Gonzalez's Iraq Expose
Hill Chairman Details U.S. Prewar Courtship

[Page: H1763]

(Mr. FRANK of Massachusetts asked and was given permission to address the House for 1 minute and to revise and extend his remarks and include extraneous matter.)

Mr. FRANK of Massachusetts. Mr. Speaker, I want to call to the attention of the House the extraordinary discussion which the chairman of the House Committee on Banking, finance and Urban Affairs, the gentleman from Texas [Mr. Gonzalez], has been having about the incredible pattern of misbehavior and coverup with regard to Iraq that has been perpetrated by this administration.

Just to quote briefly from the Washington Post article on last Sunday:

Almost every Monday for the past couple of months, Representative Henry B. Gonzalez has been setting the Bush administration's teeth on edge with fiery exposes about its courtship of Iraq before the invasion of Kuwait in August 1990. Gonzalez's special orders are full of excruciating detail that could haunt the White House before this election year is over.

The article in its entirety is as follows:

From the Washington Post, Mar. 22, 1992


Gonzalez's Iraq Expose--Hill Chairman Details U.S. Prewar Courtship


Almost every Monday for the past couple of months, Rep. Henry B. Gonzalez (D-Tex.), the feisty chairman of the House Banking Committee, has been setting the Bush administration's teeth on edge with fiery exposes about its courtship of Iraq before the invasion of Kuwait in August 1990.

So far, hardly anyone has been listening. Gonzalez's `special orders'--as such uninterrupted speeches are called--are delivered to a virtually empty House floor. But they are full of excruciating detail--much of it classified `'secret' and `confidential'--that could haunt the White House before this election year is over.

Gonzalez's charges are simple and direct: Senior Bush administration officials went to great lengths to continue supporting Iraqi President Saddam Hussein and his unreliable regime long after it was prudent to do so.

U.S. officials insisted in 1989, for instance, on playing down the importance of a scandal involving an Atlanta-based bank and more than $5 billion in unauthorized loans to Iraq, including $900 million guaranteed by the U.S. government. They even intervened in the case to prevent indictment of the Central Bank of Iraq while the Persian Gulf War was raging.

Despite stiff opposition from some officials inside the administration, senior policymakers pushed ahead with $1 billion in fresh agricultural credits for Iraq under a Commodity Credit Corp. program. They also pressed for continued Export-Import Bank financing despite congressional sanctions and kept sharing intelligence information with Baghdad until a few weeks before Iraq's invasion of Kuwait.

Then, in the wake of the gulf war when Congress began demanding more information about the prewar conduct of U.S. policy toward Iraq, administration officials tried to hide their embarrassment under a cloak of national security and created what Gonzalez has called a `coverup mechanism' to keep investigators at bay.

Administration officials strenuously contest the accusations of impropriety and illegality, but they plainly would rather not talk about them at all. So far, they have sent only muted complaints to Capitol Hill about Gonzalez, by way of the House Republican minority, even though, House aides say, the Texas congressman has plunked more classified documents into the Congressional Record than anyone since the Vietnam War.

`We have received no formal communication from the administration on the issue,' said a spokesman for House Speaker Thomas S. Foley (D-Wash.).

The centerpiece of the controversy is the scandal involving the Italian government-owned Banca Nazionale del Lavoro (BNL). It broke open on Aug. 4, 1989, when FBI agents and Federal Reserve officials, tipped off by two bank executives, raided BNL's Atlanta branch and confiscated thousands of documents. The branch had become Iraq's principal source of credit in the United States between 1984 and 1989, a period in which Iraq's eight-year-long war with Iran had turned Saddam's regime into a cash-starved and unreliable debtor.

According to interviews with knowledgeable officials, records made public by Gonzalez and documents obtained from other sources, it was soon apparent that Iraq was involved in a massive fraud to pump billions of dollars in illegal loans and credits out of BNL-Atlanta, far above the amounts reported to the Federal Reserve.

About half of the money allegedly went to finance the purchase of U.S. farm products, including $900 million guaranteed by the Agriculture Department's Commodity Credit Corp., but investigators said much of the rest had helped fuel Iraq's military buildup.

U.S. Customs Service reports dated Sept. 21, 1989, and Oct. 20, 1989, pointed out that BNL was suspected of financing shipments of industrial machinery, military-type technology and various controlled chemicals to Iraq and providing loans `to various U.S. firms for the illegal export to Iraq of missile-related technology.'

Federal prosecutors in Atlanta anticipated quick indictments. In Washington, records show, Agriculture Department officials learned in early October 1989 that the evidence indicated their $1 billion-a-year CCC program for Iraq was riddled with corruption, including kickbacks and bribes demanded by Iraqi government agencies and questionable consulting fees for Iraqi front companies in the United States.

There were also allegations, still unresolved, that food shipments destined for Iraq under the loan program never got there and may have been diverted to other countries in exchange for cash or goods. Investigators say they now believe some food may have been traded for weapons or Soviet bloc military assistance.

[Page: H1764]


Despite that, Agriculture officials recommended an `interim' $400 million in additional food credits be granted Iraq under the CCC program, and this was approved by an interagency council Oct. 4, 1989, over the opposition of the Federal Reserve and Treasury representatives. A confidential State Department memo minimized the objections of the two agencies, saying they were made `at the behest' of the Office of Management and Budget, which State suggested was taking its role as `watchdog against scandal' too seriously.

But Iraq rejected the $400 million as insultingly low--Baghdad had received $1.1 billion the year before--and said such a relatively small amount would be `widely viewed as a U.S. vote of no confidence in Iraq debt policy.' On Oct. 6, according to a secret cable, Secretary of State James A. Baker III assured complaining Iraqi Foreign Minister Tariq Aziz at a meeting here that he would `look into the matter immediately.'

