‘Something Is Rotten In The State Of…’? Why Is This Administration Joining The Bush Iraq Gate Cover-Up?

On 23 August 1993, a top Justice Department official — Attorney General Janet Reno’s special assistant, John Hogan — told an incredulous Federal court the results of his "exhaustive" four month study of a key element in the Iraqgate scandal: Six functionaries of the Atlanta branch of an Italian government-owned bank sluiced some $5 billion in partially U.S. taxpayer-guaranteed loans to Saddam Hussein without the knowledge or acquiescence of their superiors in Rome and unbeknownst to government officials either in Italy or in Washington.

Hogan informed U.S. District Judge Marvin Shoob, who has presided over the trial of the former employees of the Banco Nazionale del Lavoro (BNL):

"The people in Atlanta were not working…at the direction of, with the knowledge of or under the auspices or approval of the bank in Rome. [Justice Department officials] reviewed the evidence and we did not find compelling evidence there was a conspiracy [by Bush Administration officials or others]."

Judge Shoob: ‘No Sale’

Hogan’s conclusions drew an appropriately contemptuous response from Judge Shoob. In statements at the sentencing hearing and in a nineteen-page order accompanying his decision (he meted out the lightest imaginable sentence — only probation or home detention — for five of the Atlanta-based BNL officials), the judge made the following observations:

"The preponderance of the evidence well supports this court’s conclusion that BNL-Rome was not a victim in this case. The evidence of CIA knowledge…is less persuasive but clearly troublesome."

"[The Central Intelligence Agency either] knew of [BNL-Atlanta’s] activities or the CIA failed to detect a five-year international deception and large-scale illegal financing of arms for Iraq through a small branch bank in Atlanta, Georgia."

"[The five defendants] were pawns or bit players in a far larger and wider-ranging sophisticated conspiracy that involved BNL-Rome and possibly large American and foreign corporations and the governments of the United States, England, Italy and Iraq….This is not a simple fraud case but a much wider conspiracy."

"The BNL affair was considered by some sources to be part of an acknowledged cooperative strategy to support Iraq to ensure its victory in the Iran-Iraq war….It would be the height of hypocrisy to sentence these defendants as if this were a simple case of wrongdoing by a branch’s employees."

The Washington Post reported on 25 August that Shoob had told it:

"…He studied stacks of documents from the National Security Agency, the CIA, the Defense Intelligence Agency, an Italian government commission, the Senate Select Committee on Intelligence and other sources. ‘I concluded it could not all have happened by chance. One or two of the matters, or five or six, might be explained. But when you run into dozens, you have a problem.’"

The Los Angeles Times on 24 August reported that Judge Shoob engaged in an extraordinary and heated exchange with prosecutor Randy Chartash in response to the latter’s suggestion that "there is no credible evidence indicating that BNL officials in Rome knew of the hidden loans" and Ms. Chartash’s "disparag[ing of] the credibility of CIA reports that said bank officials did know."

The judge responded "that it was ‘absurd’ to think that a ‘two-bit branch’ in Atlanta could have loaned $5 billion without attracting the attention of BNL officials elsewhere as well as U.S. intelligence agencies." The Times described Judge Shoob as saying that such "findings ignored intelligence documents, White House telephone calls to one of the prosecutors, the involvement of a British spy with BNL and a host of other suspicious occurrences." He added: "I would conclude that only in never-never land would a combination of circumstances such as I have seen indicate that all this happened by chance."

What’s Going On Here?

How could the Clinton-Gore Administration arrive at a conclusion so wildly divergent from that of a respected Federal judge who has, over the past three years, steeped himself far more deeply in the details of the BNL scandal than Mr. Hogan did — or for that matter than a former judge, Frederick Lacey, did after Bush Attorney General William Barr asked him to look into charges of a cover-up? (With regard to the latter, who also found no evidence of a larger conspiracy, Judge Shoob reportedly said, "If Judge Lacey had investigated the [1922] Teapot Dome scandal, he would have given out a medal instead of a jail sentence.")

The Administration’s current stance is all the more striking when contrasted with the importance that then-vice presidential candidate Al Gore placed on the issue during the 1992 presidential campaign. In a major speech before the Center for National Policy on 29 September 1992, Sen. Gore assailed the Bush Administration over the Iraqgate scandal. The written text of the speech, which ran to twenty pages and included an extensive chronology and 41 footnotes, was trumpeted not only as evidence of the Clinton-Gore team’s mastery of complex international affairs but also as a conclusive indictment of the incumbents’ misdeeds.

Mr. Gore said, in part:

"When Congress and the American people started asking questions, the Bush Administration covered up its actions and intentions. It misled congressional investigators and altered documents. And the White House may have interfered with a Department of Justice investigation into the embarrassing, illegal loans made by the Atlanta, Georgia branch of the Banca Nazionale del Lavoro."

One plausible, if unpalatable, explanation for the Clinton/Gore turn-around may be inferred from the Administration’s decision, announced last April, not to prosecute former Commerce Department officials for — as Sen. Gore put it — having "misled congressional investigors and altered documents" subpoenaed by Congress: It would seem that, as many Republicans alleged at the time, Democrats’ interest in Iraqgate was limited to the political hay that could be made during the 1992 campaign over allegations of Bush Administration wrongdoing. With the White House safely won, senior Democrats apparently no longer have any desire to get to the bottom of the story.

