EFFORTS TO THWART INVESTIGATION OF THE BNL SCANDAL
Henry B. Gonzalez, (TX-20)
(House of Representatives - March 30, 1992)


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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, on this occasion I rise to continue in the series of informational addresses or special orders that I give by way of accounting as chairman of the Committee on Banking, Finance and Urban Affairs, to my colleagues and Members of this great body. This was, as I said before, a pledge I made the same day that I was formally elected chairman of this committee.

But today, and also in continuation of the scandalous affair involving the foreign bank, the BNL, the Banca Nazionale del Lavoro, I will talk about the delay in bringing the so-called BNL indictments in early 1990, and also the State Department's efforts to thwart, that is, to obstruct the investigation of Iraqis involved in that scandal.

I will also show that the State Department stopped the indictment of the Central Bank of Iraq and discouraged the indictment of a prominent Jordanian with close ties to the King of Jordan, King Hussein.

I will start by showing that the former Attorney General, Richard Thornburgh, misled the Congress and the American public about the national security implications of the BNL cases in order to obstruct our committee's investigation of BNL, which I have reported previously he did do.

As a matter of fact, I incorporated into the Record some time ago the copy of the letter that I received from the Secretary, who finally wrote to decry the fact that I would insist as chairman to continue the hearings on the BNL.

As I have detailed in earlier floor statements, the State Department and the Agriculture Department repeatedly lied to Congress about the Commodity Credit Corporation Program of guarantees for Iraq.

From the beginning of the United States-Iraqi relationship in 1982-83, until the Iraqi invasion of Kuwait, this program, known as the Commodity Credit Corporation Program, was a cornerstone of the United States-Iraq relations and the food, supposedly the food, financed by the program was used as a political tool to improve relations with Iraq. Yet on numerous occasions the

State Department and Agriculture Department denied that foreign policy implications played a major role in the program.

I have introduced numerous documents into the Record showing that the foreign policy objectives became and remained the prime goal of the CCC Program toward Iraq. But the State Department and Agriculture Department misled the Congress and the public, thereby insisting that the program was market driven and that its main purpose was to promote the sale of U.S. agriculture products, when in truth they were promoting closer ties with Saddam Hussein.

They used that commercial market argument to win greater and greater allocations of CCC credit to Iraq, up to $1 billion annually.

Now, that is a considerable sum, in view of what we are denying our own, as far as our domestic needs are concerned. We have reached the point where we have abandoned the greatest interests of the greatest number of our people in such excursions as this one, even though the CCC Program for Iraq was rife with corruption and fraud, and this is just one case.

We had hearings. We also submitted documentation showing where there were kickbacks on the part of Iraqis to persons doing business with them in America, and despite the fact that Iraq was in such dire financial trouble that it could not repay its debts, even to the United States Export-Import Bank.

This systematic deception cost the United States taxpayer about $2 billion because Iraq defaulted on all its CCC debts when it invaded Kuwait.

In September 1990 former Attorney General Richard Thornburgh joined the efforts to mislead the Congress and the American public thereby. We cannot forget that the Congress, regardless of those throughout our history that have hated the institution, is the only viable source of information as to policy that the people have and have direct access to, or should.

As a matter of fact, I have said repeatedly that in the House of Representatives we have the unique case of being the only constitutional office that is directly accessible to the citizens by virtue of the fact that every one of us has to be elected. We cannot be appointed to the House of Representatives, unlike the Senate. We have to be elected in our respective districts. Therefore, the theory is that one would be in the most possible intimate relationship with the citizen constituents.

If the Congress is deceived, whether it is done through negligence on the part of the Congress itself or by the executive branch, which in today's control of the media, which is so vast and so immediate and so instantaneous, it is impossible for the citizens in a democracy such as ours to have the information to afford them to discharge their duties as citizens in discerning, and thereby reaching a conclusion as to the qualifications of, the agents they will elect, whether it is Members of the Congress or the President or the Vice President.

The big difference is this: In the case of the U.S. Senators, they have the whole State as their constituency. The individual citizen in that State does not have the proximity or access that he ought to have to that individual Member that he elects or defeats.

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In the case of the President and the Vice President, yes, they are elected by the people. But they are elected throughout the whole country. And again, the individual citizen, once the President is installed, does not have that access that the Constitution and those who wrote it intended should be there at all times.

It is the breakdown in that accessibility that I think is the worst contributing factor to what I call the erosion of the integrity of the processes in our bodies. The fact remains that it is the prime constitutional office destined to be directly accessible and controlled by the citizens in their respective districts.

Attorney General Thornburgh repeatedly tried to have the investigation of the Committee on Banking, Finance and Urban Affairs curtailed, under the false pretense that the committee's investigation of BNL could be harmful to the national security interests of the United States.

We pointed out that there is only one remaining power of the three fundamental powers that the Congress, under the Constitution, still has. I hold that those three fundamental powers are nondelegable.

Yes, through the very beginning of our history under constitutional government, there are areas in which the Congress has delegated. But I maintain there are areas in which the Constitution, and if we read the proceedings of the Convention, we heard a few with respect to the Bill of Rights a while ago, but if we read carefully the proceedings of the Constitutional Convention, we will find this was one of the key issues. And that is that the Congress shall have the power to declare war and only the Congress. That was very purposefully put in there.

That has been washed away through congressional abdication, but I feel and I know that it is nondelegable. When the Congress has abdicated that, it has abdicated its constitutional responsibility to the people.

Second, the control of the purse. That is one of the inherent and in my opinion nondelegable functions of the Congress. When it allowed itself, as it did in 1981, as a result of the interpretation, malinterpretation or good interpretation of the 1974 so-called Budget Reform Act, which incidentally I was 1 of about 10 that voted against it, but I was the only one that gave reasons in the Record why I voted against it.

The reasons are, much to my distress, what I feared would happen, which now is taken for granted, where we have continuing dire emergency supplemental appropriations from month to month, from one session to another, from one Congress to another. All of these reformers, some of them are still around and bleeding and bragging about how they did away with some of those old-timer chairmen. Well, let me say to my colleagues, that at no time in my recollection at the time those supposedly old timers were in power did we have the disarray, the absolute budgetary chaos that now we take for granted but which

a price must be sooner or later exacted and paid for by the people. And if that be treason to those now who have esconced themselves in power in our halls of the Congress, who got that power by having knocked out some of those old timers, so be it, let me say to them.

Naturally, it has been quite uncomfortable to have the likes of me. I am an old timer, if one wants to look at it that way.

I will tell my colleagues why, because there are basic verities, both as to behavior and both as to the discharge of a trust, which this office is, which the so-called new generations do not seem to think are worthy of holding to. I do.

I believe there is no substitute for honesty. One either has it or one does not. And under the Constitution, we have to be 25 years of age before we can be eligible to be elected to the House.

If we have to wait until we are 25 years of age and come here to get somebody to give us a code of ethics, let me say to my colleagues, it is too late. There is not any code that is not susceptible of evasion. But if one has a conscience, and I do not know, maybe that is asking too much. But I think those things are a lot more holier and more valuable and more precious than holding any public office and being in these halls of marble that are supposed to be so indicative of the greatness of our monumental institutions.

I say that these cold halls of marble need the warmth of the people, and this is the reason why. For the first time 2 years ago, when we had these much publicized hearings but disappointing to some because we did not go out chasing after witches, we followed the law. We followed the rules. And if we the lawmakers do not obey the law, then what do we have? And that is all we have done.

As chairman of this committee, that is exactly what I have done. I have stuck to the rules. I have obeyed the rule of majority, and that has not pleased some. But it is for them to explain and not for me.

What I am saying is that we have to start with ourselves and then we cannot, if we lose even ourselves from both the moral moorings and the time-honored precedents and rules that have been built and incorporated into the most intimate section of our corporate proceedings in these halls of the Congress, both this side and the other.

