SCOWCROFT IMPROPERLY INTERVENED IN CCC PROGRAM AND MANY MORE LIES TO CONGRESS
Henry B. Gonzalez, (TX-20)
(House of Representatives - July 09, 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, earlier today my colleagues at the Judiciary Committee called upon the Attorney General to seek the appointment of an independent counsel to investigate the conduct of officials and private parties involved in the Iraggate affair. There are just reasons for this, and I will provide new details today.

I will provide new information showing that the White House improperly intervened in the Agriculture Department's operation of the Commodity Credit Corporation [CCC] in order to appease Saddam Hussein. In the process they violated their own policy of not using food as a political weapon. I will also discuss new evidence that several high-ranking Bush administration officials have repeatedly misled the Congress and U.S. farmers about the suspension of the CCC Program.

SCOWCROFT IMPROPERLY INTERVENES IN USDA ADMINISTRATIVE REVIEW

In previous statements I have revealed a great deal about the November 8, 1990, National Advisory Council decision to approve the $1 billion CCC Program for Iraq that year. I showed that the White House, National Security Council, and the State Department used their power to win approval for the full billion dollar program for Iraq despite serious concerns by the Treasury Department, the Office of Management and Budget, and the Federal Reserve that Iraq probably could not repay the credits and that the program was rife with corruption as evidenced by the BNL scandal.

Today I will show that White House and State Department intervention in the operation of the CCC Program for Iraq did not end in 1989. In fact, their intervention escalated as 1990 unfolded. As an example, in April 1990 the State Department told the USDA not to publicly announce that Iraq had broken numerous CCC regulations. At the time the USDA acquiesced, but they again pressed for a public announcement of the suspension in May 1990. May 1990 is just a few months before August 2, 1990, when Iraq invaded Kuwait.

On May 18, 1990, the White House itself intervened to stop the public announcement. Brent Scowcroft, the President's top National Security Adviser, asked USDA Secretary Clayton Yeutter to hold off on announcing the suspension of the program. Yeutter went along with the scheme to mislead the public and on May 21, 1990, a press release issued by the USDA did not mention that the program was suspended. There never was a public announcement of the suspension.

It is clear that the White House and the State Department were running the CCC Program for Iraq. They did eventually agree to suspend the program in late May 1990, but they kept the suspension a secret from both the Congress and everyone else. I can now shed light on those events and show that the White House's heavy hand overrode sound management principles for political reasons. The White House's actions were anything but `prudent,' as President Bush is trying to insist now.

SCOWCROFT GETS VISIT FROM IRAQI AMBASSADOR

Mr. Brent Scowcroft was heavily involved in the decision to approve the $1 billion CCC Program for Iraq, and he was also involved in the manipulation of that program until Iraq invaded Kuwait in August 1990. His staff at the NSC had frequent contact with the staff of the USDA team investigating the BNL scandal. When it was necessary, Mr. Scowcroft himself intervened to win his way with the USDA. Indeed, he was a key decisionmaker in the CCC Program, which is illustrative of how foreign policy dominated the foreign credit program.

To illustrate these points let me quote from a March 5, 1990, State Department memorandum.

National Security Council Staff contacted USDA March 2 to inquire about the delay (in the CCC Program) after the Iraqi Ambassador complanied to General Scowcroft. Iraq needs the second tranche now. USDA's present delay in releasing the second tranche damages the interests of U.S. producers that sell to Iraq a well as our political relationship with that important country. * * * it appears that it will take a high-level NAC decision to move USDA any more quickly.

Pressed for action by Iraq, and anxious to mollify Saddam Hussein, Scowcroft and the State Department hatched a plan to use the CCC Program as a political weapon against the increasingly belligerent Iraq. The President and Mr. Scowcroft now have to answer to the public as to why they allowed Iraq to utilize the first $500 million installments of CCC credits prior to suspending the program.

CONSPIRACY TO DEFRAUD

As the memo I just read from indicates, by March 1990 the USDA had serious doubts about going forward with the second $500 million tranche of CCC credits for Iraq, but the White House and State Department were opposed to suspending the program because they were using the program in an effort to modify, or mollify Iraq and Saddam Hussein.

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The USDA's Under Secretary, Richard Crowder, was responsible for the CCC Program. He apparently believed that the CCC regulations required the program for Iraq to be suspended, as indicated by an April 5, 1990, USDA memorandum, which reports:

Dick Crowder and I met with Under Secretary McCormack (a State Department official) late yesterday afternoon. We advised State of our plans and they more or less concurred, but would ask that we not use the term `suspend' regarding Iraq's [CCC] program. Instead we can talk in the press release about the existence of any further guarantees awaiting resolution and additional information regarding the pending questions.

A USDA-prepared draft press release dated April 1990 states:

Under Secretary Richard T. Crowder announced today that the Department's fiscal year 1990 CCC program for Iraq would be suspended after the $500 million line of export guarantees, announced in November 1989 is exhausted. * * * USDA review of the Iraqi program has raised a number of questions regarding conduct of the program, and USDA has therefore notified Iraq of its intention, at the current time, to suspend the program for fiscal year 1990 at the current $500 million level.

