Iraqi Arms Sales Files Were Altered : Probe: House panel to consider naming a special prosecutor to investigate deletions of military uses from export license files in Commerce Department.

On its face, it seems to be a criminal act.

In preparing a document to be submitted to Congress in late 1990 listing all U.S. technology exports to Iraq, someone at the Commerce Department removed a critical phrase identifying the military nature of a facility north of Baghdad where the exports were headed, according to internal department records.

The original, classified record of the export license--for sensitive U.S. electronics equipment--said, “According to our information, the end-user is involved in military matters.” When the list was turned over to Congress, that sentence was gone. It also was erased from the permanent computer file at the Commerce Department.

The alteration--depicted clearly in records obtained by The Times--was one of 68 deletions of military designations for goods licensed by the Commerce Department for export to Iraq between 1985 and 1990.

The mystery behind those changes stands at the center of an approaching showdown between Congress and the Bush Administration over calls for an independent counsel to investigate the Administration’s prewar assistance to Iraq. The House Judiciary Committee, which is weighing whether to seek an independent counsel, will hold a hearing on the issue Tuesday.

To Democrats and some Republicans, the altered list represents the strongest argument for appointing a special prosecutor to investigate whether officials violated the law in trying to conceal the extent of the Administration’s aid to Iraqi President Saddam Hussein, especially aid that helped him build his enormous war machine.

Sending the altered list to Congress may have violated a number of laws, including those against obstructing a congressional investigation and making false statements to Congress, and may have involved a conspiracy, according to a former federal prosecutor.

“There is a great deal of concern over these documents and the changes,” said Rep. Charles E. Schumer (D-N.Y.), a senior member of the House Judiciary Committee. “They are certainly a factor in determining whether an independent counsel is needed.”

Democrats contend the Justice Department cannot fairly investigate the episode, in part because the commerce secretary at the time the changes were made was Robert A. Mosbacher, now chairman of President Bush’s reelection campaign. An internal commerce memo indicates that Mosbacher or someone on his staff may have had a role in preparing the export list.

At Tuesday’s hearing, Assistant Atty. Gen. Robert S. Mueller III and a deputy will tell Congress the alterations are the focus of an ongoing criminal investigation, making an independent counsel unnecessary, according to sources familiar with White House strategy.

In an attempt to neutralize another issue raised by Democrats and a federal judge, Mueller also will contend that federal prosecutors moved as quickly as possible in investigating $5 billion in loans to Iraq by the Atlanta branch of an Italian bank.

The testimony by Mueller and a deputy is the only bone the Administration appears willing to offer the committee. Concluding that Democrats will vote to seek a special prosecutor anyway, the White House decided not to allow testimony by the other officials sought by the panel.

“These hearings, to some extent, are just camouflage,” said a Republican official.

Bush has made clear his anger at the prospect of an independent counsel, telling reporters last week that it was a “political inquest” and a “witch hunt.”

The President seems willing to accept a certain level of political damage by acknowledging the failure of his effort and that of his predecessor, Ronald Reagan, to persuade Hussein to mend his ways by giving him aid and sensitive technology. But Bush insists that no laws were broken.

“I know what we did,” Bush said at a June 4 news conference. “There wasn’t anything illegal.”

But Bush’s denunciations--and the decision to give the Judiciary Committee as little cooperation as possible--have stoked the political fires on an issue that has been simmering for months. While the vote may not come Tuesday, Democratic insiders say it is virtually certain the committee will seek a special prosecutor. All that is required is support from a majority of the committee’s Democrats.

With the vote, the committee will send a letter to Atty. Gen. William P. Barr spelling out where it believes government officials may have violated laws. Barr has 30 days to begin a preliminary investigation or explain why none is merited. If he finds a special prosecutor is needed, a three-judge panel picks one.

Like his predecessors, Barr is no fan of independent counsels. In an interview, he complained that the position has too much power and is not accountable to anyone.

