On March 16, 1986, the San Francisco Examiner published a report on the "1983 seizure of 430 pounds of cocaine from a Colombian freighter" in San Francisco which indicated that a "cocaine ring in the San Francisco Bay area helped finance Nicaragua's Contra rebels." Carlos Cabezas, convicted of conspiracy to traffic cocaine, said that the profits from his crimes "belonged to... the Contra revolution." He told the Examiner, "I just wanted to get the Communists out of my country." Julio Zavala, also convicted on trafficking charges, said "that he supplied $500,000 to two Costa Rican-based Contra groups and that the majority of it came from cocaine trafficking in the San Francisco Bay area, Miami and New Orleans."[3]

Former CIA agent David MacMichael explained the inherent relationship between CIA activity in Latin America and drug trafficking: "Once you set up a covert operation to supply arms and money, it's very difficult to separate it from the kind of people who are involved in other forms of trade, and especially drugs. There is a limited number of planes, pilots and landing strips. By developing a system for supply of the Contras, the US built a road for drug supply into the US."

...The contents of the actual report were largely ignored by the national media. In the 623rd paragraph, the report described a cable from the CIA's Directorate of Operations dated October 22, 1982, describing a prospective meeting between Contra leaders in Costa Rica for "an exchange in [the United States] of narcotics for arms, which then are shipped to Nicaragua."[11] The two main Contra groups, US arms dealers, and a lieutenant of a drug ring which imported drugs from Latin America to the US west coast were set to attend the Costa Rica meeting. The lieutenant trafficker was also a Contra, and the CIA knew that there was an arms-for-drugs shuttle and did nothing to stop it.[10]

The report stated that the CIA had requested the Justice Department return $36,800 to a member of the Meneses drug ring, which had been seized by DEA agents in the Frogman raid in San Francisco. The CIA's Inspector General said the Agency wanted the money returned "to protect an operational equity, i.e., a Contra support group in which it [CIA] had an operational interest."[10]
[edit] Testimony of the CIA Inspector General

Six weeks after the declassified and heavily censored report was made public, Inspector General Hitz testified before a House congressional committee.[10] Hitz stated that:

Volume II... will be devoted to a detailed treatment of what was known to CIA regarding dozens of people and a number of companies connected in some fashion to the Contra program or the Contra movement that were the subject of any sort of drug trafficking allegations. Each is closely examined in terms of their relationship with CIA, the drug trafficking activity that was alleged, the actions CIA took in response to the allegations, and the extent of information concerning the allegations that was Shared with U.S. law enforcement and Congress.

As I said earlier, we have found no evidence in the course of this lengthy investigation of any conspiracy by CIA or its employees to bring drugs into the United States. However, during the Contra era, CIA worked with a variety of people to support the Contra program. These included CIA assets, pilots who ferried supplies to the Contras, as well as Contra officials and others. Let me be frank about what we are finding. There are instances where CIA did not, in an expeditious or consistent fashion, cut off relationships with individuals supporting the Contra program who were alleged to have engaged in drug trafficking activity or take action to resolve the allegations.[12]

Hitz also testified that the CIA did not "expeditiously" cut off relations with alleged drug traffickers.[13]

Hitz also said that under an agreement in 1982 between Ronald Reagan's Attorney General William French Smith and the CIA, agency officers were not required to report allegations of drug trafficking involving non-employees, defined as paid and non-paid "assets"--pilots who ferried supplies to the contras, as well as contra officials and others.[12][13]

This agreement, which had not previously been revealed, came at a time when there were allegations that the CIA was using drug dealers in its controversial covert operation to bring down the leftist Sandinista government in Nicaragua.[13] Only after Congressional funds were restored in 1986 was the agreement modified to require the CIA to stop paying agents whom it believed were involved in the drug trade.[10]

http://en.wikipedia.org/wiki/CIA_and_Contras_cocaine_trafficking_in_the_US