SCANDAL INVOLVING ATLANTA AGENCY OF BANCO NATIONAL DEL LAVORO -- Henry B. Gonzalez, (TX-20) (House of Representatives - February 04, 1991)
[Page: H845]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Texas [Mr. Gonzalez] is recognized for 60 minutes.
Mr. GONZALEZ. Mr. Speaker, having had the privilege of living long enough, and having a very good memory, I recall before 1941, and in fact in the late thirties, the old trolley tracks in my hometown of San Antonio being torn up and sold to Japanese procurers of scrap iron and steel, so the day of the autobus was coming in.
There were those then, and I recall vividly they were considered sort of out of line, who were saying, well, the day is going to come when you are going to have all of that steel shot back at our soldiers.
Well, it certainly did seem that those in my generation would never have to go to war, much less be scattered to the four corners of the Earth, and some of them not to return.
I am forcibly reminded of that period because of some of the things that have now happened in our country, where it looks as if again we have not learned anything. We are like the Bourbon kings. We do not seem to learn anything or forget anything.
Mr. Speaker, let me preface my remarks before I go into them too much by expressing my gratitude to an outstanding staff member of the full Banking Committee. Let me say by way of parenthesis, so that some of my anxious colleagues who seem to think that as chairman I have total control of all the funding that is allocated to the Banking Committee, that actually about all I have is one-tenth of the staff, the total staff, that the Banking Committee lists as subcommittee staff and the like. One-tenth.
I have one-tenth of the budget for full committee chairman's discretion and direction.
I want to keep that in mind, because it is very important in order to exalt and to emphasize the preparation, what I call the genius of such a staffer, as Mr. Dennis Kane, who is the one that I want to give credit to for today's report.
I am here today to talk about the scandal involving the Atlanta branch of the large Italian Government-owned Banca Nazionale del Lavoro [BNL]. This is a sensational case in which former employees of the Atlanta branch of BNL approved over $3 billion in supposedly unauthorized loans to Iraq over the latter half of the 1980's. Most of these loans were not reported to American or Italian banking officials, so it is said.
The BNL scandal is a case study in bank regulatory failure. It is apparent that the State and Federal bank regulatory agencies failed to adequately supervise BNL. The Banking Committee is presently investigating this matter.
The BNL scandal raises several additional concerns within the jurisdiction of the Banking Committee. Foremost is the adequacy of the regulation and supervision of U.S. branches and agencies of foreign banks. Entitles like BNL command over $575 billion in assets in the United States and over $7.5 billion of their liabilities are guaranteed by the FDIC. The Banking Committee is quite concerned that the present sharing arrangement between the State and Federal bank regulatory agencies is inadequate to ensure these entities are properly supervised. This was certainly the case in the BNL affair. It is apparent that a thorough review of the International Banking Act is in order.
The BNL affair also raises the issue of whether or not we should allow U.S.-based financial institutions to be used as a conduit of foreign policy. It is time the committee delved into the intentions of foreign banks, especially those owned by foreign governments, and the role they play in our economy. We should ask ourselves: Should we permit foreign governments to carry out their foreign policy through our banking system, especially if it goes against our own interests? Should we permit foreign banks that are underwritten by foreign taxpayers to compete head on with our privately owned banks? One must wonder if it is fair for a foreign Government-owned bank to take business and jobs away from our privately owned domestic banks.
Maybe it is time we established a natioal screening board to monitor more closely foreign bank presence in the United States. Such a screening board could review applications for foreign bank entry into the United States, as well as monitor these banks to ensure they are not engaged in foreign policy activities or unfairly competing against our own firms.
[Page: H846]
BNL NOT JUST ANOTHER BANK REGULATORY FAILURE
The BNL scandal is not simply a bank regulatory failure, it is intimately linked with Iraq and the current gulf war. BNL loans permitted the export of almost a billion dollars of United States
agricultural goods to Iraq. These loans not only permitted Iraq to feed its people, they freed up scarce foreign exchange that was used by Iraq to build up its military arsenal.
I have developed evidence clearly linking BNL loans to a net work of companies that helped to build the Iraqi war machine; the same war machine or so-called coalition partners are now trying to destroy. It is also the same war machine that has taken the lives of some of our Nation's precious young adults, and placed over 500,000 of our soldiers directly in harms way.
Unfortunately, the United States and European technology and know-how used in building the Iraqi war machine may have been legal. Inadequate export control laws and the lack of enforcement of these laws among the industrial nations, permitted the export of sophisticated technology and know-how to Iraq. Instead of being employed in civilian projects, this technology was often used to build and improve Iraqi weapons. Many of the companies providing this technology to Iraq were financed directly by BNL loans, while many others were indirect beneficiaries of BNL moneys.
Of course deceit also played a large part in building the Iraqi war machine. It is quite probable that many of the companies providing technology and know-how to the Iraqi war machine did not realize they were doing so. During the 1980's Iraq established a sophisticated network of front companies charged with the mission of finding and exporting Western technology to Iraq. No expense was spared including possible bribes and higher than normal profits for the producers of the goods exported to Iraq.
One must wonder what the United States and the Western intelligence community knew about BNL's role in transfering technology to Iraq. It would be surprising if the intelligence community of the United States and those of our Western allies did not know about the transfer of this technology and its uses. It would be hard to believe that they did not know about BNL's role in building the Iraqi war machine.
The BNL affair also raises questions about our own and other Western governments policies toward Iraq. For the most part the West ignored massive human rights abuses in Iraq. Iraq used poison gas against Iran, and even its own citizens, the Kurds. Brutal Iraqi relocation policies made refugees out of over 100,000 Kurds. Iraq was a know heaven of terrorist groups. Through all of this, the United States and other Western governments provided billions in export credit assistance to Iraq which had a history of being delinquent or not paying on its loans.
Over the next several months I will be taking the floor to talk about the many implications of the BNL scandal. Today I would like to start with some background material. I will introduce you to the strategy Iraq used to obtain Western technology that was
ultimately used for military applications. I will provide background on the United States policy toward Iraq, background on BNL, and finally a summary of BNL's use of United States Government export credit programs.
