IN THE KNOW : WITH IRAQGATE, THE CIA SEEMS TO HAVE FINALLY LEARNED ITS POLITICAL LESSON

The embarrassing cat called “politicization of the CIA” got pretty well out of the bag over the last week when the agency tried to explain how it misled--without trying to deceive--Justice Department prosecutors and a federal judge in a complex court case surrounding loans to Iraq through the branch of an Italian bank in Atlanta. By suggesting it had no secret information about the case, the Central Intelligence Agency blundered hip-deep into the tar pit sometimes called Iraqgate--not for any dark purpose of its own but because it did instinctively what it thought the President would want before taking time to reflect that he might not be President for long.

This is the last explanation Robert M. Gates, President George Bush’s handpicked candidate for CIA director, would offer for letting his agency keep mum for three weeks on a point of interest to the courts. The epic battle over his nomination a year ago hinged on precisely that point--Gates’ alleged willingness to say “yes,” “no” or “maybe” according to the convenience of the White House. CIA analysts trooped up to Capitol Hill to offer unprecedented testimony that Gates had “cooked the books”--twisted evidence and arguments to ensure that agency estimates in the Reagan years would back up policy-makers. Gates had no difficulty in citing chapter and verse about antique controversies in his own defense, until the questions turned to the Iran-Contra affair. Then, abruptly, he began to testify like a man brain-damaged at birth.

The CIA has always worked for the President alone, but it wasn’t until the Vietnam War shattered the Cold War consensus that the agency became the President’s chief instrument of foreign policy when he was head-to-head with Congress. The Iran-Contra affair, now sputtering out in the courts, is far from the only, just the clearest example of what is meant by politicization of the CIA: When the President whistles a hornpipe, the agency does not glide out in a waltz.

The oddest thing about the most recent flap is that the CIA has only the briefest, walk-on role in the three-year-old controversy about loans made to Iraq by the Italian Banca Nazionale del Lavoro (BNL), and the curiously halting and myopic investigation of the affair by the Justice Department under both of President Bush’s attorneys general, Richard L. Thornburgh and William P. Barr.

In the four years before it was closed down in an FBI raid in August, 1989, the minuscule Atlanta branch of the BNL lent about $5 billion to Third World countries, much of it to Iraq. Some of these loans were guaranteed by the U.S. government, and most--apparently--were used by Iraq’s Saddam Hussein to finance his rearmament following the devastating war with Iran. Even after the BNL closed, the Bush Administration pressed vigorously to continue making loans to Iraq--a fact it was anxious to forget after Hussein invaded Iraq in August, 1990. The central question of the scandal is whether the Bush Administration will get nailed for doing anything illegal in the rush to forget.

A full account of the affair will doubtless fill a thick book one day. What requires explanation here is why the CIA under Gates got involved. It happened almost by the way, when the CIA submitted a letter on Sept. 17 to the Justice Department outlining (some of) its knowledge about the case. Left out was (the rest of) what it knew about BNL awareness of the loans at its Rome headquarters.

The BNL loans to Iraq were fabulously unwise--as a business investment, because Hussein was known to be broke; and as an attempt to finance Iraq as a Middle East peacekeeper friendly to the United States. Those matters were brushed aside by the indictment of the bank’s Atlanta manager, Christopher P. Drogoul, who made things easy for the Justice Department by pleading guilty last spring to pulling off the caper all by himself. Drogoul’s plea neatly sidestepped the many awkward questions raised by the involvement of high officials in BNL’s Rome headquarters, in the Italian government, which owns the bank, and in the Iraqi government.

But a month ago, Drogoul decided to retract his plea, and U.S. Judge Marvin H. Shoob agreed to consider his arguments at a sentencing hearing in Atlanta. Drogoul said his superiors at BNL in Rome knew all about the Iraq loans. If true, then he was guilty of no crime. Shoob inquired what the Justice Department knew about BNL officials in Rome, and Justice asked CIA what it knew. The asking was something of a charade, but the answers required on paper were serious. Through this crack in the door Gates’ CIA marched into the tar pit.

Turns out the CIA did know that the BNL officials knew--just how and just what have not yet been revealed. But it’s a good bet that what the agency knew was the fruit of communications intelligence. Gates is not only the director of the CIA, but the Director of Central Intelligence. That means he has a kind of suzerainty over the National Security Agency, which, to put matters briefly, has means to listen in on virtually all international communications not delivered by hand or encoded by machines too sophisticated for any but major governments.

The NSA and CIA take care to notice nothing outside of their national-security purview. If a foreign government were to cable $10,000 and heartfelt thanks to a U.S. senator for his vote on a foreign-aid program, the NSA-CIA machinery would pick it up, but the fact would make no further progress through government bureaucracy. As a result, most Americans forget that NSA-CIA listens to just about everything, and would certainly have access to communications between BNL headquarters in Rome and the Georgia branch lending $1 billion a year to customers like Iraq.

In short, the CIA knew--probably from routine communications between BNL’s Rome and Atlanta offices--that Drogoul was not lending billions without approval. That would mean Drogoul was innocent of the narrowly framed charges that he had defrauded his own bank--and thereby reintroduce all those other embarrassing questions about the loans to Iraq that the White House and Justice Department blushed to discover. If the Italians knew, and the CIA knew the Italians knew, then is it fair to speculate that the U.S. government knew and approved as well? Those are not questions Bush would like to chew over in public in an election year. Drogoul’s guilty plea was the cork intended for that particular bottle.

But that plea could not survive a CIA admission it knew the Italians knew. Gates’ agency was like the girl in “Oklahoma” who “Cain’t say no.” The CIA was experiencing cold feet within a day of issuing its misleading Sept. 17 letter, but Lawrence A. Urgenson of the Justice Department “strongly advised” the agency’s chief lawyer to stand pat, and it did--until Oct. 6. The official story thereafter was innocent error. The CIA’s director of operations said that part of the problem was loss of documents in the filing system. Adults need not linger over this explanation.

Since the embarrassment of disclosure, all concerned have announced investigations of what went wrong. Gates at the CIA was first to the microphone, but it’s unlikely the public will ever know just who was bending over backward for whom without a vigorous effort by an independent prosecutor. In the background is the deeply troubling possibility that Bush not only fought and won the Persian Gulf War, but somehow caused it as well, through a succession of policy blunders. Hussein’s success in getting away with grand theft of U.S. tax dollars for building up his army may have convinced him there would be no response to the invasion of Kuwait, either.

But in the foreground is the awkward reminder that the CIA works for the President, and when the President’s men whisper his wishes, the agency cups an ear. Does anyone remember Watergate--the fourth-rate break-in of Democratic National Committee headquarters in the election year of 1972? The CIA was asked then, none too subtly, to tell the FBI some cock-and-bull story about national security. The agency’s cooperation didn’t last long. It smelled a major scandal coming its way, and headed for high ground. Three weeks sets no record for promptitude in owning up to playing dumb, but it does suggest that Gates has got his nose to the wind.