A simmering bank scandal, some revealing secret documents and a tenacious committee chairman gave new life during 1992 to lingering Democratic charges that the Bush administration coddled Iraq until virtually the eve of its 1990 invasion of Kuwait.
On July 9, 20 of the 21 Democrats on the House Judiciary Committee formally asked Attorney General William P. Barr to seek an independent counsel to investigate possible criminal violations in the administration’s prewar policy toward Iraq. That set in motion procedures under a law that was enacted in 1978, in response to the Watergate scandal, providing for the appointment of such special prosecutors to investigate allegations of wrongdoing by senior government officials.
On Aug. 10, Barr rejected the request for an independent counsel, dismissing “vague and conclusory” allegations of wrongdoing against the administration in which he served.
But in October, a majority of Democrats on the House and Senate Judiciary committees made a new request to Barr based on the administration’s handling of a bank fraud case involving billions of dollars in illicit loans to Iraq.
This time, Barr attempted to defuse the controversy by naming a special prosecutor reporting directly to him. On Dec. 9, Barr’s counsel, retired federal judge Frederick B. Lacey, released a 190-page report staunchly defending the administration’s handling of criminal charges in the case involving the Atlanta branch of the Italian-owned Banca Nazionale del Lavoro (BNL). Barr endorsed Lacey’s conclusion that there were “no reasonable grounds” to warrant further investigation.
Democrats denounced that decision and urged President-elect Bill Clinton to pursue the case. Clinton promised that his attorney general would look into the matter in 1993.
For months, Democrats had demanded an independent counsel to investigate possible criminality and coverup. “Certain aspects of this affair bear the marks of a major scandal involving, at best, improper conduct, and at worst, criminal activity by U.S. government officials,” Charles E. Schumer, D-N.Y., said at a hearing of the House Banking Committee on May 21.
President Bush repeatedly insisted that “there wasn’t anything illegal” involved in what he characterized as efforts to bring Iraq’s Saddam Hussein into the family of nations. He said his administration simply attempted to work with the Iraqi ruler “on grain credits and things of this nature to avoid aggressive action,” as the president put it at a news conference on June 4. “And it failed. It failed.”
But the uproar tarnished the U.S.-led military triumph in the Persian Gulf War of 1991, as did Saddam’s defiant survival after the war. (1991 Almanac, p. 437; post-war Iraq, p. 552)
The confrontation over prewar Iraq was instigated by the House Banking Committee’s chairman, Henry B. Gonzalez, D-Texas.
The combative 76-year-old chairman — who had previously staged investigative hearings into scandals in the savings and loan industry — said he became interested in the issue following a 1989 raid by federal agents on the Atlanta branch of BNL, the bank owned by the Italian government. The raid uncovered evidence that the bank had made billions of dollars in unauthorized loans to Iraq, including about $1.25 billion in loans guaranteed by the Agriculture Department’s Commodity Credit Corporation (CCC).
Since 1983, Iraq had been a leading recipient of CCC guarantees, which backed private bank loans for sales of U.S. agricultural commodities. Shortly after the raid, Baghdad sought $1 billion in new loan guarantees for fiscal 1990. (Chronology, p. 550)
Beginning in February 1991, Gonzalez delivered a series of “special order” speeches — usually to an empty House chamber — in which he provided chapter and verse on the BNL case and U.S. assistance for Iraq during the 1980s.
Asked why it took so long for Gonzalez’s crusade to generate interest, Banking Committee member Barney Frank, D-Mass., said, “You guys in the media and my guys up here don’t pay enough attention to Henry B.”
But that changed when Gonzalez began providing evidence to support his allegations in the form of hundreds of documents painstakingly subpoenaed by the Banking Committee from several government agencies.
Gonzalez and other Democrats said the documents revealed that in November 1989 the State and Agriculture departments overrode the objections of other agencies in gaining administration approval of Iraq’s request for $1 billion in guarantees.
Gonzalez cited an internal State Department memo expressing concerns that the burgeoning scandal “could blow the roof off the CCC.” The Oct. 13, 1989, memo raised the possibility that CCC-guaranteed loans “may have been diverted from Iraq to third countries in exchange for military hardware.”
Gonzalez’s penchant for bolstering his case with classified documents, which he entered into the Congressional Record, also proved controversial. Attorney General Barr charged May 15 that release of the documents jeopardized national security. In a letter to Gonzalez, he said the administration would not provide additional documents unless the chairman agreed to protect them from “unauthorized disclosure.”
Democrats insisted that the administration was seeking to prevent release of the documents merely because they contained embarrassing material. But Deputy Secretary of State Lawrence S. Eagleburger argued that “chaos” would result if other members of Congress followed Gonzalez’s lead and revealed classified material.
Gonzalez was undaunted. “The committee will not be steamrolled by the White House,” he said, “and, if necessary, I will seek subpoena authority in order to obtain the information and the persons I am seeking.”
Banking Committee Hearing
The situation was first fully joined at a Banking Committee hearing on May 21, where the election-year implications of the explosive issue were never far beneath the surface.
Several Democrats predicted the allegations could damage Bush’s re-election bid. “Bush’s one remaining strength is foreign policy,” Frank said in an interview. “This goes right to the heart of that.”
