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, I take the floor today to deliver the third in a series of special orders related to the largest banking scandal in history--the events surrounding the Banca Nazionale del Lavoro scandal. The BNL scandal is the sensational banking fraud in which the former employees of the BNL provided over $4 billion in loans to Iraq without reporting them to the appropriate State and Federal bank regulatory agencies or even to BNL's own U.S. management in New York or to their headquarters in Rome.
But the BNL scandal had implications far beyond the fact that the State and Federal bank regulatory agencies failed to properly supervise the operations of BNL. The BNL scandal was a key factor in United States-Iraq relations in that it was eventually responsible for halting the extension of billions in United States Government credit to Iraq.
The importance of BNL to United States-Iraq relations is best revealed in a Federal Reserve workpaper that states that Secretary of State James Baker actually talked to Saddam Hussein in September/October 1989 about the BNL scandal. In addition, there are many BNL-related telexes between Ambassador April Glaspie and the State Department in Washington.
The importance of BNL to United States-Iraq relations is further illustrated by the fact that in late 1989, the White House Director of Cabinet Affairs, along with deputies from Treasury, State, OMB, Commerce, Agriculture, U.S. Trade Representative, Export-Import Bank and a Federal Reserve Board Governor held a meeting to discuss the implications of the BNL scandal.
We also know that a former employee of BNL was close to Saddam Hussein's son-in-law, Hussein Kamel, who headed the Iraqi military industrialization effort. We also know that former BNL employees were close to several members of the Central Bank of Iraq including its Director. BNL employees visited with Mr. Kamel and high ranking Central Bank employees while in Baghdad.
The involvement of such high level United States and Iraqi Government officials is quite revealing of the importance of the BNL scandal.
The reason the BNL scandal was so important to Iraq was money. During 1987-89 BNL was the No. 1 source of private Western bank loans to Iraq. Because of Iraq's poor financial condition, Western banks would not loan money to Iraq without a government guarantee of repayment. BNL filled the void left by Iraq's inability to borrow by providing over $3 billion in loans that were not guaranteed by Western governments.
About a third of that amount went for food and freight charges while a little over $2 billion was earmarked for the ambitious Iraqi reconstruction program. We have learned that a good portion of those funds were actually used to upgrade Iraqi military capability.
BNL also provided almost $1 billion in United States Government guaranteed loans to Iraq. BNL was the largest single bank participant in the $5.5 billion United States Department of Agriculture's Commodity Credit Corporation [CCC] Program with Iraq. Between $800 to $900 million in BNL loans to Iraq were guaranteed by the CCC.
BNL was also the second largest participant in the $267 million Export-Import Bank [Eximbank] program with Iraq. Over $50 million in BNL loans to Iraq were guaranteed by the Eximbank.
Today I will talk about United States policy toward Iraq and several key people in the administration partly responsible for United States policy toward Iraq--Brent Scowcroft and Lawrence Eagleburger. I will explore their backgrounds, their interlocking relationships and
Henry Kissinger's and Mr. Eagleburger's relationship to BNL.
President Bush, as did his predecessor Ronald Reagan, placed a high value on improving United States-Iraq relations. Both saw Iraq as an important United States ally in the region. Iraq was considered an important player in the Middle East peace process, and a key to subduing the Islamic fundamentalist movement in Iran which was perceived as a threat to United States interests in the region. United States policy makers also saw in Iraq a chance to snatch away a key Soviet ally in the gulf.
President Reagan and President Bush followed a similar course of action in pursuing improved United States-Iraq relations. That course was increased trade. Since the United States decided to give the appearance of neutrality in the Iraq-Iran war, it could not provide arms shipments to Iraq. Given that decision, it was left little choice but to offer trade including U.S. high technology transfer as the cornerstone of its policy. The majority of our Western allies followed our lead.
A foreign policy based on commercial trade had the advantage of providing Iraq with high quality food and United States technology to upgrade its military capability in order to defeat Iran. It was also easy to sell back home because this policy benefited the American economy as well as some of the most powerful corporations in our country. Remember, during the latter half of the 1980's the United States was frantically seeking to improve its trade deficit so a trade-based foreign policy with Iraq appeared to serve multiple objectives.
In order for this trade-based foreign policy to work, the United States had to ignore a few Iraqi bad habits including massive human rights abuses, the imprisonment, torture and execution of political prisoners, an almost complete lack of democracy, the use of poison gas against Iraq's own Kurds, the use of poison gas against the Iranians, state-sponsored terrorism, making refugees out of over 100,000 Kurds, the execution of a foreign journalist, continual debt servicing problems, rampant fraud in the CCC program, and the diversion of United States technology to improve Iraqi nuclear, chemical and biological weapons capability and for many months BNL scandal.
A key to keeping trade open with Iraq was the availability of United States, European, and Asian government-guaranteed credit. Because of its costly war with Iran, by 1984 Iraq had exhausted its $35 billion in estimated reserves and plunged into the ranks of the Third World debtor nations. Iraq was forced to ask al its creditors to reschedule their loans. The Iraqi debt situation joepardized the trade-based policy.
Banks and other private creditors would not touch Iraq without a government guarantee. In order to make the trade-based policy work, Western creditors had to cough up government guarantees which they did in generous amounts. For example, by 1988 the CCC Program with Iraq reached a billion dollars annually and between 1985 and 1990 the CCC Program provided roughly $4 billion in credit for Iraqi purchases of United States agricultural commodities.
The Eximbank helped provide $267 million in short-term credit to Iraq between 1985 and 1990. That amount would have gone through the roof had it not been for responsible people at Eximbank who realized Iraq was not a fundamentally creditworthy nation given the way it was running its economy and prosecuting the war with Iran.
At this time I would like to introduce a couple of lists of projects United States companies wanted to build in Iraq with the help of Eximbank financing. As you can see by 1988, U.S. companies were seeking to secure Eximbank financing for projects totalling nearly $13 billion. As you can imagine, lobbying from the export community and their bankers, along with the urging of the State Department, which was trying to achieve the trade-based policy towards Iraq, was intense. Had it not been for responsible people at Eximbank, I am convinced the taxpayer would have been struck with the tab for many of those projects. As it is, BNL helped to finance many of the very projects on the list.
On the industrial side of the ledger the United States export licensing process was used by the State and Commerce Departmetns, with the backing of the President's National Security Council [NSC], to increased trade with Iraq. Unfortunately, the export control process often failed to stop Iraq from obtaining militarily-useful technology even though some Defense Department officials warned that United States technology destined for Iraq was going directly into upgrading Iraqi military capabilty. The following provides an example of the official United States policy toward technology transfer to Iraq.
Dr. Stephen D. Bryen, former Deputy Under Secretary of Defense for Trade Security Policy and Director of Trade Technology Security Administration [DTSA], testifying recently before the Banking Committee, stated:
The Department of Defense objected to about 40 percent of the export licenses that came before it for Iraq. Generally speaking, the Defense Department's strongest objections for Iraq concerned the potential use of exported goods for Iraq's nuclear program, for missile testing and construction, and for chemical and biological weapons development. Examples include special computers for missile testing, analytical instruments best suited for chemical and biological weapons development, satellite and airborne surveillance equipment to accurately locate distant targets and furnaces for Iraq's nuclea weapons development program.
Officially $1.5 billion in United States technology was transferred to
Iraq through the United States export control process. Nobody knows for sure what additional United States technology reached Iraq.
On the private side, almost immediately after the United States normalized relations with Iraq in 1984, the United States-Iraq Business Forum was formed. It was founded by Mr. Marshall Wiley, a former State Department official stationed in Baghdad prior to the normalization of United States-Iraq relations. The chairman of the Business Forum was Mr. A. Robert Abboud, former chairman of First Chicago Bank, former president of Occidental Petroleum, and until recently, chairman of First City Bank in Houston, Texas. In other words, he was well wired into the U.S. business community.
To say that the Business Forum was U.S. Government-sanctioned would be going too far. But the Business Forum did play a key role in United States-Iraq commercial relations.
Many of the companies dealing with Iraq, industrial and agricultural alike, received loans from BNL. Since the Eximbank would not provide loans to finance the Iraqi industrialization effort, the Iraqis turned to BNL as a source of loans for large and small projects alike.
