative team went to great lengths to obtain relevant documents. We sent officers to the National Archives to review records compiled by the Office of Independent Counsel for Iran-Contra Matters. We examined CIA's own Iran-Contra records that comprised about 300 linear feet of Agency and other Executive Branch documents. We worked directly with DEA, FBI, and the Department of Justice IG to obtain relevant information from the files of those organizations. We reviewed reporting from other intelligence community agencies--including NSA and DIA - that had been shared with CIA. We contacted DoJ's National Drug Intelligence Center and DEA's El Paso Intelligence Center to seek further information. We reviewed available Congressional records, including relevant information compiled by the Kerry Committee and the intelligence oversight committees and spoke with individuals associated with the Joint Iran-Contra Investigating Committee and Office of Independent Counsel for Iran-Contra matters.

I believe our investigation is the most comprehensive and exhaustive ever conducted by the CIA/OIG and that the Report of Investigation reflects accurately what was found by our team. Having said that, one may ask if it is possible there is some relevant document we did not find or some relevant person we did not interview that would alter our conclusions. As for the documents, the answer to that is, ''Yes, it is possible, but I do not believe it is likely.'' As for individuals, the Report explains that six former CIA employees and a former DEA agent refused our request to be interviewed. We had no power to compel them to do so. Given the effort I have described, however, I do not believe it is likely that any significant information that would have substantially altered the conclusions of this Volume has escaped our attention.

Now let me turn to the Findings of Volume I. Before I go any further, I want to make clear that we found absolutely no evidence to indicate that CIA as an organization or its employees were involved in any conspiracy to bring drugs into the United States.

The first half of Volume I discussed CIA knowledge of the activities of Ross, Blandon and Meneses. Ross, Blandon and Meneses are convicted drug dealers. Our investigation found no information to indicate that any past or present employee of CIA, or anyone else acting on behalf of CIA, had any dealings with Ross, Blandon or Meneses, or had any knowledge of their drug trafficking activities.

Ross was a drug dealer who, by his own admission, says his sole motivation was to derive personal financial gain from the illegal trafficking of drugs. During the 1980’s, Ross was a major cocaine and crack trafficker who says he made millions in the drug trade. His activities helped to foster the crack epidemic that erupted in South Central Los Angeles. However, Ross told us that he never sold drugs for the Contras or donated any money to the Contras. CIA never had any relationship with Ross.

Likewise, Blandon and Meneses also trafficked in drugs to derive personal financial gain. While CIA had no relationship with Blandon and Meneses, our investigation did find that Blandon and Meneses were affiliated with California Contra support organizations and each made financial contributions to those groups. Blandon and Meneses each claimed to have provided between $3,000 and $40,000 worth of support to the Contras, although we found no information to substantiate these claims. Blandon claims that portions of his contributions were from the proceeds of his narcotics trafficking. Blandon states that he gave the impression when donating money that it was derived from his legitimate business activities, while Meneses claims his contributions were from the proceeds of legitimate business activities.

Our investigation found that Blandon had a personal relationship with Contra leader Eden Pastora, and that he provided Pastora with assistance in the form of rent-free housing in Costa Rica and two used vehicles for personal transportation. Much of this assistance was provided to Pastora after he left the Contra movement. Blandon also claims Pastora was not aware he was engaged in drug trafficking. Pastora confirmed this when he testified before the SSCI in November 1996.

Blandon also says he met Contra leader Enrique Bermudez on four occasions from 1981 to 1983. Blandon states that one meeting occurred in Honduras in 1982 while he and Meneses were traveling to Bolivia to conduct a drug deal. Blandon says that Bermudez told them that the Contras were having trouble raising funds and asked that he and Meneses help, stating that ''the ends justify the means.'' Blandon adds that it is his belief Bermudez did not know that he and Meneses were engaged in drug trafficking, but was aware of Meneses’ alleged Nicaraguan organized crime connections. This investigation found no further information on this subject. Unfortunately, we could not obtain information from Bermudez since he was murdered in Managua in 1991.