Republicans accused the Democrats of election-year efforts to tarnish Bush’s triumph in the Persian Gulf War. “The administration is being mugged today,” said Toby Roth, Wis. “This smacks of a kangaroo court.”
And senior administration officials fought back, vigorously denying any wrongdoing and arguing that the administration was motivated by strategic interests in pursuing close ties with Saddam.
Providing loan guarantees for Iraq “was one of the few tools we thought we had to moderate his conduct,” said Eagleburger. But near the end of the hearing, he wearily conceded, “I have said 15 times today that it didn’t work.”
Eagleburger said the “selective disclosure” of documents by Gonzalez had “led, knowingly or otherwise, to distortions of the record, half-truths and outright falsehoods, all combined into spurious conspiracy theories and charges of a cover-up,” he said.
Eagleburger, Under Secretary of Agriculture Richard T. Crowder and Deputy Secretary of Treasury John E. Rob-son testified they had no proof that Iraq diverted CCC-guaranteed loans to buy arms.
Eagleburger cited congressional support for continuing assistance to Iraq as a factor in the administration’s decision to approve additional CCC guarantees. “I might note as well at this time members of Congress, along with various agricultural trade interests, were urging the administration to provide the full amount of credit guarantees requested by Iraq,” he said.
But because of concerns that the pending BNL investigation could turn up fraud in the program, the administration divided the $1 billion in guarantees into two $500 million installments. Iraq received only the first installment. The program was suspended in April 1990 after Department of Agriculture investigators found that Iraq had violated rules of the CCC program.
When Iraq invaded Kuwait four months later, the administration cut off all trade with Baghdad and no further guarantees were provided. From fiscal 1983 until the termination of the program, the United States authorized $4.5 billion in CCC loan guarantees for Iraq.
Eagleburger said that in August 1990, Iraq “held approximately $1.9 billion in outstanding credit guarantees.” He added, “The administration intends to assert claims against Iraq for debts owed to the United States.”
Committee Democrats repeatedly charged that the Bush administration, and the Reagan administration before it, were partly responsible for creating the “monster” of Saddam Hussein.
Schumer termed the Iraqi leader a “Frankenstein.” Frank said, “He’s more like Dracula, because he’s so difficult to kill.”
Schumer, who also chaired the Judicary Subcommittee on Crime and Criminal Justice, said that he was “particularly interested in the conduct of the Department of Justice in the BNL investigation and whether other agencies attempted to influence or impede the investigation.”
Documents released by Gonzalez revealed that some U.S. officials believed that indictments in the case were imminent in the fall of 1989. But the indictments were not handed up until Feb. 28, 1991 — the day after Bush announced the cease-fire in the Persian Gulf War.
During a special order speech, Gonzalez released a 1990 internal memo from the Federal Reserve Board that indicated that the U.S. Attorney’s office in Atlanta had encountered difficulties in investigating BNL. The memo said that “these difficulties have been compounded by what is perceived as interference from the Justice Department in Washington.”
Excerpts from a 1989 document fueled new debate May 29 over the Bush administration’s prewar efforts to court Iraq’s Saddam
At another hearing of the House Banking Committee, Sam Gejdenson, D-Conn., released excerpts of National Security Directive 26 — a statement of U.S. policy toward the Persian Gulf region that Bush signed on Oct. 2, 1989. The administration declassified the document at Gejdenson’s request but deleted many sections.
Democrats seized on the document as evidence that Bush was personally responsible for “shameless prewar coddling of Saddam Hussein,” as Gejdenson put it.
The directive, drawn up more than a year after Iraq had won its eight-year war against Iran, stated that “the United States government should propose economic and political incentives for Iraq to moderate its behavior and to increase our influence with Iraq.” The administration subsequently approved the $1 billion in agricultural loan guarantees for Iraq.
But the policy statement also appeared to bolster the administration’s claims that it used a stick as well as the carrot of loan gurantees in its dealings with Iraq. It said any use of chemical or biological weapons by Iraq or progress toward developing nuclear weapons would trigger U.S. economic sanctions.
Gejdenson, who chaired the House Foreign Affairs Subcommittee on International Economic Policy and Trade, charged that “the administration has at every turn tried to block, delay, obscure and interfere with” his panel’s investigation of the prewar Iraq policy.
The charge was echoed by Rep. Charlie Rose, D-N.C., chairman of the Agriculture Subcommittee on Department Operations, and in testimony submitted by John D. Dingell, D-Mich, chairman of the Committee on Energy and Commerce, and Doug Barnard Jr., D-Ga., who chaired a Government Operations Subcommittee.
But Jeanne S. Archibald, general counsel of the Treasury Department, responded that no one in the administration ever suggested “explicitly or implicitly that we should cover up embarrassing or elicit activities.”
Republicans complained that Democrats were merely sensationalizing differences over foreign policy for political gain in an election year. Rep. Chalmers P. Wylie, R-Ohio, said the cover-up allegations look “a little bit like politics as usual.”
The most serious allegations were lodged by Rose, who asserted that the Bush and Reagan administrations had long been aware of evidence that the U.S. agricultural loan guarantee program may actually have been used to underwrite weapons purchases by Iraq. “This is a lot bigger scandal than Iran-contra,” said Rose.
