On July 17, 1979 Nicaraguan dictator Anastasio Somoza Debayle was ousted by the Sandinista National Liberation Front. With the election of Ronald Reagan, the socialist Sandinista government which came to power in Nicaragua was deemed a threat to the stability of the Central American region. The signing of the Contra Aid Bill in December of 1981 gave the CIA the authority to organize anti-Sandinista forces or "Contras" to undermine and overthrow the Nicaraguan government.

However, public sentiment turned against the Contras and from 1982 to 1984, Congress passed the Boland Amendments, which barred the U.S. government from spending money to overthrow the Sandinista regime or provide the Contras with intelligence reports. In order to continue to fund the Contras, the National Security Council (NSC)- which the White House believed was exempt from the Boland Amendments - sought out private funds for the Contras.

During this time, Americans were being taken hostage in Lebanon by forces friendly to Iran, and the idea was hatched by the Reagan Administration that arms could be exchanged for hostages and profits diverted to the Nicaraguan Contras. Richard Secord, Oliver North, and Albert Hakim (among others) worked to sell TOW missiles to Iran via Israel. After two shipments of over 600 TOW and Hawk missile parts to Iran in 1985 and early 1986, no hostages were released.

On June 8, 1986 the Miami Herald uncovered evidence of the arms sales and ran an article naming Oliver North entitled "Despite Ban, US Helping Contras". On November 3, 1986 a Lebanese newspaper, Al-Shiraa, reported that arms sales to Iran by the U.S. had taken place, which President Reagan denied saying "We did not -repeat- did not trade weapons or anything else for hostages nor will we". North, CIA Director William Casey, NSC director Richard McFarlane and others began shredding incriminating documents. By December information was coming out daily of the arms-for-hostages deal and the Senate opened its own investigation while the President appointed an Independent Council.

By the end of 1987, the President's credibility had been mortally damaged; Reagan had assumed "full responsibility" for the scandal, but did not admit the policy was un-Constitutional. Many of those involved in the scandal felt that the Reagan Administration had turned its back on them and began to name the President as a willing accomplice.

Before leaving office in 1992, then-President Bush issued pardons to most of the major conspirators in the Iran-Contra Scandal. In the end, the Contras never overthrew the Sandinista government, though thousands of Nicaraguans died in their battles, Iran received lots of military equipment to use in its war against Iraq, and in 1991 the remaining hostages were finally released through diplomatic channels.