In fact, Crowder went as far as telling several Capitol Hill staffers that the CCC Program was suspended. Notes from a May 17, 1990, briefing of Senate Agriculture Committee staffers state:

We have enough evidence to suspend program * * * Crowder will not recommend further CCC credits until OIG (Office of Inspector General) and criminal investigations are completed. USDA is not going forward with the second $500 million.

The assertion that the USDA had enough evidence to suspend the program is supported by a May 7, 1990, letter from Mr. Crowder to the USDA Inspector General regarding after-sales services, which is a fancy word for kickbacks:

According to Iraqi officials, this practice occurred primarily in conjunction with sales of wood products, but we understand after-sales services have been a common strategy of many Iraqi state enterprises. Iraq identified several U.S. exporters in the wood products industry that provided after-sales services * * *.

To summarize the situation in April/May 1990 the USDA wanted to shut down the Iraq program because of numerous program violations. The USDA had concerns about the diversion of U.S. commodities for weapons for military purposes. The USDA had proof that it was Iraqi Government practice to solicit bribes, and the USDA found evidence of overpricing of commodities to include freight charges in violation of program regulations.

In addition, the U.S. attorney in Atlanta had found numerous violations of the laws related to the CCC Program and Iraq and the

U.S. attorney in Raleigh, NC, found eight BNL financed tobacco companies had improperly included foreign source tobacco shipments to Iraq and that three had paid bribes to Iraqi officials to win contracts with Iraq.

In other words the CCC Program for Iraq was rife with corruption, Iraq had violated numerous CCC Program regulations, and there was concern that Iraq had diverted commodities to pay for weapons. It is clear that the USDA had plenty of evidence to shut down the program. Despite that evidence, Brent Scowcroft and Clayton Yeutter stopped Mr. Crowder from suspending the CCC Program and then conspired to keep that information secret.

SCOWCROFT-YEUTTER AXIS

Notes from a Treasury Department conversation with the National Security Council on May 17, 1990, state that the USDA sent a 33-page report to the Justice Department, State Department, and the National Security Council. The notes state: `Agriculture planning to shut program down.' The notes go on to say that the USDA will release the news after the commodities markets close on Friday, May 18, 1990.

Armed with its recently completed administrative review, which clearly showed problems in the CCC Program, the USDA was ready to shut it down on May 18, 1990, but Mr. Scowcroft intervened to stop that action. Notes from a Treasury Department conversation with the National Security Council dated May 18, 1990, are astonishing. The notes state:

Scowcroft called Yeutter and asked him not to put out press release today saying `terminating program.' Not to do that until we have an interagency review. Agriculture may still put out report since it doesn't have any policy recommendations.

Let me repeat that: `Scowcroft called Yeutter and asked him not to put out press release to day saying program terminated.'

The Treasury Department's notes are supported by Commerce Department notes from a Rostow Gang meeting held in June 1991. The Rostow Gang participants that day were discussing the various information that they were going to deny to the Congress, and we are trying to figure out how they could do that. The notes of the meeting reveal the existence of a May 18, 1990, letter from Scowcroft to the Department of Agriculture.

The notes indicate that the President was going to protect that letter. In other words the President would claim Executive privilege on the Scowcroft-Yeutter letter. The Banking Committee has made numerous requests for information to the USDA. I have signed many a letter. The Scowcroft letter was never turned over to the committee, and I have written Agriculture Secretary Madigan asking him to explain that oversight.

PRESS RELEASE MISLEADS

Apparently Clayton Yeutter does not like to disappoint his superiors. On May 21, 1990, the USDA issued its administrative review. The press release accompanying the review did not mention that the program was suspended. Obviously Mr. Yeutter complied with Scowcroft's request to say nothing. It would be interesting to know if Scowcroft was acting on his own or the request was cleared by the President himself. The President should answer that question.

On the same day the U.S. Ambassador to Iraq, April Glaspie, sent a secret cable to Mr. Scowcroft which expressed alarm about reports that the CCC Program would be cut off. She pointedly stated:

Word has reached the Embassy here in Baghdad--but not the Government of Iraq--that Agriculture has decided to turn down the second tranche of CCC credits for Iraq. * * * from a foreign policy perspective the decision is difficult to justify. My own thinking is that unless Agriculture has uncovered a legal hornets' nest, we will want to proceed with the second tranche of credits. It remains unclear why we would want to use food as a weapon.

Referring to the planned suspension, Ambassador Glaspie protested that a cut-off would undermine efforts to convince Saddam Hussein that the United States really wanted to work with him:

Turning down the CCC credits would send the signal that the administration has decided to join those in Congress who had already reached the conclusion that the U.S. had no option but to pursue a policy of sanctions and containment. A sudden shift now will be read by the Iraqis as purely political--part of the U.S. conspiracy against Iraq.

