KISSINGER ASSOCIATES, BNL, AND IRAQ
Henry B. Gonzalez, (TX-20)
(House of Representatives - May 02, 1991)


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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, during a special order last week, I revealed that Henry Kissinger was 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 in United States history--$4 billion in unreported loans to Iraq by the Atlanta branch of BNL. This week I will reveal some new information regarding Mr. Kissinger and his relationship with BNL. I will also include in the Record a detailed list of Mr. Brent Scowcroft's stock holdings.

MORE ON KISSINGER AND BNL

In order to learn more about Mr. Kissinger's role at BNL, committee investigators contacted an attorney representing BNL in the United States and asked him to contact BNL in Rome. The BNL employee in Rome told BNL's attorney the following:

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Mr. Kissinger has been a member of the BNL International Advisory Board since 1985. Mr. Kissinger is paid $10,000 for appearing at an Advisory Board meeting and he is paid extra for speaking at BNL functions. It is important to bring these facts out because BNL is owned by the Italian government. In effect, Mr. Kissinger's fees are indirectly paid for with Italian taxpayer money.

Banking Committee investigators were also told that Mr. Kissinger may still be a member of BNL Advisory Board. His term does not expire until next month. This information conflicts with what Mr. Kissinger was quoted as stating in a Financial Times article on April 26. In that article Mr. Kissinger stated that he resigned from BNL's advisory board on February 22, 1991. I will write BNL and Mr. Kissinger in order to clear up this discrepancy.

Mr. Kissinger went on to state in the same Financial Times article:

I resigned earlier this year because I don't want to be connected, I don't want to be asked about this sort of thing.

But it should be noted that Mr. Kissinger supposedly did not resign his BNL post until over 18 months after the BNL scandal became public in August 1989.

Another interesting point to note is the timing of Mr. Kissinger's supposed resignation from BNL on February 22, 1991. That date is just days before the Justice Department announced a 347-count indictment against the former employees of BNL after an exhaustive 18-month investigation. This is quite a coincidence.

BNL ACTUALLY A CLIENT OF KISSINGER ASSOCIATES

BNL was actually a client of Kissinger Associates at the same time BNL's former employees in Atlanta were providing Iraq with billions in unreported loans. This solidifies Mr. Kissinger's link to BNL and raises the question of whether Mr. Kissinger had knowledge of the BNL loans to Iraq.

As I stated last week, many Kissinger Associates clients were doing business with the Iraqis as a direct result of the unreported $4 billion in BNL loans to Iraq. Volvo, whose chairman serves on the Kissinger Associates board of directors, was doing big business in Iraq and it was the beneficiary of BNL loans.

BNL was also the largest participant in the $5.5 billion CCC program for Iraq. Between $800 and $900 million in BNL loans to Iraq were guaranteed by the CCC. BNL was also the second largest participant in the Export-Import [Eximbank] program for Iraq. Over $50 million in BNL loans to Iraq were guaranteed by Eximbank. Through these programs it became common knowledge in the export community that BNL was Iraq's prime banker in the United States.

I also reported last week that Mr. Lawrence Eagleburger had ties to BNL. While he was serving as president of Kissinger

Associates, Eagleburger was a board member of a Yugoslavian bank that had a substantial and even incestuous relationship with BNL. BNL was a main factor in the growth of that Yugoslavian bank's operations in the United States.

Despite the many linkages between Kissinger Associates and BNL, Mr. Kissinger still maintains that he had no knowledge of the $4 billion in BNL loans to Iraq.

The fact that BNL was a client of Kissinger Associates also solidifies the link between BNL and two very high ranking Bush administration employees, NSC Director Brent Scowcroft and Deputy Secretary of State Lawrence Eagleburger. Mr. Lawrence Eagleburger and Mr. Brent Scowcroft were both high ranking employees of Kissinger Associates during the period BNL was a client of Kissinger Associates. In other words, part of their paychecks was derived from fees paid by BNL.

The fact that BNL was a client of Kissinger Associates also raises the question of how Mr. Eagleburger and Mr. Scowcroft reacted to the BNL scandal once it became known to them in the fall of 1989. I wonder if either thought it necessary to recuse himself from making decisions on Iraq once the BNL scandal was uncovered?
COMMITTEE ON BANKING,

Finance and Urban Affairs,
Washington, DC, May 2, 1991.

