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, the BNL or the Banca Nazionale del Lavoro, was owned by the Government of Italy. This is something that even to this day and after years since 1975 that I initiated what turned out to be in 1978 the first statutory international banking regulatory law to convey to my colleagues and even the regulators that our banking system is quite different and operates differently, in a way it is good, in a way it is bad, from the Continental European, or for that matter any of the other industrialized nations, including Japan, in that the government has proprietorship in most every one of the banks that would be operating in the United States, or they have such tight control, or they have as is the heritage in Germany, for instance. You see, this is something that is not factored in our country, and that is why we are so vulnerable. We like to say banks are strictly private. In fact, they are so private that they are the most privileged group as a class in our country, for they in effect can give birth to credit or money with our fractional reserve system. Banks create money, in countries like Germany, for instance, but the bankers are independent, they are private, they are their own bosses, and the Federal Reserve Board is not a Federal agency even though it is created by the Congress. It is a creature of the commercial banking system, and therefore it is going to be amenable to it.
So in countries like Germany you have maybe four or five big banks. But in every one of those countries,
whether it is France, England, Germany, Spain, you have a class system that is not in consonance with the American democratic, egalitarian tradition. And there is the rub. In Germany a banker, though he may be private, outside of the central bank, the Bundesbank now, during Hitler's period of time and before it was known as the Reichsbank, and we are the ones that changed that, we Americans occupying Germany in the occupation period. As a matter of fact, we even printed their currency during the occupation, and we changed the designation from the Reichsbank to the Bundesbank. And we printed the currency to exchange at the rate of 10 for 1 the old reichs mark as differentiated from the deutsche mark now.
That is a lot of history, but if we do not read history, and I think we have not, and that is why we are paying the price, that is the bill for it is just beginning to be discerned by the American people who have not been informed by their leaders and are not now being informed by those that seek to have the power of the executive branch, neither one. But that is neither here nor there. These examples that I have been talking about, and which I have had the committee directing its attention to for almost 3 years, has to do with the most critical, the most imperative need we have, and that is to provide the framework of regulatory protection and supervision and oversight over these massive, hot, volatile sums which now amount to almost a trillion dollars over which no Federal agency, including the Federal Reserve Board, or much less any State banking commission such as in Georgia, has the least idea of what is going on.
There is an old law, the Gresham's law that said bad money chases out good money. We also have a legislative Gresham's law which I have seen in operation since the so-called reform of 1974 where bad legislation chases out good legislation. And it has been a tough fight these last 18 years, and it is very difficult for me personally because it is anguishing to see, and not foretell, but just discern, given the information that as a Member of Congress, and particularly assigned to the banking committee, the Banking, Finance and Urban Affairs Committee. That name was changed also in 1974. It used to be the Banking and Currency Committee. And that was the name of the committee since it was founded as a result of the 1865 Currency Act.
So this is history I would say which is important. But today you are called archaic, or old-fashioned, or it is not in keeping with the mores of these new generations, whether it is the me generation, which now is finding out what the limitations of that are and have been, or whether it is the blow hair generation. It seems to me that what I have seen is generations that know the cost of everything and the value of nothing.
Yes, it may be old-fashioned, but there are certain certainties and basics that are never old-fashioned, such as accountability, responsibility, truth, virtue.
Oh, virtue, what is virtue? Well, in public office, what should be virtue? In a democracy like ours, I would say just living up to the oath of office we take. And what is that oath of office? It is very simple, and it is prescribed for in the Constitution, and it is one that every officer, including armed services officers, as well as civilian officers, take and that is to defend and protect the U.S. Constitution against all its enemies both domestic as well as foreign.
In our case on top of that, to serve faithfully and well, but wait awhile. Is that not old-fashioned? Is not faithfulness old-fashioned? Is not relativism in moral judgments the thing?
Well, I am sorry to say that whatever I have brought out may now, and in fact some have written that I had foreseen, and, well, it was not so much that I had foreseen. I had spoken out, a warning, trying to get the attention, as I have been for particularly the last, well, since 1979 on what I think--in fact, I feel it in my soul--is a most heart-rending loss of our financial independence that faces us, and that is the value of the dollar, the fact that it can easily be replaced as the international reserve unit. I have gone into that before.
So these things such as a government-owned bank known as BNL, Italian Government-owned, but it is not the only one. We like to get exercised about how investments from, say, Japan have penetrated our economy and all. The truth is that the British have about 2 1/2 times more acquisition of direct assets and indirect acquisition of assets than the Japanese, but nobody says anything about that or very few other than lately I have been getting a lot of calls back home from other airline employees saying, `Please, do what you can to protest the merger of British Airways with,' I believe it is USAir. I am not sure. But anyway, it is too late.
The truth that the American people ought to know is that a true leader who has faith and confidence in the judgment of the American people as a whole would tell the truth, and that is that individually they cannot turn things around, at least not soon, that it is going to take sacrifice, struggle, mean, if we are going to survive, and the outlook, and I am by nature an optimist, is not too good, not because the American people are not there.
By experience, if I were to render testimony in the 39 years and some 5 months to the day that I have had the great privilege of serving in a politically elective office as a representative, first, on the local legislative body, the city council, then the State senate, and here in the Congress of just about 31 years, those are great privileges. Nothing in any other country could match that that I know of, and it is just a matter of discharging the duties and being straightforward about it.
I have had about everything that could be thrown against a candidate in this career, but the people came through. I cannot testify other than to the fact that the American people are there. People I see are hard-working people. They go to work in the morning with all of their fears. They come back home to their families. They pay their taxes. They go to church on Sunday. Those are the American people I know.
All I think they want is what is the truth, what are we facing; `do not be scared to tell us something that is distasteful or that will make us feel bad, because it is going to fall upon us to look for sacrifice. Tell us what it is going to take. But tell us truly.' And that is all I have been doing almost to no avail.
We will do not have even minimal protection against these things that seem to be inexplicable as we relate them.
So that this bank owned by the Italian Government and originally, and, in fact, in the United States headquartered in New York since some, oh, I guess 20 years or so, has agency banks in various places, for instance, one in Atlanta, Miami, Chicago, and they had one or two in California, I think maybe one now, or maybe that one has ceased operations. These are agencies.
What does that mean? It means that they are not full-service banks; that is, they do not take accounts, thank goodness. Think about how many American citizens would have been gypped. Thank goodness BCCI did not get full banking services, or we would be facing what Great Britain, for the first time in 100 years, a failure of a major bank, which
has not happened in Great Britain in 100 years, and many citizens or subjects in Great Britain gypped and trying to get their money back.
But Why? Well, because we do not see that these activities form these other countries reflect, first, very different social-class situations.
In Germany, the banker looks upon himself, yes, he may be a private banker, one of those four or five other than the Bundesbank, but he looks upon himself as a loyal ally of his government, that he is going to implement the policies of his government, not go against them, and that has not been true since the 1960's and the emergence of the multinational corporate activities including banks that, in effect, have really sold out America.
Time will tell. Time always will.
So it was this Atlanta branch chartered by the Banking Commission of the State of Georgia, and that is another thing we must remember. These agencies are chartered in their respective States, not by the Federal Government level, whether it is the office of the Comptroller of the Currency or whether it is the Federal Reserve Board or what have you.
How was it, the question is originally asked when I saw a snippet in the Wall Street Journal saying that this Italian bank in Atlanta was issuing $3 billion dollars' worth of credit, and that started it. That was exactly 3 years ago, 4 years, well 3 years ago, 1989, this last month. So that how could that be that massive amount of credit? So I raised questions, and it took 1 year before I even had a halfway answer to the full context of the activities of agency banks.
One reason that this was possible is that the bank itself in this case had very poor management. Another reason is that under U.S. law at the time foreign agencies like the Atlanta office were not directly examined by the Federal Reserve Board, and if they are now, and I do not know to what extent, because we just amended the law under our pressure last November, and it took scandals to bring that about.