The reason for this is not hard to fathom. After all, for several years, many leading Democratic Members of Congress were well aware of — and quite supportive of — executive branch efforts to help Saddam Hussein with billions of dollars in government-guaranteed financing for grain sales and the export to Iraq of sensitive high technology. Now, the Democrats on Capitol Hill and downtown evidently are content to become party to the cover-up, rather than bring it to a swift and potentially embarrassing end.

In particular, there is no longer any evident interest from these quarters in a special prosecutor to get the facts and bring, at a minimum, those like former Under Secretary of Commerce Dennis Kloske to justice. To the contrary, the Wall Street Journal reported on 25 August that "Justice Department officials feel Mr. Hogan, who worked for Ms. Reno prior to their joining the Clinton Administration, essentially fulfilled that role."

Watch This Space

This controversy will nonetheless be once more in the public eye shortly. On 8 September, the sixth BNL defendant — former Atlanta branch manager Christopher Drogoul — is to stand trial. His defense team has subpoenaed senior Bush Administration officials — including the former President himself, former Secretary of State James Baker and former U.S. Ambassadors to Iraq April Glaspie and David Newton — and numerous sensitive documents. The purpose of such subpoenas, according to Drogoul’s attorney, Robert Simels, is to establish "U.S. awareness of BNL’s role in the finance of exports to Iraq."

The Justice Department is trying to block the subpoena to Mr. Bush on grounds of executive privilege. Similar motions to avoid appearing as witnesses may be expected from the other former officials and from Kissinger Associates which also received a summons to testify.

As a practical matter, the Drogoul trial — which will not be presided over by Judge Shoob — may be the last hope for a full public accounting about the true character of the BNL affair. If the Clinton Administration has become a party to the Iraqgate cover-up, however, it can be expected to resort to the ultimate step: dropping some (if not all) of the charges against Christopher Drogoul in the hope of limiting further revelations.

Indeed, there is some evidence that it intends to do precisely that. On 23 July, it was reported in the press that the Administration "planned to drop most of the charges against Drogoul." While such a step could be justified on the grounds that Drogoul, like his five Atlanta branch colleagues sentenced this week, was "a pawn or bit player" in a larger conspiracy, it would put the Clinton Administration in a difficult — and potentially quite expensive — bind. For one thing, if Drogoul was not responsible for a criminally bilking the Treasury, who was?

For another, the Justice Department just last April sought deferral of a BNL request for reimbursement of $340 million in U.S. guarantees on loans made to Iraq until after the Drogoul trial was completed. At the time, Justice argued that evidence introduced at the trial might establish that officials at BNL-Rome were engaged in corrupt practices, thereby releasing the United States from its repayment obligations. If there is no Drogoul trial — or if it fails to establish a larger BNL connection — the U.S. taxpayer could well be liable for hundreds of millions of dollars in bad Commodity Credit Corporation (CCC) loans made by BNL to Iraq, on top of billions already paid out to other European and Arab-owned banks.(1)

The Bottom Line

The Center for Security Policy commends Judge Shoob for his forthright and responsible analysis of the true character of the BNL scandal — and the larger Iraqgate fiasco of which it is a part. The Center has long argued that the Bush Administration’s misuse of taxpayer-guaranteed commodity credits to support Saddam Hussein in the aftermath of the Iran-Iraq war was not only consistent of its overall, misguided policy toward Baghdad. Such behavior was also of a piece with its routine abuse of the CCC and other non-transparent U.S. credit mechanisms as a kind of foreign policy slush-fund (notably, to prop up Mikhail Gorbachev’s Soviet Union).(2)

The Center calls upon President Clinton, Attorney General Reno and congressional leaders like Rep. Henry Gonzalez (D-TX) to insist upon nothing less than a genuinely independent counsel to perform the clearly needed independent investigation of the Iraqgate matter. Unfortunately, anything less will amount to complicity in the very cover-up the Clinton-Gore campaign once reviled and will serve to ensure that those responsible for serious wrongdoing in the affair — and its aftermath — go unprosecuted and unpunished.

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1. See in this regard the Center for Security Policy’s Decision Brief entitled The CCC Fiasco Continues: Libyans, Iraqis, Europeans Made Whole by U.S. Taxpayers for Saddam’s Default(No. 92-D 89, 7 August 1992).

2. See, for example, the following Center products: Iraq Gives Hill Wake-Up Call on Export Controls, (28 September 1990, No. 90-P96); Truth is Stranger Than Fiction: The Real Reasons Why Dennis Kloske Must Be Fired, (10 April 1991, No. 91-P 28) Commerce Cover-Up of High Tech Sales to Iraq?/em, (10 July 1991, No. 91-P61); A Tale of Two Cities — -Baghdad and Moscow: The Unmaking of the President? (19 May 1992, No. 92-D 55); The Kloske/Mosbacher Affair: The ‘Iraqgate’ Scnadal in Microcosm, (4 June 1992: No. 92-D 62) Who Knows What Evil Lurks in Iraqgate? (Probably) Bob Kimmitt Do (22 June 1992, No. 92-D 69); ‘Katie Barr the Door’: A.G.’s Stonewall of Iraqgate Probe is an Obstruction of Justice Congress Must Not Abide, (12 August 1992, No. 92-D 93) Lies, Damnable Lies and Scowcroft’s ‘Facts’ — A ‘Baker’s Dozen’ Contribute to Iraqgate Coverup, (13 October 1992, No. 92-D 128).