Thanks to this fall’s contentious election, the BNL court hearing for Atlanta banker Christopher Drogoul, and Congressman Henry Gonzalez’s lonely vigil in the well of the House of Representatives, the public got a peek at the sub-rosa realm of U.S. intelligence and the Bush administration’s clumsy cover-up of the multinational scheme to finance Iraq’s war machine.
But now the election is over and the media is poised to let George Bush gracefully exit as the man who brought us more information on food labeling and fed starving Somali children. The pace of reported lraqgate disclosures has slacked off, while the cover-up has only widened.
The biggest setback in the investigation came last week when Judge Frederick Lacey, who had been appointed by Attorney General Barr to investigate the scandal and was expected to call for a special prosecutor, instead issued a report calling the allegations “arrogant nonsense” and castigated the press for having raised them.
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Though the Clinton administration could help get the momentum back again, Lacey’s whitewash buys more time for the Bush crowd to cover its tracks. In fact, just two days after the election, counsel to the president C. Boyden Gray sent a memo instructing executive branch staff that visitor and phone logs could be destroyed before the transition of power. Also covered, in the broad category of what he called “non-records” were notes on meetings. It is precisely these kinds of records that proved so invaluable during Watergate.
Justice, meanwhile, is trying to slam another door closed. When the news first broke that an Atlanta branch of the Italian state-owned bank Banca Nazionale del Lavoro had used fraudulent loans to finance Saddam Hussein’s military buildup, Atlanta branch manager Christopher Drougul became the fall guy. That move seemed to backfire at first, as Drogoul’s attorney uncovered all sorts of information embarrassing to both Washington and Rome. But now Drogoul’s trial has been postponed and Justice has filed a new motion to use national security as a cover to prevent further embarrassing revelations.
Further, an even more blatant attempt to thwart public disclosure of the tangled Iraqgate network is underway in Britain. Three executives of Matrix Churchill, a machine tool and die maker with ties to BNL that served as the chief procurer for Iraq’s buildup, were to go on trial for violating British export law. But that case, which promised to expose links between American and British corporations arming Iraq, collapsed when it was revealed that the British government, like the Bush administration, knew about the sales all along — and even took moves to encourage them.
“There is great significance in the collapse of the case against Matrix Churchill because it was the key Iraqi company charged with nuclear and conventional weapons procurement,” says Marianne Gasior, a whistleblowing attorney, who went to Congress when she learned that her former employer, Kennametal, was involved with the company. “By closing this door, by keeping evidence from Congress, the British Parliament, and both nations’ legal systems, other cases related to the U.S.-U.K.-Iraqi link are shut down as well.” All these developments — Lacey’s report, the truncated case in Atlanta, and the collapse of the British customs case — mean the chances of unraveling Iraqgate have greatly diminished. What’s lost is not just the opportunity to right past wrongs. Without a complete multilateral investigation of how these covert networks function, they remain in place and the pipeline will continue to carry components of weapons of mass destruction to anyone with the cash to pay for them. Or in the case of Iraq, the credit to charge them.
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Banca Nazionale del Lavoro had been rocked by scandal before. In the ’70s, there was an exodus of top brass tied into the P2 Lodge, a clandestine group of corrupt business interests with far right-leanings. But that was at home. In Iraqgate, the scandal involved parties in several countries, and damage control had to happen in the U.S.
Dozens of Fortune 500 companies had huge letters of credit with BNL and big-volume business with Iraq. There were Iraqi front companies in the U.S. set up to procure weapons and nuclear technology that were heavily tied into BNL, like the Matrix Churchill subsidiary in Ohio. Also implicated was a Turkish trading company and a Jordanian businessman, who was a good friend of King Hussein. The New York branch of the Yugoslavian bank LBS, where Secretary of State Lawrence Eagleburger was once a director, used BNL start-up capital and had provided a mortgage loan to a key figure in the scandal. And there was strong evidence that intelligence services in both the United Kingdom and the United States were fully aware of the Iraqi network all along.
So it was crucial not just to the Italians for the BNL central bank to be cast as an unwitting victim of a single yuppie loan officer from Atlanta.
What was supposed to be Drogoul’s sentencing hearing, however, turned into a fiasco for the Bush administration. Bobby Lee Cook, the brilliant lawyer who defended Drogoul, kept the U.S. Attorney breathless as he produced bombshells like internal BNL-Rome diaries that included day-by-day accounts of how the bank brass lobbied the highest levels of the U.S. government to limit the criminal investigation on grounds of political expediency. The CIA and the Justice Department started blaming each other after getting caught supplying incomplete and misleading evidence to the federal judge in the case.