The Atlanta Prosecution
Bolstered by the pointed remarks of a federal judge, Democrats on the House Judiciary Committee indicated they were increasingly inclined to request formally that Barr name an independent counsel to investigate the Bush administration’s prewar dealings with Iraq.
Under the independent counsel law (PL 100–191), which was enacted in 1978 but permitted to lapse in December 1992, such a request by a majority of members of either party on the House or Senate Judiciary Committee required Barr to respond within 30 days. He was required to indicate whether he had decided to pursue a preliminary inquiry into the allegations and, if not, to explain why not. (Independent counsel, p. 315)
The Judiciary Committee’s direct involvement in the case began with a bitterly partisan committee hearing June 2.
“The burden of proof has now shifted to the administration,” said Schumer. “Given this, they must convince Congress as to why there should not be an independent counsel.”
While the Judiciary Committee was debating the issue, a U.S. district judge in Atlanta sharply criticized the administration’s handling of the criminal case that had spurred the Democratic calls for an independent counsel.
Christopher P. Drogoul, the former manager of the Atlanta branch of BNL bank, pleaded guilty June 2 to illegally authorizing more than $5.5 billion in loans to Iraq — about a quarter of which had been guaranteed by the Department of Agriculture.
But Drogoul angered Judge Marvin H. Shoob by not delivering on an earlier pledge to provide a detailed account of what role higher-ups of the bank and U.S. officials might have had in the bank fraud. Shoob, who was appointed to the federal bench by President Jimmy Carter in 1979, then issued his own call for an outside investigation of the matter.
“This case ought to have a special prosecutor because I’m not getting the information from Mr. Drogoul,” Shoob said, according to media accounts of the court session.
Drogoul’s plea arrangement heightened suspicions among many lawmakers that something was amiss in the Justice Department’s BNL probe. In return for his cooperation with the continuing investigation of BNL, the government dropped all but 60 of 347 counts of fraud against Drogoul.
Schumer said Drogoul’s plea “asks more questions than it answers. Why was the indictment that led to this plea delayed 15 months? Was Christopher Drogoul free-lancing or was he working with officials of the Iraqi government or the United States government?”
Judiciary Committee Chairman Jack Brooks, D-Texas, who provided periodic updates on developments in Atlanta during his committee’s hearing, said pointedly that criminal activity need not be proved in order to make the request for an independent counsel.
“The question before this committee is simply whether there is a need for further investigation by an independent counsel of possible federal criminal law violations and conflicts of interest by executive branch officials,” he said.
Republicans argued that the issue had been manufactured by Democrats seeking an election-year political advantage. Jim Ramstad, R-Minn., asked, “Would we be holding this hearing if the presidential election were not five months away?”
Henry J. Hyde, R-Ill, surprised Brooks and Rose by reading from letters that showed they had urged the administration to pursue expanded business opportunities in Iraq.
Hyde, who declined to disclose his source of the letters, said they showed that “this notion of cozying up to the Iraqis wasn’t exclusively the province of the executive branch.”
A letter from the under secretary of Agriculture to Brooks, dated just three months before Iraq’s invasion of Kuwait, thanked him for his “interest in the continued participation of Iraq” in the loan guarantee program.
Hyde also read from a 1989 letter to Deputy Secretary of State Eagleburger — signed by Rose and other North Carolina lawmakers — urging the State Department to press for a joint manufacturing venture with Iraq.
Clearly taken aback, Rose fumed to Hyde, “How did you get that letter?” Rose said his staff had signed the letter without his consent.
At a news conference June 4, Bush scoffed that the clamor for an independent counsel was instigated by “a lot of people that opposed what happened in the war,” a reference to Democrats who opposed authorizing force against Iraq.
“Let them look at it,” he said. “It’s no problem to me.
“But I think at some point somebody ought to say where is all this money going that goes to pay for these special prosecutors, rummaging through files and proving nothing.”
An Early Warning
On June 23, a soft-spoken economist emerged from the State Department bureaucracy to recount his effort in 1989 to warn the Bush administration about the dangers of dealing with Saddam Hussein.
The House Judiciary Committee heard testimony from Frank M. Lemay, a midlevel State Department official who wrote an explosive memo raising the possibility that U.S. agricultural loan guarantees might have been misused to underwrite Iraqi purchases of military equipment.
Lemay told the panel that he felt at the time that if the allegations in his memo turned out to be true “then the administration has an even bigger foreign policy problem on its hands that will have to be dealt with.”
But the memo’s distribution was tightly restricted, Lemay testified. And while Secretary of State James A. Baker III apparently was informed of Lemay’s concerns, the administration authorized $1 billion in additional loan guarantees to Iraq in late 1989.
“A steady theme that emerges is that, at the very least, the administration did an incompetent job,” Romano L. Mazzoli, D-Ky., a member of the Judiciary Committee, said in an interview. “At the worst, you have an active cover-up.”
Some lawmakers expressed concern that Lemay could become a scapegoat for a failed prewar policy toward Iraq.
“I’m too junior to be set up on this thing,” he said. Lemay told the committee he was merely trying to do his job.