It was a minimal reform. We still have a hard job ahead of us.
So that under American law, 3 years ago, foreign agencies and the Atlanta office were not directly examined by the Federal Reserve. Instead, this job was done, or supposed to have been done by the State examiners, who gave it a low priority, because the agency did not take public deposits, and so presented no risk to the ordinary folks in Georgia.
The laxness of the internal management of BNL and the extremely poorest nature of regulatory supervision created the opportunity for mischief, as it always does and always will.
All that was needed was a good motive, temptation, which came in the form of a Reagan/Bush policy decision to support the Government of Iraq. In 1983, President Reagan removed Iraq from the list of terrorist nations, and that immediately opened the gates for new business, to help our balance-of-trade deficiency. So it was a Bush/Reagan policy decision to support the Government of Iraq, which was in the midst of a terrible war of attrition with Iran. This policy led to massive sales of food, to begin with, to Iraq, which eventually absorbed no less than 20 percent of the commodity Credit Corporation's loan guarantee program, 20 percent. Here is a country much smaller than Mexico, but getting, I forget how much, 400 percent or 500 percent more than, say, Mexico was is CCC. A great deal of this was financed by BNL-Atlanta. Now, what do we mean by Commodity Credit loan guarantees? Well, it means those guarantees are the taxpayers' liability, that is what that means, just like deposit insurance. And the banks and the S&L's making use of that guarantee to do that business, and even consider it sort of a capitalization structure goodie. Well, the same way here.
A great deal of this was financed by BNL-Atlanta, which was taking advantage of the opportunity presented by the bank's weak management, the nonexistent U.S. supervision of its operations, and was motivated by opportunities to get rich quick.
The agency manager, Christopher Drogoul, may have had many motives. Drogoul apparently earned $2.5 million for his troubles. In fact, his father was a dual French/Iraq national connected with Iraq's procurement program. But the chance to enrich himself surely was among them.
In addition to the food sales, Drogoul arranged for $2 billion in credit to supply military useful technology to Iraq. This is where we come in from the Banking Committee. When we trip on the Commodity Credit Corporation, we immediately brought in the Agriculture Committee because they have jurisdiction. When the policy issue came about, how the Reagan/Bush policy was to buddy up and stimulate Saddam, now that is foreign affairs. So we brought in and had testimony before a committee from a foreign affairs subcommittee chairman.
Now, that is fine, that is set aside. We are not criticizing. We put the facts here. You, my colleagues, finding them in the Record and the public record being exactly that, open to the public--at least up until now. I am afraid there will be efforts in the near future to even close that if we let some have their way--and therefore you have available for the decision and judgment of, first, my peers in the House and Members of the other body and, above all, the constituents we represent.
So that the $2 billion I speak of, aside from the commodity, the food, is commercial. These are bank loans.
Now, the banks operate this way, just like in the case of the hostage-taking in Iran in 1979, at the bottom of it all was banking: Chase Manhattan had an exposure of $10 billion. In fact, that is still a continuing issue.
I want my colleagues to remember that on January 20, 1981, when Mr. Reagan was being sworn in, the Federal Reserve Board pressed a button and released instantaneously several billion dollars in London to Iran, and that is when they released our hostages, something that had not happened since the 9th century.
So that it is amazing how here we are about to close out not only a century but a millenium, one of the most bloody centuries in all human history, and we should close it on that note.
So here is all that Mr. Drogoul arranging for $2 billion in commercial loans for the procurement, as a result of a very intricate, very well-thought-out procurement network by the Iraqi brains, and for the purchase of military technology all the way from chemical to such things as biological, nuclear--all of that was in there--and this thing, the initial financing which was like the Chase Manhattan in Iran, syndicated; that is, they get other banks to come in and take chunks of that.
Now, I put that on the record last year and in the committee's hearing record in 1990, the list of 10 banks that received and have received payments to make up for the default, and that came from the good old taxpayer, of about $1 billion; 10 big banks in the United States.
I listed them, they were working in what they call in banking circles this system.
So that this financing supported a vast, clandestine procurement program which was known by the United States and which decided to tolerate it.
Now, last year and even before then, and earlier this year, I was complimenting the likes of the CIA and the military defense intelligence because we have the documents showing that they were telling everybody from the Vice President, then Bush, who was later President, and the Secretary of State and everybody in the so-called National Advisory Council, that, `Hey, look, this has military implications. We don't favor it.' They were canceled out.
So here I was praising the CIA for having done its job, all of a sudden they are jumping all over, trying to scare me, trying, what somebody said, to muzzle me, which is ridiculous. Nobody has ever muzzled me since I learned to talk, much less the CIA. But the reason was that they were then pressured by the Attorney General, who has been the one that has been the most incensed that I should tell my colleagues in the Congressional Record what is going on. But I have praised the Intelligence Agency; after all, that is what they were supposed to be doing. The facts show they did. But they were not heeded or they were overruled.
One question the case raises is whether the higher reaches of BNL knew what was happening in Atlanta.
Did the officialdom on Rome know? Well, in the meanwhile, the Roman Senate, and remember that this scandal has been written up about much more in the Roman press than in the United States, appointed an investigating committee, Senators.
I met with them. I met with the Chairman Carta and three of his colleagues, met them here in the United States.
When the Federal Reserve Board, under pressure from the Attorney General, would not give us the documents that we had subpoenaed, I got them from them. So we did not need the CIA for that matter; but in fact, what the CIA has said and what we have put in the record has been said somewhere else, whether in Europe or here or in some publication.
Now, did the higher-ups in Rome know? Why is this important?
Well, even now against all the activities of the Treasury Department and the Attorney General, I am trying to save the taxpayers the last near $300 million that the BNL Bank in Rome is suing to collect on the basis that they were not aware that if the Government of the United States knew, it did not tell them, or that this was the operation of what they called a rogue employee.
Now, we have placed in the Record as of the special order before last clear documentation showing that that was not the case, that the Minister in Italy had intervened with our American Ambassador, and he, in turn, pressured our folks here and they, in turn, let it be known, `Go slow in prosecuting in Atlanta.' So this question is very important. That is why we keep asking it.
Another question, of course, is how much our Government knew about it. There is also the question of how hard the U.S. Government has tried to dig out all the facts.
The senior management of BNL had reason to suspect that something was wrong, or rotten, as they say, in Atlanta, long before U.S. authorities raided the place and blew the lid off the scandal.
Mr. Luigi Sardelli was appointed executive vice president and managing director of BNL's North American operations in July 1987--2 years before the BNL raid. Soon thereafter, he began auditing the bank's U.S. operations. In the Miami office, he found major problems and got permission to fire that office's managers. His auditors soon found major problems elsewhere: Los Angeles, Chicago, and Atlanta. He also recommended firing the Los Angeles office management, but never got consent for this action. In the case of Atlanta, Sardelli in August 1988 discovered a poorly collateralized loan to Entrade--which turns out to be one of Iraq's key procurement agents. But 2 months after discovering this transaction and reporting it back to headquarters in Rome, Sardelli's boss insisted on praising the Atlanta manager, Chris Drogoul. This was despite Sardelli's questions and criticisms. Then in late December 1988, Sardelli forwarded to Rome an audit report that was critical of BNL-Atlanta. But this report was in English, and it was ignored--not even translated into Italian--until July 10, less than a month before the U.S. officials raided the Atlanta office 7 months later. By that time Sardelli had retired. However, the fact is that the top manager of BNL, Mr. Giacomo Pedde, and the bank's chief auditor were aware of the problems in Atlanta at least as early as the fall of 1988, nearly a year before the scandal exploded.
