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How it all began
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On an afternoon in November 1981, San Francisco DEA agent Sandra Smith inadvertently discovered the first direct link between cocaine and the secret army the Central Intelligence Agency was assembling to overthrow the government of Nicaragua.

Smith, one of the first female DEA agents in the Bay Area, was investigating rumors that a cocaine ring run by Norwin Meneses was bringing drugs into California and sending weapons down to Central America.

It was, she said, ''the only (case) that I ever worked, in all the time I worked there, that I thought was really big...In this business, if you have people coming in from Nicaragua bringing in cocaine -- and the rumor was they were taking guns back ... I thought there was something really big there.''

By then, court records show, federal law enforcement agents had already amassed a thick intelligence file on Meneses. Agents had run across his cocaine ring in New Orleans, San Francisco and Los Angeles, a 1981 DEA affidavit said. As far back as 1978, it said, federal agents knew Meneses was bringing multi-kilo quantities of cocaine into the United States -- huge amounts by the standards of the day.

As part of her investigation, Smith staked out the San Francisco International Airport and tailed two of Meneses' Southern California drug dealers to a house at 8 Bellevue Street in Daly City. After a while, one of the dealers emerged, drove to another house in Daly City belonging to a nephew of Meneses and then returned to the Bellevue Street address.

Smith's investigation was terminated shortly after that, so she never learned who lived in the house on Bellevue Street. But two years later, its owner would become involved in one of the most curious incidents in the annals of the War on Drugs.

His name was Carlos Augusto Cabezas and, like Norwin Meneses, he'd been on the losing side of the Nicaraguan civil war. In the final days of the Sandinista revolution, Cabezas served as a pilot for the U.S.-trained army of dictator Anastasio Somoza. Then 37, Cabezas also held degrees in law and accounting and had run the foreign division of the Bank of America in Managua for five years.

But by February 1983, the multi-talented businessman was in jail in San Francisco, accused by the FBI of being part of a drug ring that brought more than $100 million worth of cocaine into the country aboard Colombian freighters. Police cracked the case one night when they arrested frogmen swimming ashore at Pier 96 in San Francisco with 400 pounds of cocaine. At the time, it was the largest cocaine seizure in California history and 35 people were eventually arrested.

Though Norwin Meneses was never charged, court records said there was ''a direct and ongoing connection between the Meneses organization and Carlos Cabezas.''

California newspapers treated the case like any other big drug bust -- a front-page headline and a picture of the coke. But the Nicaraguan press saw something else entirely.

''Somoza supporters involved in drug trafficking,'' is how the Feb. 20, 1983 edition of Barricada, a pro-government daily in Managua, headlined its story. Citing unnamed Nicaraguan government sources, the story said that among the group arrested ''there were many who are linked to the ex-Guardia group of Somocistas in San Francisco, and through this link in the cocaine trafficking, they were giving economic support to the contra revolution.''

It would be another three years before an American reporter made the same connection.

The first inkling that the Frogman Case, as it became known, was something extraordinary came in June 1984, when the attorney for the cocaine ring's alleged leader, Julio Zavala, asked the government to return the money seized during a search of Zavala's apartment the morning of his arrest.

Along with an assortment of arms, drugs, passports, and catalogs for machine guns and silencers, agents found $36,800 in cash. Federal prosecutors declared it was drug money and said they would use it as evidence at Zavala's trial.

But Zavala insisted the cash wasn't from drug sales; he said the money had been given to him to buy supplies in the U.S. for the CIA's guerrilla army, the contras. To prove it, two contra leaders filed statements with the court attesting that the money police had seized was ''for the reinstatement of democracy in Nicaragua'' and that ''the retention of this money is prejudicing the progress of liberation.''

Those letters, initially placed in the public case file, were hurriedly sealed a few hours later, after federal prosecutors met privately with the judge hearing the case. They invoked the Classified Information Procedures Act, a law designed to keep matters of national security from being divulged during trials.

Soon, U.S. Attorney Joseph P. Russoniello decided he really didn't need the $36,800 as evidence at Zavala's trial. Nor did he want it forfeited to the government, which is standard procedure in drug cases.

Instead, on Oct. 2, 1984, the Justice Department agreed to give the money back and promised not to mention it at Zavala's trial. A $36,800 government check was issued to Zavala and a lawyer in Costa Rica named Francisco Aviles Saenz.

Aviles, another Nicaraguan exile, was one of the two contra leaders who had written the court and asked for the money back. In 1988, a U.S. Senate subcommittee linked him to a Costa Rican shrimp company that was laundering money for the Medellin cocaine cartel. Coincidentally, the company then had a contract from the State Department to ship ''humanitarian'' aid to the contra forces.

In late 1984, Carlos Cabezas cut a deal with federal prosecutors and took to the witness stand to testify against his former boss, Julio Zavala, and he detailed the inner workings of the Frogman cocaine ring.

Cabezas said that in late 1981, he'd been sent to Costa Rica to pick up two kilos of cocaine from a man named Horacio Pereira, a Nicaraguan businessman living in exile in Costa Rica, and bring them back to San Francisco.

But when he got to Central America, Cabezas testified, he found that Pereira changed his mind and wouldn't hand over the dope. Pereira, he said, was worried that Cabezas' boss, Julio Zavala, was ''drinking very heavily'' and would ''misuse'' the drug profits.

''He (Pereira) was helping the contra revolution in Nicaragua,'' Cabezas testified, and said Periera didn't want someone unreliable handling the money.

''And so what was the result of your conversation with Mr. Pereira?'' Cabezas was asked by Assistant U.S. Attorney Mark Zanides.

''Well, Mr. Pereira said if I was going to be responsible for the money, because the money belonged to help the contra revolution, that he was going to sell the cocaine (to me),'' Cabezas testified. His drug ledgers showed he eventually got a total of 12 kilos from Pereira, worth about $600,000.

Pereira, a business associate of Norwin Meneses, was later convicted of drug charges in Costa Rica. Secret telephone taps made during that investigation revealed he was in frequent contact with contra commanders. In addition, a 1982 FBI report -- which wasn't made public until 1988 -- identified him and two other contra leaders as the cocaine suppliers for the Frogman ring.

Why DEA agent Smith's investigation of Meneses -- which predated the Frogman bust by two years -- was halted is not clear. Smith said her superiors didn't share her enthusiasm for the case and she was sent off to investigate motorcycle gangs.

''I'm not so sure the DEA management took (my investigation) seriously enough to allow me the time and the assistance I would have needed,'' she said.

Smith, now an investigator for the Environmental Protection Agency in Washington State, believes part of the problem was that ''being a female, my credibility was somewhat in question.''

But that hardly explains the San Francisco DEA's overall lack of interest in an international cocaine-and-arms ring operating in its backyard.

When she quit the DEA in 1984, Smith asked if any of her fellow agents wanted the intelligence files she'd collected on Meneses to see ''if anyone might be interested in picking up where I left off,'' she recalled.

''No one was. So I had a lot of notes that I had made that, just for lack of doing anything else (with them), I just shredded. No one was interested.''

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