The so-called Iran-Contra Affair involved a decision by Ronald Reagan's U.S. administration to sell arms (contrary to United Nations sanctions and without approval from Congress) to Iran, then divert that money to Contra rebel groups in Nicaragua (contrary to UN sanctions and acts of Congress).
Iran was engaged in a bloody war (1980-1988) with its neighbor Iraq (see [[Iran-Iraq War). There was also an implication that the arms deals were intended as sweeteners to bring about the release of western hostages held by pro-Iranian groups in Lebanon.
The money was then diverted, via Colonel Oliver North, aide to the U.S. National Security Adviser John Poindexter, to provide arms for the Contras (from Spanish contrarevolucionario, counter-revolutionary) terrorist groups fighting to overthrow the revolutionary Sandinista government of Nicaragua.
The U.S. accused the Sandinistas of being backed by the Soviet Union and Cuba, and of supporting in turn left-wing rebels against the U.S.-backed government in El Salvador, scene of a destructive civil war throughout the 1980s. In 1985 the Sandinista movement won an outright majority in popular elections rejected by the Reagan administration as fraudulent, although that election was validated by other independent observers from Western democracies as having been fair and free.
The Contras, led by former members of the National Guard of the overthrown Somoza regime (1936-1979) received weapons and training from the U.S. Central Intelligence Agency, especially in guerrilla tactics such as destroying infrastructural elements and assassination.
The Reagan administration, against acts of Congress, ferried funds and weaponry to the Contras gained by the sale of arms to Iran. The clandestine operation was discovered only after an airlift of the guns was downed over Nicaragua. Reagan claimed he had not been informed of the operation and a Presidential Commission, which indicted North and Poindexter amongst others, could not determine the degree of his involvement. No link was officially found to connect the president to the illegal actions.
There is also evidence that the CIA may have been involved with drug trafficking to raise money for the contra campaign. The Sandinistas lost power in fresh elections in 1990, following a decade of U.S. economic and military pressure.
The Iran-Contra Affair is significant because it brought many constitutional questions into public view:
- Does the president have unconditional authority to conduct foreign policy? (Can the president approve selling arms to a foreign nation without congressional approval?)
- What information does the president have to provide to Congress and when should that information be supplied? (Does the president have to tell Congress about foreign policy initiatives?
- What authority, if any, does Congress have to oversee functions of the executive branch? (Does funding for foreign policy initiatives have to be approved by Congress? Who defines the entire spending budget and regulates it?)
- What role does the Supreme Court have in deciding conflicts between the legislative branch and executive branch?
Most, if not all, of the constitutional questions are still unresolved. On one view, it appears that if the legislative and executive branches do not wish to work together, there are no legal remedies. These are transient issues in that each of the executive and legislative branches change every few years.
There's more to add here, particularly on the political impact of the scandal on Reagan's presidency. It won't do simply to say "it was damaging"; it's obviously more complicated than that.