Clearly, at least one senior manager of BNL knew that his bank's United States operations were badly run and reported this to his headquarters in Rome. However, Mr. Sardelli's requests to shake up management were sometimes ignored, his critical reports went unread, and his bosses made clear that Chris Drogoul had strong support at the top.
Giacomo Pedde, the director general of BNL in Rome resigned in the wake of the scandal and has since been indicted in Italian courts for his role in certain Iranian transactions. It was Mr. Pedde who in October 1988 told Sardelli that it was premature to chastise his Atlanta manager, Drogoul.
At about the time Sardelli sent his critical audit report to Rome--the one that sat unread until the scandal exploded 7 months later--the management of the Udine branch of BNL got a request to finance a steel plant in Iraq. The manager of the branch wanted people at the top to get involved, because the account was an important one, Danieli. On January 26, Director General Pedde called the head of his financial division and told him the Danieli deal should get personal attention. Two days later, Danieli signed a deal for 140 million German marks--$70 million--to provide a steel rolling mill to NASSR Enterprise, in Iraq. This loan was to be handled, not through the Udine branch that originated it, but through BNL-Atlanta.
It would seem then, that Atlanta had some special function. The Italian Senate believes the Danieli deal was handled through Atlanta to prevent other Italian companies with claims against Iraq from freezing the account. But it is clear that this odd deal was known to the top management of BNL, which moreover arranged to do it through Atlanta. This same top management was at the same moment in time ignoring its senior North American manager's warnings about irregularities in the Atlanta office. Indeed, by that time the Atlanta office was deep into its CCC deals with Iraq. In April 1989, a few weeks after the Danieli deal was routed through his office, Drogoul was in Venezuela trying to collect on a $25 million loan for a shipment of Cuban sugar that his office had financed for the Swiss subsidiary of Cargill Corporation.
And I will ask, let me stray here, our food bins, our grains, wheat, and the like, are at the mercy of foreign-owned, managed and headquarters international giants. Cargill may be considered American, but everything else, Dreyfuss and the others, it is not unlike our banking situation, but we, in America, also do not have a screening board for grain sales, like Canada, for instance. If mainland China wants to buy wheat from Canada, the screening board has to go through it to balance its own domestic needs.
So what have all these speculators in the grain markets done? Why, our farmers are at the mercy of these internationally based organizations. They are not going to be thinking of American interests.
And what is the result? As of July 1, what they call the bonus, particularly wheat, that our food banks, schoolchildren's meals, nutrition centers for the elderly, have been cut out. Why? Because we no longer have a surplus of wheat and grain in our country.
This matches what is happening in our financial market.
Now, I raised my voice, that is, locally in San Antonio, because I brought out how as of July 1, one of our impoverished school districts is going to have to ante up $200,000 more for food because of this cutout by the Agriculture Department.
Now, my colleagues, you say these are not dire events that we should give absolute and uncompromising authority to?
Well, I have not seen it and neither are those aspiring to lead this country in the executive branch or even those supposedly administering it.
So I just wanted to bring that in, how astoundingly and depressingly in our food, it is entirely possible, it is not outside the realm of possibility, like in the possible loss of our financial independence, if we are going to have to start paying back all these monumental and monstrous debts in somebody else's currency for the first time in our history, that we will also have food shortages in this country.
It is a dismal picture, and maybe it does not make me too popular with those hearing it, but it is the truth.
In short, while Rome ignored warning signs, and moreover assigned the Daniele loan to Atlanta, Drogoul was rapidly expanding his illicit operations with Iraq, and at the same time covering his tracks on the soured deal to ship Cuban sugar to Venezuela.
The North American manager, Sardelli, refused a transfer back to Rome at about the time Drogoul was trying to cover his tracks in Venezuela. His superiors back in Rome were not the only ones who turned a deaf ear to his warnings--the U.S. Justice Department has never asked him what his bosses knew or didn't know about BNL-Atlanta's operations.
This is our Attorney General, who at first tried to scare me again, like the CIA, then tried to muscle me, and then handed down a decree regarding all of the departments, in fact the CIA included, the Treasury Department, forbidding them to provide any documentation
to the committee. The same Attorney General that I think clearly has shown a dismal abdication of his sworn duties, and I would say is presiding over a corrupted department.
Sardelli retired in July 1989. That same month, on July 27, two informants appeared with their lawyers at the U.S. Attorney's office in Atlanta to tell their story. Two days later, bank regulators were called in. On August 2, the president of the Federal Reserve Bank of New York advised his counterpart at the Central Bank of Italy that an investigation was going on, and 2 days after that BNL-Atlanta was raided.
Drogoul claimed that he had been pressued by Rome to carry out the Danieli deal, and also claims that his superiors knew about the phony books he was keeping. The Italian Senate report confirms that BNL-Rome did indeed support the Danieli deal, and since the former director general, Mr. Pedde, ignored warnings and has legal problems of his own, it is at least arguable that he knew something about Drogoul's operation. In any event, it is curious indeed that Pedde and his associates picked an obscure office in Atlanta to handle the Danieli transaction to provide a steel facility for Iraq. Why not New York, especially since Sardelli had already reported problems in Atlanta to his superiors in Rome?
After the BNL raid, it did not take long for investigators to realize that the bank was financing militarily useful technology for Iraq. But according to a November 22 memo from Assistant U.S. Attorney Gale McKenzie.
`* * * the Iraqis were careful to purchase dual usage equipment which, of course, can be and probably was used on the Condor II project. Such purchases and funding are not in violation of U.S. law.'
But of course at that time the United States wanted warm relations with Iraq.
The go signal was to all of these big firms in the United States to get export licenses and the like.
At that time Iraq hoped to get another billion dollars' worth of CCC-guaranteed food loans. The Department of Justice wanted to deny the loans to Iraq unless there was full cooperation, according to a letter from Justice to State dated February 9, 1990. That was a different attorney general at that time. The State Department wanted to keep the program going, if Iraq would promise minimal reforms, according to a memo dated a week earlier. In other words, Justice was not happy with State's anxious effort to keep Saddam Hussein from being upset by the spreading scandal. An alarmed prosecutor warned on March 9:
* * * it is most important that neither USDA nor DOJ ever attempt to justify the issuance of an additional $500 million in CCC guarantees as necessary to obtain Iraqi interviews for us * * * in no event should these potential Iraqi interviews to be used as justification for issuance of an additional $500 million in CCC guarantees.
The Agriculture Department also felt the heat and reported to the prosecutors:
USDA is receiving increased pressure with regard to the pending Iraqi request for an additional line of GSM-102 guarantees.
According to a memo from USDA on March 13, 1990.
But despite the objections of the Agriculture Department and the prosecutors, and in keeping with the President's desire to develop Saddam Hussein as a friend, the loans were approved notwithstanding all the scandal. Two years later a frustrated Gale McKenzie, the prosecutor of the BNL case wrote:
Information developed by (her office) was apparently discounted in reaching this policy decision (to pay off guarantees to banks owned partly by Iraq) just as it was when $500 million in additional CCC guarantees for Iraq was approved after we disclosed the multibillion dollar scheme to defraud BNL for the benefit of Iraq.
The military side of the BNL case presented considerable problems. Earlier, I noted how the prosecutors had noted Iraq's skill in avoiding arms control law by procuring dual use technology. However, what they didn't know was that it was policy at the highest level to approve shipments even to known Iraqi nuclear facilities, even if it looked like equipment used for arms programs, as long as the equipment wasn't immediately useful for building bombs. It wasn't blown up at that point. In one such case, the equipment used for terminal ballistics studies was shipped to a known Iraqi nuclear facility, because it was considered too slow to be useful in bomb making. The policy was, if it doesn't explode, go ahead and ship it.
The prosecutors knew that something fishy could be going on. After Iraq invaded Kuwait, and during the United States buildup for the ground phase of the gulf war, they prudently asked their bosses in Washington:
Whether any facet of the U.S. intelligence community had any knowledge of illegal activities at BNL-Atlanta prior to August 4, 1989, and if so, what did they know and when did they know it.