During the remainder of my time I would like to talk about Kissinger Associates, Lawrence Eagleburger and Brent Scowcroft. I will explore the relationship of Henry Kissinger and Lawrence Eagleburger to BNL which loaned $4 billion to Iraq. I will also talk about several interesting links between Mr. Scowcroft and Mr. Eagleburger and companies involved with Iraq.
Again, I am merely exploring the interlocking relationship between these people and United States policy toward Iraq. This special order will also offer the public a view of the role of Kissinger Associates.
Henry Kissinger, one of the best-known and most powerful Presidential advisors of the post-war era, began his political career in 1956 as a consultant on military affairs. He advised many executive branch organizations including the Joint Chiefs of Staff, the National Security Council, and the Department of State. In 1969, he became President Nixon's National Security Adviser, and in 1973 Nixon named him Secretary of State. He held that post until 1977.
Kissinger remains active as a foreign policy analyst and consultant. In 1989, Mr. Kissinger was a member of the President's Foreign Intelligence Advisory Board [FIAB]. Members in this elite club are permitted access to highly classified information and members actually advise the President directly on intelligence issues.
In 1982, Mr. Kissinger founded Kissinger Associates with offices in New York and Washington. It is said that the firm analyzes political risk and international economic trends to help clients make concrete business decisions. Several of the Kissinger Associates clients are also members of the United States-Iraq Business Forum.
Henry Kissinger was in fact a paid member of the Banca Nazionale del Lavoro Consulting Board for International Policy. Mr. Kissinger held this position during the height of the biggest banking scandal of all time was--$4 billion in unreported loans to Iraq by the Atlanta branch office of BNL.
Other former or current employees of Kissinger Associates had links to Iraq.
Alan Stoga is a former economist at First Chicago Bank and is currently a director of Kissinger Associates. Mr. Stoga is said to be an expert in country risk analysis and international finance. He has been interested in the Middle East for many years and has made numerous visits to the area.
Mr. Stoga worked as the chief economist of the international division at First Chicago Bank. The chairman of the First Chicago at that time was A. Robert Abboud, the current chairman of the United States-Iraq Business Forum. Mr. Stoga is a friend of Marshall Wiley, the Business Forum founder, and he spoke at Business Forum functions.
In June 1989, Mr. Stoga, Mr. Wiley and Mr. Abboud, visited Iraq with other members of the United States-Iraq Business Forum. They met with Saddam Hussein who purportedly expressed an interest in expanding commercial relations with the United States.
Many Kissinger Associates clients received United States export licenses for exports to Iraq. Several were also the beneficiaries of BNL loans to Iraq.
Lawrence Eagleburger, Deputy Secretary of State, has held many positions of international influence, in both the public and private sectors. Eagleburger started his political career in 1957 as a Foreign Service Officer. In this capacity, he represented the United States in Honduras for 2 years, and in Yugoslavia for 4 years.
Then in 1969, Henry Kissinger became Nixon's national security advisor, and Eagleburger served as his executive assistant. After working as a political advisor to NATO in Belgium, and as Deputy Assistant Secretary in the Department of Defense, Eagleburger rejoined Kissinger at the State Department, again as his executive assistant in 1973. In 1975, he was named Deputy Under Secretary for Management at the State Department.
Eagleburger was appointed Ambassador to Yugoslavia during the Carter administration and served in that capacity from 1977 to 1981. He has remained a close ally of Yugoslavia.
Under President Reagan, Eagleburger became Assistant Secretary of State for European Affairs, and held this position from 1981 to 1982. Subsequently, he served for 2 years as Deputy Under Secretary for Political Affairs. Before assuming his current position as Deputy Secretary of State in 1989, he served as President of Kissinger Associates Inc., a political consulting firm oganized by Henry Kissinger.
During his confirmation process Mr. Eagleburger identified a number of prominent clients of his at Kissinger Associates. Mr. Eagleburger was a director of ITT, Alcatel, Bethlehem Rebar, Global Motors, Mutual of New York, Josephson International, and Best Mart. Mr. Eagleburger was also a director of LBS Bank from 1986-1990. LBS Bank is a wholly owned subsidiary of one of the largest banks in Yugoslavia.
Global Motors, Inc. was the corporation established in the United States to distribute the Yugoslavian-made small compact car called the `Yugo.' Global Motors filed for chapter 11 bankruptcy in 1989. A creditor filing suit against the investment bank acting as financial advisor to Global listed Mr. Eagleburger as a defendant in that suit.
The Yugoslavian maker of the Yugo is a firm called Zavodi Crevna Zastava (ZCZ). ZCZ is the backbone of the Yugoslavian arms industry and its main clients include Iraq, Libya, and other Eastern European nations.
As a longtime loyal supporter of Yugoslavian interests, Mr. Eagleburger was instrumental in helping both Global Motors and LBS establish their United States operations. He was not alone. As we shall see, BNL had a very substantial, and even incestuous relationship with LBS.
After Iraq, BNL's largest foreign customer was Yugoslavia. BNL had loans to various Yugoslavian entities as well as a very special relationship with LBS Bank--New York (LBS). LBS is a wholly-owned subsidiary of the Yugoslavian bank--Ljubljanska Banka. Ljubljanksa Banka is the second largest bank in Yugoslavia with $7.1 billion in assets as of year-end 1990.
In 1986, with the help of Mr. Eagleburger, LBS opened a State-chartered bank in New York City called LBS Bank--New York. BNL was responsible for a significant amount of the growth of LBS while Mr. Eagleburger was on its board.
During an examination of BNL in 1989, the Federal Reserve stated that between 1986 and August 1989:
BNL fueled a significant amount of LBS's growth in the U.S. with 20 percent to 25 percent of LBS's business from BNL.
The first transaction between LBS and BNL was a credit facility established in October 1986, 3 months after LBS opened in New York. BNL also maintained a bank account at LBS. The majority of the business between the two entities--totaling tens of millions of dollars--involved the LBS purchase of loans originated by BNL. Some of those loans involved Iraq.
Other loans purchased by LBS included BNL loans to Cargill. Cargill is now under investigation for violating the Trading with the Enemy Act involving the BNL-financed sale of Cuban sugar.
Symbolic of the close relationship between BNL and LBS, the former regional manager of BNL became a director of LBS soon after Mr. Eagleburger left to take his current State Department post.
Mr. Renato Guadagnini, who worked for BNL for 39 years, was appointed a director of LBS in early 1989. Mr. Guadagnini was the regional manager of BNL's U.S. operations while the Atlanta branch of BNL was illegally loaning $4 billion to Iraq apparently without his knowledge.
It is hard to fathom how the person responsible for supervising BNL during the time it illegally loaned $4 billion to Iraq is qualified to be a director of another bank.
Another link between BNL and LBS is the chief lending officer of LBS. BNL's Christopher Drogoul, a main conspirator in the BNL loan scheme with Iraq, had a close business relationship with the chief lending officer of LBS while both were stationed in London. On occasion that LBS lending officer, as well as the chief financial officer visited BNL's office in Atlanta. BNL employees also visited LBS when they were in New York.
Apparently LBS was not a well run institution while Mr. Eagleburger was on its board. Upon examining the relationship between BNL and LBS in 1989, the Federal Reserve concluded:
`LBS is conducting a very sloppy operation and supervision by the head office is extremely weak. Examiners have found a number of instances where there is a lack of documentation in loan participations with BNL. LBS does not have an internal auditor.'
Sloppy management was not the only trouble LBS had during Mr. Eagleburger's tenure as director--LBS was also involved in money laundering.
As we have seen, LBS and BNL had a significant relationship while the latter was perpetrating the largest banking scandal of all time. LBS was also involved in criminal activity during that same time period.
In 1988, LBS and its chairman were indicted on charges of laundering almost $1.5 million. The chairman of LBS was eventually cleared of the charges made against him, nevertheless, a jury convicted LBS of money laundering.
A literature search of the Yugoslavian parent of LBS revealed that it also has been involved in several criminal proceedings during the past several years. Two such scandals took place in the cities of Pristina and Titograd in Yugoslavia.
