The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Texas [Mr. Gonzalez] is recognized for 60 minutes.
Mr. GONZALEZ. Madam Speaker, the FBI raid on the Atlanta office of the BNL, the Banco Nazionale del Lavoro, the Italian Government-owned bank agency in Atlanta.
Now, that sounds like jargon, but actually it means a lot. There is a lot of difference in an agency. An agency is chartered by a State, in this case the State of Georgia Banking Commission. Therein is part of the problem because you have these foreign banking entities, most of whom are owned by their respective governments, and they are operating in the United States under State charters where the banking commissions of the States are just absolutely not able or set up to properly supervise.
Then you have the Federal Reserve Bank that is supposed to be the national overseer, and it is not.
So what the United States has, as I have said repeatedly, and the reason that motivates me and has since beginning 3 years ago, as a matter of fact, in this case, and in the awesome exposure of the national well-being and safety and soundness of our banking system.
Now, that raid by the FBI on August 4, 1989, led to the unraveling not only of one of the biggest banking scandals of all time, it also laid bare that the United States was carrying on a strange, secretive, clandestine relationship with Iraq, which was at that time and still is today one of the most notorious governments in the world. It was Iraq, after all, that had used chemical weapons not just against its Iranian enemies but against its own Kurdish minority.
But let me say here it ill behooves the West to try to single out Iraq and Saddam Hussein. They were the first ones to use poison gas in that area and against what the RAF or the British, in asking Winston Churchill permission to use poison gas against what they called rebellious or recalcitrant Arabs, it was in Iraq, what we call Iraq in the 1920's, 1921-23.
So, when we start trying to get goodie-goodie about poison gas, remember it was our great Western culture in World War I that used that horrible weapon, poison gas, to the destruction of many human lives on both sides of the contending forces.
Since then, even in the Iraq-Iran war it was charged that not only Iraq but Iran made use of that. Lord only knows. The only thing I do know is that we were aware and so were our intelligence, so-called, experts aware.
The Government of Iraq was and still is notorious for its abuse of human rights, its support of terrorism, its soaring military ambitions, and its aim to become the dominant military power in the Middle East. And that is based on a more complicated and complex line of events, which is not my interest to go into. That is over in another area of committee responsibility.
Madam Speaker, I have maintained and I have subscribed and I have adhered to one single-minded purpose, and that is the determination to eventually provide for the United States through the legislation that must be forthcoming from the Banking Committee, which I have the great honor to chair, the proper defense or protection against a continuation of these malpractices that are still going on in far vaster activities than even BNL or the so-called BCCI scandal.
Despite all this, the United States allowed Iraq to become the biggest customer of the Commodity Credit Corporation, a guaranteed program. Guaranteed by whom? The Taxpayers, of course. That was financed largely through loans made by the BNL Atlanta office. Not only that, Iraq operated an extensive secret military procurement network in this country and in Europe which was also financed through the BNL Atlanta, not through CCC guarantees but through commercial loans.
This is the conclusion that the administration at first tried to use mostly through the person of the then Deputy Secretary of State Eagleburger, now the acting Secretary of State. The U.S. Government knew about the secret procurement network, and it made a decision, and that decision was to tolerate it, even after the BNL office was raided in 1989.
Consider this: the BNL Atlanta office was raided on August 4, 1989. The raid revealed that BNL was funding Matrix-Churchill Ltd. and Matrix-Churchill Corp., known Iraqi procurement fronts.
The raid also revealed that Iraq was funding several other firms, including TDG, TEG, and Euromac, that the CIA linked to Iraq's clandestine military procurement network.
Our intelligence knew all of this, and I have placed in the Record over the last 2 years, beginning with the hearing we first held in 1990, clear documentation showing that the intelligence facilities of our country had tried to protest. Our military intelligence in the Pentagon, that branch that is in charge of defending the improper procurement of military-sensitive hardware, made it known.
The Secretary of State was advised, the President was advised, and I brought this out in the last 2 years.
So I am just repeating what is already in the Record. Yet, just a few months later, after warning its allies in Europe to be alert to Iraqi efforts to buy glass fiber technology, the U.S. Government--that is, this administration and the immediate past one--approved a Matrix-Churchill export license for the sale of the complex fiber factory to Iraq's largest armaments producer.
In fact, the Bush administration continued to approve the sale of military-useful technology to Iraq even when that technology was known to be destined for Iraqi arms factories. This policy was in place right up until Iraq invaded Kuwait.
On the basis and predicate of all this, banking resources, banking facilities, just like everything from military procurement to drug money laundering, all filters through this banking system.
The problem is that we are the only industrialized country that has no protective mechanism, no defense regulatory system. That is almost impossible to believe. I guess that is why my colleagues sometimes over the past 2 years have kind of shrugged me off. Some have said I am a Don Quixote. Well, my answer to that is I would rather be Don Quixote than Sancho Ponsa.
After the BNL raid, a declassified November 21, 1989, State Department memorandum on exports licensing states:
U.S. policy, as confirmed in National Security Directive 26, has been to improve relations with Iraq, including trade * * * although U.S. policy precludes approval of Munitions Control licenses for Iraq, exports of dual use commodities for conventional military use may be approved.
The memo goes on to say that the Bush administration's export licensing policy made it easy for Iraq to obtain military useful technologies from the United States. The memo states licenses were approved despite clear warning signs:
1. A presumption by the Intelligence Community and others that the Iraqi government is interested in acquiring a nuclear explosives capability;
2. Evidence that Iraq is acquiring nuclear-related equipment and materials without regard for immediate need;
3. The fact that state enterprises * * * are involved in both military and civilian projects;
4. Indications of at least some use of fronts for nuclear-related procurement; and
5. The difficulty in successfully demarching other suppliers not to approve exports of dual-use equipment to state enterprises and other ostensibly non-nuclear end users.
There are other State Department memos--for my disturbed colleagues on the minority side--recently declassified, that show the administration was fully aware its policy helped to arm Saddam Hussein. A spring 1990 memo states:
An initial review of 73 cases in which licenses were granted * * * from 1986-1989 shows that licenses were granted for equipment with dual or not clearly stated uses for export to probably proliferation-related end-users in Iraq.
Yet another 1990 State Department memo shows that the Bush administration knew that their export licensing policy toward Iraq was actually working to enhance Iraq's military capability. The spring 1990 memo, which addresses the urgent need to change the export licensing policy toward Iraq, states:
Formulating such a policy will be complicated because end-users which engage in legitimate non-nuclear and non-missile related end-users also procure commodities on behalf of Iraq's nuclear and missile programs. Because the Iraqi government network serves both nuclear and missile programs, one cannot distinguish between purchasers of nuclear concern and those of missile concern.
The secret United States policy to enhance Iraq's military capability was perfected by the administration's refusal to verify the end use of United States technology that arrived in Iraq--so-called post installation checks. In fact, out of 771 export licenses approved for Iraq, only once did the United States Government check to ensure that the equipment was actually being used for civilian purposes.
In short, the policy was to let Iraq have United States equipment that could easily be used by or diverted to military applications, with a simple request that Saddam Hussein refrain from doing so. This happened even though the United States knew Saddam Hussein was making every effort to develop chemical and nuclear weapons as well as other advanced weapons.
Why did the Bush administration take such a dangerous and shortsighted approach to appeasing Saddam Hussein?
Even now, why? The administration has said:
Oh, well, we admit we made a mistake then. In retrospect it looks bad.
But even then--you mean it looked good then?
Today I will offer for the Record a startling--and my dear Republican friends should take note--declassified document, that sheds light on why the White House and State Department were willing to permit Iraq's nefarious procurement activities.