At future dates I will provide an in depth look at the warning signs the United States ignored in dealing with Iraq, provide a more detailed look at the Iraqi technology procurement network including BNL's role in financing that network, provide statistics on the West's role in building the Iraqi war machine, and finally the need for our society, and that of our allies, to stop the proliferation of weapons of mass destruction.
SUMMARY OF UNITED STATES POLICY TOWARD IRAQ
In order to set the stage for an indepth look at the BNL scandal, it will be useful to take a quick look at United States policy towards Iraq during the past decade or so.
In 1979, during the Carter adminstration, Iraq was labeled as a nation that had consistently supported international terrorism. At one time or another, Iraq was reportedly providing state sponsored support for the notorious anti-Israeli group the Abu Nidal Organization and other terrorist organizations. Under the export controls operative at that time, a terrorist designation meant Iraq was prohibited from purchasing many United States goods including civilian aircraft or military equipment.
Shortly after this action the Iranian revolution and ensuing hostage crisis rocked United States policy in the region. At the same time, tensions between Iran and Iraq were mounting. In 1980, Iraq invaded Iran, starting a bloody war that would last nearly 8 years and claim hundreds of thousands of lives.
The loss of Iran was a severe strategic blow to the United States. The United States feared Iranian hegemony in Middle Eastern affairs and began to tilt toward Iraq as a counterbalance to the rise of Iran. In a controversial decision, the Reagan administration removed Iraq from the terrorist list in 1983, thus easing export controls that had been instituted in 1979. It appears the United States wanted Iran to lose the war so bad that it was willing to reestablish diplomatic relations with Saddam Hussein's terrorist regime after a 17-year interruption even though many believed Iraq was still harboring terrorists.
Iraq was also friendly with Russia, and countering this influence in Iraq probably played a role in this United States decision to tilt toward Iraq. At the time, economic factors played little role.
Removing Iraq from the terrorist list also opened the door for United States Government guaranteed agricultural exports to Iraq which began
in 1983. This was convenient, because at about the same time the U.S. agriculture community was experiencing surpluses in many agriculture commodities. The agriculture community supposedly saw Iraq as having long-term food needs that would present significant market opportunities for United States agricultural commodities.
In 1984, the United States officially reestablished diplomatic relations with Iraq even though in that same year Iraq had used posion gas in its war with Iran. Over the remaining years of the 1980's, Iraq continued to be one of the world's worst violators of human rights--a topic I will discuss at some length at a later date. Nevertheless, the administration continued to ignore massive human rights abuses.
As incredulous as it may seem, the United States reacted to all the human rights abuses, including Iraq gassing its own citizens, by expanding United States credit guarantee programs. From 1985 to 1990, the United States authorized over 4 billion in United States guaranteed agricultural exports to Iraq, the peak being $1.1 billion in 1988.
While Iraqi participation in the agriculture export guarantee program was increasing dramatically, Iraq was in default on United States Export-Import Bank credit programs. After settling its differences with Iraq, in 1987, the Export-Import Bank opened up for business with Iraq by providing a $200 million a year line of short-term insurance coverage for United States manufacturing exports to Iraq. These actions were probably taken to appease Saddam and his ambitious economic reconstruction program announced in 1987. The war with Iran ended in 1988, and Iraq was anxious to get the reconstruction program going. BNL would play a major role in the reconstruction effort.
[Page: H847]
THE IRAQI RECONSTRUCTION PROGRAM
With earnings from its huge oil reserves--second in the world to Saudi Arabia--Iraq entered the decade of the 1980's with hefty cash reserves. But its war with Iran--1980-88--and the drop in oil prices during the 1980's changed all that. Wartime weapons purchases coupled with domestic infrastructure expansion served to deplete Iraq's foreign exchange reserves.
Even though Iraq emerged from its war in poor financial condition, there was still some optimism regarding the reconstruction program. Iraq's oil reserves and its educated work force led many experts to believe that if Iraq could manage its economy properly, it could fulfill the promises of the reconstruction program. But with oil prices stagnating, Iraq was in poor shape to pay for this ambitious reconstruction program.
Iraq had accumulated massive debts of some $70 billion during the 8 year war with Iran. A good portion of Iraq's external debt was owed to Western bankers, and this debt had to be repaid in foreign
exchange earned from oil exports. Since much of Iraq's oil earnings had to be earmarked for debt servicing, its reconstruction program was in jeopardy of failing.
Saddam reacted to this problem by calling on many foreign countries to reschedule and spread out loans that had been extended to Iraq. Iraq had showed favoritism in contracting to nations that remained loyal during the war with Iran. Iraq also preferred to deal with nations willing to reschedule debts. It has been reported that Iraq often threatened to default on its official debts if a nation would not reschedule its loans to Iraq. Iraq refused to reschedule loans with nations in a multilateral forum, a process referred to as the Paris Club. While this was a violation of stated United States policy, it was purportedly ignored because Iraq was for the most part current on its United States debt.
Complicating Iraq's debt problems, was the unwillingness of most Western banks to lend to Iraq without Government guarantees. At the date of the Iraqi invasion of Kuwait, United States-owned banks had an exposure to Iraq of a little over $100 million. Western banks were not thought to have a relatively large net position in Iraq at the time of the invasion. Since few, if any, banks were willing to lend money to Iraq, Saddam turned to Western governments for help.
Many in the West perceived Iraq as a lucrative future export market. Iraq showed a distinct liking of Western technology and agricultural commodities. Many Western governments proved more than willing to provide the credit guarantees to capture part of the Iraqi market for their exporters.
With the help of the United States, through its CCC and Eximbank programs, and augmented by similar programs administered by several European and Asian countries, Saddam was able to keep his ambitious reconstruction going. But Saddam was not satisfied, he wanted more credit to fuel the reconstruction program. Enter BNL Atlanta.
BACKGROUND ON BNL AND ITS USE OF U.S. GOVERNMENT SPONSORED EXPORT CREDIT PROGRAMS
BNL is the largest Italian bank in terms of deposits. It is 96 percent Government-owned and has over $100 billion in assets worldwide. BNL commands over $8 billion in assets in the United States with offices based in Atlanta, New York, Chicago, Miami, and Los Angeles. Its North American headquarters are in New York. In addition, BNL has a commerical paper subsidiary, called BNL U.S. Corp., incorporated in Delaware and operating out of New York. BNL has offices throughout Europe and branches in Hong Kong, Singapore, and a representative office in Tokyo. BNL also has subsidiaries in Canada and The Netherlands Antilles.