The Yugoslavian parent of LBS was also at the center of Yugoslavia's largest ever financial scandal--the Agrokmerc affair. Agrokmerc issued almost $1 billion worth of false promissory notes in local Yugoslavian currency. The parent of LBS and many of its affiliates arranged to purchase most of the notes. The scandal led to scores of arrests, the fall of Yugoslavia's vice president and shook the Yugoslavian banking system and economy.
LBS's association with criminal activity and criminals extended to the New York-based company called Entrade International, Ltd. and its chief financial officer, Yavuz Tezeller.
Entrade International, Ltd. is a Turkish-owned New York-based trading company specializing in the international trade of goods and commodities. Here BNL shows up again, as the bank was indicted with Entrade and Mr. Tezeller for obtaining unauthorized financing for exports to Iraq often with CCC export guarantees or insurance.
The Justice Department indicted Entrade and Mr. Tezeller for providing cash, houses, jewelry, vacations, and other things of value for personal use and benefit of BNL employees in consideration for the unathorized loans made to finance Entrade's exports to Iraq and elsewhere. Entrade faces a maximum fine of $54 million.
Mr. Tezeller, a Turkish national, is charged with directing Entrade's contracts with BNL and with other entities in Europe and the Middile East owned by Entrade's parent holding company, Enka. Mr. Tezeller has fled to Turkey.
LBS also extended a $300,000 mortgage loan to Yavuz Tezeller. The Federal Reserve stated that `this loan appears to have been the first and only mortgage loan made by LBS.'
Given the level of criminal involvement of LBS and its parent in Yugoslavia, and its close relationship with organizations charged with criminal activity, I have written letters to the Federal Reserve and State of New York asking them to provide more information about LBS's operations in the U.S. as well as a more in-depth look at the relationship between LBS and BNL.
Mr. Eagleburger has had a long and prosperous relationship with Yugoslavia. He was Ambassador to Yugoslavia and prior to holding that post he worked in the Embassy as a foreign service officer. While at Kissinger Associates he helped set up Global Motors to distribute the Yugo and he helped LBS get started in New York. It is fair to say that over the past couple of decades Mr. Eagleburger has been one of Yugoslavia's biggest backers in the U.S. Government.
These facts could possibly explain the Eximbank exposure to Yugoslavia which stood at a whopping $1.056 billion as of March 1991. One longtime Eximbank employee stated that he `always considered Eximbank's large exposure to Yugoslavia unusual.' Upon closer examination, Yugoslavia may be receiving special treatment from the Eximbank at this very moment.
Yugoslavia is now on the brink of political and economic chaos. It is being torn apart politically and the most recent Eximbank country risk analysis for Yugoslavia is not encouraging. While the Committee was able to see the country risk analyses for Iraq, John Macomber, the President of Eximbank and a friend of Mr. Eagleburger, would not permit Committee investigators access to the
country risk analysis for Yugoslavia.
Mr. Macomber recently decided to place all Yugoslavian transactions on hold--effectively suspending Yugoslavia from Eximbank programs. This was not done through the usual process which calls for Eximbank Board of Directors to make the call regarding the suspension of a country from Eximbank programs. Instead, Mr. Macomber decided to give the order to place all Yugoslavian business at the Bank on hold without allowing the Board to formally vote on suspending Yugoslavia.
Without a formal board action, an American exporter has no way of knowing Eximbank will not process Yugoslavian transactions. That is unless the exporter has the foresight to call the Eximbank before going to the expense of doing business with Yugoslavian concerns. The mission of the Eximbank is to serve exporters. By not formally suspending Yugoslavia, the Eximbank may be doing a disservice to American exporters.
LBS and its parent bank in Yugoslavia both participate in Eximbank programs. Both have been involved in serious criminal activity, one in the United States and the other in Yugoslavia, yet the Export-Import Bank has not suspended either bank from its programs.
The question arises why Yugoslavia has received special treatment from the Eximbank. Has Mr. Eagleburger influenced the actions of Eximbank? Mr. Macomber has stated that Yugoslavia has not received special treatment, but that statement is hard to understand given the facts.
For example, longtime Eximbank staff stated that it was rare that an Eximbank President would take a unilateral action to place business with a nation on hold. They also stated that it was unusual for the Eximbank to decide not to formally suspend a nation that is suffering from such severe economic and political problems and is in arrears on Eximbank programs. Yugoslavia is evidently such a country.
Staff at the Bank stated that Mr. Macomber speaks to Mr. Eagleburger often, sometimes as often as two or three times a day. They also indicated that the topic of discussion between the two is sometimes Yugoslavia.
Mr. Macomber has stated that although he has frequent chats with Mr. Eagleburger, the topic of Yugoslavia has never been broached. This seems highly unlikely given Mr. Eagleburger's position, his obvious interest in Yugoslavia and the importance placed on the Eximbank program in Yugoslavia.
It would seem reasonable that Mr. Eagleburger would inquire about Yugoslavia's status at Eximbank, but according to Mr. Macomber this has not been the case. What is clear is that Yugoslavia is receiving special treatment from Eximbank. At this time the Committee does not know why.
Considering the Administration proposal to allow Eximbank to finance $1 billion in military sales, and to open up a $300 million Eximbank program with the Soviet Union, the trend toward using Eximbank as a foreign policy tool is clear.
This is a disturbing trend. The Eximbank was created to assist U.S. exporters. It was not created to be a major foreign policy tool. Rest assured, in order to protect the taxpayer investment in the Eximbank, the Banking Committee will continue to fight to maintain the commercial export promotion function of the Eximbank.
Another Kissinger Associates alumni is Brent Scowcroft, a career Air Force officer and a specialist in Slavic languages and history, who has held various positions in six administrations. Early in his military career, Scowcroft served 1 year as the air attache at the United States embassy in Belgrade, Yugoslavia.
After earning a Ph.D. and working in academia from 1962 to 1968, he held a succession of national security posts in the Department of Defense. In 1971, President Nixon appointed Scowcroft Military Aide to the President and in 1973, Kissinger chose him to be Deputy Assistant to the President for National Security Affairs.
Scowcroft often took charge of the National Security Council while Kissinger was fulfilling his duties as Secretary of State, and in 1975 succeeded Kissinger as National Security Adviser under President Ford. Although he resigned the position during the Carter administration, Scowcroft stayed active as a member of the President's general Advisory Committee on Arms Control.
In 1982, Scowcroft joined Kissinger in setting up Kissinger Associates. Scowcroft served as vice chairman until regaining his position as National Security Adviser to President Bush in January 1989.
During his tenure at Kissinger Associates, President Reagan appointed Scowcroft to various special commissions on defense issues and often sought his advice in national security matters.
Mr. Scowcroft's financial disclosure forms indicate that up until October 4, 1990, he owned stock in 40 companies. Several of the companies, like Lockheed and General Electric, are among the Nation's largest defense contractors. Other companies include multinationals like General Motors, ITT, Westinghouse, AT&T, Mobil Oil, Du Pont, Xerox, and Hewlett-Packard. Some of these companies are also defense contractors, but all routinely must obtain export licenses as a part of their international business operations. The NSC has considerable sway over the export licensing process. To this day he still owns stock in many of those companies.
Mr. Scowcroft's stock holdings are most startling since the actions of the NSC, whether related to the export licensing process or U.S. security policy, could have an influence on those companies.
As I stated earlier, when George Bush took over as President, he issued a national security directive ordering improved relations with Iraq. The President, with the advice and consent of his senior advisers, including Mr. Eagleburger and Mr. Scowcroft, determined that the best way to improve relations with Iraq was through expanded trade. This policy was little different from that pursued during the Reagan administration.
The NSC has direct responsibility carrying out the President's national security directives. In the case of export licensing, the National Security Act of 1947, and subsequent legislation provided the President, through the National Security Council [NCS], with ample authority to establish policies on export controls.
To get a feel for the export licensing role of the NSC during the Reagan-Bush administrations, just look at the comments of Paul Freedenberg. He was the chief export licensing official at the Commerce Department during the latter half of the Reagan years and the beginning of the Bush administration.