This had worried them for some time. Months before, on July 3, the prosecutors wrote Main Justice:
Two issues have arisen which appear to be stumbling blocks--what knowledge and role, if any, the Central Intelligence Agency had or played in BNL dealings with foreign governments in general and Iraq more specifically. * * *
As you well know, experience has demonstrated that CIA's knowledge and participation can seriously impact a decision to prosecute.
This same memo also requested:
Determination of the destination of a shipment of sidewinder missiles.
I do not know what the answer to those inquiries was. But information that I do have makes it clear that our Government, at the highest levels, knew Iraq had clandestine procurement operations going forward and tolerated those activities right up until the start of the gulf war. In fact, the prosecutors noted on March 9, 1990--again, at the time the State Department was pushing for $500 million in new loans for Iraq:
Back in October 1989, the U.S. Attorney's office in San Diego advised that Customs was attempting to set up an undercover purchase of equipment in San Diego by Iraqis through the Iraqi owned companies Matrix Churchill and/or TDG without the required licenses. Customs in San Diego initially asked that we delay service of the Matrix Churchill subpoenas * * * although allegations about Matrix Churchill relating to the BNL matter were then front page news around the world.
To explain this, let me remind you that in the fall of 1989, United States authorities were trying to crack the Iraqi effort to buy parts for nuclear triggers. Buying parts for nuclear triggers wasn't part of the administration's plan to appease Saddam Hussein. But the fact that he was trying didn't keep them from letting him buy all kinds of other technology, nor did it stop them from granting him $500 million in fresh food credits, taxpayer-guaranteed.
No wonder the investigators wanted to be sure they were not running afoul of CIA operations. It was clear to them that BNL was in the middle of a huge foreign policy decision, one that the administration wanted to pursue despite the criminality at BNL, despite the evidence that the food aid was being abused, and despite clear evidence that Iraq was using BNL to finance its arms program.
The prosecutors also knew that they hadn't gotten much help from Washington. On February 9, 1990, Gale McKenzie complained bitterly.
She is the Federal prosecutor in Atlanta, and here is the Justice Department up here, the Attorney General, saying `Hey, go slow or don't go.' First she complains bitterly about how her requests for help were being ignored by the bigwigs in Washington, and how a key official had not relayed to anyone the urgency of the situation. Of course, Washington had been hearing from Rome about the need to go slow, as I pointed out a week ago this Monday.
A July message from Rome reports that the Director General of BNL:
* * * made a pitch for the USG to go slowly before naming indictments. * * *
He also commented that the Assistant U.S. Attorney in Atlanta is a `mean and vindictive woman' who is being led by Israeli sources who have pointed her toward Turkey as the basis where all this began. He is positive that Mossad wanted to publicize the BNL involvement.
McKenzie was keenly aware of how sensitive things were with Rome. On May 9, she had heard from Washington a suggestion:
McKenzie was willing to do this, if her bosses wanted.
With all the intrigue and political pressure, there could not have been any doubt in anyone's mind about the sensitivity of the case. The prosecutors knew that BNL was in the middle not just of a huge financial scandal, but a major foreign policy situation as well--that policy being one of encouraging Saddam Hussein to know that he had a friend in George Bush.
When things got hot in the foreign policy area that summer of 1990, all of a sudden this fellow that had every reason to believe that he was pursuing rightfully, in his mind, the 100-year claim of Iraq to Kuwait found suddenly that they were going to war against him, but when it got hot, and in that summer of 1990, this principal investigator, prosecutor, Gail McKenzie, was off the case for 4 months.
The biggest financial scandal investigation in the history of her office had to do without her until after Iraq invaded Kuwait, and the policy of supporting Iraq was blown to bits. After the invasion, it was not just politically safe to go after the Iraqis, it was a political necessity, but here they took her off 4 months, the critical months.
Was that happenstance? Was that a mandated sabbatical? Of course not.
Even then, of course, the prosecutors had to be careful. They didn't want, as the record shows, to start prosecuting a case that might blow the cover off a CIA operation, and so they made inquiries to be sure of their ground. And there was also the frequent business of Washington being reminded by Rome that damage control was needed. Possibly that request for damage control is why Mr. Sardelli never was questioned very much about what he knew about Rome's inability to see or hear his warnings about the loose operation that BNL was running in Atlanta. Before the war, Rome apparently didn't want to know. It is possible that Washington didn't want to know either.
In fact, it is not possible, but I am sure they did not. In any event, the policy of support for Iraq continued, despite the scandal, up until Iraq rocked into Kuwait and set off the gulf war.
The administration did a great deal more than sell food to Iraq. The policy was to let military technology flow as freely as possible. A nuclear-triggered incident, and the later interceptive parts that had been made to the famed Iraqi supercannon, Old Bull, and he died in Belgium, he is Canadian born, who had worked for the CIA, incidentally, and for our Government in developing the long-range guns, and when he began to go on his own and sell armaments to the wrong people he was brought in by the very same CIA he had been working for, brought to court and convicted and sentenced for 4 months in a Federal jail. He came out a bitter man. He was the one that was developing the so-called Bull's big gun for Saddam Hussein, and was assassinated in Belgium.
The policy might not have included shipping bombs or munitions, but it certainly included shipping the technology to them. In return, the United States got special deals on the oil and the possibility that Iraq would be counterweight to Iran, but what we got instead was a war that could have been avoided, as I have said all along, even since August 1990.
Our soldiers, sailors, and airmen to this day are patrolling the borders around Iraq and the skies of that country.
We have a good-sized contingent, just like we still have, better than two-thirds of our troops in Panama, two-thirds of those we had at the height of the invasion. These are follies.
Let us ask a truthful question: What did Hitler do that was any worse than what we did in our name, incinerating several thousand blacks, 100 percent, in inflammable buildings constructed in 1908 in Panama for the Panama Canal workers; just burned?
Then we had mass graves, military, and by constricting the press and holding them under arrest in hotels, we prevented them, except one or two from Great Britain, from noting and reporting it.
I do not know what more war atrocities were committed by those we claim were Atillas and Huns and what not, and not to count the 200,000 plus Iraqis that we slaughtered, at least 100,000 so-called conscripts or soldiers while they were running, killed them mercilessly, buried them in sand with their hands sticking up.
We have a bunch of veterans now sick in the veterans hospitals of undetermined but very definitely neurasthenic sources because of what they witnessed in the Persian Gulf. Remember, that was done all in the name of us, the American people.
What about the 100,000 or so children, women, old, young, that we killed in the carpet bombing of Baghdad, destroying priceless artifacts, going back to the beginning of Western civilization?
You do not hear about that. Oh, you hear about our braggadocio generals, what great victories and how they are now millionaires as a result of this venture.
But I say yes, maybe we are the unipolar power of the world. I do not think so, but that is what everybody is saying. But we have got to remember that the Lord God cannot be tempted.
Is this our contribution to civilization at the near end of this century and millenium? Should we not be concerned and pondering and disturbed?
Well, so be it. We know that there was a lot more than just settling the food on the basis of guarantees. We know that it led to the free flow of technology of all kinds to Iraq. It might not have included the actual shipping of the assembled bomb, but everything that went into it was.
In return the United States got the special deals on oil, as I pointed out last week. And what we have ended up with is a war that is still in its initial stages.
If it is the impression among my colleagues that the gulf war is over, what I have said was just the beginning. Only the Lord knows where it will end. We went there, in my opinion, precipitously and willy-nilly into the origins of our Western civilization. It remains to be seen whether that will be perhaps the beginning of an end.
So what was this policy of appeasing Saddam Hussein based on? On conviction, principle? Oh, that is old fashioned. We do not talk about that.
