SHELL GAME by Peter Mantius Peter Mantius ST. MARTIN'S PRESS NEW YORK shell game. Copyright 1995 by Peter Mantius. All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles or reviews. For information, address St. Martin's Press, 175 Fifth Avenue, New York, N.Y. 10010. Design by Sara Stemen LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Mantius, Peter. Shell game I Peter Mantius. p. em. ISBN 0-312-13169-0 1. Banca nazionale del lavoro. Atlanta Branch--Corrupt practices. 2. Banks and banking, Italian--Corrupt practices--United States. 3. Banks and banking, Foreign--United States--State supervision. 4. Drogoul, Christopher. 5. Loans, American--Iraq. 6. Illegal arms transfers--Iraq. I. Title. HG3088.B36M36 1995 364.1'68--dc20 95-8564 CIP First Edition: November 1995 10 987654321 FOR MY MOTHER AND FATHER CONTENTS Cast of Characters Chronology Introduction Saddam's Bankers 2 Atlanta: The Host City Too Many Eggs 4 Kissinger & Company Networking for Arms "Dual-Use" Every Man for Himself What Rome Knew Let's Make a Deal The Guided Missile Fixing the Blame Mixed Signals "Operation Desert Fraud" The Gonzalez Factor Rising to the Defense Friends in Need Business as Usual Mopping Up Epilogue Endnotes Selected Bibliography Acknowledgments Index CAST OF CHARACTERS al-habobi, safa: Senior Iraqi arms buyer in London. alexander, kent: Assistant U.S. Attorney in Atlanta assigned to BNL case, 1990-91, then partner at King & Spalding law firm. Named Atlanta U.S. Attorney in 1993. all, raja hassan: Top financial man for Iraqi arms procurement effort. barden, therese: BNL-Atlanta's operations manager. barr, robert, jr.: Atlanta U.S. Attorney, 1986-90. The former CIA employee was elected to Congress in 1994. barr, william: U.S. Attorney General, 1991-92. bell, griffin: U.S. Attorney General, 1977-79; lawyer for BNL with firm of King & Spalding. brill, gerrilyn: Acting U.S. Attorney in Atlanta for BNL case, 199192. cook, bobby lee: Georgia lawyer who took Drogoul as "pro bono" client in 1992. dajani, wafai: Jordanian middleman with superb political contacts in Washington. decarolis, amedeo: Assistant accountant at BNLAtlanta. Di vito, paolo: Chief of BNL's "Atlanta Group" monitoring the Iraqi loan scandal. driver, walter: Atlanta lawyer for BNL with King & Spalding. drogoul, christopher: Manager of BNL's Atlanta branch, 1984-89. eagle burger lawrence: Deputy Secretary of State, 1989-92; Acting Secretary of State, 1992. Former president of Kissinger Associates consulting firm. for rest brenda: Paul Von Wedel's assistant in BNL-Atlanta's letter of credit department. Fuisz, richard: Virginia businessman who testified to Congress he saw Iraqi missile launchers at plant in Scotland in 1987. gasior, marianne: Attorney for Kennametal Inc." 1989. gonzalez, henry: Democratic Congressman from San Antonio who used position as chairman of House Banking Committee to criticize Bush administration on Iraq and BNL. guadagnini, re nato BNL regional manager for North America, 198087. henderson, paul: Managing director of Matrix-Churchill, an Iraqi arms procurement front in England, and British spy. hogan, john: Probed BNL case for Clinton Attorney General Janet Reno, 1993-94; found no evidence of coverup. ivey, jean: Assistant to Mela Maggi on BNL-Atlanta's money desk, she joined Maggi in disclosing Iraqi loan scheme to the FBI. kamel hassan, hussein: Iraqi President Saddam Hussein's son-in-law and weapons procurement boss who fled to Jordan in July 1995 and agitated to topple Saddam. kattke, kevin: Long Island man who lobbied in 1984 to boost Commodity Credit Corporation loan guarantees for Iraq. kirwan, bruce: Atlanta criminal lawyer representing BNL. kissinger, henry: U.S. Secretary of State under President Nixon; international consultant during 1980s. lacey, frederick: Former federal judge picked by Bush Attorney General William Barr to probe BNL at the climax of 1992 election campaign. He found no evidence of coverup. lack land ted: Drogoul's first lawyer. maggi, mela: BNL-Atlanta's money desk chief, she borrowed most of the money provided to Iraq's suppliers, then joined Jean Ivey in disclosing scheme to FBI. mckenzie, gale: Assistant U.S. Attorney in Atlanta who spearheaded prosecution of Drogoul and insisted the Italian bank was an innocent victim of his fraud. mess ere Louis: BNL internal auditor from New York. monaco, teodoro: Chief of Middle East lending at BNLRome. nesi, the rio BNL chairman throughout most of the 1980s. new, leigh ann: Drogoul's executive assistant, 1988-89. newman, oscar: BNL-Atlanta's only individual depositor. pedde, giacomo: BNL director general, 1987-89. petrignani, rinaldo: Italian Ambassador to the United States and later a law partner of William Rogers. post, robert: BNL-Atlanta's chief accountant. rogers, william: U.S. Attorney General under President Eisenhower and Secretary of State under President Nixon, he served as lawyer for BNL, 1990-91. safire, william: Columnist for The New York Times who accused the Bush administration and its Justice Department of covering up BNL affair; a former Nixon speechwriter. sardelli, luigi: BNL regional manager for North America, 1987-89. scow croft brent: President Bush's national security adviser and former vice chairman of Kissinger Associates. servaas, beurt: Indianapolis man who used $40 million in BNLAtlanta credit to build a brass-shell recycling plant in Iraq. shoob, marvin: Atlanta federal judge who suspected a government cover-up in the BNL case and strongly recommended that a court-appointed independent counsel be brought in. simels, robert: New York lawyer who negotiated a three-count guilty plea for Drogoul. taha, sadik: Iraqi banker who urged Drogoul to make hundreds of millions of dollars in farm loans to Iraq. thorn burgh richard: Bush Attorney General through 1991. tidwell, G. ernest: Atlanta federal judge who inherited BNL case after Judge Marvin Shoob withdrew in late 1992. vincenzino, GiUSEPPE: BNL's Atlanta branch manager, 1980-84. von wedel, paul: Drogoul's second in command at BNL-Atlanta and an expert in agricultural trade finance. whitley, joe: Number-three official in the U.S. Justice Department until the summer of 1989; private lawyer for Iraqi front company in the fall of 1989; Atlanta U.S. Attorney, 1990-93. young, andrew: Mayor of Atlanta, 1981-89, booster of international trade. CHRONOLOGY 1980 march: BNL opens representative office in Atlanta. september: Iran-Iraq war begins. 1981 december: Christopher Drogoul joins BNLAtlanta. 1982 march: U.S. removes Iraq from its list of terrorist nations. june: Henry Kissinger and Brent Scowcroft form Kissinger Associates. august: Atlanta Mayor Andrew Young meets in Italy with U.S. Ambassador Maxwell Rabb, BNL chairman Nerio Nesi and BNL-Atlanta manager Giuseppe Vincenzino. 1983 march: State Department memo suggests United States should try to "swing loans for Iraq through friends in the private sector." 1984 Lawrence Eagleburger quits the State Department and joins Kissinger Associates. spring: Drogoul promoted to manager of BNLAtlanta. november: United States restores full diplomatic relations with Iraq. 1986 first quarter: Drogoul and subordinates begin "gray book" scheme to hide BNL-Atlanta loans to Iraq. 1986 BNL becomes client of Kissinger Associates. 1987 fiscal year: BNL-Atlanta funds some $550 million in loans for Iraq backed by U.S. Commodity Credit Corporation. late fall: BNL-Atlanta begins extensive funding of U.S. grain sales to Soviet Union. 1988 february: Drogoul and Paul Von Wedel grant Iraq $200 million unrestricted credit line, called MTL-1, which Iraq uses to buy industrial goods and arms technology. august: Cease-fire ends Iran-Iraq War. october: Kissinger joins board of directors of Continental Grain, major supplier of Iraq and customer of BNLAtlanta. Drogoul and Von Wedel grant Iraq $300 million unrestricted credit line, or MTL-2. november: George Bush is elected president. december: Drogoul grants Iraq $500 million credit line, MTL 3. 1989 january: Brent Scowcroft and Lawrence Eagleburger quit Kissinger firm to become national security adviser and Deputy Secretary of State, respectively. april: Drogoul grants Iraq $1.155 billion credit line, MTL-4. General Motors officials see Drogoul, Von Wedel at Baghdad arms fair, ask for $600 million in credit. june: Officials from GM, Westinghouse, Xerox, several U.S. oil companies and Alan Stoga of Kissinger Associates visit Saddam Hussein in Baghdad. august 4: FBI raids BNLAtlanta. september: BNL chairman Nerio Nesi and director general Giacomo Pedde resign in wake of FBI raid. Classified Defense Intelligence Agency report describes BNL-Atlanta scheme as a NATO mechanism to help Iraq win war against Iran. october 2: President Bush signs classified National Security Directive (NSD) 26 calling for improved relations with Iraq. october: BNL's new top executives ask U.S. Ambassador to Italy for "damage control" in Atlanta scandal. november: Classified CIA report identifies Matrix-Churchill Corporation as Iraqi arms-buying front. Secretary of State Baker and deputy, Eagleburger, successfully lobby for up to $1 billion in CCC guarantees for Iraq. 1990 february: Debate begins within U.S. Justice Department about whether BNL should be characterized as "victim" of Atlanta lending scheme. march: British Customs intercepts suspected nuclear triggers bound for Iraq. Iraq hangs alleged British spy. Gerald Bull, father of Iraqi Supergun, is shot dead in Brussels. july: U.S. imports of Iraqi oil soar to more than 1 million barrels per day. august 2: Iraq invades Kuwait. september: U.S. raids Iraqi arms-buying front Matrix Churchill Corporation. october: Great Britain raids Matrix-Churchill Ltd. 1991 january: Operation Desert Storm begins. february 22: Kissinger quits BNL advisory board. february 28: Iraq surrenders. U.S. indicts Drogoul and others on 347 felonies. 1992 april: Drogoul imprisoned as his trial approaches. june: Drogoul pleads guilty to 60 felonies, begins debriefings with federal prosecutors. Federal Judge Marvin Shoob requests court-appointed independent counsel to probe BNL. septmeber 14: Drogoul sentencing hearing opens. october 1: Federal prosecutors agree to release Drogoul from his guilty plea. october 5: Judge Shoob issues order questioning the impartiality of Justice Department and withdraws from Drogoul case at prosecution's request. october 16: Bush Attorney General William Barr rejects second formal request from House Judiciary Committee to seek court-appointed independent counsel, then picks Frederick Lacey to probe BNL. november 3: Bill Clinton defeats George Bush in presidential election. november: Criminal export violation charges against Paul Henderson, former managing director of Matrix-Churchill Ltd., collapse after it is disclosed in London court that British government approved his activities and that he was a spy against Iraq. december 8: Lacey finds no need for independent counsel in 1992 BNL case, praises Justice Department. december 14: BNL attorney Griffin Bell spends night at White House, has private dinner with President Bush. december 15: BNL sues United States, seeking some $340 million in CCC guarantees on BNL-Atlanta loans. december 30: Bush names Bell as his private attorney for matters pertaining to Iran-Contra affair. 1993 june: Clinton Attorney General Janet Reno appoints longtime aide John Hogan to probe BNL. august 4: Federal Judge G. Ernest Tidwell says Drogoul trial may not delve into U.S. policy toward Iraq or BNL's political efforts to avoid indictment. august 23: Judge Marvin Shoob sentences five Drogoul subordinates at BNL-Atlanta to probation, calling them "bit players in broad conspiracy." Hogan tells Judge Shoob he has concluded BNL-Rome was in the dark about Atlanta scheme. september 2: Drogoul pleads guilty to three felonies. december: Tidwell sentences Drogoul to 37 months in prison. 1994 spring: Kenneth Juster, a former top Eagleburger aide in the Bush State Department, writes article entitled "The Myth of Iraqgate" in Foreign Policy magazine. december: Drogoul permanently released from custody. 1995 january: Hogan report is declassified and released. It dismisses charges of cover-up and praises Justice Department's handling of BNL case. february: U.S. government agrees to pay BNL $400 million on CCC guarantees covering Atlanta loans to Iraq. INTRODUCTION dh IAHRAN, SAUDI ARABIA, FEBRUARY 25, 1991 In the cavernous sheet-metal warehouse that served as temporary barracks for 127 Americans, three soldiers had cornered a mouse. Army Specialist Vaughan Leer rolled off his bunk and--delaying a visit to the outdoor latrine--groggily paused a moment to watch them make the capture. A few yards away, another soldier quit a casual game of Trivial Pursuit to go take a closer look at the action. It was 8:42 p.m." and Leer had guard duty at midnight. As he turned to go outside to relieve himself, the building suddenly fell into absolute blackness, followed in an instant by a blinding blue flash. An Iraqi Scud missile had pierced the thin metal roof and dropped 20 feet to the floor before exploding next to the board game. Concrete, metal, and glass flew in every direction. Fires engulfed bedding and loose clothing, and Ml6 ammunition popped at random intervals. Soldiers writhed on the littered concrete slab floor around a four-foot crater as the stench of sulfur and burning flesh filled the air. The blast killed twenty-eight soldiers and wounded ninety-nine others from several units. For the United States, it was the most damaging incident in the Persian Gulf War. Leer suffered perforated eardrums and shrapnel wounds to his throat and left side. The explosion sent him flying. "After I knew I could move again, I felt for my head, since I somehow thought my head was taken off when I was flying through the air," he said later. "I stood up and checked myself for obvious signs of injury. I saw the hole in my T-shirt.. .. "It was mass confusion. Basically, we were trying to account for everyone ... to put a face with a body, a body with a face." The missile decimated Leer's unit, the 14th Quartermaster Detachment from Greensburg, Pennsylvania, twenty-five miles east of Pittsburgh. Of its sixty-nine members, thirteen died and forty-three were wounded. Within hours, frantic relatives of the soldiers swarmed the unit's headquarters in Greensburg, desperate to learn the fate of their loved ones. At first, a chaplain gave the death notices on the spot, calling one family at a time. When the mother of Specialist Beverly S. Clark learned her daughter had died, she sobbed and pounded the chaplain's chest. He returned to call only two other stricken families before the Army decided to issue the remaining notices at the soldiers' homes. Long after his physical wounds had healed and he'd left the Army to study environmental engineering, Vaughan Leer could not shake off memories of the tragedy. Nearly three years later, he still suffered nightmares and flashbacks. His lingering trauma was aggravated by disclosures that American companies--encouraged by the U.S. government and financed by a tiny Atlanta bank--were among Iraq's most valued military suppliers just before the war. Leer was disturbed by the possibility that hunger for profit placed the 14th Quartermaster unit in harm's way. He wondered whether the CEOs of the companies that helped arm Iraq learned anything from his unit's misfortune. "If their sons and daughters were there, it'd be a whole different matter," he said. When they arrived in Saudi Arabia on February 18, 1991, members of the 14th Quartermaster had no particular reason to fear for their lives. They were reservists--weekend warriors--on a rear-line support mission to purify water for front-line soldiers. Their makeshift quarters outside Dhahran were more than 200 miles down the Persian Gulf from the southern tip of Kuwait and nearly 400 miles from Iraq, where Saddam Hussein's once-threatening army was preparing to defend its homeland against invasion. The ground attack by a coalition of countries led by the United States began on February 24. Within a few hours, the conflict that the Iraqi president had billed on January 17 as "the mother of all battles" turned into a rout by the coalition. But at 8:32 local time on the evening of February 25, a Scud missile rose from a site north of Basra. It was the last of about eighty Scuds Iraq launched during the Gulf War. Although aimed in the general direction of the airport in Dhahran, the weapon was too primitive to be predictable. In fact, the missile missed the probable target by about three miles, to score its direct hit on the reservists' quarters. America took only brief notice of the carnage. Live CNN coverage of pressing new events soon buried the awful memory. Iraq's surrender came just sixty hours later, and the victors became caught up in celebration. Americans marveled at their awesome weapons technology, made celebrities of their able generals, and hailed their grimly determined commander in chief, George Bush. Turnout was heavy at the Latrobe, Pennsylvania, airport for the March 1991 homecoming of the ambulatory survivors of the 14th Quartermaster from nearby Greensburg. The American town that paid the highest price of all in the Persian Gulf War had come to pay its respects. The spirit of tearful celebration seemed to draw power from an undercurrent of grief and loss. As the huge green C-l 30 transport plane broke through a heavy cloud cover, the bundled-up, flag-waving crowd roared and a high school band played "God Bless America." Moments after the plane came to rest, the soldiers began to disembark through a line of saluting dignitaries--a two-star general, a congressman, the state's lieutenant governor. "You are heroes," Major General James B. Baylor told them. "You answered the call to arms. Some of our own have indeed paid a dear price, but they shall not be forgotten. "Ever." After pausing briefly to collect himself, the general added: "It's difficult--very, very difficult." But few on hand that day were aware of a dreadful irony about the sacrifice they had assembled to honor: Their own community had helped arm Saddam Hussein. In the years leading up to the Persian Gulf War, Latrobe-based Kennametal Inc. secretly sold the Iraqis machine-tool parts used to mill armaments. Even after Iraq invaded Kuwait and President George Bush banned all commerce--direct or indirect--with Baghdad, and after Kennametal issued a corporate ban on sales to Iraq, Kennametal's subsidary in the United Kingdom agreed to an additional sale to a known Iraqi arms- buying front in England. But the Fortune 500 corporation that served as Latrobe's economic engine wasn't alone. Before the August 1990 Iraqi invasion, a host of U.S. firms, including several clustered in western Pennsylvania, cashed in as suppliers to the Iraqi war machine. The fate of the Pennsylvania reservists ought to have raised more questions. How did this Middle East dictator muster such a large and well-armed military? How much did the United States do to help arm him? Did U.S. corporations profit from Saddam Hussein's rise and fall, and did they influence government policy? How much money did U.S. taxpayers contribute to Iraq--and did they know they were giving it? Where exactly did the taxpayers' money go? I In a carnival or street-corner shell game, the dealer conceals something-- a coin, a poker chip, something that can easily be moved--beneath one of three identical shells. As the crowd gathers, he begins a line of patter designed to tempt onlookers to bet money, and to distract attention while I he rapidly rearranges the shells. Often, a cohort planted in the crowd will "discover" which shell conceals the coin and so "win" his bet. Others, encouraged by that success, soon bet their money, only to lose. They cannot keep up with the sleight-of-hand that moves the shells; they have been suckered. Shell Game describes a similar scam run on a giant scale. In this story, the dealer is the U.S. government. The concealed coin is the secret U.S. policy of aiding Iraq during the 1980s. The cohort is any American corporation that profited from that secret policy while paying lip service to a much different "official" U.S. policy presented to the public. The suckers, inevitably, were American soldiers and taxpayers who couldn't keep track of their own government's activities. The game documented in this book started in the early 1980s, when the White House quietly began helping Iraq fight its war against fundamentalist Iran. While officially neutral in that grisly struggle, the United States handed Iraq top-secret satellite photos of Iranian troop positions, suspended rules governing exports of highly sensitive military gear, placed $5 billion of taxpayer funds at risk to support Iraqi food imports, and overlooked an illegal banking scheme at the Banca Nazionale del Lavoro office in Atlanta that sent additional billions directly into Saddam Hussein's war chest. The White House has run similar games before--and since--outside the purview of congressional and public approval, in bids to influence foreign tyrants and to profit from them. Secret dalliances with Anastasio Somoza in Nicaragua, Ferdinand Marcos in the Philippines, Manuel Noriega in Panama, and others all display the same pattern: secret aid, often in the form of public money, is channeled to a questionable foreign policy. Shell Game is intended as a case study and a cautionary tale of how our executive branch, working hand in hand with private business, runs an "off-the-books" foreign policy--a policy that would never be approved through public channels. Iraq's 1990 invasion of Kuwait threatened to expose the White House shell game in the Middle East. It triggered congressional investigations that dug deep into the covert U.S. tilt toward Iraq and into the tiny Atlanta bank that helped fund it. But President Bush, using the vast power of his office, tried to stall the probes long enough for the American companies that supplied Iraq to blend quietly into the crowd. Chapter 1 SAD DAM BANKERS "We were asked if we would like to attend the military fair. In fact, we weren't asked. We were told to attend." --Christopher Drogoul PAGHDAD, APRIL 28, 1989 The after-breakfast crowd that milled in the lobby of the Rasheed Hotel made the two Atlanta bankers acutely uncomfortable. Military chiefs from all over the world, decked out in exotic uniforms, chatted in small groups with splendidly dressed businessmen. Christopher Drogoul and Paul Von Wedel didn't know a soul. They were way out of their league. Mercifully, their Iraqi driver found them in the lobby and led them away to a Mercedes. It was the week of Iraqi President Saddam Hussein's birthday, and the opening ceremony for the First Baghdad International Exhibition for Military Production was set to go. A caravan of limos stood ready to ferry the arms dealers from the hotel to a nearby pavilion, where companies from twenty-eight countries had already set up displays of glitzy weaponry. The bankers hoped to remain invisible all day while they watched and I learned. But a traffic coordinator at the hotel, oblivious to protocol, ordered the other limos to fall in behind theirs. When the procession pulled out, the bankers' Mercedes led the way. As they reached the arms show, the second most powerful man in Iraq rushed forward to welcome his first guests. "Hussein Kamel was all smiles until he recognized us," Von Wedel recalled. "Then he lost his smile." Hussein Kamel Hassan was Saddam's nephew and son-in-law as well as his country's weapons procurement boss. He greeted the bankers coolly and had them whisked out of the spotlight. They were the last people on earth Iraq wanted to put on display. Bankrolling clandestine arms deals was a sensitive job, better handled in private. Drogoul and Von Wedel were Saddam's principal bankers in the West. They worked out of an obscure office tucked away on the twentieth floor of a Peach tree Center tower in downtown Atlanta. Their employer, Italy's huge Banca Nazionale del Lavoro, was a far-flung bank that had a history of sticking its tentacles into international arms deals. Lavoro Bank, or BNL for short, was owned almost exclusively by the Italian government. Christopher Drogoul was BNL's Atlanta branch manager, and Paul Von Wedel his second in command. The two men didn't have much use for each other. Drogoul was a New Jersey-born yuppie with a dash of European flavoring. He spoke French, drove an Alfa-Romeo, and charmed women with his gentle diffidence. Slender and just over six feet tall, he had high cheekbones, aristocratic features, and wavy dark brown hair. When he was trying to impress people, he spoke in stilted bureaucratese that made him sound like a career diplomat. At thirty-nine, Drogoul was on the fast track at BNL. Although only a branch manager in the hinterlands of America, he enjoyed the special favor of the bank's director general in Rome. He had a gift for ingratiating himself. Von Wedel didn't kiss up to anyone. He greased his graying black hair back over his ears into a duck tail leaving a bald patch on top. He spoke with a slight Brooklyn accent and an occasional stutter. Someone at the office had nicknamed him "Von Weasel" and it stuck. Von Wedel was more than a decade older than his boss and had some thirty years' experience in international banking. Though clever and street-smart, he would always be someone else's lieutenant because he had never attended college. When the Iraqis first approached the two Atlanta bankers in late 1984, Drogoul and Von Wedel eagerly agreed to make loans to help them import wheat, rice, and other foodstuffs. At the time, Iraq was fighting for its very survival against neighboring Iran. To the U.S. government, Iraq was clearly the lesser of two evils. Under the Ayatollah Khomeini, Iran's radical Islamic government was completely antithetical to U.S. political and business interests. Iraq, by contrast, though troublesome itself, gained official, albeit low-key, U.S. backing. Most of BNLAtlanta's agricultural credits to Iraq were guaranteed by the U.S. Department of Agriculture. The arrangement seemed to please everybody. Iraq got its food. BNL-Atlanta had a major customer--one that borrowed $1.9 billion. U.S. farmers had a lucrative new market. The U.S. and Italian governments were nourishing Iran's bitter enemy. But circumstances changed in late 1987. Saddam's men began pressuring their American bankers to finance industrial and military projects as well as food. They dropped their polite tone and adopted a vaguely menacing attitude when they made their funding requests. They told Drogoul that the best way to assure Iraq's repayment of the outstanding food loans was to lend new money for high-tech hardware. Drogoul, who rarely summoned the will to say no to anyone, was no match for the resolute Iraqis. He caved in. In February 1988, the two Atlantans flew to Baghdad to sign an unrestricted $200 million line of credit. They closed the loan in a roomful of uniformed Iraqi officers armed with pistols. Von Wedel had a problem with the pistols. He wanted to hop on the next plane home. Over the next year and a half, Von Wedel grew increasingly uneasy about the direction of BNL-Atlanta's relationship with the Iraqis. In October 1988, he exploded at Drogoul for granting them another $300 million credit line. After that, Drogoul didn't dare mention to Von Wedel the separate new lines of $500 million and $1.155 billion, which he granted and signed all by himself. As the Iraqis drew on the massive credit lines, an avalanche of paperwork descended on the Atlanta branch. The workload stressed the staff of eighteen, a collection of modestly paid provincial Southerners and banking industry strays. For several years, Chris Drogoul had ruled the bank staff with his charm. They gasped at the way he deceived BNL auditors from New York, but he calmly told them that he was operating on a wink and a nod from top bank officers in Italy. Neither was it a serious problem, he assured them, that they had stopped complying with federal banking laws. He said he had friends in the U.S. government too. But by early 1989, Drogoul's charm no longer sufficed. All could see that the emperor had no clothes. Some in the office quietly plotted their next moves. Von Wedel, on the other hand, responded with bluster. He threw temper tantrums, threatened to quit, and daydreamed about opening a music store. But he let Drogoul convince him to make one final trip to Baghdad for the April 1989 Baghdad International Exhibition. The fair was to be the highlight of the American bankers' visit to Iraq, but they arrived several days early. Von Wedel wanted to see the country, the relics of ancient Babylon as well as the latest BNL-financed creations in concrete and steel. The Iraqis agreed to show them around, with a heavy emphasis on the modern. The bankers and their guides took day trips to a dam site in northern Iraq, a petrochemical plant in the south, and a sprawling industrial complex known as NASSR State Enterprise near Baghdad. The Badush Dam spanned the Tigris River north of Mosul near Iraq's border with Turkey. Excavators, dump trucks, and cranes from prominent U.S. firms, including Mack Trucks, Caterpillar, Dresser, and P&H, were used in what was ostensibly a vast hydroelectric and irrigation project. Thousands of Vietnamese, shaded by conical hats, performed most of the hard labor under what appeared to be brutal conditions. The bankers saw mammoth trucks prowling the site upon ten-foot tires, hauling tons of dirt and rock across the arid terrain. Von Wedel, the casual tourist, even snapped pictures of a few. The bankers didn't know that in times of war, the big trucks could be jerry-rigged into mobile launchers for Scud missiles. During Operation Desert Storm twenty months later, mobile Scud launchers would fan out across Iraq and become an elusive nuisance to American pilots, as well as a threat to ground troops and to Israel. The Atlanta bankers, however, were visiting in the peaceful late spring of 1989, when it was still possible to indulge in wishful thinking about how Iraq was spending BNL's money. In fact, Badush was one of Iraq's most important and diverse military sites. It included SAAD 16, the country's main research and development center for ballistic missiles. Much of SAAD 16 was built underground for protection from air strikes, including a wind tunnel used to test aerodynamics. But that wasn't a scheduled stop on the guided tour, so Drogoul and Von Wedel didn't see it. The dam itself actually powered a secret uranium-enrichment plant, as nuclear experts concluded after the Persian Gulf War. In May 1991, an Iraqi defector claimed weapons-grade uranium was produced there with long-outdated equipment known as calutrons. Though the Atlanta bankers were in the dark about the true nature of Badush in early 1989, the U.S. State Department was far less naive. April Glaspie, the U.S. Ambassador to Iraq, sent a confidential cable to Washington that June to warn about a heavily guarded complex of buildings adjacent to the dam. The suspicion was that Iraq was producing "missiles, tanks or gas cylinders" there. She explained that cameras were strictly banned and visitors were "discouraged from even looking in the direction of the adjacent project." Glaspie's cable made specific reference to BNL-Atlanta. It noted that at least $10 million of the equipment had been financed by the obscure branch office. Her figure was an understatement. Whatever was really going on around the dam, BNL-Atlanta probably financed it. According to a 1988 telex sent by a German contractor, Drogoul agreed to supply up to $100 million in credit for Badush. That telex referred to the work as "Project 395," which German intelligence later identified as a code name for the SAAD 16 missile center. Iraqi guides usually kept the American bankers away from their most sensitive weapons projects. But they were torn. Being quite proud of their rapid military development, they couldn't help showing off just a little. There was plenty to show off at NASSR, the immense military complex in central Iraq, a few miles north of Baghdad. Drogoul and Von Wedel were honored to have an important escort. Safa al-Habobi, NASSR's director, was a senior Iraqi weapons procurement official who reported directly to Hussein Kamel. Dr. Safa, as he was known, let the bankers glimpse a steel mill, a forging plant, and the computer-controlled milling equipment that churned out Saddam's guns and shells. At one point, he walked the wide-eyed bankers through a room that had missile blueprints hanging on its walls. One drawing represented a three-stage missile known as the "Al-Hussein," an Iraqi-modified version of a Soviet-designed Scud. Thanks to Iraqi ingenuity, Dr. Safa explained, the missile had penetrated deep into Iran and helped end the slaughter of the Iran-Iraq War in 1988. In February 1991 a similar missile would rain destruction on the Dhahran warehouse that housed America's 14th Quartermaster unit. Many of the milling machines used to manufacture or modify armaments at NASSR were made by Matrix-Churchill Ltd." an Iraqi-owned front company in England. Drogoul had financed many deals for Matrix, and he knew its managing director, Paul Henderson. Henderson, a gentle, soft-spoken man, could put people at their ease. Now the Atlanta bankers were pleasantly surprised to see his smiling face at NASSR. He joined them for a cordial and relaxed lunch at a private dining room there. When the meal was over, a giant cake was rolled in and the group spontaneously broke into a chorus of "Happy Birthday" for Saddam. Two American bankers and a British businessman were paying tribute to the Iraqi dictator right in his own weapons factory. Drogoul and Von Wedel did not grasp the enormity of Iraq's crash military buildup, a failure due partly to Iraqi secrecy and partly to their own denial. They were reluctant to admit that Iraq was using them to obtain weapons of mass destruction. But there was no escaping that reality at the Baghdad International Exhibition on April 28, 1989. "We were asked if we would like to attend the military fair," Drogoul recalled. "In fact, we weren't asked. We were told [by Iraq] to attend." Henderson, who presided over a sample of high-tech milling machines produced by Matrix-Churchill, recalled the scene: "You saw shells, cluster bombs, grenades, a great display of military hardware, mockups of missiles and the like. They could not have missed the fact that Iraq was manufacturing weapons." A few days before, early-arriving guests had been treated to a live demonstration of Iraqi military competence. An Egyptian plane accidentally strayed into airspace near the presidential palace. It was promptly cut down by anti-aircraft fire. Even guests at the arms fair were expected to obey Saddam's rules--or else. The exhibition itself was an ideal marketplace for Henderson and others. Arms brokers and intelligence agents from all over the world were there to inspect the wares of more one hundred companies. As host, Saddam got to show off his own rapidly budding arsenal. He even displayed a scale model of a planned "Supergun"--a gigantic howitzer designed to fling warheads as far as the Iranian and Israeli capitals of Teheran and Tel Aviv. The American flag was conspicuously absent from the festivities. Like the Atlanta bankers, the United States was shy about its role as a major Iraqi supplier. The U.S. military attache in Baghdad roamed around out of uniform. And General Motors showed off its four-wheel-drive vehicles under a Canadian flag. But beneath that official American reserve pounded a powerful ardor to sell to Iraq. General Motors, among other Fortune 500 companies, worked hard to land lucrative export deals. Inevitably, the company's diligence led them to Drogoul and Von Wedel. Knowing that the Baghdad International Exhibition was as good a time and place as any to make a direct pitch for money, GM officials arranged to meet the malleable Atlanta bankers. When the Iraqis delivered them to the table, the American auto makers proceeded to ask for export financing for a shipment of ten thousand Oldsmobile Cieras that Saddam wanted for his elite Republican Guard unit. If that deal worked, America's signature corporation wanted BNL-Atlanta to fund construction of a $600 million truck plant in Iraq. The White House did not object to U.S. companies hustling for export business with Iraq. Both the Reagan and Bush administrations generally encouraged the trading relationship, notwithstanding the fact that Reagan Secretary of State George Shultz got cold feet at the end of his term. "By the end of the Reagan years," Shultz wrote in his memoirs, ".. . it was clear to me that no further reason existed for the United States to give Iraq the benefit of the doubt for balance-of-power purposes against Iran." Shultz claimed that in 1988, the United States was "at sword's point with Iraq" over its use of banned chemical weapons and other issues. That was why, he said, Reagan's State Department urged the incoming Bush team to take a tougher stand toward Iraq. Bush decided not to. Instead, he took private steps in 1989 to accelerate trade. Iraq had survived a fierce eight-year war of attrition with Iran and it had oil to sell. At the same time, Saddam Hussein wanted to buy U.S. machinery and weapons technology. So the two leaders put aside their mutual suspicions and agreed to deal. Just before the Iran-Iraq War ended in September 1988, the United States was buying about 80,000 barrels of oil per day from Iraq. Purchases rocketed to 675,000 barrels a day in early 1990, and to more than 1 million barrels a day in the weeks before the August 1990 Iraqi invasion of Kuwait. A State Department memo noted that Iraq was giving U.S. oil companies "favorable deals." Meanwhile, the U.S. Commerce Department relaxed its standards for approving applications for high-tech exports to Iraqi weapons factories. Democratic Congressman Henry Gonzalez of Texas, who later spearheaded an investigation of BNL-Atlanta's loans to Iraq, called it a deal with the devil. "Maybe this was natural," the congressman mused. "The President himself is an oil man and so are his closest advisors who were responsible for setting and implementing the U.S. policy toward Iraq. Secretary of State James Baker and Commerce Secretary Robert Mosbacher understand the oil business, and they understood the significance of the deal Iraq offered. Our main goal was access to cheap oil; Hussein wanted cash, credit, and military technology." As a former director of the CIA, Bush had confidence that U.S. intelligence could keep an eye on Iraq's military progress and tell him when enough was enough. So in 1989, the United States discreetly edged closer to Iraq, though its motives for doing so had shifted. The strategic need to create a military counterweight to Iran had receded, but the commercial impulse to chase profit had taken its place. General Motors longed to sell Saddam more cars and trucks; Continental Grain and Cargill wanted to ship more wheat; Mobile wanted to buy more cheap oil. They weren't alone. The U.S.-Iraq Business Forum, a powerful business lobby based in Bush's second home of Houston, sprang up to extol the benefits of trade with Saddam. Two public relations problems stood in the forum's way: Saddam's image as a brutal dictator and his country's reputation as a financial deadbeat. During the Iran-Iraq War, the Iraqi president unleashed poison gas against enemy soldiers, and in 1988 he dipped into his vast chemical weapons stockpile to slaughter thousands of Iraq's own Kurdish citizens. He periodically promised to one day annihilate Israel. All the while, he never tried to hide his goal of becoming the dominant military force in the Gulf-not to serve as a dependable American surrogate the way the Shah of Iran had during the 1970s, but to exercise power in his own right. It was hardly surprising that Saddam had doubters and detractors in the U.S. Congress. Iraq also had an image problem in the international credit markets. Banks refused to finance its imports, absent some other government's credit guarantee. Baghdad didn't so much lack the ability to repay--it boasted the region's third largest oil reserves after Saudi Arabia and Kuwait-as the will to repay. Iraq had a reputation for paying back only those lenders who agreed to extend even larger loans. It often welshed on lenders who didn't comply. To keep billions of dollars flowing, the Reagan and Bush administrations cut Iraq in on two U.S. credit guarantee programs, the Commodity Credit Corporation (CCC) and the Export-Import EXIMBank. Backed by the U.S. taxpayers, both programs had vast pools of money which could be used to bolster Iraq and enhance business opportunities there. Yet the CCC and the EXIMBank weren't ideal financial channels for White House-sanctioned deals with Iraq. The programs, though not generally familiar to the public, were too easily monitored by Congress. Certain vocal congressmen were all too eager to point out the risks of fraternizing with Saddam. They wanted to slap Iraq with economic sanctions for its terrible human rights record--not pump up U.S.-Iraqi trade. So a more discreet financial arrangement was called for. Someone had to step forward to finance the crush of new purchase orders from Baghdad. Drogoul and Von Wedel performed that task until they were unexpectedly interrupted by the FBI on August 4, 1989. Not all the agencies of the U.S. government have exactly the same agenda. For example, the State Department or the CIA might choose to remain silent about apparent violations of the law that, if discovered by the FBI or the Federal Reserve, would trigger immediate action. The latter two agencies tend to have shorter fuses than the former two about technical violations of the law. That helps explain the incident that took place at BNL-Atlanta offices on Friday, August 4--three months after Drogoul and Von Wedel had returned from the Baghdad arms fair. At 4:30 p.m. that afternoon, only two people on the skeleton staff at BNL-Atlanta had an inkling of what was about to take place. But they weren't talking. Jean Ivey and Mela Maggi had cut a secret deal with federal prosecutors that let them off scott-free in exchange for information on their coworkers. As the minute hand climbed toward the nine, they waited anxiously. At 4:45 p.m., the four elevator doors in the hall opened simultaneously, releasing more than thirty federal agents. They swept into the bank office and fanned out to make sure every corner of every room was covered. Employees were ordered to stop what they were doing instantly and herded into the bank's conference room. Therese Barden, an elderly branch officer, was tidying up when a tall, slender FBI agent appeared in her doorway. "I didn't even know if it was a joke or not," Barden said later. "Then I thought it was just me they were after. I was so scared I couldn't walk." For Barden, a small, high-strung woman, the moment brought back harrowing memories of the day in 1940 when a squad of Nazi soldiers turned up at her widowed mother's farmhouse in Normandy, France. Then a fourteen-year-old girl, she had watched mutely as the occupying Germans systematically set up bunks in her living room. Nearly fifty years later, Harden meekly complied when the federal agent ordered her to join the others around the large table in the conference room next to Christopher Drogoul's office. The branch manager was on vacation in Paris with his wife and kids. Paul Von Wedel had taken the day off and was at that very moment lounging beside the pool behind his dream house in the Atlanta suburbs. Scared, disoriented, and leaderless, the dozen or so bank employees present weren't quite sure what to do. Was it correct to ask for lawyers, clam up, or cooperate? In the confusion, a voice of authority from either the FBI or the Federal Reserve asked a simple question. "Who has the largest credit account at the bank?" "Rafidain," someone blurted. With that admission, the cat was indeed out of the bag. Rafidain was an Iraqi bank that owed BNL-Atlanta hundreds of millions of dollars for food shipments from the United States to Iraq. The problem was that the Atlanta bankers hadn't been reporting the Rafidain loans to bank headquarters in Rome or to U.S. bank regulators, as required by federal law. Instead, records of Iraq's borrowings were kept on a secret group of papers and computer files known collectively as the "gray book." Counting all the "gray book" loans to Rafidain and to those who supplied Iraq machinery and weapons technology, BNL-Atlanta was due almost a couple of billion dollars from Baghdad. If for some reason Saddam chose not to repay, then the parent Italian bank would be looking at a gaping hole in its balance sheet. Now that the Federal Reserve and FBI understood that fact, someone was in a pack of trouble. For Christopher Drogoul, the FBI raid brought an abrupt end to a seemingly charmed banking career. Chapter 2 ATLANTA: THE HOST CITY "I felt like a little boy in front of him [Drogoul], his imagination and intelligence...." --Renato Guadagnini, BNL regional manager for North America, 1980-87 One of Christopher Drogoul's first duties for the Italian bank in the early 1980s was to escort important single women to parties that his boss, Giuseppe Vincenzino, hosted at his elegant Atlanta condominium. Besides being a compulsive buyer of priceless antiques and oil paintings, Vincenzino loved to play matchmaker. A stocky, excitable man who spoke English only haltingly, he saw Drogoul as an American Romeo worthy of ladies like Priscilla Rabb, daughter of the U.S. Ambassador to Italy, Maxwell Rabb. Drogoul played along, although he said he had "no interest" in Ms. Rabb. Paul Von Wedel had no sympathy. "I used to tell Drogoul it was the first time I'd seen an Italian pimp in Atlanta," he said. "He got very mad." Von Wedel disdained the boss's parties in the upscale suburb of Buckhead. He only went to a couple and doubted he was greatly missed at others. Vincenzino used the gatherings to cozy up to politicians like Atlanta Mayor Andrew Young and Georgia Banking Commissioner Jack Dunn. Drogoul also recognized the value of the parties, and he worked them effortlessly. "He had the breeding, the bearing to do all that," Von Wedel said. "I was just a commoner." Drogoul seemed to picture himself as an Alfa-Romeo among a fleet of Chevrolets--a man of refined European sensibilities stuck in a sleepy cultural backwater. Local boosters promoted Atlanta as an up-and-coming international capital, but he knew the place was full of yokels who spoke with thick drawls and couldn't even understand French. Drogoul, of course, spoke it fluently. His father, Pierre G. Drogoul, was a member of the French Resistance when he met and married an American Army nurse near the end of World War II. Following the war, the couple moved to a New Jersey suburb of New York City. Christopher was born in July 1949 with dual U.S. and French citizenship. After his parents divorced, his father returned to Paris to pursue a business career on the fringes of the arms market. His mother stayed in the New York area to raise Christopher and his two sisters. Pierre Drogoul was a globetrotter who urged his son to pursue a worldly career such as international law. Instead, Christopher bummed around Europe, flirted with film school at UCLA, and finally majored in philosophy at Temple University in Philadelphia. He was a fairly typical college student, according to James Tupitza, a former classmate. He dressed conservatively and took a part-time job as a cab driver. He steered clear of political zealots from the left and the right. "When the campus radicals had their conventions, that's the kind of thing Chris and I would never get near," Tupitza said. "Chris would be in sneakers, jeans, an Oxford button-down shirt, a sweater, and a Harris tweed jacket. But he didn't go to the Young Republicans meetings either because he thought they were too boring." When he graduated in 1973, Drogoul hadn't entirely outgrown the impulse to impress his father. He took an entry-level job in New York with Barclays Bank, a venerable British firm, because high finance was more palatable to him than law. Actually, he didn't exactly step into high finance; he worked in the travelers' check division for $6,760 a year. But it was a start. Over the next four years, he was promoted in New York and transferred to Barclays' new office in Atlanta. Drogoul moved south in 1978 as a twenty-nine-year-old assistant vice president at Barclays Bank International Ltd. He was bright and engaging, particularly with women and low-key men. He was more reserved around forceful, authoritarian types. His first boss, J. David C. Burke, was an easygoing guy who considered the newcomer quite teachable. Before long, however, Drogoul's boss started to become concerned about his relationship with his staff. Drogoul, who'd married in 1974, had become friendly with two beautiful young women in the office. Jean Ivey was tall and blond, Lynn Washam medium-height and dark-haired. Ivey { would later follow him when he left Barclays for BNL, but it was Washam who would become his second wife. Drogoul's friendship with his junior staff made Burke uncomfortable. "What we are most looking for in him is firmness and precision in dealing not only with subordinate staff, but also with customers," Burke wrote in a March 1980 job evaluation. "He seems committed to a banking career land] acknowledges this one major fault of his." Burke was willing to give the promising young banker a chance to redeem himself--at least until he stumbled upon an astonishing telex. The March 2, 1981, message to the Clariden Bank in Geneva, Switzerland, f stated that Barclays "irrevocably" agreed to accept a deposit of $2 billion. I It was signed by Drogoul, then an assistant vice president earning about $25,000 a year. Barclays investigators began referring to the matter as the "ghost money" affair. They found that Drogoul had been negotiating for months--behind the backs of his superiors--with a local real estate lawyer named Marvin Zagoria and a European businessman named Claude Piton. A consortium of European investors was to supply the deposit, which would be invested in real estate. Jean Ivey served as Drogoul's assistant in the negotiations. Her signature appeared as the notary public on a letter from Zagoria to Piton dated before Barclays caught wind of the deal. A note written later by a Barclays investigator suggested Ivey was prepared to take an even more active role: "CD had asked JI to handle $2 bn. deposit if it came through while he was on his West Coast trip." Barclays discovered that Piton--in apparently related deals--had offered to make loans of $35 million and $20 million to a pair of Texas savings institutions and had named Barclays as the "servicing bank." Barclays dashed off a cable warning Piton and Zagoria not to ever use the bank's name again. The bank dodged financial or legal harm, but it had questions to ask Drogoul. A year earlier, Barclays had warned employees to be on guard against come-ons from mysterious money brokers Drogoul knew about the alert, but went ahead anyway, "based on my belief that the transaction [was] genuine." The bank's internal investigation showed Drogoul hadn't kept telexes, correspondence, or notes of phone conversations on file at the bank. He'd also used his home address and phone. "Was there any correspondence with any of the parties to the deal? If so, where is it?" Barclays investigators asked Drogoul in April 1981. "Why did you choose to act entirely alone on the deal without enlisting [help]? "How did you imagine the bank would invest $2 billion?" David Burke gave Drogoul the benefit of the doubt. He concluded that his assistant vice president had acted out of over enthusiasm and poor judgment. Even so, Barclays executives in New York felt that Drogoul couldn't stay in Atlanta and shouldn't be let loose on customers in another area of the bank. He would have to go. So Drogoul resigned from Barclays in October 1981. BNL hired him two months later, strangely enough, on Burke's recommendation. When BNL began exploring the idea of opening an office in Atlanta back in 1980, Renato Guadagnini, the bank's regional director for North America, flew to see David Burke at Barclays, which had opened a branch in Georgia in 1976. Guadagnini liked what he heard and quickly set up his own business scouting outpost there. In late 1981, BNL decided to expand the operation into a full-fledged agency office and went on a hiring spree, picking up Drogoul and several others. Drogoul immediately prospered. He never made $30,000 a year at Barclays, but BNL paid him more than $45,000 in 1982. He even managed to win Guadagnini as a mentor. The bank's aging North American manager was the Italian equivalent of a Georgia good of' boy--a reliable cog in the political machine. He had allies in the bank's executive suites in Rome, including the chairman, Nerio Nesi. Luckily for Drogoul, Guadagnini viewed him as an amazing talent. "I felt like a little boy in front of him, his imagination and intelligence, which he used for perverse objectives," Guadagnini said after the 1989 FBI raid on the Atlanta branch. "If he would have used them towards acceptable [objectives], he probably would be president of BNL at this moment." Drogoul also impressed Giuseppe Vincenzino, the man Guadagnini assigned to open and manage the BNL-Atlanta office. Vincenzino was as much a politician as a banker or manager. He had a flair for interior decor and beautified the office with stunning Oriental rugs, landscape oils, and antiques. His hard work attracted notice: one international lawyer described BNL's office as the most opulent of all foreign bank branches in Atlanta. Most successful bankers cultivate political as well as corporate ties. But Vincenzino's career path was strikingly political. From 1960 to 1970, he worked as an economic assistant for the U.S. Consulate General, an arm of the State Department, in Palermo, Sicily. He left to spend three years as an information officer at the United Nations in New York. After studying briefly at Columbia University, Vincenzino joined BNL's New York staff in 1975, then moved to Atlanta in 1980. Drogoul considered his boss a reactionary, inclined toward Italy's Christian Democratic Party or groups further to the right. He traced Vincenzino's leanings to his father's career as an Italian policeman. Drogoul caught a glimpse of the intensity of his boss's political feelings at a small party given by the Vincenzinos in late 1981 or early 1982. Drogoul was there with Lynn Washam--then his girlfriend, later his wife. When Washam was asked what she did, she explained that she was an economics student working on a paper critical of President Reagan's supply-side economics. According to Drogoul, Vincenzino erupted in a vehement defense of Reagan. But over time, Drogoul came to appreciate that Vincenzino's friend, Maxwell Rabb, the U.S. Ambassador to Italy, was a key player in relations between the Reagan White House and the Italian government, which owned BNL. The bank's headquarters in Rome were very close to the U.S. Embassy, where Vincenzino sometimes had the honor of staying. Furthermore, Bruce Rabb, the ambassador's son, worked for BNL's chief legal counsel in the United States, the New York law firm of Stroock & Stroock & Lavan. Vincenzino spent four years in Atlanta, long enough to open the office, hire a staff, and put Drogoul in charge. He and Guadagnini also set up the financial mechanism that Drogoul would later use to camouflage the flow of billions of dollars from Atlanta to Iraq in the late 1980s. That mechanism was a special account BNL-Atlanta held at Morgan Guaranty Trust Company in New York. Drogoul used it to hold vast sums BNL-Atlanta quietly borrowed on the world market. He disbursed those funds, as instructed by Baghdad, to exporters supplying Iraq with a variety of goods. The Morgan account was highly unusual. It is standard practice for an international bank to require its branches to keep such clearing accounts within the organization. This was official policy even at BNL. An order from Rome headquarters dated November 30, 1984, said all BNL branches in the United States were to use clearing accounts at BNL-New York. But the order was issued ten months after Atlanta had opened its Morgan account, and it wasn't enforced there. All sorts of banking standards were waived at the Atlanta branch. In fact, the operation was so lax that newcomers like Thomas Fiebelkorn, a seasoned banker, experienced culture shock. Fiebelkorn couldn't believe BNL allowed its Atlanta bankers to lend sums like $ 13 million without asking anyone. Yet in his first week on the job in 1983, he learned that Drogoul had advanced that amount to W. A. Adams, a North Carolina company that agreed to buy tobacco for Italy. Drogoul had no written approval from higher-ups at BNL in New York or Rome. Fiebelkorn had never seen anything like it at his previous jobs with Citizens and Southern National Bank or Security Pacific Bank. "In my experience, if somebody did something like that, that was reason for a big conference, and maybe that guy didn't keep his job," he said later. "I was curious as to how you would run a bank this way, because there was no order to the bank, and, by nature, to me a bank is a very orderly place." Obviously, Italian banking--or at least BNL-Atlanta banking--was a breed apart. No ax fell on Christopher Drogoul's neck. Rather, his reputation as an American golden boy spread to yet another influential BNL executive, Giacomo Pedde, the future director general of the bank. At the time of the W. A. Adams loan, Pedde headed BNL's credit department in Rome. He flew to Atlanta to review the branch's new tobacco business, then paid a visit to W. A. Adams in Oxford, North Carolina. Without a fuss, the $13 million loan was formally approved and everyone went home happy. It seemed to Drogoul that Pedde--a short, balding man who reminded one acquaintance of a smaller Mikhail Gorbachev--was quite upbeat during his Southern swing. Drogoul helped Vincenzino and his wife manage Pedde's three-day visit to Atlanta. The young American banker even squired Pedde around town in his old two-seat Alfa-Romeo convertible, which Pedde referred to as an "antique". Pedde hadn't worked or traveled much outside Italy. His English wasn't much better than Drogoul's Italian. But communication with the smooth and deferential Atlantan was a breeze. Drogoul had gained yet another powerful ally, one who helped him diversify his political support. His mentor, Guadagnini, was a Socialist. Pedde was a powerful Christian Democrat. It didn't hurt to have allies in both camps, particularly after Drogoul was named interim manager of the struggling Atlanta branch in April 1984. Political support was vital at BNL because the bank operated as a unit within an Italian political spoils system. Diversity of support helped because Italian politics tended to be unstable. When Italy's Socialist-led coalition crumbled in 1987, the Christian Democrats took power. Pedde was promoted to director general of the bank in Rome, while Guadagnini, then sixty-five, was escorted to the door. The city of Atlanta was both an excellent place for Drogoul to prosper professionally, and an ideal site for the secret BNL financial pipeline to Iraq. Back in 1971, the Georgia capital had dubbed itself "the world's next great international city," pointing with pride to Eastern Airlines' new direct flights to Mexico City. If the slogan seemed ridiculous to outsiders, it made sense to local civic leaders, who sported an excellent track record. Their decision to build the enormous Hartsfield Airport had allowed the city to widen its lead over competitors like Charlotte, Nashville, Birmingham, and Jacksonville as the Southeast's chief transportation and business hub. By the mid-1970s, Georgia Governor George Busbee saw that international trade could advance Atlanta to the next level. Jimmy Carter's term as president of the United States from 1977 to 1981 no doubt encouraged that vision. His election in November 1976 had a powerful effect on Atlanta's leaders. Men like Andrew Young, Bert Lance, and Griffin Bell packed for Washington to take high posts in the new administration. Suddenly, members of the Atlanta Rotary Club and their friends were shaping peace in the Middle East and handling thorny espionage cases. When they returned to Georgia, they carried an appreciation for the potential of international trade and the connections to make it happen. Governor Busbee had already started laying the groundwork. In 1976, he convinced state lawmakers to let international banks open in Georgia. Atlanta's banking sector was rather puny at the time, considering the metre area's sprawling population of nearly 2 million. The hidebound state legislature was largely to blame. Lawmakers were wedded to restrictive bank-branching laws that sheltered small-town banks from competition and retarded efforts by the Atlanta banks to expand statewide. A real estate crisis in 1974 shook all the city's banks and nearly brought down the largest one, Citizens and Southern National. Out of that wreckage, Busbee helped build a platform for international banking in Atlanta. Barclays Bank and the Bank of Tokyo were the first to open Atlanta offices. Within a few years, some thirty other foreign banks, including BNL, followed. During the 1970s, BNL had spread out from its long-established New York branch by opening small representative offices in Los Angeles, Chicago, and Houston. It entered Atlanta in 1980. "The local authorities welcomed us with open arms since no other Italian bank was there," Guadagnini said later. "They .. . invited us enthusiastically." Vincenzino received a warm reception when he arrived to manage BNL's tiny Atlanta operation. Governor Busbee even took him along on a trip to Italy. Although Busbee left office in 1981 and was succeeded as governor by the more passive Joe Frank Harris, Vincenzino wasn't left high and dry politically. That was the year Andrew Young, Carter's former Ambassador to the United Nations, became mayor of Atlanta. Vincenzino, who had served at the United Nations, had met Young in the late 1970s when both men worked in New York. "They were very chummy by the time I came to the bank," said Von Wedel, who joined BNL in February 1982. On August 23, 1982, Young and Vincenzino hooked up in Italy for a meeting with U.S. Ambassador Rabb and Nerio Nesi, the BNL chairman. Weeks later, Young began turning up at Vincenzino's parties in Buckhead. When Andrew Young was elected mayor in 1981, he had dreams to dream, goals to accomplish, places to go. He encouraged people to keep their eyes on the big picture. Atlanta, Young promised, was progressing toward both its slogans: "The world's next great international city" and "The city too busy to hate." Atlanta was intent on achieving economic growth but haunted by the prospect of racial upheaval. During the 1960s, progressive white leaders teamed with Dr. Martin Luther King, Jr." and other local black preachers to steer clear of the racial squalls that lashed Birmingham and Little Rock. During the same period, Atlanta built Hartsfield Airport to lock up the city's position as undisputed commercial center of the Southeast region. Young hit his stride a generation later and delivered to Atlanta the 1996 Summer Olympic Games. Young was a versatile and charismatic man. The son of a New Orleans dentist, he had near-Olympic-caliber running speed as a young man. Following divinity school and ordination as a minister, he went straight to the front lines of the civil rights movement as an aide to Dr. King. After King was murdered in 1968, Young returned to Atlanta and became the first black from the Deep South elected to Congress since Reconstruction. In 1976, he ardently backed Jimmy Carter for president. Carter rewarded him with the post of U.S. Ambassador to the United Nations and asked him to articulate a new U.S. commitment to human rights worldwide. At the United Nations, Young was greeted by a long list of Third World grievances against the developed Western democracies. He sympathized with their plight and began to adopt a somewhat radical tone. He even met secretly in 1979 with the then-outlawed Palestine Liberation Organization (PLO). When revealed, the meeting with the PLO cost Young his job. He knew he'd have to tone down his rhetoric when he campaigned for mayor of Atlanta in 1981. The man he hoped to succeed, Maynard fackson, had alienated conservative white business leaders. Young planned to soothe them. lack son a rotund lawyer, had played hardball after becoming the city's first black mayor in 1973. He demanded more airport contracts and bank loans for blacks, and he threatened to move the city's bank deposits to Birmingham if the establishment refused. Jackson won concessions but frightened whites, who were acutely aware that they were losing political control of the city. They were relieved by Young's non-confrontational approach--so much so that Griffin Bell, Carter's first U.S. Attorney General and a pillar of Atlanta's white establishment, became a prominent supporter. The formerly radical Young was successfully repackaged. From the day he took office, Young preached the racially neutral gospel of economic salvation through international business. He hit the road for long stretches, leaving surrogates to administer the city. His calling was to energize the glittering new high-rises along Peach tree Street with the hum of foreign trade; others could mind the potholes along "Sweet" Auburn Avenue, the heart of black Atlanta. This struck some as a curious agenda for a former aide to Dr. King, the slain civil rights leader. But Young insisted that the black community would be best served by bringing economic boom times to all Atlantans--black and white. The fastest way to do that, Young promised, was to transform King's hometown into an international city. Young, like President Ronald Reagan, believed in the theory of trickle-down economics. "Andy Young is doing for Atlanta what Reagan has done for America: He's making rich people feel good again," Art Harris wrote in 1985 for Esquire magazine. "He believes that someday such an unexpected priority will be toasted as wise by both races in this black-majority city--that his Atlanta will be remembered as a united city." Young was a charming and tireless promoter. He led Atlanta Chamber of Commerce missions to Jamaica and Trinidad in 1983, to Stockholm and Helsinki in 1984, to London and Paris in 1985, Tokyo and Hong Kong in 1986, Zurich and Milan in 1987, Taipei and Tokyo in 1988, Moscow and Tbilisi in 1989. Dozens of other less formal trips were sandwiched in between. At home, the mayor touted his efforts as the surest path to economic bliss and even racial harmony. He succeeded in drawing new foreign banks, airline connections, and billions of dollars in foreign investment. Flight service in Atlanta