He recently testified that Iraqi use of poison gas against its own Kurds and the Iranians did not suppress the zeal of the NSC to approve technology transfer to Iraq. In testimony before Congress, Freedenberg stated:
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 the licensing policy would be toward Iraq since by that time there was credible evidence of the use of poison gas by the Iraqis against their own people and also against the Iranians. I suggested that the imposition of foreign policy controls be considered as a way of justifying the denial of export licenses to Iraq. I was told by the National Security Council that the licensing policy with regard to Iraq was that of normal trade and that under normal circumstances I should clear the licenses that were pending. I passed that information on to my licensing officers and the few dozen licenses that were pending at that time were approved and licenses were issued for exports to Iraq.
This provides clear insight into the power the NSC can exercise over the export licensing process.
I would also like to include in the Record an article from the February 25, 1991, issue of Legal Times. This article gives the reader a good overview of Mr. Scowcroft's and Mr. Eagleburger's role in promoting military sales. The article illustrates that an environment existed that could make it possible for Iraq to obtain sophisticated U.S. technology to upgrade its military capability. The truth about the export licensing process is that the NSC and the State Department ignored or actually encouraged the transfer of militarily useful technology to Iraq in violation of its public oath to prohibit such uses.
Regarding the question of whether or not the companies that Mr. Scowcroft owned stock in benefited from the United States policy toward Iraq, I can reveal one fact: Together, those companies received over 100 out of the total 800 U.S. export licenses for sales to Iraq.
Unfortunately, the names of the companies cannot be released at this time. The administration has stated that the list of export licenses for Iraq must be kept secret because of the supposed `proprietary' information it contains. Maybe the real reason for the secrecy stance is that the administration is embarrassed by the list because it symbolizes the abysmal failure of the trade-based approach to foreign policy.
The following is an interesting story involving General Motors and Volvo and their link to Mr. Eagleburger and Mr. Scowcroft and BNL, and illustrates the odd triangle linking foreign policy toward Iraq, and BNL's role in financing it--not to mention the role of Kissinger Associates.
Volvo was a client of Kissinger Associates and the chairman of Volvo, Pehr Gyllenhammar, was on the Kissinger Associates board of directors with Mr. Eagleburger and Mr. Scowcroft. Mr. Scowcroft owned stock in General Motors until at least October 4, 1990.
Mr. Scowcroft's and Mr. Eagleburger's jobs placed them in a position of considerable influence over United States-Iraq trade. Both were responsible for carrying out the President's directive calling for improved relations with Iraq.
Volvo and General Motors are partners in a company called Volvo GM Heavy Truck Corp. In 1989, Volvo GM Heavy Truck proposed to build a 5,000-unit-per-year heavy truck factory in Iraq. A copy of that proposal is in the record.
GM and Volvo had considerable dealings with Iraq. In 1988, GM sold 5,125 Chevrolet Celebrities to Iraq. During 1989, GM secured financing from BNL for 10,000 Cutlass Cieras to be sold to Iraq. The BNL operation may have been shut down prior to actual disbursement of BNL moneys. BNL money paid for Volvo exports of spare parts for dump trucks, water tank trucks and tanks, and units for Volvo diesel engines to Iraq.
GM frequently met with Eximbank officials to secure additional GM projects in Iraq totaling an estimated $800 million.
Hussein Kamel (or Kamil) is Saddam Hussein's son-in-law. BNL employees met with Mr. Kamel when they traveled to Iraq. Mr. Kamel is said to have been responsible for the secret Iraqi technology procurement network operating in Europe and the United States; Mr. Kamel was the head of the Ministry of Industry and Military Manufacturing in Iraq.
On June 20, 1989, Volvo GM Heavy Truck Corp. wrote to the Iraqi Minister of the Ministry of Industry, Hussein Kamel, proposing the construction of a 5,000-unit-per-year heavy truck factory in Iraq. The Volvo GM letter failed to add the words `Military Manufacturing' to Mr. Kamel's title.
Two other U.S. automotive companies considered participating in the project. They were Cummings Engine Co. and Eaton Corp., Cleveland OH. In a memo describing their visit to Iraq, Volvo GM staff stated:
First, the delegation meeting them was headed by a Brigadier General.
Second, the ministry they met with is responsible for Industry and Armament.
Third, the delegation visited a number of top secret defense operations.
The Volvo GM memo goes on to state:
U.S. authorities have been approached with the objective to obtain loans from the Eximbank. The different government agencies have responded very positively and appointments are made for further talks with the government including the White House. So far, no credit line is available from Eximbank.
Who at the White House was contacted remains a mystery. But the White House was not alone in being sought out to support the project. Eximbank received 15 letters from Congressmen, Senators, and one Governor interested in Eximbank financing for the truck factory.
Thankfully for the taxpayer, the Eximbank refused to fund the project because it did not think Iraq was creditworthy. The project provides a good illustration of the sort of pressure the Eximbank was under to do business in Iraq.
A startling revelation appears in the Eaton Corp. portion of the Volvo GM memo. In that portion of the memo an Eaton employee states: `It is interesting to note that Matrix Churchill in the U.K. is 75 percent owned by the Iraqi Government.'
Matrix Churchill, Ltd., was the prime Iraqi front company operating in the United Kingdom. Its Cleveland, OH affiliate, Matrix Churchill Corp., was the main Iraqi front company operating in the United States. Matrix was responsible for procuring technology to be used in Iraqi weapons factories.
What is amazing is that the U.S. Government did not confiscate the Cleveland operation of Matrix until September 1990 and the British did not confiscate the London operation until October 1990, both after the Iraqi invasion of Kuwait and months after Iraqi assets were supposed to be frozen.
BNL was a main source of funds for Matrix Churchill and other members of the secret Iraqi technology procurement network.
The Legal Times article I referred to before mentions the Eagleburger-Scowcroft effort to get the Export-Import Bank to finance military sales. I have two points to make regarding the Eximbank financing of military sales; the first regards Iraq.
I have evidence showing that Eximbank backed the sale of military articles to Iraq. I would like to place in the Record several examples of Eximbank financed military sales to Iraq. In 1986, the Eximbank approved the sale of 600,000 dollars' worth of portable radio communications equipment and in 1987 it approved the sale of `250 armored military truck ambulances' to Iraq. I have also included a Mack Truck sale of 200 fifth wheel trucks to Iraq that the Eximbank refused to finance because of their military applications. Mack Truck sold trucks, tractors cranes, and dumpers worth $6.4 million to Iraq with the help of BNL loans. Iraq also paid for 40 heavy duty Mack truck chassis worth over $2.5 million with BNL loans.
The sad part about the Exim-backed sales to Iraqi is that only a small handful of the 187 transactions were checked for military use by the Eximbank engineers familiar with dual-use technology. The vast majority of the Eximbank backed sales to Iraqi were checked only by a loan officer.
Nobody really knows the extent of Eximbank-backed militarily useful exports to Iraq. It is imperative that the Banking Committee plug the loophole that allows Eximbank-backed exports to go to dangerous nations without being adequately checked by professional engineers.
The second point I have relates to the Eagleburger-Scowcroft proposal to finance $1 billion in military sales using Eximbank. I have stated before and I will state again, Eximbank should not be used as a tool to augment declining military sales.
This program should be run out of the Defense Department using their resources. Eximbank is poorly equipped to review the military implications of given sales.
One interesting question that remains unanswered is why United States law enforcement authorities have not arrested or charged many companies with violations of U.S. export control laws related to Iraq. Other governments, such as Germany, have announced efforts to pursue dozens of companies, many very prominent, for criminal violations of export control laws. I challenge you to name one United States company that has been indicted for violating the export control laws related to Iraq.
Clearly, it was official U.S. Government policy to provide Iraq with the credit necessary to purchase enormous amounts of United States agricultural products and sophisticated United States technology. Warnings about the military uses of the technology, warnings about Iraq's creditworthiness, and warnings about Saddam's ruthlessness were routinely ignored.
It was in this climate that the BNL flourished, and close friends of those in key positions of power facilitated and profited from this shortsighted policy. This official neglect may in large part account for BNL's disastrous conduct.
Mr. Speaker, let me conclude by saying that the worst of all is that this is just a small fragment of the huge, over 730 billion dollars' worth, of this type of money, foreign financing or banking money in our country, that is here, that can just--with a small proportion of that, as in BNL, propel huge financial packages, for God only knows what purpose, because nobody in our Government knows, neither the Federal Reserve Board nor the State banking regulators in the States where these foreign entities charter their agencies, know just what is being done in the United States.