No, it was a gamble, it was a crapshoot, and it failed. They lost the cast of the die. And at great cost still to be established, and with consequences that I say and repeat we cannot at this point foresee.
And at the center of it all is this little agency bank that could do anything. Did this happen just because Chris Drogoul was a loose cannon or a rogue?
Mr. Speaker, I hear the rap, and my time is up. -
The policy might not have included shipping bombs or munitions, but it certainly included shipping the technology to make them. In return, the United States got special deals on oil and the possibility that Iraq would be counterweight to Iran. But what we got instead, was a war that could have been avoided, and our soldiers, sailors, and airmen to this day are patrolling the borders around Iraq and the skies of that country. As for Saddam Hussein, the policy now is to regard him as an international criminal, though his use of the poison gas and pervasive abuses of human rights were earlier ignored. The policy of appeasing Saddam Hussein was rooted in no principle; it was a gamble that failed, at a great cost and with consequences that cannot be foreseen. At the center of it all is the little bank that could do anything, BNL-Atlanta. Did all this happen just because Chris Drogoul was a slick operator? It seems impossible, when you consider how much Washington knew about Iraq's secret operations, and how much the President wanted to provide provender and technology to Iraq, even after the scandal broke. It seems impossible that BNL's home management was ignorant of the scandal, in the face of warnings its senior American manager sent. Perhaps Mr. Pedde didn't want to know, because it was, after all, his senior managers who used BNL-Atlanta to carry out the Iraqi steel loan despite clear signs of trouble. If Washington knew that Iraq was carrying out secret procurement operations--and there was exactly such knowledge--maybe they just didn't want to know what BNL-Atlanta was doing either. Washington's policy clearly was to hear no evil, see no evil.
November 22, 1989.
Subject: Response to your November 3, 1989, BNL Memo.
To: Robert L. Barr, Jr., United States Attorney.
From: Gale McKenzie, Assistant U.S. Attorney.
The BNL investigation has continued to proceed `full-speed ahead' to the point of most agents canceling leave during Thanksgiving week. In fact we were in the office after hours yesterday obtaining detailed information regarding personal gain from Paul VonWedel's attorney and discussing a VonWedel plea.
I have attempted to keep you advised of daily activity in the BNL investigation by typing and distributing a daily log.
Since your November 3 memo we have received a determination from Washington that we do have a `Trading with the Enemy Act' violation and it will be included in the initial indictment.
To date we have received determinations on only half of the suspect transactions regarding possible violations of the `Arms Export Control Act'. Those determinations have been negative. The products, such as the nuclear fuel compressor, have dual use capacity and are therefore not licensable. Although customs has been diligent in requesting prompt determinations such review is time consuming and the collection of documents from manufacturers, freight forwarders, customs brokers, as well as exporters is sometimes slow due to retrieval from overseas sources and from a multitude of different companies. It may take six months to complete all determinations. However, we think there may be no prosecutions in this area since initial determinations show that the Iraqis were careful to purchase dual usage equipment which, of course, can be and probably was used on the Condor II project. Such purchases and funding are not in violation of US law.
The USDA OIG yesterday found a false statement submitted to USDA by Drogoul in connection with obtaining CCC guarantees. Therefore, there will be at least one CCC count in the initial indictment. As for the overall investigation, USDA does not feel that they can move any faster for the reasons stated in my memo of October 31. They have assigned three full time people to the case--two Special Agents and one Auditor. Since there is a possibility
that information developed during the USDA investigation can void CCC guarantees and perhaps save US taxpayers over $1 billion, that investigation must be complete and thorough.
I have been in contact with DOJ from the beginning regarding Foreign Corrupt Practices Act and Anti-Blacklist coordination. The crucial question which has not yet been answered is whether payments were made to individuals or to the `government' itself. I still don't foresee such violations being included in the initial indictment.
The October 31st memo discussed the fact that we were investigating whether or not Drogoul had operated as a foreign agent without registering as such. The Iraqi ties were with Drogoul, not VonWedel. It still does not appear that we will have sufficient evidence in this area for inclusion in the initial indictment.
The FBI assures me that they continue to keep the Foreign Counter Intelligence desk in Washington promptly advised of all developments.
Entrade may be a corporate defendant in certain scheme to defraud BNL counts of the initial indictment. There is no evidence that any BNL employee or officer outside Atlanta had knowledge of any portion of the schemes under investigation sufficient to warrant criminal prosecution. Should export offenses be developed, non-BNL corporate and individual subjects would, of course, be identified and prosecuted.
I do not believe that any judge in the Northern District of Georgia would order pretrial detention for the five BNL Atlanta subjects due to the facts set forth in my October 31st memo.
DEPARTMENT OF AGRICULTURE, OFFICE OF INTERNATIONAL AFFAIRS, CRIMINAL DIVISION,
Washington, DC, February 9, 1990.
Re United States v. Christopher P. Drogoul, et. al (N.D. GA.)-Iraqi Cooperation.
Mr. Andre Surena,
Assistant Legal Adviser, Law Enforcement and Intelligence, Department of State, Washington, DC.
Dear Mr. Surena: This office has read the proposed memorandum from Alan C. Raul, General Counsel, United States Department of Agriculture, to Abraham D. Sofaer and Robert S. Ross, dated February 2, 1990, regarding efforts to seek the cooperation of the Government of Iraq in the Banca Nazionale del Lavoro matter.
We endorse the memorandum recommendation of a demarche to the Government of Iraq. We believe that the interests of the United States Department of Justice would be better served if the issuance of additional export credits to Iraq is conditioned upon Iraq's complete cooperation with the United States Government in the ongoing Department of Justice investigation in Atlanta. The Office of the United States Attorney for the Northern District of Georgia is in accord. We urge that this matter be resolved as soon as possible.
Thank you for your consideration and attention to this matter.
Drew C. Arena,
Office of the Attorney General,
Washington, DC, February 6, 1990.
Memorandum for Mark M. Richard, Deputy Assistant Attorney General, Criminal Division.
From: Robert S. Mueller, III, Assistant to the Attorney General.
Subject: Memorandum From Alan Raul, General Counsel, USDA.
This is to bring you up-to-date on the attached. I talked to Raul yesterday and said that I saw nothing wrong with him sending the memorandum to Sofaer and to us. I saw no problem with asking for Iraqi cooperation, but since you were out of town and Gail McKenzie was unavailable, I told him we might have further comments later.
Today I talked to Gail McKenzie. She said that the Iraqis had offered cooperation previously, but until recently she did not have enough information to be able to intelligently evaluate that cooperation. She now is in a position to talk to the Iraqis. She said that you and she were concerned that the cooperation from the Iraqis be provided directly to the Department of Justice, rather than to the USDA or to State.
I thereafter called Drew Arena and requested that he or Molly Warlow coordinate with USDA, State, and Gail McKenzie to assure that DOJ is the recipient of any cooperation resulting from the demarche to Iraq.
Finally, I again talked to Alan Raul and obtained his concurrence that any cooperation resulting from this demarche would be provided to the Department of Justice. He requested that USDA also have access to the information provided by the Iraqis so that the program could be evaluated in light of that information. I told him that this would be arranged.
There are 4 pages to this document, including the cover sheet. Please call the above telephone number if any of these pages is not received or is illegible.
Department of Agriculture,
Washington, DC, February 2, 1990.
Memorandum for Abraham D. Sofaer, Legal Advisor, Department of State and Robert S. Ross, Executive Assistant, Office of the Attorney General, Department of Justice.
From: Alan Charles Raul, General Counsel.
Attached for your suggestions is a possible memorandum regarding efforts to seek the cooperation of the Government of Iraq in connection with the ongoing investigations into the Banca Nazionale del Lavoro matter.
Please let me know what you think about this approach as soon as you can (preferably by Monday). I would like to finalize the memorandum after receiving your comments and advice.