rose from six airlines serving nine foreign cities in 1982 to ten airlines serving twenty foreign cities in 1989. But those gains paled next to the grand prize: the 1996 Summer Olympics. Atlanta was selected in the early fall of 1990 to host the sports and marketing extravaganza. Young had already stepped down as mayor, and--despite the renewed backing of Griffin Bell--he had just lost his bid to become governor of Georgia. But everybody knew his countless international excursions during the 1980s had helped secure the necessary votes from the world community. Appropriately, he was named cochairman of the local committee planning for the Games. One stain besmirched Young's decade of triumph. He did most of his globe-trotting while on the payroll of the Bank of Credit and Commerce International (BCCI), or, as former CIA director Robert Gates once called it, "the bank of crooks and criminals." BCCI was chartered in Luxembourg, but run by Pakistanis from headquarters in London. Over a decade that included Young's tenure as mayor, BCCI paid him and his personal companies some $350,000 while flying him around on many of his business and political trips. Meanwhile, Young touted the bank and called its chairman, Agha Hasan Abedi, a visionary with a heart for the downtrodden. "BCCI was the only bank I knew willing to finance trade with the Third World," Young said. "If [Abedi] was a con man, he's the world's best." Unfortunately, the bank was a brazen con game involving some seventy countries. It solicited billions of dollars in deposits from cocaine cartels and impoverished Third World countries. BCCI insiders raided those funds and covered their tracks by creating phony assets. The bank's practices led to widespread misery. In Bangladesh, for example, BCCI insiders ran off with $171 million in deposits. Many of the forty thousand people swindled out of their money threatened hunger strikes and a few vowed self-immolation. Finally, the government of Bangladesh chipped in some money to defuse the crisis. So, in effect, BCCI looted the treasury of one of the world's poorest nations and stole money from many of its citizens. To ward off tough scrutiny, the bank bought influence and bribed public officials worldwide. In its early quest for political clout, BCCI targeted Georgia the year that Jimmy Carter was sworn in as president. Abedi didn't meet Carter until after he left the White House. But in the fall of 1977, the Pakistani found a willing icebreaker in Carter's first federal budget director and close ally, Bert Lance. Lance had just quit the administration amid a ruckus over his private banking practices. He was also deeply in debt, owning $3.5 million to First National Bank of Chicago and more to other banks. In January 1978, Lance sold his stake in National Bank of Georgia to Saudi investor Ghaith Pharaon for $2.4 million. The day the sale went through, Lance paid off the Chicago loan and $443,000 to a Tennessee bank. The Washington Post reported that an undocumented loan from Abedi apparently made up the difference between the $3.9 million Lance paid off and the $2.4 million he received from Pharaon. In time, Pharaon bought the remaining shares of the Atlanta bank. Prosecutors later charged that he was illegally acting as a front man for BCCI, which was prohibited from owning any U.S. bank. Lance eventually introduced Abedi to Carter and Young, as well as to Clark Clifford and Robert Altman, the Washington lawyers who ran BCCI's secretly controlled bank in the nation's capital. In 1982, Lance flew Abedi to Plains, Georgia, to meet the former president at his home. "There was an immediate relationship that developed between the two of them," Lance said. "You could sense it as they talked there in the living room." Abedi convinced Carter of his sincerity. "His relationship with us was one of "I want to do something practical to help people who are suffering, and we will help you," " Carter told the ABC News program Nightline. When the Carter Center opened in 1986 to study Third World issues, Abedi donated $500,000. And when Carter's Global 2000 project needed funding to provide food and health programs in Asia and Africa, Abedi chipped in $8 million more. In turn, Carter flew around both continents with Abedi on BCCI's airplane, sharing his considerable stature in the Third World with his Pakistani benefactor. When Abedi suffered a heart attack in February 1988, Carter even arranged for a U.S. heart specialist to fly to London to oversee a transplant operation. Like Andrew Young, Carter never seriously questioned BCCI's bona fides. A Senate subcommittee later criticized the former president for not checking out the bank and blamed the CIA for not tipping him off. "As a result of his own lack of diligence in seeking information on BCCI's poor reputation, and the CIA's lack of diligence in telling President Carter what they knew, President Carter became closely associated for a decade with a bank that constituted organized crime," a report by the House Subcommittee on Terrorism, Narcotics, and International Operations concluded. "This outcome was not in the interest of the United States." The subcommittee also singled out Young, saying his relationship with BCCI "creates a troubling appearance of influence-peddling and conflict of interest." Young insisted he was blindsided. "It happened at a time when BCCI was a reputable bank," he explained. "I didn't do anything for them that wasn't in the economic interest of poor people. If they used that as an elaborate cover to swindle, then I was used." Asked whether BCCI had a role in helping Atlanta win the votes that secured the 1996 Summer Olympics, Young said: "By the time the Olympics came up, they had been exposed." But Young began recruiting international support for an Atlanta Olympics in 1988. Regulators didn't get around to closing BCCI until July 1991, and a long-overdue $ 197,000 loan to Andrew Young and Associates was "restructured" after the bank was indicted. The money was designated a consulting fee, and Young didn't repay it. After the uproar over BCCI died down, Young was asked if he'd learned lessons from his dealings with the rogue bank. "I don't want to learn any lessons from it," he said from his Olympic Committee office in late 1992. "There is no way to be pure and safe in a complicated world. I will never put my safety above my purpose ... to see that the hungry can be fed, the naked clothed and the sick healed." During the late 1980s, BCCI supplied more than $2 billion in overnight loans to BNL's branch in Atlanta. Federal regulators down played the relationship, noting that a number of other banks were no less helpful in providing BNL with short-term monies. But even if BCCI and BNL were only casually linked, both banks seemed to recognize that their secrets were safer in Atlanta than most anywhere else. And for Drogoul, the man on the make, the city served as an ideal incubator for his schemes. Chapter 3 TOO MANY EGGS "... I]f every citizen of Iraq had eaten the eggs that had been officially exported, they would have had to eat 100 every day for three years." --Italian Senator Massimo Riva, paraphrasing E. Gerald Corrigan, president of the Federal Reserve Bank of New York The good news for Christopher Drogoul was that he was promoted to branch manager of a major foreign bank at age thirty-four. The bad news was that BNL's Atlanta branch was losing money fast, and prospects for making it profitable were terrible. When he took charge in April 1984, Drogoul needed a miracle--or a gimmick--to reverse the losses. Otherwise, BNL headquarters might demote him or even close the branch. He found just what he was looking for in an obscure and loosely monitored farm credit guarantee program run by the Commodity Credit Corporation, an arm of the U.S. Department of Agriculture. Before too long the branch was turning profits and top management in Rome was calling him by a new nickname: "Mr. CCC." BNL never had much to offer the southeastern U.S. banking market. When it opened the office, Rome had hoped it would attract Fortune 1000 clients in the region. But the staff Giuseppe Vincenzino had assembled was so weak that Drogoul referred to them as "a ragtag group of Atlanta banking rejects, including myself." Paul Von Wedel and Jean Ivey were the only employees who had the experience and drive to hustle for corporate business. Ivey had called on corporate treasurers while working at Barclays Bank. Her contacts, combined with the lure of below-market rates on short-term lines of credit, helped the Atlanta branch catch a few big corporate customers. Profits on the loans didn't even cover expenses, but Rome looked favorably on the growing client list. Before long, however, Rome began asking to see some profits. Unfortunately for the Atlanta staff, market interest rates fell, and corporations changed the way they raised cash. They turned away from short-term credit lines--BNL-Atlanta's specialty--and began issuing more of their own stock. The floundering branch needed a new strategy. For a few months it tried to turn a profit in money trading. The goal was to borrow on the interbank market at one rate and lend to other banks at a higher rate. That vain effort to outsmart the competition added hundreds of thousands of dollars in trading losses to the general expenses of running the office. At that bleak point Vincenzino left Atlanta to run BNL's Chicago office. On his way out, he recommended that Drogoul be put in charge in Atlanta on a trial basis. Drogoul was looking for creative ways to stay afloat. He was glad when Von Wedel stepped forward with an idea. Von Wedel knew from his previous banking jobs that there were profits in export trade finance, and old customers were begging him to get back into the business. Vincenzino had been wary about plunging into trade finance, perhaps because he knew so little about it. Drogoul was no better informed, but he was more venturesome. So BNL-Atlanta began funding exports of grain and other farm commodities under a loan guarantee program run by the Commodity Credit Corporation. In a typical CCC deal, BNL-Atlanta paid a U.S. exporter up front for its shipment. The importing country then repaid BNL the loan principal, plus interest, over several years. Profits from the interest were slim, but at least the loans were relatively safe. If the country failed to repay, the CCC covered 98 percent of the bank's losses. That meant that if BNL-Atlanta financed a $10 million shipment of grain to the Middle East under a CCC guarantee, it stood to lose no more than $200,000 even if the importing country never repaid a dime. Ordinary profit-motivated banks didn't touch CCC-guaranteed export loans. The slim earnings stream didn't compensate for the default risks, particularly when repayment was due from an unreliable creditor like Iraq. The banks that took the business typically had a political agenda. During the 1980s, most of the dozen or so banks that made CCC-backed loans for Iraq were based in the Middle East. Only three American banks were involved: Morgan Guaranty in New York, First City Bank in Houston, and National Bank for Cooperatives in Denver. For years, Morgan served as the Central Bank of Iraq's clearing bank in the United States. First City and its chairman, Robert Abboud, were ardent champions of U.S.-Iraq trade. BNL joined that select group when it gave Drogoul and Von Wedel the formal go-ahead for up to $150 million in CCC-backed credits for Iraq. While the bank obviously wanted to make money, it had other objectives that were perhaps more important. BNL was owned by the government of Italy, which had a long and valued commercial relationship with Iraq. By allowing its Atlanta branch to participate in the CCC program, the bank kept alive Rome's trade ties to Baghdad without much exposure, since U.S. taxpayers were shouldering 98 percent of the credit risk. Even though profit margins on CCC loans were thin, Drogoul didn't complain. He'd found the safe niche he needed to preserve his job. Within only a few months, he also found ways around Rome's official $150 million limit and began processing much larger CCC credit volumes for Iraq. The world's largest grain dealers began to line up at his door. Drogoul had the Reagan administration to thank for his financial miracle at BNL-Atlanta. He could not have pulled it off if the White House hadn't chosen to commit billions of American taxpayer dollars to feed Iraq. Although Saddam Hussein had long been a sworn enemy of Israel and the West, the Reagan administration decided in the early 1980s to try to draw him into a more moderate relationship. The goal was to turn Iraq into a buffer state to protect U.S. allies from surging Muslim fundamentalism in Iran. As relations between the United States and Iraq began to thaw in 1983 and 1984, the White House sliced Iraq a giant piece of the CCC pie. Between 1983 and early 1990, Iraq received $4.98 billion in farm loan guarantees from the CCC. That was roughly one sixth of the program's worldwide guarantees of $30.08 billion during the period. The stated purpose of the program was to help U.S. farmers boost their exports. Officially, the CCC was supposed to award guarantees to countries based on two factors: market potential for U.S. farmers and the prospects for getting repaid. But the Reagan team brushed aside standards of credit risk and used the CCC as a piggy bank for an off-the-books foreign policy. Iraq had an atrocious repayment record. The world banking community refused to extend it credit without government guarantees. If the White House had played by the rules, this fact alone would have disqualified Iraq from receiving big CCC dollars. Instead, Baghdad gathered in more than 20 percent of the CCC's worldwide guarantees in fiscal years 1987,1988, and 1989. During the 1980s, BNL-Atlanta served as a conduit for $1.9 billion of that CCC foreign aid to Iraq--more than any other bank. The branch, knowingly or unknowingly, served as a key instrument of U.S. foreign policy. The volume of aid awarded to Iraq under the CCC was extraordinary. In fact, skeptics outside the CCC wondered how 16 million Iraqis could have possibly eaten the $4.98 billion in farm products the United States claims it shipped to them. Later, E. Gerald Corrigan, president of the Federal Reserve Bank of New York, expressed his doubts to Massimo Riva, vice chairman of an Italian Senate Commission that investigated the BNL affair in 1991 and 1992. Riva paraphrased Corrigan as saying: ".. . [I]f every citizen of Iraq had eaten the eggs that had been officially exported, they would have had to eat 100 every day for three years." Congressional investigators probing BNL-Atlanta in the early 1990s were skeptical too. They assumed Saddam swapped the food shipments with other countries for military gear. Bush administration officials dismissed that speculation, noting that no one had proven a single case of diversion. On the other hand, the administration couldn't prove that a single food shipment arrived at its official destination in Iraq. The CCC didn't check up on shipments made under its guarantees. The General Accounting Office (GAO) suggested that doubts could be easily removed by conducting a few spot checks. But the Bush team ignored that idea. The failure to make on-site checks, combined with the failure to require credible documentation of delivery to Iraq, amounted to willful blindness. It was an invitation to fraud against the CCC program, an opening for Iraq to use the U.S. Treasury to build its war machine. When Iraq invaded Kuwait in August 1990, it hadn't yet paid $1.9 billion of its $4.98 billion in CCC-guaranteed debt. Naturally, Saddam halted payments, allowing $1.9 billion in loans, including roughly $340 million from BNLAtlanta, to fall into default. American taxpayers had to cough the money up, plus interest. The story of this massive default began in late 1983. The Iraqis, sensing that Washington might want to rent a new friend, began to lobby the White House for hefty CCC loan guarantees. Only after the guarantees were secured were they able to take the next step a year later: the successful recruitment of Drogoul and Von Wedel as their CCC bankers. If the Atlantans seemed unlikely choices to handle billions of dollars in Iraqi trade finance, they were no more improbable than the agent Iraq picked to lobby the White House in December 1983. Kevin Kattke was a burly, affable New Yorker in his forties who had a hobby of hanging out with exporters and intelligence agents. He often traveled overseas and said the White House sometimes called him in for debriefings. His everyday job was decidedly less glamorous. He worked in building maintenance at a Macy's Department Store on Long Island. Kattke had never heard of the Commodity Credit Corporation when two mysterious Iraqi businessmen asked him to meet them at the Grand Hyatt Hotel in New York shortly before Christmas in 1983. But he liked to play spy games, so he told Fadhil Awni al-Marsoumi and Imad al-Hag he'd see them for Sunday brunch. At first, it seemed to Kattke, they tested him to see if his claimed contacts in the White House were real. They told him they wanted to buy the weapons seized during the U.S. invasion of Grenada two months earlier. Would he mind checking with Washington to see if the purchase could be arranged? Obligingly, Kattke paid a visit to Marine Lieutenant Colonel Oliver North of the National Security Council staff. He'd met North a few months earlier through his involvement in a Grenadian exile group in Brooklyn. In the days just before and after the October 1983 U.S. invasion of Grenada, Kattke made a number of stops at North's small, cluttered office on the third floor of the Old Executive Office Building next to the White House. He recalled bantering with North's secretary, Fawn Hall, until North had time to see him. Inside the office, he'd push aside classified U.S. satellite photos to make room for himself on North's sofa. He worked hard to make North his friend; once he even picked up his dry cleaning. Kattke went calling again in early January 1984, this time on behalf of Marsoumi and Hag. To Kattke's surprise, North seemed to know more about the Iraqis than he did. As Kattke reached into his briefcase to pull out a document, North instantly recognized the name "Marsoumi" at the top. "I know all about the Marsoumis," North said. "They are the largest weapons dealers in Baghdad. Tell them there wasn't a one-half day supply for them in Grenada and that we used the weapons for a good cause." Kattke assumed the weapons went to rebels in Afghanistan. He figured he'd have to disappoint Marsoumi and Hag. He was wrong. When he reported back, they didn't take the news badly at all. They just smiled and offered him a bigger deal involving the CCC. Kattke decided it was time to bring in two trusted associates. George Herbert and Sal Imburgio worked with him at an import-export firm housed in a dumpy second-floor office above a Freeport, Long Island, print shop. Over the years, the three men had made dozens of trips to Asia, Africa, and Central America, and were often debriefed by the CIA or other U.S. agencies on their return. They said the government never paid them. The Iraqis, on the other hand, were offering them big money. So they quickly educated themselves about the CCC and dove into their new mission. "Our job," Kattke explained, "was to go to Washington and get the authorities to increase the CCC money [for Iraq] by $200 million." The deal worked like this: If the Long Islanders landed the new CCC guarantees, Baghdad was obligated to buy $200 million in grain from Macro International Group, a New York brokerage associated with Kattke's pal, Sal Imburgio. Macro International, in turn, was to pay Kattke, Herbert, and Imburgio $2 million. Kattke and his buddies met with congressional staffers, intelligence figures, senior officials in the departments of State and Agriculture, and White House staffers. Motivated by visions of a $2 million payday, the hopeful trio of amateur spies prepared a position paper to justify granting Iraq $200 million in new loan guarantees. They argued that Iraq was losing its war with Iran and that it was in the interest of the United States to keep the countries fighting. The loan guarantees would strengthen Iraq and prolong the war, they asserted. The Long Islanders packed dozens of copies of their document into the trunk of a 1975 Pontiac Grand Prix and headed south on the New Jersey Turnpike for Washington, D.C. They made it as far as the Delaware Memorial Bridge before they were pulled over by the Highway Patrol. The car was so loaded down with papers that the rear end nearly scraped the pavement. After a brief check, the officer concluded that the cargo was innocent enough, so he allowed them to proceed. They set up camp at a budget motel on U.S. 1 in Alexandria, Virginia, just south of Washington. Their plan was to work the Washington contacts they'd made the previous fall while agitating on behalf of the Grenadian exiles. Of course, there was Oliver North. But they'd also gotten a brief pat on the back from Jesse Helms, the conservative senator from North Carolina. Staffers for Helms had been very encouraging. They'd sent Kattke and his operatives to a mysterious Arlington company that seemed to be staffed by intelligence operatives. The company, TGS International, was named after Theodore G. Shackley, a former deputy director of operations for the CIA. Shackley, who left the agency in the late 1970s, later surfaced as a minor player in the Iran-Contra affair. Kattke said he never met Shackley, but he got to know several others at TGS, including Vernon Gillespie and Donald "Jamie" Jameson. It was Gillespie, Kattke said, who became their unofficial guide to the powerful in Washington. "We used him [Gillespie] as our teacher," Kattke said. "He referred us to [Richard] McCormack [the Assistant Secretary of State for Finance] .. . and McCormack was also one of the few people that had an ear and wanted to listen to the situation in Grenada and help." When it came time to pitch their Iraq-CCC deal in early 1984, Kattke and Imburgio made North's office their first stop. North wasn't interested, so he passed them along to Howard Teicher, the National Security Council's staff director for the Near East and South Asia. But before seeing Teicher, they visited Gillespie at TGS. Gillespie sent them to Richard McCormack at the State Department, who sent them to Kerry E. Reynolds, director of CCC operations at the Foreign Agricultural Service. "Reynolds's door was wide open," Kattke explained. "He told us where our roadblocks would be." Reynolds told them that the prospects for raising Iraq's CCC allotment looked bleak. He explained about Iraq's poor loan repayment record. Although the Long Islanders had planned to pass their position paper around to House and Senate staffers, Reynolds told them not to bother with Congress. The only real chance was to make the sale at the White House level, he added. "He told us the most important person was Howard Teicher," Kattke said. "He said if we could convince him, we'd have a good shot." It was snowing hard the morning Kattke and Imburgio trudged off to see Teicher, an able young NSC staffer who was widely associated with his strong support for Israel. Teicher had agreed to see them for only a few minutes at 10:00 A.M. But when they arrived, Teicher had already sent his secretary home for the day and, according to Kattke, the meeting stretched on for five hours. Kattke said Teicher was negative at first to the idea of awarding Iraq more loan guarantees. But his position seemed to soften gradually, Kattke said, as they argued that Iraq was dangerously close to losing its war with Iran. They suggested that the war needed to go forward for Israel's sake. When the meeting ended, Kattke felt jubilant. "We changed his mind," Kattke said. They reported back to Marsoumi that the new loan guarantees were "in the bag." Teicher remembered the meeting, but said Kattke exaggerated its importance. To him, it certainly didn't seem like any watershed in the history of the CCC's relationship with Iraq. "Oliver North asked me to see him," Teicher said. "He said, "Will you please see this guy? I don't have time for him." " Teicher said he wasn't interested in the CCC guarantees for Iraq. "It was curious that [Kattke] thought he could do this," he added. Told that Teicher had dismissed the meeting as inconsequential, Kattke shook his head and said: "That was a close and a sale." Kattke felt his campaign was a brilliant success. While he may have given himself too much credit, his Iraqi clients were certainly well satisfied. In 1984, Iraq's CCC allocation almost tripled, to about $680 million, the GAO reported. Unfortunately for Kattke and his pals, the increase didn't come soon enough to help them. They were to be paid their commission from Macro International, but the Marsoumi contract to buy $200 million in grain from Macro stipulated that the CCC allocation had to be raised within twenty-one days. The CCC didn't move quite that quickly. So Macro lost out on $200 million in export deals with Iraq, and Kattke, Herbert, and Imburgio couldn't collect their $2 million commission. Kattke said that when he called Hag to protest, the Iraqi replied: "Sue us in Baghdad. We gave [Macro's] contract to Continental Grain. They have an office there." As the trio of operatives bowed out of the CCC picture, Continental Grain stepped in. The New York-based international grain company needed a bank to finance its new CCC-backed export business with Iraq, so it turned to Paul Von Wedel. Continental's Scott Kirk knew Von Wedel was an old hand at grain export finance. They'd done deals together when Von Wedel worked at Citizens and Southern National Bank in Atlanta, and before that at Chemical Bank in New York. About a year after Von Wedel joined BNL, Kirk convinced him to finance a shipment of Continental soybeans to Yugoslavia. A few months later, after BNL had taken several more export deals, Kirk introduced his banker friend to other Continental officials, including finance man Jim Klatsky. In the summer of 1984, Klatsky pushed Von Wedel to make a high-risk export loan to Iraq. Von Wedel didn't consult with Drogoul until the very last possible moment, forcing his boss to make a snap judgment. Drogoul said he first learned about the $ 13 million wheat deal when he was called out of a BNL managers' meeting in New York to accept an urgent call from Von Wedel. Drogoul later said that he was told at the time that Continental wanted an answer within minutes. He said that despite a rather sketchy knowledge of Iraq, he decided to go forward because of Continental's reputation for seeing to it that its banks got repaid. Drogoul was taking a plunge because the loan wasn't covered by any government guarantee. His willingness was a signal to Continental; the company knew it had found an easy bank. A few months later, Jim Klatsky invited Drogoul and Von Wedel to handle a series of CCC-backed exports to Iraq. Perhaps Drogoul and Von Wedel feared that if they declined, Continental might not bother to tell the Iraqis that repaying the unguaranteed $13 million loan was a high priority. The Atlanta bankers decided they wanted the CCC business. So Klatsky figured it was time for them to meet the Iraqis. In December 1984, Klatsky arranged for them to be invited to an Iraqi Grain Board reception in New York. At that gathering, Drogoul met a charming Iraqi banker named Sadik Taha and impulsively agreed to advance up to $100 million to Iraq's suppliers under the CCC program in 1985. Taha, the director general of Iraq's Rafidain Bank, was smooth and diplomatic, and he knew how to flatter. After the meeting, the Iraqi stayed in touch with his new Atlanta friends. Almost a year later, he invited them to a private room at the Vista Hotel in Washington, D.C." to discuss their business plans for 1986. Over Scotch, the three signed a deal that committed BNL-Atlanta to extend another $556 million in CCC-backed credits for Iraq. As an expression of thanks, Taha's delegation gave Drogoul a rug with a Babylonian warrior on it. Von Wedel settled for a smelly goatskin rug and a box of manna. If Taha had Drogoul hypnotized, his spell didn't work so well on Von Wedel. Although he went along with Taha's earliest proposals, Von Wedel grew increasingly jumpy. Once, when the three men were driving around Atlanta, Von Wedel blew up at the Iraqi for putting them in a financial bind. After Von Wedel got out of the car, Taha told Drogoul that he'd never been treated so rudely. Drogoul knew that Von Wedel had cause for concern. They'd agreed to lend $556 million for 1986 without first obtaining written permission to exceed the $150 million credit limit set by BNL-Rome. When he got around to asking Rome for written permission to raise the limit, he was turned down. In a last-ditch effort to smooth things over, Drogoul tried to syndicate some of the loans out to other banks, but he couldn't find any takers. "We had to do something to kind of mask the position," Drogoul admitted. His solution was to remove roughly $500 million in new Iraqi loans from the branch's official books. At the same time, the branch also stopped reporting the short-term interbank borrowings it was using to fund those loans. The Iraqi loans and BNL-Atlanta's program for funding them were shifted to an unofficial record nicknamed the "gray book." It wasn't actually a book, but rather a separate group of paper and computer records. Several BNL-Atlanta employees, including Therese Barden, were uncomfortable about the "gray book" scheme. Drogoul soothed them by explaining that his superiors in New York and Rome were pleased the branch had such a fine relationship with Iraq. He said the U.S. government had to be grateful to any bank that would handle such a volume of CCC credits. Von Wedel was amazed at how easily they carried off their bold deception. In a personal memoir, he wrote later: . [We] reduced our loan portfolio of three-year loans by half a billion, with no questions asked by our head officers in Rome, the New York regional management, nor the Federal Reserve Bank. Funny, No? Funny, Yes. From that point on, the branch's "official" books submitted to BNL and to U.S. bank regulators reflected Rome's "official" limit on the CCC loans Atlanta could handle. The CCC program stimulated the flow of torrents of money from about a dozen lending banks, led by BNL-Atlanta, to multinational food companies. Smaller agricultural firms also took a piece of the action, as did a handful of boutique export companies that reaped millions as middlemen. The international grain marketplace was a cauldron of corruption. Political payoffs, kickbacks, slush funds, and unofficial "side deals" were all the norm. Government officials took so much cash that sometimes it literally spilled out of their pockets. For example, there was the $6,000 in cash carelessly left in a firstclass seat aboard an aircraft that had just flown from Atlanta to Germany. Officials with Delta Airlines in Frankfurt traced the tickets to BNLAtlanta and called Drogoul. A short time earlier, two Algerian government officials had flown to Atlanta to arrange an export shipment with BNL. When they prepared to leave town, Drogoul, as a courtesy, called Delta and ordered their tickets upgraded to first class. Drogoul later told the FBI that when he mentioned Delta's phone call to an official at one agricultural firm, the official said he was the probable source of the cash. "We take care of the Algerians for the business they do with us," the official reportedly told him. Since skimming schemes were a way of life in their newly chosen field, Drogoul and Von Wedel cooked up a plan to cash in too. They got together with the president of a Turkish trading company in New York, Entrade International Ltd., to rake off nearly $1 million from a CCC-guaranteed corn deal. BNL-Atlanta was funding the shipment by Entrade to Iraq. Drogoul, Von Wedel, and the Entrade official, Yavuz Tezeller, agreed to a three-way split of their secret share. By March 1987, Von Wedel had picked a fancy new house outside Atlanta and began demanding his cut. Drogoul later plowed his share into renovations on his suburban ranch in a middle-class neighborhood a few miles away. Tezeller supposedly bought his mother a house in Turkey. Entrade was a subsidiary of a giant Turkish conglomerate, Enka Holdings, that worked on construction projects in Iraq with Bechtel Corporation of California and on NATO missile programs in Turkey with LTV Corporation of Texas. It was a tribute to Chris Drogoul's growing reputation that high-level Enka officials met with him in Istanbul, Turkey, in 1986. While Entrade had excellent relations with Iraq and BNL, it needed a source of farm commodities to export. It turned to Cargill, a Minneapolis-based, multinational grain trader that was feuding with Baghdad over an old contract. The Iraqis would not deal directly with Cargill, but the company kept a piece of the prized Iraqi market by hiring Entrade as its middleman. Entrade wound up handling more than fifty Iraq-CCC deals financed by BNL-Atlanta, and, according to an Entrade official, Drogoul grew increasingly bold about demanding his personal slice of their deals. As rising stars in Middle Eastern farm commodity trading, the Atlanta bankers couldn't avoid running into Wafai Dajani. The fabulously wealthy Jordanian kept homes in Washington, London, Baghdad, and Aqaba, and was once fittingly described as "everyone's middleman." Dajani provided a key way station in Jordan for Western agricultural commodities destined for Iraq. He enjoyed personal ties to King Hussein of Jordan, and his brother had been Jordan's minister of the interior, which loosely translates into its chief of intelligence. In Iraq, he was friendly with Zuhair Daoud, director of the Iraqi Grain Board, among others. In the United States, Dajani had good relations with U.S. grain exporters, the departments of State and Agriculture, and the CIA. Drogoul said Paul Dickerson, a high-level CCC official, told him that Dajani negotiated on behalf of Iraq each year for the largest possible allotment of CCC guarantees. Dajani once wrote in a letter to a congressional committee that he worked closely with the American Wheat Association and the U.S. Department of Agriculture. He explained that he had regular consultations with the U.S. Agricultural attache in Baghdad and had met the U.S. ambassadors to Iraq during the 1984-1990 period, David Newton and April Glaspie. He wrote that Newton and Glaspie "know me very well." Iraq needed go-betweens like Dajani to help it import food in the 1980s. The country is nearly landlocked, except for a narrow link to the Persian Gulf near the city of Basra in southern Iraq. During Iraq's eight-year war with Iran, fierce fighting made shipments into this region extremely hazardous. As a result, Iraq accepted commodities shipped to ports like Aqaba, Jordan, and Iskenderun, Turkey. In Jordan's Red Sea port of Aqaba, Iraq's preferred port, Dajani and the Norwegian shipping firm Gearbulk operated a joint venture called Araba Holdings. Araba Holdings owned a ship named Tanga, which was anchored permanently in the harbor and served as an unloading point for ships arriving with wheat cargoes. Rice shipments were handled by another ship operated by a joint venture between Dajani and Comet Rice of Houston. Dajani and a British company also teamed up to handle cargoes of sugar. Dajani's joint ventures unloaded goods from the anchored ships, repackaged them, and loaded them onto trucks that hauled them to Iraq. Dajani charged steep price markups for his re bagging services. BNL-Atlanta financed it all: the commodities themselves, which were covered by the CCC's 98 percent guarantee, and the freight and re bagging costs, which weren't covered at all. At one point, the Atlanta bankers threatened to stop financing Dajani's freight and re bagging costs because of the lack of credit insurance. But Reagan political appointees within the CCC sprang into action to prevent BNL-Atlanta from quitting its crucial funding role. "We tried to get out of the [CCC] business, but the government kept coming back to us," Von Wedel said later. Reagan administration officials were so eager to accommodate BNL-Atlanta that they lobbied Congress for help. In early 1987, Congress passed an amendment allowing CCC loan guarantees to cover freight and re bagging costs. So BNL-Atlanta continued to finance the business, and Drogoul's relationship with Dajani matured. If the CCC was eager to promote farm commodity shipments to the Middle East, it was considerably less concerned that the goods actually reached their stated destinations. Its audit system broke down completely at ports such as Aqaba. "In almost every case, the records documented shipments as far as the ocean port, but contained little or no record of the overland portion of the shipments to Iraq," U.S. Department of Agriculture officials reported after visiting Iraq in early 1990. The failure to prove that federally guaranteed commodity shipments arrived where they were supposed to was only one of the CCC's many lapses in oversight. Leon Snead, the Agriculture Department's inspector general, reported a series of other chronic problems. He found that exporters often took "excessive" profits on CCC deals and paid Iraqis "after-sales services" as kickbacks or bribes. The high profits and bribes, which ranged from cash to fax machines to centrifuges for nuclear weapons programs, were all covered under the CCC's generous guarantees-just like Dajani's freight and re bagging costs. Baghdad was easily BNL-Atlanta's biggest borrower of CCC-backed funds. Between 1984 and 1987, it processed about $1.9 billion in CCC credits for Iraq, compared with roughly $150 million a year for Algeria, and $50 million or so a year each for Yugoslavia, Mexico, and Jordan. But 1988 was a watershed year in the bank's relations with Iraq. Under heavy pressure from Sadik Taha of Iraq's Rafidain Bank, and others, Drogoul began granting lines of credit that Iraq could use to import non-agricultural products. The new credit lines--which Saddam used to fuel his war machine--weren't covered by the CCC or any other government guarantee and were therefore much more risky to the bank. As BNLAtlanta entered this dangerous field of lending, it all but bowed out of the CCC program. Other banks, led by Gulf International Bank, picked up the slack in financing the U.S. government-backed grain trade with Baghdad. By early 1988, the Atlanta bank was also attending to the growing credit needs of another voracious customer: the Soviet Union. That year, Moscow gobbled farm credits from BNL-Atlanta at a faster rate than even Baghdad had done at its peak in the mid-1980s. Moscow was an entirely different sort of borrower because it didn't qualify for the CCC program. It was an official U.S. enemy. And there was another problem. The "evil empire," as Reagan had called it in 1983, was very short of hard currency. Most of the cash it could muster came from oil sales, but sometimes it had trouble meeting its oil contracts. At one point, the Soviets gave tanks in a trade for Iraqi oil in order to maintain liquidity. Most banks wouldn't dream of taking on such a hand-to-mouth borrower. But BNL-Atlanta agreed to finance, on an unsecured basis and without government credit guarantees, dozens of Soviet wheat shipments from the United States between late 1987 and in August 1989. The loans were for short terms--typically two to four weeks, compared with three years for most CCC-backed loans. According to Paul Von Wedel, BNL-Atlanta's total volume of Soviet grain loans surpassed $2 billion in 1988, and the office was on target to reach $4 billion in 1989 before the FBI raid halted the business. At one point, he said, the tiny Atlanta office was handling most Soviet wheat imports from the United States through Cargill, Louis Dreyfus, Continental Grain, and ConAgra, or about 95 percent of the market. Amedeo DeCarolis, a young Italian accountant at BNL-Atlanta, said he thought Von Wedel's estimate was a bit high. He guessed the Soviets borrowed $1.5 billion in 1988 and at least kept up that pace in 1989. Moscow repaid faithfully. The loan balance of its trading company, Exportkhleb, usually hovered around $50 million. But sometimes it spiked up to $100 million or more. Because that was far more than BNLAtlanta was allowed to lend without any collateral or guarantee, Drogoul and company merely shifted a portion of Exportkhleb's balance to another customer's credit line--temporarily, of course. They cleaned up the other customer's books when the Soviets paid up. The Soviets were always good for the money. Based on his casual chats with Melvin Sims and other political appointees at the CCC, Von Wedel was convinced that the Reagan administration appreciated BNL-Atlanta's help with both the Iraqis and the Soviets. By 1988, Reagan's view of Soviet leader Mikhail Gorbachev had softened. He was certainly deemed better than the hard-line alternatives. Boosting the Soviet economy helped Gorbachev and tended to keep those hard-liners at bay. So, Von Wedel figured, a little back-door support from the United States--particularly after the 1986 Chernobyl nuclear accident set back wheat production in the Ukraine--probably evoked sly smiles at the White House. According to Von Wedel, the Atlanta bank's role in funding Soviet wheat imports also won the blessings of a famous American diplomat turned international business consultant: Henry Kissinger. Chapter 4 KISSINGER & COMPANY "I am reluctant to be more specific, at least on paper, about the kinds of consulting projects we undertake for clients." --Alan Stoga, of Kissinger Associates, Inc. n the fall of 1988, Drogoul and Von Wedel flew to New York to attend a series of meetings with BNL's North American managers and Giacomo Pedde, the bank's director general from Rome. The Atlanta bankers often split up in Manhattan when they didn't have obligations together, so it wasn't unusual for them to dine with different sets of clients. Nor was it particularly odd for them to both wind up at the 21 Club, a favorite old haunt conveniently located on 52nd Street, just a few blocks from BNL's New York office. One afternoon, Von Wedel and a pair of bank customers were walking out of the restaurant when he noticed another business party arriving for a late lunch. The group of five included Henry Kissinger, Pedde, and Drogoul. The two groups didn't acknowledge each other. "I just waved at Chris," Von Wedel said. Later, Von Wedel asked Drogoul about his lunch with Kissinger. "He told me they had a big discussion of the business we were doing in Atlanta," Von Wedel said. "Chris said Kissinger knew BNL-Atlanta was handling Soviet grain and stressed that the business should go on. He said it was good business for us and good for relations with the Soviet Union. [The Soviet grain business] was also Pedde's pride and joy." The following day, Von Wedel said, Kissinger addressed an assembled group of BNL's North American managers in his capacity as a highly paid consultant to the Italian government's bank. Drogoul later told the FBI he recalled hearing Kissinger speak to the BNL managers but said he couldn't remember details of the talk. Henry Kissinger was probably the most influential American diplomat of his generation. In foreign affairs, he tended to dominate even the presidents he served. He was best known for guiding President Richard Nixon's historic breakthrough in U.S. relations with China and the U.S. withdrawal from the disastrous war in Vietnam. As Nixon's national security adviser, Kissinger also crafted a U.S. policy toward the Persian Gulf that relied on billions of dollars in U.S. weapons sales to the Shah of Iran and the royal family of Saudi Arabia. The stated goal was to limit Soviet advances in the region and protect the flow of oil. The policy toward Iran was born in late May 1972, when Nixon and Kissinger visited the Shah in Teheran and struck a bargain. Kissinger summed up the deal in a memo to Nixon: "... [W]e adopted a policy which provides, in effect, that we will accede to any of the Shah's requests for [non-nuclear] arms purchases from us..." In return, Iran agreed to guard U.S. interests in the region. The Department of Defense objected to giving the Shah carte blanche, but it was overruled by a White House directive in July 1972. Iran went on to buy nearly $10 billion in U.S. weaponry over the next five years. The NixonKissinger strategy backfired in 1978 when the fabulously well-armed Shah was toppled from within by anti-U.S. Muslim fundamentalists led by the Ayatollah Khomeini. By the late 1970s, Kissinger's prospects for future government office were clouded. Although widely regarded as exceptionally talented, he had also acquired a reputation of being duplicitous. He wasn't invited to serve in the Carter, Reagan, or Bush administrations. Excluded from power, he resorted to hiring himself out to multinational corporations eager to buy weighty analysis delivered in a thick and authoritative German accent. But all was not lost. When George Bush was sworn in as president in January 1989, he named two former Kissinger lieutenants to his starting lineup: Brent Scowcroft became the national security adviser, and Lawrence Eagleburger became Deputy Secretary of State. Over the next twenty months, the White House worked as silently as possible to groom Iraq as a successor to the Shah's Iran--a U.S.-backed bulwark against instability in the Persian Gulf and a rich market for U.S. exporters. No top advisers to Bush backed the Iraq strategy more doggedly that Scowcroft and Eagleburger. Choosing to stake U.S. interests in the Gulf on a regime led by the tyrannical Saddam Hussein was an even greater gamble than Kissinger's bet on the Shah. Eagleburger later said that it seemed the best option at the time. Unfortunately, the pro-Iraq policy exploded in America's face, just as Kissinger's pro-Iran policy had done twelve years earlier. Kissinger, the U.S. Secretary of State from 1973 to 1977, had longed to make a political comeback by winning the same position under Ronald Reagan. But his hopes were dashed when Reagan tapped Alexander Haig in 1981, then replaced him a year later with George Shultz. So Kissinger teamed with Scowcroft to form Kissinger Associates Inc. Scowcroft had been a military aide to Nixon and, during the mid-1970s, the national security adviser to President Gerald Ford. He became the consulting firm's vice chairman and worked from an office in Washington, D.C. Kissinger made his headquarters in New York. Eagleburger joined them almost two years later as the firm's president. Between 1984 and early 1989, Kissinger, Scowcroft, and Eagleburger worked as a for-hire dream team of international political experts. In utmost secrecy, the three counseled an exclusive group of multinational corporations and banks that paid them huge fees. This allowed Eagleburger, a State Department veteran who'd long been trapped in the foreign service office pay scale, to enjoy an income of $965,000 one year. Kissinger's client list was a guarded secret. The firm insisted on giving briefings orally rather than on paper. Even the Park Avenue tower that served as Kissinger Associates' New York headquarters didn't list the firm in its directory. It was almost like a private intelligence agency. No doubt there was a sound business rationale for the extraordinary secrecy. But this standard also gave the firm flexibility to downplay its involvement with controversial clients. For example, it denied that it ever took on the notorious BCCI as a client. While that denial was perhaps true, the Pakistani-run bank did consider retaining the consulting firm. BCCI approached Kissinger Associates in 1988, and Alan Stoga, one of the Associates, spelled out the ground rules. "I am reluctant to be more specific, at least on paper, about the kinds of consulting projects we undertake for clients," Stoga wrote to Abol Fazl Helmy, a BCCI officer in New York, on October 7, 1988. He added that a "next step" would be for him to meet BCCI's management. Four days later, the public learned that BCCI had been indicted in Tampa for money laundering. The very next day, according to an internal BCCI memo, Stoga called Helmy to relay a strategy recommended by Kissinger. "I received a call today from Mr. Stoga who informed me that Dr. Kissinger recommends that a public relations offensive be made by us...," Helmy wrote to Swaleh Naqvi, BCCI's number-two officer on October 12. Evidently, Kissinger's dealings with BCCI ended there. The Banca Nazionale del Lavoro, on the other hand, became a client of Kissinger's firm and paid handsomely to have Kissinger himself address its managers about world political conditions. BNL was a Kissinger Associates client from July 1986 to June 1988. In addition, Kissinger himself collected fees of at least $10,000 per meeting as a member of the bank's international advisory board from 1985 through 1991. The Italian chairman of BNL throughout most of the 1980s, Nerio Nesi, took the lead in forging the ties. Officially, Brent Scowcroft handled the BNL account for the consulting firm. But the Italians were paying to hear Kissinger's spin on world events, not Scowcroft's. "When Dr. Nesi came to New York, he always met with Kissinger," said Renato Guadagnini, BNL's regional manager for North America until 1987. "I met Scowcroft because we, at BNL, had a consulting relationship with Kissinger. Scowcroft was one of his assistants." Typically, Kissinger gave BNL managers an overview of regional political developments and assessed the business climates in various countries. For example, in May 1987, he told BNL officials gathered in Madrid that world oil prices and inflation were certain to soar if Iran won its war with Iraq. According to the minutes of the meeting, he said he had once considered an Iranian victory an almost sure thing, but had recently changed his opinion. "I give the victory of Iran over Iraq at 55 percent," Kissinger was quoted as saying. The relationship between Kissinger Associates and the Italian bank seemed to consist of more than speeches and handshakes. In fact, several of the firms that obtained "off-books" financing from BNL-Atlanta later turned up as clients of Kissinger's firm. Although the names of the firm's customers were supposed to be secret--both the firm and the client mutually agreed not to reveal their relationship--Kissinger biographer Walter Isaacson identified twenty-seven of them. Several on Isaacson's list, including Continental Grain, ASEA Brown-Boveri, and Volvo, had used BNL money to ship goods to Iraq. An attorney for Drogoul, Robert Simels, added General Motors and Hewlett-Packard to the exclusive "KissingerBNL-Iraq" club. Neither Isaacson nor Simels specified when the companies retained the consulting firm. Kissinger tried to douse speculation that he was the go-between who put his clients, the bank, and Iraq together. He denied even knowing that BNL-Atlanta had a special relationship with Baghdad, let alone that his firm's clients were exploiting it. "I had no knowledge that any client of [Kissinger Associates] ever received any loans .. . made by BNL's Atlanta branch .. . ," Kissinger stated. While the record is unclear on precisely when certain corporations that exploited the secret Atlanta-Baghdad financial pipeline hired Kissinger Associates, Continental Grain said it added Kissinger to its board of directors in October 1988. By then, Continental had all but ceased its substantial reliance on the Atlanta branch to fund commodity shipments to Iraq. But according to Von Wedel, BNL-Atlanta loans to Exportkhleb allowed the Soviet Union to import an enormous volume of Continental Grain products in 1988 and 1989. And Kissinger sat on the international advisory board of BNL at the time. Meanwhile, ASEA's Lummus Crest subsidiary obtained a $53 million loan from the Atlanta branch for an Iraqi project. Hewlett-Packard obtained funds from BNL-Atlanta for computer exports to Iraq. And General Motors, one of Drogoul's more active clients, discussed forming a partnership to build a truck plant in Iraq with Volvo, whose chairman, Pehr Gyllenhammar, was an associate of the Kissinger firm. Furthermore, Alan Stoga of Kissinger Associates met personally with Saddam in Baghdad in the summer of 1989, along with select members of the U.S.-Iraq Business Forum. Kissinger quit BNL's advisory board on February 22, 1991--six days before Christopher Drogoul was charged in a highly publicized indictment-though he agreed to attend the board's June 1991 meeting anyway. A congressman asked Kissinger if he ever had direct dealings with the alleged mastermind of the Iraqi loan scheme. "To the best of my recollecTION," Kissinger said in a sworn statement, "I have never met or spoken with Mr. Drogoul." But Paul Von Wedel recalled that both he and Drogoul were introduced to Kissinger at a New York dinner sponsored by Turkish businessmen in either 1986 or 1987. "Kissinger was the guest speaker," Von Wedel said. "[The Turks] made a point of bringing him over to our table to introduce him to us. At that point, they were trying to score points with Chris. I shook [Kissinger's] hand and said hello. I saw Drogoul was also introduced." Of course, mid-level bank officials would be more likely to remember a brief meeting with a famous man such as Kissinger than Kissinger would be to remember meeting them. Larry Eagleburger was a rolling ball of nervous energy. Blunt, incisive, and profane, he named all three of his sons Lawrence partly because "I wanted to screw up the Social Security Service." Eagleburger become a fixture in the U.S. foreign policy establishment after hatching from under Kissinger's wing. Kissinger hired Eagleburger as his assistant in 1969 when he was serving as President Nixon's national security adviser. Eagleburger proved loyal, yet confident and able enough to stand up to his domineering boss. When his mentor moved to the State Department in 1973, Eagleburger tagged along, and built a reputation around Washington for plain speaking and competence. Although Kissinger was shut out of the Carter, Reagan, and Bush administrations, Eagleburger got plum jobs in all three. He was Carter's ambassador to Yugoslavia. He worked for Reagan's first Secretary of State, Alexander Haig, and stayed on briefly with Haig's successor, George Shultz. Under President Bush, he served as deputy to Secretary of State lames A. Baker III. In the final months of the Bush administration, when Baker quit to run the star-crossed 1992 reelection effort, Eagleburger briefly became Secretary of State. Eagleburger's private-sector work with Kissinger Associates was a five-year interlude in his long career as a high-level government official. He had left the State Department in 1984 as Under Secretary for Political Affairs and returned in 1989 as the department's number-two officer. Assisting Iraq was a priority when he left and when he returned. In 1983 and 1984, Iraq was on the verge of losing its war with Iran. The State Department, overlooking Saddam's record of harboring terrorists and the absence of full diplomatic relations between Baghdad and Washington, searched for ways to help financially. In March 1983, Richard McCormack, the Assistant Secretary of State for Finance, sketched a few ideas in a secret memo to Secretary of State Shultz. He suggested using federal loan guarantees from the Commodity Credit Corporation and the Export-Import Bank. A second option was to try to use U.S. influence to get the International Monetary Fund to look with favor on Iraq. "Finally," McCormack wrote, "although commercial bank financing is beyond [U.S. government] control, we could take some minor steps in support of Iraq's prospects in private credit markets." The memo didn't elaborate, leaving the possibility that BNL-Atlanta's Iraqi lending scheme--cleverly hidden away in a Morgan Guaranty Trust clearing account--was the sort of step McCormack had in mind. There was no direct evidence that Eagleburger or the State Department followed up on McCormack's idea to try to "swing loans for Iraq through friends in the private sector." But Eagleburger did try to boost Iraq's chances with the EXIMBank. In a letter written in December 1993 to EXIM president William Draper, Eagleburger noted that Saddam Hussein had recently cut links with important terrorists, clearing legal obstacles to granting EXIM loan guarantees to Iraq. The letter urged Draper to be "receptive to financing American sales to and projects in Iraq." The economies of both countries would benefit, Eagleburger argued. By the summer of 1984, the Iraqis were strangling financially because the fighting with Iran had squeezed their oil exports to a trickle. They didn't have enough money to buy food or properly resupply their armed forces, which faced wave after wave of attacking Iranian teenagers. The situation had become desperate. George Bush, then the vice president, joined Eagleburger in appealing to Draper to open up EXIM's coffers for Iraq. Bush pressed for guaranteed funding for a new Iraqi pipeline--to be built by Bechtel Corporation of California for $ 1 billion--to the Red Sea port of Aqaba, Jordan. EXIMBank deals must by law "offer reasonable assurances of repayment," and EXIM staffers concluded in February 1984 that the Aqaba pipeline project didn't qualify. John Sullivan, who sat on the EXIM board at the time, said he recalled that the board voted against funding the project, but that it went through anyway--possibly because Draper personally overruled the board. "I was astounded that the loan ever went through," said Sullivan, head of trade finance at the Commerce Department. "It was obviously done over the heads of everybody involved in the loan process." With Draper's support, Bush and Eagleburger obtained $484 million in EXIM loan guarantees for the project. Although political complications nixed the project a year later, the episode demonstrated that Eagleburger, Bush, and others were eager to get money into Saddam's pockets, whether by public or private means. When Eagleburger jumped from the State Department to the business world in 1984, his old contacts in Yugoslavia proved particularly helpful. As a young foreign service officer there in the early 1960s, he had been sent out to help victims of an earthquake near the city of Skopje. He set up a tent in a muddy field and dispensed aid to grateful Macedonians. When Eagleburger returned as the U.S. Ambassador to Yugoslavia in the late 1970s--after establishing himself among the elite of Washington's national security community--it was a homecoming of sorts. He was greeted with the nickname "Lawrence of Macedonia." So it was hardly surprising that when Yugoslavians wanted to market the "Yugo" subcompact car in America during the mid-1980s, they called Eagleburger. He agreed to serve as a director of Global Motors Inc." which was handling the project. Global Motors, a Kissinger Associates client, was a subsidiary of Zavodi Crevna Zastava, a leading Yugoslav arms manufacturer and supplier to Iraq, Libya, and several Eastern European nations. In 1986, Yugoslavia's giant Ljubljanska Bank wanted to open a unit in New York It, too, turned to Eagleburger. When the LBS Bank of New York opened as a Ljubljanska subsidiary, Eagleburger was one of its six directors. As LBS Bank struggled to get on its feet, it often sought help from a rather improbable source: Christopher Drogoul. A series of intricate business and personal relationships developed between LBS Bank and BNLAtlanta. At first, the Atlanta branch supplied the new bank with assets by selling it loans or shares in loan participation agreements. Cafa Boga, vice president of operations for LBS, later down played the significance of that activity. He said the loans bought from Drogoul's operation in Atlanta did not involve Iraq and never amounted to more than $10 million. But the Federal Reserve reported that the New York bank obtained up to one quarter of its early business from the Atlanta branch. Over time, LBS introduced Drogoul to important companies like Mobile Oil. That favor bore fruit for BNL-Atlanta, which later helped finance construction at a Yugoslavian shipyard of a multimillion-dollar oil tanker to be leased by Mobile. Drogoul said the first deals between the two banks were approved by Renato Guadagnini, BNL's regional manager for North America. Guadagnini had set up the Italian bank's Atlanta branch and signed off on the hiring of Drogoul as its manager. Drogoul said that Guadagnini--who worked at the BNL office on 51st Street in Manhattan, not far from the LBS office on 52nd Street--occasionally met for lunch with LBS officers, including its chairman, Vinko Mir. When Guadagnini retired from BNL in 1987, Drogoul urged the Yugoslavian parent of LBS to hire him as a consultant, which it did. During his semiretirement, Guadagnini also collected pay as a consultant to En-trade, the Turkish trading company that relied on BNL-Atlanta to finance dozens of export shipments to Iraq. LBS also dealt with Entrade. It accepted shares of Entrade loans and granted a $300,000 mortgage loan-apparently one of the few mortgages in its loan portfolio--to Yavuz Tezeller, Entrade's top official, for his New York City apartment. Drogoul said he didn't know whether Eagleburger had a hand in establishing the link between LBS and BNL-Atlanta, and Eagleburger fiercely denied that he had. Neither man could recall ever meeting the other, although Drogoul said he heard comments about Eagleburger from Goran Gazivoda, the chief lending officer at LBS. When Eagleburger quit the LBS board in 1989 to join the Bush administration, the New York bank hired Guadagnini to replace him. Guadagnini later told Italian Senate investigators that he knew Lawrence Eagleburger, but he declined to elaborate. "I can't reveal secrets about a bank for which I am working," he said. LBS Bank definitely had its share of secrets. The bank was convicted of money laundering and fined in a 1988 case that U.S. Customs Commissioner William von Raab initially called "an attempt by Eastern Bloc nations ... to get their hands on U.S. currency and high technology." Two men were also convicted, one of them a Piano, Texas, man who was identified in a federal affidavit as the second ranking Yugoslavian intelligence officer in the United States. LBS chairman Vinko Mir and the Yugoslavian consul general in Chicago, Bahrudin Bijedic, were acquitted on related charges. Eagleburger and the remaining directors were not charged. Obviously, LBS associated with officials involved in diplomatic affairs and the intelligence community, a circle where Eagleburger's connections could be most useful. Like Henry Kissinger and Brent Scowcroft, he possessed an insider's knowledge of the U.S. national security apparatus, if not foreign intelligence services as well. That knowledge was an important part of what Kissinger Associates was selling to clients. Chapter 5 NETWORKING FOR ARMS Baghdad has created complex procurement networks ... to acquire technology for its chemical, biological, nuclear and ballistic missile development programs. --CIA report, November 6, 1989 Ihile Kissinger, Scowcroft, and Eagleburger were by long experience wise to the ways of the national security community, Drogoul and Von Wedel were naive outsiders. Spies made them nervous. When Drogoul suspected that U.S. intelligence agents were training their eyes on his Atlanta office, he ran to the Iraqis for comfort and advice. Raja Hassan All told him to relax. "Well, I mean, Chris, I don't see where you are worrying about that," said All, the top financial official in Iraq's military procurement ministry. "We are all in this together. "The intelligence service of the United States government works very closely with the intelligence service of the Iraqi government. There's nothing-nothing strange about that at all. I'm not concerned about that one bit." All was right. Long before the Iraqis began recruiting Drogoul as a money source, they had established a bond with U.S. intelligence. Ties between the U.S. and Iraqi spy networks dated back to the early 1980s, when the CIA began providing Baghdad with classified satellite photos of Iranian troop positions. This cooperation occurred as U.S. allies in the Middle East were sounding alarms about Iraq's precarious position. For example, at a meeting in Cairo in 1982, Egyptian President Hosni Mubarak strongly urged an American delegation led by Deputy Secretary of State Walter Stoessel to consider U.S. aid to Iraq. Howard Teicher, a senior National Security Council staffer for the Near East and South Asia, was present and said Mubarak warned that the Middle East would be dangerously destabilized if Iraq were to lose its war with Iran. Although the White House wanted to deal with Mubarak's dire warning, it also wanted to preserve the appearance of neutrality in the Iran-Iraq War. So it turned to its covert operators. "The driver behind the new Iraqi relations was [CIA director] Bill Casey," Teicher said, adding that he suspected that Casey met secretly--perhaps in Jordan--with Saddam or a top aide in 1982. Before long, U.S. military equipment was being routed to Iraq through American allies, including Jordan, Egypt, Kuwait, and Saudi Arabia-under the eye of the CIA, of course. The following year, evidence of the back-door arms deals with Iraq began turning up in State Department dispatches. "We can selectively lift restrictions on third-party transfers of U.S.