THE RAID ON BNL U.S. OPERATIONS
In July 1989, the Federal Reserve Bank of Atlanta was notified by the FBI of a substantial off-book operation at the Atlanta agency of Banca Nazionale del Lavoro. On August 4, 1989, the Federal Reserve, accompanied in Atlanta by the FBI and U.S. attorney in Atlanta, raided the U.S. operations of BNL.
Based on information gathered from that raid, it was apparent that BNL-Atlanta was conducting massive off-book transactions. The Atlanta office was lending and raising billions that it did not report on its financial statements or in its bank regulatory statements.
The off-book lending probably began in February 1987. These transactions, kept on a set of secret books, were purportedly established to conceal the excessive Iraqi loans from BNL's headquarters in Rome.
The off-book transactions were originally used to finance commodity exports to Iraq. The first such transaction occurred in February 1987 with Rafidain Bank of Baghdad, Iraq. The following paragraphs provide some background on BNL-Iraq participation in the agriculture credit programs.
USDA-CCC EXPORT CREDIT GUARANTEE PROGRAMS
The U.S. Department of Agriculture's [USDA] Commodity Credit Corporation [CCC] is authorized under the CCC Charter Act and related legislation to develop and administer programs to expand U.S. agricultural export markets. During the early 1980's, CCC devised two main credit guarantee programs to accomplish this mission; the GSM-102 and GSM-103 export credit guarantee programs. These programs target countries that have potential for additional food purchases, but are short on cash and need credit. The USDA looks at a potential participant country's long-term food needs, market development opportunities for U.S. commodities, as well as the ability of a country to repay credit extended under the programs. The USDA also receives input from the U.S. export industry, before a final decision is made on which countries will be eligible to utilize the programs.
The GSM-102 and GSM-103 programs both work in a similar manner. Essentially, the CCC guarantee operates to attrack credit from the private sector to finance sales of U.S. agricultural commodities, rather than having the Government provide credit directly. The principle and most significant differences between the GSM-102 and GSM-103 programs is the length of the credit terms. Depending on individual country announcements, GSM-102 guarantee programs can cover financing terms up to 3 years. Under the GSM-103 program, credit guarantees are provided for periods from
3 to 10 years, although typically financing coverage does not extend beyond 7 years.
Prior to the beginning of each year, USDA, through its commodity divisions and the attache service of the Foreign Agricultural Service [FAS], enter into discussions with foreign countries interested in the GSM programs. FAS then allocates the amounts of credit guarantees among potential participating countries, establishing specific country lines by commodity. These proposals are then presented to an interagency group--the National Advisory Council--for its advice.
Under both programs CCC first announces the availability of coverage for eligible countries. After the announcement, U.S. agricultural exporters register sales to the eligible country, and pays a guarantee fee to CCC.
Transactions under both programs must be covered by an irrevocable letter of credit issued by a CCC-approved bank located in the importing country. This was the Rafidain Bank in the case of Iraq. U.S. exporters usually assign the guarantee to a United States or foreign bank which then provides the financing of the export transaction.
In the case of the GSM-102 program, Congress mandated that CCC make available `no less than $5 billion' annually in short-term credit guarantees. Under the GSM-103, program Congress established a ceiling level which for the most recent fiscal year was $1 billion.
[Page: H848]
IRAQ UTILIZATION OF CCC CREDIT GUARANTEES
Iraq began purchasing United States commodities under the GSM program in 1983, just prior to the United States and Iraq reestablishing diplomatic relations that had been severed for 17 years. The following chart summarizes Iraq use of the GSM program.
SUMMARY OF SALES APPROVED UNDER CCC CREDIT GUARANTEE PROGRAMS FOR IRAQ
[In millions of dollars]
GSM-102 GSM-103 Total
Fiscal year:
1983 364.5 0 364.5
1984 646.1 0 656.1
1985 340.1 0 340.
1986 392.9 9.7 392.9
1987 652.5 85.1 652.5
1988 1,112.1 83.3 1,113.1
1989 1,088.8 38.4 1,088.8
1990 495.4 0 481.2
Total 4,862.7 216.5 5,079.2
On August 2, 1990, the USDA suspended Iraq from the GSM-102/103 Program. As of the latest reading, the total GSM Program exposure to Iraq is approximately $2 billion. Of this amount, CCC owes BNL between $347 million--BNL says $382 million--because of Iraqi nonpayment.
BNL, IRAQ, AND CCC
BNL had extensive dealings with high level Iraqis. Employees of BNL frequently visited Iraq and high-ranking government officials often made trips to the United States to meet with BNL employees.
After BNL was raided by Government officials in August of 1989, the Department of Agriculture was alerted to what appeared to be irregularities in the BNL/Iraqi GSM 102-103 Programs. CCC investigated several irregularities which included:
First, unusually high prices obtained by exporters in connection with 102 sales to Iraq involving BNL;
Second, shifting of some freight and freight financing costs to CCC, thus lowering the amount of guarantee authority under the 102 Program that could be used by others;
Third, utilization of after-sales services in violation of CCC regulations;
Fourth, Iraq requiring exporters to pay a stamp tax, a policy that is supposed to be prohibited under the 102 Program.
Upon concluding its review, CCC asked the USDA's Office of Inspector General to conduct a thorough investigation of all CCC-guaranteed sales to Iraq. CCC will take the appropriate administrative or civil action in the event that the OIG report disclose wrongful violation of program requirements. The CCC is also waiting for the results of the Justice Department's ongoing criminal investigation of BNL when more information will become available.
BNL is also being investigated for links to several tobacco exporting companies that have plead guilty or are being investigated for shipping foreign source tobacco to Iraq in violation of CCC Program regulations. BNL financing of illegal sugar exports is also under review. To date, the CCC has not suspended BNL from participating in the GSM-102/103 Program.
The following sections explains the Eximbank credit guarantee program Iraq participated in with BNL.