The other power, and it is the only one up to now that in our case we have defended, is the power to know, seek information. And that is the power to investigate. But it is not an unlimited power; it is a limited constitutional grant.

Those are the three basic powers: the power to declare war that the Constitution says only the Congress can do; second, the power of the purse, which is deposited in the Congress and only in the Congress; and third, the

power to know, the power to search out and get the information that a wise lawmaker and a just lawmaker and an honest lawmaker must have in order to render a judgment in the perfecting of the rules and the laws that will make the policy for our constituents.

That we are upholding. It is the only last vestige that the Congress has not abdicated, and I had to interject that, plus Supreme Court decisions upholding that. But it is not unlimited.

We cannot go our here on witch hunts, as some committees have done before in the history of our body, both after the Civil War as well as after the war this last time, the big war.

We have to have a legislative purpose, and that is what I have been reporting to my colleagues. As a matter of fact, I introduced a bill in pursuance of trying to control some aspects of the activities of these countries through the contributions that we make to the international financial institutions and banks, which these countries make use of.

I repeat, Attorney General Thornburgh repeatedly tried to have the investigation of the committee on Banking, Finance and Urban Affairs obstructed and curtailed and under the false pretense that it would endanger national security.

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What he was really attempting to do was to cover up repeated lies to Congress and details of the failed United States policy toward Iraq. That was the whole thing. As soon as I announced that the committee on Banking, Finance and Urban Affairs would hold hearings on the BNL scandal, former Attorney General Thornburgh tried to dissuade me.

When I would not meet with him privately, and I never do. I do not know if some of my colleagues on the committee still have understood. I am not the committee. I am only the chairman of the committee. As I said when I took office, not only on this occasion, but I have been chairman of other committees, and I was chairman of the Subcommittee on International Development, Finance, Trade and Monetary Policy for 10 years, and I have been chairman of the Subcommittee on Housing and Community Development for 11 years, so I think I have had some experience on how to handle the gavel.

The only power, I said, really inherent in the power to hold a gavel, is the power to set the agenda, set the course for the committee. That has disturbed some on and off the committee, I will say, but nevertheless, that is what I have held onto primarily.

We went on ahead and had the hearings, despite the Attorney General's great protestations. Failing to meet with me privately. I said:

Put it in writing. I am writing you and telling you, and I do not even have to do that, but I am, because I think that is the responsibility and comity that one ought to have with a distinguished member of the executive branch of the Government.

I said:

Obviously, you have not read the Constitution. Congress has a right to know. Supreme Court case after Supreme Court case has upheld that as a prime and a supreme right of the Congress, to be informed. Notwithstanding other investigations
or even judicial criminal proceedings, Congress has the right to pursue in its quest for information. That is what we are going to do.

So when I would not meet with him to discuss why he wanted me to just summarily backtrack on what I had announced, the hearings, then he did write me a letter which I placed in the Record before, but I am going to place it in the Record today, at least the pertinent part, of September 26, 1990.

He states, and I quote:

The purpose of this letter is to express my profound disappointment in your decision to ignore the strong objections of this department in the Banca Nazionale del Lavoro matter. As you should be aware, this is a sensitive case with national security concerns.

Of course, the BNL cases did not involve national security concerns. To prove this point I will introduce into the Record a December 18, 1990, State Department letter to the Justice Department which states, and I quote:

With respect to the national security aspects of the BNL investigation, we have determined that the State Department does not have any concerns it wishes to raise at this juncture.

So the State Department, the agency primarily responsible for national security matters, did not think that the BNL case involved national security concerns, yet the top political appointee of the Department of Justice, Richard Thornburgh, apparently failed to get this signal.

Mr. Thornburgh's efforts fit perfectly into the pattern of administration efforts aimed at thwarting congressional investigations of Iraqi policy and the preinvasion pattern of obstructing justice insofar as the BNL case is concerned.

In fact, the Department of Justice continues to refuse the Committee on Banking, Finance and Urban Affairs access to thousands of BNL-related documents claiming that they are subject to grand jury secrecy rules.

Just as Mr. Thornburgh tried to falsely use national security to thwart the committee's investigation of BNL, I have to wonder if the Justice Department is not abusing the grand jury secrecy rules to spuriously hide embarrassing documents that reveal additional details of the Bush administration's close alliance with Saddam Hussein.

It is sad enough that the Departments of State and Agriculture repeatedly lied to Congress and the American public, thereby, about the United States policy toward Iraq. The Justice Department role in obstructing the investigation of the Committee on Banking, Finance and Urban Affairs of BNL is the ultimate hypocrisy. One would think that the Justice Department has a special obligation to protect the integrity of our Government.

In the matter of the failed United States policy toward Iraq and in the BNL case, I think a more appropriate name for the Thornburgh-led Department was the `Obstruction of Justice Department.' I will not show that the BNL indictment was anything else but that which should have been done regardless. I will show that expected first in early 1990, we were told `Well, we are about to indict,' but it did not happen for more than a year. First I will provide some background to set the stage for the discussion.

While the administration publicly expressed consternation over the actions of Saddam Hussein, behind closed doors and out of the sight of the Congress and the American people, in secrecy, and that is where all of these things have happened, the S&L scandals, and what will be equally scandalous, the banking scandals; they were all bred out of secrecy in those dark, moist rooms in the subterraneans of the regulators and the White House and other places. They were not in the open.

Why not? I have always said, why do we have to close doors? If what we are doing is so good we ought to be bragging

about it, throw the doors open, open the windows, and let anybody who wants to hear and see. But apparently that does not happen. There are always reasons and one can find some excuse for not doing it. I have always wondered about it, ever since I was on the city council of my city 39 years ago.

While the administration publicly was saying, `This is a matter of concern the way this fellow is acting now, that apparently we have a cease-fire and it looks like he won over Iran,' but behind closed doors and out of the sight of the people and the Congress they courted Saddam Hussein with a reckless abandon that ended in war and the deaths of dozens of our brave soldiers and over 200,000 Moslems, Iraqis, and others, civilians and soldiers.

As I have detailed in previous floor statements, the State Department and the White House repeatedly intervened in the operations of the U.S. Department of Agriculture and in the Commerce Department operations in order to obtain close relations with Saddam Hussein. In fact, with the backing of President Bush, the State Department and National Security Council staff conspired in 1989 and 1990 to keep the flow of United States credit, technology, and intelligence information flowing to Iraq despite repeated warnings by several other agencies and the availability of abundant evidence showing that Iraq used BNL loans to pay for United States technology destined for Iraq's missile, nuclear, chemical, and biological weapons programs.

In order to minimize public exposure to the embarrassing failed United States policy toward Iraq, just after the fighting in the gulf ended the White House formed a group of high-level agency attorneys, headed by the National Security Council's General Counsel, to frustrate, evade, and stifle congressional investigations, which I brought out 2 weeks ago in detail.

The group of attorneys, which I called then and I call now the Rostow gang, because that is what it amounted to, a gang, it was not a consortium, it was a gang. Just like street gangs are out there for their own purposes of evading this, that, and the other, and mugging, this gang was there for the purpose of mugging the Congress in its attempt to know what was going on and how it was affecting the proper exercise of our legislative judgment in forging the laws we still do not have in order to protect the national interest from the behavior of huge sums, billions of dollars, a trillion almost, that none of our regulatory agencies at this time can adequately, fully, and responsibly oversee and account for.

Should we be surprised that instead of less we have infinitely more illicit drug peddling and the laundering of drug money?

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Since we incarcerated Noriega in Florida the amount of drugs out of Panama has doubled. It is not happenstance. It is because of this intimate connection between high finance, business, public officials, and the wrongdoer.