-licensed military equipment to Iraq," William L. Eagleton, the top State Department official in Iraq, wrote in a classified October 1983 cable obtained by the Los Angeles Times. That year, Lebanese arms dealer Sarkis Soghanalian teamed with a former military aide to Richard Nixon to cash in on helicopter sales to Iraq. Soghanalian, who brokered dozens of Iraq's international weapons purchases in the early 1980s, claimed he often worked with the CIA. He said the agency even helped situate him at an air charter firm in Miami. Meanwhile, the CIA had learned that a Chilean entrepreneur named Carlos Cardoen was building cluster bombs for Iraq. Cluster bombs were perfect for stopping Iranian infantry: one bomb contained dozens of smaller explosives that shot out over a wide area after the initial burst. To make his bombs, Cardoen imported tons of zirconium, a vital ingredient, from an Oregon subsidiary of Teledyne Industries Inc. It was illegal to export zirconium for military purposes without express U.S. permission. So the export documents stated that the zirconium would be used for peaceful mining work. Teledyne confided to the CIA that it suspected that Cardoen was using the zirconium to make weapons, and the agency duly noted the tip in a secret report to the White House. But Cardoen's lie suited the strategic needs of the White House and went unchallenged for many years as a favor to the Iraqis. In November 1984, the White House established full diplomatic relations with Baghdad. But even as his relationship with the United States flowered, Saddam remained wary. His suspicions about Washington's reliability as a partner were soon confirmed. In late 1986, it was disclosed that the White House had arranged the secret sale of TOW missiles to Iraq's enemy, Iran, and used the proceeds to fund the Nicaraguan Contras. The Iraqis felt betrayed. Obviously, no political bond between the United States and Iraq was ever going to be pure or eternal. Both sides recognized that. After the Iran-Contra disclosures of 1986, Saddam Hussein was more determined than ever to build his own weapons of mass destruction. The Iraqi leader was impatient with his country's reliance on imported arms from inconsistent suppliers in the Soviet Union and the West. He had been forced to rely on their finished weapons during his eight-year struggle against Iran. But as the war was winding down in 1987 and 1988, and Iraqi oil began to flow again, Saddam enjoyed new purchasing power. He began building his own military production lines, designed to churn out everything from bullets and artillery shells to long-range missiles and nuclear weapons. This drive for military self-sufficiency was fueled by a blend of ambition and insecurity. Saddam was proud of Iraq's million-man army, the fourth largest in the world. And he was determined to make his country the mightiest military power in the Arab world. But the war with Iran had underscored Iraq's strategic vulnerability. It was much smaller than Iran and had only one third the population. It was nearly landlocked, and its major cities were within easy missile striking distance from Iranian soil. Besides the threat of Iran, there was Israel, a technologically advanced foe capable of inflicting sudden devastation. Saddam resolved to develop his own capacity to inflict equal or greater destruction. The man who coordinated this effort was Hussein Kamel Hassan, husband of Saddam's oldest daughter, Ragha. Born in the mid-1950s, Hussein Kamel had the same swarthy skin, thick mustache, and authoritarian tendencies as his father-in-law, whom he would later betray. In July 1995, Kamel fled to Jordan and began agitating for a new regime in Baghdad. A decade earlier, Kamel reportedly saved Saddam from a would-be assassin and swiftly rose to the top of Iraqi intelligence. He also headed the Ministry of Industry and Military Industrialization (MIMI), which HANdLed Iraq's efforts to buy arms technology in Europe and North America. The CIA figured Kamel was the second most powerful man in Baghdad. As Iraq's chief weapons buyer, Kamel faced two major obstacles: anti-proliferation rules and financing. Western exporters had to operate under all sorts of export-licensing codes, such as the Missile Technology Control Regime and the Nuclear Non-Proliferation Treaty. Fortunately for Iraq, many exporters and governments were almost as eager as MIMI to bend the rules. Iraq made the bending easier by setting up front companies to buy war supplies secretly. Iraqi intelligence operated networks of these fronts. They bought gear as instructed by Hussein Kamel. Someone had to pay the suppliers. That was why the recruitment of Drogoul and his little bank in Atlanta was so important. Between February 1988 and April 1989, Drogoul stepped forward to provide four secret credit lines that gave MIMI $2.155 billion to play with. In March 1989, Kamel expressed his deep gratitude to the Atlanta banker with a personal telex that began by misspelling his name: For the attention of Mr. C. Drougol: I would like to express my greetings and personal good wishes for you and your family and all your staff at Del Lavoro Bank-Atlanta on the occasion of the Easter Festivities. Wishing you all happiness, good health and prosperity. The job of luring Drogoul into the Iraqi fold had gone to Sadik Taha, a slightly built man in his late fifties who preferred Western business suits and tact to uniforms and force. Taha didn't have a trace of Kamel's militant arrogance. Rather, his poor physical condition imbued him with an appealing vulnerability. He had a weak heart, which led him to Emory University Hospital in Atlanta and elsewhere for tests, and ultimately to London for a heart transplant. Taha, the director general of Iraq's Rafidain Bank, had zeroed in on Drogoul at an Iraqi Grain Board gathering in New York in late 1984. Drogoul immediately warmed up to him and agreed to commit $100 million in CCC-guaranteed loans to Iraq to fund imports from commodity suppliers such as Continental Grain. That was only the beginning. Taha eventually coaxed Drogoul into abandoning his official credit limits to finance $1.9 billion of Iraqi food imports through Rafidain. But by early 1988, Taha's bosses wanted more. As Kamel's weapons-purchasing fronts were springing up all over Europe and the United States, the Iraqis craved new credit that wasn't restricted to agricultural imports. Drogoul was an obvious candidate to provide it. Taha had already broken him in. So Taha's new job was to convince the pliable Atlanta banker to take the dangerous plunge into unsecured and unguaranteed lending. Drogoul was leery, but not adamantly opposed. For the Iraqis, who knew how to dangle the carrot and apply the stick, that was all the opening they needed. In February 1988, Drogoul and Taha signed a medium-term loan agreement, nicknamed "MTL-1," for $200 million. Iraq quickly borrowed nearly the entire amount to fund imports for MIMI. In October, Taha called Drogoul from Washington to say that he would be stopping by Atlanta with a colleague to discuss Iraq's need for a second medium-term loan for an additional $300 million. At Atlanta's Hartsfield Airport, Taha introduced Drogoul to Raja Hassan AH, the senior financial officer at MIMI. After a brief discussion, Drogoul signed the agreement in his office. Then he called in Von Wedel to add his signature. Von Wedel blew up. According to Drogoul, his assistant protested that the credit line hadn't been approved by BNL-Rome and he didn't want to sign. But he finally did so. Taha later complained to Drogoul about Von Wedel's rudeness. Then he tried to smooth the waters by saying that Saddam Hussein himself had signed an edict ordering that BNL-Atlanta loans be repaid first. Such grand assurances were about all Drogoul had to rely on, because the actual terms of the MTL credit lines provided him little protection. For example, the payment terms were ambiguous. Arguably, Iraq wasn't required to begin paying principal on its loans until the credit line had been completely used up. So if Iraq left any portion unused, it had no obligation to make any principal payments. Toward the end of 1988, Taha's heart problems grew worse, and Raja Hassan All stepped into the lead role of pressuring Drogoul for more money. He had a much more authoritarian style than Taha, and Drogoul didn't like him as well. In December 1988, All ordered Drogoul to meet him in Washington with documents so that they could open a new $500 million credit line. Perhaps fearing another explosion, Drogoul didn't even tell Von Wedel about the new agreement. He was the only BNL official who signed MTL-3. His easy money was stoking Iraq's ambitions for gigantic new projects. In early 1989, Drogoul was invited to London to meet with Dr. Safa al-Habobi, a key figure in Iraq's weapons procurement network and the director of the NASSR weapons complex. Dr. Safa wanted BNLAtlanta to finance an aluminum-smelting project in Iraq. MTL-3 was being quickly gobbled up. There would need to be another even larger MTL agreement. So early in April 1989, Drogoul signed MTL-4 for $1.155 billion in Dr. Safa's London office, just in time for Saddam's arms extravaganza in Baghdad later that month. Drogoul could see that his host was quite high in the Iraqi pecking order. Dr. Safa explained that he had hired Taha, and that he would handle any problem that Drogoul might be having with All. Dr. Safa's self-assurance underscored what Drogoul had already heard from Taha and Wafai Dajani, the Jordanian middleman, about the man's clout. Though he formally reported to Hussein Kamel, Dr. Safa was said to be one of the few people who enjoyed direct access to Saddam Hussein. It was, therefore, quite a compliment that Dr. Safa had offered to make the Atlanta banker's father, Pierre Drogoul, the new president of an Iraqi arms procurement company in Paris called Babil International. Although the senior Drogoul reportedly turned down Dr. Safa, the offer showed that his son had come a long way from the travelers' check division at Barclays Bank. If Iraq's weapons procurement networks needed generals like Hussein Kamel and Dr. Safa, they also needed foot soldiers like Nash Rehmann of Norcross, Georgia. Rehmann, a native of Pakistan, was an entrepreneur whose company, Associated Instrument Distributors, had bid on state of Georgia contracts for items ranging from washcloths to paddle boats His opulent home on the outskirts of northeast Atlanta suggested that he made a good living at it. He certainly had an open mind about promising new business ventures. Rehmann said it was his neighbor, Ahmad Thiab, a quiet and religious Iraqi working for his Ph.D. in political science at Atlanta's Clark University, who first proposed a lucrative export deal with Iraq. The Iraqis, Rehmann learned, were in the market for thousands of super-tough tungsten-carbide cutting tools, including replaceable drill bits. Tungsten-carbide is an alloy used to mill both industrial and military goods, including gun barrels and armor-piercing projectiles. Iraq wanted the tools for its HUTEEN munitions complex on the east bank of the Euphrates River thirty miles south of Baghdad. HUTEEN was gearing up to manufacture cluster bombs and tank-destroying 135mm and 155mm shells. It is unclear how much Rehmann knew about Hussein Kamel's network or HUTEEN when he agreed to serve as a middleman in the deal. "I have no idea what they were used for," Rehmann later said of the cutting tools. "The DOC [Department of Commerce] said you didn't need an export license." So Rehmann, working through Associated Instrument Distributors, proceeded to obtain price quotes. He called an Atlanta sales representative of Kennametal Inc. of Latrobe, Pennsylvania, one of the nation's leading producers of tungsten-carbide. After Kennametal priced the order at $ 12.1 million, Rehmann relayed the information to Iraq. The Central Bank of Iraq arranged for BNL-Atlanta to pay up to the quoted price under one of the MTL credit lines it had arranged with Drogoul. Two German companies, Hertel and Krupp-Widia, wound up selling most of the items to Iraq. Kennametal exported only a small fraction of the total order, shipping from its unit in Germany. Hertel and KruppWidia were paid $8.8 million and $2.5 million, respectively, under Rehmann's letter of credit. Rehmann eventually split $665,000 of the original $12.1 million with his neighbor Ahmad Thiab and Hassan Salman, an Iraqi based in Montreal, Canada. Rehmann said he'd never met Salman and knew very little about him. While Associated Instrument Distributors sold Iraq tungsten-carbide tools, a tiny company in Alabama built an entire factory in Iraq that manufactured similar cutting tools. The project by XYZ Options Inc. of Tuscaloosa was just what Saddam had in mind when he called for his country to establish military self-sufficiency. William H. Muscarella, president of XYZ, said the Iraqis told him the items turned out by the factory weren't going to be used for military manufacturing. Indeed, the metal-cutting products were generic and suitable for either civilian or military use. But the factory was built at al-Atheer, a secret Iraqi missile and nuclear weapons development complex. When Muscarella and his employees were constructing it, armed guards patrolled nearby. Muscarella told the Los Angeles Times that XYZ's activities were no secret to the U.S. government. He said the CIA knew his company provided training in Topeka, Indiana, for the Iraqi technicians who were to run the factory. According to the Los Angeles Times, Muscarella said a CIA officer approached him in Tuscaloosa in the spring of 1989, and two others visited the Topeka training site that summer. "They wanted to know what was going on," Muscarella told the newspaper. "We gave them a tour of the plant in Indiana and provided them with blueprints for the operation in Iraq." The Iraqis had been very assertive in arranging the $ 14.1 million deal with XYZ. The young company first heard about the opportunity to work in Iraq when it received an unsolicited fax from Matrix-Churchill Corporation, an Iraqi front company based outside Cleveland. The Iraqis even steered Muscarella to their designated paymaster for the project: BNLAtlanta. For its trouble, Matrix-Churchill demanded that XYZ pay a 10 percent "finder's fee," or $1.4 million. Operating out of a one-story building in the Cleveland suburb of Solon, Ohio, Matrix-Churchill and its dozen or so employees seemed to be engaged in the unremarkable business of selling machine tools. In fact, the company was the nerve center in America for the London-based Al-Arabi Trading Company, one of Iraq's most important weapons-buying networks. Al-Arabi was run by the ubiquitous Dr. Safa. A former official of Iraq's Secret Security Organization, he had a Ph.D. in engineering from Lyons University in France, and was fluent in Arabic, French, and English. When Iraq acquired Matrix-Churchill in Ohio in November 1987, Dr. Safa became its president. Al-Arabi also owned companies in Italy, France, Switzerland, and Germany. In 1987, Al-Arabi set up a holding company in London called Technology Development Group. TDG, as it was known, bought one of Great Britain's best-known toolmakers, Matrix-Churchill Ltd. of Coventry, and its small U.S. affiliate outside Cleveland. The firm in Coventry had been founded in 1923 and employed some seven hundred people; the U.S. satellite office had opened in the 1960s. Both units of Matrix-Churchill were closely monitored by U.S. and British intelligence. Gordon Cooper, vice president of Matrix-Churchill Cleveland said the CIA called his company's legal counsel in April 1989 to ask questions but did not disturb its activities. British intelligence was even more vigilant than the CIA. It infiltrated Matrix-Churchill Ltd. in Coventry as soon as the Iraqis bought it in 1987. Mark Gutteridge, a Matrix-Churchill director, told his intelligence handler in the summer of 1987 that his company was supplying machine tools to Iraqi armaments plants. When Gutteridge quit, Paul Henderson, the firm's managing director, stepped in to keep the information flowing. Henderson said he informed his spymaster about BNL-Atlanta's role in financing Iraq's procurement network. He said he assumed his tip was passed on to the CIA, given the extremely close relationship between the British and U.S. intelligence agencies. In any case, the British government didn't lift a finger to stop Matrix-Churchill's booming arms trade with Iraq, a trade that ordinarily would be illegal. Instead, it granted export licenses for many items it knew to be useful in making weapons. The goal was to use Henderson as a window into Dr. Safa's secret network, particularly into its efforts to buy nuclear technology. For example, one government analyst wrote in a report labeled "covering secret UK eyes A" on February 1, 1989: "Withholding the lathes would not stop the Iraqis [from] developing a nuclear weapon, but it would force Matrix-Churchill to close down and lose us our intelligence access to [Dr. Safa al-] Habobi's network." Another British government official suggested the futility of trying to block every type of industrial export to Iraq, saying: "Screwdrivers are also required to make hydrogen bombs." Given a free pass to proceed by the governments of the United States and Great Britain, Saddam escalated his pace to build a first-rate armaments industry. For example, Iraq decided that after years of importing cluster bombs from Carlos Cardoen in Chile, it wanted to make its own. So it arranged for Cardoen to provide Matrix-Churchill with blueprints of its bomb parts. Matrix-Churchill then supplied the blueprints to Kennametal, which designed the tools and machines to manufacture the parts. One group of Cardoen blueprints, later obtained by Democratic Congressman Charlie Rose of North Carolina, represented "bomb, mortar and projectile fuzes," according to an intelligence official who analyzed them for Rose. Kennametal later told the Atlanta Constitution: "The [Cardoen] drawings .. . depicted Matrix's specifications for tools to be made by [Kennametal's United Kingdom unit] for Matrix." But while cluster bombs were horribly lethal, they were essentially defensive weapons. Saddam had more spectacular weapons in mind as well. The one that best expressed his grand vision was Gerald Bull's so-called Supergun. Bull was a Canadian-born ballistics expert whose reputation had been growing for decades. In the 1960s, he had developed the world's largest cannon under a project sponsored by the governments of the United States and Canada. He dreamed of one day building a gun large enough to launch satellites into space. Although funding for the program eventually dried up, Bull didn't abandon his dream. If anything, his vision of a "Supergun" grew into an obsession. In the late 1970s, Bull exported U.S. howitzer technology to South Africa when that country was subject to a U.N. arms embargo. He said he understood that his exports were part of a covert U.S. program to maintain close relations with the government of South Africa. The country was considered vital to U.S. interests because of its vast mineral resources and its value as a bulwark against African Marxism. A congressional study concluded that the CIA had introduced Bull to the South Africans. According to Kenneth R. Timmerman in his book The Death Lobby (1991), the CIA sought Bull out and used him as an unofficial weapons channel. "As the CIA came under greater Congressional scrutiny in the late 1970s," Timmerman wrote, "it appears that they abandoned Bull." He was arrested for breaking the U.N. arms embargo and sentenced to six months in jail. Timmerman said Bull emerged a bitter man, broke and deeply distrustful of the United States. Upon his release, he moved the headquarters of his engineering firm, Space Research Corporation (SRC), from Vermont to Brussels, and started over with his sons Michel and Steven. Michel owned an SRC offshoot company near Baltimore. During the mid-1980s, Bull engaged in howitzer deals with China and Spain, and despite his previous arrest, even obtained sensitive export licenses from the U.S. government. In January 1988, Hussein Kamil invited Bull to Baghdad. Iraq's war with Iran was winding down, but Kamil wanted to set up plants to manufacture artillery shells, fuzes, howitzers, and rockets. The "Supergun," or Project Babylon, was to be Bull's showpiece. Actually, there were three giant guns. Two had diameters of 350 millimeters and were called "baby guns." The third was a 1000mm piece called the "big gun," which was longer than a football field. U.N. inspectors would later find one baby gun in the mountains north of Baghdad and the other, along with the big gun, at the State Enterprise for Automotive Industries at Iskandariyah, fifty kilometers south of Baghdad. Bull was murdered in Brussels in March 1990 before his "Supergun" was ever fired. Although his death was a blow to Saddam, the Iraqis hadn't been relying exclusively on Bull to deliver deadly payloads to Teheran and Tel Aviv. The ability to threaten key cities with chemical--and eventually, nuclear--weapons was too important to Saddam. Rather than risk everything on one delivery system, he encouraged Bull and simultaneously developed two classes of ballistic missiles. One was based on the Soviet Scud-B, the other on the Argentinean Condor II. The Scud was propelled by liquid fuel and based on technology from the 1950s and 1960s. The original model had a range of about 300 kilometers and a payload of 1 ton. It couldn't reach Teheran, so the Iraqis modified it to raise its range to 650 kilometers or more while lowering its payload. About 190 of the modified versions, known as the Al-Hussein and Al-Abbas, were launched at Iranian cities in 1988. In December 1989, Iraq used modified Scuds to test its first space rocket. During the Persian Gulf War, Iraq fired about eighty modified Scuds. They didn't inflict much damage on military installations other than the obvious exception of the barracks in Dhahran, but they were effective terror weapons against civilian populations. But had Saddam chosen to arm them with chemical weapons, the Gulf War would have unfolded very differently. Such a tactic would almost certainly have drawn Israel, and perhaps its nuclear arsenal, into the conflict. Scud technology was primitive, however, and therefore unsuited for anything more than a stopgap role in Saddam's quest for a state-of-the-art military machine. The Condor II was more promising. The first Condor missile was built during the early 1980s by German engineers at Cordoba, Argentina. Although it had a range of only 150 kilometers, it was propelled by the solid fuel used in intercontinental ballistic missiles. European technology was funneled to the program through a Swiss front company called Consen. By 1984, Egypt and Iraq joined in the Argentinean project to build the Condor II missile with a range of 1,000 kilometers. Alan Friedman of the London Financial Times reported that several firms identified as suppliers to Consen were also subcontractors on the U.S. Pershing 2 missile. Western intelligence officials suspected that the Condor II borrowed some Pershing 2 technology. For its lead role in funding the Condor II, Iraq was to receive about half of the missiles produced. Aside from buying missiles built in Argentina, Iraq also wanted to build its own intermediate missile based on the solid-fuel Condor II technology. So it set up a research and development site near the Badush Dam in northern Iraq. Plans to buy Condor II missiles and build variations on the same technology depended largely on loose export licensing standards in the United States and elsewhere. Most of the time, acquiring the technology and materials wasn't a problem. But by about 1987, elements within the U.S. government began to protest about missile proliferation in the Third World. The Pentagon blamed the Commerce Department for being too lax in handing out export licenses. Those complaints helped prod the Reagan administration into signing the Missile Technology Control Regime (MTCR) in Rome in April 1987. Also signing up for stricter controls were Canada, France, Italy, Japan, and West Germany. Although some high-tech exports continued to slip through the net to Iraq, especially from Germany, the MTCR helped kill the Condor II program. The United States showed at least an intermittent resolve to get tough on missile exporters by setting up a sting operation against one leading U.S. supplier. An Egyptian American named Abdel Kader Helmy was procuring materials for missile nose cones and chemicals used in solid fuel for rockets. A former employee of the Jet Propulsion Laboratory in California, Helmy had a top-secret U.S. security clearance. He shipped many of his items on Egyptian military transport planes flying out of Washington, D.C." to Egypt. Some of those goods may have reached Iraq. (In 1989, Helmy pleaded guilty to conspiracy to violate the Arms Export Control Act and money laundering and was sentenced to forty-six months in prison. "Without the activities of Dr. Helmy and his co-conspirators in procuring restricted technology, completion of the Condor missile program is doubtful," Michael R. Higgins, an analyst for the Defense Intelligence Agency, wrote in September 1989.) Yet Iraq didn't abandon its financial commitment to solid-fuel missiles. It understood the U.S. anti-proliferation policies were hardly carved in stone. As it waited for the inevitable change in the political wind in the United States, Iraq used clandestine buyers elsewhere to search out Condor II technology. Iraq's missile program was closely linked to its chemical weapons development. The two programs worked together toward the goal of providing Saddam a truly threatening non-nuclear device of mass destruction--a poor man's atomic bomb. The same man, a German-trained chemist named Amer Hammoudi al-Saadi, supervised both efforts. The Iraqis began buying raw materials for chemical weapons in earnest after Israel bombed its nuclear reactor at Osirak in 1981. West German companies helped them build a plant at Samarra to produce mustard gas, nerve agents, and hydrogen cyanide. Their deadly effects on Iraqi Kurds in 1988 were reported by the Senate Foreign Relations Committee: "Those who were very close to the bombs died instantly. Those who did not die instantly found it difficult to breathe and began to vomit. The gas stung the eyes, skin and lungs of the villagers exposed to it. Many suffered temporary blindness ..." The slaughter prompted the United States to organize the 1989 Paris Conference to reaffirm the post-World War I Geneva Protocol outlawing the first use of chemical weapons. But by 1989, Iraq had taken steps to assure an indigenous supply of precursors for chemical weapons. It built plants to transform crude oil into mustard gas and phosphate ore into deadly nerve agents. For example, a huge petrochemical complex known as PC-2 a few miles south of Baghdad produced ethylene oxide and ethylene glycol, chemicals easily converted into a key mustard-gas component. PC-2 was a nearly exact replica of PC-1, a $1.2 billion complex near Basra that was badly damaged during the Iran-Iraq war. The first plant, completed in 1980 by the Lummus Company of Bloomfield, New Jersey, had manufactured a variety of polyethylene products. Lummus Crest, a Lummus affiliate owned by ASEA Brown-Boveri, helped build PC-2 with the Bechtel Corporation, the main contractor. Bechtel was a California-based international engineering giant with long-standing ties to the U.S. government. George Shultz, Reagan's Secretary of State, was the corporation's president until 1982, while Caspar Weinberger, Reagan's Secretary of Defense, once served as its general counsel. During the mid-1980s, Bechtel had official government backing to build an oil pipeline from Iraq to Aqaba, Jordan. Despite $484 million in guarantees from the U.S. Export-Import Bank, the deal fell through. But in 1988, Iraq asked Bechtel to head the PC-2 project. Both Lummus Crest and Bechtel accepted payments for the PC-2 project from BNL-Atlanta. Drogoul claimed to have only a sketchy idea of what he was funding. Indeed, there was a strange stipulation in one $53 million BNL letter of credit to Lummus, according to an Italian Senate Commission that later investigated the BNL affair. "BNL was not to inspect any kind of customs or transport document in connection with the order," the commission reported. Normally, a bank at risk in financing expensive exports would demand to see customs documents to verify delivery. Not BNL. Shultz was uneasy about Bechtel's participation in the PC-2 project. Although he'd received assurances that the complex wasn't involved in chemical weapons, he began to voice objections. After he left government in early 1989 and returned to Bechtel's board of directors, he took his case to the other directors. The London Financial Times reported that he told them: "[S]omething is going to go very wrong in Iraq and blow up, and if Bechtel is there, it will get blown up too." Bechtel proceeded to pull out of the project. Chapter 6 "DUAL-USE" "And they shall beat their swords into plowshares, and their spears into pruning hooks Nation shall not lift up sword against nation, neither shall they learn war any more." --Isaiah 2:4 The desire to protect intelligence gathering wasn't the only reason the United States and Great Britain didn't disturb Iraq's secret arms procurement networks. There were powerful commercial forces at work too. Corporations throughout the West were eager to cash in on the rebuilding of oil-rich Iraq. In the international race to supply Baghdad in the late 1980s, export-licensing rules often separated the winners from those who had to drop out. Corporations lobbied hard for a relaxation of licensing standards, and the governments of the United States and Great Britain, among others, responded. "Not to do so will harm the efforts of British companies to reestablish themselves in both markets [Iran and Iraq] and deny them industrially valuable orders," British trade minister Alan Clark wrote in a 1988 memo. "Our international competitors are not so inhibited." After eight years of war, Iraq needed to patch up its civilian infrastructure, but more important was Saddam's determination to buy the latest Western technology to upgrade his military manufacturing base. Suppliers had little trouble shipping to Iraq's civilian projects (assuming they could obtain financing). But export laws in most countries, if strictly enforced, blocked them from the profits available through Iraq's military buildup. The solution to this problem for the willing, but restricted, Western suppliers came partly from the licensing agencies and partly from Saddam himself. Licensers often gave Iraq the benefit of the doubt when it sought to buy "dual-use" items, products with either civilian or military applications. Saddam, meanwhile, blurred the distinction between his civilian and military projects by creating a series of "mixed-use" complexes. Thus, a dam project served as cover for a missile development site, while an auto plant camouflaged the "Supergun" project. Saddam claimed that all dual-use imports were being used for his civilian projects. Once the items reached their destination, however, he could always haul them to the weapons plant across the street. The arrangement worked nicely for Western exporters. By providing them cover for shipping militarily useful goods, it vastly expanded their potential market. In a pinch, the exporter could always swear to the intention of helping Iraq's civilian reconstruction. As long as the government agency that issued export licenses didn't check to see how an export was actually used, everything worked smoothly. The U.S. Department of Commerce saw to it that American firms weren't left out in the cold. It was the department's job to both promote and regulate U.S. exports, but the clear signal from the White House was to focus on the former and go easy on the latter. Legally, Commerce could not knowingly permit military sales to Iraq. But it had broad authority to approve or reject licenses for "dual-use" exports. For example, it could turn down a license application if it suspected an item might be used for nuclear or missile development. But it rarely did. To do so would irritate the department's constituency in the business community and the White House. So, if Iraq said it planned to use an item for civilian purposes, the U.S. Department of Commerce took the Iraqi buyer at his word. For example, when Baghdad declared that a special super-hot furnace would be used to make artificial limbs for war victims, Commerce played along. It didn't matter that the furnace could also be used melt zirconium for nuclear-fuel rods and titanium for missile nose cones. Matrix-Churchill Corporation in Cleveland got the same favorable treatment when it claimed Iraq needed a special glass-fiber plant to make fishing rods and shower stalls. Commerce okayed the plant, even though glass fiber is commonly used in the aerospace industry to make missile nose cones and can be used in uranium-enrichment programs. This soft approach to licensing allowed front companies for sixteen known nuclear, chemical, and missile sites in Iraq to acquire U.S. computers valued at a total of $96 million between 1985 and 1990. In January 1987, a New Jersey firm sold a computer specifically designed for wind-tunnel experiments on missiles to SAAD 16, Iraq's main missile development center. Even Gerald Bull, a felon who had served prison time for U.S. export violations, was allowed to play the game. Commerce granted Bull's company, Space Research Corporation (SRC), an export license for missile design computer software even after learning that the program "would be used to analyze designs of military and heavy construction vehicles, lorries, satellites and missiles." In September 1989--when the Iraqis were furious over the FBI raid on BNL-Atlanta a month earlier-Commerce let SRC ship a sophisticated computer capable of running the missile software to the Iraqi automotive center that housed the Supergun. Computers made up only a fraction of the 771 shipments of sensitive U.S. items valued at $1.5 billion that were approved for direct export to Iraq during this period. The $1.5 billion didn't include U.S. exports that required no license or those that made their way to Iraq though third countries. Even excluding third-country sales, Commerce licensed direct exports of a whole range of advanced radio, radar, and electronic equipment. Between 1985 and 1990, the department became a virtual rubber stamp for those seeking to export sensitive U.S. technology to Iraq. Apparently, that was what the White House wanted. In preparation for Vice President George Bush's meeting with Iraqi Ambassador Nizar HamdoononMarch2, 1987, Bush's staff told him Commerce had recently granted licenses for two high-priority scientific projects in Iraq. One involved "space and astronomical research." The staff prepared a script for his discussion with Hamdoon that urged him to say the following: I sympathize with your concerns about delays in the issuance of export licenses for some high-tech sales to Iraq. We want to cut down wherever we can on uncertainty for both U.S. exporters and our trading partners.. .. I am pleased that Commerce has recently issued licenses for some long-pending items for Iraq. You should take that as a sign of our seriousness in addressing this issue. Commerce bureaucrats who approved sensitive exports to Iraq had no desire to review the results of their casual approach to licensing. They avoided the issue, just as did their brethren in the Commodity Credit Corporation. The CCC never checked to see whether a shipment of eggs ever arrived in Iraq; Commerce never checked to see how a given "dual-use" export was used in Iraq. This strategy preserved "deniability" for bureaucrats and exporters alike. It allowed everyone the option to claim that the Iraqis had snookered them. After the Persian Gulf War, the department sometimes had to resort to that defense. For example, U.N. inspectors initially reported that an American-made electron-beam welder at NASSR had been used to build uranium-enrichment centrifuges. Centrifuges separate weapons-grade uranium from lower-quality uranium. Confronted with the U.N. find, Commerce declared: "Iraq's use of this equipment for nuclear purposes reflects a clear violation of strict conditions" on the license. Commerce had granted the export license in 1987 to Leybold Vacuum Systems Inc." then a U.S. subsidiary of the German firm Degussa AG, after Leybold declared that Iraq said it would use the welder to repair equipment. As it turned out, the welder found at the nuclear site was not the U.S.-made welder exported from the United States but one from Leybold in Germany. Commerce had never checked to see how Iraq actually put the U.S.-made welder to use. That was the beauty of "dual-use" export rules. Beurt SerVaas of Indianapolis preferred to think of his project in Iraq as the Lord's work. A leading financial backer of televangelist Pat Robertson, and a director of Robert Schuller Ministries, SerVaas was blessed with a $40 million contract to build a brass-shell-recycling plant in Iraq. "In a way," he said, "we believed that our project was one of turning swords into plowshares." He told the U.S. House Banking Committee that he thought Iraq wanted his plant to "demilitarize" its scrap by extracting brass from shell casings in order to sell it to other countries. Such sales would have generated badly needed hard currency for Saddam. On the other hand, brass is a vital raw material for various munitions. The SerVaas plant was to be built at Al-Shaheed, Iraq's only major brass production site. According to House Banking Committee Chairman Henry Gonzalez, a memo from Al-Shaheed's planning department to SerVaas said SerVaas brass was to be used for light-caliber cartridges and "for military purposes such as [artillery] fuze parts." Based on those facts, Gonzalez concluded in September 1992 that the factory was primarily intended for "military use." However, an internal Matrix-Churchill memo dated April 14, 1989, tended to support SerVaas's claim that the brass his plant produced was intended for resale. The memo said SerVaas Inc. was conducting a market survey "to sell brass products in the Middle East and abroad.. .." BNL-Atlanta financed the project. SerVaas said he wasn't familiar with BNL before the Atlanta branch called to inform him that the Iraqis had prearranged his financing. Both Drogoul and Von Wedel said an official representing SerVaas told them that Dan Quayle--then a U.S. senator, later George Bush's vice president--helped set up the deal. According to Von Wedel, SerVaas's agent claimed his boss first asked Quayle to get money for the brass plant through the Export-Import Bank. EXIM refused, but urged SerVaas to try BNL, according to the story Von Wedel heard. SerVaas insisted that the bankers' second-hand information was false. He said Quayle never had anything to do with the deal and underscored that it began when the Iraqis approached him. Quayle didn't even know about the brass plant deal, BNL prosecutors said. By 1988, Iraqi artillery had been pounding Iranian soldiers for eight years, leaving countless dead and 70,000 tons of spent brass shell casings. The metal, if properly purified, was worth hundreds of millions of dollars on the open market. But most of the casings were made in the Soviet Union or Eastern Europe and contained silicon. That made them undesirable for export or for use in Western-made munitions, which don't contain silicon. The Iraqis already had a factory at al-Shaheed capable of melting down spent brass silicon casings for use in new Soviet-style shells. They wanted a plant that could extract silicon from brass in order to produce Western-style ammunition or sell the purified metals for cash. So Baghdad put in an order with Dr. Safa. In February 1988, Sam Naman, an engineer at Matrix-Churchill in Cleveland, called on Bridgeport Brass Corporation of Indianapolis. Bridgeport was an interesting choice. It was one of America's smaller brass companies, it was private, and it had been struggling financially. SerVaas had bought it a little more than a year before Naman's call. He said he was motivated to make the purchase, at least in part, by an interest in helping his community. "Union and management representatives had discussed with me the danger that the company would fail, leading to the serious loss of jobs and a substantially adverse impact on the Indianapolis economy," SerVaas stated. Born in Indianapolis in 1919 and president of its City Council, SerVaas was understandably concerned about local jobs. But he was also an internationalist, a man of diverse interests and talents. According to his resume, he owned companies involved in publishing, rubber refining, air freight, electronic components, tool and die, and foreign trade. He controlled a construction company in Poland, and had reportedly considered buying a newspaper in South Africa. He gave lectures on topics like "My Years in Latin America" and "U.S. Foreign Policy in the Far East." In 1971, SerVaas and his wife Cory bought the Saturday Evening Post. The nation's oldest magazine, the Post had enjoyed broad popularity in middle America when illustrations by Norman Rockwell graced the cover. But it had fallen on hard times before the SerVaases came forward. They bought nostalgia and the name. Following the takeover, the magazine was dedicated to championing the favorite causes and personalities of its new owners. For example, Pat Robertson, who had invited both Beurt and Cory on his 700 Club TV show several times, received glowing coverage. In August 1986, SerVaas was one of the first to endorse Robertson's bid for the 1988 Republican nomination for president, and he later headed Robertson's fund-raising efforts in Indiana. SerVaas also counseled Robertson in his bid to acquire United Press International. The Post promoted more mainstream candidates as well, such as John Connally of Texas and Dan Quayle of Indiana. An April 1989 article focused on the family Bible used when Quayle was sworn in as vice president. It was written by one of Quayle's cousins. The next issue contained an interview with Quayle's adoring mother. SerVaas shared more with the Quayles than the values expressed in the magazine pieces. He also owned a chunk of the Quayle family publishing business, and his brother-in-law, Mark Miles, ran Quayle's 1980 campaign for the U.S. Senate. These ties translated into access, if not friendship, for SerVaas. When Quayle arrived in Indianapolis to watch the NCAA Final Four basketball tournament in 1991 with two other Bush administration insiders, Secretary of Transportation Samuel Skinner and White House Counsel C. Boyden Gray, SerVaas met the vice president's airplane. More than a decade earlier, the Post had served as a mouthpiece for SerVaas's sympathies for the government of South Africa. During the late 1970s, when that government was trying to counteract criticism against its racial policy of apartheid, the SerVaases took several trips there. Media reports called SerVaas a potential investor in publications secretly controlled by the South African government's Department of Information. The department and its secretary, Eschel Rhoodie, later became embroiled in a scandal involving a covert attempt to acquire The Washington Star and other U.S. publications. SerVaas apparently never invested in any front publications for the South African government. But according to UPI, the Saturday Evening Post received more advertising revenue from the South African government in. 1976 and 1977 than any U.S. media outlet other than The New York Times and The Washington Post. UPI also reported that Rhoodie visited SerVaas in Indianapolis in 1981, and spent the night at his home. United Press International was particularly interested in SerVaas in 1985 because he had emerged as a leading contender to buy the famous media wire service. Curious about its possible new owner, UPI produced a long profile of SerVaas that raised questions about his ties to U.S. intelligence. The article by Gregory Gordon suggested that UPI subscribers might be concerned if the wire service fell under the control of a government intelligence agency through a former operative. During World War II, SerVaas had worked in China for the Office of Strategic Services (OSS), the forerunner of the CIA. Alumni of the OSS include former CIA directors Richard Helms, William Colby, and William Casey. Gordon noted that SerVaas's detailed resume oddly omitted his activities between 1948 and 1962. Richard Helms acknowledged working with SerVaas at the Indianapolis Times for four years before World War II, but he told UPI he hadn't seen him since. Helms scoffed at the notion that the CIA might have an interest in UPI. "If it ever came up in Congress, there'd be such a rocking scandal they'd [the CIA] never survive it," Helms said. Ironically, Helms himself had worked for UPI as a young man. Yet at least two other groups that sought to take over UPI in the mid-1980s had direct links to former CIA officers. One group was headed by Robert Cunningham, a CIA employee from 1956 to 1964 and a former owner of the Daily American, an English-language newspaper in Rome. Another buyer group was led by Max Hugel, the CIA's former head of covert operations under Casey in the early 1980s. It didn't seem at all farfetched to Harrison Ullmann of Indianapolis that SerVaas might have intelligence ties. Ullmann was a longtime freelancer for the SerVaases and their magazine. "He wanted me to do a story for Helms a year or so after the [SerVaas buy out] of the Saturday Evening Post," said Ullmann, the editor and publisher of the Indiana Letter. Helms was director of Central Intelligence at the time. Ullmann said he was sitting in SerVaas's office when the story idea was first mentioned to him. "Beurt called Helms and got right through to him," Ullmann said. "It was going to be a laudatory story. The gist was to show how good the CIA was, probably to answer criticism from what they viewed as liberal media ... I told him it was a goofy idea." The Helms article never appeared. In a terse response to the probing UPI story in 1985, SerVaas brushed aside his possible links to intelligence, saying, "My intelligence experience was solely as a naval officer during and immediately after World War II." Not long after the FBI raid on BNL-Atlanta in August 1989, the Defense Intelligence Agency (DIA) called SerVaas. He said he later briefed agents of the DIA, CIA, FBI, and Treasury Department about his brass plant. Although the CIA knew that al-Shaheed produced munitions and that Matrix-Churchill was a weapons procurement front, it didn't move to halt the SerVaas project. After Iraq invaded Kuwait in August 1990 and George Bush froze Iraq's assets, the Bush administration saw to it that Iraqi funds were freed up to pay SerVaas the final $ 16 million on his contract. Two months after Operation Desert Storm, SerVaas continued to maintain that Iraq's military intentions in the late 1980s were too obscure to detect. "If the Iraqi government had a secret military agenda, it was well hidden behind a clearly peaceful plan to rebuild an economy devastated by war and to feed its people," SerVaas told the House Banking Committee in April 1991. American companies that wanted to do repeat business with Iraq were usually invited to join the U.S.-Iraq Business Forum. The group provided lobbying muscle to keep trade links healthy politically. It was founded in 1985 by Marshall Wiley, a former U.S. Ambassador to Oman. Members included Bechtel, Continental Grain, First City Bank of Texas, General Motors, Mobile Oil, and Westinghouse. But it had much smaller companies as well. Beurt SerVaas, for example, received a call from Wiley in 1989 after construction of his brass plant got under way in Iraq. He signed up. The forum organized a trade mission to Iraq, set up seminars, and helped members obtain visas, all for an annual fee of $5,000 for multinationals and $2,500 for smaller firms. In October 1988, Wiley wrote President Reagan to urge opposition to a U.S. Senate bill that would have imposed economic sanctions against Iraq as punishment for its slaughter by poison gas of thousands of Iraqi Kurds. The following summer, Saddam invited Wiley to Baghdad. Wiley and a small group of executives representing select forum members were granted a chance to meet the Iraqi president. At the time Saddam agreed to sit with Wiley's delegation, Iraq was suffering cash-flow problems due to its credit-driven military buildup. For months, Baghdad had been trying to diversify its sources of Western credit. Obviously, it was pleased with Christopher Drogoul. But he couldn't be expected to handle all the new projects Iraq hoped to undertake. BNLAtlanta was being bombarded with proposals for truck plants, aluminum smelters, power-generating plants, and other big-ticket items. It was overwhelming. The U.S. Export-Import Bank had helped in the past, but couldn't be counted on to cover many major deals either. So by 1989, Sadik Taha and other Iraqis began pressing Drogoul to deliver a plan to establish a new Iraqi-owned bank in London. The idea was to model it after BCCI. It would be chartered in Luxembourg, where regulations were almost nonexistent, and run from London. Drogoul understood that he would be offered a position there. Amer al-Saadi, the powerful manager of Iraq's missile and poison-gas development programs, pushed Drogoul to submit a proposal in April 1989. But the harried Atlanta banker never got around to it. He was just too swamped with loan requests. Others, including the wealthy Jordanian financier Wafai Dajani, were cooking up their own creative ways to supply Iraq with new Western credit. Drogoul told the FBI that Dajani envisioned an industrial fund that would provide credit secured by oil receipts. His plan, sketched in a November 1988 telex, called for a consortium of U.S. banks, led by BNLAtlanta and First City Bank of Houston, to lend $2 billion. Dajani hoped to enlist Drogoul and Robert Abboud, the chairman of both First City and the U.S.-Iraq Business Forum. Toward the end of 1988, Dajani tried to play matchmaker between Abboud and Drogoul, but the plan fizzled. Drogoul said Dajani pushed the idea because he wanted other financing options for his deals with Iraq. The Jordanian was quite persistent. At one point, Drogoul received a telephone call from Odeh Aburdene in First City's London office. After Drogoul ignored the message for a time, Dajani called him to urge him to return the call. The Iraqis wanted Drogoul to approach Abboud directly, according to Drogoul's later statements to the FBI. He said he once called Abboud to set up a meeting, but never went. According to Von Wedel, Drogoul's trip was derailed by a freak accident in the driveway of his Avondale Estates home. Von Wedel said Drogoul canceled his planned trip to Houston after he had backed over his son's foot in his car. Robert Abboud told Reuters in 1991 that he'd never heard of the proposed industrial fund and that he'd never met Dajani. "Mine is a well-known name and people can use it liberally around the world to try to promote something," he told the news service. "That doesn't mean I had anything to do with the fund, or ever authorized the use of my name. I can tell you categorically that I don't know these men. I never met them, and First City had nothing to do with them." While Iraq was searching for immediate new Western credit lines in 1989, it was also considering ways to restructure its overall debt. Wiley cited estimates that Iraq owed about $80 billion, including $35 billion in "hard" debt to trading partners in the United States, Europe, and Asia that needed to be repaid. "The balance," Wiley explained, "is 'soft' debt to the oil-exporting Arab states pursuant to loans which most analysts believe were understood by all parties as 'de facto' grants which will never be repaid." One of the purposes of Saddam's invitation to Wiley and his delegation in the summer of 1989 was to hear debt-restructuring ideas from sympathetic Westerners. Abboud attended the meeting, as did Alan Stoga, the economist from Kissinger Associates. "The Iraqis specifically invited Stoga to come," Wiley told journalist Kenneth Timmerman. "Kissinger later tried to claim that Alan only went as an observer, but he got into the nitty-gritty of debt rescheduling and trade financing with foil minister] Saddoun Hammadi and Saddam." Apparently the U.S.-Iraq Business Forum was impressed by Stoga's expertise. When the group held its annual symposium on November 14, 1989, in Washington, D.C., Stoga was invited to sit in as one of three panelists to discuss the "economic aspects of financing trade and investment with Iraq." By 1988, General Motors Corporation was conducting its own private search for funding for the sale of five thousand cars, plus spare parts, to Iraq. BNL-Atlanta made a financing proposal, but GM turned it down in favor of Manufacturers Hanover Trust Co. Senior BNL officials in Rome later claimed that the car maker chose Manufacturers and its rather steep terms after it developed suspicions that BNL-Atlanta was operating "in a manner inconsistent with proper banking practices." But by early 1989, GM was eager to give BNL-Atlanta a second chance. It was working on a deal with the Iraqis that would make the 1988 contract for $77 million seem modest. GM wanted to ship ten thousand Oldsmobile Ciera cars and build a truck plant in Iraq for a combined total of more than $700 million. Drogoul and Von Wedel soon realized that both the Iraqis and GM had targeted them to do the deal. Like Iraq, the Detroit automaker knew the power of Drogoul's signature and his notorious willingness to supply it. The Iraqis had been pressuring Drogoul to make a fourth medium-term loan (MTL) agreement, and in April he relented. MTL-4 was the last and largest of the giant unsecured credit lines BNL-Atlanta gave Iraq. It provided $1.155 billion. Drogoul later testified that the credit was "framed around the General Motors project, in large part." When the Atlanta bankers traveled to Baghdad for Saddam's arms fair in late April 1989, GM executives pounced on them. Von Wedel recalled that Raja Hassan All led them into a room with three General Motors executives. The Iraqis had apparently agreed to pay GM a whopping $154 million for the Cieras, nearly twice the going export rate for the autos. Von Wedel said he understood the windfall to be an Iraqi down payment on the truck plant. He wasn't impressed. "I told them we wouldn't do it," Von Wedel said. "They were shocked. They were saying, "You can't talk to GM like that." " GM records also indicate that Drogoul and Von Wedel were cool toward being collared at the last moment to finance a deal for nearly three quarters of a billion dollars. According to GM, the bankers told the company that the credit would have to be approved by BNL-Rome, because Rome had been "insulted" by GM's decision to reject its offer to fund the 1988 deal. While the Atlanta bankers were meeting with GM in Baghdad, a BNL-New York official told a GM treasury executive the same story: BNL-Rome would have to approve the deal. Furthermore, the GM official in New York was told that the approval from Rome was "at best, highly unlikely." But GM wasn't willing to let the matter drop. Rather, it rammed the super-profitable Ciera deal through before BNL-Rome woke up to what was happening. The company simply limited its negotiations to Drogoul and Von Wedel, who were quite experienced at operating independently of Rome and tended to give in to pressure. They put the transaction on their "gray book." GM didn't care how the bank booked it as long as it got its money for the Cieras. BNL-Rome later complained that GM had avoided contacting anyone at the bank outside Atlanta so as not to disturb the extraordinarily favorable terms the Atlanta bankers had granted. But GM officials characterized their dealings with Drogoul and Von Wedel as "tough, commercial negotiations." The company said it never had reason to believe the Atlanta bankers lacked authority to make the funding commitment. It demanded that BNL honor their signatures or risk injuring the bank's "reputation and standing in the worldwide financial community and its ability to attract multinational customers." BNL-Rome eventually paid up and the cars went to Iraq. This wasn't the first time GM products found their way to Iraq thanks to BNL-Atlanta financing. Hughes Aircraft Company, a GM subsidiary in California, manufactured key components for the night-vision equipment found on Iraqi tanks captured after Operation Desert Storm. Hughes had sold the components to Delft Instruments, a Dutch company. Delft, in turn, sold the items to the Iraqis for $27.8 million and delivered them to Iraq and Jordan--Iraq's wartime ally--in three shipments. The third shipment went to Jordan in December 1990, just as coalition troops were preparing for Operation Desert Storm. Delft admitted that it should have obtained a U.S. export license before exporting the components to the Middle East. But it didn't. BNL-Atlanta financed the sale from Delft to Iraq. Drogoul was later indicted in the Ciera deal for defrauding BNL and in the night-vision equipment deal for money laundering, but both counts were later dropped. Delft pleaded guilty to export violations in 1992 and agreed to pay a $2.5 million fine for reshipping U.S.-made equipment to Iraq. General Motors wasn't charged with wrongdoing in either case. In September 1987, Dr. Richard Fuisz of Chantilly, Virginia, was invited to tour a manufacturing plant in Mother well, Scotland, owned by the Terex Corporation, a heavy truck unit General Motors had divested a year earlier. Fuisz was an old hand in the Middle East, with excellent contacts in Syria and Saudi Arabia. Trained as a medical doctor, he was an inventor, a trader who spoke Arabic, and according to court documents, a man who had access to classified U.S. intelligence on unspecified other matters. He wanted to look over the Terex trucks with an eye toward some future deal. Fuisz would later testify to Congress that as he entered the Scottish factory, he was amazed to see two immense all-terrain vehicles painted in light desert camouflage. Their tires were some ten feet in diameter. Oddly, Fuisz claimed, the trucks' hauling bins had been replaced by flat sheets of steel, which had several drilled holes. When he asked what the vehicles were for, Fuisz testified, the plant manager calmly told him that they were "missile launchers for the Iraqi military." According to Fuisz's testimony, he asked his hosts at the plant whether they had legal difficulties selling military items to Iraq. Fuisz quoted the plant manager as saying that there was no problem as long as you knew the trick. Fuisz said the manager told him: "You modify a portion of the serial number to make it look like a civilian mining vehicle." Fuisz asserted that the owner of Terex, Randolph W. Lenz, was present when the plant manager made his comments about the camouflaged vehicles and the exporting trick. Fuisz testified that he was puzzled by the episode at the Mother well factory, particularly after he met Lenz for dinner in London a few days later. "Over dinner, [Lenz] told me he was doing work for the American government and was a hero but that he could not talk about it," Fuisz said, adding that Lenz had underscored the fact that he had acquired Terex from General Motors. Terex was a subsidiary of KCS Industries Inc. of Westport, Connecticut. The plant in Scotland was owned by a Terex subsidiary, Terex Equipment Ltd. (TEL). Terex vehemently denied Fuisz's account, given in written and oral testimony before a congressional committee. The company sued Fuisz for libel, along with Seymour Hersh, a Pulitzer prizewinning reporter who reported Fuisz's account in The New York Times. But Fuisz refused to back away from his story. Rather, he continued to underscore the potential significance of what he said he saw. During the Gulf War, Iraq converted as many as 225 giant trucks into mobile missile launchers. Such converted trucks might also have been used to launch missiles at Iran in the waning months of the Iran-Iraq War. Fuisz had no written evidence that one single Terex truck was ever converted. But he told Congress he'd seen with his own eyes that they had been. Telexes and Customs documents showed that Terex trucks were sold to Gatewood Engineers Ltd. of Buckinghamshire, England, for export to Iraq along with dumpers from Rotec Industries Inc. of Elmhurst, Illinois. BNL-Atlanta financed many of the shipments. A Terex attorney tried to clear up the matter in a letter to Democratic Congressman Charlie Rose of North Carolina. "At no time has Terex or any of its subsidiaries .. . been part of any illegal military sales network that armed the Iraqi war machine," Marvin Rosenberg wrote on June 25, 1992. In 1988, our subsidiary, Terex Equipment Ltd .. . sold 10 dump truck chassis manufactured in its Mother well Plant, to a distributor of its products, Gatewood Engineers Ltd.. .. Gatewood sold those chassis to Iraq, and we believe also arranged for the sale to Iraq of cement mixing apparatus to be mounted on these chassis in Iraq. The cement mixing apparatus was manufactured by Rotec Industries.. .. Our U.K. subsidiary, TEL, merely sold a product to its distributor and was paid by the distributor in the U.K. But a confidential U.S. State Department telex from June 1989 listed "81 U.K.-made Terex dumpers equipped with Detroit diesel engines" in its inventory of heavy equipment at the Badush Dam project. Fuisz's version of events was partially supported by a statement submitted to Congressman Rose's subcommittee by John J. Clements. An old business associate of Fuisz, Clements had worked for Terex president Randolph Lenz at KCS Industries Inc. from March 1987 to September 1988. Clements's statement said that when he arrived at KCS, a company Lenz controlled had just acquired Terex and was poised to buy its Scottish subsidiary, Terex Equipment Ltd. (TEL), from General Motors. The Lenz company bought TEL on June 30, 1987. In his statements, Clements said TEL had conducted business with Iraq "before, during, and after" he worked with Lenz at KCS. Clements told Rose that in the spring of 1987, when Lenz was seeking financing to buy TEL, both Lenz and another Terex executive "spoke in positive terms of a purchase order from Iraq of 90 to 100 units." He said it was stated that the Iraq business was "credit-risk free" and that "the prospect for future reorders was enhanced by the continuance of the military conflict between Iran and Iraq." Clements said Woody Baldus, the head of another Terex subsidiary, told him that the two trucks Fuisz saw were "isolated units built as special prototypes and that U.S. government investigators had verified this fact and that other units shipped to Iraq for the Badush Dam project were similarly cleared." After listening to Fuisz's story about his factory tour, Congressman Rose asked: "Would you think there would be a need to put camouflage on cement mixers?" "No, I would not," Fuisz replied. Chapter 7 EVERY MAN FOR HIMSELF "How can anyone lend guidance to people who evidently do not want to be guided?" --Luigi Sardelli, BNL regional manager for North America, 1987-89 ' .S. Senator Wyche Fowler always called Jean Ivey on her direct line, but when she was busy, the calls rolled over to the BNL-Atlanta receptionist. This triggered idle office gossip and some anxiety. Drogoul and Von Wedel wondered whether she was tipping off the senator about the "gray book" loans to Iraq. Ivey didn't seem to mind being associated with the divorced first-term Georgia Democrat. Some of her co-workers thought she wore the label of "Wyche's girlfriend" as a badge. Tall, slender, and blond, Ivey had cover-girl looks. She once studied ballet and could turn on the sweet Southern charm. Ivey's closest friend and confidante was Mela Maggi, a high-strung, red-haired woman who was nearly a foot shorter than Ivey and somewhat stout. Maggi was prone to expletive-laced outbursts. Normally, she used her office telephone as a link to world money markets, where she borrowed billions of dollars for the bank. But when things weren't going well, the telephone doubled as a missile hurled across the room at a cowering coworker. Ivey and Maggi were the sharpest dressers in the office, and they treated certain other coworkers with cool condescension. Although they often clashed with people on the staff, they seemed to operate as a harmonious pair. "They practically went to the bathroom together," said one colleague who failed to win their approval. Maggi was the bank's first-string money trader. Ivey was her understudy. They used BNL's triple-A credit rating and their multipurpose phones to borrow on the world credit market. This made them indispensable. If Drogoul was the brain behind the Iraqi loan scheme, Maggi and Ivey were the heart. The money they borrowed was its lifeblood. Drogoul had worked with Ivey at Barclays Bank in the early 1980s. He said there was brief spark of romance between them, which quickly flickered out. "When I first saw her, she reminded me of Botticelli's Venus," he said. "We were walking down the street one day and she said, Tm attracted to you." This kind of thing had never happened to me before. I never thought of myself as an attractive person. We went out two or three times and that was the end of it. Jean really wasn't my type." While Drogoul claimed they had a brief romance, Ivey denied they'd even dated. "I would say we saw each other socially," she said. "I would say we were friends." In any case, Drogoul recruited her to BNL in May 1982. Maggi had been hired in October 1981, shortly before Drogoul arrived. For a few years, Drogoul spent much of his typical day in Atlanta talking business with Ivey and Maggi. They took long lunches together, leaving the rest of the staff groping for direction. Both women were bright and able. Drogoul seemed to be going places in international banking, and they were eager to hitch their careers to his rising star. But the easy camaraderie between the three gradually dissolved over the Iraqi business. The problem was it required far more effort to fund the loans to Iraq than it did to grant the loans. Drogoul had the easy part: He handed out the money. The women had the hard part: They rounded up the money for him to pass out. Ivey and Maggi resented the casual way he dumped more work on them. Drogoul responded to their growing edginess by withdrawing from them. The more he took them for granted, the more resentful they became. In 1988, Drogoul aggravated matters by making Leigh Ann New, an attractive trainee in her early twenties, his confidante. New's office was directly across the hall from Drogoul's. She served as his unofficial "gatekeeper." Although Ivey and Maggi were scrambling furiously to raise money to sustain Drogoul's scheme, they no longer had direct access to him. If they wanted to see the boss, they had to--figuratively, at least--take a number and wait. One morning New arrived at work to find a pool of clear oil on the hardwood floor beneath her desk. Furious, she ran to Therese Barden and brought her over to take a look. Apparently, someone hoped New would take a spill or mess up her clothes. If this was a practical joke, New wasn't amused. People at the bank jumped to the conclusion that Ivey was to blame for the incident because of her known dislike for New, but no one really knew. Ivey's coworkers also gossiped about her relationship with Senator Fowler and what she did or didn't tell him about the Iraqi loan scheme. Ivey later recalled that an attorney for the bank even confronted her about it, perhaps because he'd seen a picture of her and Fowler that a local restaurant proudly displayed for its customers. Fowler down played his friendship with Ivey, but federal prosecutors said the couple dated from 1985 to 1990. The senator described her as "an energetic campaign worker during my race for the Senate in 1986." He said she never discussed her employment at BNL or told him about schemes the bank was running. But Assistant U.S. Attorney Gale MCKenzie stated in court that Ivey wasn't completely silent with him about her work. "[Ivey] did tell him she was looking for another job because she was working with a bunch of dishonest people at BNL-Atlanta and they were doing a lot of business with Iraq," McKenzie said. According to McKenzie, Ivey said she carefully avoided telling Fowler the exact nature of the Iraqi lending scheme. Presumably, she would have had to remain constantly on guard, because Fowler had an interest in Iraq. He traveled there on "official U.S. Senate business" in March 1989, at the peak of Drogoul's lending frenzy. Also, as a member of the Senate Agriculture Committee, he might have taken an interest in BNL-Atlanta's role as the leading U.S. bank in funding wheat exports to the Soviet Union. In any event, Fowler's relationship with Ivey seemed to stand the test of time. Meanwhile, Ivey's relations with Drogoul soured. He forced Ivey and Maggi to work harder and give up power. The women couldn't help notice that they were being pushed aside. They also sensed that Drogoul had lost control of the Iraqi operation and that he lacked the resolve needed to avoid total disaster. Once their mentor, he was now becoming a threat to their careers. The women grew closer as their resentment toward Drogoul mounted. Each new loan to Iraq amounted to a technical challenge for the money traders. Drogoul either did not understand that fact, or he refused to face it. The main problem was that the Iraqi loans had terms of several years, while the interbank market offered short-term loans--often for a week or just overnight. That meant that if Iraq borrowed $5 million for five years, Ivey and Maggi had to reborrow the $5 million again and again. By 1989, they were borrowing hundreds of millions of dollars every day. They accomplished this feat by turning to money brokers in New York, who searched the world for the cheapest short-term money available. The pace of the borrowing wasn't the only problem. Once the bank began hiding its Iraq loans, Ivey and Maggi had to hide all evidence of funding for those "off-book" loans. It got very complicated. They had to set up their own dual accounting system for money they borrowed--one account for "off-book" funding, and a second for the funding of the bank's regular business. Maggi referred to money borrowed to fund "off-book" loans to Iraq as "Perugina," a popular Italian candy. Money borrowed for normal loans reported to regulators was called "not for "Perugina." " The New York brokers--including Fulton Prebon (USA) Inc." Euro Brokers Inc., Lasser Marshall Inc." and Tradition Berisford L.P.