As you know, allegations have been raised in connection with certain loans extended by the Atlanta Branch of the Banca Nazionale del Lavoro in connection with exports to Iraq. Some of those exports involved agricultural commodities purchased by instrumentalities of the Government of Iraq with the benefit of export credit guarantees made available by the Department of Agriculture's Commodity Credit Corporation. We understand that these allegations are currently under investigation by the U.S. Attorney's office in Atlanta and by other agencies of the U.S. Government as well. The Department of Agriculture has been cooperating with the ongoing investigations and members of our Office of Inspector General are participating directly in the criminal investigation.
In addition to cooperating in the pending investigations, we believe we have a responsibility to monitor the situation carefully to ensure that our GSM program for Iraq is not compromised. This is consistent with the decision of the National Advisory Council on International Monetary and Financial Policies to approve the extension of additional export credit to Iraq by the Commodity Credit Corporation for fiscal year 1990, provided that additional program safeguards were put into place and the circumstances surrounding the Iraq program continued to be reviewed and evaluated. The Department of Agriculture has implemented additional safeguards and, as stated previously, has been assiduously monitoring the Iraq program.
We believe our due diligence in this case requires us to consult and coordinate closely with other relevant agencies. In particular, we believe that is could be useful for the appropriate U.S. Government officials to approach the Government of Iraq directly to seek their cooperation and any information that would assist us in determining whether there was any improper activity in Iraq related to the exports covered by the GSM guarantees. If any such improper activity surfaces as a result of the ongoing investigations, it will be essential for the U.S. Government to establish the role and responsibility of the Government of Iraq, or whether the questionable conduct is limited to isolated case of individual wrongdoing.
Accordingly, we would request that, consistent with the needs of the ongoing criminal investigation, the Department of State approach appropriate officials of the Government of Iraq to (a) request their cooperation with the United States and (b) obtain Iraq's assurances that it will provide the United States with any information it learns regarding any possible wrongdoing in connection with the GSM export credit guarantee program and that, should there be any evidence of wrongdoing by Iraqis, it will assure that any such individuals are, at a minimum, immediately and entirely disassociated from the GSM Program in Iraq. The Government of Iraq should also be asked to repeat its prior assurances that it continues to stand by its financial obligations under the GSM export credit guarantee program.
If either of the Departments of State or Justice believe that a demarche to the Government of Iraq along the lines proposed in this memorandum is not appropriate at this time, please let me know. Under those circumstances, I would recommend that we develop an alternative course as soon as possible that would allow us to ascertain Iraq's position with regard to the various allegations and investigations. The Department of Agriculture is prepared to continue to work closely with you on this.
Department of Agriculture,
Washington, DC, March 13, 1990.
To: Wendy Blank, Office of Intl. Affairs, U.S. Dept. of Justice. Telephone No. 786-3505. Fax No. 786-3616.
From: Kevin Brosch, Office of General Counsel, USDA. Telephone No. 447-2940, Fax No. FTS 245-5091 (202) 245-5091.
As per our conversation this a.m.
Attached is a copy of the draft proposal which was discussed yesterday afternoon in the meeting between USDA, DOJ and USA-Atlanta. I have contacted Mike Young, the Deputy Legal Advisor at the State Department to tell him that this is in the works.
USDA is receiving increased pressure with regard to the pending Iraqi request for an additional line of GSM-102 guarantees for this fiscal year. We need to resolve the issue of the approach to Iraq as soon as possible, and would like your comments today so that we can provide a draft to the State Department. If you need to reach me, my telephone is (202) 447-2940. My fax is FTS 245-5091, or (202) 245-5091.
Thanks for you help.
This afternoon, USDA's Office of General Counsel met with representatives of the Department of Justice and the Office of the U.S. Attorney for the Northern District of Georgia to discuss our respective interests in interviewing Iraqi officials regarding perceived irregularities with the Iraq GSM-102 program. We had previously provided DOJ and USA-Atlanta with copies of questions that USDA would like to pose to the Iraqis, and had asked DOJ whether it opposed a USDA approach to Iraq on these subjects in light of the ongoing grand jury investigation into the BNL affair.
DOJ does not have any problems with the questions we have suggested. However, they propose that USDA and DOJ jointly approach Iraq and ask that it send a delegation to Washington as soon as possible to meet with officials of both agencies to discuss issues arising out of the BNL investigation. DOJ requested that USDA not send specific questions to Iraq prior to such a meeting. Moreover, DOJ has asked that the proposal to Iraq specifically request the attendance of seventeen individuals (current or past Iraqi officials involved in the BNL transactions). A list of those individuals, as provided by USA-Atlanta, is attached.
It was agreed that I would prepare a draft of the proposal, and that the draft would be provided to the State Department for its review and input on substance and approach. Ray Ruxton, the U.S. Attorney for Atlanta, and Gale McKenzie are returning to Atlanta this afternoon. Drew Arena, of DOJ's Office of International Affairs (FTS: 786-3616) is also involved. I will have an initial draft of a proposed communication prepared by tomorrow morning.
Recently, the Government of Iraq has requested the Commodity Credit Corporation (CCC) to extend for the remainder of fiscal year 1990 an additional $500 million in export credit guarantees under CCC's GSM-102 program. This request has been taken under advisement by the CCC and the U.S. Department of Agriculture (USDA) and is currently being reviewed.
Since September, 1989, the Iraq GSM-102 program has been subject to substantial public inquiry due to various allegations of possible irregularities that have surfaced as a result of the Banca Nazionale del Lavoro (BNL) investigation in Atlanta, Georgia. The Office of the United States Attorney for the Northern District of Georgia is currently investigating certain GSM transactions with Iraq financed by BNL. In addition, USDA/CCC has been conducting its own internal review of the Iraq GSM program.
The United States appreciates the fact that, on a number of occasions, the Government of Iraq has offered to provide its full cooperation on these matters when the U.S. government would be in a position to seek specific information. USDA/CCC now has a number of specific areas of inquiry with respect to transactions conducted under the Iraq GSM-102 program, and requests the assistance of the Government of Iraq in resolving uncertainties about the nature of those transactions. In addition, the Office of the United States Attorney for the Northern District of Georgia has also requested the assistance of the Government of Iraq with respect to issues that have surfaced as a result of the BNL investigation in Atlanta.
To address the concerns of these two agencies, the Government of the United States requests that the Government of Iraq assemble a team of persons knowledgeable about Iraqi GSM-102 purchases during the period 1985-1988, and particularly about purchases made by Iraq that were financed through BNL--Atlanta. The United States requests that this team meet with officials of the U.S. Department of Agriculture and the Office of the U.S. Attorney in Washington, D.C. during the week of March 25, 1989, or as soon thereafter as can be conveniently arranged. The agencies have specifically requested the participation at those meetings of the seventeen individuals listed in Annex 1, which is attached to this document.
The United States proposes that those meetings consist of interviews by the Office of the United States Attorney of the listed individuals; and separate meetings between the Iraqi team, and a team of officials from USDA/CCC where the U.S. side will identify specific past issues and discuss the need for procedural reforms and changes necessary for any future Iraq GSM program. Thank you in advance for the cooperation from the Government of Iraq in resolving these important questions.
During the course of our BNL-Atlanta investigation information has been developed that Iraqi government officials and others connected with them have required `after sale services' from U.S. exporters on CCC guaranteed commodities, as well as `consulting fees' from U.S. exporters of non-CCC guaranteed products. Such conduct could constitute violations of 15 U.S.C. 714(M) if the `port value' of a CCC guaranteed commodity were inflated to cover such payments. The Foreign Corrupt Practices Act could also be violated if an Iraqi government official were retaining a portion of either the `after sale services' or `consultant fees' for personal use. In addition, certain Iraqis had knowledge of and participated in the scheme to defraud BNL.