The President has repeatedly claimed that his policy toward Saddam Hussein was `* * * to encourage Saddam Hussein to join the family of nations.' And he has publicly denounced those who suggest that the policy gave Iraq access to `bombs or something of that nature.'
But the truth, alas, is very different. The overriding and obvious motivation for engaging Saddam Hussein was access to cheap oil. In return, Iraq received the green light to purchase sophisticated United States military technology. National Security Directive-26 clearly states the Bush administration's motivation:
Access to Persian Gulf oil and the security of key friendly states in the area are vital to U.S. national security.
As a quid pro quo for access to Iraqi oil, the Bush administration made a commitment to facilitate the sale of U.S. goods and services to Iraq. Again, National Security Directive-26 states:
We should pursue, and seek to facilitate, opportunities for U.S. firms to participate in the reconstruction of Iraq's economy, particularly in the energy area * * *.
The problem was that Iraq was never satisfied with obtaining just civilian goods and services--Iraq's highest priority was ever increasing access to United States military technology.
During both the Reagan and Bush administrations, Iraq often pressed for greater access to United States technology and the State Department and White House supported such requests. For example, a 1987 memorandum related to then Vice President George Bush's meeting with Iraqi Ambassador Nizar Hamdoon states:
Commerce licenses for some high-tech U.S. exports to Iraq have been held up * * *. From the Iraqi perspective the long delays appear to be capricious. We (the State Department) agree with that assessment.
In 1988 the Commerce Department was compelled to approve licenses for Iraq despite Iraqi use of chemical weapons against its own people. An affidavit signed by the former head of the Commerce Department's Bureau of Export Administration states:
In the summer of 1988 a number of licenses were pending with regard to technology transfer to Iraq. I asked for official guidance with regard to what licensing policy would be to Iraq since by that time there was credible evidence of use of poison gas by the Iraqis * * *. I was told by the National Security Council that * * * I should clear the licenses that were pending for Iraq.
Those licenses and many others in later years were cleared over the objections of the Department of Defense and others in the administration that were concerned about proliferation. By the end of the Reagan administration Iraq clearly was a major proliferation threat. Instead of cutting back on military expenditures and rebuilding its civilian economy at the end of its bloody war with Iran, Iraq undertook what the CIA called, an ambitious military industrialization program designed to make it the preeminent military power in the Middle East.
This massive military industrialization program sent a clear warning sign to the administration, but such concerns were overridden mainly because of Iraq's approach to the United States. Iraq used a carrot and stick approach to secure access to United States technology and credit. In return for continued access to technology and credit, Iraq granted United States oil companies favorable deals on purchases of Iraqi oil. The United States bought the bait and purchases of Iraqi oil skyrocketed during the Bush administration.
A recently declassified State Department memorandum to Secretary Baker, dated March 23, 1989, sheds light on that policy tradeoff. The memo was crafted to provide background information for the Secretary's meeting with the Iraqi Ambassador Nizar Hamdoon. The memo states:
Iraq would also like freer export licensing procedures for high tech.
The memorandum also states:
As part of its approach to the United States, Iraq has in the last year given favorable deals to U.S. oil companies; oil experts to the U.S. have soared to around 500,000 barrels per day.
Giving favorable oil deals to U.S. firms furthered Iraq's ultimate strategy of increasing its importance to the United States. The success of this plan, as measured by oil sales, is illustrated in a recently declassified CIA report dated April 1990 which states:
The U.S. purchase of Iraqi oil have jumped from about 80,000 barrels per day in 1985-1987 to 675,000 b/d so far in 1990--
about 24 percent of Baghdad's total oil exports and eight percent of new U.S. oil imports.
By the time Iraq invaded Kuwait, United States purchases of Iraqi oil had grown to over 1.1 million barrels per day. The largest single purchaser was Exxon, but there were many others. Even the Department of Energy got into the act. The Department purchased over 3.4 million barrels of Iraqi oil only months before the gulf war.
Obviously, Iraq's approach of providing United States oil companies with favorable deals was well received in the Bush administration. During the same period that United States purchases of Iraqi oil skyrocketed, the Bush administration approved nearly 200 export licenses for Iraq. As I have shown in previous reports, many of those licenses were approved despite ample evidence showing the United States equipment was destined for known Iraqi weapons complexes.
The Bush administration clearly made the proverbial `deal with the devil,' and, `Ah, there's the rub,' I say to all my Republican friends that were trying to muzzle me, according to the papers last Friday. I say to them, `I'm not revealing anything of any kind of consequence to the national security. I think I can tell the difference. But what you all ought to worry about is how the Devil has infiltrated the CIA.'
I long contended the Devil must have had a lot of his moles ensconced in those secret recesses over at Langley, and so I would ask, `What is the Devil?' The Prince of Darkness. Error. The Devil equals error. The Devil connotes mistakes and misunderstandings. It suggests the darkness of ignorance, the lapse of intelligence. It is intelligence gone wrong. And that Devil, he is a bad one.
So, Mr. Speaker, I suggest to my colleagues, `Don't try to exorcise me. Get your bell, book and candle, and troop all of you over to Langley, and exorcise the Devil out of that CIA.'
The Bush administration, as I said, approved the sale of United States technology for Iraq, and, in return, United States oil companies received a discount when purchasing Iraqi oil.
Maybe this was natural. The President himself is an oil man and so are his closest advisers who were responsible for setting and implementing the United States policy toward Iraq. Secretary of State James Baker and Commerce Secretary Robert Mosbacher understand the oil business, and they understood the significance of the deal Iraq offered. Our main goal was access to cheap oil; Hussein wanted cash, credit, and military technology. Oil made it all possible, and remember, my colleagues, I placed in the Record the Executive order where President Bush about this time exonerated; that is, took out of the coverage of the conflict of interest proviso, to exempt 11 of his Cabinet and top adviser level. That means all these oil companies. So, he exempted them from any kind of conflict of interest, and I reported that several reports ago.
As part of its policy of appeasing Saddam Hussein, the United States Government turned a blind eye to many of the procurement activities of Iraq. In fact, the CIA had information showing that Matrix-Churchill Corp. in Cleveland, OH, was part of Iraq's military technology procurement network, yet Matrix-Churchill was allowed to gather United States technology for Iraq until 2 months after the invasion of Kuwait. I will now provide more background on the operations of Matrix-Churchill.
In previous reports I have indicated that BNL was one of the major sources of funds for Iraq's military industrialization program. Iraq's Ministry of Industry and Military Industrialization [MIMI], which was headed by Saddam Hussein's son-in-law, Hussein Kamil, eventually utilized over $2 billion in BNL loans for its ambitious military industrialization effort.
Where do we come in here? I will tell my colleagues where. The taxpayers had to make up for that one with the 10 U.S. banks that BNL had used to sort to syndicate its exposure, and they have already been paid back, at least a billion. And where do my colleagues think that money came from? Iraq? Of course not. BNL? Of course not.
BNL funds were used to procure equipment for weapons projects including the clandestine nuclear weapons program, missile projects including the short-range Ababel rocket, the Scud B modification project, and the long-range Condor II ballistic missile, Gerald Bull's supergun, and 155 mm and 210 mm self-propelled howitzers and other Iraqi weapons programs.
In order to procure sophisticated Western equipment, often clandestinely, MIMI created a complex web of worldwide procurement networks. Network front companies were often staffed with Iraqi intelligence agents who reported directly to Hussein Kamil and other MIMI officials.
