Agencies Under Criticism for Actions in BNL Probe : Inquiry: Justice Department, CIA taken to task for handling of data on Italian bank officials, Iraq loans.

The Justice Department failed to adequately investigate U.S. intelligence reports suggesting that executives of an Italian bank were aware that its Atlanta branch had made billions of dollars in loans that helped arm Iraq before the Gulf War, according to a Senate report released Friday.

And the CIA’s inspector general reported later Friday that the agency’s conduct was marked by “carelessness” and “poor judgment.” The findings--focused on problems within the CIA--closely parallel those in the Senate report.

The most dramatic intelligence document described in the Senate report is a previously undisclosed Pentagon memo suggesting that the bank financed the arms transactions as part of a NATO strategy to help Iraq in its war with Iran.

But in concluding a four-month inquiry, the Senate Intelligence Committee said Justice Department officials dismissed the information as speculative and did not follow up leads raised in the intelligence documents. It said many of the reports were not even passed on to the Atlanta prosecutors who were conducting the investigation.

The Senate report blamed judgment errors and bureaucratic bungling by the Justice Department and CIA. It said no evidence was uncovered of any overt attempt to withhold key information.

The inspector general said “CIA’s mishandling of its role . . . was the result of many factors, especially the lack of a dialogue between the CIA and (the) Justice” Department. The report attributed the problems to “flawed performance by many individuals” and “the failure of a number of managers to see this train wreck coming . . . and to act.”

The inspector general singled out four CIA offices for blame: the general counsel, the intelligence directorate, the operations directorate and the office of congressional affairs, and recommended “appropriate disciplinary actions.”

The reports renew questions about the criminal investigation into $5 billion in loans to Iraq by the Atlanta branch of Banca Nazionale del Lavoro, which is owned by the Italian government.

Intelligence Committee Chairman Dennis DeConcini (D-Ariz.) said in an interview that the Senate findings may merit a criminal investigation by the FBI.

“I don’t think there is any question that the Justice Department just hasn’t done good work and this is another example of it,” said DeConcini, who is also a member of the Judiciary Committee.

Sen. Howard M. Metzenbaum (D-Ohio), who also sits on both committees, called for appointment of an independent counsel to “get to the bottom of this entire fiasco.”

In addition, investigators for House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) said some intelligence information in the Senate report was not turned over to them despite specific subpoenas. They expect Gonzalez to seek a Justice Department investigation into why his committee did not receive the material.

The Justice Department said it could not discuss specifics, but said it was pleased that no wrongdoing by department personnel had been found.

Critics say the Bush Administration coddled Iraq in the 1980s, contributing to Baghdad’s war machine, ignoring intelligence warnings and intervening improperly in the BNL investigation to cover its tracks.

The manager of the bank’s Atlanta branch was indicted with four Iraqi officials and others two years ago on charges of conspiracy and fraud in connection with the loans, some of which were guaranteed by the Agriculture Department.

The government’s case hinged on the premise that BNL officials in Rome did not know of the loans, but the Senate investigators found nine U.S. intelligence reports that contradicted the theory and speculated that Rome did know. The CIA, however, disagreed with the Senate panel’s assertion that the agency had definitively concluded that BNL headquarters knew of the loans.