But then the judge, Marvin Shoob, grew so suspicious of the government’s handling of the investigation that he called for an independent prosecutor and ultimately withdrew from the case. Cook, who was working pro bono, withdrew when the case dragged on and Drogoul was unable to pay him. And now Drogoul, who remains in federal prison in Atlanta with no bail set, has been ruled an indigent and was assigned court-appointed counsel for a new trial in April.
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Meanwhile, the Justice Department, smarting from its humiliation at the hands of Cook, sent in the same national security specialists who had seen to it that former CIA employee Manuel Noriega got put away without the government having to air too much of the CIA’s dirty laundry. This litigation SWAT team wasted no time in filing a motion with the court to invoke the Classified Information Procedures Act for Drogoul’s upcoming trial.
CIPA, passed by Congress in 1980, makes it much harder to get the government to release classified documents during a trial. The government can substitute for the actual document a statement of the prosecution’s own creation that has to suffice as a true and accurate summation of the document’s contents. What the CIPA protocol insures is that the flood of information about Iraqgate, including the role of U.S. intelligence and high-level Bush administration figures, will dry up, leaving some burning questions unresolved:
Who in the U.S. government invited three Iraqis from Hussein’s top explosive research and development facility to attend a federal seminar on nuclear detonation in 1989 held in Portland, Oregon?
Where is the followup on the former USDA official who federal prosecutors suspected was soliciting bribes from companies exporting to Iraq?
And why, in the midst of a massive multi-agency investigation that alleged the BNL criminal enterprise included high-level Iraqis as well as Drogoul, did Secretary of State Jim Baker push for another $500 million in Commodity Credit loans for Iraq?
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But the most pressing unanswered question is, just how high and how wide does the coverup reach? The Justice Department contends it first knew about the criminal activity at BNL when two bank employees, who worked closely with Drogoul, decided in July 1989 to turn him in. They got immunity. BNL U.S. branches were raided on August 4, 1989. An indictment was not handed down until February of 1991.
Initially a team comprised of representatives from the USDA, the Federal Reserve, the FBI, and the Atlanta U.S. Attorney’s office conducted the investigation. But something just was not right. On February 6, 1990, Federal Reserve official Ernest Patrikis wrote in a “restricted” internal memo, “Obviously, the indictments that were expected to come down in January did not materialize. A planned trip to Italy by criminal investigators was put off because of BNL-asserted concerns regarding the Italian press.”
On April 5, 1990, Federal Reserve official Thomas Baxter wrote New York Federal Reserve boss Gerald Corrigan: “The resignation of the United States Attorney in Atlanta has led to a number of difficulties in that investigation. These difficulties have been compounded by what is perceived as interference from the Justice Department in Washington.”
Eventually a former high-ranking Justice Department lawyer, Joe Whitley, was appointed to be the chief U.S. attorney from Atlanta. The only problem is that he didn’t go directly from one Justice job to the next. He was in private practice for a while working for none other than Iraqi weapons front company and BNL customer Matrix Churchill of Ohio. Whitley has said he withdrew from the BNL prosecution in June 1990, but the Financial Times reports that Justice Department memos dated September 1990 and February 1991 “make specific references to his involvement in the BNL case.” All of this seems at odds with the party line from Attorney General Barr that Justice’s investigation was properly conducted. U.S. Attorney Michael Chertoff, whom Barr brought in to review the prosecution’s conduct before denying Congress’s call for an independent prosecutor, told the Voice that the time lag from the initial raid in August of 1989 to the indictments in February of 1991 was the result of an internal debate between the Fraud Section of Justice in Washington and the U.S. Allorney’s office in Atlanta. The Atlanta contingent had the theory that Drogoul had victimized the bank. Chertoff said some people in Washington thought the bank had to have known about Drogoul’s high-volume transactions.
When Atlanta won out, there certainly must have been glee over at former attorney general William Rogers’s law firm, Rogers and Wells, which had worked back channels for the Italians.
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During Judge Lacey’s press conference last week, he noted that the Atlanta prosecutors were fully aware of Matrix Churchill’s operations but decided there was “no sense” in going after the Iraqi front corporations because they had already been seized by Customs. In fact, U.S. attorneys had granted immunity to one of the American principals in Matrix Churchill, Gordon Cooper. According to the Financial Times, it was a document signed by Cooper and certified by then Secretary of State Baker in March of 1989 that permitted Matrix Churchill to solicit Iraqi contracts.