The BNL-funded network operating in Europe and the United States was called the Al-Arabi Trading Co. network. Al Arabi was headquartered in Baghdad and appears to have been under the control of Iraq's main weapons complex, the Nassr State Enterprise for Mechanical Industries [NASSR]. NASSR was the key producer of Iraqi missiles and was heavily involved in clandestine nuclear and chemical weapons programs and some aerial bombs.
In 1987, Al-Arabi set up its main procurement front in London, a holding company called Technology Development Group or TDG. In 1987, TDG set up a firm called TMG Engineering [TMG] which was the vehicle used to purchase the venerable British machine tool maker Matrix-Churchill Ltd. and its Cleveland, OH, affiliate Matrix-Churchill Corp.
Mr. Speaker, Gus Matrix-Churchill Ltd. [MCL] was the United Kingdom's premier toolmaker and a major supplier of machine tools to arsenals around the world. It has been in existence since 1923 and its two plants in the United Kingdom employed over 700 people. Matrix-Churchill Corp. is the U.S. sales and service affiliate of MCL and it was established in Cleveland, OH, in 1967.
Matrix-Churchill machines are well known in the machine tool industry and in the armaments industry. Matrix-Churchill literature details its military significance:
Churchill is a major supplier of machines for munitions production in the United Kingdom and one of the leading suppliers worldwide with some 275 munitions installations.
Matrix-Churchill machines are in the arsenals of countries such as the United States, United Kingdom, Israel, Mexico, Pakistan, Taiwan, the Soviet Union, China, Argentina, Austria, Norway, India, Belgium, Netherlands, Australia, Egypt, Italy, and South Africa, among others. Matrix machines are used to make artillery shells, the body for artillery fuses, armor-piercing ammunition and more. Matrix-Churchill records show that in 1988, over half of the machine tool deliveries were for munitions applications--the majority of them destined for Iraq.
Matrix-Churchill had contracts to provide machines for Iraq's armaments industry even before it was sold to the Iraqi front company TDG. Matrix had a contract called the ABC contract to supply machines to an Iraqi munitions factory called the Hutteen General Establishment [Hutteen]. These machines were used to produce 155 mm, and 122 mm, artillery shells.
A second contract, called the ABA contract, was to supply machines to be used in the production of a short-range rocket called the Ababel rocket which was manufactured at the Nassr State Enterprise for Mechanical Industries [NASSR]. Matrix-Churchill machines were also used in an artillery fuse factory at NASSR constructed by Carlos Cardoen. We will come back to Mr. Cardoen of Brazil later on.
The United Kingdom Government knew about the Iraq-related activities of Matrix-Churchill. The British Department of Trade and Industry [DTI] approved the deals. The director general of Hutteen even had a picture of himself and the British military attache hanging in his office. That picture was taken during the British military attache's tour of Hutteen.
Likewise, the Bush administration approved licenses for exports of U.S. equipment to Hutteen and other Iraqi weapons complexes even though intelligence reports verified they were armaments plants. Approval of these licenses helped enhance Iraq's military capability, contrary to the President's claim that the United States did not help arm Iraq.
Matrix-Churchill machines are currently used in the machine shops of the U.S. Army's Rock Island Arsenal in Illinois, and the Army's Anniston Depot locations in Avon, KY, and Bynum, AL. Matrix-Churchill machines are also used to produce 155 mm artillery shells for Canada's military through a firm called Ingersol in Quebec, Canada. A Mexican firm Metalmaq S.A: Sociedad Anonimo, anonymously chartered--uses Matrix-Churchill machines to produce cartridges for 90 mm and 75 mm guns.
Matrix-Churchill machines are also sold to the U.S. nuclear energy industry. A firm called VITCO Nuclear in Cleveland makes nuts and bolts for valves and pumps that are used in U.S. nuclear powerplants. All of this made Matrix-Churchill an attractive company to purchase.
One of the first moves Iraq made when it took over MCC was to abandon its sales and service operations in favor of setting up a procurement and project management division to procure technology for Iraqi arms complexes like NASSR and Hutteen. The procurement division received inquiries from Iraqi entities interested in purchasing United States equipment and services. The department identified sources of equipment and services, and then inspected, evaluated, and selected United States equipment for export to Iraq. Sometimes Matrix-Churchill would purchase the equipment directly from the United States firm and then ship it to Iraq. However, the Iraqi end-user usually purchased the goods directly from the United States firm. In these cases Matrix-Churchill demanded and often received a kickback from the United States firm of between 5 and 10 percent of the total value of the contract. These kickbacks were intended to cover the cost of operating the procurement department.
The procurement division of Matrix-Churchill, which was established in 1987, was headed by Sam Naman, who was most likely an Iraqi intelligence operative. During the 1980's, Sam Naman worked in the United Kingdom for the known Iraqi intelligence operative Safa Al Habobi, the front man who helped set up and operate the Al Arabi procurement network. Al Habobi was the owner of record of Matrix-Churchill Corp., and several other Iraqi front companies, in the United States.
The Iraqis also set up a project management division within Matrix-Churchill in 1988. The project management division was established to manage the activities of United States companies that won contracts to work in Iraq. The BNL-financed glass fiber factory at NASSR was the project management division's biggest project.
The director of the project management division, Abdul Qaddumi was not hired by the U.S. head of Matrix-Churchill. Instead, Qaddumi was hired at the direction of Safa Al Habobi. While Mr. Naman and Mr. Qaddumi had supposedly never met before working for Matrix-Churchill, on one occasion an American employee of MCC once overheard them talking about the previous project they had worked on together prior to arriving at Matrix-Churchill.
Apparently Sam and Abdul had previously worked together, contrary to what they told the American employees working at Matrix-Churchill. The Iraqis working at Matrix-Churchill often talked about sensitive topics in Arabic rather than English. In addition, much of the correspondence related to sensitive matters such as discussions with Safa Al Habobi about money were written in Arabic to conceal the contents from the Americans working at MCC.
Apparently Matrix-Churchill's owners had secrets to keep. In a July 10, 1989, memo Dr. Safa Al Habobi instructed employees of Matrix-Churchill to retain certain expense reports in Baghdad because they indicated that the Baghdad branch of Matrix-Churchill was paying various expenses of Iraqi military establishments. The memo states:
There is some doubt here about the bills being presented in full (to Matrix-Churchill) as they are from Military companies that we feel, if they are translated by your accountants, cause you a few problems.
Obviously, Mr. Al Habobi was concerned about letting U.S. accountants see that Matrix-Churchill was paying the expenses of Iraqi military establishments.
In an eerie moment in July 1990, a month before the Iraqi invasion of Kuwait, Sam Naman asked several MCC employees how the United States might react if Iraq invaded Kuwait. Several days after Iraq invaded Kuwait, one of the American employees of MCC confronted Sam about his prescient prediction. Sam just shrugged.
Mysteriously, the Bush administration waited for 6 weeks after the invasion of Kuwait to shut down Matrix-Churchill.
Sam Naman was interviewed for a couple of hours by Customs agents and released. He was allowed to leave the country shortly thereafter and was never again questioned by U.S. law enforcement officials. When the Iraqi owners decided to abandon Matrix-Churchill Corp.'s domestic business in favor of procurement and project management for Iraqi projects, there was a need to secure new sources of revenue. On the procurement side, the source of funds was kickbacks was paid by United States firms that won multimillion dollar contracts for various projects in Iraq. Under this scheme a United States firm that won a contract in Iraq was required to pay MCC a kickback of between 5 and 10 percent of the contracts value.
Firms paying this type of kickback include Servaas Inc., Indianapolis, IN, PRO-ECO Ltd., Ontario, Canada, and XYZ Options, Holt, AL.