Hon. George Bush,
President of the United States,
Washington, DC

Dear Mr. President: The House Banking Committee is conducting an investigation into over $4 billion in unreported loans the former employees of the Atlanta branch of Banca Nazionale del Lavoro (BNL) provided to the government of Iraq between 1985 and 1990. The Committee's investigation has uncovered the fact that Henry Kissinger was on the International Advisory Board of BNL during that same time period and that BNL was a client of Kissinger Associates.

As you are aware, Mr. Brent Scowcroft and Mr. Lawrence Eagleburger were high ranking officials of Kissinger Associates--Mr. Scowcroft as Vice Chairman and Mr. Eagleburger as President. Kissinger Associates represents many large multinational companies involved in various aspects of international trade, including the arms business. Since these firms sell their wares worldwide, they often are the beneficiaries of U.S. policy towards foreign countries. I am deeply concerned over the potential influence Mr. Kissinger may exert over the decisions and actions of Mr. Scowcroft and Mr. Eagleburger, and am especially troubled by a potential conflict of interest involving Mr. Scowcroft.

The National Security Advisor is in a position to strongly influence our national security and foreign policies, including the U.S. export licensing process. These policies often have a direct influence on individual corporations doing business abroad. Until October 4, 1990, Mr. Scowcroft owned stock in approximately 40 U.S. corporations, many of which were doing business in Iraq. Those companies received more than one out of every eight U.S. export licenses for exports to Iraq. Several of the companies were also clients of Kissinger Associates while Mr. Scowcroft was Vice Chairman of that firm.

Mr. Scowcroft's stock holdings, particularly in corporations that are clients of Kissinger Associates, present the potential for serious conflicts of interest and cause one to question whether or not his decisions as National Security Advisor are completely disassociated from the interests of his former boss and longtime colleague.

Mr. Eagleburger, the current Deputy Secretary of State, as well as Mr. Scowcroft, may also be involved in a conflict of interest related to their role in promoting military sales abroad. The Legal Times recently reported that Mr. Eagleburger and Mr. Scowcroft (a lifelong Air Force Officer) are strong advocates of using $1 billion in Export-Import Bank resources to finance the sale of U.S. military articles overseas. The Legal Times also reported that Mr. Eagleburger actually sent a classified memorandum to all U.S. Embassies urging that U.S. defense firms be given more help selling weapons abroad. Many corporations, including Mr. Eagleburger's past employer, the ITT Corporation, stand to benefit if the U.S. foreign service is forced to take a greater role in selling U.S. military articles abroad. For your information, I have attached a copy of the Legal Times article referring to Mr. Eagleburger's and Mr. Scowcroft's roles in expanding military sales abroad. I am concerned that their attempts to use the foreign service and the Export-Import Bank to assist corporations in financing military sales abroad may have been prejudiced by their past associations.

Mr. Scowcroft's and Mr. Eagleburger's actions seem out of step at a time when the U.S. should be leading a worldwide effort to limit arms proliferation. The positions held by these men are of the utmost importance to the national security of the United States. Persons filling such important positions must be independent from past associations which could cloud their judgment.

I trust you will consider the issues I have raised in this letter and, if necessary, take appropriate action to ensure that potential conflicts are eliminated.

Thank you for your time and consideration. With best wishes.

Sincerely,

Henry B. Gonzalez,
Chairman.

SCOWCROFT STOCK OWNERSHIP

The BNL scandal is not the only instance of Kissinger Associates affiliations having had the potential of placing Mr. Scowcroft in a potential conflict of interest situation involving U.S. national security and foreign policy.

Last week I noted that Brent Scowcroft joined Mr. Kissinger in setting up Kissinger Associates in 1982. Mr. Scowcroft served as vice chairman of Kissinger Associates until being appointed as National Security Advisor to President Bush in January 1989. In that position, Mr. Scowcroft advises the President on matters involving national security including export control policies.

I also revealed last week that Mr. Scowcroft owned stock in approximately 40 companies while acting in those capacities for President Bush. These stocks were valued at well over $1 million.