So, in order to minimize the possible adverse impact after the war we have the Rostow gang. One of the reasons the Rostow gang was formed was to cover up embarrassing and potentially illegal activities of persons and agencies responsible for the United States-Iraq relationship. For example, persons from the State Department and Agriculture Department repeatedly lied to the Congress and the American public about its policy toward Iraq. Members of the Rostow gang have actively worked to slow down and possibly impede permanently the Banking Committee's investigation of these lies, and they continue to withhold important BNL-related documents from the committee.

Now we learn from recent stories in the Los Angeles Times and the New York Times that the State Department intervened to stop indictments of BNL in early 1990. Earlier press reports indicated that the State Department worked to delay the indictment of BNL because of the further damage the indictments would have caused to rapidly deteriorating United States-Iraq relations since the BNL case involved the highest levels of the Iraqi Government. Of course, those concerns evaporated with the invasion of Kuwait.

The committee has over a dozen documents indicating that the U.S. attorney's office in Atlanta was prepared to bring the BNL indictments in early 1990. Yet, the indictments did not occur until over a year later on February 28, 1991, just hours after the President ordered a cease-fire in the Persian Gulf war or, in other words, after Saddam Hussein was rapidly transformed from friend to foe.

Let us elaborate on this. The committee has gathered numerous documents that indicate the indictments of BNL were planned for early 1990, at the same time United States-Iraq relations were deteriorating at a rapid pace. For example, on January 9, 1990, in a letter from the USA Atlanta, that is U.S. Attorney-Atlanta, to the Federal Reserve stated, `Anticipated indictments early next month.' A January 25, 1990, U.S. Inspector General's memo on BNL states:

Our reinvestigation and a related grand jury investigation in Atlanta is likely to result in criminal indictments in the near future.

January 28, 1990, a Treasury Department memo states:

The Assistant U.S. Attorney-Atlanta, now expects to bring initial indictments in the case in February 1990. USDA understands that USA Atlanta has requested but not yet received permission from the Justice Department to ask Iraqi officials for information.

February 9, 1990, a State Department cable to the embassy in Baghdad states, `We would prefer to decide on the second tranche,' that is the second $500 million of credits, `after the Atlanta indictments have been announced, which is expected to happen some time this month.'

Additional Federal Reserve, State Department, Agriculture Department and Treasury Department memos indicate that indictments were ready in early 1990. But by April 1990, it was apparent there was some problem in the planned BNL indictments.

As a USDA memo dated April 2, 1990, states:

USDA has withheld approval of the second allocation for the past several weeks pending announcement of indictments by an Atlanta grand jury. It is expected that indictments will be announced in the near future. However, this has been an expectation for the past 4 weeks.

Both the Justice Department in Washington and the State Department played a role in delaying the BNL indictment. One of the clues concerning the delay in the BNL indictment points to the Justice Department in Washington, DC. Many of the criminal investigators assigned to the BNL case in Atlanta felt that the Justice Department stopped the indictments.

A recent New York Times article states:

In a series of interviews, law enforcement officials and lawyers said that in late 1989 and early 1990 the government actually wrote an indictment, though it was not presented to a grand jury. These officials said the indictment was passed along to the Justice Department officials in Washington and that they did not know what became of it.

A Federal Reserve memorandum echoes the allegations. A memo dated April 5, 1990, states:

The resignation of the United States attorney in Atlanta had led to a number of difficulties in that investigation. These difficulties have been compounded by what is perceived as interference from the Justice Department in Washington.

Let me repeat this Federal Reserve memo:

The resignation of the
United States Attorney in Atlanta had led to a number of difficulties in that investigation. These difficulties have been compounded by what is perceived as interference from the Justice Department in Washington.

Let me repeat that:
interference from the Justice Department in Washington.

Another Federal Reserve memo states that the Justice Department in Washington was `taking control' of the BNL case because `Attorney General Thornburgh did not want to be criticized for another BCCI.' The Justice Department had been severely criticized for its maladroit handling of the BCCI settlement, and apparently did not want the same to occur with BNL. The Justice Department also intervened to stop a Federal Reserve regulatory action against BNL until after the BNL indictments were announced in February 1991, over 18 months after the BNL scandal was uncovered. The exact motivation for the Justice Department's actions are not known.

This week I intend to write the Justice Department asking for documents related to why the BNL indictment was delayed until after the cease-fire in the Persian Gulf war. Could it have been that like other United States programs that benefited Iraq the indictment was delayed to ensure cozier relations with Iraq?

Several Justice Department spokesmen have denied foreign policy considerations played a role in delaying the BNL indictment. I prefer to let the documents tell the story if the Justice Department will cooperate and provide the evidence.

I will now turn to the State Department's role in thwarting the U.S. Attorney-Atlanta BNL investigation.

Despite the State Department's denial, there is evidence to indicate that the State Department intervened in 1990 to stop the indictment of BNL. Articles in both the New York Times and the Financial Times of London in June and July 1990 report that State Department officials intervened to stop the BNL indictments because of concerns over the adverse impact such an action would have on United States-Iraq relations. A more recent newspaper article corroborates that contention.

A March 20, 1992, New York Times article contained excerpts of an interview with Robert L. Barr, the former U.S. attorney in Atlanta who was in charge of the BNL case until April 1990. Mr. Barr acknowledged that in the BNL case considerations of foreign policy had become intertwined with those of law enforcement. The Times quoted Mr. Barr as saying:

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The State Department had become involved early on and that case became complex both legally and because of foreign policy concerns.

The State Department itself has acknowledged that it had frequent contact with the Justice Department regarding the BNL matter. In a July 1990 letter to the Crime and Criminal Justice Subcommittee chairman, Charles Schumer from New York, the Department tried to downplay the issue of its involvement in the BNL case by stating:

Law enforcement actions can have a direct and foreseeable effect upon foreign relations. It is important for the Department of State to coordinate with the Justice Department to ensure that enforcement agencies have the information they may need concerning the foreign policy implications of matters for which they have responsibility and to ensure that the State Department is aware of anticipated law enforcement actions that have an adverse impact on foreign relations.

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The Banking Committee continues to investigate whether or not the State Department intervened in early 1990 to stop the BNL investigation. Given the State Department's intervention in the operations of the CCC Program, it is likely that such an intervention occurred.

While the State Department maintained publicly that it did not intervene in the BNL case, internal agency memos and cable traffic between the United States Embassy in Baghdad and the State Department show that the State Department frustrated the United States attorney-Atlanta attempts to interrogate the Iraqis involved in the BNL scandal.

LETTER-WRITING STRATEGY

In late 1989 and early 1990 the United States attorney-Atlanta was pressing to go to Iraq and Turkey to interrogate some of the main conspirators responsible for the BNL fraud. One of the persons the United States attorney-Atlanta wanted to question in Iraq, Dr. Safa Al-Habobi, was the head of procurement for Iraq's nuclear, biological and chemical weapons and missile programs.

The Atlanta investigators also wanted to question two of the financial bagmen and the lawyer that worked for the Iraqi military technology procurement network because of their prominent roles in obtaining BNL funds for the Iraqi network. Dr. Al-Habobi and the others reported to the second most powerful man in Iraq, Saddam Hussein's son-in-law, Hussein Kamil.

Mr. Kamil had ultimate responsibility for the clandestine Iraqi efforts to develop weapons of mass destruction. The Atlanta investigators knew that Mr. Kamil was involved in the BNL scandal since the BNL employees told them they had met with Kamil when they went to Baghdad--an unheard of event for such non-important functions. Yet the State Department would not let the Atlanta investigators go to Iraq to interview Mr. Kamil's minions. Ultimately, Mr. Kamil wound up on the list of unindicted co-conspirators, no thanks, though, to the State Department.

The State Department of course had full knowledge of who Mr. Kamil, Mr. Al-Habobi and the others were and the role they played in Iraq's efforts to build weapons of mass destruction, which may be why the State Department frustrated the United States attorney-Atlanta efforts to interview these persons. The State Department probably feared that the interrogation of these particular Iraqis would hasten the decline in the already deteriorating United States-Iraq relationship. In other words, foreign policy implications took precedence over law enforcement goals.