--helpfully agreed to send separate bills for the "Perugina" funding. But the brokerage firms did not necessarily know that they were separating BNLAtlanta's gray book business from its unhidden business. As one broker testified in Atlanta, brokerage firms commonly separate clients' billings at their request without probing the reason for the separation. Ivey and Maggi managed their dual books with fatalistic good cheer. The inscription on the code book used to separate "Perugina" from non-Perugina read: "When you don't know what you're doing, do it neatly." Naturally, Ivey and Maggi were not overjoyed each time they learned that Drogoul had extended another loan to Iraq. The agricultural loans guaranteed by the Commodity Credit Corporation were challenging enough. But in February 1988, Drogoul and Von Wedel had granted the Iraqis a fresh $200 million credit line, the first of four increasingly larger credit lines that added up to $2.155 billion. This exponential rise in credit to Iraq made life very difficult for the money traders. Maggi worked extraordinarily long hours and seemed pressured. She began borrowing in the middle of the night from places like Singapore. Although she was quite small and stylishly dressed, she could be physically intimidating when she flew into one of her rages. "She threw phones, calculators, books, almost anything," said one former coworker. "If she was big enough to throw people, she would have." Drogoul certainly didn't try to cross her. When she demanded a car phone for her Cadillac so that she could borrow on the way to and from work, one was quickly installed. Maggi and Ivey had no time for a life outside work. Yet they weren't even appreciated for their herculean efforts. Late one afternoon in the spring of 1989, Ivey heard Drogoul bad-mouthing Von Wedel in Maggi's office. Ivey was no fan of Von Wedel, but in her view, he was not the real problem. Chris Drogoul was the problem. He was the one who didn't have the courage to say no to the Iraqis. So she challenged her boss face to face. "You have placed people in awkward positions, in stressful positions. What can you expect?" Her outburst left Drogoul speechless. "It's your fault," she continued. "It's because this Iraqi situation exists." Ivey stomped out of the room before he could find words. "The Iraqi loans are none of your business," he said finally, loud enough for her to hear from the hall. "You need to keep your nose out of it." Drogoul retreated to his office, but Ivey wasn't through. She followed him there and challenged him again. "It is my business. People in this office are suffering. People's lives are being ruined, and for that reason it is my business." Drogoul looked at Ivey with a blank stare and then asked, "Could you have a cup of coffee with me downstairs?" It was near closing time, so she took her purse and they rode the elevator to a restaurant in the lobby. Drogoul couldn't talk long because he had a five-thirty appointment outside the bank. Desperate to smooth things over and--as usual--pressed for time, Drogoul decided to give Ivey a quick lesson in his Iraqi business. He drew three boxes. The first represented agricultural products, grains, sugar, cooking oils, and the like. The second represented machinery, trucks and bulldozers Iraq wanted to rebuild after its long war with Iran. The third box represented weapons. "We've gotten through the first box, and we're going through the second phase of the second box, and now we're going to enter the third box." Ivey just listened. Drogoul referred to the Iraqis as "they" and BNLAtlanta as "we." But she was feeling less and less like a team member. "They are ready to enter the third box and do approximately six or seven billion [dollars] of business," he said. "That's a lot of cash to be coming into your bank," Ivey answered, knowing she and Maggi would be asked to raise it all. Drogoul tried to explain that things would soon be different. The Iraqis, he said, were planning to open a bank in London that would greatly ease Atlanta's burden. But Ivey had passed the point where she could be placated by pep talks. Like Jean Ivey, Paul Von Wedel had a rich network of banking associates in Atlanta and beyond. He was good at making friends, and his status as BNL-Atlanta's resident professional on export letters of credit made him a useful man to know. The job gave Von Wedel prestige, allowed him to see the world, and introduced him to an exciting crowd. It also let him buy his dream home in Stone Mountain and daydream about owning a Maserati. But his life was more than his work, more than cutting secretive financial deals. He had a supportive wife and family, and would have been just as happy operating a music store or eking out a living as a cabinet builder, which is what he eventually became. After graduating from high school in Brooklyn, the seventeen-year-old Von Wedel went to work for Chemical Bank in New York. He stayed there from 1955 until 1974, when he packed up and moved south for a job at what was then Georgia's largest bank, Citizens and Southern National. He'd learned the ropes of agricultural export finance at Chemical and he stayed in the same field in Atlanta. The rough-cut New Yorker fit in with a circle of international bankers at C&S that included Vince Cater, Bill Arnold, Mike Baldwin, and the bank's outside lawyer, Cecil Phillips. These men remained important members of his business network throughout the 1980s. Von Wedel had also developed friendships with subordinates at C&S, and he recruited several of them to join him at BNL when he worked there in 1982, including his assistant, Brenda Forrest. Tom Fiebelkorn, Therese Barden, and Mela Maggi had also worked at C&S. Von Wedel stayed close to Vince Cater throughout BNLAtlanta's Iraqi lending spree. According to a former banker who knew them both, the two met for lunch as often as once a week. Cater had left C&S to run the international department at National Bank of Georgia in 1982, when it was closely associated with BCCI. Bill Arnold, another Von Wedel buddy at C&S, left Atlanta for Houston and the international division at Texas Commerce Bank, where Cater's brother happened to be a senior officer. In the early 1980s, the Reagan administration snapped up Arnold for a top job at the EXIMBank. Von Wedel kept in touch with him by phone. The EXIMBank sometimes referred customers to BNL-Atlanta when it couldn't handle an export deal to Iraq. Von Wedel said his ties to Arnold were a prime reason. In the late 1980s, Arnold returned to Houston to become an executive at First City Bank, under chairman Robert Abboud. Von Wedel also kept up with Cecil Phillips, an outside attorney for C&S during the 1970s. An urbane, soft-spoken man, Phillips became an aide to Georgia Governor George Busbee in 1979, then set out on a highly successful career as a real estate developer, banker, and exporter. His association with Von Wedel helped him obtain at least $40 million in financing from BNL-Atlanta for deals with Iraq. In 1986, the year the branch began its "gray book" record-keeping, Phillips opened an export company, called Foodline Corporation. Over the next three years, it exported $77 million in food products to Iraq under Commodity Credit Corporation loan guarantees. About one third was financed by BNLAtlanta. Phillips even hired Brenda Forrest, Von Wedel's assistant in BNL's letter of credit section, to moonlight for him at Foodline. When Drogoul found out that Forrest was working on the side for Phillips, he asked her to stop. But he wasn't good at putting his foot down. Drogoul said Forrest told him she wouldn't quit her second job unless BNL made up what she'd have to give up in pay. After negotiating with her, he agreed to pay "about $5,000 short of what she wanted" in a bonus for 1989. Phillips was quick to react when BNL-Atlanta moved into financing industrial and military products. Another of his companies, Pacific Export Company, claimed a commission for arranging a $14 million shipment of steel to Iraq from Arbed, a Luxembourg steel giant. Phillips said he strictly avoided exporting products that Iraq might use for its military. He said he was confident the Arbed steel, which was financed by BNL-Atlanta, was used for civilian purposes. However, he did recall that a stranger once asked him to line up export financing for a wireless communications system with obvious military uses. The man, who spoke with a British accent, promised to deliver all necessary export licenses from the U.S. departments of Commerce and State. "It was clear as a goat's nose within three minutes he was interested in what were euphemistically called 'dual-use' items," Phillips said. Did Phillips ever play the dual-use game? "Some of our chickens may have ended up in the stomachs of Saddam's soldiers," he said, "but I always made it clear we weren't interested in financing dual-use items." Aware of their differences in style and areas of expertise, Drogoul and Von Wedel were often content to work independently of one another. But sometimes the two worked in harmony toward the same goal. Such was the case when they figured a way to profit personally from a huge corn deal BNL-Atlanta was financing for Entrade in 1986. The well-connected Von Wedel had another old buddy from his C&S days, Mike Baldwin, who happened to work as a consultant to Entrade's parent company, the giant Enka Holdings of Turkey. Drogoul later claimed that Baldwin brought BNL and Entrade together, but Von Wedel denied it. The Entrade shipment involved 100,000 metric tons of corn. The freight and re bagging costs alone exceeded $8 million. Prosecutors later alleged that although that sum was due to Entrade, Drogoul diverted $957,167 of it to a bank account in Luxembourg. Drogoul and Von Wedel planned to split the money equally with Entrade's president, Yavuz Tezeller. One day early in 1987, Von Wedel announced that he wanted to buy a house with a pool out back. He said he'd set a closing date and he wanted to pay cash. So the money was circuitously wired from Europe to his Atlanta real estate broker's account, and he bought the home. Drogoul, careful not to make displays of unexplained wealth, used his share from the corn deal to pay for renovations on his brick ranch home in Avondale Estates. He satisfied himself with the neighborhood pool. But over time, prosecutors alleged, Drogoul found ways to skim many times the cut he took from the Entrade corn deal. And he didn't have to share any with the prickly Von Wedel. Drogoul's chance for big personal profits came when Enka lost out on export financing guaranteed by the Turkish government. Up until March 1988, Turkey had shouldered the credit risk on Enka exports of industrial and consumer goods to Iraq. When the program ran dry, Enka needed a bank willing to fund the trade without government cover. Tezeller went to Drogoul. It was very risky business, but the Turk was offering a special inducement: Drogoul would personally receive 15 cents of every dollar BNL-Atlanta funded. "I authorized Yavuz Tezeller to offer 15 percent to get the financing," said Engin Bora, president of Enka Parzalama, another Enka unit. "Christopher Drogoul would be paid 15 percent of all our transactions." Bora said BNL-Atlanta proceeded to finance deals worth about $44 million for Entrade. As agreed, Bora said, $6.6 million accumulated in a European account that Tezeller controlled for Drogoul. By that time, Drogoul and Tezeller had become fast friends. During the summer of 1988, Drogoul spent weekends at a vacation home Entrade rented in Southampton, Long Island. His growing family hung out there for much of the summer. In 1989, according to prosecutors, Entrade picked up a $15,000 tab for a vacation the Drogoul family took to Martinique. As the Iraqi loan scheme advanced, Drogoul began to suspect that operatives for U.S. intelligence were watching his every move. A number of bank customers and visitors claimed to have intelligence backgrounds, but it was hard to know for sure who was actively working as a spy. Would true spies wear their profession on their sleeve the way Dale Toler did? Jean Ivey first met Toler in the summer of 1988 at a restaurant in Arlington, Virginia. He preferred to meet there rather than at his company, RD&D International, which was said to be a few miles away in Vienna. He was angling for an unsecured $350,000 line of credit from BNLAtlanta. Bankers usually like to see a place of business before they hand over so much money, but Toler was pressed for time. "He said he had to drop something off, or for some reason he was going to be going towards Arlington and he would just meet me in Arlington," Ivey said later. Von Wedel had asked Ivey to stop in on Toler after the Iraqis informed BNL that they had arranged a $3 million loan for him at the bank. The loan carried a hard-to-get guarantee from the EXIMBank. At their first meeting, Toler bragged to Ivey that he'd led a life of intrigue and excitement. He revealed that he had a security clearance and once trained fighter pilots. Before long, he began showing up at the bank in Atlanta. Toler tried to cultivate relationships with Drogoul and Von Wedel and tantalized them with hints he had links to the intelligence community. The bankers weren't sure whether to believe him or write him off as a harmless exaggerator. Despite their questions about Toler, they granted his request for a $350,000 line of credit. Afterwards, Toler became even more bold. He tried to get BNL to advance him $200 million for a shipment of Chrysler automobiles to Iraq, but Drogoul declined because the Iraqis seemed to prefer GM. Drogoul tended to believe Toler's claims about being cozy with U.S. intelligence, but he took comfort in assurances from Raja Hassan All , the senior financial official in Iraq's procurement ministry, that it didn't matter. All said U.S. and Iraqi intelligence services worked together and didn't interfere with each other. If that was so, it meant Drogoul didn't have to lose sleep over people like Chap Chandler either. Chandler was a former executive at Southwire Company in Carrollton, Georgia, and a family friend of Leigh New, Drogoul's intense young assistant. Southwire, one of the nation's chief cable manufacturers, was the largest industry in the small town about thirty miles southwest of Atlanta. The company employed some three thousand people and reported annual sales of more than $1 billion at home and abroad. In January 1989, several years after he'd retired from Southwire, Chandler sent Drogoul a fax at BNL. Drogoul later testified that New immediately recognized the sender. "Oh, Chap Chandler is a friend of mine," New told Drogoul. "He lives next to my family in Carrollton. His company, Continental Concepts, is a front for the CIA. He had previously asked me to work for him, but I didn't for a variety of reasons. He is faxing this request to you to obtain credit in connection to export sales to Iraq...." Chandler remembered contacting Drogoul. "I rolled him a fax about selling raisins to Turkey," he said. However, a letter Drogoul sent to Chandler dated January 12, 1989, in response to the fax, didn't mention Turkey, or even raisins. "Thank you very much for your fax dated 4th January 1989 requesting our assistance in connection with your company's export of asphalt equipment to Iraq .. . ," Drogoul replied. According to Drogoul's testimony, he became really curious after New mentioned that Chandler knew Wafai Dajani. Why he wondered, would a retired businessman from a small town in Georgia know such a high-rolling Jordanian middleman? "So in my next meeting with Mr. Da jani," Drogoul said later, "I indicated that I had been contacted by Mr. Chap Chandler, and Mr. Dajani said, "Yes, I'm aware that Mr. Chandler works for the CIA and his interest--his principal interest--is now in Libya." " Chandler denied that he'd ever worked for the CIA or that Continental Concepts had agency ties. He said the company exported raisins and cigarettes to Taiwan. During his twenty-four-year career at Southwire, Chandler had traveled to the Soviet Union, Venezuela, Japan, and the Middle East. He said he was an engineer who had supervised the construction of aluminum plants for the company in Kentucky and the Middle East. He acknowledged that he'd known Dajani for some twenty-five years. "When I met him, he was in a partnership with Ghaith Pharaon," Chandler said, referring to the Saudi businessman who was indicted in the BCCI scandal in connection with his activities as the owner of National Bank of Georgia. Chandler said he, Dajani, and Pharaon had approached the Saudis years before seeking permission to build an aluminum plant in Saudi Arabia. That deal didn't materialize, he said. "I think he's a pretty high player .. . with good [Washington] D.C. connections," Chandler said of Dajani. "He knew key people, State Department people." Drogoul recalled meeting Chandler years before when he (Drogoul) was a lowly assistant vice president at Barclays Bank. Drogoul said his former boss at Barclays, David Burke, instructed him to go to Southwire on behalf of a Barclays customer named Charles Chidiac. Chidiac was a Lebanese businessman who tried to line up foreign contracts for Southwire. Chandler, then Southwire's vice president for export sales, was the man who paid Chidiac commissions before he retired in about 1986, Drogoul recalled. Drogoul said he had met Chandler at Southwire. Chandler said he did not recall ever having set eyes on Drogoul. As for Leigh New, Chandler said she was just a nice Carrollton girl who grew up with his sons. Leigh New landed her BNL job in 1987 through an employment agency. She was in her early twenties, quite small and pretty, with streaky blond hair. At first, Von Wedel placed her in the letter of credit department. She caught on quickly and soon replaced Pam Prosser, who left BNLAtlanta to work for Yavuz Tezeller at Entrade in New York. In 1988, when Von Wedel got fed up with the Iraqi loan paperwork and in a huff dumped piles of records in Drogoul's office, the boss asked New to take it over. From then on, New processed the Iraqi documents. In just over one year, the hardworking young trainee had risen to a very powerful position. She served as the gatekeeper who protected Drogoul from his volatile but vital money brokers and as the clearinghouse for technical information on the office's most sensitive loans to Iraq. Von Wedel began to treat her with suspicion. In February 1989, Drogoul ordered New and Amedeo DeCarolis, the young accountant, to fly to Baghdad, ostensibly to reconcile BNLAtlanta's "gray book" with records at the Central Bank of Iraq. DeCarolis, also in his twenties, was by then the only Italian at BNL's Atlanta branch. He'd come to the United States with his parents as a child, graduated college, and gone to work at a restaurant. Drogoul hired him after they met at an Italian business convention. On their way to Baghdad, New and DeCarolis found themselves stuck for a long layover at Heathrow Airport in London. They'd planned to fly directly from London to Baghdad, but the Iraqi Airways 747 that was to carry them had mechanical problems. To DeCarolis's surprise, New suggested that they give Wafai Dajani a call. "I'd never met him before," DeCarolis said. "I had the impression she [New] knew him." Gracious and urbane, Dajani invited the two to his finely appointed London town house, which looked out over a beautiful garden in the back. Dajani and his wife led their guests on a stroll through a nearby park and then took them to lunch. Afterward, Dajani tried to squeeze the Atlantans onto a Jordanian plane for Amman; from there, they could easily hop a plane to Baghdad. But the Jordanian plane was said to be full, so they settled for an Iraqi flight a few hours later. They arrived in Baghdad after midnight without visas, but were quickly whisked off to the Rasheed, the best hotel in the capital. That afternoon they met Raja Hassan All, the chief finance man for Iraqi arms procurement. His office was in a concrete building surrounded by bunkers and guards with rifles. All was a smallish man in his forties, chubby and balding. DeCarolis recalled that he wore a green shirt with epaulets on the shoulders. He spoke excellent English and seemed particularly interested in a proposed $600 million truck plant General Motors hoped to build in Iraq with BNL-Atlanta financing. He directed his remarks to New, who was familiar with the details. That evening, All took his guests to dinner with a man dressed in full military garb who acted like Ali's superior. "They hit Leigh again with the GM stuff," DeCarolis recalled. The following morning, New and DeCarolis went to the Central Bank of Iraq, a ten-story building that still showed the effects of a bomb from the Iran-Iraq War. In their meeting with the Iraqis, New once again took the lead. DeCarolis began to wonder whether the reconciling of BNL's books was a side issue of less importance than the GM deal. It occurred to him that he probably could have accomplished the reconciliation with the exchange of several overnight mail packages. He felt like a fifth wheel in Baghdad. "Only Leigh knew the answers to their questions," DeCarolis said. "Everything went through her. She looked like she was in charge. It looked like she was made to work with high-level people." For her services to Iraq's secret financial pipeline, New received a diamond necklace from Saddam Hussein. Apparently, she preferred cash. Drogoul told investigators that she told him she sold the necklace in Geneva for about $10,000. Chris Drogoul didn't believe it paid to obey the letter of regulations handed down from bank headquarters in Rome. Technically, he was supposed to operate within strict lending limits and obtain advance written approval from Italy for all big loans. But he was also expected to make a profit. Those expectations were in direct conflict. Even in routine cases, Rome took many weeks to grant approvals, seemingly oblivious to the fact that borrowers had deadlines. To win business and earn profits, Drogoul had to be quicker on his feet. So he began committing large sums before getting written approval. For example, when R. J. Reynolds Inc. invited BNL-Atlanta to provide part of a large credit line, Drogoul agreed before RJR's deadline and obtained formal approval from BNL ten weeks later. He later claimed that he checked with a BNL officer in New York before taking the plunge, saying the officer "suggested that $50 million might be the appropriate level of commitment." Drogoul interpreted that unofficial comment as a green light. He said all branch managers were frustrated by Rome's slow approval process. Committing the bank without formal approval was a "general way of operating." If Rome or New York objected, they rarely said anything. Drogoul grew lax about obtaining even verbal approval before granting huge loans, and he routinely let companies run way over their formal credit lines. His first big problem cropped up in 1985 when reports showed that Iraq's Rafidain Bank had exceeded by $23 million its approved $100 million credit line at BNL-Atlanta. Rome confronted Renato Guadagnini, the bank's North American regional manager. Guadagnini sat Drogoul down and instructed him to get rid of the excess. He didn't say how. For a while, the BNL-Atlanta staff took the excess credit balances off the official books at reporting time at the end of each month, then put them back a few days later. That solved Guadagnini's problem. But it was cumbersome, particularly in early 1986 when Iraq borrowed hundreds of millions of dollars over the credit limit to import grain. That was when the Atlanta staff decided to remove the over-line credits permanently and create the "gray book." Auditors and examiners weren't allowed to see it. When Guadagnini was in charge, BNL's North American regional headquarters in New York didn't present much of a problem. He was a grandfatherly type who'd given Drogoul his chance to run the Atlanta office and treated him almost like a son. But in the summer of 1987, Guadagnini retired from the bank. His replacement was a terror named Luigi Sardelli. The new man was a banking purist with an imperious style. He believed in strict regulations, truthful monthly statements, and respect for authority. Sardelli was appalled that the bank's flagship regional office in New York had become a way station for politically connected incompetents. He believed BNL's branches in the United States were in dire need of housecleaning. As for Drogoul, Sardelli quickly pegged him as disrespectful and "devious." Early in the fall of 1987, Sardelli gathered the managers from his region for a meeting on a cruise up the Hudson River from New York City. "I explained my philosophy that a bank must be crystal clear," Sardelli said later. Aside from being an authoritarian, Sardelli was high-strung and sarcastic. He had a habit of breaking into a high-pitched nervous giggle that made him seem rather eccentric. He proudly stated that he had a reputation within the bank for being "a very powerful laxative." Drogoul had no idea how to deal with the man. Fortunately, he'd already taken precautions. Knowing that Guadagnini was about to retire, Drogoul had gone out of his way the previous summer to attempt to acquire "another set of ears" in New York. Those ears belonged to Vito Cannito, an auditor from BNL's New York office who visited Atlanta in the summer of 1986 to check the branch's books. He left with a Crown Victoria automobile that had belonged to BNLAtlanta. With 75,000 miles on it, the five-year-old car was no gem, but there was no way to beat the price. Cannito paid only $500, compared to its estimated value of $3,500. A few days later, BNL-Atlanta reimbursed Cannito for his $500 check. Drogoul later told the FBI that he considered the car a way to cement a relationship with Cannito. Cannito didn't want anyone at the bank's New York or Atlanta offices to know about the gift. Drogoul said he understood. Once BNL-Atlanta embarked on its "gray book" banking, Drogoul needed all the spies he could get. He particularly appreciated advance warnings of audits so he could prepare an "official" version of his branch's condition. BNL-Atlanta employees then forged signatures or falsified a wide range of documents, and generally did whatever it took to create a false impression. For example, when loans to a company ran over its official credit limit, the Atlanta bankers sometimes shifted the excess to a second company's account. This happened quite often with Exportkhleb, the Russian grain-trading company. Its excess borrowings were transferred to various firms, including Ethyl Corporation. In one case, $1.68 million of Exportkhleb loans was assigned to Ethyl's account, despite the fact that Ethyl never used a BNL credit line. This ploy had to be carried a step further if auditors sought to confirm the second company's falsely reported credit balance by sending it a letter. BNL-Atlanta employees knew they had to prevent the second company from disclaiming the false balance. So they volunteered to mail the auditor's letter. If the auditor agreed, the Atlanta bankers destroyed the letter and prepared a fake response on the borrower's letterhead. Then--to obtain an appropriate postmark--a BNL employee would hop on an airplane to the city where the company was based, drop the fake return letter in the mail, and fly back. Fortunately for the team at BNL-Atlanta, most of the auditors and examiners weren't the type to pry. Generally, they were friendly fellows who enjoyed a good steak when it was put in front of them. Examiners for the Federal Reserve and state of Georgia joined BNL-Atlanta staffers for sumptuous two-hour lunches at fancy steak and seafood restaurants near the bank. The bills, which included wine and cocktails, approached $300 for up to seven people, according to Therese Barden, the BNL officer responsible for paying them. Government auditors weren't very threatening to the BNL staff. A 1978 law had granted states power to license and audit foreign bank branches in Georgia even though the Federal Reserve had ultimate responsibility for their smooth operation. This quirk in the law--eventually corrected in response to the BNL case--obliged the Fed to rely on state of Georgia auditors to catch problems. According to Von Wedel, the state auditors weren't well acquainted with the nuances of letters of credit and weren't thorough. He said Robert Kennedy of the Fed was more sophisticated, but the Fed had him doing superficial checks that weren't really audits. Of all the auditors and examiners who checked BNL-Atlanta, probably none caused greater anxiety than Louis Messere from BNL's office in New York. In September 1988, Messere's secretary called to arrange hotel reservations in Atlanta for a group of inspectors, which had the effect of tipping off BNL-Atlanta. Although her call was most appreciated, Messere and his team soon overstayed their welcome, taking up residence in Atlanta for five weeks. It was quite strenuous to maintain the illusion of the official books for such an extended period. On one occasion during the audit, a pile of Iraq funding transaction papers was inadvertently left on the corner of a desk outside Maggi's office. Messere himself strolled over and began to leaf through the documents, which were marked in large red letters, the Atlanta employees' code for secret "gray book" funding transactions. "He had them in his hand when I walked into the room," DeCarolis recalled. "Robert [Post] already had his hands in his hair. He looked at me, and we both held our breath waiting for the bomb to hit." But Messere put the papers down and walked away. In early October, Messere informed Sardelli that he'd found a big mess in Atlanta. Sardelli immediately ordered Drogoul to New York to explain the irregularities. "How can anyone lend guidance to people who evidently do not want to be guided?" Sardelli scolded him in a letter dated October 1, 1988. But Sardelli's efforts to impose discipline on Drogoul hit a stone wall two weeks later. Although he seemed to enjoy throwing his weight around, Sardelli was not the ultimate authority in the bank. It so happened that Giacomo Pedde, BNL's director general in Rome, was on his way to New York that month. Sardelli figured he'd ask Pedde to send more auditors to Atlanta. He apparently didn't realize just how chummy Drogoul and Pedde had be come. Pedde's English was very weak, as was Drogoul's Italian, but they had a rapport that dated back to 1983, when Drogoul had squired Pedde around Atlanta in his Alfa-Romeo. That may help explain why when BNL managers gathered in New York in October 1988, Pedde snubbed Sardelli, his regional manager, and singled out Drogoul for praise. Sardelli was miffed. He asked a BNL auditor from Rome, who was traveling with Pedde, when he was going to Atlanta. Sardelli said the auditor replied, "The director [Pedde] didn't tell me to go to Atlanta. He told me to examine your expense account." When Messere submitted his official audit report on the Atlanta banch, he pulled his punch. The absence of any detailed discussion of the Iraqi loans may have been due to the effectiveness of the gray book scheme. Yet this casual treatment seemed remarkable in light of the fact that Cannito's last audit-dated February 1987--had identified Iraq as Atlanta's main customer. Messere also skimmed lightly over the irregular Morgan Guaranty clearing account, through which the Iraqi disbursements flowed. But that was not all Messere left out of his lengthy December 22, 1988, report. He also neglected to mention that he'd caught Drogoul's team red-handed in an $8 million fraud. He had uncovered the scam by sending a routine audit confirmation letter to the Banca della Svizzera Italiana in Lugano. He simply wanted to verify a telex in BNLAtlanta's files which stated that the Lugano bank owed the Atlanta office more than $8 million. But Banca della Svizzera said it had no record of such a commitment. Concerned that the August 17, 1988, telex in BNL's files might be phony, Messere shot off a more detailed inquiry and faxed a copy of the telex. His worst suspicions were confirmed on November 7, when the Lugano bank wired back a more explicit denial. The bank said that after rechecking its files it found no record of the telex BNL-Atlanta claimed to have received, which was "apparently sent by our telex machine" on August 17, 1988. By all appearances, the telex was a fake BNL asset. Oddly, Messere didn't record the Lugano bank's November 7 denial in his December 22 report. Instead, he wrote that audit confirmations were sent to Banca della Svizzera and "as of the conclusion of the audit, responses were pending." Chapter 8 WHAT ROME KNEW "My government made it quite clear to the Italians. If they wanted any more business with us, they had better do something about the frigates. That was when the arrangement involving Banca Lavoro was established." --Safa al-Habobi, Iraqi weapons procurement official 'hristopher Drogoul's lawless operation in Atlanta was a product of a corrupt political culture based in a five-story gray marble headquarters building on the Via Veneto in Rome. BNL was no common commercial bank. During the 1980s, it was-as it is today--an arm of the Italian government, not a profit-driven enterprise run to enrich a limited number of private shareholders. Profit, while important at BNL, was not king. The bank's highest duties were to serve the economic development of Italian corporations and the foreign policy objectives of the reigning Italian political party. If it lost a few million dollars, the pain was spread so broadly among the taxpayers of Italy that scarcely anyone noticed. The Italian government relied on BNL to execute sensitive military deals with the United States and other allies within the North Atlantic Treaty Organization. For example, the bank helped finance the transfer of Sidewinder missile parts from the U.S. Department of Defense to Italy in 1986. U.S. intelligence agents also used BNL in their operations. When Aldrich Ames, perhaps the most harmful traitor in CIA history, spied for the Soviet Union from the agency's station in Rome in the late 1980s, he maintained an account at BNL-Rome. The $111,000 that Ames accepted into that account from a Swiss bank between October 1987 and December 1990 may have been the fruit of his counter spying for the Russians. The bank's availability for U.S. defense and intelligence chores was enhanced by the fact that its headquarters was located within a stone's throw from the U.S. Embassy in Rome. But before considering BNL's role in helping to carry out U.S. foreign policy, it is useful to recall a series of Italian scandals that shaped the bank's senior management in the late 1980s. BNL's top executives, Nerio Nesi and Giacomo Pedde, were wily survivors in an Italian banking culture that often intersected with the dark forces of the underworld, terrorism, and the secret organization known as P2. In one sensational case, those dark forces claimed the life of one of their contemporaries. In June 1982, Roberto Calvi, chairman of Italy's Banco Ambrosiano, was found dangling by an orange rope from London's Blackfriars Bridge. Water from the Thames River lapped against his ankles. He had about $15,000 worth of currencies in the pockets of his rumpled suit. Calvi's body was discovered only a few hours after his secretary plunged to her death from a fourth-floor window at the bank's pale yellow headquarters building in Milan. Both deaths were ruled suicides, but doubts lingered for years. The Banco Ambrosiano soon collapsed. It turned out Calvi had committed frauds involving hundreds of millions of dollars through banks he held under a lightly regulated Luxembourg holding company that served as an early model for BCCI. Calvi had risen to prominence by following in the footsteps of Michele Sindona, an Italian banker with underworld ties who dealt extensively with the Vatican Bank. Sindona expanded into the United States in 1972 by acquiring a large stake in Franklin National Bank, then America's twentieth largest bank. That same year he offered a suitcase with $1 million in cash to Richard Nixon's reelection campaign, which declined the gift. Sindona soon moved to New York, reportedly to avoid criminal charges in Italy. But he developed a new set of legal problems after Franklin National was declared insolvent in October 1974 in what was then the largest bank failure in U.S. history. Sindona was indicted by the United States in 1979 and sent to prison. As Sindona's financial empire was crumbling, Roberto Calvi stepped into his role as the Vatican's favored banking partner. Both men appreciated the value of the Vatican mystique as a business promotion tool. The press even called Calvi "God's banker." Calvi's strange death sparked new speculation about Banco Ambrosiano's connection to the Istituto per le Opere di Religione, otherwise known as the Vatican Bank. Pope John Paul I had launched an investigation of the bank shortly after his election in 1978. But he died after only thirty-four days in office, officially from natural causes. Calvi's suspicious death caused some people to wonder whether the pope had in fact been murdered. The attempted assassination of his successor, John Paul II, in May 1981 triggered a new round of conspiracy theories. But evidence linking Sindona or Calvi to violence against either pope was inconclusive. If Sindona was Calvi's role model, Licio Gelli was his political mentor and protector. Gelli was the grand master of the secret Italian brotherhood known as P2. The group used blackmail and other high-pressure techniques to recruit prominent Italians throughout the 1970s. It acquired enormous political clout. When it was finally exposed, P2 exploded into Italy's most far-reaching scandal since World War II. Nominally a fraternal lodge based on the principles of Freemasonry, P2's real guiding principle was anticommunism. Italy's Communist Party, the strongest in Western Europe, had been gaining steadily in the polls. Gelli reportedly had plans for a coup if the Communists ever gained power in a free election. Gelli built his power base in secret--hiding the P2 membership list--and he enjoyed the active support of another secret power: the CIA. He devoted much of his attention to arms sales to military regimes outside Italy, mostly in Central and South America, to which Calvi's banking group supplied much of the financing. Calvi was probably more a puppet of Gelli than a power broker in his own right. Even so, Calvi made important contacts in the United States, using anticommunism as his calling card. John Connally, the former governor of Texas and Secretary of the Treasury under President Nixon, invited Calvi to his Texas ranch. Sympathetic to the battle against Communism, Connally helped form the "Committee for the Defense of the Mediterranean" in 1976, the year Italy's Communists won 34 percent of the popular vote. Luminaries such as former CIA director William Colby spoke at seminars hosted by Connally's committee. P2 members may have taken an activist approach in Italy. According to testimony given to an Italian investigatory panel, the 1980 bombing of the train station in Bologna, Italy, that killed eighty-five people was first planned by several people attending a P2 meeting in Monte Carlo presided over by Gelli. In March 1981, the Guardia di Finanza, which investigates bank fraud in Italy, found Gelli's list of purported P2 members in his office safe. The list included three Italian cabinet ministers, forty-three members of Parliament, and senior Italian military and intelligence figures. The Socialist Party was particularly well represented. And in spite of the Catholic Church's virulent opposition to Freemasonry, even the names of cardinals appeared. Gelli's list ignited a national scandal--and rocked the government-owned Banca Nazionale del Lavoro. The list showed that P2 had thoroughly infiltrated BNL, the largest lender to the Calvi banking empire. Five senior BNL executives, including then-director general Alberto Ferrari, were identified as members of the lodge. The disclosures led to a purge of BNL's top management in 1981. Ferrari lost his job, along with roughly one third of the bank's senior management and many lower-level officers. But Nerio Nesi, the Socialist chairman of BNL since the late 1970s, kept his job. So did Giacomo Pedde, a Christian Democrat whom Ferrari had appointed in 1977 to head the lending department in Rome. When the Christian Democrats won political control of Italy in 1987, Pedde was promptly promoted to director general of BNL. Pedde and Nesi would run BNL during the peak of the Iraqi loan scheme in Atlanta. Rome and Baghdad had long been close trading partners. During the 1970s, Italy imported roughly one fifth of its oil from Iraq. In return, it exported to Iraq a wide range of industrial products and nursed along Iraq's infant nuclear program. After the Iran-Iraq War broke out in 1980, Italy's business with Iraq slackened because Iraq's oil exports dried up and Italy--publicly at least--enforced an arms embargo against both belligerents. But as the war drew to a close in 1988, Italian corporations raced to cash in on the awakening Iraqi economy. They had to compete with members of the U.S.-Iraq Business Forum and a host of European corporations. In Italy, the impulse to chase corporate profit in Iraq grew into an extraordinarily powerful political force, according to Nesi, the BNL chairman. "The absolute necessity of our firms to export often prevailed over other considerations," Nesi told the Italian news weekly // Mondo in 1991. "But this has happened in every European country." Italy began selling Baghdad nuclear technology for "peaceful" uses at least as early as 1977. Ostensibly, these exports were to help Iraq develop a nuclear power industry--not nuclear bombs. But with a French-built reactor and Italian equipment capable of separating bomb-ready plutonium from spent reactor fuel, Iraq was poised to embark on a weapons program. The United Nations estimated that by 1980, Iraq had poured at least $4 billion into a nuclear program that employed some seven thousand scientists and engineers. This furious activity alarmed the United States and other nations concerned about nuclear weapons proliferation. So they toughened rules for nuclear exports. Then, in June 1981, Israel delivered its non-proliferation message with raiding F-16s. In a sneak attack, the Israeli jets destroyed Iraq's reactor at Osirak. While proliferation concerns made it harder for Iraq to buy nuclear supplies openly in Italy and the West, European embargoes of Iran and Iraq in the early 1980s had a similar effect on Iraqi purchases of conventional weapons. By 1983, most European countries, including Italy, had passed laws banning military exports to either warring country. France was the exception: it declined to shut off its lucrative weapons trade with Iraq. But even as the French were conducting a brisk business with the Iraqis during the mid-1980s, they also sold arms to Iran. This dalliance with Iraq's bitter enemy roughly coincided with the Reagan administration's covert arms sales to Teheran in 1985 and 1986 that touched off the Iran-Contra scandal. BNL played a major role in the French arms sales to Iran. When Luchaire, the largest private arms manufacturer in France, began taking weapons orders from Teheran in 1984, it parceled out some of the contracts to subsidiaries in Italy. BNL was asked to underwrite the business. The Paris office of BNL referred $131.4 million of Iranian arms contracts to its sister branch in Turin, Italy. At a meeting in Rome on May 24, 1984, BNL's executive committee approved the business. Italian prosecutors later indicted BNL's director general at the time, Francesco Bignardi, as well as Nesi and Pedde, for violating Italy's arms embargo law. In 1993, Nesi and Bignardi were acquitted, but Pedde was sentenced to four years in prison. Its flirtations with Iran notwithstanding, the United States and the NATO organization it dominated had decided by 1986 that Iraq needed to win--or at least not lose--its war with Iran. It was perfectly natural to expect Italy, a loyal NATO member with long-standing relations with Iraq, to help out. Clearly, Iraq's highest priority was high-tech foreign weaponry and lenders willing to finance its imports. Those requirements may have been satisfied in a missile deal between the United States and Italy. Documents obtained by the Italian Senate investigators probing BNL-Atlanta show that the U.S. Department of Defense sold Sidewinder missile parts to Italy's Ministry of Defense between 1986 and 1989. Sales of "1,000 active optical target detectors" for the supersonic air-to-air missiles were financed through BNLAtlanta. After studying a series of irregular shipping transactions, the Italian Senate investigators concluded that Italy actually received 1,248 of the target detectors made by the Raytheon Corporation and Hughes Santa Barbara Research Center. It had only asked for and officially received 1,000. One Italian Senate Commission investigating the BNL case hypothesized that "the United States 'used' the shipments of the [target detectors] to Italian Defense to cause military material in excess of the amount officially requested by Italy to reach the Mediterranean area." Ostensibly, the $8 million deal was a sale of advanced weapons technology from one NATO ally to another. But a U.S. Justice Department memo pointed to a different objective. "[The U.S.] Customs [Service] is pursuing end destination of a large shipment of Sidewinder missiles financed out of BNL-Atlanta," the memo stated. "We received information that these missiles were to be transshipped to Iraq rather than remaining in the stated destination of Italy." There was no allegation that BNL played any role in the alleged diversion of Sidewinders. But based on evidence it uncovered in the Sidewinder deal and many other arms-related transactions, the Italian Senate panel investigating BNL concluded in 1992 that BNL-Atlanta was "the main financial channel" in a complex and clandestine operation to support Iraq's military technology program. That program involved many other American and European firms, it said. BNL Chairman Nesi told the Italian senators that he believed the Atlanta banking scheme was government-orchestrated and probably a covert foreign policy operation. An analyst for the U.S. Defense Intelligence Agency put it more succinctly in a secret September 15, 1989 report. He described the BNLAtlanta loans to Iraq (referred to as the "BNL mechanism") as part of an "acknowledged and cooperative strategy" among NATO countries to help Iraq survive its war with Iran. The analyst's source was described as a "senior military official with access to information." The report said the source was believed to have "specific knowledge of the existence of the strategy" based on the "definitive way the matter was discussed." The report included the following: Summary: Banca Nazionale del Lavoro (BNL) affair described as an acknowledged and cooperative strategy to support Iraq to ensure Iraqi victory in Iran-Iraq war. Text: 1. Source while commenting on BNL situation stated that the arms trading to Iraq which occurred "illegally" as part of the "cover trading" of agricultural and non sensitive products was part of a support strategy to ensure an Iraqi victory in the Iran-Iraq war. 2. Source further stated that it was an acknowledged and cooperative (if not collusive) strategy among "all nations" (by which he meant NATO) that Iran must not prevail in the conflict. The BNL mechanism [was] therefore merely one of many such instruments of policy to support Iraq in the conflict.... If there were more banks other [than] BNL involved in the military support of Iraq, then the BNL affair may trigger a much broader series of discoveries. Throughout the late 1980s, BNL's head office in Rome knew that the Atlanta branch was channeling huge sums to Iraq--first through the CCC loan program, later through a series of loans for major Italian industrial projects. Senior BNL officials did not necessarily know the precise volume of Christopher Drogoul's Iraqi business or know about each scheme used to keep Baghdad happy. Nor did they seem to care. Whatever their role in the "cooperative" international strategy against Iran, the Italian government and BNL-Rome had good financial reason to tolerate mischief at the Atlanta branch. By early 1988, as the Iran-Iraq War concluded, Iraq was poised to return as a major exporter of oil and importer of military and industrial products. Italy was desperately eager to win a piece of that lucrative commerce. Iraq, meanwhile, was in a position to demand certain concessions from the Italians in exchange for their trading privileges. The basis for this demand dated back to 1980, when Iraq had contracted to buy eight warships from Italy for $2 billion. BNL led a group of banks that financed the deal. The combat ships, built by the Italian government-owned Fincantieri, were equipped with General Electric Company turbine engines. The Iran-Iraq War played havoc with the warship contract and touched off a prolonged quarrel between Italy and Iraq. Only days after Iraq attacked Iran in September 1980, the United States blocked shipment of six of the eight GE engines (two had already been sent to Italy). By its action, the Carter administration hoped to show it was serious about its declaration of neutrality in the Middle East war. That was only the first of several crises for the troubled warship deal. Before long, Italy followed other European countries in declaring an embargo on weapons sales to both Iran and Iraq, delaying indefinitely the delivery of the ships. Iraq, which wanted to use them to patrol the Persian Gulf, was furious. It defaulted on Italian debt and withdrew some $800 million in deposits from Italian banks, including BNL. Years later, Iraqi Foreign Minister Tariq Aziz said that the BNLAtlanta scheme was directly linked to the undelivered warships. Notes of an August 1989 meeting between Aziz and the Italian foreign minister say Aziz observed that, in the words of an Italian Senate committee, "the question of loans of BNL-Atlanta to Iraq was seen in close connection with the matter of the Fincantieri ships." More specifically, BNL-Atlanta's Iraqi loans were Italy's way of compensating Iraq for its political failure to deliver the warships. The Iraqis were quite frank about this arrangement with Paul Henderson, the managing director of Matrix-Churchill Ltd. in Coventry, and others. In his book The Unlikely Spy, Henderson related how Safa al-Habobi, the Iraqi weapons procurement boss, described Italy's informal payback. Henderson quoted Dr. Safa as telling him: As far as the Italians were concerned, they had completed work [on the warships] and been paid for what they'd done. The failure to deliver was not their fault. They were not responsible. My government [Iraq] made it quite clear to the Italians. If they wanted any more business with us, they had better do something about the frigates. That was when the arrangement involving Banca Lavoro was established. Christopher Drogoul and Paul Von Wedel made their first trip to Iraq together in February 1988. The Atlanta bankers were standing at the reception desk at the Rasheed Hotel in Baghdad when Drogoul felt a light tap on his shoulder. When Drogoul turned around, he was amazed to see three Italians. The leader, Teodoro Monaco, asked: "What are you doing in Baghdad?" Drogoul tried to be casual. He and Von Wedel were there to sign MTL-1, the first of four unsecured and unguaranteed credit lines for Iraq. They wondered whether Monaco, the BNL-Rome official in charge of lending to Asia, Africa, and the Middle East, knew that Drogoul had been specifically barred by his new regional manager, Luigi Sardelli, from venturing beyond his territory in the southeastern United States. "Does Sardelli know that you are in Baghdad?" Monaco asked, speaking in English. "Sardelli wasn't in New York," Drogoul answered evasively. Monaco didn't press the point. The three Italians and the two Americans gathered briefly on sofas in the hotel lobby to exchange pleasantries. Neither group showed an interest in spending much time with the other, so they split up after about ten minutes. Drogoul said later that he told Monaco he was in Baghdad to discuss both CCC loans and a new commercial loan program. He said he'd talked with Monaco earlier over the phone about the possibility of providing loans for Iraq's reconstruction. But when asked to give their versions of the chance meeting with the American bankers, Monaco and one of his BNL associates, Roberto Di Nisio, insisted that Drogoul only mentioned CCC business. Monaco said he was in Baghdad to discuss new banking business between BNL and Iraq, Von Wedel recalled. "Mr. Monaco told us that he was there because there were settling the problem with the warships .. .," Von Wedel said. "... lT] hey were starting to work out further trade between Italy and Iraq and the warship problem was being resolved." The American bankers could see that they and Monaco were working toward roughly the same end. Still, they were anxious about the fact that a senior BNL-Rome official had spotted them in Iraq. They had been caught out of their territory, caught acknowledging that their immediate supervisor hadn't given them permission to be there. If Monaco chose to raise questions in Rome about the chance encounter, they might be in trouble. On the other hand, they were safe if BNL senior management operated under the principle that the ends-more Italian trade with Iraq--justified the means--unauthorized credit agreements between BNL-Atlanta and Baghdad. Drogoul later recalled that he and Von Wedel returned to their room "laughing about the experience" but at the same time concerned about potential consequences. Rome never raised a question. Executives at BNL headquarters soon missed other chances to rein in Drogoul's explosive lending to Iraq. Later in February 1988, the Middle East Economic Digest, a widely circulated Paris newsletter, reported that Iraq had borrowed more than $600 million from BNL-Atlanta under the CCC program in fiscal year 1987, leaving the bank "highly exposed to Iraqi risk." The credits mentioned were not included on reports the Atlanta branch sent to New York and Rome. But once again, Rome was silent. Near the end of 1988, BNL overlooked a third opportunity to clamp down on Drogoul's Iraqi lending. Rome headquarters received a tip that BNL-Atlanta had confirmed a $26.3 million letter of credit for Centrifugal Casting Machine Company of Tulsa, Oklahoma, to ship cast-iron pipe to Iraq. The company's chief executive, W. Thomas McKee, had mentioned the financing to Mario Girotti, manager of BNL's branch in Hong Kong. Girotti was astounded. He thought BNL had a policy against lending such sums to Iraq. So he sent telexes to two old friends: Teodoro Monaco at BNL-Rome and Luigi Sardelli at BNL-New York. "I answered him that obviously something we were not aware about was going on in Atlanta," Monaco said later. The loan far exceeded the Atlanta branch's official credit limit of $2.5 million per customer. It wasn't secured by collateral. It wasn't reported on official records. And it wasn't authorized by an official outside Atlanta. Monaco said he confronted Drogoul. Sardelli wrote both Drogoul and the head office in Rome. But Drogoul slithered out of trouble by insisting that he was preparing to line up cash collateral from Iraq to cover the entire transaction. Over the next few months, Drogoul regularly claimed that he only made loans to Iraq when the Iraqis put up cash collateral at BNL equal to the amount of the loan. According to prosecutors, he used money BNL-Atlanta had borrowed from hundreds of banks in the world market to create the appearance of huge Iraqi deposits. But BNL-Rome never looked beneath the surface. When the FBI raid in August 1989 uncovered hundreds of millions of dollars in BNL loans to Iraqi suppliers, executives at the bank's headquarters seemed shocked. Yet in the months before the raid, they were responsible for several of the largest deals. It was BNL-Rome, for example, that ordered the Atlanta branch to finance contracts for Italian exporters like the steel giant Danieli in Udine. Early in 1989, Iraq had entered negotiations with a U.S. company for steel projects worth $500 million. When Raja Hassan AH, the senior Iraqi finance man, asked Drogoul to finance the project, the Atlanta banker said it was simply too much for him. "Would it be helpful if the supplier were to be Italian?" AH asked. "Yes," Drogoul answered. "But only if the amount of the contract can be broken into small tranches, since an amount of $500 million in one piece would be indigestible." AH soon called to tell Drogoul that Danieli got the contract. The Iraqi explained that SACE, Italy's rough equivalent of the U.S. Export-Import Bank, had agreed to guarantee financing on the bulk of the project. BNLAtlanta was asked to fund only about $75 million, without benefit of a SACE guarantee. Monaco and Pedde, BNL's director general, were well aware of the bank's role in the deal. In fact, Monaco said he wrote a memo on it to Pedde, who was a friend of the Danieli family. To expedite the transaction, Monaco sent a telex on February 2, 1989, to Abdul Munim Rasheed at the Central Bank of Iraq with the following instructions: On behalf and upon request of Messrs Danieli we wonder whether said L/C [letter of credit] could be channelled through our Atlanta branch within the framework of our existing arrangements between said branch of ours and your fine institution. When Iraq sent the financing request for Danieli to Atlanta, Drogoul ignored it at first. He was torn over how to treat a transaction that large. His inaction caused the people at Danieli to complain to Monaco, who called Drogoul to ask why he was stalling. Drogoul said Monaco told him there was heavy pressure on BNL to provide the financing because of Pedde's friendship with the Danieli family. BNL-Atlanta finally supplied the funds in March and May of 1989. Just days before the FBI raided the Atlanta office, BNL-Rome and Drogoul were working to provide $80 million for construction of a pipe plant in Iraq by the Italian company Endeco Barazzoul. Many other Italian firms were scrambling for a place on line at BNL-Atlanta's teller window. In the late summer of 1989, BNL-Rome obtained a list of contracts pending signature between Italian companies and Iraq. The total exceeded $800 million. Another $1 billion in Italian-Iraqi deals were under negotiation. Several months later, Paolo Di Vito, a senior official at BNL headquarters in Rome, explained that the bank had obtained a list of contracts between Italian companies and Iraqi buyers. "It is a very ambitious list, which illustrates the existence of a strong business lobby'.. .," he noted at the time. Up until August 4, 1989, BNL-Atlanta had been accommodating Italy's powerful urge to export to Iraq. Officials at BNL-Rome, including Pedde, knew that Christopher Drogoul was providing this vital service for the bank. But after the FBI raided the Atlanta branch and uncovered violations of U.S. banking laws, BNL-Rome denied it had an inkling that Drogoul had broken laws. The bank's legal strategy was to cast Drogoul as a criminal genius who had tricked his bosses. Chapter 9 LET'S MAKE A DEAL "Mr. Lombardi said that it was now appropriate for me to go back to Atlanta .. that the bank would pay for [my] attorney, and that this matter was going to be treated as ... an internal matter." --Christopher Drogoul can Ivey was fed up, tired, and scared. By mid-June 1989, the climate in the Atlanta office had turned nasty and Louis Messere, the auditor from New York, had returned--a bad sign. It was time for Ivey to make the best of a deteriorating situation. So she drove to her hometown of Rome in the isolated foothills of northwest Georgia to visit a lawyer named Bob Finnell. She wanted immunity from criminal charges, and she was willing to trade explosive information to get it. Finnell was a blocky, balding man with a mischievous gleam in his eye. He was known around Rome more as a former Washington, D.C." politico than for his record as a white-collar crime lawyer. He had helped Mack Mattingly, a former Georgia typewriter salesman, win election to the U.S. Senate on Ronald Reagan's 1980 coattails. Before his fortieth birthday, Finnell spent several years in the capital as--in his words-- "Mattingly's minister without portfolio." An independent sort, Finnell didn't always see eye to eye with the Republican Party's national strategists. He split with them over how to run his boss's 1986 reelection campaign and was overruled. Mattingly lost his Senate seat in an upset to Georgia Congressman Wyche Fowler, Ivey's boyfriend at the time. Finnell seemed content to return to Rome to set up a storefront law office. He said his political past had nothing to do with Ivey picking him to represent her. "Jean came [to Rome] alone," Finnell said. "When she came, Mela [Maggi] knew. The two had been very close and had made some sort of decision together." Maggi would be needing a lawyer too. Finnell knew he needed all the help he could get in negotiating an immunity deal with the government. He turned to a pro named C. Michael Abbott. A slender, soft-spoken man with a neatly trimmed white beard, Abbott was highly regarded as a criminal defense lawyer. In the early 1980s, he had supervised white-collar crime prosecution for the U.S. Attorney's Office in Atlanta. He was a natural for a complex bank fraud like BNL. As the case developed, Abbott also would represent a BNL customer who used BCCI, as well as a central figure in a federal investigation of BCCI's operations in Georgia, who was never charged with any crime. But the BCCI scandal didn't break until the summer of 1991. In the early summer of 1989, Abbott accepted Mela Maggi as a client while Finnell continued counseling Ivey. The four met often that July to reconstruct the business of BNL-Atlanta with an eye toward structuring an immunity deal. All the while, the women went to work as usual and tried to be nonchalant. Any immunity agreement would have to be cleared through Robert Barr, Jr." the U.S. Attorney for the Northern District of Georgia in Atlanta. Fortunately, Finnell already knew Barr. He said he had helped line up his appointment as Atlanta's top federal prosecutor in 1986 by convincing Mattingly to recommend him to Reagan. Abbott knew Barr, too, and had excellent contacts throughout his office. According to Finnell, he and Abbott approached Barr's office to propose a deal without naming Ivey, Maggi, or the bank. They offered the government a stark choice: Either grant two unnamed clients immunity from criminal prosecution or find out for yourself about one of the biggest bank frauds in U.S. history. Framing the offer required finesse. It was crucial, Finnell said, not to let prosecutors know the fraud involved a foreign bank or that it involved billions of dollars in borrowings from an Atlanta money desk. Either of those clues might have allowed investigators to pinpoint BNL, thus eliminating their clients' leverage. It was also important to stress that this was a mushrooming fraud, growing by literally millions of dollars a day. If the government tried to identify the bank on its own, it didn't try for long. Finnell said he and Abbott made their offer to Barr's office in mid-July. On July 26, 1989, the prosecutors signed a letter to the attorneys that began: "In several recent conversations, you have offered the cooperation of two unnamed clients alleged to be junior bank officers with knowledge of ongoing major federal crimes...." The letter promised immunity from prosecution so long as Ivey and Maggi had only followed orders and didn't "originate" the fraud or gain from it. They would have to promise to give complete information and agree to be banned for life from U.S. banking. Without delay, Ivey and Maggi added their signatures to the letter already signed by Assistant U.S. Attorney Gale McKenzie and her boss, Atlanta fraud section chief Gerrilyn Brill. On Thursday, July 27, Ivey and Maggi met McKenzie and Brill for the first time at Abbott's office in the Equitable Building overlooking Woodruff Park in the heart of downtown Atlanta. They identified BNL as the bank in question and