The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Texas [Mr. Gonzalez] is recognized for 60 minutes.
Mr. GONZALEZ. Mr. Speaker, this is the second in a series of special orders that I have planned concerning the Committee on Banking, Finance and Urban Affairs of the U.S. House of Representatives' investigation of the Banco Nazionale del Lavoro, otherwise known as the BNL, scandal.
As explained in the first special order on February 4, the BNL scandal is a sensational bank fraud and regulatory blunder in which former employees of the Atlanta agency of the BNL, which is really an Italian Government-owned bank, were able to loan Iraq $3 billion without presumably reporting those loans to its headquarters in Rome or to the Federal Reserve and State banking officials.
I brought out also in the first special order that in effect the alarming thing about this, as we first began to look into it more than a year and a half ago, was that it revealed an absence of suitable regulatory oversight on the part of our American regulatory system, which means that the United States is the only nation in the industrialized world, West or East, that permits such a tremendous volume of foreign money, in effect better than $635 billion right now, with little or no accountability or regulatory power exerted from the national interest standpoint of the United States.
The bank regulatory failure in this case is and continues to be the main focus of attention of the Committee on Banking, Finance and Urban Affairs. The committee will pursue legislative remedies to ensure that entities like BNL are properly supervised.
As a matter of fact, this morning in the Washington Post there was a considerable story in which it was reported that the Federal Reserve Board was looking into a Washington-based bank's control or ownership influence by Iraq or Iraqi elements.
Well, let me say that if that is coming to light, it is coming too late, as in the case of BNL.
What continues to be disturbing to me is that nobody knows what the type of activity involving this huge amount of money in the United States, in which foreign entities owned by foreign governments can, in the exercise of their business, be acting contrary to the basic national policy as set forth by our own Government.
The second main facet of the investigation deals with BNL's relationship with Iraq. The committee is investigating the role BNL played in upgrading the military capability of Iraq, which is quite considerable.
If our boys, as it looks now, unfortunately and tragically will be the case, will go into the ground fighting, they will be facing death or serious bodily harm by missiles or chemical weapons actually funded and paid for by U.S. businesses and guaranteed by the American taxpayer.
As astounding as this is, it is and has happened, and continues to, incidentally.
BNL was one, not the only one, but probably one of the more significant, sources of funding for a
complicated Iraqi scheme to obtain sophisticated Western technology and know-how.
BNL financed the sale of chemicals, specialty steel products, sophisticated computer controlled industrial machinery, electronic components, computers, and engineering and construction services. Much of this technology had civilian as well as military uses.
Evidently the United States and other Western nations ignored the true intentions of Iraq, though personally I think that those intentions were well-known, except that at that time, and I think in view of what is happening today, and being that we seem to have very short memories nowadays, we find it difficult to evoke the environment that existed during the Iraq-Iran War for 8 years, and the years immediately following the truce, in which we actually had, as a matter of Government policy, been aiding and abetting the Iraqis against the Iranians.
That sounds unbelievable today, but it is true. Truth is stranger than fiction.
It is equally true that 47.6 billion dollars--worth in an 8-year period of sophisticated weaponry was provided Iraq by not only the United States but almost every other country, including the so-called People's Republic or People's Country of China which used the technology that our licensing agreements enabled the Chinese to produce, such as the Silkworm missile which, incidentally, was the missile that sank or damaged and killed 37 of our sailors just a few years ago fired by an Iraqi source when our Navy was flying the flag for Kuwaiti oil tankers and patrolling the gulf.
Incidentally, the reason that all this financing could be done by the Iraqi Government through its central bank and through these foreign government-owned banks with either branches or agencies, as they call them, in the United States, and the one particularly in Atlanta, is that President Reagan in 1983 saw fit to remove Iraq from the list of nations that he himself listed as terrorist nations. And when he removed Iraq from that designation it opened the sluice gates for considerable commerce and weapons trading.
The BNL was also a major source of agricultural financing for Iraq. BNL financed the sale of over $850 billion in United States agricultural products to Iraq; $720 million of that amount was guaranteed and ultimately is being paid for by the United States Department of Agriculture's Commodity Credit Corporation, or the taxpayer.
Between 1983 and 1990, the CCC granted credit guarantees which enabled Iraq to purchase a total of $5.5 billion in United States farm products. In addition, the Export-Import Bank granted Iraq a $200 million insurance policy to protect United States companies against the potential risk of loss related to exporting goods to Iraq, and of course they did suffer that loss and, of course, the taxpayers pay that guarantee or insurance.