We therefore requested through attached letters of February 13 and March 1 that DOJ arrange through State or otherwise Atlanta or Washington interviews of specified Iraqis who are thought to have personal knowledge of `after sale services,' `consultant fees,' and the scheme to defraud BNL.
The U.S. Department of Agriculture (USDA) and DOJ appear to be advocating a linkage of such Iraqi interviews with the imminent approval of an additional $500 million in CCC guarantees for Iraq. While our office does not control such policy decisions, it is most important that neither USDA nor DOJ ever attempt to justify the issuance of the additional $500 million in CCC guarantees as necessary to obtain Iraqi interviews for us. This office would prefer foregoing Iraqi interviews altogether rather than `paying $500 million' for the opportunity to questions individuals who, in all probability, will not `confess all'. On the other hand, requests for such interviews is a natural progression of our investigation. Our office has received `messages' from the Iraqi Ambassador to the U.S. and others in the Iraqi government through various third parties that Iraq is most anxious to cooperate with the Atlanta investigation. But in no event should these potential Iraqi interviews be used as justification for issuance of an additional $500 million in CCC guarantees.
A second problem regarding Iraqi interviews involves the USDA Office of General Counsel's desire to submit questions which impact our criminal investigation to the Iraqi government in general prior to our requested interviews of specified Iraqi individuals. See attached March 1 list of USDA Office of General Counsel questions. Since the proposed questions impact our criminal investigation, the USDA Office of Inspector General agrees with this office that the Iraqis should first be requested to produce for interview in Washington or Atlanta by a date certain the specific individuals named on our lists of February 13 and March 1. Should the Iraqis decline or simply fail to give us an answer on a timely basis, we have no objection whatsoever to any USDA General Counsel questions. If the Iraqis do agree to personal interviews, advance notice of specifics as contained in the current USDA proposed questions could be counter productive to these interviews.
Therefore, it is suggested that Iraq's position in regard to such interviews be immediately determined. In the meantime, we have no objection to USDA Office of General Counsel propounding to the Iraqi government general policy questions 1 through 15 contained at pages 2 and 3 of the USDA March 1 submission. However, the following additions to certain of these questions may prove helpful.
Question 6 add: Did Iraq ever reveal bid prices to a competitor company or individual prior to bid closing?
Question 8 change to read: Did Iraq request or receive any additional compensation in the form of `after sales services' or in any other form from any U.S. agricultural exporter whose sales were made under any CCC guaranteed programs? If so, please provide dates, amounts of compensation, nature of compensation, Iraqis having knowledge of such transactions, and individuals and agencies receiving compensation.
Question 9 add: underlined phrase . . . in requesting and receiving without request `after sales service' . . .
This position is conveyed to Mark Richard by attached March 5 letter which I suggest we hand deliver on Monday in light of his concerns expressed to you on March 5 about communication security in this case.
Finally, in response to Mark's comments on March 5 concerning `new developments', `broader problems with the same government,' and `Customs problems in San Diego,' the following insight is provided.
Back in October 1989, the U.S. Attorney's Office in San Diego advised that Customs was attempting to set up an undercover purchase of equipment in San Diego by Iraqis through the Iraqi owned companies Matrix Churchill and/or TDG without the required licenses. Customs in San Diego initially asked that we delay service of Matrix Churchill subpoenas in the BNL-Atlanta investigation although allegations about Matrix Churchill relating to the BNL matter were then front-page news around the world. We also had to use secured phones for a period. However, these restrictions were lifted by Customs Headquarters in Washington when Matrix Churchill attorneys approached us and offered to accept service of `their grand jury subpoena.' Matrix had been expecting a subpoena since so many other BNL customers had received one. Matrix was even wondering and speculating about the delay. Since that time Customs Headquarters has consistently advised us to proceed normally with our investigation and has this week approved an additional Matrix Churchill grand jury for document production regarding `consultant fees.' John Lowe and Dave Erkin of the Strategic Investigations Divisions have been assigned to coordinate these matters at Customs Headquarters. Customs is also in touch with Walt Sulzynsky and Joe Tate of DOJ Internal Security. To our knowledge, the Iraqis have not yet arrived in San Diego to purchase the unlicensed material.
Attached is a short summary of preliminary information developed regarding payments to Iraqis for government and/or personal benefit. Also attached is a memorandum of interview of F. Paul Dickerson, USDA Foreign Agricultural Service, regarding 1988 and 1989 confrontations regarding `after sale services' between USDA and the Iraqi CCC negotiating delegations.
The Iraqi issues discussed in this memorandum are the ones of which I am aware. The only other matter which may arise is the timing of Iraqi interviews, if requested. It is important to proceed with a Tezeller proffer in Istanbul during the week of March 20 because this is the one period in the foreseeable future when both defense counsel are available, Tezeller is still interested, I am between trials, and IRS needs the information to supplement their Drogoul report by the time it reaches DOJ Tax. Therefore, if a request is to be made regarding Iraqi interviews, it should be made promptly with an initial determination of whether Iraq is willing to produce individuals in Washington or even Atlanta or whether such interviews are feasible at all. A delay in the Istanbul trip without `something concrete' would be counterproductive.
U.S. DEPARTMENT OF JUSTICE, U.S. ATTORNEY, NORTHERN DISTRICT OF GEORGIA.
Atlanta, GA, December 10, 1990.
Re: BNL-Atlanta Investigation.
Chief, Fraud Section, Department of Justice, Washington, DC.
Dear Larry: At the suggestion of Peter Clark and Scott Taylor of your office, we are providing the following list of assistance requested from the Department of Justice:
1. A written response by the intelligence community to our previous inquiries concerning:
(a) Whether the unauthorized BNL-Atlanta funding was orchestrated, approved or directed by any facet of the U.S. intelligence or counter intelligence community prior to August 4, 1989;
(b) Whether any facet of the U.S. Intelligence community had any knowledge of illegal activities at BNL-Atlanta prior to August 4, 1989, and if so, what did they know and when did they know it;
(c) Any information about and/or photographs of the individuals named in our prior inquiries; and
(d) Confirmation, or lack thereof, of Taha's alleged death in London between June 4, and 6, 1990, as reported in the Financial Times. Taha received his heart transplant at Royal Free Hospital in Hamstead, England.
2. Determination of how to best arrange the funding and authority needed to use Acorn Group for case graphics;
3. Coordination with OIA to arrange:
(a) Our review of TDG and Matrix Churchill, Ltd. (MCL) and TDG documents seized by British authorities;
(b) Meetings with British and German investigators who have information regarding tentacles of the Iraqi procurement network funded by BNL-Atlanta; and
(c) Meeting with Italian magistrate well in advance of any magistrate interviews of our witnesses.
4. Coordination with United States Attorney's Office and Customs in Cleveland to assist in our obtaining Matrix Churchill Corp. (MCC) documents subpoenaed by the Northern District of Georgia grand jury prior to the Cleveland search warrant. Since there are grave concerns about the validity of that warrant and affidavit in support, it is most important that Customs, who now has custody of the seized MCC documents, copy the records listed in our grand jury subpoena and release the copies to the Matrix custodian for production before the Atlanta grand jury. There should be continued coordination between Cleveland and Atlanta as both cases progress due to the same documents and witnesses being required in both districts and both investigations impacting an area of concern outside the United States.
5. Confirmation that Bob Meuller, or whoever is making final decisions, does wish us to proceed immediately with Leigh New, Amedeo DeCarolis, Thomas Fiebelkorn and Theresa Barden plea negotiations on the terms generally suggested by and discussed with Messrs. Clark and Taylor.
Thank you for allowing Peter Clark and Scott Taylor of your office to spend three long days with us this week. Their input was certainly appreciated. I hope we have addressed many of your concerns in the time spend with Messrs. Clark and Taylor. In addition, we have begun work on their list of DOJ suggestions and requests which will be forwarded as completed.