IRAQ UTILIZATION OF EXPORT-IMPORT BANK PROGRAMS
Like the GSM-102/103 Programs, Iraq used BNL to finance many of its imports transactions using Eximbank insurance programs. Eximbank finances U.S. exports by providing guarantees, insurance, and loan support. The Eximbank programs utilized by Iraq include the short-term single buyer policy which was utilized mainly by American exporters, and the bank letter of credit insurance policy which was utilized by banks like BNL. Both programs indemnify the insured party--a United States exporter or a bank--against the risk of Iraqi nonpayment.
From July 1987 to August 2, 1990, the Export-Import Bank [Eximbank] provided Iraq with $200 million of short-term insurance coverage, insuring against Iraqi nonpayment for up to 360 days. In testimony before the House Banking Committee, Eximbank officials stated, `* * * we cautiously opened in Iraq only for short-term insurance despite tremendous pressure from the American business community as well as competition from foreign export credit agencies * * *' Eximbank also received tremendous pressure from the Government of Iraq, which was continually requesting that Eximbank expand its coverage to include medium and long-term insurance coverage.
Eximbank was cautious about its exposure to Iraq because of a history of Iraqi payment delinquencies. In fact, for 18 months
prior to opening with Iraq in 1987, Eximbank had suspended Iraq because of payment delinquencies. As recent as July 20, 1990, Eximbank had to pay an exporter $53,000 because of Iraqi refusal to make good on a contract insured by Eximbank.
In total, Eximbank has insured hundreds of millions of dollars of exports to Iraq. The current Eximbank exposure to Iraq is $73.5 million, of which $55 million is for amounts outstanding and $18.5 million represents potential exposure. The potential exposure of $18.5 million relates to shipments which did not take place prior to August 2, 1990. Since these exports were banned, Eximbank should be able to take these guarantees off its books.
Under the Eximbank Letter of Credit Program with Iraq, BNL was insured for 51 export transactions with a dollar value of $47 million. Of this amount $43.8 million has been repaid by Iraq. Eximbank currently owes BNL the remaining $3.2 million because Iraq defaulted on several letters of credit that were funded by BNL and insured by Eximbank.
[Page: H849]
BNL LOANS FOR IRAQI RECONSTRUCTION PROGRAM
Officials from the Atlanta office of BNL had developed a close working relationship with high-level Iraq Government officials due to BNL participation in the CCC Credit Guarantee Program. As the war with Iran ended in 1988, BNL Atlanta was asked to take a bigger role in the reconstruction program by financing noncommodity exports to Iraq. While these loans were supposed to help rebuild the Iraqi civilian economy, many went to improve the Iraqi war machine.
Lending under these agreements took the form of four `medium-term loan agreements [MTL's] signed with the Central Bank of Iraq [CBI]. These loans had 5- to 7-year maturities and 2- to 5-year grace periods. BNL was able to borrow such large amounts of money because of its reputation and, more importantly, its top-notch credit rating. The loan agreements are summarized below.
Note Date Amount
MTL I 2/22/88 $200 million.
MTL II 10/6/88 300 million.
MTL III 12/3/88 500 million.
MTL IV 4/8/89 1.155 billion.
By the time regulators raided BNL a majority of the loans had already been disbursed. Disbursement took several forms. Sometimes BNL paid exporters directly. Sometimes the Central Bank of Iraq would pay an exporter directly and then BNL would make a payment to the CBI's account at a U.S. bank that covered the dollar equivalent of all foreign currency payments made by CBI. Other times, BNL would lend directly to CBI by placing funds in CBI accounts.
As of January 1990, a total of $1.55 billion had been drawn and committed under these agreements. After the raid, Iraq still insisted that BNL make good on the remaining loans still outstanding under the agreements. After months of intense negotiations, on January 24, 1990, BNL and Iraq renegotiated the four MTL's. They agreed that the residual $600 million or so would be utilized for new transactions, two-thirds of which would finance projects, the supplies and services coming from Italian firms and one-third could be used for purchases from other countries.
You might wonder why BNL renegotiated the loans. It's simple, under international law the contracts signed with BNL were valid. So Iraq threatened not to repay the money it already owed to BNL unless BNL made good on the remaining balance of the loans.
INTRODUCTION TO IRAQI TECHNOLOGY PROCUREMENT NETWORK
Besides providing an example of botched bank supervision, BNL provides an example of a less evident, but more more profound policy failure; the failure to stop arms proliferation.
The spread of ever more sophisticated weaponry--including chemical, biological, and nuclear weapons--and of the missiles capable of carrying them, represents a growing danger to international security. Arms proliferation exacerbates and fuels regional tensions, complicates U.S. defense planning, and poses ever greater dangers to U.S. forces and facilities abroad.
The West's policy toward Iraq is a case study in the dangers of failing to stop arms proliferation. Many of our coalition partners sold weapons directly to Iraq. The United States and many coalition partners, either directly or indirectly, provided Iraq with the technology and know-how needed to build and improve the very weapons capability we are now engaged in destroying.
A recent episode of the ABC-TV show `20/20' highlights the dangers of allowing sophisticated U.S. technological know-how to get into the wrong hands. A U.S. company developed a feared weapon called a `cluster bomb.' The United States had prohibited the sale of this bomb to Iraq, but this did not stop Iraq.
Arms dealers apparently bought the know-how to produce the cluster bomb from the American company that developed the bomb for the U.S. military. The arms dealers then modified the plans slightly, applied and were granted a U.S. patent, and then sold the plans to other arms dealers outside the United States, who built a cluster bomb factory. Iraq was grateful; it purchased thousands of bombs and may have even built its own bomb factory. Needless to say, the Iraqi cluster bombs now threaten the lives of our soldiers in the gulf.
Third world nations like Iraq, wishing to obtain dominance in their regions by using the military might, too often do not have to relay on obtaining the weapons of mass destruction directly.
Instead, these nations take advantage of nonexistent or poorly enforced export control laws in the West to obtain the technology and know-how to build weapons facilities on their own home soils. Iraq was one such nation.
