Italian Bank Chief Urged Slow Inquiry Into Iraq Loans : Investigation: There is no evidence that request affected U.S. probe. Hearing for key figure in case may air charges of political foot-dragging.

Nearly a year after FBI agents raided the Atlanta branch of a major Italian bank, its politically powerful chairman urged the American ambassador to Italy to ask U.S. authorities to proceed slowly in their investigation of the bank’s links to Iraq, classified documents reveal.

The appeal to the ambassador in July, 1990, was one of several attempts by officials of Banca Nazionale del Lavoro to delay the federal criminal investigation into $5 billion in illicit loans made to Iraq by the Atlanta branch of the Italian-government-owned bank, according to classified material obtained recently by The Times.

There is no evidence that the chairman’s request affected the pace of the inquiry. Indeed, U.S. diplomats had their own interest in seeing that the BNL scandal did not flare up in the early stages: It threatened to damage relations with Baghdad at a time when President Bush was courting Iraqi President Saddam Hussein.

The indictment ultimately was delayed for more than a year--until the day after the end of the Persian Gulf War in February, 1991. Federal prosecutors charged that the Iraqi loan scheme was masterminded by the bank’s Atlanta branch manager without the knowledge of his superiors.

The controversy over whether the investigation was hobbled by political considerations is expected to finally be aired publicly in a federal courtroom here today when the sentencing hearing for the ex-branch manager is set to begin.

But like every aspect of this case, the sentencing will be hotly disputed.

The hearing was set in motion when the ex-branch manager, Christopher P. Drogoul, pleaded guilty to 60 counts of loan fraud and conspiracy in June and agreed to cooperate with the U.S. government. In exchange, prosecutors agreed to seek a reduction in sentence for Drogoul, who faces up to 390 years in prison.

Gerrilyn G. Brill, the acting U.S. attorney in Atlanta, said that the government has decided not to seek leniency for Drogoul because he has not lived up to his promise of providing credible information against others.

The decision could signal the end of the three-year investigation, although prosecutors have said that they have other targets.

Drogoul’s fiery defense lawyer, Bobby Lee Cook, has claimed that federal agents tried to force his client to perjure himself so that he could get a lighter sentence and they could bring the case to a premature end.

Cook, who stopped Drogoul from talking to government agents when he came into the case three weeks ago, said he will put the government on trial during the sentencing hearing.

Federal investigators have ignored Drogoul’s claims that higher-ups in the bank were aware of the massive loans to Baghdad in favor of the government’s view that BNL was a victim of Drogoul’s cunning, according to Cook.

In recent days, Cook has hinted that he may file a motion asking U.S. District Judge Marvin H. Shoob to allow Drogoul to withdraw the guilty plea, which would force the government to bring the case to trial.

The decision on whether to allow Drogoul to withdraw the plea would be up to Shoob, who already has expressed his own concerns by repeatedly saying that an independent counsel should have been appointed to investigate the government’s handling of the case.

While the weeklong hearing may provide more fireworks than bombshells, it undoubtedly will add new twists to the convoluted tale of how a tiny office of a foreign bank helped bankroll the Iraqi military buildup before the Gulf War.

From the outset, the BNL investigation was a high-stakes case. When FBI agents raided the branch here on Aug. 4, 1989, they uncovered evidence that $5 billion in hidden loans had been funneled to Iraq through the branch. About $1 billion of the loans were guaranteed by the U.S. Agriculture Department, and other loans were used by Iraq to buy weapons and military technology.

Earlier documents described the successful efforts by then-Secretary of State James A. Baker III and others to keep a lid on the case so that the U.S. loan guarantees could continue flowing to Iraq and not disrupt American links with Baghdad.

But the Italian government and BNL officials in Rome also wanted to avoid a barrage of bad publicity about the bank, which was having unrelated financial troubles.

The Times reported earlier that two bank officers met with U.S. Ambassador Peter Secchia in Rome in October, 1989, and asked him to raise the case to “the political level” and help them with “damage control.” State Department cables indicate that Secchia said he could not interfere in a criminal investigation.

Despite the apparent rebuffs, newly obtained documents show that top bank officials continued to press Secchia.

In mid-July, 1990, Secchia was attending a social function in Italy along with Giampiero Cantoni, the new BNL chairman.

“Cantoni did not ask for any intervention, perhaps discouraged by the embassy’s previous refusals to become involved in an ongoing investigation of possible criminal activity,” said a State Department memo on July 25, 1990, that recounted the encounter. “Yet he made a pitch for the (U.S. government) to go slowly before making indictments.”

The memo quoted Cantoni as saying, “We (BNL) still do not know what really happened in Atlanta.”

Cantoni said the Atlanta prosecutor handling the case, Gale McKenzie, was “mean and vindictive.” Yet since the first days of the case, McKenzie had taken a benign view of the bank’s role in the scheme. She had convinced her superiors in Washington that BNL was a victim in a scheme arranged single-handedly by Drogoul and a handful of underlings in Atlanta.

In rejecting the House Judiciary Committee’s request for an independent counsel to investigate the Bush Administration’s Iraq policy last month, Atty. Gen. William P. Barr defended the BNL inquiry and said there had been no improper influence in the case.

Brill, the acting U.S. attorney here, echoed Barr, saying: “There was no pressure on us from anyone.”

Critics in Congress have pointed to the monitoring of the case’s progress by the State Department and the White House as evidence that there may have been other considerations involved.