These United States Government guarantees were very important to Iraq. It not only permitted Iraq to purchase high-quality food for its people and its army, it freed up a like amount in foreign exchange, more importantly, which was used to purchase the technology and military goods from various countries around the globe.
The BNL scandal which burst onto the scene publicly in August 1989 played a key role in the disintegration of United States-Iraq relations. As we are now tragically aware, the break in United States-Iraq relations ultimately ended in war.
Revelation of the BNL scandal was important to United States-Iraq relations because of several reasons. BNL was a major bank participant in the Commodity Credit program with Iraq. Alleged violation of CC regulations by BNL in Iraq, still being investigated by our United States attorney in Atlanta and by the Department of Agriculture, made and compelled the administration, this administration, to rethink the billions of dollars in agriculture credit guarantees provided to Iraq. Iraq received $1 billion in agriculture credit from 1989.
Mind you, it was in August 1989 that we had the first exposure of the deal, but at that time the climate was very favorable in our country and in our Government as a matter of policy toward Iraq, as contradistinguished from Iran. The Department of Agriculture was in the midst of granting Iraq another $1 billion program for 1990 when the BNL scandal surfaced.
Facing pressure from possible irregularities in the Iraq program, the Agriculture Department was reluctantly forced to limit the program with Iraq in 1990 to $500 million. The Iraqis were incensed, because Iraq was effectively bankrupt and had little money to purchase food with. It was counting on an increase in the CCC program, and not a huge cut in the program. This was a blow at the time for Iraq. Iraq took the lowering of the $500 million level as an insult. They claimed this action was indefensible because they were not violating American law at that time, as indeed they were not since Mr. Reagan removed them from the list in 1983, and that no formal charges had been filed against them because of the BNL scandal.
Lowering the level of the CC credit to $500 million also placed increased pressure on Iraq's already scant resources.
The implication of the BNL scandal did not end there. As I have mentioned earlier, BNL was a major source of financing for a complicated Iraqi technology procurement network. During the 1980's, Iraq established ownership or control of a sophisticated network of United States and European front companies whose primary mission was to obtain Western military technology and know-how and export it back to Iraq.
Of course, the Iraqis were very secretive in their dealings and were careful to conceal their true affiliation. During the latter half of the 1980's they relied heavily on these BNL loans to finance the procurement of much of the Western technology they were seeking, including the so-called big gun, the chemical weapons component and other missile and munition facilities, one of which plants was established in Baghdad.
But BNL loans were not ordinary financing. BNL contracted to loan Iraq $2.155 billion at interest rates that were not economically feasible. In addition, a good portion of those loans did not have to be paid back for many years; they were long term, which is incredible. The Small Business Administration has not in many years been able to do anything one-tenth as much for any U.S. businessman.
The former employees of BNL were operating like a charity, not a bank. The BNL raid in August 1989 put an end to this practice at that point and certainly put a damper on the Iraqi procurement of a long list of United States and Western technology. About $1 billion at that point had not yet been disbursed under the charity loan schemes when BNL was raided in August 1989.
The BNL scandal also made the Baghdad diplomatic community worry that Iraq was so desperate for credit it was willing to engage in illegal activity. Iraq feared its already tarnished financial reputation because of their defaults would be further damaged by BNL's scandal, and they were worried that the scandal would possibly jeopardize high-profit Iraqi projects being constructed by foreign companies.
While BNL money and United States credit guarantees would not have been siginficant to a financially strong nation, it was critically important to a country like Iraq because it was in such a poor financial shape after the terribly inhuman 8-year war with Iran.
By the end of 1989, Iraq had already defaulted on most of its debts with the governments and private companies of most Western countries as well as with Japan and Korea. Until the BNL scandal, the United States had almost been the only exception in this rule. Iraq had remained relatively current on its United States obligations.
But limiting United States Government credit programs because of BNL and stopping the flow of BNL lending to Iraq was eventually the proverbial last straw that broke the camel's back in that effectively rendering Iraq bankrupt.