IRAQIS SUCCESSFUL IN OBTAINING WESTERN TECHNOLOGY
The Iraqi's were quite successful in obtaining western technology. During the 1980's, Iraq established ownership or control of a sophisticated network of United States and European front companies whose primary mission was to obtain western military technology and know-how and export it back to Iraq. The Iraqis were very secretive in their dealings and were careful to conceal their true affiliation.
An example of the success of this network is the Taji Complex, a cannon factory outside of Baghdad. This project was long considered a civilian industrial complex, and many western nations provided the technology and know-how to build it. Last year, a German Government investigation concluded Taji was meant for the manufacture of gun barrels. Many European and United States companies provided technology for this plant.
Hopefully, coalition air forces have destroyed the Taji Complex. But the Taji Complex is just one example of the Iraqi strategy. Over the next several months I will acquaint you with other Iraqi military applications made possible by Western technology and BNL financing.
A recent example of a company linked to the Iraqi network is the Cleveland, Ohio-based machine tool company, Matrix-Churchill. Iraqis secretly owned Matrix-Churchill and its affiliate in England and used both to obtain computer-controlled lathes and other industrial machinery that went into the Taji Cannon Complex.
Upon gaining control of the Cleveland-based Matrix-Churchill, the Iraqi's set up a procurement division within the company. The procurement side of the company received its orders, mostly in Arabic, directly from Baghdad. It was apparently charged with finding other United States companies that would build industrial plants in Iraq. Matrix-Churchill helped find U.S. contractors to build a Fiberglass plant and sophisticated cutting tool plant in Iraq. The cutting plant may have been used to manufacture parts with nuclear applications, while the Fiberglass plant was supposedly used to produce missile casings.
Ironically, the U.S. Government and our Western allies often granted export licenses for such plants, thus permitting countries like Iraq access to such sophisticated technology. This was the case with the above plants. The United States Customs Service confiscated Matrix-Churchill in September 1990, calling it an `Iraqi front company.'
HUNDREDS OF SUCH COMPANIES?
It is likely that the Iraqi network used dozens of United States and European companies to supply the needed technology and know-how to upgrade Iraqi military capability. It is debatable whether or not these companies knew the ultimate destination of their products. Some probably did; some probably did not. These companies were often lured into supplying Iraq by higher than normal profits and even bribes.
WHERE WAS THE INTELLIGENCE COMMUNITY?
As I stated earlier, it is hard to believe that the United States intelligence community or that of our allies did not know about the applications of technology being transferred to Iraq. It is also hard to believe BNL escaped the attention of the intelligence community. These organizations monitor overseas telexes and phone conversations. Did they fail to discover the over 3,000 telexes between BNL and Iraqi Government agencies, many providing information detailing loans to companies that were building the Taji complex and other military related projects within Iraq?
They also monitor travel between the United States and Iraq. Did they fail to discover the many visits BNL employees made to Iraq and vice versa, and the purpose of such visits?
Given the magnitude of the loans to Iraq, and the projects that some of the loans were going to finance, one would almost be justified in asking the question: If the United States and Western intelligence community did not know about BNL, did they fail to do their job properly?
Obviously, many exporters knew they were building or supplying machinery and know-how to weapons plants in Iraq. If it was common knowledge among exporters that many of the supposed `industrial facilities' in Iraq, like the Taji complex, were actually military plants, one would think the Western intelligence community would know about these plants? I would also like to think our Government would have severely reprimanded Iraq for such activities. Maybe the United States intelligence community did not know, because Iraq was never severely penalized.
[Page: H850]
[TIME: 1320]
Mr. Speaker, at the end of my remarks I am including some tables and also copies of correspondence between the Honorable Richard L. Thornburgh, the Attorney General of the United States, and myself. Let me say that the Attorney General was very, very much opposed to my calling and holding the hearings last November.
My colleagues can read what I said by way of explanation in this letter. I will just read the first paragraph. I said to the Attorney General: `The purpose of this letter is to respond to your letter of September 26, 1990, and to express my distress over your apparent lack of understanding of the investigative and legislative functions of the Congress.'
Mr. Speaker, there is only one of the three basic constitutional powers inherent in the Congress and not delegatable that has remained, I would say, fairly intact and upheld by Supreme Court decision after Supreme Court decision, and that one is the right for the Congress to know, seek, and obtain information. Our purpose is legislative because we have the task of having to plug this tremendous hole in our regulatory structure that allows, even now as I speak, close to 600 billion dollars' worth of credit resources in this country to be used in a way that may not be perceived now any more than it was before August 2, 1990.