Other firms that signed consulting agreements or finders fees arrangements with Al Arabi Trading Co., TDG, or Matrix-Churchill include Centrifugal Casting, Tulsa, OK; AFG Technologies, Bloomfield, MI; Arbonite, Doyletown, PA; Glass, Inc., International, Chino, CA; West Homestead Machinery, Homestead, PA; D&H Machinery, Toledo, OH; National Machinery, Tiffin, OH; Pacific Roller Die, Hayward, CA.
These firms may not have actually paid Matrix-Churchill because they were ultimately unsuccessful in bidding on contracts with Iraqi entities. But by signing consulting or fee agreements, these firms indicated that they were willing to make the payments if they won contracts.
Sam Naman's activities were not limited to the machine tool business. On one occasion, he tried to trade Iraqi oil for a steel mill in Texas. An American oil company, Coastal Petroleum, was approached in 1988 to purchase $50 million in Iraqi oil from Sam Naman. The proceeds were to be used to purchase the United States Steel's Baytown Works in Texas and ship the entire facility to Iraq. The deal fell through after congressional leaders and local union leaders opposed the sale because of the loss of jobs.
Matrix-Churchill's project management division received a $14 million BNL loan to purchase the technology and equipment for the glass fiber factory for shipment to NASSR. The project management
division also received a $600,000 loan from BNL to meet its operating expenses. BNL loan's kept the operation afloat.
Sam Naman was apparently not a stranger to officials at the State Department. Travel records show that he visited the State Department in September 1989. The records indicate that Sam Naman visited the State Department on September 11 and 12, 1989, just weeks after the raid on BNL's operations in Atlanta--a curious coincidence indeed.
The military uses of Matrix-Churchill machines are the prime reason Iraq was interested in purchasing the company. Acquiring Matrix-Churchill gave Iraq access, not only to the machine tools, but also the computer programming, tooling, and other components needed to make a wide variety of munitions as well as other applications in aerospace and nuclear industries. The purchase could be construed as one big intelligence gathering operation for Iraq. I have long been concerned that the United States does not have the proper regulatory mechanisms in place to ensure a proper review of foreign acquisitions of sensitive U.S. industrial firms and U.S. banks.
Banks, I know, we do not. We have been trying to work at it, but instead of being helped, we have been obstructed. We have been impeded, all because of a fear of loss of face; for mistakes, they claim.
As I have shown, control of the Matrix-Churchill Corp. would provide a foreign government with information regarding hundreds of munitions facilities and dozens of munitions, aerospace and nuclear applications.
How many exist today? Not Iraq, but other countries. It would be nice to know, would it not? Because once these investors buy into the company, say they get 30 percent of the stock, they have access to blueprints and everything else, as in the case of Matrix-Churchill. Once they get those blueprints, we have the evidence showing that they would ship them through the diplomatic pouch, which is not subject to inspection, and shipped back to Baghdad.
It is important that any change in control of such companies is brought to the attention of U.S. officials so that national security concerns can be considered prior to any transfer of sensitive U.S. technology.
Now, one would say, as I have thought, I thought that was in place since the wars. Well, like the banking, I have discovered to my great aggravation and concern, it is not true. It is not in place.
In the case of the Iraqi purchase of Matrix-Churchill Corp. in November 1987, the United States did not review the transaction for national security purposes.
And here they are, trying to accuse me of exposing national security. Of all the most outlandish and most ridiculous, empty threats.
That fact is reflected in an August 24, 1992 Treasury Department response to my inquiry of July 15, 1992. I will place these letters in the Record.
The so-called Exon-Florio provisions were implemented in July 1989, but it remains to be seen how effective those regulations are in stopping the unwanted change in control of important U.S. firms. Nations that want to clandestinely develop weapons of mass destruction are continually developing more and more sophisticated procurement networks like the Al Arabi network. These efforts make it more difficult to tell if a foreign firm has gained illegal control of the U.S. form.
What is the Justice Department interested in? Is it interested in the legality of these procurements or illegality? No. They are interested in making sure that they give their blessings to these huge mergers and concentrations of banking resources, corporate resources. It has sanctioned the leveraged buyouts that have cost this country perhaps its whole economic future.
Even so, United States intelligence reports dating as far back as the summer of 1989, indicate our Government knew that Matrix-Churchill was an Iraqi front company engaged in procuring technology for Iraq's clandestine nuclear and missile programs. However, the Bush administration appeasement of Saddam Hussein apparently overrode any objections to these operations.
In short, these are the facts: First, the administration wanted to help Iraq; second, Iraq had cheap oil to offer and the United States was eager to buy--as shown by the amazing 50 percent growth in Iraqi oil sales to the United States in the 2 years before the gulf war; third, the Bush administration was so eager to please Saddam Hussein that it deliberately tolerated Iraq's military procurement activities in the United States; fourth, companies like Matrix-Churchill were used by Iraq to provide everything from steel mills to nuclear weapons useful technology--right up to the day the gulf war started; and fifth, even after the BNL raid made it impossible to hide Iraq's procurement activities in this country, the Bush administration did nothing to stop Iraq. They even showed support by having the Department of Energy purchase Iraqi oil just a few months before our Government went to war against Iraq. Favorable oil deals made it all possible.
Mr. Speaker, I include for the Record the correspondence to which I referred:
March 23, 1989.
To: The Secretary.
From: NEA--Paul J. Hare, Acting.
Subject: Meeting with Iraqi Under Secretary Nizar Hamdun March 24, 1989 at 2:00 PM in your office.
To express our interest in broadening U.S.-Iraq ties, stressing the importance we place on chemical weapons and on settling claims for Iraq's attack on the USS Stark.
Hamdun is a unique channel to Iraq's President Saddam Hussein, and points you make will be heard at the highest levels in Iraq. Hamdun will stress Iraq's importance, and call for closer relations unaffected by what he considers `outside irritations': chemical weapons, etc. Iraq fears we will improve relations with Iran at Iraq's expense.
Bilateral relations are thorny but important. Iraq is the strongest state in a region vital to our interests, with a powerful army and oil reserves second only to the Saudis.
We reestablished relations in 1984 after a break in 1967. We cooperated closely in trying to end the Gulf War through UN Security Council Resolution 598.
During the war, Iraw drew closer to our friends among the Arab moderates, getting financial support from Saudi Arabia and Kuwait. Iraq has now concluded a formal economic alliance with Egypt, Jordan, and North Yemen in the Arab Cooperation Council.
Since we took Iraq off the terrorism list in 1983, Iraq has broken with Abu Nidal and expelled Colonel Hawari, although it still allows entry to Abu Abbas (who directed the Achille Lauro hijacking) and member of Col. Hawari's group.
But Iraq retains its heavy-handed approach to foreign affairs--it has received a border dispute with Kuwait and its meddling in Lebanon--and is working hard at chemical and biological weapons and new missiles.
May 17 will mark the second anniversary of the Iraqi attack on the USS Stark. At the time, Iraq's President accepted responsibility and promised compensation.
Mike Armacost presented the first set of claims, for wrongful death of 37 sailors, on April 4, 1988 (totalling about $34 million). The Iraqi MFA's Legal Adviser went over the claims in detail here in July, 1988, but has made no substantive response since then.
Judge Sofaer is in Baghdad, at Iraq's invitation, to discuss the claims further. He met with Hamdun before leaving and said we will soon present personal injury claims (about $1.5 million) and USG claims of $93 million (mostly damage to the Stark), but emphasized we have no room for negotiation on the death claims.
Sofaer called from Baghdad to report that an initial session March 22 went very well, and he hopes he can resolve the issue during this trip.
With this information in hand, Bob Kimmitt saw Hamdun March 22, and stressed it is important to settle these sensitive claims to remove a stumbling block from the relationship.