The impact of the BNL scandal and its effect on Iraq is echoed in the words of the Iraqi Foreign Minister during his meeting with Secretary of State James Baker just prior to the allied offensive against Iraq. Iraq had offered many excuses for its brutal invasion of Kuwait. Among others, it accused the United States, other Western nations, Israel, and Kuwait of conspiring to destroy it economically. Related to the United States role in this supposed scheme, Tariq Aziz, the diplomat and Foreign Minister, stated in his Geneva meeting with Secretary Baker, and I am going to quote:
The United States actually implemented an embargo on Iraq before August 2, 1990. We had dealings with the United States in the field of foodstuffs. We used to buy more than $1 billion of American products. Early in 1990, the American administration suspended that deal which was profitable for both sides. Then the United States Government decided to deny Iraq the purchase of a very large list of items.
Evidently, to the Iraqis, the impact of the BNL scandal was a key factor in the decline of United States-Iraqi relations.
As we know, Saddam Hussein reacted to his dire financial straits by invading Kuwait which ironically, along with several other Arab nations, had loaned Iraq tens of billions of dollars during the conflict with Iran.
To summarize, the failure of our bank regulatory system to detect the $3 billion in shady loans to Iraq, coupled with billions in questionable credits to Iraq, along with our inability to stop Saddam from importing BNL-financed technology which was used for military purposes, is being used now in which our soldiers will confront, all worked together to cause our war with Iraq.
Hopefully the committee's investigation of BNL will shed light on how these failures occurred. I would hope an understanding of these failures would work to reduce the risk of more Iraqis on our horizon, even now especially before we are forced to risk many more lives of our soldiers.
I would like to take this opportunity to demonstrate another important reason for proceeding with the Banking Committee's investigation. I have obtained from a source I must protect a memorandum that indicates a top-ranking administratrion official from a Cabinet-level Department had knowledge that BNL was used for purchasing military goods. This administration official was concerned that the revelation of BNL financing of military articles would be bad for his particular program, because it would cause considerable adverse congressional reaction and press coverage.
He stated in this memorandum:
In the worst-case scenario, congressional and other investigators would find a direct link to financing Iraqi military expenditures, particularly the Condor missile.
The astounding contents of this memorandum shed significant light on the administration's and the Federal Reserve Board's efforts to thwart our Banking Committee and its investigation of BNL. To date, they remain silent on the topic of BNL financing of military articles.
With all the lessons we could learn from the BNL scandal,
let me say by way of parentheses, I am submitting in furtherance of what this comment from this official implies, in this Record, Mr. Speaker, at this point, an article in the Financial Times of London, an article of February 21, 1991, entitled `Warning Forced Bechtel Out of Iraq Chemical Project,' and believe it or not, this involves a former Secretary of State, George Shultz, who after he left the secretaryship went back to his employer, the Bechtel Corp., which is where he had come from, and this article by Alan Friedman, reporting out of New York for the London Financial Times, says, `I said something is going to go very wrong in Iraq, and if Bechtel was there, it would get blown up.'
Bechtel, the California construction group, withdrew from an Iraqi petrochemicals project on the advice of Mr. George Shultz, the former US secretary of state, who joined the company's board of directors after leaving the Reagan administration in 1989. Mr. Shultz disclosed his role in an interview with the Financial Times.
Bechtel has also revealed, spearately, that it was instructed by the government of Iraq to obtain payment for work it did on the petrochemicals project from the Atlanta, Georgia, branch of Banca Nazionale del Lavoro (BNL).
BNL is the Italian bank caught up in the scandal over $3bn (u1.5bn) of Iraqi loans made in 1988-89 by its Atlanta branch. Indictments of US bank employees and Iraqi officials implicated in the scandal were due to have been announced last week, but they have been delayed after a fresh round of consultations in Washington.
The disclosures by Bechtel come amid allegations by US chemical weapons experts that Baghdad planned to use intermediate products from the apparently civilian Iraqi project) known as PC2--for the manufacture of mustard gas.
Mr. Shultz, who had served as president of Bechtel before joining the Reagan administration in 1982, said he first learned of Bechtel's work as project manager of the Iraqi petrochemicals complex in 1989 when he `spent a little time at Bechtel's London office and found there was work going on in Iraq'.
Mr. Shultz said he checked into the PC2 project in 1989 and was given assurances that it had nothing to do with chemical weapons. `But I thought about it a little more and I gave my advice they should get out,' said the former secretary of state.
He recalled that at a Bechtel meeting in the Spring of 1990, as work was continuing, `I really hit it very hard and I said something is going to go very wrong in Iraq and blow up and if Bechtel were there it would get blown up too. So I told them to get out.'
The revelations by Bechtel, which says it had no knowledge of any plans by Iraq to apply the petrochemical plant's products for military use, mark the first time a U.S. company has provided details of the direct involvement of Iraqi officials in the BNL Atlanta affair.
