Judge in Iraq Loan Case Says He Was Misled : Gulf War: Jurist declares important intelligence data on Italian bank connection was concealed by Bush Administration.

A federal judge said Monday that the Bush Administration misled him by concealing important intelligence information in a politically sensitive case involving billions of dollars in loans to Iraq.

“Certainly either the CIA or the Justice Department or both have misled me,” U.S. District Judge Marvin H. Shoob of Atlanta said in a telephone interview. “There appear to be documents that were not made available to me.”

The judge’s contention came as Justice Department officials outlined a criminal investigation they have begun to determine why Shoob did not receive an accurate account of CIA documents about the case. The material indicated that high officials of an Italian bank may have been aware of a scheme for its Atlanta branch to extend $5 billion in apparently illegal loans to Iraq, which Baghdad is believed to have used to build its military before the Persian Gulf War.

The inquiry will cover “all questions regarding the CIA production of documents to us and the Department of Justice’s interaction with the CIA on their efforts,” said Paul McNulty, spokesman for U.S. Atty. Gen. William P. Barr.

McNulty said that the head of the department’s criminal division, Robert S. Mueller III, has taken himself out of the case because he was involved in decisions on how to handle the CIA material.

The FBI will conduct the investigation along with the Justice Department’s public integrity section, according to McNulty and John Collingwood, FBI director of congressional and public affairs.

The results will be reviewed by senior Justice Department officials to determine whether there is evidence laws were broken, said both spokesmen.

In recent days, it has emerged that a letter provided to Shoob by the Justice Department last month describing the CIA’s knowledge of the bank fraud did not reflect several relevant CIA cables.

The matter turned into a politically embarrassing dispute last week after sources said lawyers for the CIA and Justice Department blamed each other for the omission in appearances before the Senate Intelligence Committee.

Democrats, including Sen. Al Gore of Tennessee, Bill Clinton’s vice presidential candidate, have seized on the issue to try to show that President Bush allowed Iraqi leader Saddam Hussein to build up his military arsenal before the invasion of Kuwait. There have been accusations that U.S. intelligence agencies were aware of the loan scheme by the Atlanta branch of Banca Nazionale del Lavoro while it was occurring and failed to intervene because it seemed compatible with U.S. policy toward Iraq.

The loans to Iraq were made between 1985 and 1989 by the BNL branch. The bank is owned by the Italian government. The FBI uncovered the loans in a raid in August, 1989.

Federal prosecutors in Atlanta contend the scheme was engineered and executed by Christopher P. Drogoul, the former manager of BNL’s Atlanta office, and other Atlanta bank employees. They said there is no credible evidence that bank officials elsewhere knew of the scheme.

Drogoul pleaded guilty in June and accepted his role as mastermind. At his sentencing hearing before Shoob last month, however, Drogoul’s lawyer sought to withdraw the guilty plea and suggested that the Administration had interfered in the investigation and had withheld intelligence information indicating that BNL officials knew of the loans while they were taking place.

In an attempt to refute the charges, prosecutors provided Shoob with a Sept. 17 letter from the CIA as well as some CIA cables.

The letter said that the CIA learned in late 1989 or early 1990 that BNL officials in Rome may have been aware of the Atlanta loans when they took place.

Soon after the letter was sent to Shoob, investigators for the Senate Intelligence Committee discovered that the judge had not received several other cables, which had been sent to the CIA by its Rome station chief in September and October of 1989. Those cables quoted “generally reliable sources” who claimed that BNL officials knew of the loans, according to government sources.

When the Intelligence Committee raised the matter with the CIA, its director, Robert M. Gates, said that the agency would conduct its own investigation to determine what happened. A CIA spokesman said that the additional cables were not discovered until after the letter for Shoob was written.

Lawyers for the CIA and Justice Department testified about the missing cables last Thursday and Friday before the Senate committee. Some sources said that CIA witnesses claimed they were pressured by the Justice Department to withhold the additional cables from Shoob.

However, the CIA and Justice Department have disputed the account in public statements. Over the weekend, the CIA said that its officials testified there was “no pressure from Justice to mislead anyone and no intent on the part of the CIA to mislead or provide incorrect information.”

CIA officials wanted the Justice Department to provide Shoob with a statement clarifying the agency’s knowledge of the BNL scheme, but Mueller and other senior lawyers at Justice believed that the document created the impression BNL officials in Rome undoubtedly knew of the loans, when in fact the underlying evidence was inconclusive, said two officials familiar with the episode.