What the cable shows is that the CCC Program for Iraq was first and foremost a foreign policy tool and that Glaspie did not want the program suspended because she feared it would send Iraq the wrong signal. Her superiors obviously and evidently agreed.

Mr. Crowder went along with the decision to say nothing about the suspension which meant that American farmers, the commodities markets and the public had to be deceived. There is some evidence that indicates that Crowder may not have like the idea. In a memorandum to Brent Scowcroft on May 23, 1990 Crowder states:

Notwithstanding the above considerations, additional CCC credit guarantees to Iraq should not be made over and above the $500 million already authorized in fiscal 1990 until the question concerning program irregularities with sales to Iraq are cleared up. * * * it cannot overemphasized that any constraint on CCC credit guarantees must not be based on foreign policy considerations.

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But it appears Mr. Scowcroft, with April Glaspie's advice in hand, had different plans. Treasury Department talking points for a May 29, 1990, NSC meeting on Iraq state:

Meeting has been initiated by NSC staff because they want to prevent the CCC Credit Program from being canceled as it would exacerbate the already strained foreign policy relations with Iraq.

Agriculture had planned to put out a press release on May 21 that said the program was being suspended until the investigations into improprieties in the program were completed.

The NSC prevailed on Agriculture to say only that their investigation showed that improprieties may have occurred and remain silent on a suspension.

In fact, there is a suspension in effect, Agriculture has

already briefed Congress on this prospect.

We believe that further CCC programming for Iraq should be suspended if USDA believes it is warranted under its own statutes.

The NSC Deputies Committee meeting was held on May 29, 1990, to discuss potential strategies for dealing with Iraq. In preparation for that meeting the State Department formulated a list of policy options that could potentially be used as a tool to modify Iraq's actions. Regarding the CCC Program the paper states:

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CCC Program: This is the largest program we currently have with Iraq. All the sanctions legislation on the Hill, aside from Inouye-Kasten, exempts CCC. PRO: Since Iraq's record of repayment on CCC-guaranteed loans is good and USDA's review will probably give Iraq a fairly clean bill of health, suspension of CCC at this point would be a strong political statement. CON: It would violate our policy against using food as a political weapon and hit some U.S. agricultural exporters hard. It might also lead Iraq to default on CCC-insured loans. Other countries would sell these commodities to Iraq.

Apparently, at the conclusion of the meeting, it was decided that the second $500 million installment would not be released. It was a too little, too late effort to get tough on Saddam Hussein. Iraq had already utilized $400 million of the first tranche and the taxpayers got stuck with the tab for that mistake.

For the White House and State Department the decision to suspend the program on May 29, 1990, meant that the Bush administration violated its own policy against using food as a political weapon. This amounted to Orwellian DoubleSpeak since food was used for precisely political purposes--namely to entice Saddam Hussein into becoming a respectable world citizen, or at least a facsimile of one.

What disturbs me today is the hypocrisy and arrogant attitude of the administration. They repeatedly tell the Congress and the public that they don't engage in such primitive practices as using food as a political weapon. As an example look at an April 10, State Department letter commenting on Congressman Berman's Iraq sanctions bill introduced in early 1990. The letter very primly says:

It has been the strong and repeated position of the Administration not to use food as an economic weapon of foreign policy through the imposition of embargoes on agricultural exports, or otherwise to place limits on our export programs for political reasons.

The USDA chimed in on the effort to deceive about the foreign policy nature of the CCC Program when on April 18, 1990, the USDA's General Counsel, Alan Raul was quoted as stating:

Raul is loath to release the NAC record. That's internal document and doesn't want to see link to foreign policy * * * released publically.

Lies like these are used so often I sometimes wonder if the White House, State, and Agriculture Departments actually believe that it is true. The evidence surely does not support their pious public statements.

STRATEGY TO DECEIVE ORIGINATED AT STATE DEPARTMENT

The strategy to deceive the public about the suspension of the CCC Program appears to have been spawned in the State Department by Mr. Jock Covey. An April 1990 State Department memorandum from Covey to State Department Under Secretary Robert Kimmitt states:

Given the Administration's policy that food will not be a political weapon, we may not be in a position to make a formal announcement that there will be no second tranche of CCC credits this year. We can in fact place the program under prolonged review, resulting in the same end. The Iraqis will get the message as will agricultural exporters and farm state Congressmen.

This strategy to mislead the public about the use of the CCC program and the lies that accompany the strategy are downright shameless. Lies like these hurt real people. One cost of the suspension lie is that the Bush administration had to mislead farmers, the commodity markets, particularly for rice, the Congress and the public about its real policy toward Iraq.

NO PUBLIC ANNOUNCEMENT OF SUSPENSION AND LIES TO CONGRESS

The decision to keep secret the decision to suspend the program led to many more lies. The USDA had to deceive U.S. farmers, Members of the Congress, and the public. The Banking Committee has numerous letters which the USDA wrote to Congressmen between April 1990 and August 1990, and none of the letters mention

that the CCC Program for Iraq was suspended.