POSE QUESTIONS IN WRITING

Instead of allowing the United States investigators to travel to Baghdad, the State Department proposed that the Justice Department prepare a list of questions that it wanted to ask the Iraqis involved in the BNL scandal and the State Department would then forward the questions to Baghdad urging the Iraqis to be forthcoming with the BNL investigators.

In a February 9, 1990, cable from Lawrence Eagleburger, who is the Deputy Secretary of State, to April Glaspie, our Ambassador in Baghdad, Mr. Eagleburger informed the Ambassador of the letter-writing strategy. In ending the cable, Mr. Eagleburger stated that the United States Department of Agriculture attache in Baghdad could be apprised of the strategy, but that he was not to convey that strategy back to his

colleagues in Washington, his superiors in Washington, actually. Why not? Could it have been because Mr. Eagleburger saw the process as potentially embarrassing?

The letter-writing strategy was obviously intended to thwart a crucial portion of the BNL investigation.

STATE DEPARTMENT AGAINST TRAVEL TO TURKEY

In late 1989 and early 1990 investigators working on the BNL case in Atlanta also wanted to travel to Turkey to gather evidence and interview potential indictees involved in the BNL scandal. Again, the State Department would not allow the Atlanta investigators to travel to Turkey to interrogate one of the main perpetrators of the BNL fraud.

One of the main suspects in the BNL scandal was a man named Yavuz Tezeller. Mr. Tezeller was the manager of the New York office of a Turkish company called Entrade. Entrade is an affiliate of Enka, one of Turkey's largest multinational firms. Enka is involved with several United States defense contractors, including a joint venture with LTV, to produce rocket launchers.

Entrade acted as an agent for Iraqi enterprises by purchasing multiple goods such as agricultural commodities, chemicals, steel, and copiers. Entrade was a prime subject of the United States Department of Agriculture's investigation into irregularities involving the BNL scandal and the Commodities Credit Corporation program because Entrade was involved in 52 CCC-guaranteed transactions with Iraq and BNL.

When Mr. Tezeller got wind of the raid on BNL in August 1989, he refused to return from Turkey to answer questions. The Atlanta investigators immediately pegged Mr. Tezeller as a key figure in the BNL scandal. They had evidence showing that his firm had probably paid hundreds of thousands of dollars in bribes to certain BNL employees and that he had information that would be useful to solving certain aspects of the case. A January 9, 1990, Justice Department letter stated of Mr. Tezeller:

* * * he can provide information regarding after sales services (a fancy word for bribes, kickbacks), unearned consulting fees, and other payments to Iraqis as well as kickbacks paid by United States and multinational companies to obtain Iraqi contracts.

The New York Times reported that the investigators working on the BNL case were not allowed to travel to Turkey to interview Mr. Tezeller. The paper states:

The officials said that during this period (late 1989 through early 1990) they sought the State Department's permission to visit Turkey and Iraq to interview some of the key conspirators. They said Mr. Barr's office (United States of America-Atlanta) told them they could not make these trips.

The committee is investigating Mr. Tezeller and Entrade's role in diverting CCC-guaranteed commodities intended for Iraq to the Soviet Union and Eastern Europe in payment for weapons purchased by Iraq. A Department of Agriculture investigation of Entrade uncovered no evidence that agricultural commodities sold to Iraq in the 52 BNL-financed CCC transactions involving Entrade ever actually arrived in Iraq.

The investigators were also not allowed to go after another key conspirator in the BNL fraud--a Jordanian named Wafai Dajani.

STATE DEPARTMENT DISCOURAGES INDICTMENT OF WAFAI DAJANI ON FOREIGN POLICY GROUNDS

Probably the most blatant example of State Department intervention to stop part of the BNL indictment for political reasons is the case of Wafai Dajani, a prominent Jordanian close to King Hussein of Jordan. Mr. Dajani owns firms called Amman Resources, Wafai Dajani & Sons, Arab Holdings and Aqaba Packing. Before starting these firms he worked for Ghaith Pharoan, the famed BCCI front man who has been indicted in the United States for his part in the massive BCCI scheme to defraud the United States banking system. Mr. Dajani owns houses in Baghdad, Amman, London, and Washington, DC.

Mr. Dajani's brother was the Minister of Interior in Jordan and his family has been Mobil Oil's agents in Jordan since 1921. He also has a joint venture in Jordan with the United States firm Comet Rice of Houston, TX.

Mr. Dajani was important to the United States-Iraq relationship in that he was critical to keeping the CCC program for Iraq operating in a smooth fashion.

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His firms handled the bulk of the CCC agricultural commodities once they arrived at the port of Aqaba in Jordan. Mr. Dajani's firm unloaded, stored, often packaged and then trucked the United States agricultural commodities to Iraq. Mr. Dajani handled about 80 percent of all CCC guaranteed shipments to Iraq. His firms handled over a million tons of U.S. wheat, and 350,000 tons of U.S. rice a year.

To illustrate his role look at his comments in a letter to the committee:

I worked very closely with the American Wheat Association, the Rice Council and the USDA and I am very well known to them. The American Agricultural Attache in Baghdad consulted me on a continuous basis and we tried to bridge the Iraqi/American interest into consent and concordance. This entailed that I met with the American Ambassadors during the period 1984-1990, like Ambassador David Newton and Ambassador April Glaspie who know me very well. I had to play the mediation role due to my extended business interest in USA and Iraq, a role necessitated by the nature of working relationship between the two parties. This role was greatly appreciated by the Government Officials of Iraq and the United States.

Mr. Dajani had close ties with the head of the Iraqi Grain Board, Zuhair Daoud. Mr. Dajani was close to the manager of BNL's Atlanta office, Chris Drogoul. Mr. Drogoul will go to trial on June 2 for his role in extending $4 billion in unauthorized loans to Iraq--$2.2 billion of those loans went to the Iraqi military technology procurement network. BNL extended millions in credit to Mr. Dajani's firm, Amman Resources.

To illustrate the importance of Mr. Dajani and his role in facilitating the BNL scandal with Mr. Drogoul consider a Department of Defense memo that states Mr. Dajani:

* * * used his connections to allow Drogoul to travel freely through the Middle East, including Iraq, without the proper documents.

Mr. Drogoul met repeatedly with members of the Iraqi military technology procurement network in the United States, Europe, Jordan, and Baghdad. Mr. Dajani helped to facilitate those meetings and even attended several of the meetings.

To further illustrate the closeness of the Dajani/Drogoul relationship, soon after the FBI raid of BNL in 1989, Mr. Drogoul was fired by BNL, but Mr. Dajani stepped in and provided Mr. Drogoul with a $50,000 a year job as a consultant. But Mr. Dajani's role is greater than that of being a key player in the BNL scandal in which he is listed as an unindicted coconspirator--he also has helped to arm Iraq.

DAJANI AND ARMS TO IRAQ

Mr. Dajani has helped obtain arms for Iraq from firms in Portugal and Cyprus. The Portuguese firm, Armiberica Defense and Security, S.A.R.L., in Lisbon is run by international arms traders Carlos Rosa, and a former Portuguese colonel named J.L. Mingot De Almeida, and others. They contracted to sell howitzers and ammunition to Iraq through Dajani.

The Cypriot firm, A&L Management Services of Nicosia sometimes referred to as Logint Ltd., is operated by a United Kingdom citizen and it contracted to sell small arms, ammunition, and the machines to make the ammunition to iraq through Dajani.