RIMANTIS A. RUKSTELE,
First Assistant U.S. Attorney.
Assistant U.S. Attorney.
I recommend assigning someone from Fraud to work with Atlanta on exploring the `CIA' question. I wouldn't limit the area to CIA--consider looking at State's files as well.
As for the missing person, what can we do to assist Atlanta?
MARK M. RICHARD,
Deputy Assistant Attorney General, Criminal Division.
U.S. DEPARTMENT OF JUSTICE, U.S. ATTORNEY, NORTHERN DISTRICT OF GEORGIA.
Atlanta, GA, July 3, 1990.
Re Banca Nazionale del Lavoro (BNL) Investigation.
Mr. Mark M. Richard,
Deputy Assistant Attorney General, Department of Justice, Washington, DC.
Dear Mr. Richard: I would like to take this opportunity to advise you of the current status of the BNL investigation.
As you know, when we last met on the case in May, we reached an understanding that this office will proceed to prepare for your perusal and approval a draft indictment and prosecution memorandum in support of Phase One of the investigation. This initial indictment will involve former officers and employees of the Atlanta office of BNL as defendants, its client customers, and will allege violations of 18 U.S.C. 371, 493, 1001, 1341, 1343 and 2314, violations of 50 U.S.C. Appendix Sec. 5 and 16, and allegations of 26 U.S.C. 7201 and 7206(l). Preparation of the initial draft indictment is proceeding and will be transmitted to you soon. We will be happy to meet with you here or in Washington to discuss the proposed indictment.
Our investigation is currently focused on fine tuning the Phase One indictment and gathering information to frame the Phase Two indictment. You will recall that Phase Two involves violations of the Foreign Corrupt Practice Act, Hobbs Act, and false and fraudulent statements relating to U.S. Department of Agriculture and CCC loan guarantees. The subjects of Phase Two include American exporters doing business with Iraqis employed by the Iraqi Ministry of Industry and Military Manufacturing, and certain Iraqi nationals.
More specifically, in relation to Phase One and Two, investigators are engaged in the following:
1. Letters Rogatory are being prepared for Luxembourg and Swiss financial institutions to obtain documents reflecting payments made to subject Drogoul from CCC guaranteed Entrade/Enka corn shipments to Iraq.
2. Arrangements are being made to interview Wafi Dajani, an associate of Drogoul, whom allegedly had previously stated BNL `Rome knew' of irregularities in Atlanta.
3. A determination of Enka's role in after service payments to Iraq.
4. A determination of the destination of a shipment of sidewinder missiles.
5. Whether payments were made to Iraq officials for bid information (for CCC guaranteed loans) by two American companies, Dantzler of Puerto Rico and AID of Atlanta.
Two issues have arisen which appear to be potential stumbling blocks to the investigation--what knowledge and role, if any, the Central Intelligence Agency had or played in BNL dealings with foreign governments in general and Iraq more specifically; and, whether or not Sadik H. Taha, the Director General for Agreements and Loans, Central Bank of Iraq, and a key potential defendant, is alive.
I cannot over emphasize to you the importance of the answers to these questions to our overall investigation. As you well know, experience has demonstrated that CIA knowledge and participation can seriously impact a decision to prosecute. In addition, if Mr. Taha is dead, as has been reported by the European press, it would cause serious embarrassment to our government to prosecute him. I am respectfully requesting that you and your good office take necessary steps to obtain answers to these questions. We will be delighted to assist you in any way, to include going to Langley to assist in any document review or analysis.
In the meantime I will keep you advised of our investigation. Thank you for your assistance. I look forward to seeing you soon.
JOE D. WHITLEY,
RIMANTAS A. RUKSTELE,
First Assistant and
Chief, Criminal Division.
As I advised you earlier this morning, Peter Clark has made no presentation to Mark Richard regarding his 1/31/90 meeting with us on the Entrade/Tezeller matter. Instead, Clark left Washington to attend an SEC seminar in Denver, Colorado.
Prior to Clark leaving Atlanta on the evening of 1/31/90, he was reminded that Mark Richard on 1/27/90 had assured us of an answer regarding DOJ approval of the proposed Entrade plea within a week. Clark was also advised of the reasons which required: (1) BNL indictment by the end of February, 1990; and (2) receipt of Tezeller cooperation through an Entrade plea agreement prior to indictment. Clark instructed me not to call defense counsel with Clark's new proposals until he briefed Richard and notified me of Richard's decision by 2/2/90.
When no such DOJ approval was forthcoming on 2/2/90, I called Clark on 2/5/90 at which time he claimed to be undergoing surgery that afternoon but promised to call me on 2/6/90. I again reiterated the urgent need for a prompt DOJ decision. After receiving no such call from Clark on 2/6/90, I called his office and was told he was on travel status through 2/18/90 with no number or location available.
After checking with you, I called Mark Richard's office and was told he was not available until 2/11/90. Although I left a request for Richard to return my call, he has not done so.
Finally, after continuing to leave repeated messages for Clark and to make inquires at the DOJ Fraud Section regarding Clark's whereabouts, Fraud Section Chief Larry Urgenson called me today. Urgenson said that Richard had received no input from Clark or DOJ Fraud because Clark had not briefed Urgenson to the extent necessary for such input, nor had he mentioned any urgency relating to the Entrade decision. Urgenson said he would look into the matter over the weekend, but could not even promise us a decision by Monday, 2/12/90, since Clark was attending the Denver seminar.
I again stressed to Urgenson that a Monday decision was imperative because, just as we had told Clark, 2/22/90 is the last date available for possible travel and prior thereto: (1) defense counsel must review DOJ's changes, convey the same to clients in Turkey, await individual and Board of Directors' decisions, and redraft defense/government letter of understanding; (2) the government must again obtain host country clearance through the Department of State which takes 10 working days; and (3) very complex travel arrangements must be made by the AUSA, three agents and two defense counsel.
The following are tentative travel plans based upon representations of Tezeller/Entrade attorneys that there is over a 50% or better chance for debriefing as contemplated by our current proposal.
May 18, 1990: Leave Atlanta, Georgia 5:10 p.m. on Delta--5/18/90, arrive Frankfurt 7:50 a.m: 5/19/90, leave Frankfurt 11:10 a.m.. on TWA--5/19/90, arrive Istanbul 3:10 p.m: 5/19/90.
May 27, 1990: Return: Leave Istanbul 7:10 a.m. on TWA--5/27/90, arrive: Frankfurt 9:15 a.m: 5/27/90, leave Frankfurt 11:40 a.m. on Delta--5/27/90, arrive Atlanta 3:20 p.m: 5/27/90.
Defense counsel will be meeting with Tezeller on Thursday, Friday and Saturday of this week. We will have a positive answer on Monday, May 14. However, plans must be considered in advance. I have also forwarded our tentative travel plans to the State Department so that Turkish officials can be appropriately advised. Our country clearance was granted in January but a travel itinerary must be furnished now.
I will call you on Monday to confirm final word from Tezeller and to obtain your travel schedule, if necessary.
During our most recent Washington meeting, suggestion was made for stopping by Rome to meet with the Italian Magistrate to alia any concerns regarding the status of BNL in their investigation. That meeting can be arranged for Monday, May 28 as a part of our return flight at no additional cost if DOJ wishes us to make this contact. Since we have received no response from Dick Martin pursuant the OIA inquiry, such a personal visit might be appropriate.
Please advise if such a visit should be arranged with the Italian Magistrate.
The SPEAKER pro tempore (Mr. Hubbard). 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.]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Wisconsin [Mr. Obey] is recognized for 60 minutes.
[Mr. OBEY 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 California [Mr. Dreier] is recognized for 60 minutes.
[Mr. DREIER of California 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 Pennsylvania [Mr. Walker] is recognized for 60 minutes.
[Mr. WALKER addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]