For example:

May 4, 1990, USDA to Senator Howell Heflin;

May 21, 1990, USDA to Senator Lloyd Bensten;

May 24, 1990, USDA letter to House Judiciary Chairman Jack Brooks and Congressman Mike Andrews of Texas;

June 15, 1990, USDA letter to Senator Trent Lott; and

July 6, 1990, USDA letter to Senator Richard Shelby.

These Members all had hard working farmers in their districts that were concerned about losing the sales of agricultural commodities to Iraq. They had plans to make and resources to reallocate if there was not going to be sale to Iraq. In other words they had to run their businesses. The administration must be required to answer why they misled U.S. farmers and their representatives in Congress.

CROWDER AVOIDS ISSUE OF NSC INTERVENTION

In recent testimony before the Banking Committee Mr. Crowder purposely failed to answer the committee's questions about NSC and White House involvement in the handling of the CCC Program for Iraq. In a latter of invitation of May 21, 1992, the committee asked Mr. Crowder to answer for his written statement the following questions:

Question No. 2: How did foreign policy considerations affect the USDA's position related to the consideration of the fiscal year 1990 CCC Program for Iraq?

Question No. 3: How did Iraq's human rights record affect the USDA's position related to the consideration of the fiscal year 1990 CCC programs for Iraq?

Question No. 6: Please explain the National Security Council's role in the USDA's administrative review of the BNL scandal?

Question No. 7: Please explain the White House's and National Security Council's role in USDA decision making process related to the fiscal year 1990 CCC Program for Iraq?

Close scrutiny of Mr. Crowder's testimony reveals that he failed to address any of these questions in his written submission to the committee. In fact Mr. Crowder misled the committee about the administrative review and when he testified on May 21, 1992, he stated:

I instructed the team to prepare a report and we met again on May 7, 1990. At that meeting, I determined that I would make a public announcement disclosing the results of the administrative review and my determination not to proceed on any further credit guarantees in connection with sales to Iraq until conclusion of the BNL investigation. Our proposed report and announcement was provided to the U.S. Attorney in Atlanta and to USDA's Office of Inspector General and was circulated within the administration to other interested agencies. The final report was released on May 21, 1990.

All true statements, but thoroughly misleading. I maintain that the reason Mr. Crowder so conveniently failed to address the questions posed and the reason he conspired to mislead the committee is that he was protecting Mr. Yeutter, Mr. Scowcroft, and the State Department from embarrassment related to their obviously political manipulated of the CCC Program for Iraq. In short, he lied to cover up for his superiors.

As I have revealed in previous statements Mr. Crowder repeatedly misled the Congress about the foreign policy nature of the CCC Program for Iraq and about the pressure he was receiving from the State Department. There is more to say about this deception, and I will provide more details as time permits.

CONCLUSION

I must restate the President's recent comments about the CCC program for Iraq. While addressing an agricultural group the President stated:

I think we properly used these (CCC) credits for what they were designed to do, and I think it's been beneficial to American agriculture and I'm going to continue to use them in a way that's beneficial to American agriculture with the national interest of the United States foremost in my mind. So I can't say it's been perfect, but I do think that the Department and I hope the White House has done a good job in the implementation of the law and the using of these credits.

Could it be that the President is misinformed about the White House's manipulation of the CCC Program? I doubt it. After all the President's top national security adviser, Brent Scowcroft, was intimately involved in making decisions related to the CCC Program

for Iraq.

On Tuesday I showed how Mr. Scowcroft led the charge to deny Iraq-related information to the Congress. It is now becoming increasingly clear that Mr. Scowcroft was the key figure in the manipulation of the CCC Program for Iraq. It is hard to imagine that Mr. Scowcroft did not also have a role in White House calls to the assistant U.S. attorney in Atlanta or the Justice Department's handling of the BNL scandal.

Linking Mr. Scowcroft so firmly to the CCC Program and the BNL scandal raises the question of President Bush's knowledge of Mr. Scowcroft's activities. It is hard to believe that the President was not aware of his top national security adviser's activities. It is hard to believe that the President was unaware that the CCC Program was being used as a political weapon in violation of the President's own policy.

In my March 16 floor statement I showed that USDA and State Department officials repeatedly lied to the Congress about the use of the CCC Program for Iraq. They came before Congress and say that the CCC Program for Iraq was not used as a foreign policy tool and that the State Department was not pressuring the USDA to go ahead with the program despite concerns of Iraqi wrongdoing. Both the USDA and State Department were aware that they were misleading the public about the CCC Program.

As I mentioned at the outset, the Judiciary Committee announced today that it would recommend to the Attorney General that a special prosecutor be appointed to investigate the high-level Bush administration wrongdoing involving Iraq. I commend Chairman Brooks and the rest of the committee for having the courage to take such a step.

It has become an all too common practice of the highest level of the Bush administration to lie to the Congress and the American public about its anemic performance in running our Federal Government. The very fabric of our democratic system is torn when people in positions of authority, from the cop on the street to the President of the United States, determine that the best course of action is deception. Regarding Saddam Hussein, President Bush, and his top advisers chose the course of deception instead of owning up to their policy failures.