The committee is investigating whether or not the CCC commodities destined for Mr. Dajani's grain handling facility at Aqaba were diverted to pay for these weapons and others. Needless to say he is the prime suspect in that investigation. The committee has been told that CCC guaranteed commodities were diverted through Turkey to Russia in order to pay for tanks. In addition Iraq's largest Eastern European weapons suppliers, Yugoslavia, Czechoslovakia, and Romania, may also have been paid in United States agricultural commodities.

In addition to selling arms to Iraq, numerous State Department reports indicate that Mr. Dajani's firms are at the top of the list of firms breaking the current United Nations trade sanctions designed to punish Iraq for invading Kuwait. Dajani's firms are at this moment providing Iraq with everything from foodstuffs to industrial goods. His firms are also closely linked to the Iraqi military procurement network that is responsible for acquiring technology for Iraqi weapons programs.

It is that latter part that is certainly violative of the embargo.

As for foodstuffs, I have said all along that the withholding of that has caused close to 100,000 Iraqi children to die needlessly. I think that, in view of our contribution, that of our officialdom to that mess that ended up in war, that to take it out in an almost point of extermination of a peoples is dead wrong, no matter how much they may be considered a country enemy.

His firms were also closely linked to the Iraqi military procurement network that is responsible for acquiring technology for Iraqi weapons programs.

Mr. Speaker, in early 1991, the Justice Department asked the State Department for its recommendation regarding the proposed BNL indictments. The Justice Department had placed Wafai Dajani on the list of BNL conspirators that it wanted to indict. A February 1991 memo containing the State Department's recommendation to the Justice Department states: `We have no objections to indictment of any individual on the list.' But the memo contains a disclaimer regarding Mr. Dajani that states:

Wafai Dajani is a Jordanian businessman, not a government official. His brother is a former Minister of the Interior, and Wafai himself is considered well connected to the King and to U.S. grain exporters. His indictment would be seen as a further attempt to `punish' Jordan.

The reference to punishing Jordan refers to the State Department's public expression of displeasure with the fact that Jordan had sided with Saddam Hussein and against the United States in the recent gulf war conflict.

Mr. Speaker, that is a lot more simplistic than reveals itself. As a matter of fact, had the President not been lusting after war, that false goddess of war, there is no question that, through the intervention of a direct descendant of the Prophet himself, the King of Jordan, more influence could have been dealt in order to prevent war through that office than anything else. But we would not hear of it, and we treated the King of Jordan quite miserably when he came to the United States early before the massive buildup.

Mr. Speaker, including the reference to Dajani's closeness to the King gives the impression that the indictment would be a persona affront to the King of Jordan and it would obviously have a negative impact on United States-Jordan relations.

While the State Department wrote that it was not opposed to the indictment of individuals involved in the BNL scandal, the memo clearly indicates that foreign relations considerations should be taken into account in the case of Mr. Dajani. And sure enough, Mr. Dajani has not been indicted for his role in the BNL conspiracy.

Now, more importantly, Mr. Speaker, the State Department's contribution to quash an indictment of the Central Bank of Iraq I think is perverse.

Even though the Central Bank of Iraq was an integral participant on the BNL fraud, the State Department and other agencies moved to quash the BNL indictment. A February 1991 State Department memo states:

We do object to the indictment of Iraq's Central Bank. We (and Justice) are aware of no precedent for criminal indictment of a foreign government agency.

Well, let me say by way of parenthesis: What are we prosecuting in Miami if it is not the head of a foreign state?

Continuing:

Justice argues that the Central Bank of Iraq (CBI) should be indicted because of its involvement in commercial aspects of the BNL scandal. In our view, such an indictment would raise serious questions of sovereign immunity, an area generally passed upon by State Department's Legal Department, because of its foreign policy implications.

The State Department, along with several other agencies, argues that a Central Bank should not be prosecuted that is indicted on technical grounds and to a lesser extent on foreign policy grounds. In effect, the State Department is saying that a foreign central bank can come to the United States, and utilize the U.S. banking system to do whatever it wants and it cannot be prosecuted, and as a matter of fact central banks today are still doing it.

In the case of Iraq, its central bank was instrumental in carrying out a massive fraud to violate United States banking, export control, and arms export control laws in an effort to obtain technology to build weapons of mass destruction, yet the State Department's position is that it should not be prosecuted. That is taking the role of diplomacy a bit too far I think in this case, and sort of at odds with the other case. I will work on a legislative solution to that problem, which is what we have been doing by bits and pieces rather than the whole bit of legislative enactment.

[Page: H2011]

[TIME: 1340]

Clearly even today foreign policy considerations are being used to obstruct justice. Key information is being withheld from the committee, and key conspirators who defrauded the U.S. taxpayer out of hundreds of millions of dollars in the B&L scandal go unindicted and untouched because they are close to governments that the State Department wants to woo, just as it held the line for its erstwhile friend, Saddam Hussein.

Mr. SLATTERY. Mr. Speaker, will the gentleman yield?

Mr. GONZALEZ. I yield to the gentleman from Kansas.

Mr. SLATTERY. Mr. Speaker, I just wanted to commend the gentleman from Texas [Mr. Gonzalez] for his tireless efforts to really disclose to the American people what was going on in terms of this Government's relations with Iraq and the banking world prior to the invasion of Kuwait, and I just commend the gentleman for his leadership on this.

I happen to believe very strongly that this is a very important issue. It is an issue that the American public have a fundamental right to know more about. It is an issue that is very critical to this Presidential election. It is an issue that, as far as I am concerned, raises serious questions about the competence of this administration's foreign policy and the direction of their foreign policy, and the gentleman from Texas [Mr. Gonzalez] here has, in my opinion, done more than any other single Member of this body to bring some of this information to the public's attention.

Mr. Speaker, I say to the gentleman, `I commend you, Mr. Chairman, for your work, and I encourage you to continue to dig, and I would like to be of assistance to you in any way I possibly can as you attempt to inform the American public as to the serious charges, and allegations and information that you're disclosing.'

Mr. GONZALEZ. Mr. Speaker, I thank the gentleman from Kansas [Mr. Slattery], and, as I said before, he is a very preeminent member of the Committee on Banking, Finance and Urban Affairs, and I am very grateful for his help.

Memorandum of Conversation

Date; October 13, 1989.

Subject: USDA Comments on Investigations of Iraq and the Banco Nazionale del Lavoro, Atlanta Branch, Scandal.

Distribution:

E: Richard T. McCormack, Under Secretary of State for Economic Affairs. Sam Hoskinson, Executive Assistant to the Under Secretary of State for Economic Affairs.

L: Abraham D. Sofaer, Legal Adviser.

NEA: Jock Covey, Acting Assistant Secretary.

EB: Eugene McAllister, Assistant Secretary. Robert Downes, Office of Development Finance.

Participants: State: Frank Lemay, Special Assistant to the Under Secretary for Economic Affairs.

USDA: Tom Conway, Associate General Counsel; Kevin Brosch, Attorney, Office of the General Counsel, FAS; Peter Bonner, Attorney, Office of the General Counsel, FAS; Larry McElvain, Director of Export Credits, CCC.

Locaton: Department of Agriculture, Office of the General Counsel, Room 2307.

SUMMARY

There are currently 10 separate investigations of Banco Nazionale del Lavoro, Atlanta Branch (BDLA), lending activity to Iraq. As investigators dig further into the paper morass, more and more indications of significant wrong-doing on the part of BDLA and Iraq are surfacing. It now appears that at a minimum elements of the Government of Iraq (GOI) knew of the illegal dealings of the BDLA but found it convenient to continue using its good offices. Indications are that in
addition to violating US banking laws, the BDLA's activities with Iraq may have led to diversion of CCC guaranteed funds from commodity programs into military sales either directly, through barter arrangements during transit, and/or through requiring fees to be paid on various transactions in violation of US regulations. In addition, payments required by Iraq of exporters wishing to participate in the Iraqi market may have been diverted into acquiring sensitive nuclear technologies. This has yet to be fully substantiated. End Summary.