Western intelligence officials
say that a substantial portion of the $3bn of BNL money was used by Iraq to finance its development of unconventional weapons systems, including the Condor-II ballistic missile project and nuclear and chemical weapons projects.
The Iraqi project was handled by Bechtel Overseas of Hammersmith Road in London, the company's U.K. affiliate. The Financial Times has obtained a copy of a 1988 telex instruction from the central bank of Iraq to BNL's Atlanta branch, asking that Bechtel's U.K. subsidiary be paid $10m.
Mr. Tom Flynn, a senior vice-president at Bechtel, said the company never knew there was anything suspect about the $10m of BNL funds, provided in the form of two letters of credits that were issued in September 1988 and amended three months later.
`We were hired by the government of Iraq to be the project manager for an ethylene plant. Our client, the government of Iraq, told us we would be paid through letters of credit from the BNL Atlanta branch.'
The Bechtel official also said that the company received `direct encouragement' for the PC2 project from the U.S. Department of Commerce. A spokeswoman for the Commerce Department said `we were aware of Bechtel's work in Iraq through the U.S. embassy in Baghdad, but our role was a passive one'.
Bechtel said there was no suggestion at the time about the final use that Iraq might make of ethylene oxide, a product that has multiple civilian applications, but also has military uses.
Mr. Seth Carus, an expert on Iraq's chemical weapons programmes who is a fellow at the Washington Institute for Near East Policy, said the PC2 Iraqi project was intended for several purposes, both military and civilian.
`I think it is very clear, however, that the Iraqis understood what they were doing. It is evident that they wanted to limit their import dependence on chemicals that are used for weapons.'
A key feature of the PC2 project was the plan to manufacture ethylene oxide, a precursor chemical that Mr. Carus said `is easily converted to thyodiglycol, which is used in one step to make mustard gas'.
Mr. Shultz, asked about the possible production of mustard gas, said he was not `a technically proficient person' but that `I kept going back and saying these things could be converted pretty easily'. Bechtel subsequently followed the advice of Mr. Shultz, just months before the invasion of Kuwait.
Bechtel is currently one of several U.S. and U.K. firms seeking contracts for the eventual reconstruction of Kuwait.
Well, of course, Bechtel was there and, of course, after the Secretary left being Secretary, he was bound to know that ultimately Iraq was going to be a problem. But this is just one example of the nature and type of the largest corporations in our country that did extensive business. And what in? Chemical projects.
With all the lessons we could learn from the BNL scandal, I am saddened, of course, as I always am, and have been, and perplexed to report that the Banking Committee's investigation of BNL is being obstructed and frustrated by the Federal Reserve, the Justice Department, the State Department, the State of Illinois, and the Treasury Department.
Another serious example of the obstruction faced by the Banking Committee is the unwillingness of the Federal Reserve to supply over 70 BNL-related documents subpoenaed by the committee. Our committee subpoenaed, on my request, better than 40 documents.
The Federal Reserve states that it has reacted or withheld these State documents at the request of the Justice Department, and in the February 4 first report that I made, I incorporated the exchange of letters I had with the Attorney General, Thornburgh, who apparently was, and maybe continues to be, ignorant of the constitutional prerogatives involved here in the U.S. Congress' basic right to know, which is one of the last three basic powers that the Congress, I think, still preserves inviolate.
Supreme Court decision after Supreme Court decision has said nothing, not even a pending investigation, not even a pending contemporaneous judicial procedure shall prevent the Congress from having knowledge, and the Congress knowing what the facts are.
But we are obstructed blatantly, premeditatedly and coldly, and in defiance of the plain constitutional prerogative of the Congress to know. The Justice Department, at first, said, well, they were involved in a criminal prosecution in Atlanta, and they did not want to have anything to frustrate it. Well, of course not. We are sensitive to that. We are not an executive branch investigating body. We are not a judicial body. We are not a prosecutorial body. We are a legislative body, and under the rules of the House and pursuant to the Constitution, we have investigative powers in pursuance of legislative objectives which is what we are.
There is no doubt the committee has the right and needs to have and obtain this information. If we have reached the point in our country, and we have in other respects, where in effect there is no Constitution, who else but the Congress then remains?
If the Congress abdicates, then, in effect, ironically, at this 200-year point, or a little bit better, of the celebration over this system of constitutional government, we in effect have repudiated it through our abdication of our plain constitutional responsibilities. The committee must not be needlessly thwarted in fulfilling its legislative and oversight responsibilities.