Mr. Speaker, as chairman of the committee I have set forth the urgent need for the Congress to legislate with some priority in order to provide the American people with the sufficient assurance that their national interests and the very policies of their Government are in turn being protected, and at least being overseen.
Mr. Speaker, at this point I include for the Record the documents I have referred to during my special order.
Volvo GM Heavy Truck Corp.,
Greensboro, NC, June 20, 1989.
To the Minister of Ministry of Industry.
His Excellency Hussein Kamel,
Baghdad, Republic of Iraq.
Dear Mr. Minister: Enclosed you will find our proposal for an industrialization project aimed at manufacturing heavy duty trucks in Iraq that has been studied by Volvo GM Heavy Truck Corporation on the request from Volvo International Development Corporation, Gothenburg, Sweden.
This project is based on the close cooperation between the four following major automotive companies in the U.S.: Volvo GM Heavy Truck Corporation, Cummins Engine Company, Incorporated, Eaton Corporation, Rockwell Corp.
The four members of this project have a wealth of knowledge and a vast experience in establishing assembly and manufacturing operations throughout the world.
With the present, we are offering to transfer the combined technology gathered by these companies over a long period of years in a project which we propose to contain the following:
Truck assembly with local integration.
Cab welding and stamping operation.
Transmission assembly with local integration.
Rear axle assembly with local integration.
As our knowledge of the infrastructure, cost level, etc., of Iraq is not completely up to date at the moment, this project proposal is based on experience from similar projects realized earlier.
The estimation of investments is based on the US cost level of June 1989, and will with all probability, have to be subject to adjustment at the time of negotiations.
This proposal should be regarded as guidelines for the implementation of the project and all aspects of the same needs to be agreed upon by the buyer and the seller in detailed negotiations.
A credit line for the supply of equipment, machines, know how, etc., can be obtained upon acceptance and approval by the authorities of both the Republic of Iraq and the United States of America.
President and C.E.O.
Volumes up to 5,000 units/year, but probably no more than 2,000-3,000 units/year.
Exports of `surplus' to neighboring countries.
Equity participation; Iraqi's way of assessing our interest--not seriously considered.
Local integration; technological infrastructure not known to exist.
The way in which our delegation was received and entertained by Iraqi officials caused great astonishment between the delegation members, since nothing similar has been experienced by VIDC over the fifteen year period that Volvo had been dealing with Iraq.
The day after we arrived a committee was formed consisting of six civilian engineers and doctors headed by a Brigadier General. This committee kept our delegation busy 12 hours a day for five consecutive days (including their weekend). During this time we met with two 1st Deputy Secretaries and one Deputy Secretary. The ministry we met with is responsible for Industry and Armament.
The responsibility for industrialization of Iraq has been placed with the Iraqi Army. Consequently the plant managers that we met were colonels or generals.
Our proposal was handed over and read by the committee, and immediately they realized our misconception of the Iraqi technical infrastructure, i.e., the Iraqi infrastructure is very advanced (see attached report).
Our group was brought to a number of plants where everything was unveiled, even what would be considered top secret defense operations in any country.
When realizing that our proposal was based on invalid assumptions we chose to withdraw the proposal, and it was agreed upon between the two parties that a new presentation will be made in August of a restructured proposal.
In our restructured proposal the following Iraqi requirements will have to be addressed:
Re-export of vehicles.
Increased local integration.
Transfer of technology.
Short start up time.
Long term commitment.
It was firmly expressed by VGHT that a strong home market is the base for successful export. Iraqis on the other hand demanded a high portion to be exported. Finally we were assured that no difference in export requirements would be imposed on Volvo as opposed to Mercedes.
It is fully possible to meet the Iraqi requirement for local integration. Iraq demands 75% of the finished product value to be Iraqi, and our proposal is not far from that level (46 percent of the unassembled kit).
The requirement in this area was already know to us and has been quantified.
The Iraqi position is that full integration as related to the proposal is to be reached within three years after production start.
Our revised proposal will show this although there is no final solution at this time as to manning the project force necessary to achieve this task.
We presently assume that a skeleton force could be brought in from Sweden to be filled in with various capacities from our own organization when needed.
Iraqis are requesting us to be part of a joint venture in Iraq.
Our position is to offer all project costs, start-up costs, and cost for transfer of technology (Iraq visits to the U.S. excluded) free of charge.
This will account for approximately 13 MUSD out of total 91 MUSD.
At this time indications are that Eaton and Rockwell are prepared to carry their portions of this amount. At present Cummins' position is very negative in this respect. The VGHT portion would be 5.5 MUSD and includes 1.5 MUSD capital investment in a packaging facility expansion.
We must expect that Iraqis will claim that this is not enough.
No project will be started without financing. We believe that at least a five year line of credit has to be estalished both for investments, and for sale of kits.
The U.S. authorities have been approached with the objective to obtain loans from the EXIM bank.
The different government agencies have responded very positively and appointments are made for further talks with the government including officials in the White House. So far, however, no credit line is available from EXIM bank.
The Iraqis require us to make a long term commitment to support and supply manufacturing of trucks in Iraq. This requirement would be very much in line with our own interest since marketplaces presumably closed to us very well could be open through Iraq.
For demo and test purposes it is important to provide the Iraqis with a vehicle--they did request two. The vehicle has been spec'd out and an order is placed with Ogden.
The cost for this vehicle will be split between our partners, VGHT and VIDC. The vehicle will be presented at the international fair in Baghdad and placed in front of the American Pavilion.
It is understood that both parties have expressed their interest in the field of cooperation with regards to manufacturing Volvo passenger cars/Volvo GM trucks in the republic of Iraq.
Whereas, the Iraqi partners expressed their interest in achieving a higher level of local integration for both cars and trucks.
After taking several visits to Ministry's different industrial installations, the Volvo/Volvo GM delegation have arrived to the conclusion that a high level of local integration is both viable and practical.
Therefore, the delegation shortly upon their return shall restructure their proposals for the Ministry's evaluation, taking into consideration:
The Iraqi side informed Volvo group that this project should aim for export to the Arab markets and other markets and to accomplish a very high level of export as well as the home markets.
The production size is to be based on most economical size based on marketing demand and possibilities.
To be based on maximum possible local integration based on the impression acquired during the visit to Iraq and the high technology level existing in Iraq.
The presentation of the new proposal is scheduled at the end of August 1989.
On this occasion Volvo/Volvo GM, along with their components manufacturers, have great pleasure in extending an invitation to their Iraqi hosts to visit their industrial car and truck plants in Sweden and United States of America respectively, prior to final agreement.
Having visited 14 plants in 3 different locations and knowing of present and future development we are sure that Iraq is proceeding in the right direction for future industrial development.
In effect Iraq has at present, good manufacturing capacity and technical expertise in many different areas which are essential for the basic infrastructure and industrial support that the automotive industry requires.
Without going into details, some of the industries available locally today are:
Foundries for cast alloy steels, gray iron castings and investment castings. Heavy forgings and auto parts forgings, tools, jigs and fixtures, dies and patterns manufacture, huge capacity for turning, milling, grinding and heat treatment, except carburizing continuous furnaces, some CNC machine tools manufacturing commencing, stamping and miscellaneous parts machining, high speed steel tools, batteries, fibre glass, tyres, spark plugs, aluminimum injection molding, glass for windows and windscreens, plastic injection molding (for TV casing and other applications) and many other activities.
All in all it is evident that the technological degree and production capacity achieved by Iraq is much higher and perhaps better, than many other Middle East countries.
The professionalism and technical level of employees and managers, in parallel with their discipline, makes a good impression and is very promising for the future manufacture of automotive parts and components in Iraq.
General NAZAR EL-KASSER organized visits to several industrial facilities around Baghdad and near BABYLON, for the VOLVO GM/Eaton delegation. The visits were well organized and carried out in two days, Thursday 29th June and Saturday 1st July.
Precision Castings or Investment Castings foundry, using Lost Wax methods. Capacity 1,500 tonnes p.a. Very updated in technology with its own tools and dies shop. Engineering office quite modern in concept and in process of implementation of CAD/CAM systems. Automatic quality control for most of the components and extremely clean.