plunged into a series of meetings with investigators from the FBI, the Federal Reserve, the IRS, the Customs Service, the Department of Agriculture, and the U.S. Attorney's Office. By blowing the whistle, Ivey cut her losses. She agreed to be banned permanently from banking--sidetracking a once-promising career--in exchange for inoculation against further damage. The deal required her to explain to prosecutors the inner workings of her office. In the long run, the government also might want her to testify in court against the people it chose to prosecute. Ivey became an indispensable aide to the prosecution. As a key member of the government's team, Ivey was let in on a closely guarded secret. She learned that the FBI would raid BNL-Atlanta on the afternoon of Friday, August 4, 1989. To some, a week's advance knowledge of this top-secret plan might have been worth millions of dollars, and it was not without value to Ivey. In fact, as the government scrambled to get its legal ducks in a row for a "no-knock" search warrant, Ivey was quietly making her own preparations. After all, she had customers to look after. Ivey thought Oscar Newman was a pitiful old man who deserved a break. She had been his personal banker for almost a decade, and by summer of 1989 his BNL account had surpassed the one-million-dollar mark. He was balding, sixtyish, and wore thick glasses. To BNL employees who caught glimpses of him, he seemed timid and obsessively secretive. He insisted on dealing with Ivey or, when she was absent, with Maggi. Some days he'd arrive with large checks to deposit; occasionally, Ivey would later testify he'd tote amounts shy of $10,000 in cash. Cash deposits over $10,000 required the receiving bank to fill out currency transaction reports sent to bank regulators. There was no need to set off unnecessary alarms. Ivey and Maggi asked coworkers to deposit Newman's cash in BNL's own account at a local bank in the lobby of their building. From there, the money was transferred to Newman's account at BNL-London. Ivey had always been gentle and understanding with Newman, dating back to the early 1980s when she handled his account at Barclays Bank. When she left Barclays, Newman went to the trouble of finding out that she'd moved down Peach tree Street to BNL. He transferred his account to be with her again. He used several other banks as well, both foreign and domestic. But his main nest egg was at BNL. It grew steadily, fed by profits from used-car sales in Alabama and real estate deals near his home in the northwest Atlanta suburb of Marietta. One day, while seated at a table in the conference room adjoining Drogoul's office, Newman poured out his heart to Ivey. "You probably wonder why I deal with so many foreign banks," he said. "Mr. Newman, that's not my business to ask you those questions," Ivey responded. "Well, I just want you to know, since I've been here all these years and appreciate your being so kind to me." Newman told Ivey that he had a mean ex-wife who tried to get his money. He said he needed a safe place where the money was out of her reach. BNL was an ideal bank for him--until the FBI suddenly became interested in it. Ivey said that when she decided to spare Newman the trauma of the impending investigations, it wasn't necessary to actually tell him about the FBI's plans. All it took was a nudge. She said she simply told him she was planning to leave the bank, and her news had the desired effect. On July 31--the Monday before the FBI raid--Newman's account was closed and nearly all of his $1,069,088 transferred to offshore accounts, including $650,000 to Barclays Bank in Nassau and $200,000 to BCCI's Nassau branch. "When she told me she was leaving, I asked her where she was going Newman said later. "She said she really wasn't sure yet, and I said, "Well, I just want to take my money out," and that's when I moved the money. I know it looks suspicious, but I didn't know anything about [the raid]." Newman was quite special at BNLAtlanta. The office didn't have tellers to handle personal accounts because of legal limits on the acceptance of American deposits by U.S. branches of foreign banks. That hadn't stopped BNL from accumulating nearly $100 million from major Atlanta corporations, including Coca-Cola and Delta Airlines. Ivey simply entered the deposits on the books of BNL's London branch, which in turn advanced the money back to Atlanta. BNL-London went along, although it did frown on handling personal accounts that way. It preferred to deal with corporations. So Ivey accommodated Newman, BNL-Atlanta's only individual depositor, by changing the name of his account to "Oscar Newman Inc." Newman hadn't actually incorporated, and he didn't realize Ivey pretended he had. Such "Eurodollar" accounts fell into a regulatory gray area because they circumvented the spirit, if not the letter, of the limitations on deposit gathering by foreign banks. They also allowed the bank to avoid setting aside mandatory reserves for deposits as required by the Federal Reserve. Banks can't earn interest on those reserves, which can amount to up to 10 cents on every dollar deposited. By ignoring the reserve requirements, BNL was able to collect interest on 100 percent of its Atlanta-origin deposits, under the pretext that they were deposited overseas. BNL stopped gathering deposits that way after the FBI popped in. While Ivey had special compassion for Newman, she didn't ignore her other customers. For example, she recalled quoting Delta Airlines a "poor rate" on a Eurodollar deposit of either $25 million or $50 million-she couldn't remember which--immediately before the raid. She said she tipped off other companies as well. "I didn't want their names to be spread all over the newspapers," she later testified. "I didn't want them to have their deposits held by the bank. My concern was for my customers." Ivey was somewhat less concerned about Leigh Ann New's frantic plight when federal agents flooded the bank's office on Friday afternoon, August 4. Most of the bank employees were stunned into silence as they were lined up and herded into the office conference room. But, according to Ivey's testimony, New tried again and again to get Ivey's attention about a document left in plain sight. "I've got to get this folder off my desk," New told Ivey amid the commotion. Ivey acted like she didn't hear her. "I started rubbing my eyes as if, you know, I was in shock and leave me alone or something. I finally got into the conference room where the people were, and she [New] kept trying to go back to her desk. I remember that because an officer had to go after her." Ivey and Maggi had told the FBI they thought Drogoul would be in the office on the Friday afternoon of the search. But he abruptly left a day or two earlier for a vacation in France with his wife, Lynn, and their three children. The Feds stuck to their plan anyway. Von Wedel was out of the office Friday as well, but that problem was easier to solve. Agents just showed up on his doorstep in Stone Mountain. Von Wedel had been building a covered wooden swing and lolling around the pool in his backyard that day. His family members were just climbing out of the pool for dinner when two men knocked at the door. One was from the FBI, the other from the Federal Reserve. Ominously, they began by asking him for details of his height, weight, eye color, hair color. Then they wanted to know about BNL. They stayed for a couple of hours. Later that evening, after the interviewers had gone, Therese Barden and her husband, Lee, stopped by Von Wedel's house. She was highly agitated, almost in shock, after seeing federal agents sweep through the office. Von Wedel suggested they try to call Drogoul at his father's home outside Paris, where it was three or four in the morning. Pierre Drogoul answered, but he said his son wasn't in. He promised to try to reach him. Temporarily blocked from communicating with Drogoul, Barden gave Von Wedel a blow-by-blow account of the catastrophic scene downtown. It seemed obvious to them that the Feds had been well briefed on the Iraqi loan scam. They wondered who on the staff was upset enough to blab to the FBI, and they informally drew up a list of suspects. When Von Wedel and Barden had talked themselves out, he walked his visitors to their car. Just then, Von Wedel's son ran out of the house to say that Chris Drogoul was on the phone. They all hurried inside, and Von Wedel and Barden took turns talking to him. Barden, who spoke to him in French, said Drogoul seemed surprisingly calm. "I was terrified beyond control," she said. "But he was saying, "Don't worry about it. Relax. I'll be there Monday morning." " Upon hearing the shocking news from Von Wedel and Barden, Drogoul promptly went back to bed. It was early in the morning in Paris and he was still sleepy. He roused himself for good at about ten or eleven that morning and promptly called Sadik Taha in London. Taha asked him to fly over without delay, and Drogoul arrived on Saturday evening. Without bothering to eat dinner, he went directly to Raja Hassan Ali's hotel room, where AH, Taha, and Fadel Jawad Kahdum, a leading attorney for Iraq's Ministry of Industry and Military Industrialization, were waiting. AH and Taha wanted Drogoul to go back to the United States. Kahdum wasn't so sure. As the meeting dragged on for several hours, All spent much of the time on the telephone to Baghdad. Gradually, the Iraqis' key objective emerged: At all costs, they wanted to preserve sources of Western credit. With this goal in mind, it hardly seemed wise to allow Drogoul to become a hunted fugitive. That would only undercut Iraq's plans to seek $1 billion in new agricultural loan guarantees from the CCC later in the fall. In the end, it was decided that Drogoul's return to Atlanta would promote an appearance of normalcy and improve the chances BNL would continue extending credit to Iraq. But Drogoul didn't arrive in the Atlanta office until Tuesday morning, leaving Von Wedel to assess the damage firsthand. After the Feds left his home Friday night, Von Wedel called them back to explain that he'd made a mistake in saying he didn't have any records there. He said the agents told him to bring the documents into the office with him Saturday morning. When he showed up with the records as instructed, the office was full of federal investigators. He didn't see any other BNL-Atlanta employees. Before leaving in the afternoon, he was struck by the fact that Louis Messere, BNL's New York auditor, was seated at Drogoul's desk talking with another BNL official, apparently unsupervised by federal agents. Since he hadn't been fired Saturday, Von Wedel returned to work as usual Monday morning. According to Von Wedel's testimony, Messere was there to let him in just before 8:00 a.m. Von Wedel noticed four bags of shredded paper in the office hallway that had not been there when he left Saturday afternoon. Later that morning, Von Wedel saw Messere standing near the shredder. "Aren't all the documents in this office sequestered material?" Von Wedel testified he asked the auditor. Messere responded that he'd been given permission to destroy the documents. He didn't specify who gave him the okay. Von Wedel testified he saw Messere feeding the shredder, but Messere denied it. Drogoul flew into Atlanta Monday evening. Von Wedel and his wife met him outside an A&P grocery store in a shopping center parking lot in Stone Mountain. They wanted to be sure that their conversation wouldn't be overheard. "Maybe we watched too much TV or something, but we didn't know if our telephones would be tapped," Von Wedel testified. They discussed creating documents that would show that the $300,000 they'd each received on the Entrade corn transaction had actually been loans, not kickbacks. But they never drew up the papers and the idea fizzled. Drogoul had taken a circuitous route from Ali's hotel room in London to the A&P store parking lot. First, he flew from London back to Paris late Saturday night to "settle my wife and children." Then, at the request of Pietro Lombardi, who had recently replaced Luigi Sardelli as BNL's regional manager for North America, he flew to New York Sunday afternoon. There he met with Lombardi and Carlo Vecchi, manager of BNL's New York office, along with Alvin Hellerstein, an attorney with BNL's U.S. counsel, Stroock & Stroock & Lavan. Drogoul testified that the two-hour meeting in New York on Monday went smoothly. Lombardi was interested primarily in the bank's total exposure, but he didn't strike Drogoul as particularly upset. No one did. Drogoul said he walked away with the distinct impression that he was still manager of the Atlanta office. "Mr. Lombardi said that it was now appropriate for me to go back to Atlanta, that Mr. Hellerstein had spoken to an attorney in Atlanta for me, that the bank would pay for that attorney, and that this matter was going to be treated as best it could as an internal matter," Drogoul stated later. "And it was suggested that they would just pay a fine to the U.S. government and go on their way." Hellerstein had called John Golden of Arnall, Golden & Gregory (AG&G), a respected mid-sized law firm about three blocks from BNLAtlanta. The Atlanta lawyers agreed to take Drogoul's case. On Tuesday, August 8, the morning after his parking lot rendezvous with Von Wedel, Drogoul went to meet Arnall partners Alien Hirsch and Ted Lackland. At the time, several relationships were up in the air. It wasn't clear whether BNL would keep Drogoul, or fire him. Neither was it clear whether the bank would pay his legal fees or let him fend for himself. The answers to those questions would flow naturally once the central issue was resolved: Would the bank accept responsibility for Drogoul's actions and absorb the penalty, or assert complete ignorance of the affair and place all the blame on his shoulders? After listening to Drogoul, Alvin Hellerstein in New York urged the bank to retain AG&G as its Atlanta counsel. When BNL declined, he recommended that the Atlanta firm represent Drogoul, with the bank picking up the tab. The implication was that Drogoul and BNL would be on the same side of whatever legal fight that might develop. Lackland later testified that Hellerstein first told him "the bank was willing to cooperate with the FBI and wanted Chris Drogoul to cooperate and present, as it were, a joint approach." A few days later, AG&G received a rude shock. The bank wouldn't be picking up Drogoul's tab after all. Furthermore, there wasn't going to be any "joint approach." The Friday after the raid, the bank suspended Drogoul. He was completely on his own. Startled, Lackland called Hellerstein for an explanation. The New York attorney declined to give details immediately, but asked for Lackland's home phone number. "He called me fat home]," Lackland said, "and said briefly, by way of apology, that the bank had appeared to take a course other than what he had recommended . that we appeared to be going separate ways. "He indicated .. . that it was a dangerous approach for the bank to take because he didn't think they would be able to sustain that position, and theoretically the bank officials could be ultimately indicted for obstruction of justice. And I'm not sure he used those words, but that was the sense of the conversation...." Hellerstein declined to comment on Lackland's version of events and soon faded out of the case. So did his firm. The bank immediately selected replacements with superior connections: Atlanta criminal defense attorney Bruce Kirwan and the Atlanta firm of King & Spalding. Kirwan was a longtime friend of the assistant that U.S. Attorney Robert Barr assigned to head the BNL prosecution, Gale McKenzie. King & Spalding had impressive ties to the U.S. Justice Department in Washington. Its most famous partner, Griffin Bell, had been U.S. Attorney General, and he remained plugged in to the national security establishment around the capital. In addition, King & Spalding hired the head of the fraud section of the Justice Department's criminal division--William Hendricks--on the same day the FBI raided BNL-Atlanta. That Washington, D.C., section would later become deeply involved in the debate about whether to prosecute the Italian bank. On the Atlanta front, King & Spalding promoted the theory that BNL was an innocent victim of a fraud masterminded by Christopher Drogoul. The law firm found that Gale McKenzie would enthusiastically adopt its position. Chapter 10 THE GUIDED MISSILE "Every day something comes out saying this is a political matter. It is not a political matter." --Gale McKenzie, Assistant U.S. Attorney in Atlanta I ale McKenzie thought she saw right through Christopher Drogoul. She pegged him as a con man and dismissed his statements as "Drogoulisms." A strong-willed and experienced prosecutor, she quickly identified him as her target and tracked him like a guided missile. It would be difficult to find two more opposite characters born in the year 1949. Drogoul was a gentle-spirited charmer who habitually relied on wishful thinking as a substitute for planning. McKenzie was hard-edged and calculating. So while Drogoul was hoping for a wrist slap over the Iraqi loans, she was thinking life in prison. The bank scandal was the case of her career. It arrived in her fortieth year, a reward for steady devotion to her work as an assistant U.S. attorney in Atlanta. An only child who had never married, McKenzie was above all committed to her job. Even her social life seemed an extension of it. During the 1970s and 1980s, the attractive brunette partied regularly with fellow prosecutors and defense attorneys. As time passed, McKenzie watched many of her colleagues jump to higher-paying jobs at private law firms, build families, and expand their social orbits. She stayed put and threw herself even more deeply into her job. Her intensity was remarkable. "During one two-month period, I had five hundred hours of overtime," she volunteered in early 1992. Even before the BNL case, the natural effects of aging and her pressure-cooker schedule had started to take their toll. Competition, pressure, and back-stabbing were all part of the job she had married. McKenzie grew up in Barney, a South Georgia crossroads and post office just north of the Florida border. Her father, who introduced peach farming to the area, died in 1982. That left her mother, Vondelle McKenzie, alone. "She was the light of his life," Vondelle said of the couple's only child. As a young girl, Gale was an avid reader who enjoyed watching TV lawyer Perry Mason spring his innocent clients from bogus murder charges. By her early teens, she was telling people she wanted to be a lawyer. She went off to prep school in Massachusetts, then returned south to earn a business degree at Auburn University in Alabama and a law degree from the University of Georgia. "She ranked extremely high on her LSAT flaw school admissions test]," her mother said. "She could have gone other places. Our family lawyer insisted she go to Harvard. But she'd been far away before so she chose Georgia." McKenzie signed on as an assistant U.S. attorney in 1972, only months out of law school. Her job was a classic stepping stone; promising young lawyers often took it for a while to gain trial experience. But most who were moderately successful climbed the career ladder after three or four years because good criminal defense lawyers can easily earn twice as much as good prosecutors. McKenzie had the talent to follow that path, but she wasn't particularly attracted to money. Sometimes she even forgot to collect her overtime pay. The chief benefit of the government job was not money, but power. Assistant U.S. attorneys, or AUSAs, stand up in federal court and speak for the U.S. government. They can have people searched, arrested, and put in jail. They also carry a magic wand called the "immunity agreement," with which they can bestow the practical equivalent of innocence on a lawbreaker. AUSAs get to choose who will be prosecuted and who will get immunity in exchange for testimony. This is an awesome and largely unchecked power. Even highly paid defense lawyers must respect the one who wields it. McKenzie was a logical choice to run the BNL investigation and prosecution when U.S. Attorney Robert Barr, ]r." picked her in July 1989. He respected her skills in court and at the plea-negotiating table. "She has an ability to handle a very complex case and keep all pieces under control over a long period of time," Barr said. "She has no down side." Her colleagues acknowledged her abilities and above-average conviction record. But a few were almost wickedly critical. McKenzie's most notable success came in the mid-1980s after a federal sting operation called "Pharmoney." It targeted physicians and pharmacists across the country who resold prescription drugs they had obtained under false pretenses. More than ninety people pleaded guilty and fifty went to jail. As the lead prosecutor, her plea-bargain skills saved the government the expense of conducting a trial. With the victory under her belt, McKenzie flew to Washington, D.C." to testify to Congress about the need for a new law against diverting drugs. The law passed and her stock rose. All in all, it was a positive experience-gingerly stepping beyond the role of workhorse line prosecutor to help shape policy and law. But the BNL case would teach her that a political case can stall a career as surely as it can boost one. In the late summer of 1989, the BNL case presented McKenzie with the most complicated financial fraud she'd ever run across. But the technical challenges were not her only concern. All sorts of powerful people had their own agendas in the case, and they began to tug at her. The Federal Reserve wanted to understand the details of the massive fraud because it feared a shock to the New York interbank payments system. Her boss, Robert Barr, demanded a quick indictment. Bruce Kirwan, her friend and former colleague in the U.S. Attorney's Office who now represented the Italian bank, wanted BNL-Rome protected. So did King & Spalding, the most influential law firm in Atlanta. Even the White House and the National Security Council called her and expressed concerns about the "embarrassment" the case was causing. Amid these extraordinary external pressures, McKenzie tried to handle the matter as a run-of-the-mill local white-collar crime case. She identified her target and proceeded with her usual dogged determination to build a case against him. Early on, she decided that her investigators had to get a crack at interviewing Drogoul. To arrange that, she'd need to get permission from his lawyer, Ted Lackland. She had never dealt with Lackland before. Not part of her familiar clique of federal criminal defense lawyers, he was an outsider. A thickset man in his mid-forties, Lackland had commanded a rifle company in Vietnam in 1968 and returned with a Purple Heart and a pair of Bronze Stars. After earning a master's degree in philosophy from Howard University and a law degree from Columbia University, he worked for three years as an assistant U.S. attorney in New Jersey. He knew how the immunity game was played, but he did not fare well in negotiations with McKenzie. Lackland felt he was tricked. "She had indicated that the situation from the government's perspective was quite dangerous," Lackland said later. "She indicated ... if we were to assist them in calming the crisis and answering some questions and attempting to put this in perspective, that she would entertain, though she could not promise, that she could discuss maybe five counts [against Drogoul]...." Lackland decided to let the FBI question Drogoul over several days in August 1989 without any formal guarantees. Eighteen months later, the government indicted Drogoul on 347 felony counts. McKenzie and Barr both wanted the longest possible jail sentence for Drogoul in this, their first, billion-dollar fraud. To get that, they would have to show he committed a very serious crime, one with high statutory penalties. Defrauding the bank of more than a billion dollars would certainly qualify. So McKenzie proposed in an October 1989 memo to Barr that they add "the scheme to defraud BNL" to the list of charges against Drogoul in order to "allow introduction of substantial dollar losses suffered by BNL." That way, if the bank claimed heavy losses, the prosecution could seek very stiff penalties. On the other hand, if the bank's losses were minimal--or self-inflicted--the potential penalties against Drogoul dropped off sharply. This new approach allowed McKenzie to harness the brainpower and resources of BNL's lawyers to prove that Drogoul had acted alone. Her new allies, Kirwan and King & Spalding, caught on quickly. They later declared that Drogoul had ripped off their clients for $1.8 billion. U.S. Attorney Barr had no problem with her plan. He even supported her request to send investigators to Rome and Istanbul, as long as an indictment followed quickly. The intent of the trip to Italy was not to investigate top BNL officials, but rather to clear those officials of Drogoul's charges of complicity. "A Rome setting is required for immediate access to all relevant records which may assist in defeating these spurious claims [by Drogoul]," Barr and McKenzie stated in a January 9, 1990, letter to an officer of the Federal Reserve Bank of Atlanta. Initially, Barr had ordered McKenzie to prepare an indictment by the end of 1989. That gave her less than five months to prepare the most complex financial case in the history of the district. The decision to set such an ambitious deadline fit a pattern. Dapper and image-conscious, Barr enjoyed making splashes in the media. In other cases, his office leaked so much sensitive information to favored reporters that he drew criticism for placing self-promotion above the duties of his office. To some, Barr's runs for the U.S. Senate in 1992 and the U.S. Congress in 1994 only confirmed suspicions that he had used his prosecutor's job as a political stepping stone. Barr abruptly quit as U.S. Attorney in January 1990. His departure marked a crucial turning point in the BNL investigation. McKenzie got a new interim boss in Atlanta, Ray Rukstele, and the Justice Department began to take a much more active role in the case. The department sent a senior lawyer from Washington to assess McKenzie's progress. In short order, the scheduled indictment was postponed indefinitely and the planned overseas trips were scratched. A memo written by a lawyer with the Federal Reserve Bank of New York hinted at the reason. "A planned trip to Italy by criminal investigators was put off because of BNL asserted concerns regarding the Italian press," Ernest T. Patrikis wrote on February 6, 1990. "A trip to Istanbul was put off at the request of Attorney General [Richard Thornburgh]." Clearly, Gale McKenzie's local criminal case was being manipulated by distant and powerful people. The FBI raid on BNL-Atlanta blew a large hole in the Italian bank's balance sheet and threatened to send damaging shock waves through world financial markets. Central bankers from the U.S. Federal Reserve Board view such threats gravely. In 1984, the Fed coughed up billions of dollars in emergency credit to save Continental Illinois National Bank in Chicago from a liquidity crisis that threatened dozens of midwestern farm belt banks. In the hours before the 1989 BNL-Atlanta raid, the Fed knew that the markets would be shocked to learn--on Monday, August 7, at the latest--that BNL had a huge and previously unreported volume of assets in the form of unsecured loans to Iraq. Fed officials worked with central bankers in Italy to manage a calm response. They were worried because BNL's Iraq loans were being funded by short-term loans from other banks. There was a danger that the other banks would abruptly refuse to lend BNL more money until they better understood the crisis. That would create a liquidity crisis at BNL similar to the one Continental faced. If BNL wasn't able to repay all its short-term loans to other banks, those lenders would have to scramble to repair their own damaged liquidity positions. In a worst-case scenario, the interbank borrowing market could have broken down due to the sort of fears that trigger bank deposit runs and stock market crashes. While the chances of such a systemwide liquidity crisis may have been remote in the BNL affair, central bankers prefer to play it safe. They are the government's "lender of last resort," the final line of defense against chaos in the financial markets. E. Gerald Corrigan was the appropriate person to manage the BNL crisis for the Fed. President of the Federal Reserve Bank of Minneapolis during the Continental scare, Corrigan had been promoted to president of the Federal Reserve Bank of New York in time for the 1987 stock market crash. The New York Fed carries out U.S. monetary policy and oversees electronic funds transfers between domestic and international banks. That made Corrigan the second-ranking official in the U.S. Federal Reserve System. Only the Fed chairman was more powerful. Shortly after lunch on August 3, 1989, Corrigan--a large, burly man with a florid complexion--telephoned Lamberto Dini, managing director of the Bank of Italy. It was late evening in Rome. The number-two central banker in the United States had an urgent but cryptic message for the number-two central banker in Italy: he warned of a "possible" regulatory problem with an Italian bank in America. Corrigan refused to give many details over the phone, but he underscored the gravity of the situation by promising to send emissaries to Rome within twenty-four hours. A Fed spokesman later told the Associated Press that "there was no mention of the nature of the problem or specifics." Dini told the Italian Senate investigators a slightly different story. "He [Corrigan] specifically advised me that there was the possibility of irregularities involving the Atlanta branch of BNL," Dini said of the August 3 phone call. About fourteen hours later--at nine-thirty the next morning in Italy-officials from the New York Fed and the Federal Reserve Board in Washington arrived at Dini's office in Rome. They revealed plans for the FBI raid later that day. The Fed officials were worried, Dini explained, that news of the search would leak out over the weekend and shock the interbank market. They wanted the Bank of Italy to be fully prepared. According to Dini, the Fed was concerned the crisis might "hamper" the vital New York Clearing House Interbank Payments System, or CHIPS. CHIPS confirms and records most of the world's dollar-denominated electronic funds transfers--more than $1 trillion a day--on a series of mainframe computers in midtown Manhattan. Interruptions are not welcome. Playing it safe, the Fed officials calculated that BNL might need a transfusion of "several hundred million dollars a day," beginning Monday. Learning that BNL-Atlanta would be raided that day put Lamberto Dini on the spot. BNL, like his own employer, was owned by the Italian government. Naturally, BNL would appreciate a few hours' notice of the FBI's plans. But Dini and the Fed insisted the secret was withheld until it no longer mattered. Dini testified that it was only after he took another call from Corrigan at 7:00 p.m." Rome time, August 4, that he asked BNL's top two officers, director general Giacomo Pedde and chairman Nerio Nesi, to pay him a personal visit around 10:30 p.m.--just minutes before the raid in Atlanta. Despite the late hour, Pedde and Nesi came and listened to reports about the off-book credits to Iraq granted by BNL's Atlanta branch. "Dr. Pedde almost collapsed in the armchair where he was seated," Dini told the Italian senators. "Dr. Nesi looked extremely grim and showed great concern ... I had the impression that they were in the dark." It's unclear exactly what role the top central bankers in the United States and Italy played in calming the crisis. Paul Von Wedel said investigators told him that Fed Chairman Alan Greenspan secretly flew to Atlanta either just before or just after the FBI raid. Von Wedel said he was told Greenspan met with prosecutors to urge them not to make noise about the raid. But a spokesman for the Fed denied that Greenspan flew to Atlanta anywhere near the time of the raid. Dini said he informed the governor of the Bank of Italy, Carlo Azeglio Ciampi, of the affair on the morning of August 4. But there's no sign Ciampi took charge. Apparently, Dini played a more important role in seeing to it that the Bank of Italy was ready to give BNL backup credit when the world markets woke up Monday morning. But by then, BNL had transferred its own fresh reserves to BNL-New York and suspended payouts from its Atlanta branch. The FBI raid turned out to be a nonevent in world money markets on August 7. Even so, McKenzie cleverly used the vague specter of financial chaos to prod Lackland into exposing Drogoul to her investigators. The clamp down on BNL-Atlanta did not trigger a worldwide banking crisis, but it did rock U.S. relations with Iraq. Baghdad was dumbfounded by the FBI raid. Hadn't Washington been sharing classified satellite photos with Iraqi intelligence and tolerating its weapons procurement network in America? Why was it suddenly pulling the plug on Iraq's key financial channel for sensitive military imports? The Iraqis simply did not understand. "Well, what seems to be the problem?" one Iraqi asked Chris Drogoul in London the day after the raid. "Where did the money come from that you lent to us? Was it drug money?" Drogoul said it wasn't drug money, but he didn't understand precisely what the problem was. The Iraqis angrily demanded that Washington clarify its intentions. President Bush and Secretary of State James Baker hurried to smooth their ruffled feathers. They wanted to encourage the flickering trade relationship, not kill it. So, without fanfare, the president signed a secret national security decision directive, titled NSD 26, ordering pursuit of better relations with Iraq. The directive, dated October 2, 1989, called for the use of trade to gain leverage over Saddam to moderate his aggressive tendencies. Although the order called for punishments if Iraq pursued weapons of mass destruction, the administration's goal at the time was to placate, not to discipline. NSD 26 served as the marching orders for U.S. policy toward Iraq until its August 1990 invasion of Kuwait. It had roughly the same effect as Nixon's 1972 order that cleared the way for military sales to Iran. Despite NSD 26's strategic significance--or perhaps because of it-Congress and the public didn't catch a glimpse of it until after the Persian Gulf shooting started. NSD 26 was classified. Portions of the document dealing with the rest of the Persian Gulf remained secret years later. A section dealing with Iraq, which was eventually declassified, reads as follows: Normal relations between the United States and Iraq would serve our longer-term interest and promote stability in both the Gulf and the Middle East. The United States Government should propose economic and political incentives for Iraq to moderate its behavior and to increase our influence with Iraq. At the same time, the Iraqi leadership must understand that any illegal use of chemical and/or biological weapons will lead to economic and political sanctions, for which we would seek the broadest possible support from our allies and friends. Any breach by Iraq of IAEA [International Atomic Energy Agency] safeguards in its nuclear program will result in a similar response. Human rights considerations should continue to be an important element in our policy toward Iraq. In addition, Iraq should be urged to cease its meddling in external affairs, such as in Lebanon, and be encouraged to play a constructive role in negotiating a settlement with Iran and cooperating in the Middle East peace process.. . But just as the White House was trying to mollify Iraq, McKenzie's BNL task force in Atlanta was stirring up new trouble. Her investigators claimed the Agriculture Department's CCC loan guarantee program with Iraq was thoroughly rotten with fraud. This undiplomatic charge presented a problem for Saddam Hussein. Iraq had received $ 1 billion in CCC guarantees in fiscal year 1989, and it was counting on another $1 billion for fiscal 1990. BNL-Atlanta wasn't significantly involved in CCC funding for either of those years, but that was beside the point. Information pouring out of the BNL task force in mid-October 1989 was so disturbing that U.S. Department of Agriculture (USDA) officials told an Iraqi delegation in Washington they'd be lucky to win half the $ 1 billion sought for 1990. McKenzie's lead investigator, Arthur J. Wade Jr." was an agent with the Agriculture Department's Office of the Inspector General. A rangy man, keen and reserved, Wade was assigned to the BNL case twenty-six days after the FBI raided the Atlanta branch. He'd joined the Agriculture Department less than a year earlier. Before that, he'd worked at the Pentagon as civilian analyst for the U.S. Army's Criminal Investigation Division, where he had worked international cases. During his career, Wade had investigated drug and street crimes, arson, black marketeering, and theft of government explosives. Agricultural guarantees and banking were relatively new to him, but he caught on fast. After Wade and McKenzie briefed federal officials on their findings, dire warnings about CCC fraud began surfacing at the State Department. According to an October 13 memo by Frank Lemay, a thirty-two year-old foreign service officer, Iraq often demanded kickbacks from companies exporting under the loan program. It may have even used CCC-backed funds to obtain a nuclear-fuel compounder, Lemay reported. "USDA is looking at possible diversion of CCC guaranteed commodities during transit land] illegal payments required by Iraq of exporters in order to enter the Iraqi market," Lemay wrote. "If smoke indicates fire, we may be facing a four-alarm blaze.. .. USDA expectations are that the investigation could 'blow the roof off the CCC." " The Agriculture Department didn't want to give Iraq the full $1 billion in new CCC guarantees it was requesting for fiscal 1990. It figured $400 million was plenty. To the Iraqis, the proposal was a new insult. They marched straight into the highest offices of the Bush administration. Iraqi Foreign Minister Tariq Aziz and an entourage visited James Baker in Washington on October 6. Aziz had a bone to pick. Displaying an eagerness to please, Baker listened politely and promised to check out each of the Iraqi's complaints. Details of the meeting were spelled out in a secret cable Baker wired to April Glaspie, the U.S. Ambassador to Iraq in Baghdad. Aziz griped that the United States "seemed to have a negative approach to the Iraqi postwar efforts to develop its industry and technological base." His country's goal, he explained, was to "develop the country for our people--to raise their standard of living." According to Baker, Aziz implied that Iraq's buildup was being misrepresented and promised that territorial ambitions weren't motivating it. He was especially upset about a "propaganda campaign against Iraq in the U.S.--particularly in the Congress." Baker noted that congressional calls for sanctions were a response to Iraq's use of chemical weapons during its war with Iran and that in any event, the Bush administration opposed them. "Our position continues to be that we need to look forward, not backward," Baker added reassuringly. The foreign minister's protests set the stage for discussions about the CCC crisis. Aziz said Iraq was shocked that the United States didn't plan to offer Iraq more than $400 million for fiscal 1990. Such a small allotment, Aziz said, would force Iraq to scramble for new suppliers. His country might not be able to find them. He warned Baker that the United States was tampering with Iraq's ability to feed its people. Baker explained that several U.S. agencies wanted to see whether Iraq had a guilty hand in the BNL-Atlanta affair. He pointed out that Iraq had received most of the allegedly unauthorized loans made by the Atlanta branch. Aziz insisted that Iraq's hands were clean. "If the government of Italy is not taking action against Iraq, it is strange that the U.S. is," the foreign minister said. Over the next five weeks, Baker and his deputy, Lawrence Eagleburger, helped Iraq win up to $1 billion in loan guarantees. Splitting the lobbying chores, they wielded NSD 26 like a club to beat back stiff bureaucratic resistance to giving Iraq just what it demanded. They bulldozed over concerns that Iraq was a poor credit risk and ignored the fact that Saddam was hurrying to prepare weapons of mass destruction. Baker handled the Agriculture Department by calling its Secretary, Clayton Yeutter, on October 31. According to confidential notes of the call, Baker stressed that McKenzie didn't intend to indict Iraqis and that Iraq promised to cooperate with her investigation. But just to be on the safe side, he suggested releasing the $1 billion in guarantees in two stages. The first $500 million would be available immediately; the second installment would be freed up later if Iraq wasn't implicated in the scandal. At the bottom of his page of notes, Baker scribbled that Yeutter responded: "I think we're seeing it the same way you guys are. I'll get into it." With Yeutter on board, Eagleburger still had to tame the Treasury Department, which opposed giving Iraq another dollar of CCC credits. He made his final pitch to Deputy Secretary John Robson in a November 8 letter. Citing NSD 26, Eagleburger wrote: "To realize Iraq's enormous potential as a market for U.S. goods and services, we must not permit our displacement as a major trading partner." Later that day, an interagency panel awarded Iraq the full $ 1 billion on the conditional basis after the Federal Reserve grudgingly agreed not to be "obstructionist." In the weeks before the decisive November 8, 1989, vote on CCC credits, McKenzie's team briefed Department of Agriculture officials Kevin Brosch and Larry McElvain about Iraqi "criminal complicity" in the BNL case. At one meeting on October 11 in Atlanta, McKenzie covered in some detail a host of apparent Iraqi crimes against BNL and the Agriculture Department. But her strong message to Brosch and McElvain wasn't reflected in an Agriculture Department summary of the Atlanta investigation delivered just before the crucial CCC vote. Instead, the report concluded that there was no compelling evidence Iraq had defrauded the CCC. Art Wade, McKenzie's lead investigator, later challenged the report's objectivity. It had been "artfully" drafted for a "definite purpose," Wade later told the Senate Agriculture committee staff. McKenzie later claimed in a memo to file that she had explicitly described Iraqi crimes to the Agriculture Department officials in October 1989. But McKenzie had been sending a message the Bush administration did not care to hear. Her signals tended to undercut the pleas of Baker and Eagleburger for more Iraqi loan guarantees. In early November 1989, Jay Bybee, an attorney on the staff of White House Counsel C. Boyden Gray, twice telephoned McKenzie directly in Atlanta. A memo written by a Treasury Department official said McKenzie had mentioned that Bybee expressed concern about what she called the "embarrassment level" of the BNL case. When the memo became public, Bybee and McKenzie insisted he was calling to obtain newspaper clippings-not to influence her handling of the case. The following spring, McKenzie was summoned to Washington to reveal her findings on Iraq and the CCC to officials with the National Security Council. McKenzie, meanwhile, steadfastly insisted that she hadn't felt--let alone succumbed to--any political pressure. "Every day something comes out saying this is a political matter," McKenzie said. "It is not a political matter. We have always pursued law enforcement goals in this case, whatever it took." That law enforcement goal was to place Drogoul behind bars until he was old and gray. Chapter 11 FIXING THE BLAME "[BNL Chairman Giampiero] Cantoni .. . said BNL's U.S. lawyers were urging him to raise the [BNL-Atlanta affair] to a 'political' level." --Confidential October 1989 telex from U.S. Embassy in Rome to U.S. departments of State, Treasury, and Justice discovery of off-book loans in Atlanta raised the prospect that a bank owned by the Italian government would be subjected to a criminal prosecution by a "friendly" government. Bank officials in Rome launched a two-pronged effort to make sure that did not happen. First, they began cultivating Gale McKenzie. Within forty-eight hours of the FBI raid, the bank hired Bruce Kirwan, a defense attorney who had known McKenzie for years and got along with her extremely well. Kirwan was a disarming fellow who had earned his law degree from the University of Georgia and served three years as an assistant U.S. attorney in Atlanta. He moved on to become the executive director of the Federal Public Defender Program in Atlanta, then in 1980 to private criminal defense work. He was hired by BNL to monitor McKenzie. In addition, the bank retained King & Spalding to handle a host of legal disputes between the bank and customers of its Atlanta branch. Meanwhile, bank officials in Rome raised the case to a "political level" by lobbying top political figures in the departments of State and Justice. In other words, BNL did not want the final decision on whether to indict the bank left in the hands of McKenzie or her immediate superiors within the U.S. Justice Department. When Drogoul finally returned to his Atlanta office on Tuesday, August 8, 1989--four days after the FBI raid--he was quickly cornered by BNL's damage-control crew. Surrounding him in his office were Kirwan and four BNL officials, including Umberto D'Addosio, the BNL-Rome official who had taken control of the Atlanta branch, and Louis Messere, the bank's New York auditor. In keeping with his strategy of minimizing the crisis, Drogoul agreed to answer their questions without a lawyer. He did not want to create the impression that he'd done anything wrong. D'Addosio began by asking Drogoul if he would give his cooperation. "It is my obligation to assist the bank," Drogoul replied. According to BNL's minutes of the meeting, Kirwan told Drogoul he might face severe charges and added that it was in his interest to cooperate with the bank. Kirwan later testified about the meetings. "I said, "Mr. Drogoul, you are in a whole potful of trouble," " Kirwan testified. "I made it very clear to Mr. Drogoul that he shouldn't be making statements to me.. .. But if he wanted to talk to us, we wanted to get to the bottom of what was going on. And he was very eager to talk to us. "Early on ... he was a very self-confident gentleman," Kirwan continued. "He gave the appearance that everything that he did was under control, that he had answers to everything. It was a crisis situation and he was cool as a cucumber. He said, "Let me have two weeks, two more weeks in this bank, and I can straighten everything out." "It was the comment of a consummate con man .. . the ultimate act of someone who thought he could still con the world." If BNL officials agreed that Drogoul was a con man, they made no immediate move to fire him. There was no point in alienating him while he was voluntarily answering their questions. Drogoul cooperated with the bank and federal agents by sitting for more than a dozen sessions in August 1989. Sometimes he had an attorney present, sometimes he met with bank officials without an attorney. He adopted a casual, aloof tone that was often read as arrogance. Bank officials found Drogoul exasperating to interview. He was not good with details. And he was no help in their frantic search for a copy of the fourth medium-term loan agreement with Iraq, the $1.155 billion unsecured line he'd granted that April. Lackland said that in the absence of the written agreement, McKenzie jumped to the conclusion that Drogoul himself had pocketed the billion dollars. Finally, Leigh New volunteered to obtain a copy. She placed a call to an Iraqi contact, and a copy of MTL-4 soon arrived by fax from Baghdad. Drogoul was suspended on Friday, August 11, one week after the raid. He continued to meet with bank officials after that, but he grew more defensive. During a three-hour meeting with two BNL officials on August 15, he himself declared: "Drogoul is under fire now, unlike others who, perhaps, have less courage." The bank fired him on September 6. Much to Kirwan's delight, McKenzie didn't appear to be training her prosecutorial sights on any BNL official higher than the American who ran the Atlanta branch. In Italy, however, there was absolutely no way the scandal would be contained at the branch manager level. Pressure was building for the biggest BNL management shakeup since the P2 scandal of 1982. Powerful men like Treasury Minister Guido Carli were demanding an explanation of how Drogoul and company carried out such a huge scheme for so long. Were BNL executives and auditors in cahoots or merely incompetent? When Carli made public charges that BNL branches in Italy had routinely channeled Iraqi credit requests to Atlanta, it became apparent that high-level heads would have to roll. On September 7, BNL's chairman, Nerio Nesi, and general director, Giacomo Pedde, resigned. Nesi, a Socialist, accused Carli, a Christian Democrat, of grandstanding and trying to use the scandal to privatize the bank. But he could not save his job. Nesi was replaced by Giampiero Cantoni, another prominent Socialist. Pedde, a Christian Democrat, was succeeded by Paolo Savona, a former associate of Carli. A few days after the shake-up, an Italian military attache in Baghdad, Air Force Colonel Giuseppe Schiavo, was found shot to death at his home in Turin. The Los Angeles Times reported that a source said the apparent suicide may have been connected to the officer's role in the Atlanta affair. The source, whom the newspaper did not identify, claimed intimate knowledge of the Italian Embassy in Baghdad and said the embassy was "under strong suspicion of complicity" in the scandal. The colonel's death was a straw in the wind. It hinted that the Atlanta affair involved international weapons trafficking. But questions about how Iraq actually spent BNL's money didn't take on true urgency until the Iraqis marched across the Kuwait border on August 2, 1990. In the fall of 1989, BNL could still afford to focus on straightening out its finances and staying out of legal hot water in the United States. The legal matter, in particular, rated high-level political attention. In September 1989, when Italy's President Francesco Cossiga flew to the United States for his first meeting with President Bush, BNL's new chairman, Giampiero Cantoni, rode along. On the return flight to Rome, Cantoni called ahead to set up a meeting with Peter Secchia, the U.S. Ambassador to Italy. On October 19 in Rome, Cantoni told Secchia that BNL's lawyers expected the United States to file criminal charges against the bank under the antiracketeering act known as RICO. They also worried that BNL or Iraqi assets would be frozen in the United States. Paolo Savona, the bank's new director general, added that he feared the scandal would jeopardize BNL's ability to collect on CCC loan guarantees if Iraq should default. Secchia described the meeting in a confidential telex to Secretary of State James Baker that was copied to the Federal Reserve Board and the director of the FBI. In it, Secchia said Cantoni told him that BNL's new U.S. lawyers had urged that the case be raised to a "political level." According to the telex, the ambassador made no commitment to intervene politically in the criminal case. But he told Cantoni he would relay BNL's concerns to Washington. In summarizing to the State Department, Secchia wrote: "They [BNL officials] indicated their desire to cooperate fully with U.S. government authorities while at the same time making it fairly clear they want to achieve some kind of damage control." Paolo Di Vito coordinated the bank's damage-control efforts in the United States. A former Citicorp official, he headed a special team called the "Atlanta Group." Kirwan reported to him. So did Walter Driver, the reserved, buttoned-down King & Spalding partner who spearheaded the firm's efforts on behalf of BNL. In the early stages of the affair, the bank's strategy was fairly simple. Kirwan and Driver tried to steer McKenzie toward the idea that BNL officers in Rome were ignorant of Drogoul's off-book loans to Iraq. They were not Drogoul's accomplices, but his victims, the argument went. McKenzie agreed, and joined them in an informal partnership. They helped her obtain documents and witnesses. They walked her through complex international finance deals. In turn, McKenzie shared some of her thoughts with Kirwan. He made an effort to learn as much as possible from her and report back to Di Vito. Judging from several of the hundreds of confidential diary entries Di Vito wrote, Kirwan was fairly successful. "Mr. Kirwan called with important news," Di Vito wrote in his diary on January 4, 1990. The entry said the Atlanta lawyer "spent three hours last night" with McKenzie and learned that Drogoul intended to claim that BNL management knew about all the Atlanta branch activities. Continuing his report on the Kirwan-McKenzie meeting, Di Vito wrote that McKenzie planned a trip to Europe later that month "possibly to refute Drogoul's assertions." It was fortunate for Di Vito that McKenzie was proving so agreeable because he had another time-consuming job to complete in late 1989. The Iraqis were refusing to recognize their obligation to repay the loans BNL-Atlanta had granted under the four medium-term loan credit lines. Di Vito was assigned to negotiate a compromise. The problem was Iraq would only begin repaying after BNL let it completely exhaust the $2.155 billion in credit under the MTLs. In practical terms, that meant Saddam Hussein was insisting on hundreds of millions of dollars in new loans before he'd commit to repay old ones. Di Vito's negotiations began with a hasty mission to Baghdad in August 1989 and would end in compromise at a Geneva hotel in January 1990. In his diary, Di Vito described his Iraqi counterparts as surly and intransigent in their demands that BNL permit it to draw all remaining credit from the MTL agreements signed by Drogoul. The implied alternative, Di Vito wrote, was legal action seeking damages of up to $2 billion. "They considered themselves the injured party!" Di Vito noted on November 23, 1989. By mid-December, talks were at an impasse and relations had turned frigid. When Di Vito tried to telephone Iraq's lead lawyer, Fadel Jawad Kadhum, he was told that Kadhum had taken a ten-day trip. Di Vito assumed his adversary was out searching for American and European lawyers to handle an Iraqi lawsuit against BNL. When Kadhum returned his call several days later, Di Vito wrote: "After the usual polemical 'barrage," we both verified that the situation is grave." Nevertheless, Di Vito and Kadhum agreed to assemble delegations and have them meet in a neutral place. Di Vito's delegation arrived at the Hilton Hotel in Tunis on Christmas Day for talks the next morning. By then, there was new cause for hope. The Italian government had agreed to kick in loan guarantees to break the deadlock. Also, the Iraqis seemed willing to use two thirds of their new credits to finance goods purchased exclusively from Italy. A draft agreement was hammered out by December 27 and forwarded to Baghdad. Three weeks later, the delegations met in Geneva--Di Vito rejected Baghdad as a site--and signed a binding agreement. Iraq agreed to repay credits granted under Drogoul's four MTL agreements. As of January 12, 1990, the Iraqis had already drawn on $1.55 billion of the $2.155 billion total. After subtracting several large credits it had canceled, Iraq conceded that it had only $252 million left on the credit lines. It agreed to use two thirds of that sum to finance Iraqi imports from Italy. Significantly, at least $150 million of those funds earmarked for Italian companies was to be used for down payments on export projects worth $1 billion. SACE, Italy's equivalent of the U.S. Export-Import Bank, would guarantee every dollar. So BNL and its owner, the Italian government, cut a new billion-dollar deal with Drogoul's alleged accomplices, the Iraqis. The bank, Italian exporters, and the Iraqis all had cause to celebrate. BNL obtained a pledge from Baghdad to keep at least $80 million on deposit at the bank and to channel its letters of credit through BNL "whenever possible." Italian exporters--who had tiptoed when using Drogoul's financial channel-could look forward to $ 1 billion in new officially sanctioned financing. And Iraq walked away with a fresh $1 billion in guaranteed financing to resume its military-industrial buildup. The only apparent loser was the Italian taxpayer, who was put on the hook for the $1 billion in SACE guarantees. But Di Vito had no time to bask in success after the Geneva agreement. A full-scale crisis was looming on the U.S. legal front. In January 1990, prosecutors said, Pierre Drogoul obtained $750,000 from his son's nest egg in Europe and hired the powerful Washington law firm of Williams & Connolly for Christopher Drogoul. Within days, Attorney General Richard Thornburgh ordered the Justice Department in Washington to review the BNL case. Veteran Justice lawyer Peter Clark was dispatched to Atlanta to peek over McKenzie's shoulder. He wasn't at all impressed with her work. Clark insisted on a full review before anyone granted new immunity agreements or announced an indictment based on the bank-as-victim theory. McKenzie had planned a trip to Turkey to grant immunity to Yavuz Tezeller, the former head of Entrade, in exchange for testimony against Drogoul. But the trip was nixed. Meanwhile, investigators who had been pressed by Atlanta U.S. Attorney Robert Barr, Jr." to rush an indictment by February were told to cool their heels. "We put the horse in the gate, but they wouldn't open the gate," William Hinshaw II, head of the FBI in Atlanta, said of the roadblocks erected by Washington early in 1990. It wasn't clear why Thornburgh ordered a review of the BNL prosecution. Maybe the U.S. Attorney General was prodded into action by Drogoul's new lawyers at Williams & Connolly. Or maybe the BNL review was Thornburgh's reflex action to the sting of criticism over his recent soft plea agreement with BCCI. In any event, McKenzie scurried off to the offices of King & Spalding, headquarters for BNL's legal brain trust, to polish up her reasons why the bank had to be Drogoul's victim. She presented a list of those reasons to Clark's boss in Washington, Laurence A. Urgenson, on February 23, 1990. McKenzie explained that BNL had done an adequate job in controlling and monitoring its branches and that the bank was no more at fault than the Federal Reserve. After all, she argued, the Fed was supposed to examine the Atlanta branch office too. But Urgenson wasn't any more impressed than Clark. The bank-as-victim theory wasn't flying in Washington. Paolo Di Vito was quick to detect the shift in the wind--a change that his legal watchdogs in Atlanta apparently hadn't noticed. Kirwan and Driver were still counseling that there was no problem. Sit tight, they said. McKenzie was solidly behind the bank and there was no chance that it would be indicted, they promised. But Di Vito was looking beyond the legal landscape in Atlanta, and he spotted trouble. Di Vito was perplexed that the bank's American attorneys were dismissing the possibility of a criminal indictment of the bank. He wrote in his diary for March 12 that their "low profile" strategy seemed inadequate "for a reality which seems more influenced by political factors in Washington" than by Gale McKenzie's appraisals at the U.S. Attorney's office in Atlanta. By this time, BNL had already wheeled in its big guns. Italian Prime Minister Giulio Andreotti met with Thornburgh a week earlier. In preparing for the conference, the Attorney General ordered a briefing memo that included a summary of the BNL prosecution in Atlanta. Later in March, Italian Ambassador Rinaldo Petrignani bumped into Thornburgh at a White House dinner. According to Di Vito, Petrignani explained to Thornburgh that prosecuting the bank "would add insult to injury," and wouldn't be understood in Italy. Thornburgh, however, later denied to the Associated Press that he'd spoken with Petrignani about the BNL case. He did acknowledge meeting with the ambassador "on a variety of matters, but none of those had any bearing" on the BNL probe. That same month, Petrignani also had a planned meeting with Thornburgh's chief of staff, Robin Ross, and two assistant attorney generals to discuss the BNL case. "Why worry now?" Ross asked Petrignani, adding that there would "not be any surprises." Petrignani also stopped by the State Department, where he met with the chief counsel, Abraham Sofaer, to discuss BNL. After hearing Petrignani's version of the exchange, Di Vito wrote that Sofaer also asked why the bank was worried. But BNL's fears seemed to be confirmed when Bruce Kirwan called Di Vito on March 22 to report that McKenzie told him there was, after all, some consideration of indicting the bank. A day later, Di Vito wrote that the bank's strategy of cooperating with McKenzie was losing its value. He said the alternate strategy of relying on political connections to protect the bank "appears more promising." In early April, the anxious Italian bankers asked their top American lawyer what he thought. Griffin Bell told them they were absolutely right to worry, the bank was in danger of being indicted. Another partner at King & Spalding's Washington office, William Hendricks, proposed a series of technical defenses. Hendricks could claim special insights into the thinking of top Justice Department prosecutors because he'd served as chief of the fraud section of the department's criminal division until the very day of the FBI raid in Atlanta. (He later told The Wall Street Journal he didn't know about the pending raid when he made his career move.) By the spring of 1990, the very section Hendricks had managed was deeply involved in overseeing the BNL case. BNL officials had become concerned that federal prosecutors might view the bank as an ideal corporate defendant. Charging it with crimes would show the financial world that the U.S. government was cracking down on careless international bankers. BNL lawyers feared the bank might even be seen as an easy target because it had vast financial resources but no electoral base of support in the United States. If so, it would follow that the domestic political costs would be limited, the lawyers speculated. To be on the safe side, BNL decided to hire even more political clout. It was pleased to have one former Attorney General on its payroll, but it decided it would be prudent to hire a second. The bank had made a wise political choice when it hired Griffin Bell's law firm in August 1989. Bell had been Thornburgh's boss in the Carter Justice Department during the late 1970s. In the decade that followed, Bell drifted away from the Democratic Party and forged close ties to Carter's Republican successors. He was particularly well connected to George Bush. But Bell would never entirely escape his association with Carter and the Democrats. Since the Bush administration was, after all, Republican, BNL felt it made sense to hire William Rogers, a true Republican powerhouse. Rogers had served as U.S. Attorney General under President Eisenhower in the 1950s, but he was better known as Richard Nixon's first Secretary of State. Rogers signed on as lawyer for BNL and, symbolically, for the government of Italy on April 6, 1990. That very day, BNL officials learned from Gale McKenzie that the Williams & Connolly firm had inexplicably dropped off the Drogoul defense team. The scales of justice had tipped. In early May, Di Vito's diary revealed, Rogers planned to fly to Rome with Vice President Dan Quayle. At the end of the month, Di Vito received encouraging news from Gale McKenzie through Bruce Kirwan. He wrote in his diary that Kirwan said the bank was no longer a target for indictment. The Justice Department later insisted that it didn't sign off on the theory that the bank was an innocent victim until many months later. But in the early summer of 1990, Di Vito wasn't the only one getting signals that Washington had in fact signed off. Ernest Patrikis, the attorney with the Federal Reserve Bank of New York, sent the following electronic mail message on June 18: "I understand that Main Justice has decided that Lavoro [BNL] should not be indicted for the Atlanta matter." If the Italians could buy well-connected former Justice Department lawyers, the Iraqis could too. Joe D. Whitley was an earnest and likable fellow from Columbus, Georgia. Somewhat overshadowed as a kid by an older brother who starred as a high school and college basketball player, Whitley gravitated to law, politics, and the science of pleasing people. He was tall and beefy, and had a shock of brown hair that covered much of his forehead. Whitley showed a knack for locating politically potent Republican mentors. Before turning thirty, he helped Mack Mattingly pull a stunning upset of Herman Talmadge in Georgia's 1980 U.S. Senate race. He was soon appointed U.S. Attorney for the state's middle district, based in Macon. Before his thirty-fifth birthday, Whitley toted his aw-shucks, self-deprecating style to Washington to take a senior position in President Reagan's Justice Department. By early 1989, Whitley had risen to the department's number-three post. His duties included supervising the nation's ninety-four U.S. attorneys. That spring, as the new Bush team was taking over, Attorney General Thornburgh asked him to remain on staff as his special assistant. "He wanted me to be his close adviser on criminal issues," Whitley said. "Around Easter 1989, I had the option to do that or return to Georgia. But my roots are pretty deep fin Georgia]." Whitley said he declined Thornburgh's offer, put his Washington, D.C." house on the market in May, and headed back to Atlanta--without a job. Many in Atlanta legal circles thought he was positioning himself to replace Robert Barr as U.S. Attorney because Barr was not widely respected. But it seemed odd that anyone of Whitley's stature would bail out of Washington without first lining up work. It seemed particularly out of character for a cautious type like Whitley. Officially, Whitley left the Justice Department on June 30, 1989, but he didn't actually move back to Georgia until August 10, six days after the Justice Department helped carry out the raid on BNL-Atlanta. Like William Hendricks of King & Spalding, Whitley said he wasn't involved in preparations for the FBI raid while working at Justice. On