Following CW use in the war with Iran, Iraq used CW as part of a campaign to suppress a Kurdish rebellion last August.
We condemned unlawful CW use, and Congress began considering sanctions legislation.
Responding to our diplomatic approach and the threat of sanctions, Iraq stated adherence to international law on CW, participated constructively in the Paris Conference, and began to participate in the Conference on Disarmament talks in Geneva.
Sanctions legislation fell by the wayside last term in the rush to adjourn, despite overwhelming support. Bills introduced this session would apply tough trade sanctions for future unlawful CW use and punish companies contributing to certain CW programs, Iraq's among them.
Iraq has asked us to push Congress to delete all references to Iraq in the bills. We have explained that it is unrealistic to expect Congress to do so.
The ceasefire begun with Iran last August 20 is still holding, but UN-sponsored peace talks have produced few results. Working-level talks continue in New York, and there will probably be a ministerial meeting in mid-April.
Iraq wants to claim full sovereignty over the Shatt al-Arab waterway; Iran refuses to allow reopening the Shatt until Iraq gives up its claims, and is holding 70,000 Iraqi POWs until Iraq withdraws to its borders.
Commercial relations are good, but further growth is constrained by Iraq's debt crunch. Iraq is now our number two trading partner in the Arab world, but a commercial agreement we signed in 1987 remains unimplemented.
Iraq imports over $1 billion per year in U.S. agricultural products, financed with USDA CCC credit insurance.
But industrial trade lags. Iraq would like Exim to grant medium-term coverage in addition to its small short-term facility.
Iraq would also like freer export licensing procedure for high tech. (Applications are often held up in commerce or DoD, usually on grounds that dual-use technology could add to Iraq's military capabilities.)
The powerful Minister of Industry (Saddam's son-in-law) wanted to buy a closed USX steel plant in Baytown, TX. USX froze the deal when Congress took up union objections.
As part of its approach to the U.S., Iraq has in the last year given favorable deals to U.S. oil companies; oil exports to the U.S. have soared to around 500,000 barrels per day.
U.S.: The Secretary, Policy Planning Staff, Director Dennis Ross. NEA DAS A. Peter Burleigh. S/P Staffer Aaron Miller. NEA Notetaker.
Iraq: Under Secretary Nizar Hamdun, Ambassador Abdul-Amir Al-Anbari, Khalid Mohammad, First Secretary (Notetaker).
We are pleased that we have broadened bilateral relations with Iraq since we resumed them in 1984, and we want to continue to develop ties.
As the President said in his message to President Saddam Hussein, we attach great importance to our relations with Iraq.
But it is critical for our bilateral relations to settle the claims arising from Iraq's attack on the USS Stark as soon as possible.
Overcoming this obstacle will give our relationship new strength in the postwar period.
I hope we will be able to settle the first set of claims, for the deaths of our 37 sailors, during Judge Sofaer's trip to Iraq.
We welcome Iraq's participation in the Conference on Disarmament in Geneva.
As a country that has used chemical weapons in the recent past, Iraq's reputation in the world will be well served by constructive participation in efforts to ban these weapons.
As you know, Iraq's past use of chemical weapons is a very sensitive topic in the U.S. Administration and Congress.
Although we do not get involved in details of the peace negotiations, we are interested in a comprehensive, lasting settlement that will promote stability and reduce tensions in the region.
What is your assessment of progress made to date, and prospects for the next round of ministerial talks?
We are disturbed by the continued presence in Iraq of Abu Abbas, who masterminded the murder of a U.S. citizen in cold blood. We also understand Colonel Hawari--head of Fatah's Special Operations section--still travels to Baghdad.
We ask again that you deny Abu Abbas and Colonel Hawari access to your country. The fact that Abu Abbas is a member of the PLO Executive Committee damages the Palestinian cause.
We are committed to expansion of trade and U.S. exports around the world.
We believe reconstruction and development projects in Iraq will present significant opportunities for U.S. exporters.
IMPORTS FROM IRAQ
[In thousands of barrels]
Company Commodity 1988 1989 1990
Amoco Corp Crude oil 2,434 500 8,716
Ashland Oil, Inc ......do 10,124 11,687 7,372
Astroline Corp Distillate fuel 0 0 188
Atlantic petro Corp Crude oil 0 2,776 0
Atlantic Richfield Co ......do 5,568 0 0
Bayoil USA ......do 0 450 5,061
BP Amer., Inc ......do 0 273 0
Chevron Corp ......do 8,580 6,920 20,471
Citgo Petro Corp ......do 0 461 0
Clark Oil Tradg Co ......do 2,018 0 0
Coastal Corp The ......do 12,490 16,720 17,252
Exxon Corp ......do 14,234 46,379 35,913
Exxon Corp Unfinished oils 0 2,380 1,326
Fina Oil & Chem Co Crude oil 9,351 14,571 21,074
Horsham Corp ......do 0 0 499
Kerr-McGee Corp Unfinished oils 123 150 106
Koch Indus., Inc Crude oil 522 4,378 6,334
Lyondeli Petrochem Co ......do 0 3,998 16,328
Mobil Oil Corp ......do 1,647 6,288 8,458
National Coop Refy Assn ......do 424 2,328 0
Phibro Distbs Corp ......do 1,005 5,975 0
Phillips Petro Co ......do 1,051 390 670
Shell Oil Co ......do 11,945 22,218 21,539
Solomon, Inc ......do 0 0 4,022
Sun Co., Inc ......do 0 2,269 2,874
Texaco, Inc ......do 34,594 0 0
Unocal Corp ......do 0 0 644
US Department of Energy ......do 0 0 3,403
US Steel Corp ......do 9,528 12,436 6,855
Valero Energy Corp Unfinished oils 807 475 0
Total ......do 126,445 164,022 189,105
The White House,
Washington, DC, August 8, 1990.
I am writing to notify you of a conflict-of interest determination I have reached under 18 U.S.C. 208(b)(1) in connection with the current Middle East crisis.
As you know, vital United States and world interests are at stake in the Middle East as a result of the Iraqi invasion of Kuwait. As Commander in Chief and the Nation's Chief Executive, I am confronting decisions of immense import with lasting consequences for the nation and the world. The United States, along with other world powers, has strongly condemned the Iraqi invasion, and we have instituted a range of measures, including a freeze on Iraqi and Kuwaiti assets in this country among other economic sanctions.
We now face a series of decisions, large and small, about policies and military measures required to defend United States interests and counter this act of blatant aggression. I expect that these decisions will be among the most difficult that I ever face as President. As I confront the demanding choices ahead, it is essential that I be able to call freely upon my advisors for counsel and assistance.
I am aware that under Federal conflict-of-interest law (18 U.S.C. 208), an Executive branch employee cannot participate personally and substantially in a particular matter, in which, to the employee's knowledge, he has or is deemed to have a financial interest. I understand that the Department of Justice has historically interpreted this statute to mean that an individual cannot personally and substantially participate in a particular matter if the resolution of the matter would have a direct and predictable effect on such financial interests. An individual's appointing official is authorized to waive this prohibition based upon a determination that the individual's financial interests are `not so substantial as to be deemed likely to affect the integrity of the services which the Government may expect' from the employee.
It is not clear which, if any, of the decisions ahead would constitute `particular matters' that would have a `direct and
predictable effect' on the financial interests of advisors on whom I will need to rely. Based on the consultations between our staffs over the past week, I have been advised that most of the high-level decisions and actions ahead will be at a level of generality so broad as not to implicate Federal conflict-of-interest law.