His startling memo, dated Oct. 13, 1989, was a summary of a meeting with Agriculture Department officials who had reviewed alleged improprieties in the loan guarantee program with Iraq.
The officials recently had returned from Atlanta, where they interviewed Justice Department attorneys investigating the BNL bank branch there.
In his memo, Lemay said Larry T. McElvain, director of Agriculture’s Commodity Credit Corporation operations division, expressed concern that commodities purchased with U.S. loan guarantees “were bartered in Jordan and Turkey for military hardware.”
The memo also said that Kevin Brosch, an Agriculture Department attorney, noted that the U.S. attorney for Atlanta had 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.’ “
Urging that the State Department “proceed with caution” in authorizing new loan guarantees, Lemay wrote that “if smoke indicates fire, we may be facing a four-alarm blaze in the near future.”
In the weeks before Lemay’s testimony, Brosch and McElvain disputed his account of their 1989 conversation. At a House Banking Committee hearing May 21, Brosch called Lemay’s memo “totally misleading” and portrayed him as ill-informed about the loan guarantee program.
But Lemay stuck to his story, saying that “I was quite taken aback when I read the testimony of my Agriculture Department colleagues.”
He told the panel that “I had never heard of a nuclear nose cone burr or a nuclear fuel compounder before that meeting.”
Lemay said that only his immediate supervisor at the bureau of Economic and Agricultural Affairs, Sam Hoskinson, discussed the memo with him at length.
Lemay added that someone outside that bureau categorized the memo as “not for the system” — a procedural designation that he said “would have severely restricted the distribution of the memo.”
Lemay said that the former under secretary for economic and agricultural affairs, Richard T. McCormack, told him that he subsequently provided a less-detailed account of his assertions to Baker. But several weeks after Lemay’s original memo, State Department officials led the move to provide new loan guarantees to Iraq.
On July 9, Democrats on the House Judiciary Committee presented Barr with an election-year dilemma by formally asking him to seek appointment of an independent counsel to probe possible criminal misconduct associated with the Bush administration’s prewar policy toward Iraq.
Twenty of the committee’s 21 Democrats signed a letter to the attorney general requesting the independent counsel to investigate allegations that current and former administration officials illegally assisted Saddam Hussein’s regime before its 1990 invasion of Kuwait, and sought to “conceal information about potential criminal activity from Congress.”
Committee Chairman Brooks said the request for an independent counsel was not an attempt to challenge the administration’s policy of “tilting” toward Iraq before the Persian Gulf War. “The stupidity of that policy speaks for itself,” he said.
“What we are concerned about is the possibility that high administration officials, in their zeal to carry out this policy and then to keep it from being exposed, may have broken the law,” he said.
Among the committee’s Democrats, only Rick Boucher of Virginia opposed the request. Boucher said he believed a “traditional criminal investigation” of the allegations by the Justice Department would be sufficient.
Under the independent counsel law, the Judiciary Committee members asked the attorney general to apply to a special three-judge panel for the appointment of an independent counsel.
Barr had 30 days to decide whether to seek a preliminary inquiry. If he decided to do so, he would then have another 90 days to decide whether to request the appointment of an independent counsel. At the end of 90 days, he could ask for a 60-day extension from the three-judge panel.
In their letter, Judiciary Committee Democrats focused on allegations that the White House sought to delay or influence the Justice Department’s criminal investigation of BNL’s Atlanta branch.
They also requested that the independent counsel investigate the circumstances surrounding the deliberate alteration of U.S. export licenses for Iraq, which had been provided by the Commerce Department to the House Government Operations Committee in 1990. (Box, p. 546)
Committee Democrats relied on new information on the BNL investigation released July 7 by Gonzalez, the Banking Committee chairman.
In a floor speech, Gonzalez cited notes made by a Treasury Department official that he said demonstrated extraordinary White House interest in the BNL case.
The notes referred to a 1989 conversation between Gail McKenzie, an assistant U.S. attorney in Atlanta who was leading the BNL prosecution, and an unidentified White House official. According to the notes, McKenzie was left with the impression that the White House was concerned about the “embarrassment level” of the case.
Gonzalez also alleged that the CIA warned the administration in 1989 — just days before it approved $1 billion in fiscal 1990 agricultural loan guarantees for Iraq — that BNL loans had been used by Iraq to buy weapons.
A secret CIA report indicated “that several of the BNL-financed front companies in the network were secretly procuring technology for Iraq’s missile programs and nuclear, biological and chemical weapons programs,” Gonzalez said.
Barr Denies the Request
In an Aug. 10 letter to the House Judiciary Committee, Barr rejected the request for an independent prosecutor.
He said the panel’s Democrats had relied on “vague and conclusory” allegations of wrongdoing in seeking a counsel to investigate possible criminal activity arising from administration support for Iraq before the Persian Gulf War.
Committee Democrats bitterly denounced the decision as politically motivated. Chairman Brooks accused the administration of “stonewalling, plain and simple.”
Brooks told reporters Aug. 10 that “it leaves all of us as American citizens with one overriding question: What is the administration trying to hide in the record of its assistance to Saddam Hussein?”
But Barr concluded that there was no “specific and credible information” that high-ranking administration officials had committed any crimes.