Mr. Speaker, the tables and correspondence to which I referred are included as follows:
BNL PARTICIPATION IN CCC PROGRAMS
TABLE L-1: ANNOUNCED AVAILABILITY OF ALL-RISK FINANCING GUARANTEES APPLICABLE UNDER THE TRADITIONAL CCC EXPORT CREDIT GUARANTEE PROGRAM (GSM-102) DURING FISCAL YEAR 1983
[In millions of dollars]
Country and commodity Announced value of all-risk financing guarantees availability Announced period of coverage (months)
Iraq:
Wheat/flour 137.0 36
Rice 80.0 36
Feed grains 13.0 36
[H04FE1-87]
47.33
TABLE K-1: ANNOUNCED COMMERCIAL CREDIT LINES--BY COUNTRY AND COMMODITY DURING FISCAL YEAR 1984
[In millions of dollars]
Country and commodity GSM--102 guarantees Direct credit GSM-5 Total (102 and 5) Credit period months
Straight Blended Total
Iraq:
Feed grains 168.4 168.4 168.4 36
Seeds, planting 10.0 10.0 10.0 36
Protein meal 86.4 86.4 86.4 36
Rice 197.0 197.0 197.0 36
Tobacco 17.0 17.0 17.0 36
Wheat 203.0 203.0 203.0 36
Subtotal 681.8 0.0 681.8 0.0 681.8
TABLE K-1: ANNOUNCED COMMERCIAL CREDIT LINES--BY COUNTRY AND COMMODITY DURING FISCAL YEAR 1984
[In millions of dollars]
Country and commodity GSM--102 guarantees Credit period (months)
Announced Registered Balance
Iraq:
Beef/poultry parts 9.00 0 9.00
Corn 45.00 5.20 39.80 36
Feed grains 60.00 0 60.00
Fruits/veg. canned 3.00 0 3.00
Lentils 11.00 2.80 8.20 36
Livestock, breeding 15.00 .90 14.10 36
Meats, canned 2.00 0 2.00
Oilseeds 7.50 0 7.50
Planting seeds 12.00 11.40 0.60 36
Potatoes 3.00 0 3.00
Protein meal 107.50 16.50 91.00 36
Rice 180.00 178.80 1.20 36
Sugar 20.00 14.70 5.30 36
Tallow/grease 15.00 4.40 10.60 36
Tobacco 25.00 13.70 11.30 36
Veg. oils 5.00 3.20 1.80 36
Wheat 160.00 88.50 71.50 36
Subtotal 680.00 340.10 339.90
TABLE K-1: ANNOUNCED COMMERCIAL CREDIT LINES--BY COUNTRY AND COMMODITY DURING FISCAL YEAR 1986
[In millions of dollars]
Country and commodity GSM--102 guarantees Credit period (months)
Announced Registered Balance
Iraq:
Beans, dry edible/peas/lentils 15.0 8.2 6.8 36
Corn 64.3 33.0 31.3 36
Cotton and/or cotton yarns/wool 20.0 15.6 4.4 36
Hides and/or skins and leather 16.0 11.4 4.6 36
Oilseeds/protein meals and/or protein concentrates of veg./animal origin 51.0 36.4 14.6 36
Planting seeds 12.0 11.2 0.8 36
Rice 115.0 91.9 23.1 36
Soft drink concentrate 7.0 6.8 .2 36
Sugar (U.S. grown & refined) 23.0 22.5 .5 36
Veg. oils and/or tallow 24.0 24.0 0 36
Wheat 110.0 107.5 2.5 36
Wheat flour 17.7 14.7 3.0 36
Subtotal 475.0 383.2 91.8 36
TABLE K-1A: ANNOUNCED COMMERCIAL CREDIT LINES--BY COUNTRY AND COMMODITY DURING FISCAL YEAR 1986
[In millions of dollars]
Country and commodity GSM--103 guarantees Credit period (years)
Announced Registered Balance
Iraq:
Tobacco 15.0 0.0 15.0 4.7
Breeder livestock 10.0 9.7 0.3 4.5
Subtotal 25.0 9.78 15.3
TABLE K-1: ANNOUNCED COMMERCIAL CREDIT LINES--BY COUNTRY AND COMMODITY DURING FISCAL YEAR 1987
[In millions of dollars]
Country and commodity GSM-102 guarantees Credit period (months)
Announced Registered Balance
Iraq:
Barley 10.0 6.7 3.3 36
Beans/peas lentils, dry edible 12.5 12.4 .1 36
Corn 6.4 56.3 .1 36
Cotton and/or cotton yarns 30.0 17.0 13.0 36
Hides and/or skins (including a full range of further processed commodities such as wet blue hides and fully finished leather 9.9 9.8 .1 36
Planting seeds 10.8 10.3 .5 36
Poultry meat, frozen 59.1 59.1 0 36
Protein concentrates (animal or vegetable origin) 17.0 16.9 .1 36
Protein meals 55.9 55.9 0 36
Rice 107.9 107.8 .1 36
Soft drink and/or fruit juice concentrate 13.0 12.8 .2 36
Sugar (U.S.-grown and refined) 40.5 40.5 0 36
Tallow 9.3 9.3 0 36
Veg. oils 15.9 15.9 0 36
Wheat 88.0 82.1 5.9 36
Wheat flour 17.9 17.9 0 36
Wood products (lumber, match-sticks, pulp) 33.5 31.6 1.9 36
Wool 5.7 5.1 .6 36
Subtotal 593.3 567.4 25.9
TABLE K-1A: ANNOUNCED COMMERCIAL CREDIT LINES--BY COUNTRY AND COMMODITY DURING FISCAL YEAR 1987
[In millions of dollars]
Country and commodity GSM-103 guarantees Credit period (years)
Announced Registered Balance
Iraq:
Breeder livestock (incl. breeder chicks and/or hatching eggs) 8.0 7.4 .6 4-7
Eggs, table 10.0 9.4 .6 4-5
Protein concentrates (animal or vegetable origin) 44.0 44.0 0 4-7
Tobacco 25.0 24.3 .7 4-7
Subtotal 87.0 85.1 1.9
TABLE K-1: ANNOUNCED COMMERCIAL CREDIT LINES, BY COUNTRY AND COMMODITY, DURING FISCAL YEAR 1988
[In millions of dollars]
Country and commodity GSM-102 guarantees Credit period (months)
Announced Registered Balance
Iraq:
Barley 13.0 13.0 0 36
Barley malt, hops and/or hop extract 0.8 0.8 0 36
Beef, frozen (incl. frozen beef and lamb variety meats) 2.77 2.77 0 36
Concentrates (fruit juice and/or soft drink) 8.2 8.1 .1 36
Corn thickeners .56 .56 0 36
Cotton and/or cotton yarns 59.79 59.79 0 36
Feed grains 113.60 113.60 0 36
Hides and/or skins 2.1 2.1 0 36
Infant milk formula 4.8 4.8 0 36
Leather (semi and/or fully-finished--incl. a full range of further processed commodities such as crust leather) 5.82 5.82 0 1 720
Lumber 53.40 53.40 0 36
Milk powder, dry (full fat) 16.2 16.2 0 36
Plantings seeds 12.50 12.43 .07 36
Protein concentrates (animal or vegetable origin) 48.2 48.2 0 36
Protein meals 85.4 85.4 0 36
Pulses (dry edible peas, beans, lentils) 16.17 16.17 0 36
Rennet, natural calf (U.S.) .5 .3 .2 36
Rice 265.98 265.98 0 36
Sugar (U.S.-grown and refined) 68.0 67.5 .5 36
Tallow 14.18 14.18 0 36
Veg. oils 26.52 26.52 0 36
Wheat 134.59 134.59 0 36
Wood cants (U.S.) 2.9 2.9 0 36
Wood products, solid (plywood) 21.14 21.14 0 12
Wood pulp 46.2 46.2 0 36
Wool/wool yarn 7.41 7.41 0 36
Undesignated 10.77 0 10.77
Subtotal 1,041.50 1,029.86 11.64
[Footnote] 1 Days.