Nasser Enterprise, Special Steel Foundry products: gray iron, low carbon steel, high chromium steel, heat resistant steel and high manganese steel. Ductile iron programmed for early 1990. Capacity 22,000 Tonnes per year in two shifts.
2 Disamati Auto Molding Line Capacity 330 molds/hour per line. Danish made.
I Konkelwagner Automatic molding line with capacity up to 50 molts/hour. W. German made.
5 of 6 tonnes each of mid. frequency induction furnaces with 3 electrical feeders.
2 Arc furnaces, 7 tonnes each.
Hand molding for low volumes up to 6 tonnes. Heat treatment: Annealing, tempering, quenching, etc.
Manning: Total 1,000 people in 3 shifts.
Capacity available 40/50 percent.
Large machinery shop dedicated to the manufacture of Tools, Dies, Patterns, approx. 160 machines available of the best makes possible to find: Blohm grinders, Sips Jig Borers, Hausers jig grinders, Voumard grinders, Oerlikon & Shaudt grinders, to name some of them. Plant Approx. 150 mts. ÿ0A 120 mts. Computerised quality control. Engineering and design aided by CAD/CAM, mechanical test department.
(2) 1,500 tonnes hydraulic presses, continuous processing line with induction heating, shearing and pressing, all in an auto feeding line.
(2) 800 tonnes presses and (1) 500 tonnes press with ejectors double effect presses.
CNC Lathes assembly line--Under Matrix Churchill license. In the second step early next year they will machine the frames and other mechanical parts and in the 3rd phase they will go to the electronics. Today they use Fanuc. It is interesting to note that Matrix Churchill in the UK is 75 percent owned by the Iraqi government.
We were told that a similar project exists for the manufacture of CNC machining centres. The building is already under construction.
General Machining Shop--with high capacity for turning, milling, grinding and heat treatment. This shop will be assigned to the Automotive Industry.
(1) NB 1,000 tonne press and (2) NB 520 tonnes presses for plastic injection molding.
Jigs, fixtures, tools, dies and guages manufacturing plant. These can machine large parts, not forging dies, milling cutters, drills reamers, gear cutting tools fellows type and hobbs, supported by its own Engineering office and test lab.
Forging Plant--several hydraulic presses plus (2) of 1,000 tonne and (1) 4,000 tonne capacity.
High speed steel tools, heat treatment in vacuum. CNC machining centre for hot stamping dies. (2) deep hole drills, high capacity.
Large machining shop with huge equipment with a mill/planner up to 24 mts. length.
General Turning--Enormous turning capacity with copy lathes and a large number of CNC lathes up to 500 mm dia swing capacity. Most of them Diamant and Matrix Churchill makes.
General Machining Shop--for fasteners, small and miscellaneous parts. Large amount of Index machines and Gildemeister Bar machines (4) veritical CNC machining centres with double tool magazine.
We also saw another building about 200 mts. by 100 mts. which will be a high volume Foundry, with capacity up to 70,000 tonnes. per year, mainly to produce centrifugal castings.
General Nazar told us that there is also in implementation an alumininum die casting facility in the next 12 months with injection molding as well.
There are 2 plants that produce 4,000,000 tyres/year for truck and buses and 3 more in construction. Facilities to manufacture batteries with license from Chloride USA with high capacity. Spark plugs factory, Marelli license with 20,000,000 capacity per year. Fibre glass plant also is available and is under study. A bearing manufacturing facility and other industries are under study.
For embattled weapons exporters, it was a salvo heard round the world.
Last July, Deputy Secretary of State Lawrence Eagleburger fired off a classified memo to all U.S. embassies urging that U.S. defense firms be given more help marketing weapons abroad.
Some industry leaders boast that the Eagleburger memo was written at their behest, several months after a January 1990 meeting with defense executives. And these leaders say that Eagleburger's directive is starting to provide an extra fillip for foreign sales.
The memo is just one result of the Bush administration's decision to put the government firmly in the business of promoting defense exports. Ambassadors now open doors, weapons makers may soon qualify for government-backed loans, and the State Department helps push sales.
But the change of policy is controversial--and ironically timed, as the war in Iraq raises new worries about the proliferation of weapons.
A key proponent of the pro-export policy has been Eagleburger. But he is dogged by ethical concerns about his dealings with former business associates.
One industry representative at the January meeting with Eagleburger was chief executive of a defense subsidiary of the ITT Corp. Eagleburger was a director of the ITT Corp. before taking office in 1989 and will eventually receive benefits from the corporation's pension plan. He pledged to recuse himself from government matters in which the giant conglomerate is a formal party.
In addition, as president of the consulting firm Kissinger Associates Inc., Eagleburger did work for ITT.
At least one critic believes that Eagleburger erred by participating in the meeting with the ITT official and by writing the directive promoting defense exporters. But a State Department legal expert says that Eagleburger, who declines comment, did not violate his recusal pledges.
Eagleburger's memo is just one of several administration moves to provide help overseas for weapons makers.
President George Bush's budget proposal, for instance, authorizes the Export-Import Bank of the United States to provide in the next fiscal year up to $1 billion in loan guarantees for defense products. Several companies have pushed hard for such guarantees, in a bid to make their deals more competitive with foreign rivals.
In addition, the State Department last year jettisoned its Office of Munitions Control, long a target of criticism from the defense industry because of delays in processing license applications. The office was replaced with a larger operation that for the first time has an export-promotion component. Industry leaders say the new Center for Defense Trade has already made a clear difference in speeding up the licensing process.
`The difference between 1980 and 1990 is pretty close to a quantum leap,' says Fred Haynes, a vice president for planning at the LTV Corp. `The most significant change is that defense exporters are receiving cooperative support from U.S. agencies and are no longer viewed as pariahs.'
`I think we've found that a number of embassies are more supportive,' agrees George Perlman, president of Martin Marietta International Inc. `It has been helpful for the people that I have overseas.'
The backing for weapons exports follows high-powered lobbying by leading defense trade groups, including the Aerospace Industries Association and the American League for Exports and Security Assistance.
In addition, several defense contractors have served as effective advocates for their cause. They include some CEOs and other top officials from the Lockheed Corp., the United Technologies Corp., the Martin Marietta Corp., the LTV Corp., the Raytheon Co., the Grumman Corp., and ITT Defense Inc.
State Department officials and defense executives stress that defense exports are different from commercial trade since they must be deemed in the national interest before sales are allowed. Nevertheless, the thrust of the recent lobbying campaign and the government's campaign to promote export has been to spur defense business abroad, which has been in the doldrums for years. Worldwide export deliveries of U.S. arms totaled $16.5 billion in 1987, but by 1989 had slipped to $11.7 billion.
Defense executives have used the shrinking defense budget as a key element in their campaign to increase foreign sales. With the Pentagon budget going down, they argue, exports are critical to individual companies and to the well-being of the defense industrial base. The war against Iraq notwithstanding, annual defense spending is projected to decrease by some $56 billion, in constant dollars, over the next five years.
`International opportunities are a must-do for the defense industry,' says Gordon Adams, the director of the Defense Budget Project, an independent research group on defense issues.
`You can't just drive over there,' Adams adds. `If you want to get into the foreign government, you've got to get into the American government.'
That's just what the industry has been busy doing. And it has had a strong and well-placed ally in Eagleburger, who, along with National Security Adviser Brent Scowcroft, has been instrumental in forging closer ties between U.S. agencies and industry export programs.
For years, exporters smarted over one legacy of President Jimmy Carter. Dubbed the leprosy letter, the directive instructed U.S. embassies to steer clear of defense firms because of concerns about regional arms races and high-tech weapons proliferation. Companies complained that many foreign governments took the opposite approach, providing their defense industries with strong encouragement for exports.
Now that's all changing. And Lawrence Eagleburger has been getting a lot of the credit.
`Larry has made a substantial difference. He's probably the most sympathetic guy who's been up there in years,' says Joel Johnson, vice president for international operations at the Aerospace Industries Association (AIA), a trade group made up of 56 of the nation's leading aerospace firms.
Defense officials have been direct in their approaches to Eagleburger.
At the January 1990 dinner meeting with defense executives, he was urged to send a clear signal to U.S. embassies in favor of defense exporters.
