Testimony on Iraq Export List Is Contradicted

A former undersecretary of commerce has told congressional investigators that White House officials and top aides to former Commerce Secretary Robert A. Mosbacher supervised preparation of a list of export licenses to Iraq that was altered before it was submitted to Congress, it was disclosed Tuesday.

The claims by the former official, Dennis E. Kloske, stopped short of saying that the officials ordered the changes. But the allegations contradicted testimony Tuesday by the department’s inspector general that Kloske and an aide were solely responsible for the alterations.

The inspector general also said there was no evidence that Mosbacher, now general chairman of President Bush’s reelection campaign, was aware of the changes on the list before it was sent to Congress.

Kloske did not testify at the hearing by the House Judiciary Committee but the description of his surprise statements to investigators raised new questions about whether the Bush Administration had attempted to cover up the extent of its prewar assistance to Iraq.

“It seems to this gentleman that an undersecretary is being set up here,” said Rep. Charles E. Schumer (D-N.Y.). “There is plenty that points to higher-ups.”

The deletion of military designations on a list of Iraqi export licenses provided to Congress in late 1990 is one of the chief areas that is being examined by the Judiciary Committee as it ponders whether to seek an independent counsel to investigate the Administration.

A vote is not likely before next week and may not occur until next month, said Rep. Jack Brooks (D-Tex.), the committee chairman. But the contradictions that riddled Tuesday’s hearing appeared to bolster the view among Democrats that a special prosecutor is necessary.

A mid-level State Department official told the committee that he stood firmly behind a 1989 memo he wrote warning his superiors that U.S. food aid to Iraq may have been diverted by Baghdad to buy arms and technology for nuclear weapons.

The memo described an Oct. 13, 1989, meeting between the official, Frank Lemay, and Agriculture Department officials. It urged State Department officials to carefully evaluate allegations about Iraq’s misuse and diversion of the food aid before approving new assistance, saying: “If smoke indicates fire, we may be facing a four-alarm blaze in the near future.”

“The memo was a clear and accurate reflection of what had happened in our discussions,” Lemay said.

But last month, at a hearing of the House Banking, Finance and Urban Affairs Committee, two Agriculture officials who attended the meeting testified that the Lemay memo was inaccurate and misrepresented the discussion.

“Those notes are totally misleading,” Kevin Brosch, an Agriculture Department lawyer, told the Banking Committee.

Brosch abruptly left the hearing room Tuesday when Lemay said he had been shocked when Brosch and Larry P. McElvain, the other Agriculture official, denounced his memo.

Lemay’s position was supported by an internal document prepared by Agriculture Department investigators. It showed that Brosch and McElvain were briefed on the warnings just two days before the meeting with Lemay. The briefing included the same specific language about nuclear-related items cited in the Lemay memo.

Lemay also testified that, when he tried to retrieve the notes he used to write the memo, State Department officials said they could not be found. He also said his warning apparently was not distributed as widely within the department as he had requested.

But the day’s sharpest dispute involved Kloske’s contentions that high officials had instructed him to provide the “bare minimum” on the Iraqi license list he prepared for Congress and to keep certain material out of the documents. There was no indication, however, that Kloske has accused specific officials of ordering the alterations.

Frank DeGeorge, the Commerce Department’s inspector general, testified that his investigation of the changes placed the blame on Kloske and a subordinate in the Bureau of Export Affairs. He also said that he does not believe the changes constituted criminal actions and that he is unsure why they were made.

Under pointed questioning from Democrats, DeGeorge defended his investigation’s failure to interview Mosbacher or other top Commerce officials and the decision not to question White House officials.

“I have no reason to believe that there were any changes directed by anyone other than in the (Bureau of Export Affairs) office,” DeGeorge said.

“I find that very difficult to believe,” Brooks responded.

Then Schumer disclosed that Kloske, who left Commerce in 1991, had planned to testify as a surprise witness at the hearing but changed his mind late Monday. Instead, Schumer read a list of charges that he said were made by Kloske to committee staff members.

Kloske said he got daily calls from top aides to Mosbacher about his progress on compiling the export list for Rep. Doug Barnard Jr. (D-Ga.). Kloske also said that he thought he had discussed the issue with Mosbacher and that he had conversations about the list with White House counsel C. Boyden Gray and C. Nicholas Rostow, legal adviser to the National Security Council at the White House.

The White House refused to allow Gray or Rostow to testify, citing executive privilege. Brooks said that Mosbacher declined to appear Tuesday but offered to testify later if necessary.

Kloske’s contention that Administration officials wanted to avoid damage from the $1.5-billion worth of technology licensed for sale to Iraq was supported by an interview with another export official by DeGeorge’s staff a year ago.

Iain Baird, director of export licensing at the Commerce Department, told the investigators that he believed that Commerce had been “set up” to take the blame for the licenses in an effort to distance President Bush and Secretary of State James A. Baker III from Iraq, according to notes of the interview. At the same time, Kloske told investigators that he was acting under orders.

Another set of contradictions revolved around a June 2 plea bargain between the government and Christopher P. Drogoul, the manager of the Atlanta branch of Italy’s Banca Nazionale del Lavoro. Drogoul, the alleged mastermind behind $5 billion in fraudulent loans to Iraq, pleaded guilty to 60 counts after his lawyer had informed the judge that Drogoul wanted to plead guilty to all 347 counts and make a statement implicating others.

In a letter to the committee made public at the hearing, U.S. District Judge Marvin H. Shoob said the Justice Department had initiated the plea deal with Drogoul, allowing him to plead guilty to fewer charges, possibly to suppress his statement.

However, documents released by the Justice Department show that Drogoul’s lawyer had suggested the plea on May 15 and that the government had responded then that the banker would have to plead guilty to 60 counts and cooperate with the ongoing investigation.

Frantz is a Times staff writer and Waas is a special correspondent.