Accordingly, the Justice Department has the responsibility to show the Committee on Banking, Finance and Urban Affairs, not the other way around, access to the subpoenaed documents, and how, if they were to comply with the subpoena, that would hinder their criminal prosecution. They cannot, and they have not, up to this date, given any reason that that would happen. The Justice Department failed to reveal to the committee and failed to give the committee access to these documents, and after repeated requests, to show how the delivery of those documents would diminish their ability to successfully prosecute the case against the former employees of BNL in Atlanta.
The documents being withheld, the carelessness in which some documents were redacted, and the number of people with access to redacted documents, all lead me to question absolutely the Justice Department and the Federal Reserve employees for trying to live up to their responsibility. They are needlessly, I charge again, impeding the committee investigation. I doubt that they have, even now, recognized their true understanding of the investigative and legislative functions of the Congress. But I will not yield, and I will continue to insist, and the committee will pursue this matter, because time has long gone by that our regulatory system needs to be overhauled, where the American people will be insured that they will not continue to be patsies of foreign governments and banking interests operating in our country, as they are now.
There is nobody, the Federal Reserve Board of the banking commissions in the individual States that charter these banks, this is how they get around it. The Federal Reserve Board says, `Well, these are chartered by the State of Georgia, so what?' The Federal Reserve Board is the prime responsible regulatory body for foreign entities doing business, banking business, in the United States. Yet they cannot, and no banking commission can, tell any person in America today, including the Congress, how those 635 plus billions of dollars are operating, even along the same channels as a BNL bank in Atlanta. I think this is grievous. I think this is unpardonable. I think this is a serious attack on our basic tenets, upon which our Government is predicated. I am concerned, as chairman of this committee, that the regulation and examination of the U.S. branches and agencies of foreign banks is inadequate. As I stated, these entities command over $500 billion in assets, in the United States, and a significant portion of their liabilities are now being guaranteed by the Federal Deposit Insurance Corporation. That is the bank insurance fund. It is broke right now. Those foreign entities, this massive, and I said $500 billion, someone else said $600 billion, most of these are in such form that they are insured deposits. It is incredible.
For years, I had unsuccessfully, before I was chairman of this committee, attempted to convince two prior chairmen of the committee to have some kind of hearings with respect to this international financing. I was chairman of the Subcommittee on International Development, Finance, Trade, and Monetary Policy, so I think I have some reason to be charged with knowledge. The magnitude of the BNL fiasco certainly raises a question of the adequacy of State and Federal regulations and oversight of these entities. The Committee on Banking, Finance and Urban Affairs has a responsibility to ensure that U.S. branches and agencies of foreign banks are properly and accountably regulated and supervised. The BNL case provides a clear case of regulatory breakdown that first must be understood and analyzed, and then immediately addressed and remedied. Those documents that provide clues to help the committee understand and correct these breakdowns. This is a reason we had them subpoenaed. However, the Justice Department and the Federal Reserve apparently feel the Committee on Banking, Finance and Urban Affairs could not have the right to know the committee story surrounding the BNL scandal. I can understand. It is embarrassing now, in view of the fact that our boys, will be facing death or serious bodily harm with the very procurement that those banking credits made it possible for Saddam Hussein to obtain, this weaponry. It is embarrassing.
However, it ought to be worse than that. It ought to be defined as criminal negligence by denying the committee information related to the BNL affair. The Justice Department
and the Federal Reserve could very well be impeding the committee's ability to legislate, a responsibility given to the people's representative and surely one of the cornerstones of our democratic form of government. The State Department has also asked the Federal Reserve to withhold subpoenaed documents related to its involvement in the BNL scandal. Well, I guess so. If we have now former secretary of states saying, `Hey, I told this corporation once. I came back and said, hey, you better get out,' well, I think in retrospect, a lot of these documents will point a sort of a culpatory finger to that State Department. One can only speculate what these documents contained. Obviously, the State Department played the key role in the United States-Iraqi relations. When did the State Department learn about the BNL scandal? Did the State Department know that BNL was financing companies that were exporting technology to Iraq, that was employed in its Iraqi military machine? Certainly former Secretary Shultz' statement indicates they must have. The State Department documents withheld by the Federal Reserve may or may not provide answers to these documents. At this time, the committee can only guess about the content of these important documents.