The chart is pretty much self-explanatory. As the chart indicates, on October 4, 1990, the Office of Government Ethics required Mr. Scowcroft to divest some of his stock holdings. But that was almost 2 years after he took office and several months after the Iraqi invasion of Kuwait.

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MANY LARGE DEFENSE CONTRACTORS

Many of the companies Mr. Scowcroft owned stock in are large defense contractors. The Department of Defense recently released a list of the top 100 prime defense contractors. Mr. Scowcroft owned stock in 11 of these companies including General Electric, General Motors, ITT, and Lockheed while acting as the President's National Security Adviser.

Several of the companies Mr. Scowcroft owned stock in are reported clients of Kissinger Associates. These connections raise the question of Kissinger Associates' influence over the decisions of Mr. Scowcroft as well as the issue of whether or not Mr. Scowcroft can remain independent from the interests of his former boss and longtime colleague Henry Kissinger.

I am deeply concerned by Mr. Scowcroft's stockholdings, particularly those in corporations that are clients of Kissinger Associates. Given the position of Mr. Scowcroft, his stockholdings present the potential for serious conflicts of interest.

As an example consider that together, the companies he owned stock in received over one in every eight United States export licenses for sales to Iraq. No doubt these companies benefited from United States policy toward Iraq. Mr. Scowcroft was instrumental in setting and carrying out that policy and, at the same time, owned stock in companies benefiting directly from that same policy. Can Mr. Scowcroft be providing the President with independent judgment given those circumstances?

BACKGROUND ON NATIONAL SECURITY COUNCIL [NSC

In order to better understand these issues it would help to learn more about the role Mr. Scowcroft plays in setting, coordinating, and carrying out the national security and foreign policies of the United States. As we will see, the NSC can have considerable influence over an individual company's ability to obtain an export license to sell goods abroad.

During his tenure at Kissinger Associates, Mr. Scowcroft was appointed by President Reagan to various special commissions on national security issues. One such appointment was to the President's Special Review Board. The President directed the Board to examine the proper role of the National Security Council staff in the development, coordination, and conduct of foreign and national security policy following the Iran-Contra scandal. The following background on the NSC is taken from that report.

The National Security Council was established by the National Security Act of 1947. The NSC functions as an advisory body to the President on national security issues and to improve coordination between the military services and other executive departments. The President is the head of the NSC with other members being the Vice President, the Secretary of State, and the Secretary of Defense.

Statutory advisers to the NSC include the Chairman of the Joint chiefs of Staff, the Director of the Central Intelligence Agency, and the Director of the Arms Control and Disarmament Agency. Other members of executive branch agencies may serve as de facto members of the NSC at the invitation of the President. All members are supposed to provide their best advice to the President, not merely serve as advocates for their own bureaucracies.

Perhaps the greatest misconception regarding the NSC is that the Assistant to the President for National Security Affairs, commonly referred to s the National Security Adviser, is not a formal member of the NSC. There is no legislative provision for Mr. Scowcroft's present position.

Originally, under President Eisenhower, the National Security Adviser served as the executive secretary of the NSC--setting the agenda, briefing the President, and supervising staff. It was not until President Kennedy, with McGeorge Bundy, and also President Nixon, with Henry Kissinger, that the National Security Adviser took on its current role. Bundy and Kissinger transformed the position from one of coordinator and administrator to one of policy advocate, personal adviser, spokesman and negotiator for national

security issues.

The National Security Act also established a National Security Staff. The role and size of the staff has changed considerably since 1947, but has come to serve the dual role of coordinating and monitoring the implementation of national security policy as well as providing independent advice, options, and ideas to the President. Mr. Scowcroft is the current Director of the NSC staff. The role of the NSC staff received its greatest notoriety from the actions of felonious staff member Oliver North.

NSC INFLUENCE OVER EXPORT LICENSING FOR IRAQ

One of the responsibilities of the NSC is to ensure that the national security decision directives issued by the President are properly carried out. Take for example the case of Iraq. Both Presidents Bush and Reagan were determined to improve relations with Iraq, and both considered the best way to achieve that goal was to expand trade with Iraq. Since trade was the foundation on which improved relations were to be achieved, increased importance was placed on the export licensing process.