TABLE K-1A: ANNOUNCED COMMERCIAL CREDIT LINES, BY COUNTRY AND COMMODITY, DURING FISCAL YEAR 1988
[In millions of dollars]
Country and commodity GSM-103 guarantees Credit period (years)
Announced Registered Balance
Iraq:
Breeder livestock (incl. breeder chicks and hatching eggs) 35.4 32.3 3.1 4-7
Protein concentrates (animal or vegetable origin) 22.7 24.1 3.6 4-7
Tobacco 26.9 26.9 0.0 4-7
Subtotal 90.0 83.3 6.7
BNL PARTICIPATION IN EXPORT-IMPORT BANK PROGRAMS
[H04FE1-T2]{H851}BNL PARTIC
Insname Supname City, and State Import name Products Amount cleared Date authorized
BNL-Atlanta Petrogen Intl Ltd Richmond, VA ST ENT Iron & Steel Oxy-Gas Cutting Torches 230,000 Feb. 23, 1988
BNL-Atlanta Gould Electronics Woodbridge, NJ Iraqi Grain Board Spare Parts for elect equp 195,614 Feb. 25, 1988
BNL-Atlanta Ransome Company Houston, TX Oil Equipment Co Arc Welding equipment 283,193 Apr. 8, 1988
BNL-Atlanta Marnerwood Ltd Baltimore, Md Rayon State Estab Cooling plant parts 144,884 Apr. 12, 1988
BNL-Atlanta Trading & Inv Corp Charlotte, NC Al Hilal Ind Estab Air cooler parts 352,560 May 11, 1988
BNL-Atlanta Snap-On Tools Kenosha, WI Light Industries Co Spare parts 217,090 May 11, 1988
BNL-Atlanta RD & D Intl Inc Vienna, VA Sadam Genl Estabmt Machine Tools and Tech svcs 3,805,938 May 11, 1988
BNL-Atlanta CDP Intl Inc Sydney, OH Iraqi Trading Co A/C compressors 1,928,505 May 11, 1988
BNL-Atlanta Lobel Chemical Corp New York, NY St Org Mech & Ag Sup Herbicide 247,005 May 11, 1988
BNL-Atlanta Ransome Company Houston, TX Oil Equipment Co (12) Welding machines 16,584 May 17, 1988
BNL-Atlanta Telwar Intl Inc Nashville, TN Modern Paint Indust Chem raw mat and solvents 806,423 May 17, 1988
BNL-Atlanta West Point West Point, GA St Establish Cotton Spare parts for Looms 20,108 May 25, 1988
BNL-Atlanta Munradtech Ltd Detroit, MI North Cement St Ent (2) 35 ton dump trucks 297,926 May 25, 1988
BNL-Atlanta Mobayt Crop Dyes Rock Hill, SC St Est Leather Ind Leather dyes 59,500 May 25, 1988
BNL-Atlanta Bristol Myers Intl St Co. Drugs & Med Ap Pharmaceuticals 348,750 June 7, 1988
BNL-Atlanta Videojet System Intl Elk Grove Villiage, IL St Ent Beverages Coding machine and parts 45,487 June 14, 1988
BNL-Atlanta McNeil Akron, Inc Akron, OH New Tyres Project (26) Tube presses 1,796,448 June 14, 1988
BNL-Atlanta Breezevale Inc Woodbridge, NJ Iraqi Trading Co Tires and tubes 5,249,649 June 21, 1988
BNL-Atlanta Copeland Intl Inc Iraqi Trading Co A/C compressors 147,120 June 23, 1988
BNL-Atlanta Breezevale Inc Woodbridge, NJ Iraqi Trading Co Tires and tubes 683,194 June 29, 1988
BNL-Atlanta Gould Electronics North, MA Genl Cement St Ent Controller modicum 127,942 June 29, 1988
BNL-Atlanta American Textile Gastonia, NC St Est for Cotton Polyester yarn 1,210,000 July 18, 1988
BNL-Atlanta Cyanamid Intl Sales Wayne, NJ Agric Supplies Vet pharmaceuticals 267,000 July 15, 1988
BNL-Atlanta Med-Tek Intl New York, NY St Co Drugs & Medical C. T. Scanner parts 448,009 July 15, 1988
BNL-Atlanta Ceva Labs Wayne, NJ Agric Supplies Vet pharmaceutics 177,550 July 15, 1988
BNL-Atlanta DOW Chemical Agric Supplies Lorsban and Dursban 1,497,000 July 15, 1988
BNL-Atlanta American Ex-Im Southfield, MI Electronic Indust Co Electronic parts and mat 2,100,000 July 22, 1988
BNL-Atlanta John Deere Co Misan St Sugar Ent Spare parts 94,913 Aug. 3, 1988
BNL-Atlanta Warner Lambert Co Morris Plains, NJ St Co Drugs & Med App Pharmaceuticals 19,332 Aug. 4, 1988
BNL-Atlanta Carey Agri Intl Brandon, FL Agric Supplies Co Embryo Transfer Supplies 72,740 Oct. 31, 1988
BNL-Atlanta West Point Foundry West Point, GA St Est Cotton Spare parts 33,803 Oct. 31, 1988
BNL-Atlanta Singer Products Great Elk, NY St Battery Manuf Spare parts 80,244 Oct. 31, 1988
BNL-Atlanta Draper Corp Spartanburg, NC St Est Cotton Spare parts 77,326 Oct 31, 1988
BNL-Atlanta Al Haddad Des Plaines, IL St Ent Pup & Paper Rubber blankets 67,143 Oct. 31, 1988
BNL-Atlanta Al Hadad Nashville, TN St Ent Pulp & Paper Reed Cutter knives 67,494 Oct. 31, 1988
BNL-Atlanta Nash Intl Co Norwalk, CT St Ent Pulp & Paper Vacuum pumps 313,760 Oct. 31, 1988
BNL-Atlanta Al Haddad Nashville, TN St Ent Pulp & Paper Paper and board mach blades 48,272 Oct. 31, 1988
BNL-Atlanta EMU Inc Des Plaines, IA St Est Leather Ind Various chemicals 332,820 July 26, 1988
BNL-Atlanta Telwar Intl Nashville, TN Modern Paint Indust Paint solvent and thinner 179,200 June 29, 1988
BNL-Atlanta EMU Inc Buffalo, NY St Est Leather Ind Varnish, wax and paint 326,670 July 18, 1988
BNL-Atlanta Carey Agri Brandon, FL Agric Supplies Co Vet pharmaceuticals 1,233,870 Nov. 17, 1988
BNL-Atlanta Cyanamid Intl Wayne, NJ Agric Supplies Co 20 tons of aurofac 178,000 Nov. 17, 1988
BNL-Atlanta Stork Gamco Agric Supplies Co Spare parts 1,050,234 Nov. 29, 1988
BNL-Atlanta Amer Cast Iron Pipe Birmingham, AL Amanat Baghdad Ductile iron pipe 6,000,000 Dec. 20, 1988
BNL-Atlanta Draper Corp Spartanburg, SC St Est Cotton Indust Spare parts 96,213 Feb. 9, 1989
BNL-Atlanta Top Value Mount Vernon, NY St Co Drugs & Med App Spare parts 700,084 Feb. 9, 1989
BNL-Atlanta EMU Inc Buffalo, NY St Est Leather Indus Collophane and dry pexol 19,400 Feb. 9, 1988
BNL-Atlanta Telwar Intl Nashville, TN Modern Paint Indust Chem raw materials 9,712,000 Apr. 10, 1989
BNL-Atlanta VWR Scientific San Francisco, CA Agric Supplies Co Lab Equipment 126,848 June 27, 1989
[Footnote] Source: Eximbank Oct. 12, 1990.