The Federal Reserve is, of course, better known as the Nation's equivalent to a central bank. But over the years, Congress has entrusted the Federal Reserve with substantial banking regulatory responsibilities. The Congress relies on the Federal Reserve to carry out many of the banking laws it has enacted. It regulates thousands of our Nation's domestic banks, large and small, and has prime supervisory authority over foreign banks operating in the United States. In that capacity, Congress relies on the Federal Reserve, as well as the other banking regulatory bodies, to ensure our Nation's financial system is operating in a safe, sound, and efficient manner.
I always ask this question when bankers and everybody else who have become inured to being the biggest reliefers on the Government dole ever. Why is it that we have had thousands, tens of thousands of bank failures in 100 years, and especially here in this last decade, when Great Britain, England, has not had any major banks fail? Why? During the Depression when we had a moratorium and the banks were closed, Canada never did. Why?
There is a good reason, and this is what I have been trying for 29 years to broach to the committee that I have belonged to for 30 years, the U.S. House of Representatives Banking Committee.
First, the Federal Reserve has been derelict in its responsibilities because it never notified the Congress about the 43 billion BNL scandal. Obviously, it is not possible for the Congress to monitor each of the roughly 30,000 Federal financial institutions operating in the United States. This is why we have the constitutional responsibility of being the policymaking body and the executive branch being the faithful executor of that policy, faithfully executing the laws.
The Congress created the Bank Regulatory Agency, like the Federal Reserve, to perform this function. The Federal Reserve and other Federal bank regulatory agencies have a responsibility to keep the Congress informed of significant developments affecting our financial system.
I will say this in all fairness, and I have said this for 30 years. No matter how much I may point my finger at the Federal Reserve, if the Congress had not abdicated its responsibility all through these years, the Federal Reserve Board would not have gotten away with any of this. It always has to be traced back to somewhere in our system, this marvelous apparatus that has given us all your opportunities and our freedom. Whenever
we have had a shortchanging of that constitutional system, we have always had a great deal of mischief to the national interest.
I feel that no longer do we have the luxury of time as we have had in the past and that hanging perilously dangling by a thin thread is a very great threat to our basic freedoms.
The Federal Reserve also attempted to frustrate the request of the committee for information involving a Bank of Italy examination report of the BNL.
Now, mind you, meanwhile I have had delegations of the Italian Parliament, the Italian Senate, who are investigating their Government because the BNL is primarily owned by the Government of Italy, and they are distressed because all of the deals, the settling of the letters of credit and the like, have been done by Iraq in the banking room in secret. So now is not only the United States, but the Italian Government, is out a couple billion dollars because of Iraqi defaults; so the Italian Parliament, the Senate did the investigating, and while the Federal Reserve Board says, `Oh, we can't give you this because we don't want to impair our relationship with the Italian bank.'
Can you believe that? The Italian Government officials are giving us what is otherwise denied by our own agencies.
We are not interested in knowing every leaf falling from the Banking and Federal Reserve Board system. We do not want to know when a bank executive stubs his toe, but it surely is reasonable to expect that a $3 billion bank fraud falls into a category that would be worthy of congressional notification.
Sadly, this Banking Committee chairman had to learn about the BNL scandal from other independent sources, mostly foreign journalists, which to this day continues to be a great source of information to me, as they have throughout the years.
Another example of the efforts of the Federal Reserve to frustrate the committee was the request or the information involving the Bank of Italy, and its examination of the BNL. The bank of Italy is the official bank. The bank of Italy acts as Italy's central bank, as well as having supervisory authority over all Italian banks. Being an Italian government-owned bank, BNL's worldwide banking operations are subject to regulation by the Bank of Italy. Upon being notified of the BNL scandal in August 1989, the Bank of Italy decided to do an examination of the Atlanta agency of BNL, which was completed shortly thereafter.
The Central Bank of Italy shared the result of its examination with the Federal Reserve and provided the Federal Reserve with a copy of its examination.
The Federal Reserve has acted irresponsibly by refusing to provide to the Banking Committee a copy of this examination report. To this date, they are refusing.
The Bank of Italy examination report would be valuable to the committee's investigation, for several reasons. First, it would offer the committee a chance to compare and contrast the Bank of Italy's examination with those of the Federal Reserve, or the Commission of Georgia.
In effect, this would provide the committee with insight into the competency of the Federal Reserve, and this is why the Federal Reserve does not want us to see it.
