A forthcoming report by an Italian parliamentary commission suggests the Bush Administration turned a blind eye to evidence that the Atlanta branch of Italy’s largest bank helped Iraq build its military arsenal with $4 billion in improper loans.
Since nearly $1 billion of the total was guaranteed by the Agriculture Department’s Commodity Credit Corp., the Italian officials concluded it was “hardly credible” that the Banca Nazionale del Lavoro branch could make loans of that magnitude without American knowledge.
According to a draft copy of the report obtained by The Times, the commission has concluded that the BNL transactions were permitted from 1987 to 1989 because they fit into the strategy of the Ronald Reagan and Bush administrations to support Iraq despite the risk that the money was helping Saddam Hussein develop a nuclear arsenal.
“Given the sheer size of the bank’s operation and that so much of the loans were channeled through the CCC, it seems reasonable this came within the equation of the U.S. government’s support for Iraq,” said a senior Italian official involved in the inquiry.
The report, scheduled to be delivered to the Italian senate Wednesday, offers little documentation and expresses its accusations in tentative language. Firm conclusions were difficult to reach in part because the U.S. Justice Department refused to cooperate with investigators, the draft said.
The two-year Italian investigation focused on the $4 billion in loans provided to Iraq and its suppliers over three years by the Atlanta branch of BNL, which is owned by the Italian government. Most of the loans occurred in 1989 and many have been traced to the development of Iraq’s nuclear, chemical and biological weapons.
Several branch employees, an Iraqi bank and four Iraqi government officials were indicted by the Justice Department on fraud and other charges in connection with the loans. The trial is set to begin June 1.
The indictment was announced Feb. 28, 1991, the day after President Bush declared a cease-fire in the Persian Gulf War. Then-Atty. Gen. Dick Thornburgh said prosecutors had uncovered “an international white-collar crime scheme with dire global consequences.”
The Times reported last month that the charges had been delayed for months in 1990 while the Bush Administration struggled to retain close ties to Iraq.
Sources close to the case said last week that FBI agents and agents with the Agriculture Department inspector general’s office are continuing the investigation, with an emphasis on whether sales to Iraq financed by the bank violated U.S. export and arms control laws.
The bank’s financing for the secret Iraqi arms-procurement network also has been under scrutiny by the House Banking Committee and its chairman, Rep. Henry B. Gonzalez (D-Tex.).
“This network obtained $2 billion in loans from BNL alone, for militarily useful products--specialized machinery, various kinds of steel, industrial equipment, chemical, computers and others,” Gonzalez said in a recent congressional report.
Records show the bank also received $900 million in Commodity Credit Corp. guarantees to sell American food and other commodities to Iraq. So far, the Agriculture Department has refused to pay BNL the $360 million of the guarantees that were outstanding when Iraq stopped payments to foreign creditors on Aug. 2, 1990, the day it invaded Kuwait.
A senior investigator with the Italian commission, who spoke on the condition that his name be withheld, said evidence indicated that the American and Italian intelligence services were aware of BNL’s extensive dealings with Baghdad before FBI agents raided the bank on Aug. 4, 1989.
The assertion is supported by classified reports showing that U.S. intelligence agencies were aware BNL played a substantial role in financing Iraq’s worldwide procurement network several months before the FBI raid.
Yet that information apparently was withheld from criminal investigators even after the raid. A federal law enforcement official said U.S. intelligence information on the Iraqi network and BNL was not turned over to investigators until late 1990--after Iraq’s invasion of Kuwait severed its relations with the United States and more than a year into the Atlanta investigation.
Justice Department officials maintain that they did not learn of the bank’s massive loans to Baghdad until shortly before FBI agents raided the Atlanta branch on a tip from two disgruntled bank employees. The agents seized documents outlining hundreds of loans that enabled Iraq to buy badly needed technical materiel and food for its war effort.
“The first time it came to our attention was shortly before the early August, 1989, search,” said Gerrilyn G. Brill, the assistant U.S. attorney in Atlanta who supervised the case. “I know of nothing before that time.”
Immediately after the raid, the case became extremely sensitive. According to the Italian report, Iraqi Foreign Minister Tarik Aziz complained that the action had cut off the major source of Baghdad’s credit. Classified documents show that Bush Administration officials tried to minimize the significance of the investigation in internal debates.
In October, 1989, the two top officials at BNL’s headquarters in Rome asked the U.S. ambassador to Italy to use political leverage to exert “damage control” over the federal investigation, according to a secret State Department cable. But the cable said the officials were told that the ambassador could do no more than relay their concerns to Washington.
In early 1990, the Italian senate authorized an inquiry into whether officials in Rome were aware of the extensive lending to Iraq at the Atlanta branch. The bank had maintained that the branch was a rogue operation, maintaining secret books and ignoring loan limits.
The commission interviewed dozens of witnesses in the United States and Italy, but the report said Justice Department officials refused to cooperate, citing the ongoing criminal investigation in Atlanta.
The report also raised the issue of whether key bank records disappeared. It said that the FBI has never accounted for some of the documents agents seized in the 1989 raid.
The report relies heavily on circumstantial evidence in asserting that the United States government was aware of the branch’s operations. Among the evidence cited were more than 3,000 transactions between the branch and Iraq recorded by the Federal Reserve System and the fact that the branch was the largest single originator of loans guaranteed by the Commodity Credit Corp.
In explaining why the loans were ignored, the report said the $4 billion played a vital role in the “political-military design of sustenance to Iraq carried out above all by the United States.” The report went on to say that the United States chose to allow the loans despite what it called “the risk of realization of a nuclear arsenal” by Iraq.
Frantz is a Times staff writer and Waas is a special correspondent.