THE INVESTIGATIONS

The FBI, Federal Reserve, Comptroller of the Currency, US Attorney, USDA Inspector General Office, DOD Inspector General Office, Georgia State Banking Regulators, US Customs, the IRS, and Italian Bank Regulators are currently all investigating Banco Nazionale del Lavoro, Atlanta Branch, lending activity to Iraq. As Brosch put it `The investigations are at the explosion state,' As investigators begin to dig through the BDLA's records and as BDLA officers agree to cut deals with the US Attorney, we can expect further revelations of who knew what when.

USDA expectations are that the investigation could `blow the roof off the CCC.' With reference to the CCC program the question is whether GOI officials were involved in breaking US law and CCC regulations. As Conway pointed out, the GOI knew fully that its dealings with the BDLA were not sanctioned by the Banco Nazionale del Lavoro home office. The GOI could have approached the home office for financing at any time. Because it did not do so, Conway said, `the US attorney believes the GOI was malfeasant and involved.'

Although most of the investigations are focusing on the illegal banking activities of the BDLA, USDA is looking at possible diversion of CCC guaranteed commodities during transit, illegal payments required by Iraq of exporters in order to enter the Iraqi market, and `After Sales Services' which require exporters to provide such items as trucks, spare parts and other agricultural and non-agriculture equipment as part of CCC deals. Companies that would not make payments and/or provide after sales service were apparently kept on a black-list and not allowed to participate in the Iraqi market. Violation of banking regulation is beyond USDA's scope; breaking CCC regulations is of paramount concern.

PAYMENTS

Available information indicates that the GOI required exporters to pay a substantial `consulting fee' to an Ohio based company named Churchill Matrix. The US Attorney has found that Churchill Matrix has its headquarters in Great Britain and is a wholly owned subsidiary of TMG, a GOI fully owned holding company. Some information has been developed that Churchill Matrix has been involved in supplying military hardware to Iraq. It is not clear if the fees required of exporters went to pay for the military purchases. Information indicates, but is not conclusive, that users of CCC program guarantees were forced by the GOI to pay the fees as well. If exporters did pay the fees, CCC was probably guaranteeing financing for both commodities and, through inflated pricing, the required additional payments.

AFTER SALES SERVICES

The GOI reportedly required exporters participating in CCC guaranteed exports to Iraq to provide `After Sales Services'. These services required exporters to provide, free of charge, various types of equipment and spare parts to Iraq. The GOI was told by USDA about 18 months ago that these practices were illegal but they continued. The problem with these services, as with the payments, is that exporters figure the cost of the services into the declared value of the commodity sale. The upshot is that CCC is again guaranteeing financing of both commodities and non-commodity goods.

In both the required fee payments and the after sale services it is the exporter who is liable under US law for falsifying documents given to the USG. If they can show that Iraqi officials were involved, conspiracy charges could be brought against all those involved. The GOI has admitted to using both practices and sees both as `good business practice'.

DIVERSION OF CCC GUARANTEED FUNDS/COMMODITIES

Although additional research needs to be done, it appears more and more likely that CCC guaranteed funds and/or commodities may have been diverted from Iraq to third parties in exchange for military hardware. McElvain reported that although, in the cases where adequate documentation exists, CCC commodities can be traced as far as Jordan and Turkey, in many cases it is not clear that they ever reached Iraq. Where documents indicate shipments arrived in Baghdad, the timing appears improbable--shipments arrive in Baghdad prior to arriving at interim ports. McElvain and the USDA IG are
concerned that commodities were bartered in Jordan and Turkey for military hardware. BDLA paperwork is so sloppy on this point that it may be months (or never) that we can reach a firm conclusion on the diversion issue.

[Page: H2012]

NUCLEAR RELATED EQUIPMENT

USDA's Brosch noted that the U.S. Attorney said there was some indication that diverted funds (and possibly direct bank lent funds) were used to procure nuclear related equipment. Noted in particular were a `nuclear fuel compounder' and a `nose cone burr.' Here the evidence of CCC diversion is not fully developed by the case remain open. DOD is apparently investigating this aspect of the problem.

ADDITIONAL ALLEGATIONS

Brosch and Conway said that the U.S. attorney is looking at additional allegations in the BDLA scandal. These include allegations of substantial over-pricing of commodities guaranteed under CCC; inclusion of non-U.S. origin commodities in guarantee program shipments; and, shipment of equipment under CCC commodity guarantee financing.

CONCLUSION AND COMMENT

Taken together the points discussed during the meeting indicate we should proceed carefully in urging the immediate provision of CCC guarantees to Iraq. If smoke indicates fire, we may be facing a four alarm blaze in the near future. This is particularly true given the intense scrutiny the CCC program has been under during the last year. McElvain indicated that there were 19 investigations of CCC this year and the `integrity of the program is now in question.' USDA attorneys will be going to Atlanta for discussions with the U.S. attorney during the coming week. Additional information on the various investigations will be available upon their return.

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U.S. Department of Justice,
Washington, DC, March 15, 1990.
Re Request for Meeting with Iraqis.

Michael Young,
Deputy Legal Adviser, U.S. Department of State, Washington, DC.

Dear Mr. Young: The United States Attorney's Office for the Northern District of Georgia is investigating the activities of the Atlanta office of the Banca Nazionale del Lavoro (BNL), an Italian concern. That investigation includes extensions of credit made by BNL to Iraq during the period from January, 1986 to August, 1989. The Government of Iraq is aware of the investigation and has offered on a number of occasions to cooperate with the United States. The investigation is now at a point where the U.S. Attorney's Office wishes to accept the Iraqi offer and invite Iraq to have certain named individuals come to the United States for interviews.

Therefore, we request that the United States extend in an appropriate fashion, both in Washington and Baghdad, an invitation to Iraq to have the persons named on the attached list travel to the United States to meet with the U.S. authorities conducting the investigation.

In issuing this invitation you may tell Iraq that the investigation is for possible violations of U.S. law, including, 18 U.S.C. 371, 1001, 1341, 1343, and 2314.

We would like to begin the meetings on March 26, 1990, or as soon thereafter as can be arranged. We expect that each of the persons invited will need to allow for a minimum of three days in the United States in connection with the U.S. Attorney's investigation. Further, the United States offers its assurances that for such time as these individuals are in the United States as our guests and cooperating with the U.S. Attorney's Office, that Office will not serve process upon them or otherwise seek to assert jurisdiction over them. In addition, and pursuant to our standard practice, the United States is prepared to make and pay for the travel arrangements and per diem of each of the persons invited.

Finally, the Commodity Credit Corporation (CCC) and the Department of Agriculture (USDA) are considering a request by Iraq to extend $500 million in export credit guarantees under CCC's GSM-102 program for the remainder of fiscal year 1990. The USDA and CCC also need to meet with the persons named above in connection with their own investigation into alleged irregularities concerning extension of credit by BNL to Iraq for commodity purchases under the GSM-102 program during the period from 1985 to 1988 in order to complete the processing of the Iraqi application. Therefore, and in order to accommodate all concerned, we propose that the USDA and CCC meetings with the Iraqis also be scheduled for the time while they are in the United States. In issuing the invitation for them to meet separately with the USDA and CCC, you may wish to inform them that the U.S. Attorney's Office is unable under our law to share the information it has developed with the USDA and the CCC, thus making it impossible to satisfy all U.S. interests in one meeting alone.

If you need further information, feel free to call me at 786-3500.

Sincerely,
DREW C. ARENA,

Director, Office of
International Affairs.

Attachment.

LIST OF INVITEES

Abdul Hussein Sahib, Director General, State Company for Foodstuffs Trading.

Harith Al-Barazanehi, Director General, State Enterprise for Tobacco and Cigarettes.

Zuhair Daoud, Director General, State Company of Grain Trading and Processing.

