Senate Probes CIA Action in Iraq Loan Fraud Case : Investigation: Testimony begins as lawmakers seek to learn why the agency withheld key documents from the Justice Department, judge.

Armed with subpoena power, the Senate Intelligence Committee has begun an investigation to determine why CIA documents were withheld from the Justice Department and a federal judge in a case involving billions of dollars in illegal pre-Gulf War loans to Iraq.

The committee heard testimony behind closed doors Friday from the senior Justice Department attorney who monitored the federal investigation into the Iraqi loans made by the Atlanta branch of Italy’s Banca Nazionale del Lavoro. Additional hearings are expected.

“Our inquiry . . . will continue until we are satisfied that we have a clear record on the CIA’s action in this matter and any related action by other government departments, including communication between the agency and the Justice Department,” said Sen. David L. Boren (D-Okla.), chairman of the panel that oversees the CIA.

The CIA opened its own internal investigation Wednesday after the Senate committee raised questions about critical documents in CIA files that were not provided to prosecutors and the presiding judge in the BNL case.

The documents, discovered a week ago in CIA files, indicate the agency was told in September and October of 1989 that officials at BNL’s headquarters in Rome knew of the $5 billion in loans to Iraq, according to a government source who has reviewed them.

They are important because federal prosecutors in Atlanta contend the loan scheme was carried out solely by the bank’s Atlanta branch, led by Christopher P. Drogoul, the former branch manager.

After pleading guilty last June, Drogoul testified last week at his sentencing hearing that other bank officials were aware of his loans. The government responded by agreeing to allow Drogoul to withdraw the guilty plea, setting the stage for a trial sometime next year.

CIA officials testified in a closed session of the Senate committee on Thursday, the same day the committee voted to grant subpoena authority to Boren and the committee’s vice chairman, Sen. Frank H. Murkowski (R-Alaska). Lawrence A. Urgenson, a deputy attorney general, testified in closed session Friday.

Meanwhile, Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Agriculture Committee, on Friday accused Agriculture Secretary Edward R. Madigan of “misleading” the committee by claiming Iraq was no longer represented on the board of an Arab bank that has been paid $416 million by the Agriculture Department since the end of the Gulf War.

The money was to repay loans to Iraq guaranteed by the department’s Commodity Credit Corp. U.S. taxpayers became responsible for $1.9 billion in outstanding loans when Iraq stopped paying them after its invasion of Kuwait in 1990.

Leahy said Iraq still retains part ownership of Gulf International Bank and still has at least one representative on its board.

“When the Administration paid $416 million after Operation Desert Storm to a bank partially owned by Iraq, it apparently violated its own ban against helping Saddam Hussein,” said Leahy.

A senior Agriculture Department official said Madigan relied on information from the Treasury Department that he said “is still true, to the best of our knowledge.”