In his letter, Barr rejected criticisms of his department and called the handling of the BNL bank investigation “entirely proper.”
He said any alleged delays resulted from a desire for a thorough investigation, adding that a review of the case by Justice Department officials in Washington was “in no way politically motivated.”
The attorney general’s conclusion was challenged publicly by the judge in the BNL case.
In an interview with The Washington Post, published Aug. 12, Judge Shoob also raised concerns over possible White House interference in the case. Shoob previously had called for an independent counsel.
The One-Man Theory
In September, new revelations in the prosecution of the BNL bank revived the Iraq controversy and brought it to the forefront in the super-charged atmosphere of the approaching presidential election.
The most controversial aspect of the BNL prosecution was the government’s contention that the scheme to provide billions of dollars in unsecured loans to Iraq was engineered by Atlanta branch manager Drogoul, acting alone and defrauding his employer.
But that central tenet of the government’s case came under fire as soon as Drogoul’s sentencing hearing began Sept. 14. Under a plea agreement, Drogoul had pleaded guilty to 60 counts of fraud and tax evasion in return for cooperating with prosecutors.
House Banking Committee Chairman Gonzalez gave a floor speech that day raising the first serious questions about the government’s “rogue operation” theory.
Gonzalez cited a CIA report showing that as the funding that Drogoul’s bank branch provided to Iraq grew larger, Iraqi officials began demanding that senior BNL officials in Rome sign off on the loans.
Reading from the CIA report, Gonzalez said, “BNL agreed to this request, and the loans were then signed by bank officials in Rome.”
The revelation reverberated from Washington to Atlanta. If Drogoul’s attorneys could show that the former bank manager was authorized to make the loans, the charge that he defrauded the Rome headquarters of BNL might be proved groundless.
Prosecutors, worried how the judge would react, sought and received a classified CIA letter concerning what it knew about BNL’s activities.
The Sept. 17 letter, signed by acting general counsel David P. Holmes, said the CIA “has publicly available information, acquired in the December, 1989-January, 1990 time frame, that BNL-Rome was aware of the illegal activities engaged in by BNL-Atlanta.”
It turned out that the CIA possessed a number of intelligence reports — not just publicly available information.
But when the Senate Intelligence Committee tried to determine how and why such a mistake could have occurred — with the integrity of a major criminal case at stake — it received sharply divergent answers from CIA and Justice Department officials.
In closed committee sessions Oct. 8 and 9, CIA representatives maintained that they were following the “strong advice” of Justice in releasing the misleading letter, according to Intelligence Committee Chairman David L. Boren D-Okla. Justice Department officials countered that they had left the decision up to the CIA.
On Oct. 1, Shoob granted Drogoul’s motion for a new trial.
As the handling of the BNL prosecution emerged as a key issue, some Democrats turned to foreign policy considerations in imputing a possible motive for administration actions.
Gonzalez, citing State Department cables and assorted other documents, suggested that the administration acceded to a request by Italian officials for “damage control” by limiting the scope of the BNL prosecution.
The bank was virtually an agency of the Italian government, and its top officials were political appointees. Any effort to prosecute those officials could have harmed relations between Rome and Washington.
Sen, Howard M. Metzenbaum, D-Ohio, cited allegations that a “CIA front organization was involved with loans to Iraq.”
If such allegations were true, he said, the United States might be involved “in arms sales to Iraq, as well as a possible cover-up.”
The CIA launched an internal investigation, and the Justice Department ordered an FBI probe of the incident.
Renewing the Request
On Oct. 14, Senate Intelligence Committee Chairman Boren said that the newly released information “compels” Barr to reconsider his refusal to seek an independent counsel.
Noting Barr’s rejection in August of the initial request for an investigation, Boren argued that at that time most of the events relating to the misleading CIA letter “had not yet even occurred.”
Boren’s call for “a truly independent investigation” of the BNL case was echoed the next day by Brooks, chairman of the House Judiciary Committee, and Joseph R. Biden Jr., D-Del., chairman of the Senate Judiciary Committee.
The Democratic majority on Brooks’ committee renewed the previously rejected formal request for an independent counsel, this time joined by a majority of Democrats on Biden’s committee.
Barr responded to the mounting criticism on Oct. 16 by appointing Lacey to review the Justice Department’s “entire handling of the BNL matter.”
But that did little to satisfy Democrats. Boren dismissed the selection of Lacey — in essence, a hand-picked investigator who reported to Barr — as “not a satisfactory substitute” for an independent counsel chosen by a special three-judge panel.
Although Barr expressed confidence that Justice Department officials “have done nothing wrong,” he said that Lacey’s investigation did not preclude the appointment later of a full-fledged independent counsel.
The law governing independent counsels was not reauthorized by Congress and was due to expire on Dec. 15. But investigations begun by then could go ahead.
Sen. Al Gore of Tennessee, the Democratic vice presidential nominee, charged Oct. 15 that Bush was “presiding over a cover-up that is significantly larger than the Watergate cover-up.”
The political ramifications were not lost on Republicans. John H. Chafee, R.-R.I., a member of the Senate Intelligence Committee, complained that Boren held a news conference just days after the committee began looking into the matter. “It can’t take any more of a political turn,” he said in an interview.