Nonetheless, in the interest of caution and prudence, I believe that under current circumstances, Cabinet members and other key foreign policy advisors should not be needlessly restricted in assisting me in shaping the United States response to the Iraqi offensive or be left in doubt about when they can and cannot assist me. I have therefore directed my Counsel, C. Boyden Gray, to review the financial interests of those of my foreign policy advisors for whom I have not delegated the waiver authority vested in me under 18 U.S.C. 208(b). In particular, I have had him conduct a special review of the financial interests held by--
The Assistant to the President for National Security;
The Assistant to the President and Deputy for National Security;
The Attorney General;
The Chief of Staff to the President;
The Director of Central Intelligence;
The Secretary of Commerce;
The Secretary of Defense;
The Secretary of Energy;
The Secretary of State; and
The Secretary of Treasury.
I have also had the Department of Justice review the financial interests of the Counsel to the President.
I have now been briefed on the financial interests of these individuals. Some of the individuals in question hold only interests such as mutual funds that under no foreseeable circumstances could be construed to implicate any prohibition under conflict-of-interest law. In other instances, individuals have quite substantial financial interests in industries that may be affected (though not necessarily in a `direct' or `predictable' way) by the resolution of situations that may arise.
In light of current world events and the significance of our response to the nation's security, it is my judgment that none of these individuals' financial interests are `so substantial as to be deemed likely to affect the integrity of the services which the Government may expect' from him in all aspects of the current effort to develop and implement a United States and international response to Iraq's occupation of Kuwait. I have been counseled that the Department of Justice, in interpreting conflict-of-interest waiver authority, has said that the appointing official should consider the size of the financial interest(s) and the nature of the services the individual is called upon to provide.
In my judgment, the nature of the current crisis and the gravity of the measures under consideration by the United States are such that even vast financial interests could not be deemed likely to affect the integrity of the services the Government may expect from its chief foreign policy officers. Maintaining the highest standards of integrity in the Government has been a paramount priority for me throughout the Administration. In my view, national security considerations at stake in the current situation are so great as to diminish to insignificance the likelihood that individual employees could be swayed by their private interests.
On this basis, I hereby determine that the financial interests held by the individuals indicated above are not so substantial as to be deemed likely to affect the integrity of the services that the Government may expect from them in the course of current United States policy-making, discussion, decisions, and actions, in response to the Iraqi invasion of Kuwait. This waiver shall remain in effect until further notice.
U.S. Department of State,
Washington, DC, August 8, 1990.
Bob: Amy Schwartz of Boyden's office informed me that the President signed a waiver this afternoon for eleven Cabinet officers and cabinet level officials, including Secretary Baker, that authorized them to participate in `current United States policymaking, discussions, decisions, and actions in response to the Iraqi invasion of Kuwait.' Schwartz indicates that this will allow the Secretary Baker to participate in all foreign policy questions related to the Kuwait crisis, even those directly involving oil production and prices. In addition, OLC is expected to issue an opinion in the next day or so narrowing from previous interpretations the definition of `particular matter', the touchstone for potential conflict analysis.
Because of the breadth and sensitivity of the waiver, the White House is currently unwilling to distribute copies to affected individuals. We are working to reverse this position so that we can provide a copy to the Secretary.
The White House,
Washington, DC, November 20, 1991.
Memorandum for the Secretary of State, the Secretary of Treasury, the Secretary of Commerce, the Secretary of Defense, the Secretary of Energy, the Secretary of Transportation, the Attorney General-designate, the director of Central Intelligence, the Chief of Staff to the President, the Assistant to the President for National Security Affairs, the Director of the Office of Management and Budget, the Counsel to the President, and the Assistant to the President and Press Secretary.
Subject: Conflict-of-Interest Waiver.
I am writing to notify you of a conflict-of-interest determination I have reached under 18 U.S.C. 208(b) in connection with the indictments recently returned alleging the criminal responsibility of two Libyan nationals for the December 1988 bombing of Pan Am 103, over Lockerbie, Scotland.
As you know, terrorism poses a grave threat to peace and stability in the world as well as to the lives and safety of American citizens. On Thursday, November 14, 1991, Scottish authorities and the U.S. Department of Justice charged two Libyan officials with carrying out the December 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland. All 259 people aboard the aircraft and 11 people on the ground were killed. This monstrous act of the Libyan Government is only one example of Libyan state-sponsored terrorism. We have seen a consistent pattern of Libyan-inspired terrorism that dates almost from the beginning of Colonel Qadhafi's leadership and continues to the present. We now face a series of decisions on steps the international community should take to ensure that a major perpetrator of state-sponsored terrorism--Libya--is both punished and isolated. As I consider the options, it is essential that I be able to call freely upon my senior advisors for counsel and assistance.
I am aware that under Federal conflict-of-interest law (18 U.S.C. 208), an Executive branch employee cannot participate personally and substantially as a Government employee in a particular matter, in which, to the employee's knowledge, he has or is
deemed to have a financial interest. I understand that the Department of Justice has historically interpreted this statute to mean that an individual cannot personally and substantially participate in a particular matter if the resolution of the matter would have a direct and predictable effect on such financial interests. An individual's appointing official is authorized to waive this prohibition based upon a determination that the individual's financial interests are `not so substantial as to be deemed likely to affect the integrity of the services which the Government may expect' from the employee.
It is not clear which, if any, of the decisions ahead would constitute `particular matters' or whether any such `particular matters' would have a `direct and predictable effect' on the financial interests of advisors on whom I will need to rely. I have been advised that most of the high-level decisions and actions ahead will be at a level of generality so broad as not to implicate Federal conflict-of-interest law.
Nonetheless, in the interest of caution and prudence, I believe that under current circumstances, Cabinet members and other key advisors should not be needlessly restricted in assisting me in shaping the United States response and the response of the international community to Libyan support for terrorism or be left in doubt about when they may and may not assist me. My Counsel, C. Boyden Gray, has reviewed your financial interests as reflected in your most recent public financial disclosure report, and as updated in conversations between a member of his staff and your ethics official. Mr. Gray's financial interests have been reviewed by the Counsel to the Vice President.
I have now been briefed on your financial interests. Some of you hold only interests such as mutual funds that under no foreseeable circumstances could be construed to implicate any prohibition under conflict-of-interest law. Some of you have substantial financial interests in industries that may be affected (though not necessarily in a `direct' or `predictable' way) by the resolution of situations (though not necessarily `particular matters') that may arise.
In light of the continuing threat to the peace and stability of the world posed by Libyan state-sponsored terrorism and the significance of our response to that threat, it is my judgment that, in each case, your financial interests are not `so substantial as to be deemed likely to affect the integrity of the services which the Government may expect' from you in all aspects of the current effort to develop and implement a United States and international response. I have considered the size of your financial interest(s) and the nature of the official services you may be called upon to provide.
In my judgment, the nature of the current situation and the gravity of the measures under consideration by the United States are such that even the substantial financial interests held by some of you could not be deemed likely to affect the integrity of the services the Government may expect from its chief foreign policy officers. Maintaining the highest standards of integrity in the Government has been a paramount priority for me throughout the Administration. In my view, national security considerations at stake in the current situation are so great as to render insignificant the likelihood that any of you could be swayed by your private interests.
On this basis, I hereby determine that the financial interests held by each of you, if any, are not so substantial as to be deemed likely to affect the integrity of the services that the Government may expect from you in the course of current United States policy-making, discussion, decisions, and actions, in response to the continuing threat of Libyan state-sponsored terrorism. This wavier shall remain in effect until further notice.
January 13, 1989.
Judge Abraham D. Sofaer,
Legal Adviser, U.S. Department of State, Washington, DC.