I think the appointment of an independent counsel is important to remind all those in power that choosing the path of deception will result in investigation, and if warranted, prosecution. Our democratic society needs such checks and balances and the citizens of our Nation deserve the truth--even if it is politically painful.

There is more to say about all this, and I pledge to continue these reports as time allows and circumstances require.
HOUSE OF REPRESENTATIVES,

Committee on the Judiciary,
Washington, DC, July 9, 1992.

Hon. William P. Barr,
Attorney General, Department of Justice, Washington, DC.

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Dear Mr. Attorney General: Pursuant to the Ethics in Government Act, 28 USC 592(g), we, the undersigned, constituting a majority of the majority Members of the House Committee on the Judiciary, write to formally request that you, as Attorney General, seek appointment of an Independent Counsel to investigate serious allegations of possible violations of Federal criminal statutes by highranking officials of the Executive Branch. The potential criminal conduct in question relates to activities by both current and former officials to illegally assist the regime of Saddam Hussein prior to the August 1990 invasion of Kuwait, and to attempt to conceal information about potential criminal activity from Congress through the making of false statements, the nonproduction, falsification or alteration of official records and other documents, and through otherwise misleading and obstructing Congress in its investigation of such matters.

As you are well aware, this Committee--as well as at least four other Committees in both the House and Senate--has endeavored to examine the allegations described above through hearings, requests for production of documents, and requests for answers to questions propounded in writing. As a result of these congressional oversight efforts, as well as other information which has now entered the public domain, it appears that there may have been violations by persons in the White House and in various departments of the Executive Branch of government of provisions of the United States Code, including but not limited to: 18 USC 371 (conspiracy to defraud the United States or commit an offense against the United States); 18 USC Sec. 1001 (making a false statement); 18 USC 1505 (obstruction of justice); 18 USC 2071 (concealment or falsification of records); 18 USC 1621 (perjury); 18 USC 1341 (mail fraud); 18 USC 1343 (wire fraud); and 18 USC 207 (financial conflict-of-interest by high Executive Branch officials).

Obviously, the Legislative Branch is not constitutionally empowered to either prosecute wrongdoing or adjudicate illegality. For this reason, the enumerated list or potential criminal violations cannot be considered exhaustive, and certainly is not restrictive of the ultimate jurisdictional mandate of an Independent Counsel. Moreover, as the statute provides, the Independent Counsel should be charged with investigating and prosecuting all persons involved in criminal activities under 591(a)-(c). Such persons would include at least all White House and other Executive Branch officials
compensated at levels specified in subsection (b) of 591 as well as other officials the investigation of which by the Department would present a conflict of interest within the meaning of subsection (c).

It should be noted that the growing imperative for this request is itself the result of the willful and repeated failure of the Executive Branch to comply with this and other Committees' requests for both documents and witnesses needed to shed light on the lines of inquiry clearly raised by Congressional investigations extending back to 1986. The failure of the Executive Branch to produce witnesses from the White House and National Security Council, the refusal of the Executive Branch to produce numerous requested documents from at least four agencies, and the failure of the Executive Branch to reconcile on-the-record contradictory assertions made by different Executive Branch officials before various Committees, have only reinforced our view that the Judiciary Committee needs to request an Independent Counsel with full subpoena and prosecutorial authority. In this regard, the contradictory Administration testimony is particularly troubling in the areas of the alteration of official records, the `formalized' procedures for screening or rebuffing Congressional requests for information, the possible diversion of government-financed loan proceeds for military purchases, and the apparent misuse of third country arms transfers to Iraq.

Finally, allegations of irregularities in the Department's handling of a host of investigations touching upon U.S. policy to Iraq must be considered carefully from the standpoint of the Ethics in Government Act. Of most obvious concern is the Department's actions in the Banca Nazionale del Lavoro (`BNL') litigation--including the scope and timing of the indictment finally brought, the circumstances surrounding the appointment and recusal of the U.S. Attorney in the district in which the matter was handled, the possible political interference of high Executive Branch officials with the line attorneys handling the case, the possible delay or withholding of classified information from the Atlanta prosecutors, and the sudden and unexpected plea bargaining arrangement by the Department reached with defendant Paul Drogoul--an arrangement which the presiding Federal district judge severely and publicly criticized as mysterious and unseemly, and in his view, warranting the appointment of an Independent Counsel. Because the ethics in Government Act prudently contains a mechanism by which to avoid a situation where a Departmental investigation might result in a `personal, financial, or political conflict of interest' for the Atttorney General or any officer of the Department of Justice (28 USC 5919(c)), we concur in this recommendation. And as you are further aware, this subsection would also apply to any possible criminal violation of persons in or outside of government who are not high-level Executive Branch officials as defined in subsection (b).

Despite your understandable and deserved pride in the generally high professional standards of the Department's personnel, both at Main Justice and in the field, the overriding need to reassure the American public that justice has, in fact, been done in the handling of this case would appear to militate strongly against the Department investigating its own handling of this most controversial matter in addition to the other allegations discussed above.