The export licensing process controls the export of U.S. goods and technical data in order to achieve certain national security and foreign policy goals. For example, in order to protect our national security, the export licensing process is used to limit the export of sophisticated United States computer technology to the Soviet Union that could be used to improve weapons systems. In the case of export licensing, the National Security Act of 1947 and subsequent legislation, provide the President, through the National Security Council [NSC], with ample authority to establish policies on export controls.

To get a feel for the NSC's role in achieving the President's objective regarding Iraq, we can look to 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.

Mr. Freedenberg recently testified that Iraqi use of poison gas against the Kurds, as well as the Iranians, did not suppress the zeal of the NSC to approve technology transfers to Iraq. In testimony before Congress, he 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 towards 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 and that 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 of the NSC and points to the influence it can have over the export licensing process. Yet another example is provided by Dr. Stephen D. Bryen, former Deputy Under Secretary of Defense for Trade Security Policy and Director of Trade Technology Security Administration [DTSA]. DTSA helps review export licenses to determine if exports should be denied because of their potential military applications.

While testifying before the Banking Committee, Dr. Bryen stated:

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. In most cases when we raised these issues we ran into strong opposition from the State and Commerce Departments. In July 1987, at the urging of the State
Department, the National Security Council directed DTSA to be `more forthcoming' with respect to Iraq. The NSC singled out a number of cases DTSA held up, and urged us to revisit them. We decided, in all but two or three cases identified by NSC to stick by our guns and not give in because we had evidence the technology was going into strategic military programs.

While Mr. Scowcroft was not the NSC Director at the time of the above incidents, you can get a feel for the enormous influence the NSC can exercise over individual export licensing decisions.

The NSC provides crucial input into the President's foreign policy and national security decisions. These decisions often affect trade between the United States and foreign nations, which in turn affects a corporation's ability to sell its goods overseas. As the Iraq example illustrates, the NSC can exercise considerable sway over export licensing decisions the directly determine whether or not a corporation's export license is approved. This is one of the prime reason Mr. Scowcroft's stock ownership presents the potential for a conflict of interest.

Mr. Scowcroft's past affiliation with Kissinger Associates also raises the question as to whether or not Mr. Scowcroft can truly provide independent advice to the President in matters of national security or foreign policy when those policies can run against the interest of corporations that he owns stock in or that are affiliated with Kissinger Associates.

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SCOWCROFT AND EXIMBANK MILITARY SALES

Last week I placed in the Record a Legal Times article that illustrated how Mr. Scowcroft and Mr. Lawrence Eagleburger have been instrumental in formulating the recent administration proposal to use $1 billion in Export-Import Bank credits to sell defense articles overseas. This week I revealed that Mr. Scowcroft until very recently owned stock in many of our largest defense contractors. The fact that Mr. Scowcroft was even involved in a decision to promote military sales while he owned stock in several huge defense contractors strikes me as being a conflict of interest.

The President's proposal to use the Export-Import Bank to finance military sales is an example of a policy decision that has the potential to directly benefit corporations Mr. Scowcroft owns stock in or that are affiliated with Kissinger Associates.

CONCLUSION

To summarize, I am deeply concurned that Mr. Scowcroft's stock-holdings, particularly in corporations that are clients of Kissinger Associates, present the potential for serious conflicts of interest. These stock-holdings also raise the question of Kissinger Associates influence over the decisions of Mr. Scowcroft and whether or not Mr. Scowcroft can remain independent from the interests of his former boss and longtime colleague. I will be writing President Bush to express my concern over these issues.

From the Financial Times, Apr. 26, 1991

[FROM THE FINANCIAL TIMES, APR. 26, 1991]

Congressional Inquiry: Kissinger's Firm Linked to BNL

(BY ALAN FRIEDMAN AND LIONEL BARBER)

Washington: Mr. Henry Kissinger, the former US secretary of state who heads the international consulting firm Kissinger Associates, had business links with Banca Nazionale del Lavoro (BNL), the Italian bank whose branch in Atlanta, Georgia made $4bn in unauthorized loans to Iraq, according to the chairman of the US House banking committee.