BNL officials in Rome, faced with parliamentary demands for an investigation there, were also getting worried. On Oct. 19, 1989, according to a State Department cable, BNL's chairman and its director-general called on U.S. Ambassador Peter F. Secchia and `suggested that the matter should be raised to a political level.' They said they wanted to cooperate fully with U.S. authorities `while at the same time making it fairly clear they want to achieve some kind of damage control.'

Sometime that same month, President Bush stepped into the fray, issuing National Security Directive 26 (NSD-26). Gonzalez said the order has been withheld from his committee on grounds of executive privilege, but other documents show that it ordered `pursuit of improved economic and political ties with Iraq.' A report to Baker, dated Oct. 26, 1989, cited the directive in recommending approval `on foreign policy grounds' of a $1 billion CCC program for Iraq, to be paid in two installments in light of the BNL investigation.

The report warned that the bank fraud `may also involve several high Iraqi officials,' but emphasized; `Iraq is now our ninth largest customer for agricultural commodities. . . . Our ability to influence Iraqi policies in areas important to us, from Lebanon to the Middle East peace process, will be heavily influenced by the outcome of the CCC negotiations.'


Baker called then-Secretary of Agriculture Clayton Yeutter and urged him to go forward with the $1 billion program. Deputy Secretary of State Lawrence S. Eagleburger made similar appeals to Treasury and OMB, explaining in one note that `the CCC program is important to our efforts to improve and expand our relationship with Iraq, as ordered by the President in NSD-26.'

The full $1 billion was approved at a high-level interagency council meeting on Nov. 8, 1989. According to a confidential memo, Treasury, the Federal Reserve and OMB still felt that `allegations of Iraqi wrongdoing in the BNL case, though not backed by evidence at this time, could eventually embarrass the administration.' But once again, the State Department representative invoked NSD-26 and said that `to abruptly terminate the [CCC] program would . . . clearly run counter to the president's intention.'

Alarmed by Baghdad's human rights abuses such as the gassing of Kurdish villages in northern Iraq, Congress later that month enacted limited sanctions against Iraq, prohibiting Export-Import Bank financing without a presidential waiver. The State Department quickly drafted one and Bush signed it Jan. 17, 1990, declaring that a prohibition on Ex-Im loan guarantees for Iraq--essentially a $200 million revolving credit line--would not be `in the national interest of the United States.'

Around that time, other documents show, prosecutors in Atlanta were planning to bring an indictment in February and wanted to arrange interviews abroad of some `essential witnesses,' especially in Turkey. The interviews never came about, for reasons that are not yet clear. Justice Department officials in Washington say they stepped into the case in February 1990 in view of its international implications. Not until a year later--on Feb. 28, 1991, the day after Bush ordered a cease-fire in the gulf war--were charges formally brought.

`It was a very complex case,' said Gerrilyn Brill, first assistant U.S. attorney in Atlanta. `There is no connection between any failure to meet our expected dates in the indictment and foreign policy considerations.'

Brill is in charge of the case because the U.S. attorney in Atlanta, Joe D. Whitley, appointed in the summer of 1990, disqualified himself. He came from a firm that represented Matrix-Churchill of Ohio, an Iraqi front company and machine tool manufacturer named in the indictment as one of the recipients of BNL loan money.

`It's just a matter of happenstance,' Laurence A. Urgenson, acting deputy assistant attorney general, said of Whitley's Matrix-Churchill connection. Urgenson, who worked closely on the case as chief of the Justice Department's criminal fraud section, said `people keep linking things together that don't link. You have no idea how unrelated the war was to what we were doing. We indicted the day we were finished.'


The Agriculture Department finally halted the CCC loan program in May 1990 as relations with Saddam were deteriorating, but by then, half the $1 billion in credits had already been used.

Documents indicate the cutoff came after a May 29 meeting of the National Security Council deputies committee. A secret State Department options paper prepared for the session listed other actions that could be taken against Iraq and noted that U.S. intelligence was still providing Baghdad `with limited information on Iranian military activity that would be missed.'

It is not clear when that intelligence-sharing relationship was terminated. A knowledgeable official said intelligence sharing was not discussed at the NSC meeting.

Months later, with the BNL indictment imminent, prosecutors wanted to name the Central Bank of Iraq as a defendant, a step they said would allow them to freeze $1.5 billion in Iraqi assets. Top lawyers from the State Department, the Federal Reserve and other agencies successfully opposed the move as a dangerous precedent that could invite similar action by other countries against the Fed.

In a separate memo, the State Department, apparently anticipating Saddam's downfall, expressed additional reservations, saying the Iraqi central bank `will be an important element in any reconstruction regime.' The memo also noted with apparent satisfaction that `contrary to press reports,' Saddam's son-in-law, Hussein Kamal, was not on the list of those to be indicted. He has been named, instead, as an unindicted co-conspirator.

The 347-count indictment accused three officers of BNL-Atlanta, two of whom pleaded guilty last Friday, of conspiring with four Iraqi officials in what amounted to a rogue operation to defraud BNL of more than $5 billion without the knowledge or approval of higher-ups in the Italian bank. According to one Justice Department memo, the main defendant in the case, Christopher Drogoul, who ran BNL-Atlanta, has accused higher-ups in Rome of complicity, but prosecutors rejected his claims as `spurious.' The trial is set for June 1.

Simply stated, Mr. Speaker, this article shows a pattern of this administration courting Saddam Hussein, of overruling efforts within the administration to cut off aid to him and, in fact, helping to create the monster that caused us so much difficulty a year and a half ago.