We know of your abiding and sworn commitment to uphold the law of the United States. In the circumstances presented, we sincerely believe that the law as well as the public trust would best be served by the appointment of an Independent Counsel.

Sincerely,

Jack Brooks, Chairman, Charles E. Schumer, Dan Glickman, Patricia Schroeder, Harley O. Staggers, Jr., Edward F. Feighan, Bill Hughes, John Bryant, Peter Hoagland, Craig A. Washington, Don Edwards, Romano L. Mazzoli, Howard L. Berman, George E. Sangmeister, Barney Frank, Mike Synar, John Conyers, Jr., Mel Levine, Jack Reed, Mike Kopetski.

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Commerce Department Notes From Rostow Gang Meeting

Rostow & Rademaker.

B has gone down that made cuts list.

NSDD 315. NSC will send letter to Fascell.

NSR 17.

Wolf to Cheney 4/17/90.

Scowcroft to Dept. Ag. May 18, 1990.
DEPARTMENT OF AGRICULTURE,

Office of the General Counsel,
Washington, DC, June 1, 1990.
Memorandum for the Secretary.
From: Alan Charles Raul, General Counsel.
Subject: End of Week Report.

2. Iraq. I received a further briefing this week from the Department of Justice regarding the Atlanta investigation into the Banca Nazionale del Lavoro and related matters. I briefed the Deputy Secretary on certain new issues in the investigation.

There was an NSC `Deputies Committee' meeting on the Iraq GSM program this week. I thought I should attend that meeting, but the Deputy Secretary determined that Ann Veneman should attend and that I should not. I have not been briefed any on the meeting yet, but I understand that it was decided that no additional guarantees beyond the first $500 million would be provided to Iraq this year. The decision apparently turned on the various investigations that my office has been monitoring closing. Last night, the NSC's Special Assistant to the President for Asian Affairs, Richard Haass, mentioned to me that there was supposed to be a cable sent to Iraq this week informing them of the decision.

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End of Week Report, June 1, 1990

THE UNDER SECRETARY OF AGRICULTURE FOR INTERNATIONAL AFFAIRS AND COMMODITY PROGRAMS,
Washington, DC, May 23, 1990.

Secret

[SECRET]

MEMORANDUM FOR: THE HONORABLE BRENT SCOWCROFT, ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS.

FROM: RICHARD T. CROWDER, UNDER SECRETARY.

SUBJECT: USDA'S POSITION ON OPTIONS IN NSC/DEPUTIES COMMITTEE REVIEW OF PCC PAPER ON IRAQ(S).

The options paper properly characterizes the impact of sanctioning Iraq with respect to CCC export credit guarantees. Iraq is an important market for over twenty U.S. agricultural commodities sold under the credit guarantees of the GSM-102 program. However, it cannot be overemphasized that any constraint on CCC credit guarantees must not be based on a foreign policy rationale.

Notwithstanding the above considerations, additional GSM-102 and GSM-103 credit guarantees to Iraq should not be made over and above the $500 million already authorized in fiscal 1990 until the questions concerning program irregularities with sales to Iraq are cleared up.

USDA wants to sell as many agricultural commodities abroad as possible, including to Iraq, but integrity of the program supersedes the desire to sell at any cost.

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Iraq--Talking Points for May 29 Oral Briefing for NSC Meeting

Meeting has been initiated by NSC staff because they want to prevent the CCC credit program from being cancelled as it would exacerbate the already strained foreign policy relations with Iraq.

Agriculture had planned to put out a press release on May 21 that said the program was being suspended until the investigations into improprieties in the program were completed.

The NSC prevailed on Agriculture to say only that their investigation showed that improprieties may have occurred and remained silent on a suspension.

In fact, there is a suspension in effect, Agriculture has already briefed congress on this prospect, and the press has reported on the investigation.

We believe that further CCC programing for IRAQ should be suspended if USDA believes it is warranted under its own statutes.

The likelihood that Iraq will stop paying on the CCC credits may depend on whether Assad feels that there is the possibility of new credits under the program at a later date.

If Iraq does stop paying there will be a budget cost as USDA starts paying off claims of the banks whose credits were insured.

Iraq may want to reschedule its repayments, but will only do so under a bilateral agreement, while the U.S. will only go through the Paris club.

Source: Treasury Department.

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DEPARTMENT OF AGRICULTURE,

Office of the General Counsel,
Washington, DC, April 5, 1990.
Memorandum for: Kevin Brosch.
From: Alan Charles Raul, General Counsel.
Subject: Iraq.

Dick Crowder and I met with Under Secretary McCormack on late yesterday afternoon (Wednesday). We advised them of our plans and they more or less concurred, but would ask that we not use the term `suspend' regarding Iraq's GSM program. Instead, we can talk in the press release about the extension of any further guarantees awaiting resolution and additional information regarding the pending questions.