Office of the Attorney General,
Washington, DC, September 26, 1990.
Hon. Henry B. Gonzalez,
Chairman, Committee on Banking, Finance, and Urban Affairs, U.S. House of Representatives, Washington, DC.
[Page: H852]
Dear Mr. Chairman: The purpose of this letter is to express my profound disappointment in your decision to ignore the strong objections of this Department in the Banca Nazionale del Lavoro (BNL) matter. I am similarly distressed by your refusal last evening to discuss the matter with me.
Your intention to schedule a hearing for October 9th on the investigation of unauthorized loans to Iraq by BNL and the request to interview both the Assistant United States Attorney and the government witnesses in the case raises the prospect that culpable parties will elude prosecution. Your staff is fully aware of the existence of our ongoing criminal investigation and the likely impact that these actions will produce on our efforts.
As you should be aware, this is a sensitive case with national security concerns. The United States Attorney in Atlanta advises me that both witness security and the willingness of witnesses to continue to cooperate with the investigation and prosecutions will be jeopardized by your Congressional staff interviews and hearing.
Mr. Chairman, a decision to proceed with these interviews and the hearing at this time significantly diminishes the Department's ability to successfully prosecute this matter. Accordingly, we again request that your staff work with the Department to find alternatives that allow both the legislative and the law enforcement processes to function.
Sincerely,
Dick Thornburgh,
Attorney General.
COMMITTEE ON BANKING, FINANCE
and Urban Affairs,
Washington, DC, September 28, 1990.
Hon. Richard L. Thornburgh,
Attorney General, Washington, DC.
Dear Mr. Attorney General: The purpose of this letter is to respond to your letter of September 26, 1990, and to express my distress over your apparent lack of understanding of the investigative and legislative functions of the Congress.
On September 21, 1990, I agreed to allow my staff to meet with your staff to discuss the Justice Department's concerns related to the Banking Committee's investigation of the Atlanta Agency of Banca Nazionale Del Lavoro (BNL). During, and subsequent to this meeting, your staff was unable to comply with my request for specific justification for suspending this most important inquiry.
Specifically, the Justice Department failed to reveal how interviewing employees from the Federal Board, the Federal Reserve Bank of Atlanta, the Department of Banking and Finance of the State of Georgia, and current and former employees of BNL would, as your letter states, `significantly diminish the Justice Department's ability to successfully prosecute this matter.' In addition, the Justice Department failed to demonstrate how the Banking Committee's investigation would jeopardize the personal security of witnesses or inhibit their cooperating with the Justice Department's investigation of BNL.
As Chairman of the Banking Committee, I am concerned that the regulation and examination of the U.S. branches and agencies of foreign banks (see the International Banking Act 92 Stat. 607) is inadequate. These entities command over $500 billion in assets in the U.S., and a significant portion of their liabilities are guaranteed by the Federal Deposit Insurance Corporation (FDIC). The magnitude of the BNL fiasco (i.e., $2.8 billion in unauthorized loans to Iraq), while not directly posing a risk of the FDIC, certainly raises the question of the adequacy of state and federal regulation and oversight of these entities. Rest assured, in
order to ensure the U.S. branches and agencies of foreign banks do not pose an undue risk to the already beleaguered FDIC, the Banking Committee will continue to investigate the adequacy of the regulation and examination of these entities. The BNL case provides a clear case of a regulatory breakdown that needs to be understood and addressed.
With regard to the Banking Committee's legislative interest in BNL, the Federal Reserve has notified me that the BNL investigation uncovered a loophole in the criminal code that will probably allow former employees of BNL to escape Federal prosecution for fraud, theft, enbezzlement, misapplication of funds, and bribery. You can be sure that I will continue to work to correct this over decade long Justice Department oversight. I have been given permission by the Rules Committee, and I intend to offer, a Floor amendment to the crime bill that will close this loophole in the criminal code.
I hope this letter has served to properly inform you as to the Banking Committee's legislative and investigative interests in BNL. I trust the Justice Department will provide it full cooperation.
Sincerely,
Henry B. Gonzalez,
Chairman.
The SPEAKER pro tempore (Mr. Bennett). Under a previous order of the House, the gentleman from Georgia [Mr. Gingrich] is recognized for 60 minutes.
[Mr. GINGRICH addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from New York [Mr. Owens] is recognized for 60 minutes.
[Mr. OWENS of New York addressed the House. His remarks will appear hereafter in the Extensions of Remarks.]
END
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