No information has been found to indicate that CIA hindered, or otherwise intervened in, the investigation, arrest, prosecution, conviction, or sentencing of Ross, Blandon or Meneses. Additionally, Ronald J. Lister or David Scott Weekly-- who were mentioned in the media in connection with Blandon--had no relationship with CIA or its employees. Lister, a former police officer, trafficked in drugs for personal benefit and admits that people may have received the false impression that he was connected with CIA and that he may have fostered such misconceptions because it benefited his private security business. Our investigation also found no information to connect Weekly to the drug trafficking activities of Ross, Blandon, Meneses, or Lister.

Q: How would you summarize what you found in terms of... our involvement in Central America and the drug traffic?

A: In terms of individual CIA officers and the institution itself, there was no direct involvement in cocaine and drug running and drug trafficking. That was the central point of our findings. What we did find in the context of the Contra involvement, was that there was an inconsistency in guidelines given to the field to deal with drug allegations involving some of the individuals with whom we were working.

Q: Your report describes a memorandum of understanding between the attorney general and DCI William Casey in 1982. Why did they put that the memorandum together, and why did it fail to mention narcotics?

A: We weren't ever able to find a memorandum of conversation or any evidence that indicated why it was done.

But the issue was... if the agents or assets had been defined as employees, then allegations of drug use, if they were deemed creditworthy, would have to have been reported to the Department of Justice. It would have increased the ambit of responsibility, I suppose, of operating officers in the field...

Now the principal purpose of CIA officers serving in the field was to aid the contra movement, to make sure that the anti-Sandinista forces stayed alive during the period under U.S. law that that support was legal.

So perhaps what was in the mind of Casey and Smith, although one doesn't know, was that if you are broadening the responsibility of officers in the field so far that they have to begin to worry about [reporting] people...they wouldn't perform their principal job, which was to collect information about the Contra movement and to help it insofar as they could.

Q: But according to this letter they would have to report criminal activity by the people in the field they might be dealing with?

A: Yes, and it's a good point. Because on the one hand, the exception is carved out from the regulation that indicates that for purposes of reporting crimes, agents - people working for CIA officers in the field - are not to be considered as employees.

There is a follow-up letter from Attorney General Smith to the agency saying, "But that doesn't forgive...the responsibility of your officers in the field to report criminal activity when they encounter it." So it was a mixed message. But that letter didn't have the effect of regulation. The letter was there, but it was almost as if it was in a court opinion, dicta.

Q: I'm a CIA officer in the field dealing with the contras in the early to mid-1980s, and I need an airline to haul supplies and weapons to these contras in the field. And somebody tells me, "This is the best airline to use, but by the way, they also smuggle drugs." What's my responsibility?

A: Well, taking your example, if it were as clear as that, it seems to me absolutely the CIA officer in the field can't use that airline, if it's known as an airline that smuggles drugs. But the point is the situation is never that clear. And throughout this whole period there were allegations that X or Y, involved with one side of the struggle or another, was running drugs. Nicaragua was on the main route of entry of drugs from Latin America into the United States, so these allegations were made all the time. The question was how credible were they? And who made them?

And what we found in our study was that there was a failure consistently to deal with those allegations in a set manner. Were they going to disregard them altogether? Were they going to check on the veracity of the person making the allegation? Were they going to adopt a rule whereby they would no longer work with certain persons about whom these allegations were made? No consistent pattern was followed.

The important point is this: it was fairly clear... if drugs were intermixed with this program, it would fail; it would kill it. They knew perfectly well because of past accusations in previous theaters, that that would be the kiss of death... So anybody with an instinct for self-preservation would have realized it made sense to be alert to that kind of problem...

And the question then becomes: what does the officer who is in receipt of that information do to follow it up, to find out whether it's true or not... And we thought, from the standpoint of looking at it with 20-20 hindsight, that there should have been an established procedure to deal with matters of that kind, because it was so clear that it would have a detrimental effect on the whole program if it were found that drug running was an integral part of what was taking place down there...