September 1, Whitley joined the Atlanta law firm of Smith, Gambrell & Russell to specialize in white-collar criminal defense. Within a few weeks, the Iraqis picked Smith, Gambrell to represent Matrix-Churchill Ltd. and Matrix-Churchill Corporation, the two front companies that served as the hubs of Iraq's weapons procurement activities in England and the United States. Whitley was immediately assigned to the team handling the highly sensitive BNL case. Over the next few months, he supplied strategy to help his new clients dodge an indictment by Gale McKenzie. McKenzie had noticed that both Matrix-Churchill firms used BNL Atlanta extensively to fund weapons-related purchases. By the fall of 1989, she was trying to determine whether the companies committed crimes in a conspiracy with Drogoul at BNL. According to an October 31 letter that Smith, Gambrell's John Latham wrote to Matrix-Churchill's Cleveland attorneys, McKenzie was exploring possible violations of the Export Administration Act and the Foreign Corrupt Practices Act by the Iraqi firm. Latham went on to tout the firm's well-connected newcomer, Joe Whitley, explaining about his former high status in the Justice Department. Whitley had to walk a fine line as he worked to sidetrack charges against his clients. Government rules prohibited him from using his contacts at Justice to help any client for at least one year after quitting the department. Whitley insisted he strictly obeyed the rule. He said he didn't talk to Gale McKenzie or anyone else in the U.S. Attorney's Office in Atlanta about the Matrix-Churchill case. "Any contact that occurred, occurred through other individuals in the [Smith, Gambrell] firm," Whitley said. Confidential handwritten notes of a November 10, 1989, legal conference show that Whitley explicitly laid out McKenzie's concerns about commissions his client had received and other matters. Ten people were present, including two other lawyers from Smith, Gambrell, four representatives of Iraqi entities, and three lawyers from the Cleveland firm of Arter & Hadden. The handwritten notes identified each speaker by his or her initials. Entries that began with the initials "JW" included the following updates on the BNL matter: U.S. Attorney firmly believes Drogoul would not have taken risks without a payoff.. .. U.S. Attorney will at some time have to get Washington [unintelligible].. .. The U.S. Attorney wants to look at several areas re MCC [Matrix-Churchill Corp.]: 1/Commissions paid to MCC by third party contractors.. .. The notes also suggested that if McKenzie's overzealousness became a problem to Matrix-Churchill, Washington might intervene. At one point, Latham said: "We are trying to 'go around' U.S. attorney [McKenzie] to sway her opinion because of her own personal beliefs because she has no appreciation of how the world works." Chapter 12 MIXED SIGNALS "You see, Americans are naive, stupid." --Ali Daghir, before he was charged with trying to smuggle triggers usable for nuclear weapons to Iraq "n February 12, 1990, Deputy Secretary of State Lawrence Eagleburger sent a secret warning to U.S. embassies in the capitals of nine allies, including Bonn, London, Paris, Rome, and Tokyo. Iraq, the State Department had learned, was shopping for materials for its missile and nuclear weapons programs. The cable, a model of anti-proliferation caution, ordered the embassies to try to shut down exports of carbon-fiber and glass-fiber technology to Iraq. The lightweight fibers could be mixed with metal or used by themselves in place of metal to provide extreme resistance to heat. They were commonly used by aerospace firms for missile nose cones. But they were useful in all sorts of processes, ranging from the manufacture of fishing rods to uranium enrichment for nuclear weapons. Eagleburger's cable spelled out the administration's fears that Iraq wanted to build a glass-fiber production plant at its NASSR State Enterprise, a known missile and nuclear development site. Given NASSR's recent arms procurement record, the State Department was confident it wasn't interested in making fishing rods. "Certain high-precision forms of carbon fiber and glass fiber technologies have both missile and uranium enrichment centrifuge applications," the cable explained. Eagleburger went so far as to list companies in the allied countries that produced the feared technologies and were apt to be approached by the Iraqis. "A number of companies in the U.S. manufacture these items," he informed the embassies. "The [U.S. government] is exercising special caution to ensure that those companies are also being told that, given U.S. policy, licenses for the export to Iraq of these particular items would not be granted. "The [U.S. government] urges your government to take similar steps.. ." And yet, at the time of the government's special caution, a California company was already well along in the process of building the feared glass-fiber plant at NASSR. Matrix-Churchill Corporation in Cleveland had approached Glass Incorporated International nearly two years earlier, claiming that Iraq wanted to make fishing rods and shower stalls. Iraq had used BNL-Atlanta as its paymaster for the $14.3 million deal. Gordon Cooper, vice president at the Matrix-Churchill in Cleveland, said he was assured that "the glass could only be used in a military function if combined with carbon fibers." But the Iraqis kept Cooper and others at Matrix-Churchill in the dark, according to Paul Henderson, the managing director of Matrix-Churchill Ltd." the larger British affiliate. "The Iraqis told me [the glass-fiber plant] was intended for missiles," Henderson said. In fact, the Iraqis had already teamed with Canadian ballistics expert Gerald Bull to buy a plant in Ireland capable of producing carbon fiber. Glass Inc. wasn't required to obtain a U.S. license to begin building its plant at NASSR. However, Iraq did need an export license from the Commerce Department for a specialized computer to control the glass-fiber process. Eagleburger's tough cable suggested the U.S. government had caught on to the Iraqis and wouldn't dream of granting the license. But in the early summer of 1990--more than three months after the Eagleburger cable--export rules were suddenly relaxed and the computer was allowed to go to NASSR with no license. All that Commerce required of the Iraqis was a promise that they wouldn't ship the computer or related technical data to any of a number of restricted locations, including two Russian truck plants. The Iraqis solemnly swore they wouldn't do that. In July 1990, the State Department issued another, very different secret message to U.S. embassies around the globe. Again sent out over Eagleburger's name, the cable instructed embassies to try to help American firms sell weapons abroad. Henceforth, State Department officials stationed overseas would be graded in part on their success as arms marketers according a report in the Washington, D.C." newspaper Legal Times. The second Eagleburger cable was a far cry from the standing order dating back to the Carter administration. Back then, embassies were expected to avoid weapons manufacturers out of concern about proliferation. Arms exporters nicknamed Carter's order the "leprosy letter" and waged a lobbying campaign for an official reversal. Legal Times reported that defense industry officials specifically pressed Eagleburger to send out the 1990 cable. By early 1990, the U.S. policy toward Iraq had become incoherent. It was a bit like a driver who alternately mashes the accelerator and slams on the brakes. The White House continued to cling to the hope of a beneficial trade relationship with Baghdad, and the departments of State and Commerce dutifully tried to keep it alive. But officials in other agencies, including the Defense Department, doubted the benefits of dealing with Saddam Hussein were worth the mounting risks. They tried to block sensitive exports and sometimes succeeded. Saddam began to grow impatient with these mixed signals. To Western observers, he seemed increasingly strident and belligerent. On March 16, 1990, he ordered the public hanging of an alleged spy. Farzod Bazoft had been caught snooping around an Iraqi explosives factory. He claimed to be a British journalist freelancing for The Observer, the London Sunday newspaper. Iraq convicted him of spying for Israel and Britain. British Prime Minister Margaret Thatcher denied the spying charges and pleaded for mercy. She even called on President Bush and U.N. Secretary General Javier Perez de Cuellar to make appeals. Saddam would not relent. The execution was to be an object lesson, a show of his ruthless determination. After Bazoft's corpse was delivered to the British Embassy in Baghdad, Iraqi spokesman Latif Nussayif Jassim declared: "Thatcher wanted him alive. We sent him in a box." Bazoft was an Iranian by birth. The previous summer, he had ventured some fifty kilometers south of Baghdad to investigate the site of a mammoth explosion at the Al-Hillah weapons plant. Several hundred workers, including many Egyptians, had died in the August 17, 1989, blast, which Iraq blamed on sabotage by foreign intelligence services. Bazoft's background suggested he indeed might have been a spy. After he was convicted of robbing a savings and loan office in 1981, he reportedly offered to turn informer for Scotland Yard. He won an appeal to avoid deportation to Iran. Despite his shadowy past, The Observer reported that Bazoft had simply been chasing a scoop. The Iraqi explosion was news because British machine-tool firms, including Colchester Lathes, Meed International, and Matrix-Churchill, had fat contracts with Iraqi weapons complexes. The Iraqis showed a film of Bazoft "confessing" that he spied for Israel and that the British condoned his secret role. It seemed likely to many in the West that he was tortured into making the taped statement. As the date for his hanging neared, Thatcher asked President Bush to make a personal call to Saddam. He declined. Of this omission, columnist William Safire of The New York Times wrote: "Mr. Bush ignores this state murder, allows the United States to become dependent on Arab oil... and keeps guaranteeing loans to the country that spends billions on mustard gas and missiles." As the Bazoft crisis was building to a crescendo, a U.S. senator flew to Baghdad. Wyche Fowler of Georgia arrived the day of the execution, accompanied by Georgia Supreme Court Justice Charles Weltner. According to Fowler, the principal reason for the trip was to visit archeological sites, but he also met with Iraqi officials. Fowler's Senate disclosure report showed that the trip was paid for by the National Association of Arab Americans in Washington, D.C." and that its purpose was to meet with "business and government officials." It was unclear what business Fowler had with the Iraqis during the Bazoft crisis. Upon his return, the senator told the editorial board of The Atlanta Journal-Constitution that Saddam invited him to watch Bazoft hang. The senator said he declined. Six days after the hanging of Bazoft, Gerald Bull, the father of the Iraqi "Supergun," was murdered at his Brussels apartment. An assassin pumped two bullets into the back of his neck and left the dead man with $20,000 in cash in his pockets. Widespread suspicion that he was killed by the Mossad, Israel's intelligence service, wasn't supported by physical evidence. No one was charged with the crime. The killings of Bazoft and Bull came at a time when President Bush had been trying hard to reassure Saddam. Two months earlier, Bush had waived a congressional ban on Export-Import Bank loan guarantees to Iraq. He wanted Saddam to know that Iraq still had the administration's hearty support. Apparently, the U.S. government-controlled radio station Voice of America was having trouble picking up Bush's signal. In February 1990, the federal propaganda arm broadcast an Arabic editorial denouncing Iraq's human rights record. Saddam was furious. By April, he began venting anger in a series of menacing anti-U.S. and anti-Israel speeches. For example, he promised to "scorch half of Israel" with chemical weapons if Israel ever attacked Iraq. About this time, the word "paranoia" began creeping into secret State Department cables about the state of affairs in Iraq. It was becoming obvious that the United States had picked a very dangerous partner in the Middle East. On March 28, 1990, Customs officials in the United Kingdom arrested a small group of Iraqis at London's Heathrow Airport as they attempted to load electrical components onto an Iraqi Airways plane. The electrical components, known as capacitors, were produced in California by CSI Technologies Inc. for an Iraqi front company in England called Euromac. They were destined for al-Qaqaa, an organization that operated near the site of the explosion Bazoft had investigated. British and American authorities feared that the capacitors could be used for nuclear weapons. It was CSI, through its employee, Jerry Kowalsky, that caused the routine Iraqi procurement order to backfire. Days later, U.S. officials looking into the BNL affair were curious to know if the Italian bank financed the capacitor deal. Apparently, their hunch was on target. "I followed up on your suggestion about a possible connection between Banca Nazionale del Lavoro and the nuclear triggers that were seized in London," an official with the Federal Reserve Bank of New York wrote the bank's president, E. Gerald Corrigan, on April 5. The memo continued: As you suspected, there is a connection. Apparently, [Paul] Von Wedel says that one of the transactions done with Rafidain Bank at some point referenced nuclear detonators. According to Von Wedel, this reference scared BNL away from this particular transaction, but it is possible that the lesson the Iraqis learned was to be generic in preparing the credit documentation. Thus, it is entirely possible that BNL financed some of this material. A typical nuclear weapon consists of a core of fissionable heavy metals within a ball of conventional high explosives. A capacitor provides a sudden pulse of electricity powerful enough to trigger simultaneously a series of detonators within the conventional explosives. The resulting explosion compresses the fissionable core and creates the critical mass required to set off a nuclear chain reaction. When Kowalsky received a fax from Euromac seeking what he believed to be a nuclear warhead trigger circuit, he immediately called the CIA and the U.S. Customs Service. They encouraged CSI to play along. That was the beginning of "Operation Quarry," a sting carried out by U.S. and British Customs under the watchful eye of the CIA. U.S. Customs agent Daniel Supnick began posing as a CSI employee. In November 1989, a full year after Euromac sent its first fax, Kowalsky and Supnick entered the Cavendish Hotel in London to meet with Euromac's All Daghir and three others to discuss details of the capacitor delivery. The Americans were wired with hidden tape-recording equipment. At the meeting, Daghir advised Kowalsky to declare that the capacitors were to be used in air-conditioning equipment. At times during the meeting, the Iraqis switched to speaking Arabic in order to cut the Americans out of the conversation. But a translation of the tape later revealed their thinking. At one point, Daghir said: "You see, Americans are naive, stupid." The Commerce Department told CSI it didn't need an export license to ship its capacitors from California to England. Maybe Commerce was playing along with the sting that would later nab Daghir and others as they tried to transfer the capacitors to the Iraqi plane in London. But it was also possible that the export licensers were just plain lax. Daghir was indicted in both England and the United States. He was convicted in England in 1991, but the conviction was overturned three years later on the ground that the jury hadn't clearly found that the capacitors were to be used for nuclear weapons. Daghir claimed that the capacitors were for civilian use. As of June 1995, the American charges were still pending. A few weeks later, Iraq narrowly missed obtaining a U.S.-made furnace capable of melting heavy metals for nuclear bomb cores. Consarc Corporation, the American exporter, had warned the Commerce Department about its nuclear application, but Commerce was satisfied with Iraq's stated intention to use the furnace to make artificial limbs for war victims. Only after a Defense Department official made an emergency appeal did the White House halt the shipment in the Philadelphia harbor. The White House's eleventh-hour intervention showed that some high-level U.S. officials were--very belatedly--catching on to Saddam. But the State Department contained many of America's slowest learners. In the spring of 1990, Gale McKenzie asked for permission to send her team of investigators to Baghdad with a group from the Department of Agriculture. The State Department asked the aggressive prosecutor to submit all her questions to the Iraqis in writing in advance. McKenzie balked, and the team from Agriculture took off alone. Then the State Department asked McKenzie to consider inviting the suspects to Atlanta to testify as guests of the United States, all expenses paid. The Iraqis declined that kind offer, and McKenzie's plans to interview them fell by the wayside. Even after the execution of Bazoft and the recovery of the suspected nuclear capacitors at the London airport, U.S. diplomats urged that Saddam be further indulged. They believed the Iraqi leader had grown so temperamental that the slightest negative signal might infuriate him and shatter U.S.-Iraq relations. That was why the CCC loan guarantee program became a delicate issue again in the late spring of 1990. Iraq had received the first $500 million installment of the $ 1 billion conditionally approved in November 1989. A significant obstacle to the release of the second $500 million was Gale McKenzie in Atlanta. Surprisingly, McKenzie was invited to participate in person in this high-level foreign policy debate. The State Department had staked out its position on Iraq in February 1990. John Kelly, Under Secretary of State for the Near East and South Asia, said failure to grant the second $500 million "will feed Saddam's paranoia and accelerate his swing against us." The Department of Agriculture seemed willing to go along with State, just as it had in the fall. After Agriculture's investigators returned from Iraq in April 1990, they prepared a draft report that said there was insufficient evidence of Iraqi complicity in BNL-Atlanta loans. McKenzie hit the roof. She felt the Department of Agriculture had totally ignored her oral warnings about Iraq's involvement in the scandal. Worried that she might eventually catch some of the blame if the program ever backfired, she demanded that Agriculture be told that she intended to indict Iraqis. "This office certainly recognizes that we do not 'make policy," " McKenzie wrote in a May 7, 1990, memo to a Justice Department official in Washington. "However, when relevant information is shared with policy makers and we have reason to believe that such information is being 'misunderstood to such an extent that Congress may be mislead [sic], it seems appropriate to correct any such 'misunderstanding' before the remaining $500 million in CCC guarantees for Fiscal Year 1990 are extended to Iraq." It's unclear whether McKenzie's hard line caused Agriculture to toughen up. Something did. The department quietly decided to pull the plug on Iraq's CCC program after the commodity markets closed on Friday, May 18, 1990. Iraq had sensed trouble with the CCC weeks earlier, when hostile congressmen were pushing for sanctions against Baghdad. The sanction movement was squelched by a group of friendly senators, led by Republican Robert Dole of Kansas. Dole's group had visited Saddam in Iraq on April 12 to promote a business-as-usual approach. But by then, the Iraqis had already turned to the White House for protection. They had called Brent Scowcroft, President Bush's national security adviser, to complain about the administration's sluggishness in freeing the second $500 million. After learning that Agriculture planned to shut down the program on May 18, Scowcroft swung into action. At the very least, he wanted to buy time. He asked Agriculture Secretary Clayton Yeutter to hold off on issuing a planned press release saying the CCC was dropping Iraq. Yeutter agreed. That gave the administration breathing room to hear more from Baghdad and Atlanta before a planned May 29 meeting of the so-called Deputies Committee of the National Security Council. April Glaspie, the U.S. Ambassador to Iraq, weighed in with a May 22 cable to Robert M. Kimmitt, the Under Secretary of State for Political Affairs, Scowcroft, and others. "Unless Agriculture has uncovered a legal hornets nest," Glaspie wrote, we will want to proceed with the second [installment] of credits. It remains unclear why we would want to use food as a weapon. Turning down the CCC credits would send the signal that the administration has decided to join those in Congress who had already reached the conclusion that the U.S. had no option but to pursue a policy of sanctions and containment. Gale McKenzie was summoned to Washington the morning of May 29. Apparently, the administration saw no problem ordering a line federal prosecutor to drop her official duties in Atlanta to fly to Washington and assume the unofficial role of foreign policy adviser. It was the second time in seven months she had been contacted by the White House just hours before a crucial vote on the CCC program with Iraq. On November 7, 1989, McKenzie had received a phone call from White House Attorney Jay Bybee. And now, on May 29, 1990, she met at the State Department with the NSC's legal adviser, Nicholas Rostow, who also carried the title of special assistant to the president. Rostow's memo recounting that meeting said the Atlanta criminal case would "generate embarrassing information about the CCC program and Iraq's involvement in bank fraud." He noted that McKenzie wanted to indict six Iraqis. The NSC deputies met later in the day. That meeting was chaired by Robert Gates, Scowcroft's deputy and the future director of the CIA. Also attending were Richard Kerr, the deputy director of the CIA, and two senior Justice Department officials, William Barr, the future Attorney General, and Mark Richard, a national security specialist. The NSC deputies agreed to let the second $500 million in guarantees die quietly after "Barr and Richard opposed going forward." McKenzie, it seemed, had become a political player. She supplied the backbone that wavering policymakers needed to make a tough foreign policy choice. But in July 1990, as Saddam's troops massed along Iraq's southern border with Kuwait, U.S. policymakers were still stranded in no-man's-land. Should they follow President Bush's secret national security order from October 1989 that mandated better relations with Iraq, or act according to the rapidly emerging new reality? Should they conciliate or confront? Iraq's show of force along the border was widely dismissed as a bluff to intimidate Kuwait, which had a reputation for busting OPEC quotas and driving down oil prices. That practice frustrated Iraq, an oil-selling nation that was starved for cash and loaded with debt. Iraq was also locked in a bitter dispute with Kuwait over an oil field that stretched across their common border. Iraqi Foreign Minister Tariq Aziz informed other Arab nations in mid- July that Kuwait's unwillingness to budge on those issues endangered the peace. Saddam soon added that Iraq was prepared to use force. State Department officials in Washington caught wind of their comments and asked American diplomats in the Middle East to try to learn more about Iraq's intentions. On July 24, Secretary of State James Baker sent a cable to Ambassador April Glaspie in Baghdad, which she passed to Saddam. "While we take no position on the border delineation raised by Iraq with respect to Kuwait," the cable said, "... Iraqi statements suggest an intention to resolve outstanding disagreement by the use of force, an approach which is contrary to the U.N. Charter." Saddam ordered Glaspie to meet with him at noon the following day. He had never summoned a U.S. ambassador before. After their highly unusual meeting, Glaspie cabled Washington. According to The New York Times, she said Saddam believed certain U.S. agencies were trying to undermine him, but that he described Bush and Baker as "fine and honorable men." She reported that Saddam seemed worried, and she urged easing off public criticism of Iraq. Bush followed up with a bland three-paragraph statement to Saddam, which said: "Let me assure you, as my ambassador, Senator Dole and others have done, that my administration continues to desire better relations with Iraq." At the time, senior Pentagon officials deemed the response dangerously--even provocatively--weak, according to The New York Times. They tried to get it rewritten, but apparently didn't move quickly enough. The statement went out as drafted by the State Department and National Security Council. Glaspie delivered Bush's message orally and then departed Iraq on leave. After Iraq abruptly terminated talks with Kuwait, the State Department's Robert Kimmitt called an August 1 meeting of senior officials in Washington. The Times reported they agreed Bush should issue a stronger statement. But Iraq invaded Kuwait at 2:00 A.M. on August 2, 1990, before a second message could be drafted. Iraqi tanks pushed ahead of 100,000 troops, motoring down the six-lane main highway into Kuwait City. Saddam was gambling that he could present the West with a military fait accompli, one that would place him in firm control of one quarter of the world's oil reserves. Instead, he provoked an unexpected military response. Having failed to gently coax Saddam into the family of nations, Bush turned nasty and began referring to him as a modern Hitler. In the days following the invasion, Bush halted U.S. exports to Iraq and froze Iraqi assets in the United States. He declared that he was prepared to go to war to defend Kuwait's independence. But the president had a nagging problem with certain members of his war counsel. Several of them had investments in the Middle East--mostly in oil and defense-related companies--that would inevitably be affected by American military action in the region. Scowcroft, for example, held a million-dollar stock portfolio that included blocks of shares in eleven of the one hundred largest contractors used by the Department of Defense. So the president decided to waive conflict-of-interest rules applying to eleven cabinet officials or cabinet-level officers involved in war planning. He wanted them to be legally free to make decisions regarding Kuwait even if they had private financial interests that would rise or fall on those decisions. The group was made up of the secretaries of Commerce, Defense, Energy, State, and Treasury, as well as the director of the CIA, the national security adviser and his assistant, Bush's chief of staff and his legal counsel, and the U.S. Attorney General. Bush spelled out the details in an August 8 memo to Attorney General Richard Thornburgh: "Some of the individuals in question hold only interests such as mutual funds that under no foreseeable circumstances could be construed to implicate any prohibition under conflict-of-interest law. In other instances, individuals have quite substantial financial interests in industries that may be affected...." And yet, Bush declared, none of those interests were so great that they would "be deemed likely to affect the integrity of the services which the government may expect." But if that were so, what was the purpose of the law in the first place? The president did not announce his waiver from the rooftops. It was a nervously guarded secret. The tip of the iceberg popped up on August 13, when The Wall Street Journal reported that Secretary of Commerce Robert Mosbacher said his recusal from energy-policy matters had been waived because of the Persian Gulf crisis. That recusal had stemmed from his former ties to a family-owned oil concern, Mosbacher Energy Corporation. But the Journal didn't mention that the presidential waiver was far more sweeping. Evidence of the other waivers eventually turned up in a State Department memo apparently written to Kimmitt, which mentioned all eleven affected officials. It said: "Because of the breadth and sensitivity of the waiver, the White House is currently unwilling to distribute copies to affected individuals. We [the State Department] are working to reverse this position so that we can provide a copy to the Secretary [James Baker]." Bush's waiver served to conceal the fact that American foreign policy was subject to being swayed by the narrow financial considerations of companies and individuals. Chapter 13 "OPERATION DESERT FRAUD" "Here it is, folks, the mother of all indictments." --Aide to U.S. Attorney General Richard Thornburgh on February 28, 1991 i\\ we employees of Matrix-Churchill Corporation found themselves stuck at Iraq's new glass-fiber plant at NASSR when Iraq launched its invasion forces on August 2, 1990. One of the two, Abdul Quaddami, was allowed to fly back to Cleveland in early September. He arrived just in time to be frisked by U.S. Customs officers who swept into the firm's office on September 17. Customs declared Matrix-Churchill an Iraqi front that day and shut it down. Gordon Cooper, the company's vice president, believed the raid was a cheap publicity stunt. He was bitter about the heavy-handed approach used by Customs. "They had [Quaddami] spreadeagled over the back of a car," Cooper said later in a clipped British accent. "I'd like to spit in their eye." The CIA had known for more than a year that the firm supplied the Iraqi military. The agency had called the company's attorneys the previous spring and had even monitored its subcontractors, including XYZ Corporation of Tuscaloosa, Alabama. By leaving the company alone, the Bush administration seemed to be bestowing its blessing. Cooper had been more than willing to cooperate with the government. When Quaddami returned from Iraq, Cooper promptly informed the State Department. So the raid by Customs came as a surprise. Cooper figured it was orchestrated to cash in on rising anti-Iraq emotions abroad in America. "I used to have respect for the administration and its various departments and the Justice Department," Cooper said. "I'm afraid my trust.. . is in sad shape. There's a lot of flogging, finger-wagging and verbal abuse. It's the kettle calling the pot black." After Iraq marched into Kuwait, the Justice Department decided to indict a few Iraqis in the BNL affair. Paolo Di Vito, BNL's sensitive American observer, detected the new agenda. In his diary entry of August 28, 1990, Di Vito wrote that the BNL grand jury investigation had taken a "drastic turn" and had begun hunting for evidence of Iraqi involvement. ".. . fE]vidence is being resurrected," he wrote, adding that the Iraqi invasion had "changed the entire frame of reference." Before the war, Gale McKenzie worked hard to prepare criminal charges against a group of Iraqis. The Justice Department, however, was considerably less gung-ho. In fact, while she sifted through the evidence concerning Matrix-Churchill in early 1990, Attorney General Thornburgh helped arrange to make the Iraqi front company's lawyer, Joe Whitley, her new boss. Whitley became U.S. Attorney in Atlanta on June 1, 1990. His previous work for Matrix-Churchill was an apparent conflict of interest in the district's most sensitive criminal case, but it never surfaced as an issue in his U.S. Senate confirmation. Whitley saw no reason to bring it up. He was confirmed without controversy on August 4, the first anniversary of the FBI raid on BNL-Atlanta and two days after Iraq invaded Kuwait. When his previous work for Matrix-Churchill leaked out in early 1991, Whitley explained that he had quietly recused himself from the BNL case on June 8--one week after he was appointed. He insisted that he never tried to influence McKenzie about targets of her probe, and there was no evidence that he did. While the senators who confirmed him didn't learn about Whitley's work for Matrix-Churchill, certain Justice officials, including McKenzie, were aware that he'd represented the Iraqis. But it is far less clear that everyone in Justice understood that Whitley had recused himself from the BNL case. In a September 21, 1990, electronic mail message, a Justice Department lawyer complained: "I thought that the USAO [U.S. Attorney's Office] was under control now that Joe Whitley is in place." Four months later, when Justice officials were debating how to STRUCture the final BNL indictment, a department memo in Washington said: "There is adamant refusal to cut counts to the 100 mark--and perhaps this will have to be readdressed via Joe Whitley." McKenzie knew that her boss had once worked for the Iraqis, but there is no indication she dealt with him on the BNL case. Rather, her Atlanta supervisor was Ray Rukstele, and later, when Rukstele left, Gerrilyn Brill. Even though Whitley had no role in the BNL indictment process, his former clients at Matrix-Churchill fared quite well. Neither the Cleveland unit nor the larger affiliate in Coventry, England, were charged. Furthermore, McKenzie granted criminal immunity agreements to both Gordon Cooper and Paul Henderson, managing director of the British firm. McKenzie did eventually indict two Iraqis tied to the companies-- Safa al-Habobi and Sadik Taha--but they were never apprehended. Taha reportedly died of heart trouble the summer before he was charged. And for Dr. Safa, the pending indictment against him in Atlanta didn't prevent his promotion to oil minister of Iraq. Throughout 1990, various draft indictments circulated in the Justice Department. Typically, they reflected the political mood of the moment. A streamlined January draft didn't charge any Iraqis. A bloated October draft, which contained 568 counts and rambled on for 153 pages, did. The final indictment, returned in February 1991, was a scaled-down version of the October draft. It had 347 counts and charged four Iraqis-Raja Hassan All, Abdul Munim Rasheed, Dr. Safa, and Sadik Taha--as well as that country's Rafidain Bank. Prosecutors considered indicting the Central Bank of Iraq too, but backed away after the Federal Reserve said pressing criminal charges against the central bank of a foreign country might set a dangerous precedent. For BNL, the invasion of Kuwait was a devastating economic blow. The bank's thriving export finance business with Iraq collapsed overnight, as Baghdad defaulted on hundreds of millions of dollars in BNL loans. Even if Iraq had wanted to continue banking with Italy and BNL, post-invasion trade restrictions by the United States effectively shut down BNLAtlanta's deals with Iraq. In his diary entry on the day of the invasion, Di Vito griped that the United States seemed always to be seeking to extend its jurisdiction "over the whole planet." At least BNL officials could take some small comfort in knowing that McKenzie was remaining steadfast in her focus on Christopher Drogoul. She made her position quite clear at a September 21, 1990, meeting in Washington with Italian Ambassador Petrignani and members of an Italian Senate committee conducting a preliminary investigation into the BNL case. Petrignani opened the meeting by stating that the Italian government bank was the victim of a terrible fraud. McKenzie was quite deferential toward him, according to a memo describing the meeting. "Gale reiterated that BNL officials and investigators have been extremely helpful," the memo said. "The ambassador thanked Gale for her appreciation of the aid she had received from BNL officials. It is important for BNL to vindicate its reputation and for the guilty to be brought to justice." McKenzie and Petrignani thought it was obvious that the guilty were Drogoul and a few cohorts in Atlanta and a handful of Iraqi coconspirators. However, the members of the Italian Senate's investigating committee present at the September 21 meeting weren't sure the guilt was limited to that small group. Their role was distinctly different from Ambassador Petrignani's. Chairman Enrico Zanelli said his committee was trying to discover whether Drogoul's claims of BNL-Rome's involvement had any merit. He asked McKenzie whether she could supply his investigators with more information. She explained that grand jury secrecy rules in the United States limited what she could share. McKenzie thought her probe was more rigorous and disciplined than theirs, and less political. The Italians, on the other hand, thought she lacked open-mindedness. Zanelli's committee was formed in April 1990 to probe the BNL affair. In its final report, dated February 7, 1991, it recommended that a new parliamentary committee be formed to continue its work. Zanelli's committee was puzzled by what it viewed as McKenzie's obsession with the idea that Drogoul was a "lone wolf" when evidence pointed to broader involvement. The parliamentary committee, which was created in March 1991, went further in its final report in April 1992. It concluded that the BNL-Atlanta scheme was part of a "politico-military policy of support for Iraq carried out chiefly by the United States." Over time, a rift developed between McKenzie's team and the Italian investigators. "It was obvious that the American investigators did not want [the Italians] to acquire any evidence, even documentary evidence," the Italian parliamentary committee remarked in its final report. Atlanta prosecutors brushed off their complaints, citing grand jury rules. Italian senators on both investigatory committees were also frustrated with BNL. The bank wouldn't even swear that it had supplied the senators all documents present at the Atlanta branch when the FBI raided it. Bank officials passed the buck, saying they themselves weren't certain U.S. investigators had returned all seized items to them. The issue of missing evidence became a sticking point. Though Drogoul's desk calendars for 1987 and 1988 were available, his calendar for 1989 was missing. Also, the branch's leather-bound sign-in book for visitors, which had been kept on a small table by the branch's front door, had vanished without explanation. The FBI's list of items seized in the raid was so sketchy that it was impossible to pinpoint many missing items. The Italian senators were jolted on November 14, 1990, when they visited the Federal Reserve Board in Washington. Up to that point, the senators had taken at face value the bank's claim that Drogoul hid his Iraqi loans with such systematic deception that auditors were helpless. But a senior Fed official explained that in addition to the hidden records of the scheme, there were also perfectly open records detailing a staggering amount of activity. Every transaction was listed, to the last dollar, on the monthly statements mailed to BNLAtlanta from Morgan Guaranty Trust Company in New York. They showed all loan disbursements, as well as the branch's money market borrowings used to fund those loans. That meant the key to the scheme's long survival was not Drogoul's high-tech brilliance, but rather inadequate auditing. "These verifications could and should have been made [by auditors]," the Italian senators concluded in their April 1992 report. "It is therefore incomprehensible why they were not, unless we accept the theory of connivance." The investigators from Italy weren't the only ones troubled by McKenzie's stiff-necked attitude. Mid-level lawyers at the Justice Department in Washington were disturbed about her apparent lack of objectivity. Peter Clark headed the list. Clark was the veteran litigator in the fraud section of the criminal division who was sent to Atlanta in January 1990 to review McKenzie's progress. According to a February 12 memo to his boss, Theodore Greenberg, he found an Atlanta prosecutor "reluctant to charge BNL, primarily because the bank has cooperated fully in the investigation ..." Clark told Greenberg the case looked like a mess. He said the Atlanta prosecution team didn't seem to know where it was going. Relations between McKenzie and the fraud section in Washington deteriorated from there. Laurence Urgenson, the section chief, was struck that McKenzie claimed BNL had been diligent in auditing and controlling its branches. Urgenson knew that was flatly contradicted by the Bank of Italy and the Federal Reserve, which reported that "BNL lacked any credible controls." As the months went by, Clark stumbled on unsettling bits of evidence that caused him to grow increasingly skeptical of McKenzie's view that BNL-Rome was ignorant of all the Atlanta branch's schemes. For example, he noticed that BNL-Atlanta's "gray book" letters of credit were coded with a "2" prefix. Clark questioned how BNL's auditors could have possibly failed to raise questions about such an "obvious signal." He was also intrigued by the fact that when Guadagnini retired as BNL's regional manager for North America, Drogoul set him up as a consultant to Entrade, the company that had cut Drogoul a share of the loans he had granted it. The more Clark dug, the more he began to question McKenzie's basic assumptions. He didn't share her belief that the off-book lending was the primary cause of BNL's huge financial losses. Rather, the losses stemmed from Iraq's invasion of Kuwait, an event the bank did not anticipate. Excluding the losses related to the war, Clark figured, Drogoul's scheme might have "drastically raised BNL's profitability" by allowing the bank to operate in the United States without setting aside required reserves for deposits. By making loans funded with unreported and unreserved deposits-such as those of Oscar Newman--BNL widened its profit margin. Clark and Urgenson also came to doubt that BNL's cooperation with prosecutors was as free and open as McKenzie maintained. Urgenson said the bank's presentations to Italian and American investigators were marked by "manipulation and self-protection." McKenzie was willing to overlook all that because BNL was on her side. She and the bank saw eye to eye about who the real criminals were, and about the true "victim." Therese Barden was naive about the American criminal justice system. She assumed that prosecutors would zero in on the Atlanta branch employees who were the most creative in weaving fraud schemes before they trained their sights on those who committed specific acts of fraud under orders. She was wrong. To her horror, she became one of the hunted. Barden grew up in northern France. As a teenager, she was set free from the nightmare of Nazi occupation by American GIs only hours after they had stormed the beaches of Normandy in June 1944. She married one of those GIs. Flush with idealism about the United States, the couple moved to Georgia after the war to start their life together. Some four decades later, Barden had taken over as the family breadwinner after her husband, Lee, became disabled. She was nearing retirement at Citizens and Southern National Bank in 1984 when Paul Von Wedel offered her better pay at BNL. She accepted. Although Barden held the title of "operations manager" of the branch, her authority never matched her lofty title. Mela Maggi and Jean Ivey didn't let her near their money desk operation. Neither did she have much say over letters of credit because that was the guarded province of Von Wedel and his deputy, Brenda Forrest. Leigh New handled the MTL paperwork. Even when outside auditors visited, Barden deferred to Robert Post, because Post was the office's most knowledgeable accountant. But Barden did sign false Federal Reserve reports that were prepared in large part by Post. She attested to the truth of those reports. That made the sixty-four-year-old great grandmother an ideal target for indictment. She protested in vain that she had no criminal intent, but was only following orders to save her job. "I was the operations manager, but never had any powers," Barden said. "I did sign those reports, but I was told to." While degree of involvement is a factor in determining who will be indicted in a criminal enterprise, it is not the only factor--or even the most important. Often, the key factor is whether a potential target has valuable information to trade. Those who can make life easier for prosecutors-like Maggi, Ivey, and the bank itself--often walk. Those who don't know much, or those who don't quickly offer what they know, tend to become grand jury targets. Von Wedel said he learned this vital lesson from his deputy, Brenda Forrest. In the days after the raid, he didn't know that it was important to hire a lawyer and make a concerted effort to help federal prosecutors. He said Forrest advised him to do both immediately. So he hired a fine defense attorney named Jack Martin and avoided being cast as the co-mastermind with Drogoul. Von Wedel felt he had Forrest to thank for sharing her knowledge of the legal system. He attributed her shrewdness about the criminal process to the fact that she had a well-placed relative. Forrest's sister, Joanne Ward, worked as a legal secretary at King & Spalding, and before that, at the Atlanta U.S. Attorney's office in the early \ 980s, as secretary to the chief of the civil division when Larry Thompson was the Atlanta U.S. Attorney. As Thompson was leaving to join King & Spalding in 1986, he recruited Ward to follow him. She became his secretary at the firm. As such, she assisted a prestigious partner who boasted a high-profile public service background. Thompson became a member of the firm's elite "special matters" group headed by Griffin Bell. The BNL affair occupied the time of a number of King & Spalding lawyers, Thompson said. He acknowledged that it was "a concern" to the firm that Ward's sister had been employed at BNL-Atlanta and was eventually named as an unindicted co-conspirator in the case. But he said Ward never worked on the BNL case and the firm never represented Forrest. Thompson said that "no BNL file at King & Spalding was ever assigned to me," but added as a qualification that "lawyers sometimes come up to you." Von Wedel found the firm's sensitivity about the sisters amusing. "They [King & Spalding lawyers] used to get mad at me when I brought it up," he said. It was not clear whether federal prosecutors decided not to charge Forrest because the evidence was weak or for other reasons. A yearlong internal investigation by BNL's Francesco Petti suggested that evidence was not the problem. "As in the case of her immediate supervisor, Von Wedel," the report said, "the intensity of Forrest's collaboration in illicit activity led to carrying out part of her work in her home with the use of a CPT computer for accounting, which the bank owned and installed there." Atlanta federal prosecutors also waived charges against Post, who, according to the Petti report, was a branch officer who "issued periodic reports containing false data" which were sent to the Federal Reserve and others within the bank. Post, a rough-edged, heavy-set Georgia "good of' boy" who loved bass fishing, later signed an agreement with the Fed which banned him from banking. But for reasons that were never explained publicly, Post escaped charges, while his subordinate, Amedeo DeCarolis, did not. To Barden, the government acted arbitrarily and unjustly in distributing the burden of punishment for the BNL affair. While Maggi landed a job as an officer at Bank of America in Chicago, Barden was devastated. Legal fees wiped out her retirement cushion. The small Florida condominium she and her husband had bought for retirement was lost to fore closure. Her felony record, combined with her age, ruined her chances of ever finding a good job. "We were destroyed," Barden said. "When I came here, this was a beautiful land," she said. "Now the respect and love is gone. The U.S. government is a fake. They make the world believe there is justice here, when it's a fake. I'm not angry with the people, it's the system, a system that if you have money you can get by with anything.. .. "I wish I'd never come to this country. I really don't want to be buried here." Settling on a final indictment was a laborious process that involved political as well as legal calculations. The giant 568-count October draft was a starting point, much like a newly introduced congressional bill that has yet to be picked apart by special interests. There were a number of powerful interests that wanted a crack at the BNL indictment. The October draft listed--but did not charge--prominent American companies that received BNL-Atlanta financing to ship their goods to Iraq. This apparently caused some anxiety among the companies, and the names were deleted from the final indictment. The Justice Department later explained to the House Judiciary Committee that it was necessary to protect the companies from being "unfairly associated with wrongdoing." Justice knew some exporters had supplied Iraq with tools to make cluster bombs, missile parts, and armor-piercing projectiles. But not every company that used BNL-Atlanta was a Matrix-Churchill. So Justice sheltered an enormous and diverse group, including scores of arms dealers. The final indictment also dropped Wafai Dajani, the Jordanian middleman who handled the bulk of U.S. farm commodities headed for Iraq under the CCC program. Dajani had been listed on some redrafts between October 1990 and the final indictment, but he was left out at the last moment. Prosecutors later explained that they lacked "sufficient evidence" against him. Early in 1991, the State Department sent a strong signal to Justice regarding plans to indict him. While saying it had "no objection" to charges being brought against Dajani, the State Department, in a memo, added: "His brother is a former Minister of the Interior, and Wafai himself is considered well-connected to the King [Hussein of Jordan] and to U.S. grain exporters. His indictment would be seen as a further attempt to 'punish' Jordan." The State Department was making it clear that indicting Dajani would be read by Jordan's King Hussein as punishment for his backing of Saddam in the Gulf War. Gerrilyn Brill, the acting U.S. Attorney for the BNL case in early 1991, said the memo from State had no bearing on the decision not to charge Dajani. Brill insisted that outside forces, such as the State Department, didn't influence prosecutors. Yet BNL's Paolo Di Vito had a different impression. He believed the State Department stalled the indictment until the Gulf War picture became clearer. The bank's damage-control coordinator wrote in his diary in November 1990, that "the grand jury investigation is on hold especially at the request of the State Department." The Justice Department finally gave McKenzie the green light to go forward with grand jury testimony in mid-January, 1991. She quickly called King & Spalding's Walter Driver to ask the bank to produce a group of past and present officers, including former director general Giacomo Pedde and former chairman Nerio Nesi. The plan was to fly them all to Atlanta and have each testify to their own innocence and Drogoul's guilt. Luigi Sardelli, BNL's North American manager from mid-1987 until the spring of 1989, was one of those McKenzie flew to Atlanta. Sardelli said he was surprised federal prosecutors waited eighteen months to take his sworn testimony. He'd been living quietly in a suburb north of New York City, and he was easy to find. He was, after all, Drogoul's immediate supervisor during many of the scheme's most crucial months. Sardelli said the questions McKenzie asked him were quite narrow in scope and dealt almost exclusively with Drogoul's activities in Atlanta. "I am wondering whether the investigation of such a scam should be confined to Atlanta," Sardelli said later. "In the case of BCCI, there were prosecutors everywhere. With BNL, the case is confined to Atlanta. "Unless someone explains it to me, I can't understand." McKenzie also invited Paul Henderson, the former managing director of I Matrix-Churchill Ltd. in England, to visit her BNL grand jury in Atlanta in January 1991. Henderson had suffered a trying autumn. In mid-October, a month after U.S. Customs seized his company's Cleveland affiliate, fifteen British Customs agents moved in on his firm's headquarters in Coventry. Henderson and two other company officials were brought in by police for questioning, then released. The British government was preparing export violation charges against him despite the fact that he had been risking his own safety to secretly inform MI6, the British equivalent of the CIA, about Iraqi shipments. After Iraq became an international outlaw in August 1990, the British government did not care to be linked to an Iraqi weapons procurement scheme. So it pursued Henderson as if it never knew about the military nature of Matrix-Churchill's shipments to Iraq. When he received his invitation from McKenzie to visit Atlanta, Henderson was still in legal limbo. He had not been formally charged. Before setting foot in America, Henderson insisted on a carefully worded criminal immunity agreement from the U.S. Department of Justice. McKenzie gave him one and flew him to Atlanta, all expenses paid. He made the transoceanic trip alone, arriving late on the evening of Monday, January 21. The next morning, he met with Assistant U.S. Attorney Kent Alexander, McKenzie's young aide, for interviews on the BNL scheme that took up much of two working days. He did not mention that he had been a spy for MI6 because--despite the legal cloud hanging over him in England--he felt bound to his pledge of secrecy. During the debriefing, Henderson said, he explained to Alexander that Safa al-Habobi had told him that BNL-Rome knew about the Iraqi loan scheme in Atlanta. Henderson said Dr. Safa told him the Atlanta financial channel was Italy's way of compensating Iraq for its failure to deliver the Fincantieri warships that Baghdad had already partially paid for. "I related [to Alexander] what Dr. Safa had told me concerning the awareness of the Italian government and BNL-Rome of the activities of the Atlanta branch," Henderson wrote in a sworn affidavit. This was not the sort of evidence Alexander and McKenzie were looking for. They had already decided that BNL-Rome was innocent. Rather than muddy the waters, they excused Henderson without asking him to testify before the BNL grand jury convening in Atlanta that week. So he flew back to England even as a dozen BNL officials from Rome and New York were flying to Atlanta for their grand jury appearances. It will become apparent, Di Vito wrote in his diary on Wednesday, January 23, that BNL officers are not "targets," but rather prosecution witnesses. On Thursday, McKenzie and Wade spent more than twelve hours at King & Spalding's offices to lay the groundwork for the Italians' testimony. The following Monday, McKenzie began parading the BNL officials before the grand jury to declare their ignorance of the off-books loan scheme in Atlanta. Three weeks later, on February 18, British authorities arrested Paul Henderson and charged him with export violations. On February 20, Di Vito reported that Walter Driver of King & Spalding had told him that the Justice Department's announcement of the indictment of Drogoul would be made in Washington, possibly even by Attorney General Richard Thornburgh. Federal agents arrived in force at Christopher Drogoul's home in Avondale Estates on February 28, 1991, roughly thirteen hours after a cease fire ended the Persian Gulf War. The knock on his front door came just after lunch. His four-year-old son, Nicholas, answered it and stared up at the group of somber strangers. He ran to get his mother. Drogoul, meanwhile, was talking on the phone with his father, Pierre, in France. An official voice broke in on the line and ordered him to hang up and walk to his front door. The agents handcuffed him and led him away as his amazed wife and child looked on. Local TV crews, mysteriously tipped off to the impending arrest, were on the spot to capture the scene. As soon as Drogoul was safely in handcuffs in Atlanta, the kleig lights for the network television cameras flipped on in a press briefing room at the U.S. Justice Department in Washington. Attorney General Thornburgh was running the show. Members of the Washington press corps had been primed that the announcement had to do with Iraq. A Thornburgh aide, while passing out the government's weighty charges against the unknown Atlanta banker, quipped: "Here it is, folks, the mother of all indictments." Someone else in the room suggested it might be called "Operation Desert Fraud." The lighthearted tone seemed appropriate under the circumstances. After all, it was a day of national celebration. Thornburgh proceeded to sketch the story for the media. The Atlanta banker, he explained, was a criminal mastermind who overcame normal controls and audits with high-tech brilliance. Drogoul and his local coconspirators had used "computers, fax machines and instant communications ... to silently pick the pocket of a major Italian bank .. . almost by the push of a button." The suspects, Thornburgh explained, had kept "secret" files on separate word processors and disks. They had lugged boxes of documents to their car trunks to escape detection. Thornburgh's sound-bite quotes weren't the whole story. As the Italian senators had learned during their meeting at the Fed in Washington three months earlier, Drogoul's scheme wasn't nearly so difficult to detect as the Attorney General was implying. Obvious signs were right there in the monthly statements of BNL-Atlanta's Morgan account, for anyone to see ... or ignore. Two weeks after the February 27 cease-fire ended the Gulf War and Operation Desert Storm, former Secretary of State William P. Rogers flew from New York to Rome. He was greeted at the airport by Paolo Di Vito and accompanied to BNL's headquarters, where he proceeded to report the bank's brilliant American triumphs. Two events in the wake of the cease-fire were "positive beyond our hopes," Rogers told senior bank officers over lunch. First, the long-anticipated indictment in Atlanta finally came the evening after the cease fire in the Gulf. It couldn't have been more favorable to the bank if it had been drafted by its own lawyers. U.S. prosecutors painted Christopher Drogoul as a high-tech crook who worked with a handful of local cohorts and Iraqis to swindle the bank. No BNL employee outside Atlanta was implicated. The other good news was that Rogers had negotiated a fairly painless compromise with the Federal Reserve. For months, the Fed had been seeking its pound of flesh from BNL for the Atlanta branch's failure to keep reserves, as required, on its off-book deposits. Rogers had urged the bank's executives not to sign any consent agreement until the Gulf War was over and Drogoul was indicted. Hanging tough paid off. The indictment declared that the bank was a victim of fraud. According to Di Vito, Rogers exploited that point "to obtain further concessions" from the Federal Reserve. The bank finally signed an agreement with the Fed on March 8, 1991, that required BNL to deposit additional reserves at the Fed. Di Vito noted that the burden of this requirement was lightened by the fact that the Fed would be paying interest on the BNL reserves at rates that were "definitely advantageous." Chapter 14 THE GONZALEZ FACTOR "First, they tried to ignore the investigation. Then they tried to hide the evidence. Now that the truth is emerging, they're trying to distract people from the facts by accusing me of wrongdoing." --Congressman Henry B. Gonzalez "ongressman Henry Gonzalez was flying back to his San Antonio district from Washington in the late summer of 1989 when a brief item in The Wall Street Journal caught his eye. The report noted that the Atlanta branch of an Italian bank he'd never heard of had made a staggering volume of loans to Iraq behind the backs of federal regulators. As chairman of the U.S. House Banking Committee and a longtime critic of the Federal Reserve Board, Gonzalez was intrigued. How could this have happened? Gonzalez did not order an immediate investigation. He had more pressing matters at hand. He'd risen to chairman of the Banking Committee in the wake of the savings and loan debacle that scandalized his home state of Texas. Burdened with S&L-related chores, his staff didn't have time for fishing expeditions. But the newspaper brief made an impression on the chairman, and he mentally filed the information away for another day. The following July, Gonzalez got around to assigning the Atlanta case to a keen young staff investigator named Dennis Kane. If the probe seemed mundane at first, Iraq's invasion of Kuwait in early August instantly made it a top priority. The Bush administration's touchy response to questions about BNL only further incited the seventy-four-year-old Gonzalez. He scheduled a Banking Committee hearing on the matter for October 9, 1990. That plan drew immediate fire from Attorney General Richard Thornburgh. "As you should be aware," Thornburgh wrote Gonzalez on September 26, "this is a sensitive case with national security concerns.. .. lA] decision to proceed with these interviews and the hearing at this time significantly diminishes the department's ability to successfully prosecute this matter." Gonzalez snapped back that he was distressed about Thornburgh's "apparent lack of understanding of the investigative and legislative functions of the Congress." A week later, FBI Director William S. Sessions tried to get the chairman to cancel his hearing. Sessions cited concerns about the disclosure of grand jury information and witness security. But Gonzalez charged ahead. He was not the type to timidly retreat at the first sign of official resistance. In 1963, two years after he was elected to Congress, Gonzalez was confronted by a House Republican who accused him of sympathizing with the Communists. The forty-six-year-old freshman lawmaker--a bear of a man--punched his accuser. Twenty-four years later, another man made the same mistake. This time, the seventy-year-old Gonzalez was approached in a San Antonio cafe. The constituent called him a Communist and, according to Gonzalez, was getting ready to pull a big knife. The congressman's punch was sufficiently hard and accurate to draw a misdemeanor charge, though that was later dropped. "I can still hit. He felt it," the congressman announced proudly. A former college boxer, Gonzalez had worked his way up through city and state politics in Texas during the 1950s, when prejudice ran high against ambitious Mexican Americans. His ambition wasn't so much for money or power as for reform. A loner, he regularly stood up for the disadvantaged in battles against the political powers-that-be. Fittingly, he was elected to Congress from the district that includes the Alamo, a symbol of stubborn defrance against hopeless odds. After three decades in Congress, the age marks on his jowly face made Gonzalez look like he'd barely survived a beating rather than dished one out. His political victories on Capitol Hill were few. When seniority allowed him to take over as chairman of the powerful Banking Committee in the late 1980s, he was widely viewed as a well-meaning flake. Most colleagues recognized that he was highly intelligent, well read, and principled. But his brand of dogged liberal idealism did not always produce results in Washington. For example, he introduced impeachment resolutions against Presidents Reagan and Bush, as well as Paul Volcker when he was chairman of the Federal Reserve. Those intended haymakers wildly missed their mark. Gonzalez's approach to the BNL case was more methodical. First, he established his jurisdictional authority by asserting that it was a bank regulatory failure. He toned down personal attacks. He took pains to document everything. Dennis Kane, who was only thirty-one when assigned to look into BNL, provided indispensable support and balance. Gonzalez recognized that the former General Accounting Office accountant was a perceptive document reader with a knack for noticing patterns. Kane also possessed political instincts. The Banking Committee hearing was finally held on October 16, a week later than originally scheduled. "The BNL affair is ... a case study in regulatory failure," Gonzalez said in his opening statement. "The state and federal agencies not only failed to adequately supervise BNL, but they still insist they are blameless for not discovering this massive fraud." He noted that U.S. branches and agencies of foreign banks commanded over $575 billion in assets within the United States. Over $7.5 billion of their deposits were guaranteed by the Federal Deposit Insurance Corporation. Those entities were supervised under the International Banking Act of 1978, a law he said needed a thorough review. Having laid that foundation, Gonzalez linked the investigation to the world news event of the moment--the frightening military b> dupin the Middle East. ".. . lA]t a minimum," Gonzalez continued, "the secret [BNL-Atlanta] loans .. . increased Iraq's credit capacity and permitted Iraq to spend their scant hard currency on some of the very weapons that are now aimed at our children." By February 1991, when the coalition of Western nations had amassed 500,000 troops in and around Saudi Arabia to counter Saddam, Gonzalez stepped out further. BNL-Atlanta, he said, did a lot more than finance Iraqi grain imports. "I have developed evidence," he told House members on February 4, "clearly linking BNL loans to a network of companies that helped build the Iraqi war machine; the same war machine our 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 in harm's way." Gonzalez had learned that the Atlanta bank advanced hundreds of millions of dollars to Saddam's weapons buyers. During the same period, it seemed to him, U.S. foreign policy was remarkably lenient toward-even supportive of--the Iraqis. The United States overlooked their atrocities and their backing of terrorists while showering them with federal credit subsidies. Surely, U.S. intelligence couldn't have missed the torrent of money flowing from Atlanta to Baghdad. What did it all add up to? Could it mean, Gonzalez wondered, that the U.S. government tolerated BNL-Atlanta within the scope of a clandestine prewar policy to accommodate Saddam? In early 1991, the idea was only speculation. So Gonzalez set out on a documents search to discover whether it was true. He began running into stone walls. Thornburgh tried to block the Banking Committee probe by raising "national security" concerns. Alan Greenspan, chairman of the Fed, refused to share a report by the Bank of Italy on BNL's Atlanta branch on the grounds that Italy considered it "highly confidential." The Justice Department withheld thousands of BNL-related