`We encouraged Eagleburger to do that, and he said he would be glad to do that,' says Don Fuqua, a former Democratic congressman from Florida who is president of AIA.
Adds Perlman of Martin Marietta, who wasn't at the meeting, but has worked on export issues: `We were happy when Eagleburger, under pressure from the industry, put out his directive.'
According to a State Department release in August, Eagleburger's July 10 cable advised embassies to be `well informed about, and responsive to, U.S. defense industry sales in host countries. Posts may provide pertinent country information to industry representatives,' including help in setting up appointments for U.S. executives.
Fuqua says the January meeting was attended by a few members of the AIA's executive committee, including D. Travis Engen, the chief executive officer of ITT Defense, which makes radar-jamming systems for fighter planes and night-vision equipment. The meeting, Fuqua adds, also focused on the need to expedite licensing procedures.
Engen confirms that he attended the meeting, but says he cannot remember whether the need for a letter to U.S. embassies was discussed. He did recall joking briefly with Eagleburger about how they should be on good behavior at this gathering, considering their past corporate ties.
Eagleburger was on the board of the ITT Corp. from June 1984 to March 1989. The annual director's fee varied; in his last full year, he received $84,759, according to his financial disclosure form. As a former director, he has a vested pension plan from ITT that will kick in when the 60-year-old Eagleburger turns 65.
Through Kissinger Associates, Eagleburger also had ties to ITT, which was one of his clients. Eagleburger was president of Kissinger Associates from 1984 to 1989.
Eagleburger terminated his director's role with ITT and othr companies when he joined the Bush administration in 1989.
To avoid any appearance of conflict, Eagleburger said that, among other steps, he would recuse himself for his whole term from any matter in which the ITT Corp. was a `formal party or in respect of which it is known to me to have a direct and predictable effect on my interest in the ITT pension plan for outside directors.'
Eagleburger also agreed to recuse himself for one year from matters specifically involving his former clients at Kissinger Associates. That year expired on March 20, 1990, weeks after the Jan. 8, 1990, meeting with defense officials that was attended by ITT Defense's Engen.
While Eagleburger would not comment, a State Department lawyer, speaking on the condition of anonymity, says that Eagleburger--through his meeting with the ITT Defense executive and through his subsequent embassy cable--did not violate his pledge to recuse himself from matters relating to ITT.
`We don't think the general promotion of exports, even industry specific exports, is a matter in which the ITT Corp. is a formal party,' this offical says.
The ITT Corp. was not a formal party because the memo promoting exports was a general policy initiative that affected all American defense companies, not just ITT, according to this official.
Another federal ethics officer concurs that Eagleburger's actions did not violate any ethics standards. Formal party, this official says, is generally understood to mean a company or individual with a petition or other official proceeding pending at the department.
In the one-year recusal from matters relating to his former Kissinger clients, Eagleburger did not specify that only situations where the clients were formal parties were covered. Nevertheless, the State Department official says that the `formal party' standard applies.
At least one liberal public-interest activist, David Cohen, co-founder of the Advocacy Institute, is not convinced by the State Department's explanation.
`It doesn't matter that the whole industry benefits,' says Cohen, whose organization trains public-interest advocates. `In this instance, there's a clear and direct benefit to the ITT subsidiary.'
As for the notion that ITT individually would have had to petition Eagleburger for help in order for the recusal pledge to come into play, Cohen calls it `a distinction without a difference.'
Cohen adds that Eagleburger's presence at the meeting and his writing of the cable are issues that the State Department and the Office of Government Ethics ought to address.
Eagleburger is not the only high-ranking official who has passed through the revolving door and is now pushing defense exports from the inside. Defense lobbyists also tout the help they've received from National Security Adviser Scowcroft, who for a time headed Kissinger Associates' Washington office. Scowcroft, who could not be reached for comment, also served as a consultant to the Lockheed Corp.
William Paul, a senior vice president for the United Technologies Corp. in Washington, says he and three other industry officials met with Scowcroft last year on the issue of developing a cohesive administration policy on defense exports. Noboby from Lockheed attended that meeting, participants say.
`We talked about how the U.S. should have an affirmative policy for defense exports,' Paul says. `We've gotten very good responses from Brent Scowcroft.'
`Our role has been to stay with it and keep the pressure up,' Paul adds. `This administration has been absolutely superb.'
The AIA's Johnson says that both Scowcroft's and Eagleburger's offices had significant roles in developing the administration's proposal to provide loan guarantees for weapons exports from the Export-Import Bank.
Without question, the defense industry's spadework is paying off. In relationships with other countries, the sale of defense weapons is now on the table with other issues.
`We're now putting on the bilateral agenda issues like [defense exports]. When there's a sale pending, we're putting these sales on the agenda,' says Charles Duelfer, the director of the Center for Defense Trade, the year-old State Department agency that replaced the Office of Munitions Control.
Duelfer also notes that since the Eagle-burger memo--which his office helped draft--went out last July, several ambassadors have been especially helpful. In fact, Duelfer says, when the State Department evaluates U.S. embassies, support for defense companies `in one of the things they'll be graded on.'
Duelfer adds that the revamping of the Office of Munitions Control grew out of extensive conversations with Eagleburger and Secretary of State James Baker on the need for streamlining the licensing process and promoting exports.
The Export-Import Bank is also likely to be part of the new effort to promote weapons exports. Under a new administration proposal, the Export-Import Bank programs--now almost entirely for commercial trade--would be expanded to include loan guarantees for military sales to Japan, Israel, Australia, New Zealand, and the nations of the North Atlantic Treaty Organization. Sen. Christopher Dodd (D-Conn.) recently introduced a bill along these lines.
Although the military guarantees would be limited to about $1 billion of the bank's $9.5 billion in direct loans and loan guarantees for fiscal 1992, there is considerable dissension in Congress about whether the bank should be getting into the defense-export game.
`I think there are limited credits available,' says Rep. Lee Hamilton (D-Ind.), `and they should not be used to promote arms sales, especially in the post-gulf war period, when we should be seeking to limit arms sales rather than increase them.' Hamilton is a senior member of the House Foreign Affairs Committee.
Albert Hamilton, a senior staffer at the bank from 1964 through 1987, is another prominent critic.
`My sense is that to take these limited resources and squander them on military sales, which in all likelihood will not be repaid, just doesn't make sense from an economic point of view,' says Hamilton, now a senior associate at First Washington Associates Ltd., which consults for the foreign counterparts of the Export-Import Bank.
Critics notwithstanding, the defense industry is upbeat about its export prospects--and about the ability of its lobbyists to continue to win backing from the Bush administration.
`We pay these guys a good sum of dollars each year to lobby, and thank God they're doing something,' says Thomas Peterson, the head of Raytheon's Patriot International unit.
A good example of how defense companies are benefiting from administration backing is the burgeoning arms trade focused on Turkey, one of the United States' key allies in the coalition against Iraq.
Fred Haynes, a vice president of the Dallas-based LTV Corp., says defense companies have found an increasingly receptive audience in Turkey, where a 10-year, $10 billion defense-modernization program is under way.
The Lexington, Mass.-based Raytheon Co., for instance, approached the Turkish government last March about a sale to Turkey of 10 of the company's Patriot missile firing units. To expedite the sale, Thomas Peterson, the manager of the company's Patriot International unit, says he met with Morton Abramowitz, the U.S. ambassador to Turkey, and since then has been in touch with the embassy regularly.
`The embassy is talking to the Turkish government,' he says. `Just about everything we've asked them to do for us, they've done.'
Peterson notes that the State Department's Office of Defense Trade is `working alongside us and supporting us' in trying to put together a deal soon.
As part of that effort, Peterson says, the Senate Department and Raytheon--along with its German partner, Siemens--have been prodding the German government to get its export-import bank to provide loan guarantees for a sale of Patriots in the German configuration--a sale worth more than $1 billion.
Another defense giant, the Hartford, Conn.-based United Technologies Corp., is also eyeing the Turkish market.
William Paul, head of United Technologies' D.C. office, boasts that he met with Abramowitz both in Turkey and in the United States, trying to get his help in convincing Turkey to produce jointly 200 helicopters with United Technologies' Sikorsky unit.