By comparing examination results, the committee might find the Federal Reserve did do an exact and exemplary job and that its findings are far more comprehensive than that of the Bank of Italy. Such a comparison might also reveal the Federal Reserve was asleep at the switch and that the examination of BNL was totally inadequate.
By refusing to allow the committee to see the Bank of Italy's examination of BNL, are we not then to feel suspicious of the motives of the Fed?
The Bank of Italy examination may turn out to be the key document in the committee's investigation of BNL.
Did BNL finance the sale of military articles to Iraq? Did top officials of BNL in Rome know about the activities of the Atlanta Branch? Were the former employees of BNL that perpetrated the fraud Iraqi agents? Was the CIA involved with BNL? Did the Bank of Italy examination of BNL find answers to any of these critically important questions? Only the Bank of Italy and the dozens of employees of the Federal Reserve know.
By refusing to provide the Bank of Italy examination, the Federal Reserve takes the position that the Congress of the United States does not have the right to know if the Bank of Italy report even addresses these issues.
Of course, the Federal Reserve knows what the report says. It is the Congress that does not have the right to know.
I find the Federal Reserve position preposterous and absolutely outlandish. It is a prime example of a regulatory agency that is no longer accountable, either to the Congress or to the President, but particularly to the Congress that created it.
BNL has branches in New York, Los Angeles, Miami, and Chicago. The State examination reports of the BNL offices were among the subpoenaed documents that we requested. The Federal Reserve notified each State that the documents had been subpoenaed. After initial delays, the reports of examination by the States of California, Florida, Georgia, and New York, were provided to this committee. Illinois, however, objected to the production of documents by the Federal Reserve and filed a lawsuit to prohibit the Federal Reserve from providing the committee with Illinois' examination report of the BNL's Chicago office.
To date, the courts have sided, that is, the State courts have sided with the State of Illinois, but we are appealing this decision in the Congress. Hopefully we will prevail, because without the Illinois examination report the committee does not have a complete picture of how BNL was examined by bank regulators, State bank regulators who chartered the bank to begin with.
The Federal Reserve used the Illinois decision as the basis for withholding information taken from examination reports of BNL prepared by other State regulators. In addition, the superintendent of banks for the State of New York wrote the committee requesting that the committee reach an accommodation with each State bank regulatory agency related to the confidentiality of their bank examination process.
The committee understands that request, as well as other State communications related to this issue, to mean that every State and perhaps every company and bank will want individual treatment if such treatment is granted to the State of Illinois.
The actions of New York and the Federal Reserve confirm the committee's suspicion that forcing the committee to subpoena documents from each State would result in an endless round of negotiations, then rumors, then disputes and coordination problems related to such negotiations, causing the investigation to grind to a halt.
The State of Illinois lawsuit has delayed the committee's investigation, and in the process is damaging the national interest. First, it prevents the Congress from finding out how BNL's offices in the United States facilitated the arming of our enemy. It is intolerable that the Congress should be enjoined, by court order, from obtaining records related to how this bank helped arm Iraq, and whether or not the Federal Reserve and State bank supervisory officials were, as they claim, blameless for not discovering this travesty.
Second, entities similar to BNL hold over $7.5 billion in deposits that are guaranteed by the Federal Deposit Insurance Corporation [FDIC]. As the world knows, the FDIC is already in a very unwholesome position. If there is, in fact, a structural flaw in the system of regulating and supervising entities like BNL, the FDIC, and sadly, as we have learned from the savings and loan crisis, the American taxpayer, face a substantial financial risk.
To date, the Illinois lawsuit has delayed the committee's inquiry into this matter. It has prevented the Congress from fully identifying structural weaknesses in bank supervision that were exploited by BNL and its lending officers. As a result, unevenness and flaws in the system of bank supervision, which could be revealed by the committee's investigation, remain hidden and unresolved. The FDIC and the American taxpayer remain at risk, because in the subterranean there flourish these scandals and frauds which are flourishing and finding nuture only in secrecy. We want to bring the sunlight in. What is wrong with that?
Third, the Illinois lawsuit prevents the Congress from having all the information necessary as to what exact legislative reforms involving not only foreign banks but our dual system of bank regulation are warranted.
Finally, the Illinois lawsuit creates a dangerous precedent that could seriously hinder future congressional oversight and investigations, our investigatory efforts.