Boren indicated that if Barr refused to request an independent counsel, the Intelligence Committee — which had begun taking sworn depositions from administration officials — would hold hearings on BNL.
That aggressive posture marked something of a departure for Boren, who conceded that he was sometimes criticized as “too bipartisan.”
During his six-year tenure as chairman, which ended in January 1993, Boren was supportive of the intelligence community. He played a decisive role in shepherding CIA Director Robert M. Gates through Senate confirmation hearings in 1991 that focused on charges of politicization at the agency and on Gates’ role in the Iran-contra affair. (1991 Almanac, p. 486)
Thus, the agency’s new problems were also a test of Boren’s decision to put his faith in Gates as intelligence director.
Boren pulled no punches in criticizing the administration for its handling of BNL. He quoted Atlanta Judge Shoob, who had recently recused himself from the case at the prosecution’s request, as saying “that decisions were made at the top levels of the United States government and within the intelligence community to shape this case.”
While chiding the CIA for failing to provide “extremely relevant documents” to prosecutors in the BNL case, Boren emphasized that the FBI had received substantial intelligence information from the CIA.
“These documents should have given rise to an intensive questioning of Italian officials and questioning of CIA officals” about the quality of the data, he said.
Barr Responds, Again
On Nov. 16, Barr wrote members of Congress that he had acquiesced in a “preliminary investigation” under terms of the independent counsel statute. He promised to decide before the statute’s mid-December expiration whether to seek an independent counsel in the Iraq affair.
Barr added that Lacey, his counsel on the matter, had said he was “far from concluding that there has been any violation of any Federal statutes.” Nonetheless, Barr said, Lacey had informed him that the assertions in Boren’s letter seeking a probe had “met the statutory criteria for commencing a preliminary investigation: i.e., they constituted specific information from a credible source sufficient to constitute grounds to investigate whether a law may have been violated.”
Barr said that he had therefore asked Lacey to proceed with a preliminary investigation “of matters related to the production of CIA documents and information concerning the BNL loans to or on behalf of Iraq, to the Department of Justice, the United States Attorney’s office in Atlanta, the United States District Court in Atlanta and the United States Congress.”
Although Barr took the step of ordering a preliminary investigation in late October, Democrats noted that he did not make that decision public until mid-November, after the presidential election.
On Dec. 9, Barr rejected the renewed request from Democrats to seek an independent counsel in the Iraq case. He based his decision on Lacey’s conclusion that there were “no reasonable grounds” to warrant further investigation.
Although Lacey sharply criticized Justice and CIA officials for the “fiasco” surrounding the submission of the misleading statement to the court in the Atlanta trial, he said he had found “little fault” with the administration’s overall conduct in the BNL prosecution.
Citing his own expertise as a former prosecutor, the retired federal judge said: “Had there been any corruption here in the Justice Department in this case, I would have smelled it and I would have found it.”
At a stormy two-hour news conference, Lacey, a Republican, bitterly denounced the “unbridled attacks of a legislator,” a reference to Gonzalez. Lacey said that “many decent people have had their careers tarnished and their reputations stained” by “baseless charges.”
“You’ve been taken in by them,” said Lacey, scolding journalists. “Or if you haven’t been taken in by them, you’ve been writing about them, which I think is even worse.”
Lacey examined the circumstances surrounding the CIA’s misleading letter to the Atlanta prosecutors in a classified section of his report, which was not publicly released, although it was provided to several congressional committees. He acknowledged that the CIA letter was “absurd — everybody who read it should have gone into paroxysms of laughter.”
Lacey said that, partly because of what he termed “a societal clash” between Justice and the CIA, there were inadequate procedures in place for handling classified cables. “We were unable to determine who at Justice saw what and when, and that is part of my criticism,” he said.
He said he discerned no “corrupt intent” on the part of CIA or Justice Department officials, although some potentially important classified cables were not provided to Justice until a few months before Lacey issued his report, more than three years after the outset of the BNL investigation.
Lacey’s report said that senior administration officials — including then-Secretary of State James A. Baker III — took a strong interest in the BNL prosecution in 1989, when the administration was considering $1 billion in agricultural guarantees for Iraq.
The Atlanta attorneys handling the BNL case were told by Agriculture Department officials that Baker considered the program “very important” to U.S. foreign policy. But Lacey’s report concluded that “the prosecutors did not buckle, and foreign policy considerations did not move them.”
Democrats, who professed not to be surprised by Lacey’s report or by Barr’s decision, attacked both with relish. “To all those who are concerned about the propriety of the Justice Department investigating itself in this highly charged case, Judge Lacey says, ‘not to worry — trust us,’” said House Judiciary Committee Chairman Brooks.
Brooks and other Democrats urged President-elect Clinton to aggressively pursue charges of criminal activity associated with the BNL case. They also vowed to push in 1993 for enactment of a new independent counsel statute to replace the one that Congress had permitted to expire on Dec. 15.
Clinton told a news conference Dec. 10 that he would back reviving the independent counsel statute. He stopped short of calling for such a counsel in the Iraq case but said as president he would ask his attorney general to make recommendations concerning the affair. “I certainly think we need to know mere about it than we now know,” Clinton added.