Among those working the issue for United Technologies is Alexander Haig, the former secretary of state and ex-president of United Technologies who now runs Worldwide Associates Inc., a Washington consulting firm.
`He has a lot of credibility with the people there and the people here,' says Paul. Although neither Paul nor Haig would comment on what Haig as doing for the company, Raytheon's Peterson attests to Haig's diligence. Peterson reports that he bumped into Haig leaving Abramowitz's office in Istanbul.
To make its deal financially attractive to the Turks, United Technologies turned to its home-State senator, Christopher Dodd (D-Conn.) Dodd spearheaded successful legislation in 1989 that enabled the Export-Import Bank of the United States to provide loan guarantees for military sales to Turkey or Greece--guarantees that United Technologies is using in its Turkish deal.
RECENT SERIOUS INQUIRIES CONCERNING LARGE IRAQI PROJECTS--AUGUST 1988
[In millions of dollars]
Date and project Company Total cost Approximate U.S. cost
1987-88, Pipeline (PSA II, 2nd Stage) Various 1 $1.5 ?
1987-88, Pipeline (3rd Turkish) Various 400 ?
1985-88, Bekhme Dam Bechtel 1 3.2 ?
February 1988, Fertilizer complex Kellogg 300 $170
March 1988, Automobiles (50,000?) GM 750 750
June 1988, Oil field expansion Occidental 300 170
July 1988, Irrigation project Valmont 50 50
1988, 3 Power stations Westinghouse, Stone & Webster, Others 1 2 1 1.5
July 1988, Trucks Mack 75 75
July 1988, Petrochemical complex Various 1 2.5 1 1.5
1988, Various small manufacturing plants (tires, air conditioners, pipe, etc.) Various ( 2 ) ?
August 1988, Helicopter coproduction project Bell Textron 400 400
INQUIRIES CONCERNING LARGE IRAQI PROJECTS--1987
[In millions of dollars]
Project Company Total cost U.S. cost
Pipeline (IPSA II, 2nd stage) Various 1 $1.5
Pipeline (3rd Turkish) Various 400
Bekheme Dam Bechtel 1 3.2
Fertilizer complex Kellogg 300 $170
Automobiles GM 750 750
Oil field expansion OXY 300 100
Trucks Mack 75 75
Petrochemical complex Various 1 2.5 1.5
3 Power stations Westinghouse Stone and Webst. plus others 1 2 1 1.5
Petrochemical Bechtel 1 1 75
Water pipeline Basra Water supply ACIPCO 300 300
Irrigation project Valmont 63 63
Nasiriya water scheme ACIPCO 68 68
Water treatment projects ACIPCO 37 37
Special steel products Marubeni Corporation 20 20
Helicopters Bell Helicopters 400 400
Total 1 12.9 1 5.1
FEBRUARY 1984 RECENT SERIOUS INQUIRIES CONCERNING LARGE IRAQI PROJECTS
[In millions of dollars]
Project Estimated potential U.S. costs Potential U.S. supplier
Al Mussaib Power project:
Capital goods $43.0 Not yet determined.
Design wrok 14.0 C.T. Main.
Turbine generators 159.0 Westinghouse.
Daura Power project:
Boiler portion 40.0 Combustion Engineering.
Turbine generators 50.0 General Electric.
Yusifiya Power project 500.0 Combustion Engineering.
Do General Electric.
Do Combustion Engineering.
Do General Electric.
Baghdad Metro (may be deferred):
Design 10.6 Deleuw Cather.
Engineering/procurement Construction Mgmt 150.0 Bechtel.
Construction Foster Wheeler.
Oil field equipment 8.0 Midland Int'l.
Oil field equipment 10.0 Halliburton.
Scanners and computer for shopping mall 7.0 NCR.
Arab Company for detergent chemicals linear alkyl benzene plant 35.0 Combustion Engineering.
Oil and gas treatment equipment 25.0 Howe-Baker Engineers.
Turnkey ammonium storage plant 6.0 Howe-Baker Engineers.
Medical systems 30.0 General Electric.
Transmission substations 25.0 General Electric.
Poultry farm equipment 5.0 E. Holzer/Barco Int'l.
Helicopters for civilian ambulance service by Air Force 300.0 Bell Helicopter/Lockheed.
Antibiotic plant 30.0 Foster Wheeler.
Feed concentrates 13.0 Bankers Trust for Pillsbury.
Date: March 27, 1986.
FCIA Application No.: 1207 Country: Iraq. Policy No.: SD-2238.
Subject: Special Buyer Credit Limit.
Reason for request: No Authority in Country for FCIA.
Credit limit: $600,000.
Insured Repco, Inc.
Code: R-1235, Orlando, Florida.
Purchaser: Director General of Military Accounts.
Code: 235-05070, Baghdad, Iraq.
Guarantor: (Z) None (See terms).
Products: Portable Radio Communications Equipment.
Code: 249, Repco Model PC150.
Insured's retention: None.
Terms: Irrevocable letters of credit opened by the Central Bank of Iraq, payable up to 360 days.
Expiration date: March 31, 1987, provided Special Condition 2 is met.
Recommendation (including any Special Conditions): Approval, subject to the attached Special Conditions.
To: Foreign Credit Insurance Association.
From: Export-Import Bank of the United States.
On 3-31-86 the Export-Import Bank of the United States approved the foregoing action.
Date of completed application: March 19, 1986.
FCIA underwriter: Tom Cummings.
Eximbank loan officer: Clare M. Ferguson.
Program code: U.
1. `Excess Political Coverage,' as defined in the Declarations, shall not apply to shipments to this country.
2. FCIA/Eximbank must receive evidence of a contract of sale not later than June 30, 1986 or coverage shall expire at that time.
Date: September 3, 1987.
NAC Advice Required: No.
Policy No.: SD-5124.
Subject: Special buyer credit limit.
Cover: Political only.
Insured: Intercontinental Credit Corporation/Health Technologies, Wichita, Kansas.
Duns: 006988778, 2 Park Avenue, New York, NY.
Foreign bank: (DEF) Central Bank of Iraq.
Code: 235-05016, Baghdad, Iraq.
Purchaser: Ministry of Health.
Code: 235-09036, Baghdad, Iraq.
Product(s): 250 armored military truck ambulances.
Insured's retention: 0 percent of political risks, 0 percent of commercial risks.
Terms: Up to 360 days, irrevocable letter of credit.
Classification: Class I.
Premium rate: $3.50 per $100.00 of declared amounts.
Expiration date: March 31, 1988, provided special condition No. 1 is met.
Recommendation: Approval, subject to the following special condition(s):
1. FCIA/Eximbank must receive evidence of a contract of sale not later than December 31, 1987 or coverage shall expire at that time.
2. No excess political coverage.
To: Foreign Credit Insurance Association.
From: Export-Import Bank of the United States.
On ------ the Export-Import Bank of the United States approved the foregoing action.
FCIA underwriter: Eric Krauss.
Eximbank loan officer: Kenneth M. Tinsley.
Program code: U.
The Legal Division has no legal objection to this transaction. Iraq is a developed country for purposes of our defense articles restriction and, therefore, there is no statutory prohibition. In addition, the products, ambulances, are fairly within the `health and lifesaving' exception to our prohibition, pursuant to which we have supported sales of health and lifesaving items such as fire trucks, ambulances and hospital equipment even when they were for use at military installations. However, in deciding whether or not to apply the `health and lifesaving' concept here, the Board should consider the fact that these 250 ambulances are armored and that Iraq is in a state of war and these items presumably will be used in that effort.
The subject transaction conforms with current Eximbank cover policy for Iraq in that payment is by an irrevocable letter of credit issued by the Central Bank of Iraq.
With regard to the products, the Legal Division has no legal objection to the transaction.
Based on the foregoing, staff believes the subject transaction merits favorable consideration.
The SPEAKER pro tempore (Mr. Andrews of New Jersey). Under a previous order of the House, the gentlewoman from Maryland [Mrs. Bentley] is recognized for 60 minutes.
[Mrs. BENTLEY addressed the House. Her remarks will appear hereafter in the Extensions of Remarks.]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Indiana [Mr. Burton] is recognized for 60 minutes.
[Mr. BURTON of Indiana addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]