Sadik H. Taha, Director General for Agreements and Loans Central Bank of Iraq.

Ahmed Al-Dulaimi, Under Secretary, Ministry of Industry and Military Manufacturing.

Raja Hassan Ali, Director General, Economic Department, Ministry of Industry.

Dr. Fadel Jawad Kadhum, Legal Adviser.

Dr. Safa Al-Habobi, Director General, Al-Nassar Complex, Ministry of Industry; President, Chairman of TDG; President of Matrix-Churchill (England).

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FEDERAL RESERVE BANK

of New York,
April 5, 1990.
To: Mr. Corrigan.
From: Thomas C. Baxter, Jr.
Subject: Lavoro.

I followed up on your suggestion about a possible connection between Banca Nazionale del Lavoro (`BNL') and the nuclear triggers that were seized in London. As you suspected, there is a connection. Apparently, Von Wedel (a former officer of BNL who is now cooperating with the government) says that one of the transactions done with Rafidain Bank at some point referenced nuclear detonators. According to Von Wedel, this reference scared BNL away from this particular transaction, but it is possible that the lesson the Iraquis learned was to be generic in preparing the credit documentation. Thus, it is entirely possible that BNL financed some of this material.

At any rate, I have been assured that those conducting the criminal investigation in Atlanta are looking into these connections, with a view to developing additional criminal charges. The registration of the United States Attorney in Atlanta has led to a number of difficulties in that investigation. These difficulties have been compounded by what is perceived as interference from the Justice Department in Washington.

The press has also made a connection between BNL and the detonators. Attached you will find copies of two Financial Times articles doing just that.

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Office of the Attorney General,
Washington, DC, September 26, 1990.

Hon. Henry B. Gonzalez,
Chairman, Committee on Banking, Finance, and Urban Affairs, House of Representatives, Washington, DC.

Dear Mr. Chairman: The purpose of this letter is to express my profound disappointment in your decision to ignore the strong objections of this Department in the Banca Nazionale del Lavoro (BNL) matter. I am similarily distressed by your refusal last evening to discuss the matter with me.

Your intention to schedule a hearing for October 9th on the investigation of unauthorized loans to Iraq by BNL and the request to interview both the Assistant United States Attorney and the government witnesses in the case raises the prospect that culpable parties will elude prosecution. Your staff is fully aware of the existence of our ongoing criminal investigation and the likely impact that these actions will produce on our efforts.

As you should be aware, this is a sensitive case with national security concerns. The United States Attorney in Atlanta advises me that both witness security and the willingness of witnesses to continue to cooperate with the investigation and prosecutions will be jeopardized by your Congressional staff interviews and hearing.

Mr. Chairman, a decision to proceed with these interviews and the hearing at this time significantly diminishes the Department's ability to successfully prosecute this matter. Accordingly, we again request that your staff work with the Department to find alternatives that allow both the legislative and the law enforcement processes to function.

Sincerely,

Dick Thornburgh,
Attorney General.

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Federal Bureau of Investigation,
Washington, DC, October 5, 1990.

Hon. Henry B. Gonzalez
Chairman, Committee on Banking, Finance, and Urban Affairs, House of Representatives, Washington, DC.

Dear Mr. Chairman: The purpose of this letter is to express my concern with the Banca Nazionale del Lavoro (BNL) matter. I have been informed that your Committee plans to hold an open meeting on Tuesday, October 9, 1990, on the BNL investigation with the intention of voting on issuing subpoenas for documents and individuals. I also understand that you intend to hold a hearing on these matters on October 16, 1990.

Mr. Chairman, you should be aware of the existence of an ongoing criminal investigation into these matters and the likely negative impact that the Committee's actions could have on this investigation. Among my concerns are the possibility of grand jury information being inadvertently disclosed in your proceedings or other statements or evidence being disclosed prior to the anticipated trial. I am similarly concerned that the Committee's actions may prevent both further cooperation by witnesses and in fact may pose a serious threat to witness security or jeopardize successful prosecution.

I regret that we did not have the opportunity to discuss these matters today. I hope that we can work together to prevent serious damage to a very sensitive and important case.

Sincerely,

William S. Sessions,
Director.

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U.S. Department of State,
Washington, DC, December 18, 1990.
Re Banca Nazionale del Lavoro Investigation.

Laurence A. Urgenson,
Chief, Fraud Section, Criminal Division, U.S. Department of Justice, Washington, DC.

[Page: H2013]

Dear Mr. Urgenson: On October 8, 1990, you wrote a member of my staff concerning the Justice Department's investigation into the activities of the Banca Nazionale del Lavoro (BNL), particularly in connection with its extension of credit to the government of Iraq. You requested this Department to review its files to determine if they contained information pertinent to the investigation, and you invited the Department to raise any national security concerns posed by the investigation.

Since then, we have been in regular contact with your office, and have gathered a number of possibly relevant documents; arrangements are being made for the Justice Department to review them. With respect to the national security aspects of the investigation, we have determined that the State Department does not have any concerns it wishes to raise at this juncture. However, we would ask that you keep us apprised to the extent possible of the course of the investigation.

Thank you for bringing this matter to our attention.

Sincerely,
Edwin D. Williamson.

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COMMITTEE ON BANKING, FINANCE

and Urban Affairs,
Washington, DC, September 28, 1990.

Hon. Richard L. Thornburgh,
Attorney General,
Washington, DC.

Dear Mr. Attorney General: The purpose of this letter is to respond to your letter of September 26, 1990, and to express my distress over your apparent lack of understanding of the investigative and legislative functions of the Congress.

On September 21, 1990, I agreed to allow my staff to meet with your staff to discuss the Justice Department's concerns related to the Banking Committee's investigation of the Atlanta Agency of Banca Nazionale Del Lavoro (BNL). During, and subsequent to this meeting, your staff was unable to comply with my request for specific justification for suspending this most important inquiry.

Specifically, the Justice Department failed to reveal how interviewing employees from the Federal Reserve Board, the Federal Reserve Bank of Atlanta, the Department of Banking and Finance of the State of Georgia, and current and former employees of BNL would, as your letter states, `significantly diminish the Justice Department's ability to successfully prosecute this matter.' In addition, the Justice Department failed to demonstrate how the Banking Committee's investigation would jeopardize the personal security of witnesses or inhibit their cooperating with the Justice Department's investigation of BNL.

As Chairman of the Banking Committee, I am concerned that the regulation and examination of the U.S. branches and agencies of foreign banks (see the International Banking Act 92 Stat. 607) is inadequate. These entities command over $500 billion in assets in the U.S., and a significant portion of their liabilities are guaranteed by the Federal Deposit Insurance Corporation (FDIC). The magnitude of the BNL fiasco (i.e., $2.8 billion in unauthorized loans to Iraq), while not directly posing a risk to the FDIC, certainly raises the question of the adequacy of state and federal regulation and oversight of these entities. Rest assured, in
order to ensure the U.S. branches and agencies of foreign banks do not pose an undue risk to the already beleaguered FDIC, the Banking Committee will continue to investigate the adequacy of the regulation and examination of these entities. The BNL case provides a clear case of a regulatory breakdown that needs to be understood and addressed.

With regard to the Banking Committee's legislative interest in BNL, the Federal Reserve has notified me that the BNL investigation uncovered a loophole in the criminal code that will probably allow former employees of BNL to escape Federal prosecution for fraud, theft, embezzlement, misapplication of funds, and bribery. You can be sure that I will continue to work to correct this over decade long Justice Department oversight. I have been given permission by the Rules Committee, and I intend to offer, a floor amendment to the crime bill that will close this loophole in the criminal code.

I hope this letter has served to properly inform you as to the Banking Committee's legislative and investigative interests in BNL. I trust the Justice Department will provide its full cooperation.

Sincerely,

Henry B. Gonzalez,
Chairman.