Also, you will be excited to learn that the State Department strongly recommends that we go to Baghdad to ask relevant questions. They believe it will have certain diplomatic benefits, as well as provide better access to the necessary Iraqi officials and documents.

I will be in Seattle on Thursday and Friday, but I would like to be kept apprised of any developments on the Iraq front. I will call in periodically but Kathy will also know how to reach me and how to fax things to me, if necessary.

When the `Qs and As' are done, please get a copy to me somehow.

Thanks.

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Press Release

April 1, 1990: Under Secretary Richard T. Crowder announced today that the Department's Fiscal Year 1990 GSM-102 program for Iraq would be suspended after the $500 million line of export credit guarantees, announced in November, 1989, is exhausted. The GSM-102 program for Iraq had been operating, during each of the two prior fiscal years, at a level of approximately $1 billion annually.

The Department launched its own administrative review of the Iraq GSM-102 program late last summer after allegations of lending irregularities involving Iraq surfaced in an investigation by the Office of the United States Attorney for the Northern District of Georgia of the Atlanta agency of Banco Nazionale del Lavoro (BNL). The BNL investigation has allegedly uncovered more than $2 billion dollars in unauthorized loans to Iraq made by the Atlanta branch of BNL. At the time the Atlanta Investigation began, approximately $720 million of that amount were loans to pay for agricultural purchases made under the GSM-102 program.

Various federal agencies, including USDA, have been cooperating with the U.S. Attorney in that investigation which has reportedly involved issues of banking irregularities. In addition, USDA has conducted its own inquiry into past transactions in connection with the Iraq GSM program. That inquiry has raised a number of questions regarding contract pricing, purchasing practices, shipment, requests for additional services and imposition of special taxes and fees. USDA has raised its concerns about these issues with representatives of the Government of Iraq, including Iraq's Ambassador to the United States. USDA expects to work with the Government of Iraq, which has indicated its willingness to cooperate and provide information about these issues.

Under the GSM-102 program, the Commodity Credit Corporation (CCC), a federal corporation within the Department of Agriculture, assists agricultural exporters by providing guarantees which encourage private financing of export sales of agricultural sales for which repayment is made generally over a three year period. There are no direct outlays of funds unless and until there has been a default in payment. In the case of Iraq, no claims have ever been made on the CCC as a result of guaranteed sales to Iraq. The Iraq GSM program began in 1983, and has expanded since that time. Currently, CCC has outstanding guarantees on approximately $2.2 billion worth of sales made over the past three years.

Any lending irregularities that may have occurred at BNL do not affect the risk undertaken by the CCC in issuing the guarantees, because the risk undertaken relates to repayment by the foreign purchaser. Under the GSM program, CCC assumes no risk with respect to the bank in the United States financing the sale. Nonetheless, USDA review of the Iraq program has raised a number of questions regarding conduct of the program, and USDA has, therefore, notified Iraq of its intention, at the current time, to suspend the program for FY 1990 at the current $500 million level.

Source: Department of Agriculture.

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COMMITTEE ON BANKING,

Finance and Urban Affairs,
Washington, DC, April 16, 1992.

Mr. Richard T. Crowder,
Under Secretary, International Affairs and Commodity Programs, Department of Agriculture, Washington, DC.

Dear Mr. Crowder: The Committee on Banking, Finance and Urban affairs will hold a hearing on the National Advisory Council on International Monetary and Financial Policy (NAC) and its role in approving the $1 billion FY 1990 U.S. Department of Agriculture (USDA) Commodity Credit corporation (CCC) program for Iraq.

The Committee respectfully requests that you testify at this hearing on May 21, 1992, at 9:30 a.m. in Room 2128, Rayburn House Office Building. The Committee would like you to address the following questions in your written testimony:

1. Please explain the USDA's role in the NAC process.

2. How did foreign policy considerations affect the USDA's position related to the consideration of the FY 1990 CCC program for Iraq?

3. How did creditworthiness concerns affect the USDA's position related to the consideration of the FY 1990 CCC program for Iraq?

4. How did Iraq's human rights record affect the USDA's position related to the consideration of the FY 1990 CCC program for Iraq?

5. What influence did the Banca Nazionale del Lavoro (BNL) scandal have on the USDA's position related to the consideration of the $1 billion FY 1990 CCC program for Iraq?

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6. Please explain the National Security Council's (NAC's) role in the USDA's Administrative Review of the BNL scandal.

7. Please explain the White House's and NSC's role in the USDA's decision making process related to the FY 1990 CCC program for Iraq.

Please feel free to submit any further comments that you may have on the above topics. Banking Committee rules require your written testimony be made available to Members of the Committee twenty-four hours in advance of a hearing. Accordingly, please deliver 200 copies of your written testimony to Room 2129 Rayburn House Office Building by 9:30 a.m. May 20, 1992.

Thank you for your time and consideration of this request. The Committee looks forward to your testimony.

With best wishes.

Sincerely,

Henry B. Gonzalez,
Chairman.

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Department of State,
Washington, DC, April 10, 1990.

Hon. Richard Darman,
Director, Office of Management and Budget.

