The Reagan administration's policy towards Nicaragua produced a major clash between the executive and legislative arms as Congress sought to limit, if not curb altogether, the ability of the White House to support the Contras. In violation of the Boland Amendment, senior officials of the Reagan administration continued to secretly arm and train the Contras and provide arms to Iran, an operation they called "the Enterprise". A major legal debate at the center of the Iran–Contra affair concerned the question of whether the NSC was one of the "any other agency or entity of the United States involved in intelligence activities" covered by the Boland amendment.
The Reagan administration argued it was not, and many in Congress argued that it was.
Under Mohammad Reza Pahlavi, the United States was the largest seller of arms to Iran, and the vast majority of the weapons that the Islamic Republic of Iran inherited in January 1979 were American-made.
To maintain this arsenal, Iran required a steady supply of spare parts to replace those broken and worn out.
Those charges, however, were later dropped because the administration refused to declassify certain documents.
The indicted conspirators faced various lesser charges instead.
A group of senior Reagan administration officials in the Senior Interdepartmental Group conducted a secret study on 21 July 1981, and concluded that the arms embargo was ineffective because Iran could always buy arms and spare parts for its American weapons elsewhere, while at the same time the arms embargo opened the door for Iran to fall into the Soviet sphere of influence as the Kremlin could sell Iran weapons if the United States would not.The broader constitutional question at stake was the power of Congress vs. The Reagan administration argued that because the constitution assigned the right to conduct foreign policy to the executive, its efforts to overthrow the government of Nicaragua were a presidential prerogative that Congress had no right to try to halt via the Boland amendments.By contrast congressional leaders argued that the constitution had assigned Congress control of the budget, and Congress had every right to use that power not to fund projects like attempting to overthrow the government of Nicaragua that they disapproved of.As part of the effort to circumvent the Boland amendment, the NSC established "the Enterprise", an arms-smuggling network headed by a retired U. Air Force officer turned arms dealer Richard Secord that supplied arms to the Contras.It was ostensibly a private sector operation, but in fact was controlled by the NSC.