Some senators floated the idea of creating a special Senate committee to investigate the matter. Boren, who was departing as chairman of the Intelligence Committee, said his panel’s investigation into the BNL case would continue in 1993.
Days: What the CIA Didn’t Say
Sept. 14 — Sentencing hearing begins for Christopher P. Drogoul, former manager of the Atlanta branch of Banca Nazionale del Lavoro (BNL). The government accuses him of making more than $4 billion in unauthorized loans to Iraq. In a statement on the House floor, Henry B. Gonzalez, D-Texas, cites a CIA report that casts doubt on a central tenet of the government’s case: that BNL officials in Rome were not aware of Drogoul’s activities.
Sept. 17 — In a letter to the attorney prosecuting the case, the CIA indicates only that it had “publicly available information” that BNL-Rome was aware of the illegal activities undertaken by the Atlanta branch of the bank.
Oct. 5 — Judge Marvin H. Shoob agrees to a request from prosecutors that he recuse himself from the case. In his order, he says that senior government officials apparently tried to “shape this case” and that key information might have been withheld from prosecutors in Atlanta.
Oct. 6 — The CIA acknowledges that it misled the court by not. saying it had classified reports on the matter. But the concession comes only after Gonzalez and the chairman and ranking Republican on the Senate Intelligence Committee raise concerns about the agency’s Sept. 17 statement.
Oct. 8 — The Intelligence Committee steps up its investigation of the government’s handling of the case, but officials from the Justice Department and CiA disagree over who is to blame for allowing incomplete information to be provided to the court.
Oct. 14 — Intelligence Chairman David L. Boren, D-Okla., writes Attorney General William P. Barr, asking him to seek appointment of an independent counsel to investigate whether crimes were committed in the government’s handling of the BNL case. Barr had turned down a similar request in August from Democrats on the House Judiciary Committee.
Hill Calls for Investigation of Altered Documents
Even some Republicans who denounced Democratic efforts to investigate the Bush administration’s prewar policy toward Iraq acknowledged that they were troubled by the case of the doctored documents.
“That by itself justifies a full investigation,” said George W. Gekas, R-Pa., at a House Judiciary Committee hearing June 2.
Commerce Department officials conceded that documents detailing the sales of defense-related items to Iraq were altered before they were provided in 1990 to the House Government Operations Subcommittee on Commerce, Consumer and Monetary Affairs.
Many lawmakers were equally disturbed by the contention of subcommittee Chairman Doug Barnard Jr., D-Ga., that the Justice Department had not adequately investigated the matter. Barnard told the Judiciary Committee that information his panel provided to Justice about the documents issue “has been repeatedly ignored.”
Barnard’s subcommittee subpoenaed the information shortly after Iraq’s August 1990 invasion of Kuwait. It sought the department’s list of “dual use” exports to Iraq — civilian goods that can have military applications and therefore require export licenses.
Between 1985 and 1990, the Reagan and Bush administrations approved licenses for $1.5 billion in dual use exports to Iraq. During that period, more than two-thirds of all license applications for dual use sales to that country were approved.
Barnard told the Judiciary Committee that in October 1990, shortly after the Commerce Department began providing the requested information, “the subcommittee received an anonymous telephone call informing us that the caller had been instructed to make certain alterations” in the documents.
After learning of the incident, the Commerce Department’s inspector general conducted an internal investigation. In a report released in June 1991, Inspector General Frank DeGeorge found that changes had been made on 68 of 771 export licenses provided to the subcommittee.
DeGeorge discovered that personnel from the department’s Bureau of Export Administration altered records on some licenses for exports of trucks “to eliminate a reference to a design for military use.”
The report did not identify who ordered the alterations. But Wendell L. Willkie II, general counsel of the department, told the House Banking Committee on May 29 that Dennis E. Kloske, former under secretary for export administration, “authorized those changes.” Willkie called the alterations “certainly unjustified and inappropriate.”
Several Democrats expressed doubt that Kloske — who testified in April 1991 that he had urged the administration to tighten controls on sales to Iraq — undertook the action on his own. “I’m not suspicious at all that Dennis Kloske did it,” Barnard said.
Barnard said that while he had no evidence of who else might have ordered changes in the records or why, he was aware that members of the National Security Council staff — including Brent Scowcroft, assistant to the president for national security affairs — took a strong interest in the subcommittee’s request for information.
During fall 1990, when his panel was negotiating with Commerce for the records, Barnard said Kloske told the subcommittee: “Look, it’s out of my hands; it’s up to the White House.” Kloske, who resigned from the department in 1991, shortly after his congressional testimony, was unavailable for comment.
After the inspector general’s report failed to identify who might have been responsible for the alterations, Barnard wrote to then-Attorney General Dick Thornburgh asking the Justice Department to investigate.
But the investigation proceeded fitfully, Barnard said. In August 1991, he said, two “junior attorneys” from the department interviewed the subcommittee staff. He added that “inquiries disclosed that the Justice Department had not followed up on staff suggestions.”
The Justice Department subsequently wrote Barnard that an investigation was continuing.
In June of 1992, the Judiciary panel received new information on the altered documents.