Dear Judge Sofaer: This is to advise you that, if I am nominated, confirmed and appointed as Secretary of State, I will either recuse myself from participation in, or seek a waiver under 18 USC 208(b) allowing my participation in, any particular matter involving a company or other entity (or any of its parents or subsidiaries) in which I, my spouse or minor child has a financial interest.
If I am nominated, confirmed and appointed, I will provide the Deputy Secretary, the Executive Secretary and other appropriate officials with a list of entities subject to my recusal commitment and instruct them in writing to handle all official matters concerning such entities. I will update this list each year at the time that I complete my annual Executive Personnel Financial Disclosure Report, and more frequently if changes in my financial holdings so warrant.
James A. Baker III.
The Secretary of State,
Washington, DC, January 25, 1989.
Memorandum for: Under Secretary for Political Affairs, Under Secretary for Management, Legal Advisor, Assistant Secretary for Economic and Business Affairs, and Executive Secretary.
From: Secretary Baker.
Subject: Recusal from participation.
This is to notify each of you that I am recusing myself, and will decline to participate in, any particular matter in which my former firm, Andrews & Kurth, is a formal party or in which it has a direct and specific financial interest, such as representing a party in such a particular matter. No such matter should be presented to me for decision, approval or disapproval, recommendation, advice, or other official action. All such matters should be directed to the Under Secretary for Political Affairs, or his delegate, who has full authority to act without referring the matter to me.
In addition, I will recuse myself from any particular matter in which I, my wife, or my dependent daughter has a financial interest. I have attached a list of companies and other entities in which one of us currently holds a financial interest. Again, all such matters should be directed to the Under Secretary for Political Affairs or his delegate.
Finally, I will recuse myself from participation, on a case by case basis, in any particular matter in which, in my judgment, it is desirable for me to do so in order to avoid the possible appearance of impropriety, despite the lack of any actual conflict of interest.
Once a Deputy Secretary has taken office, all matters on which I am recused shall thereafter be directed to the Deputy Secretary or his delegate.
I believe that this general policy, to which I am committed, will avoid not only the occurrence of any actual conflict of interest, but even the appearance of any conflict between my duties as an officer of the United States Government and my personal financial interests.
Chemical New York Corporation and National Loan Bank.
Houston Industries, Inc.
Texas American Bancshares, Inc.
United Technologies Corp.
Frio County Ranch.
Garrett Ranch, Inc.
Property Capital Trust SBI.
Residential Resources Mortgage Investments Corp.
Trinity Petroleum Trust.
Sublette County Ranch.
Bonnie Sue (Texas and Louisiana Limited Partnership).
Lady Thelma (Texas and Louisiana Limited Partnership).
Alice Jean (Texas and Louisiana Limited Partnership).
Hollywood 1004-7, 3009-14, 3003-6, 3007-8, 1008-14 and 3015 (Texas and Louisiana Limited Partnerships).
Hollywood Chem. 107 and 108 (Texas and Louisiana Limited Partnerships).
Hollywood LPG No. 2 (Texas and Louisiana Limited Partnership).
Lana Louise (Texas and Louisiana Limited Partnership).
Petro-Quest Associates 1980-1 (Pennsylvania Limited Partnership).
Hope No. 1, 2, 3 and 4 wells, Lewis County, West Virginia.
Claude Owens lease, Pecos, County, Texas.
The White House,
Washington, DC, March 2, 1992.
I am writing to notify you of two conflict-of-interest determinations I have reached under 18 U.S.C. 208(b)(1) in connection with the Middle East crisis resulting from the Iraqi invasion of Kuwait in August 1990 and the indictments returned last year alleging the criminal responsibility of Libyan nationals for the December 1988 bombing of Pan Am 103 over Lockerbie, Scotland. I wish to extend to you, in your capacity as Secretary of Commerce, the same protection I extended to your predecessor and to other senior advisors to participate fully in the consideration of policy options to respond to these two international incidents.
I have reviewed your financial interests in the course of considering your February 28, 1992 request for a waiver made in connection with your appointment, and which I have approved today. Based on that review, and for the reasons set forth in my memoranda dated August 8, 1990, and November 20, 1991 (copies of which are attached), it is my judgment that your financial interests are not so substantial as to be deemed likely to affect the integrity of the services which the Government may expect from you in the continuing development and implementation of United States Government policy in these two matters. I have considered the size of your financial interests and the nature of the official services you may be called upon to provide. In my view, national security considerations at stake in these matters are so great as to render insignificant the likelihood that you could be swayed by your private interests.
Therefore, I hereby grant you a waiver under Section 208(b)(1), for the same matters and to the same extent addressed in the above-cited memoranda. This waiver shall remain in effect until further notice.
and Urban Affairs,
Washington, DC, July 15, 1992.
Hon. Nicholas F. Brady,
Secretary of the Treasury, Washington, D.C.
Dear Mr. Secretary: The Committee on Banking, Finance and Urban Affairs is conducting an investigation of Banca Nazionale del Lavoro (BNL) and its links to the Iraqi technology procurement network. The Committee is investigating BNL loans of over $4 billion to Iraq including loans to Matrix-Churchill Corporation (MCC) an Iraqi front company operating in the U.S. As Chairman of the Committee on Foreign Investment in the United States (CFIUS), the Banking Committee respectfully asks for your assistance with this investigation.
Specifically, the Committee would like to learn more about the Government of Iraq (GOI) efforts to procure U.S. technology by investing in or acquiring U.S. companies such as MCC. As Chairman of the interagency process responsible for reviewing foreign investment in the U.S., the Committee requests that you answer the following questions and provide the following information:
1. Please provide the Committee with all documents in the Treasury Department's possession, whether created by the Treasury Department or other agencies, related to Iraqi attempts to acquire or invest in U.S. companies;
2. Related to Matrix-Churchill Corporation (MCC), please answer the following questions:
a. Matrix-Churchill machine tools are used in several U.S. armaments factories, foreign armaments factories, as well as in the U.S. aircraft and aerospace industries. Did the CFIUS review indirect acquisition of MCC in 1987? If yes, please provide details of this review.
b. The parent company of MCC was based in the U.K. The GOI purchased the U.K.-based parent of MCC in 1987. Thus, the GOI was able to gain control of U.S.-based MCC by purchasing its parent in the U.K. What mechanism is available to CFIUS to review a foreign acquisition of a U.S-based firm through the purchase of its parent in a third country? Please elaborate.
If you have any questions concerning this request please have your staff contact Mr. Dennis Kane or Mr. Abuid Amaro. They can be reached at (202) 225-4247.
Henry B. Gonzalez,
Department of the Treasury,
Washington, DC, August 24, 1992.
Hon. Henry B. Gonzalez,
Chairman, Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, Washington, DC.
Dear Mr. Chairman: I am responding to your letter of July 15, 1992, to Secretary Brady in his capacity as Chairman of the Committee on Foreign Investment in the United States (CFIUS). In your letter, you indicate that the Banking Committee is investigating Banca Nazionale del Lavoro (BNL) and its relationship to the technology procurement network of the Government of Iraq (GOI). You also mention that the Committee is interested in learning more about the GOI and its attempts to acquire U.S. technology by buying or investing in U.S. companies such as Matrix-Churchill Corporation (MCC).
Your letter asks the Secretary, as CFIUS chair, to respond to two requests regarding the Banking Committee's investigation. On behalf of the Secretary, the following are your requests and our responses:
1. Please provide the Committee with all documents in the Treasury Department's possession, whether created by the Treasury Department or other agencies, related to Iraqi attempts to acquire or invest in U.S. companies.
Response: CFIUS has no documents in its possession related to Iraqi attempts to acquire or invest in U.S. companies.