As for the CIA and Justice Department’s mishandling of classified evidence in the BNL case, Lacey was generous to both agencies: “The fiasco in September was a series of mistakes by well-meaning and well-intentioned and ironically very experienced prosecutors and CIA persons.”
Lacey dismissed implications that the administration tried to influence the Atlanta BNL prosecution with the famous phone call from White House attorney Jay S. Bybee to Assistant U.S. Attorney Gale McKenzie on November 7, 1989: “I am not concerned with what’s on Mr. Bybee’s mind when he makes the call. My own instincts are what happens to the person who receives it … I am convinced [McKenzie] didn’t detect any sense of pressure being imposed on her by this call.”
To support his characterization of McKenzie as independent, Lacey described how she fought Jus1ice in Washington to go with her theory 1hat BNL Rome was a victim. In fact, if Rome had authorized Drogoul’s actions, Justice might not have had a case, because at the time, foreign agency banks enjoyed a high level of criminal immunity. “You know what would happen to this case?” Lacey asked. “Drogoul would wind up with some regulatory slap-on-the-wrist punishment. But even worse, lhe Iraqis [would not be] guilty of a criminal conspiracy.”
Of course, this line of reasoning had another gain for the administration: limiting the case to Drogoul almost from the start kept not only Rome but Washington out of the spotlight.
No matter how often the judge answered questions with “I don’t know” or “we did not have time,” he was emphatic that the BNL prosecution had not been corrupted. But he did allow that his “process was fallible in this respect: We were unable to determine who at Justice saw what and when … I was unable to penetrate with any precision where responsibility lay.”
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While Barr and Lacey, et al., try to close the book on Iraqgate here in the U.S., the Conservative government of Prime Minister John Major has struggled to keep the lid on its part in Iraqgate. The cabinet worked hard to suppress a considerable paper trail that illustrates how the government allowed the sale of sophisticated military technology and provided financing for Saddam Hussein up until a few days before the invasion of Kuwait.
The British government has a much easier time keeping documents out of public domain than the U.S. does. There is no Freedom of Information protocol; all slate papers become public 30 years from their date of origin. That would be like our entire government filing system being on the JFK document release schedule.
Major suffered a setback when the three Matrix Churchill executives on trial for selling military technology to Iraq successfully blocked the government’s attempt to prevent the use of the files on British export policy and military technology in their defense. The judge admitted the papers, which illustrate how exports of all kinds were first in the ministers’ minds and how the Thatcher and Major governments fully supported Matrix Churchill’s exports to Iraq as well as the exports of other U.K. machine tool and die makers. In fact, they would rarely reject an exporter’s request out of hand. If they really felt there might be some serious proliferation issues they would tell the exporter the decision was pending.
As its turned out, however, the three exutives did not need all the evidence. One of the prosecution’s star witnesses, Alan Clark, former minister of trade and defense, switched his testimony, conceding that the government was well aware of the exports and that officials had given Matrix Churchill ideas on how to get around the export laws. The Conservative spin on it was that, by maintaining the Matrix Churchill-Iraqi connection, British intelligence could better estimate the Iraqi threat.
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But a read through the Matrix Churchill evidence and British military export files gives quite a different impression about what Britain thought it could do in Iraq. British export bureaucrats wrote with great optimism as late as March of 1989 that the British displays at the Baghdad International Exhibition for Military Production would really boost business. “Minister will recall that there is a proposal to set up an aircraft factory in Iraq based on the Hawk trainer. BAe [British Aerospace] have been keeping the pot boiling on this project throughout the [Iran-Iraq war], and are committed to bring it back to Ministers if it looks as though the Iraqis wish to sign a contract,” wrote A.W.H. Barrett.
Starting in 1987, the British allowed that up to 20 per cent of loans to Iraq could be spent on military procurement from British suppliers, providing a windfall for the suppliers. But British taxpayers would be left holding the bag for $1.5 billion in bad Iraqi debts — almost matching the nearly $2 billion U.S. taxpayers must pay. Meanwhile, the English exporters were able to spread their action around, thanks to BNL. Down in Atlanta, over 100 English companies got listed on the bank’s letters of credit worth over $250 million. Now that’s real transatlantic cooperation. ■
Research assistance: Maggie Topkis