Q: But what you're saying is, there was no administrative or regulation or instruction from Washington?

A: To be specific about it there was no directorate of operations instruction about how to deal with drug allegations during the whole period of the contra cocaine effort. They were in process. They were working on some kind of guidance. But they never published it in black letter and sent it to the field. That's part of what we considered to be a failure in guidance from headquarters, which we are fairly critical of in the report...

Q: Were the Contras involved in drug trafficking?

A: I think I'd have to address specific cases. And certainly there were accusations with respect to the leadership in the very beginning... But I think the...more realistic example is are the hangers-on, are the support people... are they doing the drug running?

Now there came a time during this whole period when, with the Congress investigating this matter in '86 and '87, an instruction came from the acting director of Central Intelligence, Robert Gates specifically, to pay attention to these kinds of support people who might be involved in the effort. That instruction went down to the directorate of operations. And we found that there was no specific reaction to that instruction in the sense of cables to the field or regulations framed so that ordinary...case officers could know what to do...

Q: Isn't it a felony for an employee of the U.S. government who has knowledge of drugs traveling to the United States to allow those drugs to get into the United States and to get to the street?

A: I believe it is, but you're back to your specific point - knowledge, actual knowledge. Not suspicion, not rumors, but knowledge. And that's the key issue: how do you acquire the knowledge? You acquire the knowledge, in some instances, it seems to me, by digging, by asking questions, by performing some investigative acts. And what we found was that that was done in a good many cases, but it wasn't done consistently across the board pursuant to a whole series of kind of steps...

Q: A memorandum of understanding is put together with the Justice Department and CIA and it in its original form it just happens to leave out narcotics on the list. And then there is a follow-up letter that says, "Oh, we forgot, but because the DEA and the CIA get along so well, we really don't have to worry about this." ...There seems to be this kind of laissez faire lack of guidance as to what to do or what not to do, so it's up to whoever is there in the field to make up the rules as they go. Is that what we're really talking about? It's kind of a vague situation so that you know you're going to run into drug traffickers because it's a major funnel to the U.S.

A: We didn't find any evidence of an understanding that official Washington was going to look the other way with respect to allegations of drug trafficking... There was no record of the reason why Smith and Casey arrived at the understanding they did.

What we did find was a reaction to concerns about drug trafficking that relate to the sure knowledge that if these allegations were proven, it would destroy the whole purpose of the Contra endeavor. We saw plenty of awareness of that. But what we didn't see was that it translated into sort of practical guidance for officers in the field, and that's really the thrust of our report. That and the fact that there was no evidence developed that the institution or individual case officers were involved in drug trafficking. That's an important point, and I want to underscore that. There was no evidence at all, and neither the Department of Justice nor the House of Representatives, in their review, found any...

Q: The general allegation or belief is that people whom the CIA supported, and I guess in the terms that you defined it before, assets or agents, that some of them did make money.

A: Well, there were clearly allegations of ... CIA contacts being involved with drugs. And what we found was that in many cases the CIA officers reported this fact and ceased contact, or either cleared up the allegation or found that it was true. But we also found that there were other cases where those steps weren't taken...

Q: Was there any substance to any of ... the pilots who claim that they flew guns and drugs for the CIA... and in some cases, landed at Homestead Air Force Base?

A: I don't think there was anything to that. But again, one would have to look into it. Each of those instances, each specific statement... You'd have to do an investigation, if you could, piecing together what went on...

I think what you have to say here is that in the context of this struggle between the Contras and the Sandinistas, there were accusations flying left and right, some of which were probably meritorious, and a good many of which were part of the battle they were involved in. The question for the CIA officer in the field was how do you deal with those accusations? And what they did was, for the most part, attempt to track them down. But on several cases, no action appears to have been taken. And that's the part that we find in our report.

Q: And that's the troubling part?

