Loans to Iraq May Have Funded Arms, U.S. Alleges : Indictment: The Justice Department says $4 billion in illegal financing through an Italian bank’s Atlanta branch may have contributed to Baghdad’s arsenal.
The Justice Department announced Thursday a massive indictment--dubbed “Operation Desert Fraud"--against Iraqi government officials and former executives of an Italian bank thought to have been used by Saddam Hussein to finance part of his huge weapons buildup.
The indictment accuses two former executives of Banca Nazionale del Lavoro (BNL) of conspiring with Iraqi officials to illegally arrange more than $4 billion in unauthorized loans to Iraq.
BNL’s small Atlanta branch agreed to provide more than $2 billion in industrial loans to Iraq in 1988 and 1989. The other $2 billion in loans was extended to the Iraqi government in agricultural loans guaranteed by the U.S. government, according to government officials.
According to letters of credit issued by the branch, Iraq was using the industrial loans to finance construction of a petrochemical plant, a dam and a steel mill.
But U.S. intelligence sources say the Iraqis used the money, in part, to finance one of the country’s most important armaments factories, a huge weapons complex at Taji, and for missile and chemical-weapons projects.
Justice Department officials said the loans and credits issued by BNL-Atlanta were made in violation of BNL, Italian and U.S. lending limits.
Atty. Gen. Dick Thornburgh said the indictment exposed “an international white-collar scam with dire global consequences.”
Thursday’s indictment, which came after an 18-month investigation by six federal agencies, charged 10 persons with conspiracy, mail fraud and wire fraud.
None of the 347 counts specifically linked illegal conduct with weapons acquisition by Iraq. But Thornburgh said that “possible violations of federal law in connection with the acquisition by Iraq of military armaments . . . remain under investigation.”
At the same time, U.S. Customs Commissioner Carol Hallett said the BNL case had spawned a number of other cases related to Iraqi weapons acquisition that the agency is pursuing both in the United States and abroad.
A Customs Service official said these included pending investigations in Cleveland, Miami and Philadelphia.
As a result of Iraq’s extensive borrowing from U.S. banks using guarantees from the Agriculture Department’s Commodity Credit Corp., U.S. taxpayers are likely to be stuck paying $1.9 billion in Iraqi loans now in default, officials said. Iraq had borrowed a total of $2 billion from BNL alone using the guarantees, and defaulted on $347 million.
Federal agents raided BNL’s small Atlanta office in August, 1989, after receiving a tip about unauthorized loans. The agents carted away records that revealed that the branch had made billions of dollars in loans to Iraq that were not reported on its financial statements.
Among the evidence were records of 3,000 transactions between the bank and Iraqi government agencies.
Numerous records provided information detailing loans to companies that were building the Taji complex, according to Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee, which has been conducting its own investigation of the BNL scandal.
The indictment, returned by a federal grand jury in Atlanta, alleges that former BNL officials concealed loans from the bank’s Rome headquarters by maintaining a secret set of “gray books,” not reported in the bank’s official records. It said the defendants used separate computers as part of the scheme and kept written records as “floating files” outside the bank.
The indictment also accused former bank executives of filing false reports to state and federal banking regulators and to Italian government officials in order to conceal the unauthorized funding.
Gonzalez and other officials familiar with the case have openly wondered how so much money could have flowed abroad from such a small branch bank without drawing the attention of federal regulators.
Christopher P. Drogoul, 41, former first vice president of BNL and manager of the Atlanta branch, was charged with conspiracy, mail and wire fraud, making false statements and interstate transportation of stolen property.
The same charges were lodged against Therese Marcelle Barden, former BNL-Atlanta vice president, who is a French citizen, and Amedeo Decarolis, former BNL-Atlanta operations assistant.
Drogoul also was charged with money laundering, forgery and obstruction of congressional proceedings. Drogoul was arrested Thursday, and Thornburgh said he anticipated that other American defendants would be arrested shortly.
None of the Atlanta or Iraqi defendants could be reached for comment.
The indictment alleges that Rafidain Bank of Baghdad, the principal Iraqi government-owned commercial bank, two Rafidain officials and two Iraqi government officials played key roles in the fraud scheme. All four are charged with conspiracy, wire fraud and money laundering.
The bank officials are Sadik Hasson Taha and Abdul Munim Rasheed.
The two government officials are Rajan Hassan Ali, director general of the economic department of Iraq’s Ministry of Industry and Military Production, and Safa Haji Habobi, director general of the Al Nassir weapons complex at Taji, an entity controlled by the Iraqi Ministry of Industry and Military Production, according to the indictment.
Habobi also is identitied as an officer and director of various entities owned and controlled by Iraqis in Iraq, Britain and the United States, including Matrix Churchill Corp.
That company played a key role in Iraq’s weapons procurement program, according to several federal officials. In September, U.S. Customs Service officials raided Matrix’s Solon, Ohio, office, seized its records and closed it down.
The other defendants are Entrade International Ltd., a New York-based international trading company, and Yavuz Tezeller, Entrade’s executive vice president, who is a Turkish national.
Entrade is charged with obtaining unauthorized financing from BNL-Atlanta for exports to Iraq and other purposes. Kenan Atabay, Entrade’s president, said he would not comment on the indictment. He said in a telephone interview that Tezeller returned to Turkey in 1989.
Thornburgh said Thursday that he hoped to bring the Iraqi defendants and Tezeller to trial, but he acknowledged that U.S. treaties with Iraq and Turkey did not obligate them to extradite their citizens who are indicted in the United States.
Robert Mueller, chief of the Justice Department’s criminal division, said federal officials would look for opportunities to arrest those individuals in other countries.
At a press conference, Thornburgh denied that he had held up the indictment earlier this month. He also said the Justice Department had found no evidence that government agencies had been aware of the wrongdoing while it was occurring.
Gonzalez recently said that a memorandum he had obtained showed that an Administration official had voiced concern about the consequences of the BNL investigation for certain, unnamed government programs.