Dear Mr. Darman: This letter forwards the State Department's views on the Berman bill imposing sanctions on Iraq, as you requested.

The bill imposes open-ended sanctions against Iraq without linking them to any policy objective. Thus it would eliminate any Presidential flexibility in dealing with an important but difficult country, without specifically furthering any U.S. national interests.

The President has made clear concern at the recent Iraqi attempts to smuggle capacitors--with possible use in nuclear weapons--out of the U.S. He has made clear his outrage at the irresponsible threats issued by Iraq's President Saddam Hussein. There have always been significant U.S. concerns about Iraqi behavior, and in fact the U.S. Government has long imposed many of the measures the legislation would mandate. The State Department generally prohibits the sale or transfer of U.S. Munitions List items to Iraq. Fifty chemicals identified as potentially usable in chemical weapons programs are prohibited for export to Iraq. Items on the Commodity Control List deemed likely to aid Iraq's nuclear, missile, or other proliferation programs are denied.

Of the other sanctions envisioned by the bill, we note that Iraq is one of the largest markets for U.S. agricultural exports. The primary objective of our agriculture credit programs with Iraq has been to increase sales of U.S. farm products abroad. This GSM program, which has run about $1 billion annually in recent years, provides credit guarantees to U.S. exporters of agricultural commodities. It has been the strong and repeated position of the Administration not to use food as an economic weapon of foreign policy through the imposition of embargoes on agricultural exports, or otherwise to place limits on our export programs for political purposes.

The short-term U.S. Export-Import Bank credit insurance is intended to promote the export of U.S. industrial goods. On January 17 President Bush signed a waiver to the FY 89 Foreign Operations Appropriations Act to enable this program to continue on national interest grounds.

Regarding U.S. votes in International Financial Institutions such as the IMF, which seeks to support a stable, market-oriented economy, the United States has traditionally tried to avoid politicization of the IMF, which would undermine the Fund's technical and monetary character. By basing IMF actions on political criteria, the United States would create a precedent others would inevitably try to exploit in ways inimical to U.S. interests. For example, important U.S. allies such as Israel could be subject to similar efforts by other countries. Such politicization would divert the IMF's attention from pressing needs in the international economic system, including debt strategy and restructuring of Eastern Europe. In addition, it is the opinion of the Department of Justice that legislation mandating U.S. votes in International Financial Institutions would be unconstitutional.

The State Department opposes the virtually total economic embargo of Iraq which would result from this Bill. The President needs flexibility in dealing with Iraq on such important issues as the Arab-Israeli Peace Process, in which Iraq has the capability to play a positive--or negative-- role. The Administration maintains an active review of our policy towards Iraq with a view towards assessing how best to further our interests in this thorny bilateral relationship. The Administration's approach to Iraq has been to deal firmly with problems as they arise within the context of broad, many-faceted relations. Imposition of rigid, legislated sanctions will not support vital U.S. interests in the region, and might well undercut important U.S. objectives.

Experience has shown sanctions are most effective when imposed multilaterally. At this point our allies are not contemplating sanctions against Iraq. Any sanctions imposed would therefore be symbolic only, with the costs borne by the United States.

For the above reasons, the State Department opposes the Berman bill.

Sincerely,
JANET G. MULLINS,

Assistant Secretary,
Legislative Affairs.

Madam Speaker, I yield to the gentleman from North Carolina [Mr. Rose].

Mr. ROSE. Madam Speaker, I thank the gentleman for yielding.

I would like to compliment our friend, the gentleman from Texas [Mr. Gonzalez] for the great work he has done in this very important area and to tell him how very much I have enjoyed working with him to the end that we have achieved. I know there will be many other opportunities in the future for us to work together on similar projects such as this.

But I want to pay the gentleman from Texas the compliment of saying that because of his chairmanship and his abilities with this very difficult issue, what we worked on, what I worked on, what my committee members worked on many years ago, it has been paid attention. And I want to thank him for putting his reputation and his expertise to work to bring this whole question of aid to Iraq, the CCC's involvement and the documents that he has provided for us which have made many things possible. I will forever be in his debt for this great piece of work that he has done.

Mr. GONZALEZ. I thank the chairman very much. Let the record show clearly that Chairman Rose has been in the forefront in this matter as the chairman of the Subcommittee on Department Operations, Research, and Foreign Agriculture of the Committee on Agriculture, the subcommittee of pertinent jurisdiction, and has been in fact indispensable in aligning himself with our efforts from the Committee on Banking, Finance and Urban Affairs' standpoint, and I think the record ought to clearly show that.

I also want to say that I have provided with my presentation a copy of the documentation I have referred to, plus a copy of the letter of the Committee on the Judiciary that was sent today under Chairman Brooks's signature to the Attorney General.

Madam Speaker, I thank the Speaker for her patience.

The SPEAKER pro tempore (Mrs. Byron). Under a previous order of the House, the gentleman from California [Mr. Riggs] is recognized for 60 minutes.

[Mr. RIGGS addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]

END