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General News    H2'ed 7/4/09

Iraq, Bush I, and BNL and Barack Obama's DOJ

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With the CCC/Exim loan program in place at BNL/Atlanta, the administration approved $1 billion a year for five years in CCC and Exim bank loans to Iraq – $5 billion in all. At least $2.6 billion of the money was directly spent on military equipment, particularly on Iraq's chemical, nuclear, and ballistic missile programs. What American pain and rice Iraq did buy with the money was more often than not shipped to third countries and bartered for additional military equipment.

When George Bush became president in 1988 the loan program was perking right along. Not only had a rearmed Iraq fought Iran to a stalemate, but Bush had the added bonus of being able to brag to U.S. farmers that he was helping them sell grain through the CCC loans to Iraq. After the 1988 election, Larry Eagleburger and Brent Scowcroft left Kissinger Associates and joined the new Bush administration. Henry Kissinger remained on BNL's board and his firm continued providing advice to BNL.

But by early 1989 the Iraq loans began making some administration officials nervous. The classified documents show that Treasury Secretary Nicholas Brady, Commerce Secretary Robert Mosbacher, and Agriculture Secretary Clayton Yeutter were getting squeamish. One 1989 memo from Exim Bank officials warned the White House, Commerce, and Treasury that Iraq was a very bad credit risk and probably would not repay the money, leaving the taxpayer to pick up the tab. Also CIA memos to the White House warned that Saddam Hussein was using his money to buy gear for his budding nuclear bomb program. Still the White House pushed for continued approval for Iraq's CCC loans.

Then in August 1989 a monkey wrench was thrown into the machinery that threatened not only to end the loan program, but to expose the White House's role in the scheme. The Iraqi loan program's real purpose had been considered so sensitive by the administration that no one had briefed the FBI or Customs. So when those two agencies got a tip that something was rotten at BNL, they raided the bank and hauled off its records.

The raid caused panic in both Washington and Rome. If the U.S. Congress got wind of the loan scam, it could strip the CCC loans of their U.S. guarantee, leaving Italy holding the bag for Baghdad's $5 billion in loans. A still classified cable to the State Department from the U.S. ambassador to Italy expressed the Italians' alarm. Also Italy had seen how Israel had been embarrassed when its involvement with the Reagan administration in the Iran/Contra affair was aired during congressional hearings. The Italian ambassador told the U.S. ambassador to let the White House know that his government wanted the BNL affair "raised to a political achieve some kind of damage control."

But damage control was already on the White House agenda. An uncontrolled investi-gation into BNL would certainly compromise the White House. To further complicate

Bush's life, all this happened just when Iraq was due for its 1990 fiscal-year CCC loan. And Iraq sent its foreign minister, Tariq Aziz, to Washington to personally collect. No one ever accused Iraq of being either shy or subtle and Aziz was not interested in George Bush's little problem down in Atlanta. He said Iraq wanted its $1 billion, all of it, and right now – BNL scandal or not.

It was around this time that House Banking Chairman Henry Gonzalez (D-Texas) began asking the White House just how this crooked little Italian bank had gotten approval to make so many U.S. guaranteed loans to Iraq. Attorney General Thornburgh tried to silence Gonzalez by inviting him to a private briefing. Gonzalez told Thornburgh if he had anything to reveal about BNL, he could do so under oath when he testified before his committee. Fearing they'd be dragged deeper into the BNL affair, the secretaries of Treasury, Commerce, and Agriculture began hedging their support of the Iraqi loan demand.

But none of this reduced President Bush's enthusiasm for the Iraqi loan program and he insisted that the full $1 billion loan be ap-proved. In order to give his three nervous agency secretaries the political and legal cover they needed, Bush signed National Security Directive 26 on Oct. 4, 1989, less than two months after BNL was raided. NSD-26 ordered all executive branch agencies to do everything possible to facilitate and expand cooperation and trade with Iraq. Under cover of NSD-26 the agencies fell into line, and under intense lobbying from Eagleburger at State, they each approved the release of the first $400 million of Iraq's $1 billion in 1990 CCC loans.

But Saddam decided not to wait for the rest of the money. In August 1990 he used his U.S.-financed arms to attack and occupy Kuwait. Now the White House had a real problem. Bush had to rally the nation and a shaky coalition of Arab states into a unified force to fight a righteous battle.

How could he pull off such a feat if it was revealed that he had been Saddam Hussein's personal banker?

The cover-up begins
Phase 1 of the BNL scandal ended as phase 2, the cover-up, began. The White House General Counsel's Office phoned Gale McKenzie, the assistant U.S. attorney in Atlanta. Department of Justice officials in Washington phoned her, too – just to inquire about the case, they later said, nothing improper. But notes of that conversation scribbled by a department official indicate that the Atlanta prosecutor "was sensitive to the embarrassment potential" of the case. Sensitive enough, it turned out, to hold off bringing indictments in the case until one day after the shooting stopped in the Gulf.

But even when the war in the Gulf was over, the danger the case posed to the administration was as great as ever, and now the administration turned its attention to solving the problem once and for all. First the U.S. attorney in Atlanta was replaced. But the new appointee, Joe Whitley, was forced to recuse himself from the BNL case when the Atlanta Joumal disclosed that his law firm had represented an Ohio company, Matrix-Churchill, which had been one of the key U.S.-Iraqi front companies funneling the CCC loan money into illegal military purchases. Just a coincidence, Whitney said. Small world.

The case was then turned completely over to Assistant U.S. Attorney Gale McKenzie, who in early 1992 announced she had finally cracked the case. Indicted and blamed for the entire $5 billion scheme was Christopher Drogoul, BNL's Atlanta lowly branch manager. Drogoul, 45, was charged with over 300 counts of bank fraud and agreed to plead guilty to 65 counts. No U.S., Iraqi, or Italian officials were charged – or even questioned.

But U.S. District Judge Marvin Shoob was uneasy about accepting Drogoul's plea. He complained from the bench that he believed that federal prosecutors were not revealing anything they knew about about BNL. Ms. McKenzie assured the judge that it was a simple case and that Drogoul was the culprit The only culprit. Unconvinced, Judge Shoob put off Drogoul's sentencing until September 1992.

But as his sentencing approached, Drogoul began to realize that neither the Italian government nor anyone in U.S. intelligence was going to come to his rescue. Drogoul began to openly complain to the media that he was being made the fall guy for what he claimed was an. approved covert operation. His complaints reached famed Atlanta trial lawyer Bobby Lee Cook, who agreed to represent Drogoul with-out charge.

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Stephen Pizzo has been published everywhere from The New York Times to Mother Jones magazine. His book, Inside Job: The Looting of America's Savings and Loans, was nominated for a Pulitzer.

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