BNL's activities in the US are at the center of a wideranging congressional inquiry into how its funds were used to buy militarily useful US technology and equipment until as late as June 1990, a few weeks before the invasion of Kuwait.

Mr. Kissinger last night denied knowledge of the improper Iraqi loans. He confirmed, however, that he served until early this year as a paid member of BNL's international advisory board.

He resigned the BNL position on February 22, 1991 because of the BNL Atlanta scandal. Mr. Kissinger said last night: `I didn't have any idea of what BNL was doing in Iraq. All I know was what I read in the papers. I resigned earlier this year because I don't want to be connected, I don't want to be asked about this sort of question'.

Congressman Henry Gonzalez, the Texan Democrat who is investigating the BNL affair, also claimed that Kissinger Associates advised US companies exporting to Iraq, several of which were BNL-financed.

Kissinger Associates is an international consultancy with blue-chip clients, advising on political and commercial risk. Among its early recruits were Mr. Brent Scowcroft, currently President George Bush's national security adviser, as well as Mr. Lawrence Eagleburger, a veteran diplomat, who currently serves as deputy US secretary of state. Both resigned on taking office.

In a lengthy statement on the floor of the House of Representatives, Mr. Henry Gonzalez--chairman of the banking committee--described how Mr. Alan Stoga, a Kissinger Associates executive, met Mr. Saddam Hussein in Baghdad in June 1989.

At the meeting, Mr. Saddam apparently expressed interest in expanding commercial relations with the US. `Many Kissinger Associates clients received US export licenses for exports to Iraq. Several were also the beneficiaries of BNL loans to Iraq,' said Mr. Gonzalez.

In response, Mr. Kissinger said his firm `derived no income from Iraq'. To his knowledge, Mr. Stoga did not advise Iraq on any financial matters, but he recalled that Mr. Stoga told him that he was identified at the Saddam meeting `as an expert on debt and could advise.'

Mr. Kissinger, who has rarely spoken about his clients or his business, said his firm would not have interceded with the US government to secure export licenses for clients, but that `it is possible that somebody may have advised a client on how to get a license.'

In his congressional statement Mr. Gonzalez said Mr. Eagleburger, who worked for Kissinger Associates until two years ago, served on the board of Ljubljanksa Bank (LBS), the Yugoslav bank.

Mr. Gonzalez said he wished to make clear that he was not accusing anyone of any illegalities.

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Stock Holdings of National Security Director Brent Scowcroft

B

Allegran, Inc.

B

Allied Signal, Inc. 1

B

ARMCO, Inc.

C

AT&T 1 2

D

Bank America Corp. 1

C

CSX Corp.

A

DBA Systems, Inc. 1

F

E.I. Dupont 1

D

First Security Corp.

D

General Motors Corp. 1

B

General Electric Co. 1

G

Great Atl. & Pac. Tea Co.

B

Great American Communications

B

Halliburton Company

C

Hanson PLC Sponsored ADR

E

Hewlett Packard Co. 1

D

IBM 1 2

D

Intergraph Corp. 1

E

International Paper Company

B

ITT Corp. 1 2

B

Kimberly Clark 1

B

Lehman Corp.

D

Lockheed Corp.

A

McKessen, Inc.

B

MCN Corp.

B

Merck & Co. 1

D

Minnesota MNG MFG 1 2

B

Mobil Oil Company 1

B

Monsanto Company

C

PacificCorp

C

Phillips Petroleum Co.

B

Pfizer, Inc. 1

D

Primark Corp.

B

Questar Corp.

C

Reynolds Metals 2

B

Storage Technology CP 1

C

Shell TRNS & TR 1 2

D

SmithKline Beackman Corp 2

A

Weyerhaeuser Co. 1

D

Westinghouse Electric 1

B

Wicor, Inc

B

Xerox Corp. 1

D

Washington BanCorp.

F

Notes:

1 On October 4, 1990, the Office of Government Eithics required divestiture of these stocks.

2 Held by Spouse.

3 Value of Holding: A=under $1,001, B=$1.001-5,000, C=$5,001-15,000, D=$15,001-50,000, E=50,001-100,000, F=$100,001-250,000, G=over $250,000.

Source: Brent Scowcroft Financial Disclose Report Office of Government Ethics (202) 523-5757.

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