A: It's troubling in the sense that the inconsistency in the response to the allegations seem to me to be hard to explain.

Q: What were you trying to do in your report on the Contras and cocaine?

A: Our assignment was to, in the first instance, determine the truth or falsity of the Gary Webb piece, and that we called the California story...

But in addition, Director Deutsch asked us to look into the whole issue of drug allegations surrounding the Contra program, a much wider topic.

So we chose to divide the task into two. We did the California story, and that was relatively straightforward. We found no evidence of institutional involvement, of CIA. No case officer involvement in any of those allegations; and in effect, the Webb articles, the accusations... as far as we were concerned, we found no evidence of their veracity.

But the second question was a little bit more difficult, because that caused us to look at all the reported instances of drug involvement affecting the Contra operation. Now in terms of our methodology we looked at all the cable traffic between Washington, D.C. and the field stations. We looked at the records of the 1986 Senate committee investigation conducted by Senator Kerry and Jack Blum. We looked at the... Walsh investigation, insofar as that related to the drug business. But in that sense, that gave us the starting point for interviews of people who were in positions of authority at the time, and case officers in the field where we could identify them.

We spoke to all of the [CIA] individuals who were still on active duty... because they are required under the IG statute to speak to us. We didn't talk to seven others who were retired CIA officers who could not be compelled, we did not have a subpoena to compel them to testify. But the House committee did in fact talk to them, and their report, the House committee's report, contains their testimony.

Q: What did you conclude in the second part of this - on the role of drug trafficking in the contra operations?

A: We concluded that there was no institutional involvement by CIA, and there was no individual CIA case officer involvement in drug trafficking in the Contra operation during the period when we reviewed the records.

We did, however, find a number of instances where allegations of drug trafficking respecting the activities of those agents who supplied information or support services to CIA - and I want to underscore the fact that these were allegations of drug involvement - some of them were pursued to ground, and others were not looked into with any systematic vigor.

Q: I want to get really specific here just in terms of having you tell me whether or not your investigation looked at this or didn't. To you knowledge, did the U.S. government, either the CIA in Washington, or law enforcement agencies, the DEA in particular, believe that some of these agents or assets were in fact involved in drug trafficking?

A: I can't speak for the other agencies. We had some collateral information from some DEA and other officials that were on the record. There were a number of instances that the CIA officers took the allegations to DEA in the field to see if they had any information on it. But our responsibility was to try to determine how CIA officials dealt with these allegations of drug use; and that's what they were--they were allegations...

Q: Well, your own report shows that DEA on a number of occasions wanted to go to Ilipongo to check out a hangar, they were stopped.

A: Well, the point was, relationships in the field varied: some were good, some were bad.

But I think the way that our investigators ended up evaluating it was that it was sad that headquarters had not been more specific in indicating to officers serving in the field who were trying to keep the Contra movement alive what their precise obligations were in dealing with these allegations of drug use. Because it seemed to us that the street level noise in all of this situation were exchanges of these accusations. It's like just saying, "Joe Blow is a racist." It was out there, and the question was, how does one know, and what is the obligation of the officer to take the second step to try to run that rumor to ground or that accusation to ground.

Q: But I can hear somebody saying out there, well, of course the CIA officer is not going to run the accusation to ground because he needs that person to do things against the Sandinistas. There may be a danger that that person winds up being a drug trafficker and embarrassing or destroying the whole program, but it's a risk he's going to have to take because that's what's going on, that's how people are making money.

A: I think you quite rightly recognize in that formulation that knowing involvement with drug trafficking would have killed the program. There was enough concern about that in the Congress of the United States in the late '80s that they passed a law, attached a rider to an appropriation bill preventing monies going to people who were known traffickers in drugs.

The question is: what is knowledge? And I keep coming back to that. I know it seems like a legalistic answer, but in point of fact, what we found, and this is the key thing, what we found in the response of officers in the field is that some of these issues were checked out and some weren't.

