Probe of U.S. Aid to Iraqis Is Stepped Up

A special Justice Department investigator has taken the first step toward the appointment of an independent counsel to investigate whether Bush Administration officials violated the law in carrying out and possibly covering up U.S. dealings with Iraq before the Persian Gulf War.

A Justice Department official confirmed Thursday that retired U.S. District Judge Frederick B. Lacey has determined that there is sufficient information to proceed to the second phase of the inquiry into whether an independent counsel should open a full-scale criminal investigation.

Lacey reported his preliminary findings to Atty. Gen. William P. Barr late last month and was given a green light by Barr to go ahead with what is termed a “preliminary investigation,” the department official said.

Should the further inquiry determine that federal laws may have been broken, Lacey will recommend to Barr that he seek appointment of an independent counsel. The department official said that Lacey is expected to report back to Barr by Dec. 8.

Lacey’s appointment by Barr last month was greeted with skepticism by Democrats who questioned whether he had sufficient independence to delve into the politically charged issue. However, an aide to a key senator said Thursday night that Lacey’s early findings are encouraging to the Administration’s critics.

If Lacey recommends an independent counsel and Barr accepts the recommendation, a special three-judge panel from the U.S. Court of Appeals here would pick the special prosecutor.

Lacey’s inquiry has focused primarily on the Administration’s handling of the criminal investigation into $5 billion in secret loans to Iraq by the Atlanta branch of Italy’s Banca Nazionale del Lavoro. The Justice Department has blamed the loans on the branch manager, but CIA documents withheld from prosecutors indicate a wider knowledge of the scheme within the bank.

The investigation was the subject of intense pressure from the Italian government and the Bush Administration. A White House lawyer telephoned the prosecutor early in the inquiry, and the State Department and the National Security Council monitored the sensitive investigation.

Disclosure of Lacey’s preliminary decision came the same day the chairman of the Senate Intelligence Committee said that his panel is investigating whether critical intelligence information has been withheld from government prosecutors to protect the infiltration of Iraq’s arms network by the CIA.

“What we are trying to determine is whether a decision was made at some level of government that the gathering of information took precedence over the prosecution of any individuals,” said Sen. David L. Boren (D-Okla.), the committee chairman.

The CIA and other intelligence agencies have been asked whether they had contacts with 30 individuals and about a dozen companies associated with Iraq’s arms-buying network, Boren said.

Boren indicated that the committee’s inquiry has expanded dramatically in recent weeks, moving beyond the withholding of CIA data from prosecutors in the Italian bank fraud case to examining broader questions about whether U.S. intelligence agencies withheld data as part of an attempt to support the Bush Administration’s pro-Iraq policy.

Expressing frustration at the pace of the investigation, Boren said that it has been slowed by the refusal of eight Justice Department attorneys to be questioned until they hire lawyers for themselves.

The Senate investigation was heightened this week by disclosures that the British government encouraged a firm to sell machinery with military uses to Iraq so that it could continue to receive intelligence information on Iraq’s arms-building efforts and to improve trade.

In a briefing for reporters, Boren indicated that investigations by several congressional committees will extend into next year unless the attorney general agrees to the appointment of the independent counsel. Boren did not know about Lacey’s preliminary findings when he spoke.

The intelligence committee opened its investigation last June, but the inquiry gained momentum last month when the staff found that CIA material had been withheld from a federal judge in Atlanta. The judge was hearing the case involving the loans from BNL.

The CIA claimed that it had failed to locate several critical cables when it was initially asked for information by the Justice Department. Once the records were found, agency officials said, Justice Department lawyers advised them to keep the material from the judge. Justice Department officials have disputed that claim.

Although generally considered a CIA backer, Boren criticized the agency as “haphazard and sloppy” in retrieving data from its voluminous intelligence files in response to requests from the Justice Department and other agencies. He said that the system encompasses at least a dozen computer networks that are not linked to a central repository.

The BNL case is not the first to have brought complaints from prosecutors that the CIA was not forthcoming in sharing its information. CIA records were not turned over to prosecutors in the early stages of the investigation of the Bank of Credit & Commerce International and the agency later admitted using the bank to finance some of its covert operations and to monitor terrorists.

What has not yet been determined in the current investigation, said Boren, is whether the records system is flawed by inefficiency or by design to conceal data from other government agencies.

So far, committee staff members have examined 4,000 pages of documents and questioned 17 CIA employees and two Justice Department officials under oath. While Boren did not name the eight Justice Department officials who had sought lawyers, others confirmed that the three prosecutors in Atlanta who handled the BNL case hired lawyers before being questioned by congressional staff members and a special investigator appointed by the attorney general.

The intelligence agencies have been asked to check their files for information about firms and people affiliated with Iraq’s arms network. The request covered involvement in covert operations and infiltration by agents to gather data on the network.