Commerce Department officials consistently had testified that the alterations were made by a small group of officials in the Bureau of Export Administration, acting on their own, under the direction of former Under Secretary Kloske.
But documents released by the Judiciary Committee revealed that other agencies had expressed interest in the release of the export licenses: Iain S. Baird, director of export licensing at Commerce, told department auditors that “State [the State Department] said trucks classified as military vehicles should be re-classified as cargo trucks.”
Baird said that “he thought Commerce had been set up, as a conscious effort to distance Bush and Baker from Iraq beforehand,” according to a March 1991 interview with the auditors. The statement included no elaboration, and the auditors apparently did not ask him what he meant.
After a lengthy period out of public view, Kloske surfaced with a statement to the Judiciary Committee. In an unsworn interview with a committee attorney, Kloske said that at the time that the disputed documents were supplied he was under “daily supervision” from aides to then-Commerce Secretary Robert A. Mosbacher about what data was being provided to Congress.
Rep. Charles E. Schumer, D-N.Y., whose staff aide conducted the interview with Kloske, charged that Commerce Department auditors were aware that Kloske “was not making the decisions and people higher up were.”
On July 9, 20 of the 21 Democrats on the House Judiciary Committee asked Attorney General William P. Barr to seek an independent counsel to investigate the administration’s dealings with Iraq, including the circumstances surrounding the alteration of export licenses.
Barr turned down the request. But the prosecutor he appointed to examine the Iraq issue, retired federal judge Frederick B. Lacey, urged the Justice Department to pursue questions about the altered documents.
Tilting Toward Iraq: A Chronology
Rep. Henry B. Gonzalez, D-Texas, and other critics cited the following chain of events as evidence of extraordinary efforts by the Reagan and Bush administrations to help Iraq until it invaded Kuwait:
Sept. 4, 1980 — Iraq asserted that Iranian artillery units attacked the Iraqi border town of Khanaqin, the first significant military action in the eight-year war between the two nations. The United States adopted a neutral stance.
Feb. 26, 1982 — In a policy shift, the State Department dropped Iraq from its list of terrorist nations, paving the way for an expansion of U.S. exports to Iraq. Many in Congress objected to the action, particularly after Abu Nidal, whose group had claimed responsibility for terrorist attacks around the world, returned to Baghdad in September of that year. The Carter administration had first placed Iraq on the terrorist list in 1979.
Dec. 15, 1982 — The Agriculture Department announced that the United States would provide $210 million in Commodity Credit Corporation (CCC) loan guarantees to finance food sales to Iraq. By the end of fiscal 1983, the department had authorized guarantees for $364.5 million in sales.
Nov. 26, 1984 — The Reagan administration’s gradual tilt toward Iraq in the Iran-Iraq war culminated in its decision to restore full diplomatic relations with Baghdad. Iraq had severed ties during the 1967 Arab-Israeli war. During 1984, the president also authorized the CIA to share “limited intelligence” with Iraq, according to the Senate Intelligence Committee. Documents released by Gonzalez show that the intelligence-sharing continued until 1990.
Aug. 20, 1988 — Iran and Iraq agreed to a U.N.-brokered cease-fire. Later in 1988, Iraq became the subject of international denunciations for using chemical weapons in its war against Kurdish rebels. But agricultural trade between the United States and Iraq continued to expand. The United States provided more than $1 billion in CCC loan guarantees for Iraq in both fiscal 1988 and fiscal 1989.
Aug. 4, 1989 — Federal agents raided the Atlanta branch of Banca Nazionale del Lavoro (BNL), an Italian bank that was a key source of U.S. loans for Iraq, including about $1.25 billion guaranteed by the CCC. The agents uncovered evidence that the bank had lent billions of dollars to Iraq without reporting the transactions to U.S. banking regulators.
October 1989 — Documents released by Gonzalez refer to a national security directive — reportedly signed by President Bush in this month — directing agencies to expand economic ties with Iraq. The following month, after an intense debate within the administration, the United States approved $1 billion in CCC guarantees for Iraq.
April 2, 1990 — An internal Department of Agriculture memo released by Gonzalez indicated that officials believed that indictments were imminent in the BNL case. But the indictments were not handed up for nearly a year. Later in April, the Agriculture Department suspended CCC guarantees for Iraq, citing financial-irregularities in the program. From fiscal 1983 through fiscal 1990, the United States provided about $4.5 billion in agricultural guarantees, according to the Agriculture Department.
July 31, 1990 — As tensions rose along the border between Iraq and Kuwait, Assistant Secretary of State John H. Kelly reiterated the administration’s opposition to legislation — then gaining support in Congress — that would have imposed tough economic sanctions on Iraq.
Aug. 2, 1990 — Iraq invaded Kuwait and within hours occupied the entire country. President Bush issued an executive order prohibiting all trade with Iraq.
Jan. 16, 1991 — Allied forces began their aerial bombardment of Iraq. Six weeks later, on Feb. 23, the United States and its allies launched the successful ground operation to eject Iraqi forces from Kuwait.
Feb. 28, 1991 — On the day after President Bush announced a cease-fire in the war with Iraq, Attorney General Dick Thornburgh announced indictments in the BNL scandal.