The Secretary of the Treasury Department acts as the Chairman of the National Advisory Council [NAC], an interagency coordination body which was responsible for approving the $5.5 billion in agriculture credits to Iraq as well as a $200 million insurance policy, as I explained, offered by the Export-Import Bank to cover exports to Iraq. One component of the committee's investigation deals with the role of the NAC in granting such a large credit line to Iraq and the effect the BNL scandal had on Iraq participation in agriculture and export credit programs.
On October 6, 1990, I wrote Secretary Brady requesting that Banking Committee investigators be permitted to review the minutes of NAC meetings dealing with BNL involvement with Iraq in the above programs. The Treasury Department could not find the time to permit this to occur for over a period of 4 months. Finally, after repeated insistence on our part on February 14, 1991, Treasury allowed a committee investigator an opportunity to review the pertinent NAC minutes. There were roughly 40 pages of minutes, of which only a portion were related to the decision of the NAC to approve the Iraqi credits. But Treasury withheld minutes from the two most important NAC meetings in 1989 and 1990.
Why would they withhold? If they were so right then, even though it may not look so good now, whey would they be hesitant? When you are right, you want to proclaim it from the rooftops, you do not want to hide it. It is only when you fear something, as Treasury does, that you have fear.
To the committee's surprise, the Treasury had classified the minutes of the meetings and would not permit the committee to look at them because of a lack of security clearance. Of course the Treasury Department had failed to mention that the minutes of the two important meetings had been classified. When asked how often the Treasury Department classified minutes of meetings of the NAC, the counsel, the lawyer, for the Treasury Department stated, `To the best of my recollection, and I may be wrong, I cannot remember the minutes of the meetings being classified over the roughly 10 years I have had contact with them.'
The Treasury's unusual action raises several interesting questions. What is the Treasury Department and the other NAC participants hiding? I wonder if they are embarrassed by their decision to grant billions in credit to Iraq even though Iraq was not creditworthy? It had already defaulted. I bet the United States taxpayer, who is out over $2 billion because of Iraqi defaults on these programs, would sure like to know if this was the case. It couldn't be that NAC participants, the State Department, the Federal Reserve, the United States Trade Representative, the Commerce Department, the Agency for International Development and the Export-Import Bank are embarrassed by their decision to grant billions in credit to Iraq even though Iraq was:
Using poison gas on its own people;
Using poison gas in its war with Iran;
Supporting international terrorism;
Repeatedly violating the human rights of its people including placing severe limits on free speech, and freedom of assembly;
Detaining political prisoners without charge or trial;
Torturing and executing political prisoners;
Destroying cities housing over 100,000 Kurds and making refugees out of these people;
Developing nuclear weapons;
Cheating on Agriculture Department programs; and
Executing a foreign journalist, just to mention a few of the known faults of the Iraq regime.
Can it be that this august body, known as the National Advisory Council, knowing full well and charged with knowledge of this, would still grant these huge billions of dollars of credit to Iraq? I guess it would be embarrassed.
Rest assured, the Banking Committee, as long as I am chairman, plans to investigate the factors pertinent to the administration's decision to grant billions in credit to the oppressive regime of Saddam Hussein and also to act forthwith and as soon as possible to prevent ongoing transactions that are now going underway in the case of other foreign banking institutions that could be contrary to the national interest. In fact, after the President announced and issued the two Executive orders on August 2, the decision to freeze assets--and by that time, of course, the country of Iraq did not have any assets, it had its liabilities over here on which it had defaulted--but we also announced the embargo.
In November, Germany alone--and there are a lot of German banking interests' activities in our country--were given a list of 50 companies in Germany by the National Security Agency that were violating the embargo in November. Was anything done? No.
How much of that is still going on?
Rest assured, the Banking Committee will not let go of this.
While the committee continues to encounter efforts to thwart its BNL investigation, the BNL investigation is going to go through. I plan to go ahead full steam with the investigation to learn the entire truth about the scandal in order to understand fully its effect on United States-Iraqi relations, plus the other and most important, which is the necessary legislative reforms to plug up these leaks and patch up and, if possible, develop an efficient regulatory system in our country.
We must learn from our mistakes in order to stop avoidable wars. The public demands and deserves no less from us, their Representatives.
The SPEAKER pro tempore (Ms. Kaptur). Under a previous order of the House, the gentleman from Georgia [Mr. Gingrich] is recognized for 60 minutes.
[Mr. GINGRICH addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from New York [Mr. Owens] is recognized for 60 minutes.
[Mr. OWENS of New York addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Indiana [Mr. Burton] is recognized for 60 minutes.
[Mr. BURTON of Indiana addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]