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Memorandum for: Assistant Attorney General.
From: Treasury Department, Export-Import Bank, Federal Reserve System, Defense Legal Services Agency, Department of Defense, Department of State.
Subject: Indictments of the Central Bank of a Foreign State.

You have asked us for our views and the views of our respective agencies or departments concerning proposed indictments of the central bank of a foreign state, certain of its officers, a commercial bank owned by the foreign state and certain of its officers. On the basis of the facts disclosed to us (particularly the commercial role played by the commercial bank), we strongly support the indictment of the commercial bank and the individuals. We feel, however, that a distinction needs to be made between individuals and commercial entities involved in clearly commercial activities on the one hand and government agencies, such as a central bank or an export credit agency, on the other hand. Therefore, while our position has nothing to do with the particular government agency involved, we feel that we must oppose its indictment.

The principal legal problem with the indictment of a central bank of a foreign state is the assertion that a foreign government agency does not have sovereign immunity from criminal prosecutions. (This position would not be affected by the fact that officers of the agency were performing unlawful acts or by the fact that we support indictment of such officers individually.) We have found no domestic or foreign precedents that would support an indictment of a government agency such as a central bank. We are concerned about the particular suggestion that indictment of a central bank is desirable in order to lay the basis for criminal forfeiture of the central bank's assets.

The closest expression of a USG policy on the subject is found in the Foreign Sovereign Immunities Act of 1976 (FSIA), which specifically provides immunity, in the absence of an explicit waiver, for the assets of a central bank of a foreign state. Thus, regardless of whether the activity of a central bank is `commercial' in nature, its assets are immune from execution of a civil judgment in the absence of an explicit waiver. Providing immunity, according to the legislative history of FSIA, is necessary in order to assure central banks that their assets on deposit in this country will not be attached and in order to avoid foreign relations problems. We see no reason for a different result in a criminal case. Quite the contrary, despite the adoption of restricted immunity for foreign sovereigns in civil suits, international law has continued to recognize absolute immunity for government agencies like central banks from criminal prosecution in foreign courts.

We believe such an indictment would also pose the following serious problems:

While there is no anticipation that there will be any dealings with the central bank in question until there are major changes in the current international situation, should there be such changes, it would be very difficult for the USG to work with the bank were it indicted.

Such an indictment would, in the view of the State Department, contravene customary international law relating to foreign sovereign immunity. The Office has consulted with its British counterpart, which concurs. The British, who have modeled their approach to sovereign immunity on our FSIA, believe criminal immunity is absolute and that an assertion of criminal jurisdiction, even with respect to commercial activity, would be rejected internationally. The State Department believes that asserting a `commercial activities' exception to criminal sovereign immunity of government agencies would substantially undermine our efforts to broaden international support for the `commercial activities' exception to civil immunity.

The indictment would set a precedent for the assertion by foreign states of criminal liability on the part of the USG and its agencies. We would vigorously assert sovereign immunity in such a setting, and would not agree that we should submit to the jurisdiction of a foreign criminal court in order for that court to determine whether the US agency's actions were `commercial'. We do not want to encourage foreign states to address complaints regarding allegedly criminal action by US agencies through their courts rather than diplomatic channels. We would not be able to confine the precedent to the facts of a particular case--in fact, the links between the USG and the Federal Reserve System, the Export-Import Bank, and several other entities for which we would assert sovereign immunity from foreign criminal jurisdiction might be viewed by a foreign court as weaker than the link between most central banks and their states.

Forfeiture of a central banks' assets could similarly be cited as a predecent by foreign states to justify an attempt to attach or seek forfeiture of the substantial assets of various USG agencies, including the Federal Reserve System and the Department of Defense, located outside the U.S.

The conclusion that agencies of foreign states, such as central banks, lack criminal immunity could subject them to possible indictment and prosecution in State and local courts, a process which the federal government cannot control and which could severely complicate the President's conduct of foreign affairs.

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[Page: H2014]

In the U.S. District Court for the Northern District of Georgia, Atlanta Division, Criminal Indictment No. 191-CR-078-04

[IN THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, CRIMINAL INDICTMENT NO. 191-CR-078-04]

United States of America, versus Cristopher P. Drogoul, Therese Marchille Barden, Amedeo DeCarolis, Entrade International Ltd., Yavus Trikeller, Rafidain Bank, Sadik Hasson Taha, Abdul Munim Rasheed, Raja Jassan Ali, and Safa Haji al-Habobi

GOVERNMENT'S RESPONSE TO DEFENSE MOTIONS FOR LIST OF UNINDICTED CO-CONSPIRATORS

Comes now the United States of America and names the following unindicted co-conspirators Count I

Persons and employer during conspiracy

Amir H. al-Saadi, Ministry of Industry & Military Production.

T al-Tuchmachi, Rafidain Bank and Rasheed Bank.

Wafai Dajani, Amman Resources, Inc., Aqaba Packaging, Araba Holdings.

Julie Daniels, BNL-Atlanta.

Zuhair Daoud, Iraq Grain Board.

Pierre G. Drogoul, COMSUD, TMCI.

Charles C. el-Chidiac, Selco East Consultants.

Brenda Forrest, BNL-Atlanta.

Subi Frankool, Central Bank of Iraq.

Thomas Mobley Fiebalkorn, BNL-Atlanta (plead guilty to Criminal Info. No. 1:91-CR-126).

Central Bank of Iraq.

Kamil Hassan Hussein, (Hussein Kamil Hassan) Ministry of Industry and Military Production.

Jean Ivey, BNL-Atlanta.

Fadel Jawad Kadhum, Ministry of Industry and Military Production, Matrix Churchill, Ltd., Matrix Churchill Corp., and T.D.G.

Mela Maggi, BNL-Atlanta.

Saalin (Sam) Naman, Matrix Churchill Corp.

Leigh Ann New, BNL-Atlanta (plead guilty to Criminal Info. No. 1:91-CR-88-01).

Robert Post, BNL-Atlanta.

Pamela Prosser, BNL-Atlanta and Entrade International Inc.

Patricia Scudellari, BNL-Atlanta.

Abdulahad P. Toma, Central Bank of Iraq.

Paul Robert VonWedel, BNL-Atlanta (plead guilty to Criminal Info. No. 1:91-CR-89-01).

UNINDICTED CO-CONSPIRATORS COUNT II

Persons and employer during conspiracy

Fritz (Guiddy) Bashler, Cargill International S.A.

Cargill, Inc.

Cargill International S.A.

Curt Johnson, Cargill, Inc.

Mike Mooney, Cargill, Inc.

Huub Spierings, Cargill International S.A.

Eduardo Vigil, Cargill, Inc.

Respectfully submitted,

GERRILYN G. BRILL,
Acting U.S. Attorney.

GALE MCKENZIE,
Assistant U.S. Attorney.

CERTIFICATE OF SERVICE

This is to certify that I have this day served upon the following persons listed below a copy of the foregoing document by depositing in the United States mail a copy of same in a franked envelope requiring no postage for delivery.

Sheila Tyler, Esq., Paul Kish, Esq., 101 Marietta Tower, Suite 3310, Atlanta, GA 30303: Attorneys for Christopher P. Drogoul.

Alan J. Beverman, Esq., 1800 Peachtree St. NW, Suite 300, Atlanta, GA 30309: Attorney for Amedeo DeCarolis.

Ed Tolley, P.O. Box 1927, Athens, CA 30603: Attorney for Therese M. Barden.

William J. Schwartz, Kronish, Lieb, Weiner & Hellman, 1345 Avenue of the Americas, New York, New York 10105. Seth Kirschenbaum, Davis, Sipperman, Kirschenbaum & Lotito, 918 Ponce de Leon Avenue N.E., Atlanta, Ga 30306: Attorneys for Entrade International Ltd.

This 12th day of September, 1991.

Gale McKenzie,
Assistant U.S. Attorney.

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