documents from Congress on the basis of "grand jury secrecy rules." Everyone, it seemed, had a good reason why Congress shouldn't be informed. Even so, Gonzalez and Kane managed to gather enough documentation to establish the secret flow of credit, technology, and even satellite intelligence data from the United States to Iraq before the war. With each significant finding, Gonzalez took the microphone in the well of the House to lay out his findings. Typically, he made his speeches after the House had finished its business for the day. Virtually all the members' seats were empty. Still, Gonzalez brimmed with energy and passion before the tiny national audience tuned to C-Span on cable TV. Though only a handful of people watched, the speech and accompanying documents were going straight into the Congressional Record. Gonzalez was systematically building a public history. As weeks passed, White House officials grew concerned. Gonzalez's persistence was disquieting. National Security Adviser Brent Scowcroft was being asked to turn over NSD 26, President Bush's secret national security directive from October 1989 that called for closer commercial relations with Iraq. There were hundreds of other embarrassing papers Gonzalez wanted to get his hands on. Even worse, other congressmen, including Charlie Rose and Sam Gejdenson, both of whom chaired congressional subcommittees, were also beginning to demand documents on prewar dealings with Iraq. Bush administration lawyers swung into action. On April 8, 1991, Nicholas Rostow, special adviser to the president and chief legal counsel for the NSC, met with senior administration lawyers to talk about how to handle congressional requests. It was the first of at least eight such meetings Rostow either ran or attended over the next several weeks. Present for some or all of the sessions were presidential counsel Boyden Gray and the top lawyers for the departments of State, Agriculture, Commerce, Justice, Defense, Treasury, Energy, and the CIA. Ostensibly, the purpose of the meetings was to coordinate the release of information, to set ground rules. But notes by those who attended suggest that discussions sometimes turned to legal strategies for withholding information. "By Monday identify the most sensitive documents in each agency," notes from one meeting said. "We will go to the mat.. . there are many of these that will head toward denial." Executive privilege was the favored rationale for refusing to deliver documents, and Scowcroft advocated using it broadly. Other techniques were proposed as well. A State Department official suggested delaying an answer to a congressional subpoena until the subpoena authority lapsed with the closing of the 102nd Congress. Rostow's high-level legal meetings attracted scant notice when they were held. But when Gonzalez caught wind of them a year later, he declared from his familiar pulpit in the well of the House that they were intended for one purpose: a Watergate-style cover-up. Gonzalez nicknamed the administration lawyers "the Rostow Gang." Rostow was a convenient target for derision. He wore bow ties and worked in the shadow of an influential father, arms-control expert Eugene Rostow. Before his fortieth birthday, the younger Rostow served as counsel to the Tower Commission investigating the Iran-Contra scandal. He helped write the commission's report, which treated George Bush gently. Rostow took his job as lawyer for the NSC toward the end of the Reagan administration. Scowcroft, one of the three Tower Commission members, became Rostow's boss again when Bush named him national security adviser. Upon discovering the 1991 Rostow Gang meetings, Gonzalez invited the participants to testify before his committee. Rostow and Gray didn't show. Those who did insisted that the meetings were routine and prudent. ".. . (A)t none of these meetings did anyone suggest explicitly or implicitly that we should 'cover up' embarrassing or illicit activities," Jeanne S. Archibald, general counsel of the Treasury Department, testified. But the administration's circle-the-wagons reaction to the requests for papers on Iraq was anything but routine. In fact, they were deemed so critical that they merited the attention of the president himself. "... Boyden Gray indicated this week that it may be necessary to have cabinet-level discussions with the president of executive privilege issues," a June 1991 Commerce Department memo said. Commerce was being pestered by Gejdenson. "We [Commerce] will soon seek to meet with his [Gejdenson's] staff to discuss a possible accommodation under which we would begin providing information. "Any such accommodation would have to be cleared by the White House." But even the White House was powerless to stop some leaks. For example, it had no easy way to silence an excitable young lawyer from western Pennsylvania who had stepped forward to say she had glimpsed the inner workings of the Iraqi aid scheme Gonzalez was attempting to document. Marianne Gasior was only twenty-seven when she joined the legal staff at Kennametal Inc. in early 1989. She lasted all of nine months at corporate headquarters in Latrobe, Pennsylvania, before she was asked to resign. But before she left, Gasior learned about the Fortune 500 toolmaker's dealings with Saddam Hussein. Gasior represented a nasty public relations problem for Kennametal. Her claims touched off a wide range of reactions. She said she received chilly receptions when she tried to tell her story to assistant U.S. attorneys in Philadelphia and Atlanta. But Democratic Congressman Charlie Rose of North Carolina was intrigued. He had been following the BNL case closely because of its connection to the CCC program and tobacco loan guarantees. Although Gasior knew nothing about tobacco, Rose invited her to testify before his Agriculture Subcommittee on Department Operations, Research, and Foreign Agriculture in August 1991. Gasior's comings and goings around Washington were kept secret, and she said she was escorted by armed guards. She told Rose's panel that Kennametal "began a deliberate intimidation campaign against me which .. . includes harassing phone calls, blackballing, interference in my business relations, assault and battery, defamation, arranging to have an arrest warrant issued for me on false charges...." The company dismissed her claims as the idle ramblings of a bitter ex-employee. But she didn't stop squawking. Her explosive testimony on Capitol Hill coincided with a sharp drop in Kennametal's stock price. The company denied Gasior's charges and later sued her for violating her severance agreement. Gasior pointed out that several companies represented on Kennametal's board of directors had been identified publicly as trading partners with Iraq including Alien Bradley Company, Hewlett-Packard, and Westinghouse Electric Corporation. Oddly enough, the same Pittsburgh law firm, Buchanan Ingersoll, represented all three companies, as well as Kennametal. The law firm's managing director, William Newlin, served on Kennametal's executive committee. According to Gasior, Buchanan Ingersoll also represented at least eight companies listed by the United Nations and other respected observer groups as suppliers to Iraqi nuclear projects. One of those firms, West Homestead Engineering of Homestead, Pennsylvania, was prepared to sell Iraq a 10,000-ton forging press. The Department of Energy was concerned it could be used to compress nuclear fuels. But the Commerce Department prevailed, granting the export license in August 1989 on the condition that Iraq promised not to use it on nuclear projects. Despite the Commerce Department's approval, the company canceled the deal due to its concerns about how Iraq would use the technology. By Gasior's count, at least five Buchanan Ingersoll clients obtained export financing for Iraq from BNLAtlanta. Given Pittsburgh's reputation as the nation's foundry, it wasn't surprising that Iraq turned there first for metalworking expertise. And given the nature of corporate links in most cities the size of Pittsburgh, and Buchanan Ingersoll's status as one of its prominent law firms, many of the corporate overlaps could be written off as casual and unremarkable relationships. But Gasior had more to her story. She had inside knowledge of specific Kennametal deals and internal company documents. She knew that Kennametal had worked with Nash Rehmann of Norcross, Georgia, on his $12 million deal to export tungsten-carbide drill bits to Iraq. And she knew her company was using cluster-bomb blueprints from Chilean arms dealer Carlos Cardoen to build machines for the Iraqi front company Matrix-Churchill. Federal prosecutors weren't nearly as excited as Gasior about what she had uncovered. Although Gale McKenzie invited her to Atlanta to testify before a grand jury, the two women didn't hit it off well. Gasior felt McKenzie treated her rudely and wasn't interested in pursuing her leads. In a January, 17, 1992, letter to Buchanan Ingersoll, McKenzie wrote that her investigations "disclosed no violations of U.S. law by Kennametal." Oddly, three months later, White House Press Secretary Marlin Fitzwater said the company was being investigated by U.S. Customs, the Commerce Department, and the Justice Department. Fitzwater said a federal grand jury had been convened in Pittsburgh. It was an extraordinary revelation from the White House, which doesn't normally comment on criminal investigations. But a few days later, Fitzwater retracted his statements and apologized to Kennametal for releasing "erroneous" information. It was highly unusual that the White House would volunteer information about a grand jury probe of a company. But it was astounding that it would make such a damaging disclosure in error. Gasior speculated that Richard Thornburgh, President Bush's Attorney General from 1988 to August 1991, had a special interest in the treatment of Kennametal. The Attorney General hailed from Pittsburgh and had been governor of Pennsylvania. She noted that he was also quite familiar with Buchanan Ingersoll. "Dick Thornburgh is considered to be a friend of the firm and a friend of Bill Newlin," Gasior told Rose's panel. "They know each other personally." Actually, Thornburgh had long been associated with a rival law firm in Pittsburgh. And when Thornburgh ran for the U.S. Senate in 1992 against Democrat Harris Wofford, Buchanan Ingersoll gave $5,000 to each candidate--hardly a signal of devotion to Thornburgh. However, when Thornburgh was governor during the 1980s, Newlin did serve as chairman of his Corporate Advisory Committee, and he helped rewrite some of the state's business laws. According to the Philadelphia Inquirer, the amendments that Newlin helped pass were key to Thornburgh's economic revitalization program for the state. Rose concluded that the Justice Department under Thornburgh was pulling its punches with Kennametal and politicizing the broader investigation of BNL-Atlanta. While Rose relied heavily on Gasior for insights on the Pittsburgh connection to the BNL affair, Gonzalez tracked other leads on the same subject. His investigators found a Pittsburgh company incorporated in 1988 called Tigris Trading, an Iraqi front with additional addresses in Cleveland, London, and Baghdad. Gasior later noted that Tigris Trading once listed its address as 600 Grant Street--the USX (formerly U.S. Steel) Building that serves as Buchanan Ingersoll's headquarters. Gonzalez also learned that Pittsburgh was a regular stomping ground for the man he had identified as the chief aide to Safa al-Habobi for Iraqi weapons procurement in the United States. Saalim "Sam" Naman had worked for Dr. Safa in Europe before becoming a vice president of Matrix-Churchill in Cleveland. From his Ohio base, he dealt with dozens of U.S. companies, including Kennametal. While Gonzalez in particular triggered alarms within the White House and the Attorney General's Office, he also represented a threat to Gale McKenzie. The lead BNL prosecutor in Atlanta thought the congressman was poaching on her turf. In September 1990 she was upset to learn that the Banking Committee staff planned to fly to Atlanta to conduct interviews in preparation for its first hearing. Peter Clark, the Justice Department lawyer in Washington assigned to keep tabs on McKenzie, got a tip that she wanted to warn witnesses not to speak to the visiting congressional investigators. On September 21, Clark sent a blistering electronic mail message to a coworker: I suggest that word be conveyed to Gail [sic] that under no circumstances do we advise, suggest or imply to witnesses that they refuse to talk to anyone. If we have a valid reason to ask Congress to refrain from acting in a particular investigation, we tell the staff directly and never try to block their investigation by chilling witnesses. If she talks to those witnesses, the Congressional lead will be too hot for any but robots to handle. McKenzie and Gonzalez had completely different goals. She wanted to send Christopher Drogoul to prison. He wanted to expose the Bush administration's secret dealings with Saddam Hussein. She was looking narrowly at an off-book banking scheme. He was probing off-book foreign policy. Naturally, Gonzalez cast a much wider net for evidence. It was obvious to both of them that the intelligence community knew far more than it was volunteering about the BNL affair. McKenzie chose to let that sleeping dog lie. Predictably, Gonzalez began to poke at it. McKenzie couldn't help noticing that her criminal case was pushing buttons in the national security community. After all, she and Ray Rukstele, her immediate boss in Atlanta, had been ordered to Washington in May 1990 to meet with Rostow to discuss the CCC program with Iraq. The purpose of the meeting was to keep the intelligence community informed of the status of the BNL case. Five weeks after that summons, Rukstele gingerly attempted to find out what information the intelligence community would share in return. In a letter dated July 3,1990, he asked Mark Richard, the deputy assistant attorney general who dealt with intelligence matters, to help him learn "what role, if any, the Central Intelligence Agency had or played in BNL dealings with foreign governments in general and Iraq more specifically...." In other words, had the CIA been running a covert operation at BNLAtlanta? Rukstele's request was more than a casual sweep for new documents. "As you well know," he continued, "experience has demonstrated that CIA knowledge and participation can seriously impact a decision to prosecute." He volunteered to travel to CIA headquarters in Langley, Virginia, for briefings. But Atlanta prosecutors never got a satisfactory answer, and the nagging issue of possible CIA involvement in the BNL scheme wasn't aggressively pursued. McKenzie showed only perfunctory interest in the matter. It was only after Peter Clark's urging that she asked Larry Urgenson, chief of the fraud section of the Justice Department's criminal division, to try to get some clarification. In a letter dated December 10, 1990, McKenzie asked Urgenson "whether the unauthorized BNL-Atlanta funding was orchestrated, approved or directed by any facet of the U.S. intelligence or counter-intelligence community prior to August 4, 1989." Even if McKenzie had wanted to search intelligence records in her pursuit of justice, she wasn't authorized to do so. She didn't even obtain a security clearance to look at classified documents until April 1991--two months after she indicted Drogoul and cleared BNL officials in Rome. In sharp contrast to McKenzie, Henry Gonzalez reckoned that classified intelligence reports were a promising source for confirmation of his theories. Beginning in early 1991, he pressed the CIA and other agencies to release classified and confidential material. After analyzing hundreds of items, Gonzalez and his assistant Dennis Kane became convinced that many had been classified for reasons that had nothing to do with national security. The congressman considered it "downright criminal" that McKenzie's BNL task force wasn't immediately informed about relevant classified documents such as NSD 26. Gonzalez addressed the problem with characteristic aggressiveness. * When he came across an important nugget, he simply mentioned it in a floor speech, or even placed the sensitive document itself in the Congressional Record. For example, he did not wait for the CIA to declassify a November 1989 report entitled "Iraq-Italy: Repercussions of BNLAtlanta Scandal" before referring to it in a 1992 speech to the House. When it was declassified shortly thereafter, he put the report itself in the record. The Bush administration was furious. In May 1992, Thornburgh's successor, Attorney General William Barr, threatened to stop giving Gonzalez any more classified documents if he kept passing them on to the public. Gonzalez replied that everything he placed in the record discussed "past policies, not ongoing policies or operations." He insisted that the Republicans were raising a red herring. According to Gonzalez, they were the real abusers of the classification system when they used the "secret" stamp to hide politically embarrassing information. In late July, CIA director Robert Gates accused Gonzalez of releasing a "top-secret, compartmented, and particularly sensitive document" dated September 4, 1989. In addition, the State Department claimed that Gonzalez had placed in the Congressional Record the full text of at least fourteen of its classified documents. The Treasury Department also complained that the congressman was leaking secrets. Gonzalez roared back that the "piddling, phony charges about national security" were only the latest attempt to shield the Bush administration from the political fallout created by his BNL investigation. He challenged the administration to cite one significant national secret that he had improperly disclosed. On August 4, the third anniversary of the FBI raid on BNLAtlanta, House Minority Leader Robert H. Michel called for an ethics investigation of Gonzalez. He claimed the Texas Democrat had damaged national security, and warned that the agency would have a harder time collecting intelligence overseas if Congress was perceived to be a sieve. Newt Gingrich, the Republican Whip from Georgia, said Gonzalez could get someone killed. "Who is Gonzalez to put himself above the law?" Gingrich asked. "If there is an abuse of classification, he should go to the Intelligence Committee and have it declassified." Gonzalez shrugged off Michel's initiative as "the most tattered page in the Republican book. "First, they tried to ignore the investigation. Then they tried to hide the evidence. Now that the truth is emerging, they're trying to distract people from the facts by accusing me of wrongdoing." The House rejected the call for an ethics probe on September 17, 1992, the 216-150 vote splitting along straight party lines. Gonzalez had loyal Democratic Party support for his probe, but no Republican backing. Republicans thought Gonzalez was compromising national security, but Democrats saw no threat. It was presidential campaign season, and Iraq-gate had become a totally partisan issue. As the battle over intelligence documents heated up in 1992, Gonzalez picked up an unlikely ally in the media. William Safire, the former speechwriter for Richard Nixon and Spiro Agnew, used his column in The New York Times to present Gonzalez's theories to a national audience. "The Democrats have their election-year Watergate," Safire proclaimed on April 28, 1992. "But only Henry Gonzalez of San Antonio understands it." Pretty soon, other Democrats began to check it out. They already had chapter and verse on the scandal available in the Congressional Record. But for slow readers, Safire provided a Cliffs Notes version. "Policy blunders are not crimes," Safire wrote on May 18, 1992. "But perverting the purpose of appropriated funds is a crime; lying to Congress compounds that crime; and obstructing justice to cover up the original crimes is a criminal conspiracy." Safire later trained his attention on the Justice Department and Attorney General Barr, after Barr turned down a request by Congress for a court-appointed independent counsel in the case. Safire wrote that Barr's explanation for his decision "will be Exhibit A in a future prosecution of obstruction of justice." He nicknamed Barr the "cover-up general" and the building where he worked the "9th Street Immunity Bathhouse." Safire's barrages made it harder for George Bush to convincingly dismiss the Gonzalez investigation as a strictly partisan attack. The president tried to label it an election-year "witch hunt" by the Democrats. But in column after stinging column, Safire, the Republican in revolt, wrote that it was much more. His activism helped alert the mainstream press, including the newsweeklies, the TV magazines, and even the news columns of The New York Times, to the long-ignored public record Gonzalez had established. Congressional Democrats proceeded to launch a series of fiercely partisan attacks on the Bush White House. The ringleader, Gonzalez, claimed the administration had used BNL-Atlanta as a financial channel to ship weapons to Saddam Hussein and was desperately trying to cover its tracks. He said Bush, Brent Scowcroft, Lawrence Eagleburger, and others had "coddled" Saddam. Offering editorial cartoonists another image, Democratic Congressman Charles E. Schumer of New York said the Bush team had transformed the Iraqi leader into the Middle East's Frankenstein. The administration needed to counter the Democrats' superheated rhetoric. So when Lawrence Eagleburger--seriously overweight and hobbling with a cane--made his way to the Banking Committee's witness table in Washington on the morning of May 21, 1992, the packed hearing room expected a sizzling confrontation. Sucking alternately on a medicinal inhaler and cigarettes, the Deputy Secretary of State huffed with indignation and pounded the table to protest "the distortions of the record, half truths, and outright falsehoods, all combined into spurious conspiracy theories and charges of coverup." As for the decision to court Saddam Hussein, Eagleburger said: "We tried. Because we tried does not mean that we created a monster. We tried to contain him. We did not succeed. It's not the first foreign policy that has failed in this or other administrations." Looking down from the chairman's seat, Gonzalez calmly absorbed Eagleburger's fury with the confidence of a man who knew he was not yet ready to be extinguished. Chapter 15 RISING TO THE DEFENSE "He is guilty of some crimes. But... he has been overcharged, he was over pled and he has been abused." --Bobby Lee Cook on his client, Christopher Drogoul word of Eagleburger's congressional testimony on May 21 filtered back to Christopher Drogoul's new home at the federal prison in Atlanta. Drogoul's bond had been revoked a month earlier, and he faced trial in early June. For his own safety, he was placed in the prison's psychiatric unit rather than in the general prison population. He hated the food. He quickly tired of the reading material--worn-out Louis L'Amour cowboy novels and People magazines. He missed his family. In desolation, Drogoul began to write a memoir called "Origins of BNL-Atlanta." Waxing poetic, he wrote: "I was a virgin in the dark woods, manipulated at every turn." Perhaps inspired by Eagleburger's recent congressional testimony, Drogoul devoted roughly one eighth of his twenty-three-page manuscript to a section on Eagleburger and his role as an official with the tiny LBS Bank in New York, a bank that worked extensively with BNLAtlanta. While in prison, Drogoul met regularly with his public defender, Sheila Tyler, a recent graduate of Georgia State University Law School in the Atlanta inner city. He hinted to her that U.S. government officials were deeply involved in his scheme. She was so astounded by his claims that she asked the federal judge hearing the case for a private meeting in his chambers. U.S. District Judge Marvin Shoob granted her request. Tyler told Shoob that her client believed the government would never allow his trial to take place because it would compromise powerful people. She said Drogoul knew their names. After the FBI raid of BNL-Atlanta in August 1989, Drogoul had waited eighteen anxious months for some grim consequence. When it finally came the day after the Persian Gulf War ended, it was worse than he'd expected. The government handcuffed him at his home in front of his family and charged him with 347 felonies. Drogoul spent the night of his arrest in the Douglas County fail west of Atlanta. Despite the gravity of the charges, he was released on bond the following day. Although jobless, he was at least free to carry on his role as a model family man. He enjoyed lavishing attention on his pregnant wife and three children. When the summer rolled around, Drogoul lounged at the Avondale Estates swimming pool. In the fall, he hustled two of his sons off to soccer practice and hung around to watch and chat with other parents. Few, if any, of his newfound acquaintances on the soccer sidelines realized he was a former high-flying international banker in serious legal trouble. He struck some as a charming yet detached man who seemed devoted to his kids. "He had an inclination to be ironic," said Alex Hicks, an Emory University professor who enjoyed his company. "He'd twinkle at lots of different things." As the seasons passed, money became a big problem for the Drogouls. The government claimed he'd taken millions of dollars in kickbacks on the Iraqi loans, but he didn't live like a wealthy person. His wife didn't buy new dresses, and he got by with only a couple of dark suits. What few assets they did have were frozen by the government. Before the indictment, Pierre Drogoul and Wafai Dajani had helped with certain legal and living expenses. Dajani paid Drogoul a couple of $50,000 fees for consulting work in Europe, but that source of funds dried up after the indictment. Ted Lackland's law firm dropped out of the case in early 1991 after Drogoul had run up a $500,000 legal tab. Following his arrest, the court declared him indigent and appointed Tyler as his public defender. Desperately in need of cash to support his family of six, Drogoul applied to become a New York City cab driver. Ever resourceful, he used an expired passport to get his cabbie license and listed his sister's New York address as his own. But the taxi job didn't work out. Drogoul filed for bankruptcy protection in early 1992. In April 1992, it occurred to Judge Marvin Shoob that Drogoul's dire circumstances might cause him to flee before his fast-approaching trial. He was facing charges that carried a penalty of more than nine hundred years in prison. Shoob thought it odd that federal prosecutors hadn't moved to revoke his bond and hold him in prison. So the judge asked federal prosecutors to request a bond revocation hearing. They complied, and on April 27, Shoob ordered Drogoul locked up in Atlanta's federal pen. Judge Shoob thought it rather unlikely that Drogoul had both masterminded the Iraqi loan scheme and kept it hidden for years. After meeting with Sheila Tyler in his chambers, he began to suspect that government officials were in fact involved. But he was caught totally off guard by the news Tyler brought him one day near the end of May. Drogoul, she explained, planned to plead guilty to all 347 felonies and throw himself at the mercy of the court. She, as his lawyer, was going to go along with it. Tyler told Shoob that all her client requested was several hours of court time so that he could tell his story. He was going to fill in the details of the scandal that Gonzalez and Safire had been poking at in Washington. Drogoul--to borrow a phrase from BNLRome--was planning to "raise the case to a political level." Judge Shoob was seething when he brought the Atlanta federal court to order the morning of Tuesday, June 2. A slight, white-haired man not prone to wide emotional swings, Shoob believed someone was trying to pull a fast one on him. Over the weekend, federal prosecutors had reached an unusual plea agreement with Drogoul--one that effectively halted his plan to implicate high officials. On Monday, prosecutors told Shoob about the agreement. Later that day, a reporter called to say he'd heard about the deal and understood that Judge Shoob was "on board" too. By Tuesday morning, the normally patient jurist was sputtering mad, demanding answers. "I can tell you the judge is not on board," Shoob announced passionately from the bench. The previous week, Tyler had led him to believe that Drogoul was fed up with the prosecutors and wanted a chance to demolish their theory of the case. Tyler told him Drogoul was secretly preparing a written statement on the Iraq lending scheme that ran hundreds of pages and named names. She said her client wanted a safe and open forum to reveal astonishing facts he'd been withholding for years. Tyler had asked the judge to set aside a big chunk of court time. That sounded fine to Shoob. He was uncomfortable with the prosecution's version of events, which pinned all blame on Drogoul. He was eager to hear from the alleged mastermind. So he, the senior judge, and Tyler, the young public defender, reached an understanding about what would unfold in court Tuesday. The day before the hearing, a U.S. marshal told the judge about a sketchy report that someone planned to kill Drogoul on the way to the courthouse. When the judge asked who was supposed to be behind the plot, the answer came back: "Would you believe the CIA?" Shoob was skeptical. Even so, the marshal asked for permission to make the six-mile transfer from prison to the courthouse that day. Shoob nixed the idea but agreed to have the defendant brought in under heavily armed guard around dawn Tuesday morning. Drogoul looked bedraggled at 9:30 Tuesday morning when he was led into the antiseptic nineteenth-floor courtroom that overflowed with lawyers, federal agents, sketch artists, and journalists from the United States and Europe. Judge Shoob took his place moments later. He immediately fixed his attention on Gale McKenzie, the lead prosecutor. Why, he asked, had the government cut a deal with a defendant who had already agreed to plead guilty to each and every count? McKenzie said she needed his cooperation in her ongoing investigations. She was getting that by allowing him to reduce his counts from 347 to 60 and his possible years in prison from more than 900 to more than 300. It soon became clear that Drogoul wasn't planning to follow through with the detailed statement Tyler had told the judge to expect. Shoob asked her why not. Tyler said it was no longer necessary because Drogoul would be telling everything in private debriefings with prosecutors. Besides, she added, the statement wasn't anywhere near finished. Finally, Judge Shoob turned to Drogoul. "I started to write it, your honor, but as we became involved in the plea negotiations, I stopped," Drogoul said. "To really discuss a case like this properly I needed literally thousands of documents to kind of refresh my memory." Tyler had promised a candid witness, but Shoob found him to be exasperatingly evasive. At one point, Shoob sought to clarify whether he was admitting the government's charge that he stole millions for himself. "What did you get out of all this?" Shoob asked. "About three-hundred years in jail," he answered. "Pardon?" "About three-hundred years in jail." "I'm sorry. I don't understand. I don't care for a flip answer.. .." Perhaps, Shoob asked, someone could tell him who initiated the plea agreement--the defense or the government. Randy Chartash, who had replaced Kent Alexander as Gale McKenzie's new assistant, stood and awkwardly acknowledged that he made the crucial call to Tyler on Friday when McKenzie was out of town. McKenzie said his offer was essentially the one she'd put on the table two weeks earlier. She told Shoob the agreement didn't in any way block Drogoul from naming names in court. On the contrary, she said, she looked forward to his revelations. Skeptical, Shoob again turned to Drogoul. "All right, who else was involved at BNL in these transactions? I don't believe for a minute that you, as a branch manager .. . were able to do all these things and handle all these complex transactions on your own." "You are right," Drogoul answered. "All right, who in the bank in Italy was involved in the transactions? I want to know that. I want to know who in the United States was aware of it or participated in it or knew about it." "I will give you all that information to the best of my ability once I have had a chance to review the documents and put things correctly in perspective, your honor, honestly." Shoob was boiling. He turned to Tyler. "Do you want to consult with him? He is not helping his position, Ms. Tyler. Because when it comes time to sentence him, if I get a sanitized version of what took place, he is never going to get out of jail." Under most circumstances, Marvin Shoob preferred to err on the side of mercy. He was a gentle, courteous man, considered by many to be one of the most liberal, lenient sentencers on the federal bench. The Almanac of the Federal Judiciary described him as "a true intellectual who goes out of his way to be fair." Critics claimed that he was too soft on criminals, and even he admitted that he tended to be "gullible." And yet, he was also a man of unusually strong convictions. When he felt that a principle was at stake, he could be absolute and unbending. Born in 1923, Shoob's character was profoundly affected by his months on battle lines in Europe during World War II. He was not so much a war hero--though he was awarded a Bronze Star--as a war survivor. As a private in General Patton's Third Army, his unit once spent 103 days on or near the front lines. He patrolled the frozen forests in a fleece jacket he'd lifted off a dead German. One evening, as Shoob was stationed in a shell crater, five young German soldiers staggered toward him through the smoke with their arms in the air. They didn't speak English, and they were terrified. Shoob held them at rifle point for about two hours until a lieutenant from another unit happened by. The lieutenant asked the American private what he planned to do with his prisoners. Shoob said he didn't have any idea. The lieutenant ordered the young Germans to lie face down in the crater and pumped them full of bullets. Two weeks later, the same brash lieutenant died in battle. Fifty years later, Marvin Shoob had difficulty expressing precisely how his battle experiences molded his judicial temperament. He said it instilled in him a conviction that he must always do the right thing when faced with a moral choice. He said it made him deeply appreciate the freedom and security offered in United States. But the other lessons he carried away from war were more difficult to sum up. "I saw so much suffering, so many people killed," he said. "It wasn't just physical deprivation...." Shoob returned to Georgia and became a successful business lawyer. In 1972, he toured the state raising money for a bright young lawyer from Perry, Georgia, who was running for the U.S. Senate. Shoob served as Sam Nunn's finance chairman that year, and again for Nunn's reelection campaign in 1978. The following year, President Carter heeded Nunn's recommendation and appointed Shoob to the federal bench. It was a lifetime appointment. Shoob, a conservative Democrat, was immune to common political pressures, though he clearly sympathized with the Democrats. His first major test as a federal judge came in the wake of the 1980 Mariel Boatlift, which resulted in the transfer of thousands of Cubans from Fidel Castro's prisons and mental hospitals to Atlanta's federal penitentiary. The Reagan Justice Department believed that the prisoners had no rights to hearings and could be detained indefinitely. Shoob disagreed. They locked horns in a five-year battle of wills. Most of the two thousand Cubans who arrived in Atlanta in the first wave of immigrants were poor and illiterate. Many were certifiably insane. Some had raped and murdered. But a number were former political prisoners of Castro. Since few had credible papers, it was often difficult to distinguish the good from the bad. The Justice Department decided to treat them all as dangerous criminals. But after meeting Soroa Gonzalez, Marvin Shoob knew he could never go along with that political line. The first thing he noticed about Gonzalez was the deep indentation across the top of his forehead. A rifle butt had crushed that part of his skull. A former Cuban medical student, he had spent fourteen years in prison for speaking against Castro. At a hearing in the judge's chambers, Gonzalez looked Shoob in the eye and said: "I came to this country thinking I'd find freedom. I did not find freedom." Days later, Shoob wrote an order for his release, which was delivered to the prison on a Saturday. But the assistant warden in charge refused to free him. Learning that his order was being ignored, Shoob called the prison official. "I have orders from Washington not to release anyone," the official said. "All right then," Shoob shot back, "I'm sending two marshals over there in fifteen minutes to pick up Mr. Gonzalez and you. You are going to spend the weekend in the Douglas County jail and then appear before me on Monday morning for contempt of court." The assistant warden backed down and freed Gonzalez. Much to the annoyance of the Justice Department, Shoob continued to free hundreds of other select Cubans. Finally, Rudolph W. Giuliani, Reagan's deputy attorney general, took the offensive. He appeared on television with a list of seventy-seven Cubans who had been convicted of rape and murder. He denounced the irresponsible federal judge in Atlanta who was ordering their freedom. Actually, Shoob had the same list and was scrupulously careful to avoid releasing any of the seventy-seven, a fact that Giuliani later acknowledged in a belated apology to Shoob. But the retraction didn't stop the death threats and basketfuls of hate mail that swamped Shoob and nearly brought his office to a standstill. For weeks on end, marshals hid in the woods outside the judge's house to protect him from those incited by Giuliani's televised political pitch. Shoob said Giuliani, who was elected mayor of New York City in 1993, later told him he was sorry, but he'd been acting under orders. Giuliani's boss, Attorney General Edwin Meese, also met with Shoob to try to block his orders to release Cubans. "Judge, don't you know that these people are all dangerous criminals?" the Attorney General said. "Mr. Meese, they are not. Some are. Some are not." Meese went on to say that he and Ronald Reagan thought it would be acceptable to round up all the detained Cubans and drop them by parachute over their homeland. "He was not kidding," Shoob said. The June 2, 1992, plea hearing for Drogoul marked the beginning of Shoob's second great battle of wills with the U.S. Department of Justice. The hearing had dragged on for hours when the judge casually dropped a bombshell. He stated that he believed an independent counsel-free of the politics of the Justice Department--would be needed to get to the bottom of the BNL case. Nine days later, he wrote Congressman Jack Brooks, chairman of the U.S. House Judiciary Committee, to urge that an independent counsel be appointed. On July 9, the Judiciary Committee voted to ask U.S. Attorney General William Barr, George Bush's choice to replace Richard Thornburgh, to request that a three-judge panel appoint an independent counsel. Congressman Brooks wanted a fresh look into possible crimes by the Bush administration concerning arms exports to Iraq and its handling of congressional requests for information on the matter. But Barr, who had worked with George Bush at the CIA in the late 1970s, tossed out the request and claimed that Judge Shoob had been sloppy with his facts. According to Barr, the evidence in favor of an independent counsel was "vague and general." Brooks called Barr's decision "stonewalling, plain and simple." Congressman Henry Gonzalez accused Barr of playing "a dangerous political game to protect the Bush administration." Brooks and Gonzalez weren't free from partisan motives either. The Democrats realized their party had a real shot at winning back the White House. They felt the BNL scandal had the potential to undercut Bush's main foreign policy asset--the success of Operation Desert Storm. For the time being, however, the Republicans seemed to have the explosive case contained. They'd killed the move for an independent review of Justice's handling of the case. And they'd silenced Drogoul; his debriefing sessions with prosecutors weren't being recorded and he still faced hundreds of years in jail. Tyler, his attorney, was cooperating with prosecutors to carry out the plea agreement. All that remained was the sentencing hearing, set for September. Brooks and Gonzalez could gripe, but the Republicans had to like their chances of quietly burying the scandal a few short weeks before the presidential election. Those chances dropped sharply on August 18, the day the warden at Atlanta's federal pen received a three-paragraph letter from a law school dropout from the foothills of Northwest Georgia. Bobby Lee Cook wanted permission to visit Drogoul. Cook was interested in taking him on as a client--for free. It didn't matter that Drogoul had already pleaded guilty and was less than one month from being sentenced. Cook loved a fight and he had a plan. Finally, Drogoul had gotten a huge break. Cook wasn't just any walk-in lawyer. If every prosecutor, defense attorney and judge in Georgia had been asked to name the single most talented and effective criminal defense attorney in the state, Cook would have won in a landslide. A bow-legged pipe-smoker with a white goatee, Cook practiced law in Summerville, a small town not far from the borders of Alabama and Tennessee. In the forty-odd years since he'd dropped out of Vanderbilt Law School, he'd represented the Rockefellers, Carnegies, the influence-peddling Tongsun Park, porno king Michael Thevis, Bert Lance, the Somoza government of Nicaragua, and dozens of murder defendants. He was reported to be the model upon which the TV character Matlock was loosely based. Cook was a lanky country boy on a mission to prove that being from the country and being dumb weren't the same. His legal skill, wit, dramatic flair, and stubborn loyalty to his rural roots all contributed to the persona that so often produced magic in Southern courtrooms. Cook didn't need to move to Atlanta. Summerville was just fine with him. He built a topnotch law library in his own office and opened it to any rural lawyer who needed it. The Justice Department in Washington probably didn't immediately grasp the significance of Cook's entry into the case. But he grabbed their attention a few days later when he canceled Drogoul's debriefing sessions with McKenzie's investigators. The sentencing hearing was fast approaching, and Cook was girding for war. That was fine with Judge Shoob, who was pleased to see Cook enter the case. He wanted the status quo shaken up. The judge felt he didn't know enough about Drogoul's relative culpability to order a fair sentence. He intended to grant Cook broad latitude to introduce documents and testimony that normally would not be admissible at a trial. Shoob and Cook were old friends, and loyal Democrats. A few courtroom observers wondered whether the judge urged Cook to take the case--perhaps to harass the Republican Bush administration as much as to dig for truth. But the judge insisted he had not approached Cook. Christopher Drogoul's sentencing hearing opened the morning of September 14 in Shoob's blandly modern courtroom on the nineteenth floor of the Richard Russell federal building in Atlanta. Warily, the prosecution led off. Gerrilyn Brill, McKenzie's boss and the acting Atlanta U.S. Attorney for the BNL case, said she'd been reading in the media Cook's inflammatory comments about the politics of the case. She asked Shoob to prevent Cook from turning the hearing into a political show. "We cannot allow the criminal process to be used for political purposes," Brill said. "I would ask the court to keep this hearing what it is supposed to be: a sentencing hearing for Mr. Drogoul." Brill was earnest, straightforward, and slightly stiff. Cook, by contrast, thundered and whispered to achieve a well-practiced dramatic effect. "I don't stand before this court and tell you that I represent an angel. I do not. He has made mistakes. He is guilty of some crimes. But... he has been overcharged, he was over pled and he has been abused." It was Cook's goal to use Drogoul's sentencing hearing as a forum to put the Italian bank and the U.S. government on trial. Brill dismissed this approach as idle "grandstanding." But Cook was dangerous, particularly when performing for the national media--whom he had charmed--in a court run by a friendly judge who wanted to know more than the prosecution was willing to tell him. Brill was slow to recognize the danger. Even when Mike Wallace of 60 Minutes appeared in court and later asked her unfriendly questions on camera, she seemed confident the prosecution's case could withstand all scruitiny. Cook didn't have much time to prepare for the hearing, but at least he had an important ally in Henry Gonzalez. The congressman had already developed and documented many of his arguments. The sly lawyer and the determined congressman understood that they were in a position to amplify each other. On the afternoon of the sentencing hearing's first day, Congressman Gonzalez released documents that suggested that the CIA knew that BNL officials in Rome authorized loans from the bank's Atlanta branch to Iraq. Cook cited the report in court the next day, and Shoob demanded to see every CIA document related to BNL and Iraq. With each passing day, the judge seemed to grow more impatient with the prosecution's case. He questioned the thoroughness of its investigation of BNL-Rome and asked why they hadn't invited Giacomo Pedde, the bank's former director general, to Atlanta to testify. At one point, the judge even singled out BNL's local attorney, Bruce Kirwan, in the courtroom audience and asked him to see if Pedde could be flown in from Italy. Kirwan later said Pedde wasn't available. Meanwhile, Cook kept prosecutors frustrated and off balance. After Art Wade, McKenzie's lead investigator and chief witness, had given hours of mind-numbing testimony, Cook opened the cross-examination by asking if he'd ever used an alias. He had--as a teenager and later in government undercover operations. Since he'd worked until late 1988 as a civilian at the Pentagon and lived only a few miles from CIA headquarters in Virginia, Cook wondered whether Wade ever worked for U.S. intelligence. Wade, looking irritated, said he hadn't. Cook enjoyed tweaking his courtroom adversaries, playing mind games with them. But the games served a purpose. Midway through the hearing, Cook made a surprise motion to withdraw Drogoul's guilty plea. He argued that his client couldn't have defrauded BNL because senior officials at the bank knew what he was doing all along. Prosecutors weren't immediately sure how to react to the motion. They knew that by accepting, they could end the sentencing hearing and deal with a trial later--after the November election. Brill decided to oppose Cook's motion. He was hoping she'd do that. The motion had been a ploy. He needed to repudiate the June 2 guilty plea, but he wanted to continue with the hearing. The testimony, which was gaining nationwide publicity, suggested that Drogoul was a scapegoat for the Bush administration's foreign policy failures. If Brill--or her bosses at main Justice--had been more savvy, they would have yanked the cunning country lawyer from his stage by agreeing to release Drogoul from his guilty plea. Cook was an active Clinton supporter. He had absolutely no interest in participating in an extended trial during the political off-season. There were limits to his pro bono dedication. Election day, give or take a few days, was one of those limits. Brill wanted to try to avoid a long trial too, so she gambled that Cook couldn't deliver. She lost. Drogoul finally took the stand in the middle of the afternoon of September 29. He was the last witness for his own defense. Cook had battered the prosecution's case, but he hadn't scored a clear knockout. Could he deliver the killing blow? Drogoul's testimony was his final chance. The courtroom was full, so Judge Shoob allowed some of the overflow crowd to sit in the jury box. Everyone seemed ready except the usually fiery Cook. He looked worn out. The morning witness had allowed him to score some points, but the exercise had been draining. Cook didn't hear well, and he had to strain to catch testimony. He'd cock his head, cup his ear, sometimes even move into a jury box seat right next to the witness. It required intense concentration. Cook wasn't just tired. He was distracted. He had a date early that evening to meet with two doctors; they would have news about his son, who was dying of pancreatic cancer. Shoob agreed to adjourn at five so that Cook could make his appointment. That afternoon, Cook stuck to simple background questions with Drogoul--nothing controversial. He'd save that for the following morning. Cook and his wife June were staying in a suite on the eighteenth floor of Atlanta's downtown Ritz-Carlton during the sentencing hearing. They'd already been to see the doctors and finished eating at a table set by the room service waiter when a reticent young woman arrived offering copied pages from a confidential BNL document. The pages were part of Paolo Di Vito's private diary--a chronicle of his efforts as head of BNL's "Atlanta Group" to help limit the Italian bank's legal damages. It was the first time the diary had surfaced in the United States. The young woman, who worked for an Italian news organization, apparently obtained it from Italian Senate investigators. Cook didn't read Italian, so she translated some of it for him. The thirty-odd diary pages she supplied revealed the lobbying campaign BNL had waged in Washington in 1990 to avoid being indicted. They showed that the effort was spearheaded by Rinaldo Petrignani, the Italian Ambassador to the United States, and by the bank's U.S. attorneys. One page noted that Griffin Bell told the bank it "is without a doubt at risk of being indicted." The notes showed that in response to that threat, Petrignani and company made pitches to senior officials at the departments of State and Justice. Cook saw that the document would allow him to take the case to an entirely new level. Federal prosecutors in Atlanta had long insisted that politics had nothing to do with their case against Drogoul. But the whole setup sounded pretty political to Cook. He'd been claiming for the past two weeks that BNL officials in Rome knew about Drogoul's lending to Iraq and that U.S. officials were covering up for the Italians. But he had scarcely any documentary evidence. Now, he could show that the Italian and U.S. governments had been communicating about the case. Thornburgh and Petrignani even met at the White House. Cook had to get this new information before the judge. Armed marshals brought Drogoul to the courthouse around 9:00 a.m. Wednesday morning, September 30. He was scheduled to take the stand half an hour later. Cook hadn't had time to hire a translator, but he was determined to use the diary notes. They were powerful ammunition, but he still needed a weapon to fire them. Drogoul was his only hope. Only the day before, his client had testified that he wasn't fluent in Italian. He could understand it, but he couldn't really speak it. Never mind, Cook told him, you're going to translate the diaries into the record from the witness stand. As Drogoul took the stand, Cook handed the prosecutors photocopies of the diary excerpts. Drogoul identified the signature on the document as that of Paolo Di Vito, "a senior executive of BNL in Rome," who had apparently written them. This was the only authentication Cook could provide. Prosecutors didn't appear to recognize the document. Whatever it was, though, it certainly didn't seem likely to pass any traditional test for admissibility as evidence. For one thing, it hadn't been translated. For another, it hadn't been authenticated. The words "privileged and confidential" were stamped on every page, and furthermore, there was no indication that Drogoul had attended any of the meetings referred to, so how could he be asked about them? Few attorneys would have had the audacity to try this, and not many federal judges would have stretched the rules of evidence far enough to accommodate them. As for the prosecution team and BNL's attorneys, they were mortified as Judge Shoob proceeded to repeatedly deny their increasingly desperate objections to the new evidence. "They were popping up like rabbits in a field all morning, weren't they?" Cook would say later. Judge Shoob had already decided not to adhere strictly to the rules on the admissibility of evidence that normally apply at a trial. He said that as a federal judge he had the right to bend those rules at a sentencing hearing because the issue of guilt had been established, but the issue of relative culpability had not. The judge continued to doubt that BNLRome was unaware of Drogoul's scheme, and he suspected that prosecutors were feeding him a "sanitized" version of the facts. His call in June for an independent counsel had fizzled. Given that prosecutors were asking him to sentence Drogoul to life in prison, he decided to accept any evidence that might help him get closer to the truth. But before admitting Drogoul's translations of the diaries into the record, Shoob had just one question. "Mr. Cook, how did you come into possession of that document?" "That document was slipped under my door last night at suite 1823 at the Ritz-Carlton Hotel, downtown, addressed to me, from the press." The answer was evasive, but the judge didn't press him. He could have asked how Cook had determined that thirty pages of notes written in Italian were significant to his case. He could have asked which outlet of the media had supplied it. There were plenty of potential culprits sitting in the courtroom, pad and pen in hand, representing The Wall Street Journal, the Chicago Tribune, The Atlanta Constitution, The New York Times, the Los Angeles Times, The Washington Post, the Boston Globe, the Associated Press, the Financial Times of London, and several Italian newspapers and magazines. A few TV and radio stations were there too. Allowing the diaries to be read into the record was tantamount to broadcasting them nationwide, even across the world. McKenzie rose to object eight times in a span of a few minutes. Brill rose once, but Shoob said he didn't want to hear from two government lawyers. The women conferred, and McKenzie said: "Certainly, BNL should have some opportunity to review [the diary] and determine if they have claim of privilege. Also, I think it is very unusual, if not shocking, that this document has not been authenticated." Taking his cue, Walter Driver of King & Spalding rose in the back of the courtroom to assert the bank's privilege. Cook shot back: "I say the bank has no privilege. This is a document which is in the public domain. It's in the hands of the press. It is signed by Mr. Di Vito, who is with the bank. I can see why they would be concerned with it, because there are things in this document which go to the very heart of the truth of this matter, which turns the truth as asserted by the government upside down." It was a tense moment. Either Cook was going to be allowed to introduce the closest thing he had to a "smoking gun," or else he was going to have to fall back on Drogoul's uncorroborated testimony. Shoob told McKenzie she would have ample time to review the document at recess and bring in her own translator to point out errors Drogoul might make. When she rose for the eighth time to protest that there wouldn't be time, Judge Shoob cut her off, saying: "I don't care to hear any further on this." Drogoul began translating parts of the diary into the record. The content of the notes soon overshadowed questions about the qualifications of the translator. "The last meeting, at the end of March [ 1990] was held with Attorney General Richard Thornburgh on the occasion of a luncheon at the White House," Drogoul translated. Also at this meeting Ambassador Petrignani reaffirmed the position of BNL as a victim and--and the role of the bank of--excuse me-and the role of BNL as a bank of the Treasury, the Italian Treasury, and therefore a direct--a direct organ of the Italian government. He indicated that to incriminate the bank would be tantamount to a slap in the face of the Italians and would not be understood by the Italian Government in Italy. Other entries described the relations between McKenzie and BNL's lawyers from King & Spalding and her desire to "safeguard the position of BNL as victim." Cook scored big with the BNL diaries. They provided an ideal introduction to the material he had planned to cover: details of Drogoul's personal relationship with BNL's Giacomo Pedde. Drogoul testified about his first meeting with the bank's director general in 1983. He related that Pedde had nicknamed him "Mr. CCC" in 1987 and knew all about the unrestricted $200 million line of credit he'd given Iraq in February 1988. Drogoul still had credibility problems. Several witnesses had testified that he was an accomplished liar. On the other hand, his testimony now had to be considered in light of the Di Vito diaries and the CIA documents Gonzalez had released. The theory that the bank was an innocent victim of the "lone wolf" Drogoul seemed to be weakening. By Wednesday evening, Cook still hadn't finished questioning Drogoul. What new can of worms would he be opening the next day? As the hearing opened Thursday morning, Brill stood up to address Judge Shoob. Your honor, I will get to the point very quickly. The government wants a trial in this case.. .. We are now withdrawing our opposition to Drogoul's motion to withdraw his guilty plea, and, if he is no longer persisting in that motion, we are informing the court that we intend to withdraw from the plea agreement... Up until yesterday, Drogoul was admitting his guilt but speculating that others might have known, could have known or should have known.... He is now saying not just that others may have known or knew but that at the highest levels of BNL his conduct was authorized and encouraged. In other words, he is denying guilt.. .. What we are not willing to do is to voluntarily be part of the sentencing proceeding where the defendant is contending that he is innocent. To sentence Drogoul on the record before this court, when he is contending that he is not guilty, would undermine the integrity and erode public confidence in the Justice Department, the investigation and the criminal justice system in general. Brill's contention that the prosecutors had been swayed by Drogoul's testimony alone struck many on hand as convenient way to avoid stating the real reasons for the government's change of course. Her speech might have carried more moral authority had it come fourteen days earlier when Drogoul first asked to be set free from his guilty plea. Coming as it did in the wake of the damaging evidence from the Di Vito diaries, it had the ring of expediency. Brill went on to say that a trial, with traditional rules of evidence, would lend itself better to discovering the truth in the case. Shoob said he'd already reached certain conclusions regarding the truth. First, BNLRome knew about BNL-Atlanta's substantial lending to Iraq or "deliberately closed their eyes." Second, the failure of Atlanta investigators to conduct interviews in Rome "indicates an effort to absolve BNL-Rome of complicity in the Atlanta branch loans." Brill, looking ashen, replied that she felt the judge's statements would support a government motion that he recuse himself from any future trial in the case. In closing, Bobby Lee Cook tried to put the proceeding into an even broader context: Within the past few years great and historical changes have been wrought all over the world. For the first time since the dark days of World War II there has emerged a sense of freedom and a sense of openness in government in places that our generation would never have expected or even anticipated, broken out all over the world from Bucharest to Gdansk, from Moscow to Prague, Budapest to Tokay, and it's a sense of openness and liberty which I often say that can make the heart beat faster and shake the very world. But here where we proclaim that we have established a moral norm of freedom and human rights, sometimes we continue to retrench and to withdraw and to dodge the truth and to cover up and sometimes even to mislead the public and to defame our own honor and our own history, and sometimes even good and decent people who are well-meaning participate in this charade. Those of us who do become cowards who flee the battle under the guise of protecting something, whatever it may be. Finally, the judge closed the show by saying he'd allow the plea to be withdrawn, and that he would withdraw from the case if the prosecution asked him to. In parting, he said he had determined that BNL was not a victim and that it had taken its position against Drogoul for political reasons. Drogoul was led out a side door of the court by a pair of marshals who took him to a holding cell to meet with Cook. Meanwhile, Drogoul's mother and sister, who had sat, withdrawn and solemn, in the rear of the court for the entire hearing, for the first time showed signs of optimism. "It took a great litigator like Mr. Cook to flush BNL out," his sister told one reporter. The media waited for Cook to emerge. Reporters and TV cameramen followed at his heels to a parking lot outside the courthouse, where he held an impromptu press conference, squinting into the bright morning sun. After a few minutes, he and his wife June and their chauffeur drove off to Summerville in their black Mercedes sedan. Chapter 16 FRIENDS IN NEED "I got to know President Bush. I had him on my list of good people." --Griffin Bell, attorney for BNL a\* two senior CIA lawyers stayed late into the evening of September 30, 1992, at the agency's Langley, Virginia, headquarters to pore over intelligence reports on BNL. They were responding to a sharp prod delivered the day before by the chairman and vice chairman of the Senate Intelligence Committee. The senators had demanded that the CIA come clean with Judge Shoob. David P. Holmes, the CIA's acting general counsel, and George Jameson were working overtime that Wednesday evening because they planned to fly to Atlanta the following morning to meet the skeptical judge face to face. They never made the trip. During his review of the classified BNL file, Jameson ran across a January 1990 report that implicated a specific official from BNL's Rome office. It directly contradicted the Justice Department's theory that senior officials had been blindsided. "There was no getting around this one," Jameson said. "I mean there was just no way." Holmes had a similar reaction. After reading the document, he was "terribly sorry" he'd agreed to sign an unclassified September 17 letter to Gerrilyn Brill about the agency's supposed knowledge of the affair. It seemed to Holmes that the 1990 report meant that a portion of his letter to Brill was "absolutely incorrect." The only comfort Holmes could take was that the report in question had been provided to the Justice Department in October 1990. "At least it's not something they don't know about," Holmes said. After Jameson and Holmes had absorbed the full meaning of the January 1990 report, they made a series of hurried calls to officials at Justice. Early the following morning, Jameson spoke by telephone with Brill about CIA reports on BNL. An hour or two later, Brill informed Judge Shoob that the government wanted to allow Drogoul to drop his guilty plea. She also said she might formally ask the judge to remove himself from the case. Intentionally or not, Brill gave the CIA lawyers welcome breathing room. They no longer felt compelled to travel to Atlanta that very day to brief Shoob. The report that so shocked Holmes and Jameson was only the beginning. Besides that, the agency had located three other classified reports on BNL that had never been shared with Justice. The agency lawyers would have had to do a lot of fast talking to explain to Judge Shoob why the latest reports took so long to surface. And if the CIA had failed to satisfy him; it would have had to answer to Senators David Boren and Frank Murkowski of the Intelligence Committee. For three years, the agency had managed to deflect questions about its knowledge of or participation in the BNL-Atlanta scheme. Yet there was abundant circumstantial evidence that the intelligence services at least monitored the secret financial channel to Iraq. As Drogoul's sentencing hearing approached, it seemed likely to the Justice Department that Bobby Lee Cook, the showboat lawyer, was apt to try to argue that CIA acquiescence lessened his client's culpability. To prepare for that argument, Gerrilyn Brill asked the agency to respond in writing to ten narrowly worded questions about the case. The CIA answered in a classified letter dated September 4, 1992. In sum, it denied knowing before the August 1989 FBI search that BNL-Atlanta had granted Iraq "unauthorized" funding. The answers satisfied Brill's immediate need for an on-the-record CIA statement. The agency, meanwhile, was satisfied to remain in the shadows. The Defense Intelligence Agency and the National Security Agency were also asked to provide Atlanta prosecutors letters on BNL in September 1992. They too seemed to prefer a low profile. According to a report by the Senate Intelligence Committee, DIA's letter was "carefully crafted" to exclude mention of the classified September 15, 1989, DIA report that described BNL-Atlanta as a NATO mechanism to prevent Iraq from losing its war with Iran. NSA produced a letter to Brill, as requested, but it was classified at a level so high that she was not authorized to read it. Suddenly on September 14, the CIA found itself in the harsh spotlight of Henry Gonzalez. On the first afternoon of Drogoul's sentencing hearing, the Texas congressman released portions of a secret CIA analysis--provided to him by the agency many months earlier--which referred to the CIA's "confirmation of press allegations that more senior BNL officials in Rome had been witting of BNL-Atlanta's activities." The congressman demanded to know when the CIA confirmed the press reports and what else it knew. Prosecutors in Atlanta were stunned. They'd never even seen the analysis Gonzalez was referring to, and they felt