When CFIUS was created by Executive Order 11858 on May 7, 1975, it was given the responsibility of monitoring and reviewing significant foreign investments in the United States. It was not until the promulgation of Executive Order 12661 of December 27, 1988, following the enactment of Exon-Florio that CFIUS had the authority to conduct a review and, if necessary, an investigation of foreign direct investments in the United States that have a potential impact on U.S. national security.
From May, 1975, until December, 1988, CFIUS reviewed about 30 foreign direct investments involving U.S. corporations. None involved an investment by the GOI or its government-owned companies or subsidiaries.
Since December, 1988, CFIUS has received over 720 foreign direct investments in U.S. corporations and none have involved the GOI or its government-owned companies or subsidiaries.
You also request any other documents on Iraqi investments that the Department has in its possession. Since you have written to the Secretary in his capacity as chair of CFIUS, we are interpreting your request to be limited to materials received pursuant to Treasury's authorities to monitor and regulate Foreign Direct Investment (FDI). However, if you intended to obtain documents produced or acquired pursuant to Treasury's law enforcement authorities, I would appreciate your letting me know as soon as possible so that I may forward your letter to the appropriate offices.
2. Related to Matrix-Churchill Corporation (MCC), please answer the following questions:
a. Matrix-Churchill machine tools are used in several U.S. armaments factories, foreign armaments factories, as well as in the U.S. aircraft and aerospace industries. Did the CFIUS review the indirect acquisition of MCC in 1987? If yes, please provide details of this review.
Response: CFIUS did not review any transaction involving Matrix-Churchill.
b. The parent company of MCC was based in the U.K. The GOI purchased the U.K.-based parent of MCC in 1987. Thus, the GOI was able to gain control of the U.S.-based MCC by purchasing its parent in the U.K. What mechanism is available to CFIUS to review a foreign acquisition of a U.S.-based firm through the purchase of its parent in a third country? Please elaborate.
Response: The regulations that implement the Exon-Florio provision define foreign control functionally in terms of the ability to take specific actions with regard to the acquired company. The regulations require the party providing notice of a proposed transaction to trace control to the foreign parent and foreign affiliates, if any. This mechanism for reviewing an indirect foreign acquisition of a U.S.-based firm has been in place since July, 1989, when the Exon-Florio regulations were published in proposed form.
I hope this information satisfactorily addresses your request.
Mary C. Sophos,
Assistant Secretary, Legislative Affairs.
Aerojet Ordance Co.,
Jonesboro, TN, May 24, 1983.
Subject: RFQ82-011, CNC Lathes and Centerline Machine.
Mr. Phil Brindley,
Matrix--Churchill Corp., 5903 Harper Road, Cleveland, OH.
Dear Mr. Brindley: Your proposal to fill our requirements on this RFP has been evaluated and, in this instance, was not selected for an award. We thank you for participating in our machine tool procurement and appreciate the effort made by you.
Your name and a copy of your proposal will remain on file for assistance in preparing bidder's lists for future machine tool requirements.
Kent C. Borchers,
Matrix Churchill, Corp.,
Cleveland, OH, February 14, 1983.
Attention: Mr. Kent Borchers.
Subject: Matrix Churchill Quotation CR-302-002.
P.O. Box 158, Old Route 11-E, Jonesboro, TN.
Dear Kent: Per our conversation of Friday 11th February, we were advised that the US Army would be the purchaser of this equipment. In this case the following document has validity:
`Duty Free Entry-Qualifying Country End Products and Supplies' DAR Paragraph 7-104.32 dated Jan 81.'
It is our interpretation that the equipment as quoted is subject to the above publication and as such can be imported Duty Free for US Army Purchase.
The prices as quoted include import duty to an increment equivalent to 5.7% of quoted prices.
Accordingly, please reduce our quoted prices by 5.7%.
(a) Service and Spare Parts:
Matrix Churchill's Cleveland, Ohio facility serves as the headquarters for service and spare parts.
We maintain a well-stocked inventory of replacement parts and can offer same day shipping of critical items.
As a policy, we source compatible replacement parts from U.S. vendors and stock them at our Cleveland facility. Additionally, all electronics, spindle drive, control components and bearings are of U.S. manufacture.
Matrix Churchill Service Engineers are of the highest caliber, are factory trained and have many years of experience. All of them have strong backgrounds in tooling, programming, electronics and CNC troubleshooting. Additionally, our Service Engineers are compensated on the same incentive bases as our Sales force. This ensures they have a professional, vested interest in timely, efficient service to our customers.
(b) Engineering Personnel:
From an Engineering standpoint, the project will be managed in the U.K. by Dr. Malcolm Thorneycroft. Mr. Thorneycroft holds a Doctorate in Mechanical Engineering and is a specialist in Flexible Manufacturing Systems and Control Engineering.
It is estimated that five percent (5%) of our engineering staff would be working on the project. It should be pointed out that much of the engineering designs have already been worked out on machines supplied already on like installations.
(c) Past Performance:
Churchill is the major supplier of machines for munitions production in the U.K. and one of the leading suppliers world wide with some 275 munitions installations.
Penetrators machined in depleted uranium and the sabot `petals' are currently being produced on Churchill 302 and CTC-4 machines in several British Royal Ordnance factories. These installations are regarded as somewhat classified and we know that the US Army contacts and channels can verify these installations with the installation sites concerned.
After contract award but prior to initiating construction and purchase of material, Churchill will submit the following system drawings:
[Not reproducible in the Record]
United Kingdom, Belgium, Switzerland, France, Pakistan, Indian, Israel, Argentina, Canada, Taiwan, Australia, and Egypt.
275 Machines Total.
Matrix Churchill Corp.,
Baghdad Hay Al-Adel.
Ref. No.: MCC 1718/89.
Date: 1st. July 1989.
Dear Mr. Qaddumi: Upon the instructions of Dr. Safa in a telephone conversation today he has instructed us to keep all the bills for you here for personal collection on your next visit, and I am to present to you as overleaf a bill for the amounts stated for your Accountants.
There is some doubt here about the bills being presented in full as they are from Military companies that we feel, if they are translated by your Accountants, cause you a few problems. Nothing sinister in them at all, but it is possible that they could be misconstrued by your Tax Authority. Kind regards,
MCC Iraq Manager.
For renovating, decorating, rewiring faulty electrics, at your Offices in Hay Al-Adel Section 645/8/39.
Iraqi Dinar 6000.000
Marouf Construction Co.
Barakat Walker Co.,
Potomac, MD, November 7, 1988.
Please find below a suggested draft of a letter, per your request:
Per our telephone conversation of Friday, November 4, 1988 our company is selling a steel factory for approximately $50 million to the Government of Iraq. We would like to barter this factory for Iraqi crude oil (Basra Light).
Please confirm that Coastal Corporation would be interested in purchasing the Iraqi crude at agreed upon price and delivery dates.
Hope the above is helpful.
Cleveland, OH, November 10, 1988.
Subject: Bartering With Iraq.
Barakat Walker and Co., River Road, Potomac, MD.
Dear Mr. Barakat: Per our telephone conversation of Friday, November 4, 1988 our company is dealing with Iraq on many multi-million dollar projects. We would like to barter some of these projects for Iraqi crude oil. Would you confirm in writing that Coastal Corporation would be interested in purchasing the Iraqi crude oil at an agreed upon price and delivery dates along with their general terms and conditions. I look forward to hearing from you soon.
The SPEAKER pro tempore (Mr. Martinez). 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.]
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 Georgia [Mr. Gingrich] is recognized for 60 minutes.
[Mr. GINGRICH addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]