And our question was, I guess our reaction at the end of the day was, why wasn't the same procedure applied to all? And in trying to answer that question, we noted that the directorate of operations' regulations on the matter were not in final form until after the whole episode--the guidance from--the knowledge at the working level that a law had been passed in 1987 forbidding monies to be used if drug trafficking was involved was also very spotty. And we fault the chain of command for that. That information should have been in the field.

Q: The guy in the field really didn't know...

A: He didn't know how seriously to take this. What was his job? Was he supposed to quit the business of supplying blankets, arms, advice to the contra operatives, and just - and go on out and do an investigative effort to find out whether these allegations, these drug allegations, were well founded or not.

President Bush said we are at war. How will we know when we've won?

The point the president is trying to make is that this is a long-term effort. He has chosen to call it war. The American people have to get used to the notion that it is going to take a long time, and we're not going to be aware of major battles won or any light at the end of the tunnel that says this struggle is over. The best result that we can hope for -- after successfully bringing in the perpetrators of the acts of Sept. 11 - is that future incidents of terrorism just do not occur. That's victory in this war.

I judge from the statements of the secretary of defense and others that they recognize that this war against terrorism does not have a role for the 82nd Airborne as such. This is more a law enforcement/special forces type of operation than classical warfare. Carpet-bombing of Afghanistan is not what this is about.

Even if we dismantle Osama bin Laden's group, what is to stop similarly determined operations from taking its place? Going back to the suicide bombers of World War II, fanatic leaders seem to have been grimly successful in recruiting people to sacrifice themselves for a cause.

That is why I believe that part of what's got to be done is there has to be a major relief effort internationally to deal with the people who have lost faith, who have lost hope, the people in the environment in which these terrorists are making their appeal. We can't consider ourselves to be fully dealing with this problem unless we are dealing with the poverty and the hopelessness that surrounds people who are bent on this destructive path and are looking for new recruits. And even though some of the terrorists from Sept. 11 seemed to have better prospects in life, I think that lack of opportunity is still a fundamental fuel for terrorism.

Quite frankly, I would like to see representatives of the mainstream of Islam stand up and denounce what the Taliban and what Osama bin Laden stand for. The religion of Islam, as I understand it, does not sanction crimes of this nature. It does not stand for terrorist attacks. It seems to me that those who represent the mainstream of Islam have an obligation to make that point.

But it's like living under the thumb of a mafia don: Ordinary people in the neighborhood are constrained by fear to speak out. The United States has to make it clear, as it has, that this is no time for fence sitting. Bystanders and witnesses have to stand up and be counted. It seems to me that if we as a world community are able to isolate the phenomenon of terrorism and get agreement to oppose it as a way of bringing about change, then we will be able to begin to put the terrorists out of business. I see no other approach that will work. Certainly, massive destruction in the Middle East will not bring that result.

How can we assess what the terrorists think they achieved and whether the outcome supported their goals well enough to mount another attack?

A terrorist act is intended to shock and to make us insecure in our lives. It is intended to change the way we do business and, at the same time, cause us to look at that gaping hole in Lower Manhattan and hear the terrorists say "gotcha." A secondary goal is to increase their ability to recruit more operatives and to build the point among potential recruits that America is the great vehicle for evil in the world.

One of the ways they can do that is to provoke a response that is unrestrained and not focused on those who perpetrated this crime. They were able to recruit after the U.S. sent its cruise missiles into the grass shacks after the two embassy bombings (in East Africa in 1998). Bombing the pill factory in the Sudan was as good a campaign message for bin Laden as you could possibly have had.

It would appear that the United States is not going to fall into that trap now. We are gathering information. We are seeking support from moderate governments in the region. We are seeking support from the United Nations and from NATO and we are acting as though it will be a coordinated response.

If the world community not only condemns but acts to isolate these terrorists, if Islam says this so-called fundamentalist creed bears no resemblance to the teachings of the Koran, then maybe it's not going to be fashionable in terrorist circles to try to attack the United States again.