Should an independent counsel be appointed, the outlines of the investigation have emerged from interviews, congressional testimony and the list of Administration documents sought by the Judiciary Committee. There appear to be three main areas of inquiry:

* Commerce Department list: Exhibit A will be the list, which was provided to Rep. Doug Barnard Jr. (D-Ga.), who was already investigating exports to Iraq. After an anonymous caller said information had been deleted from the list, Barnard asked the Commerce Department’s inspector general to investigate. The inquiry found 68 changes, including five involving $1 billion worth of military trucks the inspector general described as “misleading and unjustified.”

Commerce records show that another change involved $139,535 worth of frequency synthesizers approved for sale to Iraq by Hewlett-Packard Co. of Palo Alto, Calif., on Nov. 1, 1989.

The equipment was to test surveillance radar at Iraq’s Salah al Din Establishment. The facility’s military mission was known in the intelligence community at the time and became obvious when the plant was a primary target of allied bombs in the Persian Gulf War 14 months later.

The original license files contained a sentence saying the facility was “involved in military matters.” Like many other military designations, the warning was removed from the list sent to Barnard in October, 1990.

Republicans play down the significance of the changes, claiming they were authorized by a former commerce undersecretary for exports, Dennis E. Kloske.

“Don’t assume that just because some bureaucrat changed documents it means there was a Watergate-type of conspiracy,” said one Republican strategist.

But an internal memo by Kloske said the list was “consistent” with guidance from the National Security Council at the White House, the State Department and unnamed executives at the Commerce Department.

Kloske, who resigned in April, 1991, after telling Congress that the Administration had rebuffed his efforts to restrict high-tech exports to Iraq a year earlier, has been unavailable for comment.

Questions have been raised about the inspector general’s inquiry. Internal records show the investigation was headed by a former senior political appointee and that no one at the White House or the National Security Council was interviewed about the changes, despite the Kloske memo. In addition, the inspector general did not refer the matter to the Justice Department for criminal investigation.

It was Barnard who sought a Justice Department inquiry a year ago and who now says the Justice Department has dragged its feet.

* The bank investigation: A second likely item on the agenda involves allegations that the Justice Department delayed its investigation of the $5 billion in Iraqi loans by the Atlanta branch of Italy’s Banca Nazionale del Lavoro in response to pressure from the White House and the State Department.

Atlanta prosecutors drafted an indictment in early 1990, but no charges were filed until Feb. 28, 1991, the day after Bush declared a cease-fire in the Gulf War. The State Department and the National Security Council had monitored the investigation, and the State Department successfully argued against indicting the Central Bank of Iraq.

Assistant Atty. Gen. Mueller and his deputy, Laurence Urgenson, are expected to provide the Judiciary Committee with a copy of the draft indictment. Sources say that indictment did not propose charging the Iraqi government officials named in the final document and was deemed insufficient by supervisors at Justice Department headquarters in Washington.

Democrats complain that political concerns slowed the probe and narrowed its focus. The concerns were bolstered on June 2 when U.S. District Judge Marvin H. Shoob, who is presiding over the Atlanta case, demanded an independent counsel. He said he feared he was receiving a “sanitized” version of who was involved in the loan scheme.

* Was Congress misled?: A third potential element involves whether the Administration intentionally misled Congress about assistance to Iraq. One focus involves a series of White House meetings to coordinate responses to congressional requests for documents. The meetings were organized by C. Nicholas Rostow, the National Security Council’s legal adviser and a special assistant to the President.

Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking, Finance and Urban Affairs Committee, has charged that what he calls “the Rostow gang” obstructed inquiries by his committee and others.

However, the Administration counters that the effort was nothing but standard procedure for responding to requests to several agencies.

“The Agriculture Department attended these meetings because it is entirely routine to establish and participate in an interagency process when more than one agency is involved in an issue,” Alan C. Raul, Agriculture’s general counsel, told Gonzalez on May 29.

Congressional staffers say the anticipated letter to Barr may cover other areas. But the basic question will be, as one staffer phrased it: “Did Administration officials commit illegal acts in shielding the tilt to Iraq? Were they so driven to keep the full story hidden that they may have gone over the edge?”

The Warning That Disappeared

A Commerce Department list of U.S. technology exports warned that the recipient could use the product for military matters. But the phrase, highlighted below, was eliminated before the list was turned over to Congress.

Source: Wisconsin Project on Nuclear Arms Control