sure Cook would try to rub their noses in it. According to Laurence Urgenson, a senior Justice attorney in Washington, they saw their case falling apart. Brill and her bosses at Justice felt the CIA owed them an explanation, particularly in light of the agency's September 4 letter. The letter, signed by Holmes, repeated ten Justice Department questions and answered each. It included the following exchange: Question 8: "Does the CIA have any information that BNLRome was aware of the illegal activities engaged in by BNL-Atlanta? If so, when did the CIA acquire such knowledge?" Answer: "CIA has publicly available information, acquired in the December 1989-January 1990 time-frame, that BNL-Rome was aware of me illegal activities engaged in by BNLAtlanta." Although the response was conspicuously evasive, it sufficed until Gonzalez dropped his bombshell. But after that, Justice Department lawyers felt naked and unprotected. In a huff, Assistant Attorney General Robert Mueller called Holmes and demanded in an agitated tone, "You have got to help us with a press statement." But the CIA wasn't eager to bail out the Justice Department. "I believe the thrust of the Gonzalez statement was that CIA had information that contradicted the Justice Department prosecutorial theory of the case that BNL-Atlanta was a rogue operation," said John Rizzo, another CIA attorney. "That is essentially what [Mueller] wanted us to deny." Over the next few days, various CIA officials drafted nine or ten possible press releases. None went out. They also discussed the pros and cons of altering their answer to Question 8 to take into account the Gonzalez disclosure. But Urgenson and others at Justice wanted to expose the CIA's original classified answer. That would place the weight of whatever deception had taken place on CIA rather than on Justice. With some reluctance, the agency agreed. On September 17, Brill received an unclassified letter that contained the original ten questions and answers. She released it to the media. In one respect, the squabble over Question 8 was a tempest in a teapot. The CIA analysis that Gonzalez exploited was based on very thin underlying intelligence data. The analyst who wrote the report later told Senate Intelligence Committee investigators that perhaps she should have said "appears to corroborate" BNL-Rome's knowledge of Drogoul's activities. But the controversy focused attention on the CIA. It roused Judge Shoob and the CIA's Senate oversight committee members, who demanded the agency's underlying documents. Judge Shoob only needed to see a few to conclude that they tended to support Drogoul's version of events. Senators Boren and Murkowski, the chairman and vice chairman of the Intelligence Committee, wanted to address the judge's persistent criticisms of the agency. So in their September 29 letter, they ordered the CIA to provide all relevant documents to Shoob. The following day, the agency decided to send a team of lawyers and security officers to Atlanta. Brill wasn't happy about that prospect, Urgenson later said. "Gerrilyn's misgivings were that Judge Shoob, in her judgment, had received the CIA materials and misinterpreted them, and she was fearful of providing him more material, "Urgenson said. ".. . She felt that, having given the reports to the judge, he will now have a factual basis to make negative findings. He will go against us." But Brill didn't have to worry about Shoob for long. Deferring to her and the Justice Department, he removed himself from the case on October 5. In parting, he issued a blistering fifteen-page order which concluded that senior BNL officials in Rome "were aware of and approved" Drogoul's activities, or, "at the very least.. . chose to ignore .. . obvious signs" of Drogoul's relationship with Iraq. But U.S. prosecutors, the judge wrote, had worked to "absolve BNL-Rome of complicity." Those prosecutors, he said, could have been blocked by U.S. agencies with political agendas from developing a full picture of the affair. The judge singled out the CIA for being evasive and uncooperative. The effort to protect BNL-Rome was undertaken to avoid embarrassing a friendly foreign government and to contain criticism of a U.S. foreign policy failure, he added. Judge Shoob also expressed deep concern about "a man's liberty and the integrity of our justice system and the almost unreviewable powers of prosecutorial discretion." Once again, he called for a court-appointed independent counsel to reinvestigate the BNL affair. A few days later, congressional Democrats made a second run at Attorney General William Barr. In August, Barr had taken heavy criticism for rejecting their request for an independent review. This time, Texas Congressmen Jack Brooks and Henry Gonzalez were back with reinforcements, including Senator Boren. Boren sent Barr a tough letter asserting that both the Justice Department and the CIA had misled prosecutors and Judge Shoob. Barr was in a corner. With the presidential election only three weeks away, he didn't want to fan the flames of those charging cover-up. But he preferred to avoid letting a three-judge panel pick an independent counsel. He claimed to be philosophically opposed to such investigations. So on October 16, he chose his own man, retired Federal Judge Frederick Lacey of New Jersey, to determine whether it was appropriate for the court to appoint an independent counsel. Brooks, Gonzalez, and company didn't buy it. They felt Lacey wouldn't be independent of the Justice Department, and called his appointment a stalling tactic. As long as Lacey investigated, Barr was relieved of pressure to ask a court to make an appointment. The Democrats accused the Republicans of trying to run out the clock before the election. Judge Shoob, on the other hand, was inclined to give Lacey the benefit of the doubt. Toward the end of October, Lacey flew to Atlanta to pay Shoob a visit. The two seasoned jurists relaxed on sofas in Shoob's spacious nineteenth-floor chambers overlooking Atlanta's domed football stadium and discussed the urgency of getting to the bottom of the BNL matter. Lacey seemed determined to conduct a hard, objective probe, and Shoob was impressed. A few days after Lacey launched his probe, the BNL case in Atlanta seemed to vanish from the headlines. During that lull in late October, The New York Times began a series of reports on a related case heating up inside the Old Bailey, London's ; historic criminal court. On trial was Paul Henderson, former managing director of Matrix-Churchill Ltd. in Coventry, and two other Matrix- Churchill directors. They were charged with illegally selling arms-making equipment to Iraq. 5 Henderson had used BNL-Atlanta to finance some of his Iraqi shipments. Atlanta prosecutors had flown Henderson to Atlanta in the hope : he'd testify against Drogoul. Both men were indicted in February 1991, the month that Operation Desert Storm reached its climax. Most strikingly, both their court proceedings in the fall of 1992 were abruptly halted by government prosecutors as sensitive intelligence documents began leaking. The case against Henderson collapsed in early November 1992, after documents and testimony showed he gave information on the Iraqi exports to MI6, Britain's foreign intelligence service. Henderson said he began reporting the Iraqi deals to his handler in late 1987. Later, he supplied details on their financing. "I talked about BNL as early as 1988," Henderson maintained. "We had long conversations." Henderson's case turned on Judge Brian Smedley's decision to deny the British government's attempt to stifle the crucial documents. Four of Prime Minister John Major's senior ministers signed papers to block release of the intelligence reports on national security grounds. Smedley didn't see the need. He let certain sensitive documents into the court record. Armed with the papers, Henderson freed himself and exposed his government's duplicitous attempt to send him to jail to protect itself. Acutely embarrassed by the farcical proceedings, Prime Minister Major promised to investigate. Had the trial continued, the embarrassment might easily have spread to Washington. Henderson's lawyer, Geoffrey Robertson, said he'd planned to explore in court whether MI6 shared its information on Matrix Churchill with U.S. intelligence. "I don't have any direct evidence," Henderson said, "but I am fairly confident that what I was telling British intelligence was going straight to U.S. intelligence." If the British did share that information with the Americans, then U.S. intelligence learned about BNL-Atlanta's financing of Iraqi weapons projects nearly one year before the scheme was exposed by whistle-blowers. If that were the case, BNL-Atlanta was receiving the same official protection--or, at least, noninterference--that the Thatcher government in fact gave Matrix-Churchill in England and the Bush administration in fact gave Matrix-Churchill in Cleveland. On Friday, November 6--just as the British government's case against Henderson was sinking--Frederick Lacey received a fax from Bobby Lee Cook. In his message, Cook told Lacey that a journalist had informed him that individuals in the "Security Division" of the Justice Department in Washington had been seen shredding BNL documents. At Lacey's instruction, the FBI tracked down the journalist, Robert Fricker, in the San Antonio airport and interviewed him. But neither Fricker nor the FBI could confirm the report, so the matter was dropped. That wasn't the only whisper of post-election shredding of BNL documents. Earlier, Lacey had ordered the FBI to probe reports that Department of Agriculture employees were destroying Commodity Credit Corporation papers on Iraqi loan guarantees. Lacey dismissed those incidents too, saying: ".. . [I]t appears that the documents which were shredded were unrelated to the BNL investigation...." But there was no question that officials at the Justice Department, at least, were preoccupied with BNL documents shortly after the election. An internal department computer message sent out shortly after noon on Thursday, November 5, said: "This is a request that you search your files for any information you may have regarding the Banco Nationale di Livoro [sic]." Three minutes later another computer message came back: "See Paul's e-mail message attached. Interesting! I assume that none of us have any documents pertaining to this matter in our files.. .." The week of the election, internal orders to round up wayward BNL documents within the Justice Department came from two sources. The first originated with Deputy Attorney General George J. Terwilliger III. His memo to department heads on election day, November 3, 1992, said he was collecting papers at Judge Lacey's request. The other request for sensitive internal documents came from a man who had quit the department more than a year earlier--Richard Thornburgh. When he resigned in August 1991, Thornburgh carted off 156 boxes of documents said to be "personal and non record in nature. One year later, as the Drogoul case was rubbing raw nerves within the national security community, Thornburgh requested an additional 102 boxes of papers and two boxes of microfilm for his private storage facility in Pittsburgh. According to the General Accounting Office, the September 1992 request was for original documents in several of the department's most sensitive cases. The GAO reported that "Mr. Thornburgh's staff wanted the materials removed soon after the November 1992 [presidential] election." Justice Department employees decided that in most cases Thornburgh should receive copies rather than the originals he'd requested. But some originals--enough to fill an estimated eleven boxes--were released in December 1992 and January 1993. In the laborious copying process FBI and Justice employees gave up trying to screen all surrendered documents for those marked "sensitive." The GAO later spot-checked what Thornburgh's staff had carried away. Among other files, it found papers on Iran-Contra and Inslaw, the Washington computer firm that claimed the Reagan Justice Department had stolen its proprietary software. Nancy Wilson, custodian of Thornburgh's papers, acknowledged that BNL documents were also included. "There's hardly anything on [BNL]," Wilson said. "Anything he would have had would have been newspaper articles, not the file of the case." The copying costs for Thornburgh's 1992 documents request came to $29,233. He asked that the bill be passed along to taxpayers, and the department agreed. However, the copied documents were not made available to the public. Anyone desiring to review them had to go through Thornburgh. Lacey personally interviewed Thornburgh as part of his BNL investigation. But his report did not mention the former Attorney General's highly unusual post-election document hunt--one that may have competed with Lacey's own. Toward the end of his grueling seven-week project, Lacey became exhausted. He skipped sleep the night of Tuesday, December 8, to finish his report for William Barr. At his press conference in Washington the following day, he was irritable, defensive, and patronizing. "At this point," Lacey told the assembled media, "I know more about this case than anyone else in the United States. "I tell you this, and I will tell the Congress this: Many decent people have had their careers tarnished and their reputations stained by being charged with being corrupt, being part of a 'cover-up." These are baseless charges. And you have been taken in by them. "... I leave it to you--why should anyone want to serve in a country where such irresponsibility prevails?" Barr immediately seized on Lacey's recommendation and rejected for a second time the congressional request for a court-appointed independent counsel. Lacey had produced a two-part report. The first section, which was released to the public, concluded that federal prosecutors had performed admirably. The second section dealt with intelligence matters and wasn't released to anyone who didn't possess a "Top Secret: Codeword" clearance. That classification is reserved for secrets of grave national importance. (A heavily red acted version of Part II was later declassified.) When asked, Lacey said he hadn't explored whether the CIA knew before the FBI search in August 1989 about BNL-Atlanta's lending to Iraq. He declined to comment on whether British intelligence from Matrix-Churchill was shared with U.S. spy services. Neither did he mention BNL's ongoing legal dispute with Lloyd's of London, which happened to be employing as its general counsel in the United States Lacey's law firm LeBoeuf, Lamb, Leiby & Mac Rae Lloyd's had insured BNL against losses of up to $5 million due to errors and omissions by officers of its Atlanta branch in late 1988. When BNL submitted a claim after the FBI raid, the British insurance giant refused to pay on the grounds that BNL-Rome knew about Drogoul's Iraqi lending schemes. Paolo Di Vito chronicled the progress of the Lloyd'sBNL dispute throughout 1990 and 1991. BNL finally sued Lloyd's in 1993. Lacey said he didn't know during his investigation of BNL in 1992 that the bank was in the middle of a multimillion-dollar disagreement with Lloyd's. He said he wasn't aware of the legal proceedings between BNL and Lloyd's until it was pointed out to him in by a reporter in 1995. Asked whether such a dispute would have constituted a conflict of interest in his BNL probe, Lacey said: "I'd have to have more information." When asked whether Lacey had received a private waiver of conflict of interest rules, a Justice Department spokesman declined to comment. Given Lacey's claim to the media that he knew more than anyone in the country about the BNL affair, his ignorance of the bank's disagreements with Lloyd's seemed remarkable. The wrangling between BNL and Lloyd's throughout 1990 and 1991 was readily apparent to any attentive student of the case. It was well documented in letters written by BNL's lawyers as well as in the diaries of BNL's Paolo Di Vito. Furthermore, LeBoeuf made a major commitment to Lacey's probe of BNL. The firm's chairman, Donald J. Greene, had urged him to take the job, and as many as twenty-five LeBoeuf employees helped him carry it out. In his 1992 report, Lacey effusively praised the Atlanta prosecutors and the Justice Department. His comments seemed to suggest he was also endorsing the prosecution's legal theory that BNL-Rome was an innocent victim in the Atlanta fraud. Such a stance would have been at odds with Lloyd's legal position. However, buried in a two-line footnote of the report, Lacey qualified his praise for BNL prosecutors: "The only caveat I raise at this juncture is related to the decision to treat BNL as a victim." With that footnote, Lacey established his neutrality on the matter of BNL-Rome's culpability. His report did not undercut the case being argued by Lloyd's, his law firm's blue-chip client. As Judge Shoob read the Lacey report, he felt he'd been snookered. Lacey had spent less than seven weeks investigating. Yet his report, which was slapped together by a group of sleep-deprived younger attorneys from LeBoeuf, Lamb, carried a condescending tone. Nearly forty pages were devoted to debunking Shoob's October 5 order. "In fairness to Judge Shoob, presumptuous though it may be, I venture to suggest that had he been able to review the same materials, he would conclude as I did," Lacey wrote. A year later, when a prosecutor in a related case referred favorably to Lacey and his BNL report, Judge Shoob snapped in open court: "If Judge Lacey had been appointed to investigate the Teapot Dome scandal, he'd have handed out medals instead of jail terms." Griffin Bell, BNL's attorney, was a longtime admirer of Frederick Lacey. In 1978, when Bell was Attorney General, Lacey distinguished himself as a federal district judge in New Jersey by his skillful handling of a high-profile espionage case involving two Russians. The defendants, who worked at the United Nations, were convicted and sentenced to long prison terms. Bell was so impressed with Lacey that he sought him out in 1979 to become his number-two official in the Justice Department. Lacey was still under consideration for that post when Bell quit the department in July 1979. Lacey withdrew his candidacy a mere two weeks after President Carter accepted Bell's resignation. Lacey was no ordinary federal district court judge. He had special ties to Washington's national security apparatus. He was one of the first appointees to a super-secret panel of seven federal judges created in 1978 to rubber-stamp wiretaps and other surveillance of foreigners within the United States. Members of the Foreign Intelligence Surveillance Court are named by the Chief Justice of the U.S. Supreme Court, and they meet in secret session in a soundproof room at the Justice Department's Security Division. "Trading in their robes and gavels for cloaks and daggers, they come to Washington on a rotating basis and hold court in a secure conference room at the main Justice Department building," James Bamford wrote in his book The Puzzle Palace (1982). Bamford reported that in its first fifteen months, the court approved all 518 of the government's applications to spy. Having served on the surveillance court, Lacey qualified as a true national security insider when Barr picked him to conduct an independent review of the BNL case. In the crush of events at the time of his appointment, his past associations with Bell, BNL's attorney, never came up or didn't seem to matter. When Bell was asked whether he had been aware that Barr would pick Lacey to conduct the BNL probe, he bristled and said: "No, man, how would I know that, for God's sake? You think Ban-called me and told me about Lacey? "Judge Lacey, I hasten to say, is a very fine man." Griffin Bell felt the same way about George Bush. When Jimmy Carter hauled his Georgia team to Washington in January 1977, George Bush was the reigning director of the CIA. The new U.S. Attorney General appreciated the way Bush, the Ford administration holdover, helped him become acclimated. Bell said he immediately liked Bush, and he sensed that the feeling was mutual. "We had to ask him to stay on for two or three months," Bell recalled. "We frequently conversed about his desire to get out. He said it was embarrassing to be there with all those Democrats.. .. "I got to know President Bush. I had him on my list of good people. He did give most of his adult life to the government. I liked that and I liked him personally." Bush was a rangy, athletic patrician who was educated at the finest schools. He had broad experience at the highest levels of government. Bell, on the other hand, was bespectacled and unimposing. He grew up in rural Americus, Georgia, twelve miles from President Carter's hometown of Plains. After attending an obscure Georgia law school, he won appointments to federal district and appeals court benches. Bell was a conservative Democrat, viewed as a judicial moderate during the civil rights era of the 1960s and early 1970s. Since he was never noted for the intellectual clarity of his opinions, political observers tended to assume he was named Attorney General on the strength of his long relationship to Carter. When Bell arrived in Washington, he met another important Ford administration holdover within his own department--Richard Thornburgh. Thornburgh was running the Justice Department's criminal division when Bell arrived. Before long, he was working closely with the new Attorney General on the sticky political issue of whether to indict President Carter's good friend, federal budget director Bert Lance, for bank fraud. They decided against it. Thornburgh left the Justice Department in late 1977 to return to private practice in Pittsburgh. Inevitably, Bell's Justice Department job brought him into regular contact with the CIA and other arms of the intelligence community. He took on delicate spy cases. He accepted the plea bargain of Richard Helms, after the former CIA director was accused of lying to a Senate committee investigating U.S. involvement in Chile. He spurred the career of William Webster, the CIA director from 1987 to mid-1991, by backing him to head the FBI in 1978. Men who enter the upper levels of the executive branch's national security apparatus rarely make a clean break from it. Bell certainly didn't. In October 1986, long after he had returned to private law practice in Atlanta, Bell took a phone call from a lawyer representing a pilot who'd been shot down over Nicaragua. The pilot, Eugene Hasenfus, claimed he was on a CIA-linked mission when he parachuted out of his disabled supply plane. Congress had expressly forbidden the CIA to engage in such activities. Hasenfus was captured by the ruling Sandinistas, convicted, and sent to a Nicaraguan prison. A few weeks after Hasenfus was shot down, the Iran-Contra affair exploded into public view. His flight was found to be part of a secret military-supply network for Nicaragua's Contra rebels run by Oliver North of the National Security Council staff. According to the final 1994 report by Iran-Contra independent counsel Lawrence Walsh, North was preoccupied with finding Hasenfus just the right legal counsel. Bell said he took the job reluctantly, and on a pro bono basis. He said the State Department had recommended former Vice President Walter Mondale, former Secretary of State Cyrus Vance, and himself as possible lawyers for the downed pilot. Bell said he signed on only after the other two men declined. With his help, Hasenfus won a pardon and was returned to the United States. Griffin Bell wasn't at all happy about the direction of the 1992 presidential campaign in its closing days. He could see that Bill Clinton, aided by the independent candidacy of H. Ross Perot, had a real chance to unseat George Bush. Bell, the drawling seventy-four-year old rainmaker and grand old man of King & Spalding, felt the media was largely to blame for the president's troubles. "They made up what I consider to be a fraud that we were in a great depression," Bell said later. Although he owed his political rise to Democrats--President Kennedy appointed him to the federal bench and President Carter named him Attorney General--Bell's allegiance by 1992 was with the other camp. That was clear even by the photographs displayed on the walls of his law office high in a Peach tree Street office building. Bush, the struggling president, got far better exposure there than Jimmy Carter, let alone John F. Kennedy. Bell occasionally joined Bush for golf at Camp David and Sea Island, Georgia. He marveled at the arc of Bush's swing and the length of his drives. Bell and his wife Mary had a home on the island, not far from the Cloisters Hotel where George and Barbara Bush spent their honeymoon. The Bells enjoyed quiet dinners together there with the president and his wife. The two men were more than casual friends. They had fought and won tough political battles. In 1991, for example, Bell and a former aide, Terry Adamson, had brainstormed with Bush over the nomination of Clarence Thomas of Georgia to the U.S. Supreme Court. Adamson, whose wife, Ede Holiday, served as secretary to the Bush cabinet, even coached Thomas before his historic showdown with Anita Hill in front of the Senate Judiciary Committee. If Bush was to have any chance of holding the presidency in November 1992, he'd have to win crucial swing states, including Georgia. Naturally, Bell agreed to pitch in. The week before the election, he called The Atlanta Constitution, the state's dominant newspaper, to ask it to print his endorsement of Bush. His Op-Ed page column--"Why this lifelong Democrat is sticking with the president"--ran on October 30, the Friday before the Tuesday election. Bell expressed his confidence in his friend's "experience, leadership and integrity," and never mentioned the local bank fraud case that was so important to both of them. Ironically, the newspaper printed Bell's endorsement next to a column by William Safire entitled "Why This Lifelong Republican Is Voting Against You-Know-Who." Safire said the "Iraqgate" cover-up would swing his vote. The White House was already resplendent with Christmas decorations on the evening of December 14, 1992. The president, however, was in no mood to celebrate. Bush had lost the election decisively, and his reputation had taken a severe pounding. Just before the vote, Lawrence Walsh, the Iran-Contra independent counsel, had indicted former Secretary of Defense Caspar Weinberger for withholding his personal diary from Walsh's investigators. The timing of the charges appeared to be part of a calculated effort to embarrass Bush. The indictment included notes by Weinberger that contradicted Bush's long-held contention that he had never advocated arms-for-hostages deals with Iran. Weinberger's looming trial could easily cause further damage to the president's battered image. In his post-election gloom, Bush reached out to a trusted old friend from Atlanta. He invited Griffin Bell to a small White House reception the evening of December 14. Bell immediately accepted and made reservations at a Washington hotel. But an administration official called back and invited him to sleep at the White House instead. After the evening reception, Bell said later, he joined George and Barbara Bush for a quiet dinner, "just the three of us." Afterwards, the three took the Bush family springer spaniels for a walk on the White House grounds. "It had nothing to do with business at all," Bell said. "It was just a nice gesture." Bell spent the night in the Lincoln Bedroom. The next morning, December 15, Bell's firm King & Spalding filed a lawsuit against the U.S. government on behalf of the Banca Nazionale del Lavoro. The Italian bank claimed the United States owed it roughly $340 million, plus interest, on federal guarantees covering loans made by its Atlanta branch to Iraq. It demanded that U.S. taxpayers cover its losses stemming from Iraq's default on agricultural loans. Coming as it did in the wake of the Lacey report and Barr's decision not to seek an independent counsel for the BNL affair, the suit attracted little notice. At that point, Bush was far more concerned about the other foreign policy scandal that threatened to stain him. On Christmas Eve, Bush pardoned Caspar Weinberger. Walsh responded by announcing that Bush himself was the subject of an investigation for failure to turn over his own taped diaries. C. Boyden Gray, Bush's White House counsel, called Bell the day after Christmas to ask if he'd be interested in working as the president's private attorney in the Iran-Contra matter. Two or three days later, Bush called Bell to ask him personally. On December 30, the president announced that he had retained the Atlanta lawyer. As a private lawyer, Bell had conducted a number of internal investigations for corporate clients facing potentially devastating public controversies. E. F. Button hired him after its 1985 guilty plea for check-kiting. Exxon asked him to probe its handling of the Valdez oil spill in Alaska. A. H. Robins brought him in during the furor over its Dalkon Shield. And Dow Corning hired him to look at its treatment of the breast-implant controversy. The president wanted Bell to review his diaries. After two weeks, King & Spalding produced a report to Bush that found no wrongdoing by the White House. "We released a transcript of la five-hour] videotape he gave prosecutors in 1988," Bell said. "We released that. We released the diary. We gave the entire diary to Judge Walsh. "When we released it we took out the things that didn't have anything to do with Iran-Contra.. .. We did that ourselves, not the president. "I did that myself." Chapter 17 BUSINESS AS USUAL "This case .. . has been blown way out of proportion...." --fudge G. Ernest Tidwell lynn Drogoul had her hands full. As she held one squirming child in her lap, three others fidgeted beside her on the front row of the courtroom's pale wooden benches. She risked expulsion by the marshals if she couldn't keep the lid on. So she pleaded with them to calm down as she strained to hear the multiple felon on the witness stand. Federal prosecutors had brought a surprise witness to testify against her husband's January 7, 1993 request for release on $100,000 bond. His name was Anthony Flowers, and he had served in various jails for a string of felonies, including robbery and escape. His latest prison assignment happened to place him in close contact with Christopher Drogoul. After reading about Drogoul's high-stakes case in the late summer of 1992, Flowers wrote federal prosecutors. He told them his prison mate was committed to fleeing the country if he ever got out on bond. He mentioned that Drogoul had said he hoped the BNL case would hurt George Bush's chances for reelection. Flowers wrote that he, on the other hand, supported Bush. He told prosecutors that he would testify for them against Drogoul. Lynn Drogoul leaned forward to hear Flowers describe what he claimed were intimate conversations with her husband. "He said there was no way he wanted to go to prison for the rest of his life," Flowers testified. "If he ever got out on bond, he'd take off." On cross-examination, Drogoul's new attorney approached Flowers with a sneer and called him a pandering jailhouse "snitch." The ponytailed Bruce Harvey had been appointed by the court to represent Drogoul after Bobby Lee Cook bowed out in late 1992. Harvey wanted his client freed on bond so that he could review classified documents in a secure setting outside the prison. Prosecutors wanted their defendant to stay put. They even purchased testimony from Flowers by providing him a favorable letter to his parole board and a new prison assignment. It seemed to Lynn Drogoul that the government was trying to drive a wedge into her family, and she was tired of it. For nearly nine months, she had been packing the kids up and taking them to the Atlanta Federal Penitentiary to spend precious minutes with their father. Sometimes she had to pull them out of school to do it. But it meant a lot to him--to all of them. She had allowed her hopes to rise before the January 1993 bond hearing at the Russell Federal Building in Atlanta, but U.S. District Judge G. Ernest Tidwell left the court without ruling. After the judge walked out, the children bounded up to hug and joke with their pale and affectionate father. A few minutes later, their downcast mother took them home again without him, as she'd done so many times before. Janet Reno was sworn in as Clinton's Attorney General in March 1993. In June, she named John Hogan, her longtime assistant in the Dade County, Florida, prosecutor's office, to supervise the BNL prosecution. Hogan was a heavyset, genial man in his forties. He began spending most of his time in Atlanta. Reno allowed Hogan to set up his own prosecution team to handle Drogoul's trial. So he brought in Howard Heiss, a federal organized crime prosecutor in Manhattan, as the government's lead litigator. Gale McKenzie, the former leading BNL prosecutor, was conspicuously absent from the Hogan-Heiss team. Judge Shoob was optimistic that the new administration was moving in the right direction. At a White House reception for federal judges in the spring of 1993, Judge Shoob cornered Reno and raised his concerns about the BNL case. He understood her to say she would like to see a court-appointed independent counsel take over as soon as the independent counsel statute (which had expired in December 1992) was reenacted. Although Shoob had dropped out of Drogoul's case in October 1992, he still had the duty to sentence five of Drogoul's subordinates who had pleaded guilty. Because he was trying to determine the subordinates' relative culpability in the Iraqi loan scheme, the judge continued to press the CIA for classified documents. Christopher Drogoul, meanwhile, needed a scorecard to keep up with all the player changes in his courtroom. He had a new judge, a new team of prosecutors, and new defense lawyers. About the only familiar faces were the courtroom marshals. Judge G. Ernest Tidwell was a cranky, independent sort who was determined at almost any cost to move cases quickly through the federal court system. Criminal defense lawyers were so impressed with Tidwell's speed that they referred to his proceedings as the "rocket docket." He wore a short white beard, which he sometimes stroked as he slouched back in his chair on the bench. Judge Tidwell had little patience with Drogoul's argument that his guilt was mitigated by the foreign policy activities of the U.S. government. Neither was he inclined to adopt Judge Shoob's relaxed standards for admitting evidence. Tidwell had appointed Bruce Harvey and Jay Strongwater to represent Drogoul in November 1992. Harvey was an aging flower child who drove a Porsche. Spontaneous and irrepressible, he liked to buck authority. But he knew when to rein himself in and he was quite a successful defense lawyer. Tidwell seemed to like him. The levelheaded Strongwater was an effective complement. Drogoul could have done much worse than this pair of appointed lawyers. But he believed he could do much better. So did James Tupitza, his old buddy from Temple University days who had stayed on in Philadelphia to practice law. Tupitza put out feelers for a big-time lawyer. Ideally, they were looking for a great advocate who wasn't too particular about the source or timing of his pay. In late January 1993, Tupitza and Drogoul dumped the court-appointed team for Robert Simels, a criminal and entertainment lawyer from New York. Simels had represented several alleged money launderers and mobsters, including Henry Hill, subject of the movie Goodfellas. That case led to a legal fight over whether the government had the right to seize profits from Hill's life story. The U.S. Supreme Court ruled that it didn't. When Simels looked at Drogoul's case, he saw the potential for another movie deal, or at least a fat book contract. Simels had a Madison Avenue address and a GQ wardrobe. He oiled his black hair and carried himself with such self-assurance that quite a few Atlantans thought he tried a little too hard to be dashing. "Did you see those white teeth?" one attractive young female court clerk asked in mock amazement. "They about blinded me." Simels proved to be quite hardworking and committed to Drogoul's defense. Of the fifteen to twenty different lawyers who had a hand in defending Drogoul, none mastered the details of the case better than he did. His strategy was similar to Bobby Lee Cook's. He wanted to put the governments of the United States and Italy on trial and drag as many household names into the scandal as possible. But unlike Cook, Simels planned to cash in on the gusher of publicity he intended to generate. So he subpoenaed George Bush, James A. Baker I'll, Henry Kissinger, and others. He claimed he convinced Ross Perot to kick in money for a security detail to guard Drogoul if and when he was released on bond. But the promoter in Simels couldn't resist leaking the fact that Perot was on board before Tidwell had agreed to let Drogoul out on bond. Evidentally, Perot backed out. When bond was finally set at $1 million, Drogoul couldn't raise the money--from Perot or anyone else. Meanwhile, Bush and the other former senior government officials quashed the subpoenas. They refused to show up in court or even grant depositions. Judge Tidwell, who seemed to regard Simels with amused tolerance most of the time, didn't force the subpoena issue. He wasn't about to let an aggressive Manhattan defense attorney turn his federal courtroom in Atlanta into a platform for a movie promotion effort. The judge made that very clear when he sent a brief letter to Simels and Heiss on August 4, 1993, stating: I have concluded that the following areas of inquiry should be excluded from the trial of this case: (1) the United States' policy toward Iraq; (2) the United States' policy of bolstering the economy of Iraq by issuing Commodity Credit Corporation guarantees to Iraq regardless of that country's credit-worthiness; and (3) the activities undertaken by the government of Italy and/or the Rome branch of the Banca Nazionale del Lavoro to persuade the United States government to refrain from including the bank in the indictment.. .. Tidwell's edict assured that Drogoul's trial wouldn't be another media show like the 1992 sentencing hearing. Neither would it air the substantive issues judge Shoob had outlined in his October 1992 order. And the court's time would not be wasted. After removing himself from the Drogoul case, Marvin Shoob had tried to stay out of "Iraqgate" legal skirmishes. He restricted his public statements on the matter in deference to Tidwell. But on the morning of August 23, Judge Shoob had to step into the spotlight again. It was time to sentence the five former BNL employees who had pleaded guilty: Paul Von Wedel, Amedeo DeCarolis, Leigh Ann New, Therese Barden, and Thomas Fiebelkorn. With the Drogoul trial less than three weeks away, federal prosecutors were quite concerned that the judge would make some dramatic statement about the affair that would upset their strategy. They wanted to head him off. So before Judge Shoob began, John Hogan asked to make a statement. Standing somewhat sheepishly in a rumpled suit, Janet Reno's trusted assistant explained that he had reviewed the Bush administration's underlying theory of the case and reached a definite conclusion. Shoob was quite curious. For months, the Clinton Justice Department had straddled the fence on the question of BNL-Rome's complicity in the Atlanta loan scheme. In Atlanta, federal prosecutors seemed to be sticking with the notion that the bank was an innocent victim. But in Washington, the Justice Department was resisting BNL's efforts to collect $340 million, plus interest, in federal credit guarantees because of Rome's possible involvement in the Atlanta fraud. "There is more than idle speculation that evidence might evolve in Mr. Drogoul's trial further implicating BNL," Justice Department civil lawyers had written in the Washington case. Hogan explained that he researched the question of BNL-Rome's role thoroughly and decided once and for all: "The people in Atlanta, specifically Mr. Drogoul, [were] not working at the direction of, with the knowledge, or under the auspices and approval of the bank in Rome...." Shoob wondered where that left the civil case in Washington. "The government takes a different position in that," he noted. "No, we do not, your honor," Hogan replied. "And that's why I'm here. I am here to say that I speak for the Department of Justice and this is our position, and, to the extent that any statements have been made that are inconsistent with that position, they are no longer--they are repudiated.. .." Judge Shoob calmly told Hogan he thought his conclusion would only be appropriate in "never-never-land," and added: "Anyone with any experience in the real world would know better, sir." Shoob then moved on to hear from each of the five defendants and their lawyers, who were still in suspense about their sentences. The crux of their arguments was that they had worked under the impression that Drogoul's activities were approved at higher levels of the bank. They were just taking orders. After the five defendants completed their statements, Assistant U.S. Attorney Randy Chartash made one last run at the judge in an effort to convince him of the government's position. In a ten-minute exchange they rehashed old issues covered many times before. Finally, Chartash said: "I have a sneaky suspicion, your honor, that I don't think I can convince you..." "Why is it important to convince me?" "It is important, your honor, because we have a trial... we are concerned .. . about the conclusions that your honor will make that may affect that trial." But Judge Shoob had already drafted another explosive sentencing order, and he had heard nothing from Hogan or Chartash that made him want to soften it. "I feel it would be the height of hypocrisy," Shoob declared, "to sentence these defendants as if this was a simple case of wrongdoing by a branch's employees.. " Rather, he said, they were bit players in a broad conspiracy involving BNL-Rome, American and foreign corporations, and the governments of the United States, England, Italy, and Iraq. With that introduction, Shoob asked the defendants to stand, one by one, beginning with Von Wedel. Of the five, Paul Von Wedel was the most central to the lending scheme, the most likely to get jail time. His attorney, Jack Martin, argued that he perhaps deserved time in a halfway house or home detention, but not jail, given his role as a pawn of higher BNL management and his extraordinary cooperation with federal prosecutors. Shoob ordered six months of home detention and 500 hours of community service. He waived a fine and ordered the government to pick up the tab for monitoring Von Wedel. The four other defendants breathed a collective sigh of relief. If Von Wedel avoided jail, they certainly would too. Leigh New was next. Earlier in the hearing, she'd choked backed tears as she stood to answer Judge Shoob's questions. He had comforted her by saying: "You're not going to jail, so you don't have to worry about that." In quick succession, New, DeCarolis, Harden, and Fiebelkorn were all sentenced to unsupervised probation and long hours of community service. When prosecutors stood to make their perfunctory objections to the sentencings, they seemed more resigned than shocked by the outcome. Now at least they could focus on what was to them a far more important matter: Drogoul's upcoming trial before Judge Tidwell. Judge Tidwell wanted to streamline the Drogoul case. He had thought the 347-count indictment was overkill, and he instructed federal prosecutors to trim it down. In July 1993, they delivered a much tighter superseding indictment of seventy counts. He scheduled the trial for September 8. For months, prosecutors had been seeking Tidwell's permission to take depositions in Italy from former senior BNL officials. Neither Judge Tidwell nor Robert Simels liked the idea. They were suspicious of the ground rules under which the witnesses would be providing testimony. Simels preferred to cross-examine them in front of a jury in an Atlanta courtroom. Tidwell decided to block the Italian depositions on the grounds that they were likely to be inadmissible as evidence. But prosecutors persisted by asking the 11th U.S. Circuit Court of Appeals in Atlanta for an expedited hearing on the matter before the trial. The appeals court overturned Judge Tidwell on August 30, ruling that he should have allowed the depositions and then decided whether or not they met appropriate standards for admission as evidence. The appeals court decision would effectively delay Drogoul's trial for months. Tidwell would not be pleased. Simels and the prosecution team decided it was time to huddle up and cut a deal. On September 2, Drogoul pleaded guilty to three felonies: two counts of lying to the Federal Reserve and one count of mail fraud in connection with illegal payments involving Entrade. Tidwell would pronounce sentence in December. But before that, Henry Gonzalez wanted a crack at Drogoul and his key lieutenants. He invited them to testify before the House Banking Committee in Washington on November 9. Gonzalez had never met Christopher Drogoul, the man he mentioned so many times in the speeches to the House that would likely become his most lasting political legacy. As the congressman wrapped up his investigation of the BNL affair, he wanted to face Drogoul eye to eye. He wanted to give him one more chance to tell his story in detail. On the morning of Tuesday, November 9, 1993, Drogoul, dressed in a dark business suit, was escorted by U.S. marshals to the committee's witness table--the same table Lawrence Eagleburger had sat at eighteen months earlier. Close at hand were Simels, James Tupitza, and the writer they had selected to dramatize Drogoul's life story. The Wright Patman hearing room was mostly filled with lawyers, bureaucrats, and media who--like Gonzalez--had never seen the notorious Atlanta branch manager in the flesh. But there wasn't much buzz of anticipation in the air. Significantly, many of the committee members were absent, and even those who were present came and went as if they had more important issues to resolve that day. Drogoul was received more as a curiosity than as the guardian of vital secrets of historic significance. In fact, his time in history had passed. His story was old news in Washington. The response to his long statement describing a conspiracy involving the U.S. and Italian governments was less than electric. Congressman Charles E. Schumer, the New York Democrat, set the tone by saying: "Very few people believe you made a decision by yourself to send $5 billion to Iraq.. .. But you are going to need a lot more to prove to the world the nefarious scheme many of us suspect might have happened." The Republicans moved in swiftly for the kill. Spencer Bachus of Alabama circled with the legal precision of a skilled cross-examiner. He wanted to go over Drogoul's claim that he never took any kickbacks from the scheme. What about the $350,000 he'd received personally from the Entrade corn deal, Bachus asked. Drogoul said he considered it a loan. Was there any documentation of the loan? Drogoul said there hadn't been. And what was the interest rate on the loan? Drogoul hesitated a moment and guessed it was 6 or 7 percent. Having cornered his prey, Bachus pounced. He asked Drogoul whether he'd reported the loan on his 1992 bankruptcy petition. It would be against the law to omit it, he noted. Drogoul, with nowhere to turn, admitted he hadn't reported the loan. Even in a room controlled by the solicitous Henry Gonzalez, Drogoul was not a particularly effective witness for himself. The audience gradually thinned out. The second panel of witnesses--Paul Von Wedel, Jean Ivey, Mela Maggi, Giuseppe Vincenzino, and Luigi Sardelli--drove away even more committee members. The Italians didn't shed any new light. Sardelli rambled on until Gonzalez politely cut him off. Vincenzino declared that BNL had been a "great bank" until something went wrong. "In fifteen years [with BNL] ... I have never been asked by anybody to do something illegal," Vincenzino said. Gonzalez had also subpoenaed Rinaldo Petrignani, the Italian Ambassador to the United States who in 1990 had appealed to senior U.S. officials not to indict BNL. But he did not show up. (Petrignani, who joined William Rogers's law firm after stepping down as ambassador, was busy in Italy dealing with a criminal warrant. Petrignani was later convicted in that case, which involved bribery charges unrelated to BNL. As of July 1995, his appeal was pending.) Maggi and Ivey shadowed each other in the corridors and sat next to each other at the witness table. Maggi, her curly red hair set off by a green and blue paisley dress, revealed little about her role in raising billions of dollars for BNL. Neither did she explain why the Federal Reserve had allowed her to resume her banking career as an assistant vice president at Bank of America in Chicago. Jean Ivey was asked for further details about her dating relationship with Senator Wyche Fowler, but she had little to add to the record. "I want to go on with my life," she told a reporter in the corridor that day. The proceeding dragged on and on. At times, Von Wedel could be seen smirking or rolling his eyes as Sardelli and others on the panel went off on tangents. When his turn came, he mentioned that BNL-Atlanta was on a course in 1989 to provide roughly $5 billion in financing for U.S. grain exports to the Soviet Union. He testified that Nerio Nesi, BNL's chairman, had approved the branch's Soviet business, and that Henry Kissinger had promoted it. Von Wedel was claiming that Iraq--the focal point of the scandal--was perhaps only BNL-Atlanta's second largest customer the year its lending scheme was halted. The Soviet Union might have been number one. But no one thought to ask a follow-up question. The passion for discovery that had ignited the scandal in 1992 had obviously receded. Exactly one month later, Drogoul took his seat next to Simels in Judge Tidwell's Atlanta courtroom. It was sentencing day. The national media that had flocked to his abortive sentencing hearing before the 1992 election were nowhere in sight. Even in Atlanta, the case was no longer frontpage news. Robert Simels, who had worked so hard to build a bonfire of publicity, was obliged to make his appeal to a tiny audience and an impatient judge. He argued that Drogoul should be sentenced to time served--about twenty months. It would not be fair, Simels said, to give his client more jail time than either Michael Milken or Ivan Boesky, the two most notorious names in financial fraud and manipulation of the 1980s. They'd each served less than three years. "I ask the court to take into consideration the co-defendants' sentences across the hall, none of them having received jail time; those of people similarly situated, Mr. Milken, Mr. Boesky; that Mela Maggi, who was as involved if not more involved than anybody in the bank in these activities, not only didn't get prosecuted but is back at work at the Bank of America in Chicago, going on with her own activities as before." Judge Tidwell told Simels his time was up. He wanted to hear from Drogoul. But the lawyer from New York had lines prepared, and he was determined to use them: "... I hate to call it a Greek tragedy, because it's more like an Italian tragedy...." The judge, who didn't need tragedies pointed out to him, again told Simels to sit. He invited Drogoul to speak. "Your honor, I really don't have anything to say. I think that things have been said over the past four and a half years well in abundance. I would like to thank you and your court for really taking all of about the [sic] 347 wild horses and putting them in a corral, and in so doing allowing me to have the possibility of rejoining my family at a later date." Then Judge Tidwell took his turn. He said the case had been blown way out of proportion by all concerned, starting with the government's decision in February 1991 to seek a 347-count indictment. He said he could not understand how Entrade, which reaped millions from the illegal scheme, got off so lightly or why Wafai Dajani was not indicted. As for BNL-Rome, it "knew, should have known or could have known by the exercise of minimal diligence substantially all of the material facts... BNL must share a substantial part of the responsibility, both for the criminal acts and the non payments of the loans." Tidwell also concluded that the U.S. government did pursue a policy of economic support for Iraq, a policy that "clearly facilitated the criminal conduct." However, he then added: "I clearly think that it may well be that the overall interest of the United States was best served by these policies.. .." He sentenced Christopher Drogoul to thirty-seven months in prison. No fine. No restitution. Drogoul smiled at his New York attorney. Outside the courtroom, Lynn Drogoul also seemed pleased. She had left the children at home this time. Asked how she felt, she said she thought the children would be happy and relieved by the news. As the emotion welled up in her, she explained that the blue dress she was wearing was purchased before the scandal broke in 1989. She said she hadn't been able to buy any new ones since. "The end is in sight now," she said. Chapter 18 MOPPING UP The only military equipment the United States provided to Iraq was "communications equipment.. . land] a single pistol that was given to Saddam Hussein.. .. Ultimately, it does not matter whether the vehicles Fuisz saw in Scotland were missile launchers or flatbed trucks." --John Hogan, head of the BNL task force Lichard Fuisz had high hopes that Bill Clinton would crack Iraqgate wide open. In the summer of 1992, the wealthy doctor and businessman from northern Virginia contributed $123,000 to Democratic groups fueling Clinton's presidential bid in order to get a face-to-face meeting with the candidate. Fuisz wanted to tell Clinton what he'd told Congress he'd seen at a manufacturing plant in Scotland in 1987. The contributions led to an invitation to Doe's, a storefront Little Rock restaurant that served up huge steaks on red checkerboard tablecloths. Within walking distance of the state capitol, Doe's had long been a favored Clinton hangout. The owners let him use a back room for his presidential campaign. On a day in late August 1992, Fuisz and his lawyer traveled there to meet him. "When you sit down with the next president before he's president, you don't have all this aura of Mr. President," Fuisz said. "They're ready to talk the issues they need to raise money." Unlike some of the other big donors visiting the candidate that day, Fuisz wasn't angling for a direct economic favor. He wanted Clinton's commitment to probe the role U.S. intelligence agencies and corporations played in arming Iraq. "He asked me what I saw in Scotland," Fuisz said. "I repeated what I'd run into. I asked him to fairly and honestly look into Iraq." Jack Blum, the lawyer who accompanied Fuisz to the meeting with Clinton, said he was amazed by his client's dogged determination to spur an independent investigation. He noted that Terex, the former General Motors subsidiary that owned the plant in Scotland, had filed a lawsuit that accused Fuisz of recklessly spreading lies. Fuisz said his legal defense fees ran into the hundreds of thousands of dollars. Blum thought that his client was paying a steep price for his curious obsession. In the days and weeks that followed the meeting at Doe's, Fuisz was encouraged that the Clinton campaign seemed to have grabbed hold of the Iraq issue. On the campaign trail in September 1992, Al Gore, Clinton's running mate, drew an elaborate metaphor to describe President Bush's role. "George Bush wants the American people to see him as the hero who put out a raging fire," Gore said, referring to Operation Desert Storm. "But new evidence now shows that he is the one who set the fire. He not only struck the match, he poured gasoline on the flames. So give him credit for calling in the fire department, but understand who started the blaze." Although Clinton the candidate never confronted Bush so squarely on the issue, he did endorse the idea of a court-appointed independent counsel for the case. Once elected, however, Clinton and Gore didn't seize the initiative as Fuisz had hoped. Months passed without any serious investigation into the details of his story about the vehicles in Scotland. Fuisz began to believe that his campaign contributions had translated into access and perhaps even rhetoric, but not results. In June 1993, Clinton's Attorney General, Janet Reno, asked John Hogan to supervise the BNL prosecution and spinoff investigations. This was one of the options Fuisz had feared. It put the case in the hands of a political insider. Hogan, a likable man and a competent prosecutor, had followed Reno to the Justice Department from the Dade County District Attorney's office in Miami. He owed Reno a lot. After an embarrassing incident nearly derailed his career in 1987, she gave him a second chance. Hogan had made the mistake of buying several business suits at deep discount from a salesman who worked out of a duplex in a rundown neighborhood in Miami. When the salesman was nabbed in February 1987 for selling stolen merchandise, Reno prosecuted. Hogan didn't immediately confess that he'd been a buyer. A month before the salesman's arrest, Hogan had jumped from Reno's office to statewide prosecutor, an appointment he'd gained after Reno recommended him. Hogan finally admitted his suit purchases in May 1987, and Reno's office promptly dropped out of the prosecution. By October, after much negative publicity over the suits, Hogan resigned as statewide prosecutor. A little over a year later, Reno rehired him in Dade County. When she was named Attorney General, she bought along "Hot Suit" Hogan, as he had come to be known, as a special assistant attorney general. Hogan's marching orders for the BNL investigation were spelled out in a July 6 order. Just seven weeks later, he claimed he'd solved the case-tying fudge Frederick Lacey's 1992 record for quick study. On August 23, Hogan stood in an Atlanta courtroom before Judge Marvin Shoob to say that he had reached a firm conclusion: BNLRome did not direct or even know about Christopher Drogoul's Iraqi loan scheme in Atlanta. Any theories to the contrary expressed by anyone in the Justice Department were "repudiated," he declared. His conclusion brushed aside concerns the department's civil division had been voicing at the U.S. Court of Claims. In the Washington court, Justice lawyers were refusing to allow payment of $340 million, plus interest, on CCC guarantees covering BNL-Atlanta loans to Iraq that had fallen into default during the Gulf War. Hogan's unequivocal statement to Shoob no doubt gave BNL fresh hope for recovery. Although he had already presented a final conclusion, Hogan had been ordered to investigate, so investigate he did. He and members of his "BNL Task Force" flew to Rome to interview former BNL executives to try to learn firsthand whether they played a role in the Atlanta scheme. Hogan himself interviewed Giacomo Pedde, the former BNL director general. Despite Pedde's scrapes with the law in Italy--he had been convicted and sentenced to prison in 1993 for illegally funding Italian arms sales to Iran--Hogan found him to be "credible." Pedde claimed he'd never spoken to Christopher Drogoul by phone, while Drogoul insisted that there had been many calls. Hogan found nothing more than circumstantial evidence to support Drogoul's position. Neither was he persuaded that Drogoul was familiar with Pedde simply because he signed one letter to him "Chris." | Back in the United States, Hogan's task force convened grand juries in Atlanta and Washington and devoted months to chasing leads from a | host of tipsters, including Richard Fuisz. Meanwhile, Congressman Henry Gonzalez was beginning to slow down as chief Iraqgate critic. Like a heavyweight boxer laboring in the final rounds of a tough fight, his flurries of outrage about BNL were separated by longer and longer periods of silence. In the opening days of the Clinton Administration, Gonzalez had pursued his cause with gusto. The Texas Democrat delivered a February 1993 speech on the House floor entitled "Matrix-Churchill, Spies and Lies." That November, he invited Drogoul and other BNL employees to testify before his committee. As late as February 1994, the Gonzalez probe seemed alive and well when Clinton promised to open up all relevant classified documents on the matter. Clinton himself declared that "this administration believes the American people have good reason to learn the details of the U.S. government's military, diplomatic and economic assistance to Saddam's Hussein's regime." But the chairman of the House Banking Committee was constantly drawn to new and unrelated financial matters. And by 1994, the pressure to hold congressional hearings on the Whitewater affair, a series of Arkansas financial deals involving Clinton and associates, had became irresistible. The Whitewater hearings were unavoidable, but Gonzalez had no enthusiasm for them. Without apology, he used his position as chairman to limit committee Republicans' time at the microphone to air evidence. Some Republicans figured that partisan politics had forced Gonzalez to switch from offense against the out-of-office Bush administration to defense for the floundering Clinton administration. Like those who came before him, Bill Clinton discovered that presidents sometimes have to make compromises that benefit outlaw states such as Iraq. He chose to compromise in the summer of 1994. At the urging of King Hussein of Jordan, Clinton ordered a halt to inspections on the high seas of ships sailing to the Jordanian port of Aqaba--Iraq's favorite back door for imports of contraband Western military items. The Jordanian leader felt the ship inspections were a drag on the economies of Aqaba and Jordan. He told Secretary of State Warren Christopher in April 1994 that he wouldn't sign a peace treaty with Israel until the searches ceased. The U.S. promptly stopped them, undermining the United Nations' arms embargo against Iraq. Critics in and out of government complained that Clinton was opening an old weapons channel to Baghdad. Robert Gates, George Bush's CIA director, said the decision was "tantamount to lifting the embargo against Iraq." But Clinton's concession wasn't as widely noticed as Jordan's historic peace agreement with Israel that followed in July. On a stifling summer afternoon at the White House, King Hussein shook hands with Israeli Prime Minister Yitzhak Rabin, symbolically ending forty-six years of enmity between the two countries. The historic ceremony was a grand photo opportunity for President Clinton. Later in 1994, Clinton bowed to the U.S. defense industry's declared need to export. Sagging in the aftermath of the Cold War, defense contractors wanted exports to help fill the gap left by declining domestic demand. The President didn't want the industry to shrivel up. It would be needed to fight future wars; more immediately, tens of thousands of Americans were employed in the industry, and millions had money invested in defense company stocks. So he decided to begin weighing proposed military exports in light of the defense industry's condition. Previously, arms export licensing debates had focused on proliferation concerns and U.S. relations with the purchasing country. Proliferation was the price of keeping the defense contractors healthy. Clinton was reinforcing a disturbing trend. During the years 1985 to 1987, U.S. arms transfers to the Third World alone averaged about $5.4 billion a year. During the years 1990 to 1992, the annual average almost tripled to $15.7 billion. The U.S. share of arms sales to the Third World jumped from less than 10 percent in 1985 to more than 50 percent in 1992. America had replaced Russia as the world's leading arms merchant. By late 1994, Clinton had yet to fully deliver on his earlier pledge to "declassify and disclose to the public" documents on Bush's policy toward Iraq. Perhaps even more surprisingly, Gonzalez failed to produce a long-promised summary report on his BNL findings. With Gonzalez out of the picture, the job of wrapping up the Iraqgate affair fell to John Hogan. His final report, completed in October 1994, was declassified and released to the public in January 1995. Its findings in no way contradicted the conclusions he had delivered to Judge Shoob in August 1993 or those long advanced by one of his investigators, Art Wade. Wade, a onetime civilian employee at the Pentagon, had been the chief BNL investigator for Atlanta federal prosecutor Gale McKenzie dating back to 1989, and he had drafted a Justice Department summary of the BNL case for Judge Frederick Lacey in 1992. Hogan wrote that further efforts to develop new indictments in the affair would be a waste of time. He found nothing to support the broad conspiracy allegations that our government worked illegally with Italy and others to arm Iraq. According to Hogan, the White House consistently turned down proposals to sell arms to Iraq in the 1980s. And the CIA and National Security Council "informed us that no covert actions pursuant to a 'national security directive' were undertaken." He made no reference to the September 1989 Defense Intelligence Agency report that described a NATO-coordinated "BNL mechanism" and "arms trading to Iraq which occurred illegally as part of the cover trading of agricultural and non-sensitive products." As for persistent rumors that Iraq bartered food shipped from the U.S. under Commodity Credit Corporation guarantees, Hogan saw nothing illegal. He made no claim of having tracked a single shipment of CCC commodities to its final destination--in Iraq or anywhere else. But he said he really didn't need to, given that it wasn't against U.S. law for a receiver of CCC commodities to barter or sell them. Even so, Hogan's task force probed the bartering reports and uncovered cases where Iraq did in fact swap food for weapons. Hogan said he wasn't able to establish that the food originated in the U.S. or that it was shipped under financing arrangements with the CCC. Hogan also investigated reports that two planned weapons sales to Iraq--one for "Supergun" components, the other for Argentinean tanks--depended on U.S. Department of Agriculture financing. But he said he wasn't able to confirm the substance of either story. Hogan devoted four pages in his 119-page main report to a discussion of Fuisz's claimed sighting of missile launchers in Scotland. He found that Terex hadn't broken any laws. It had, however, sold Iraq more than fifty dump trucks, hundreds of earth movers and several bulldozers. The only militarized vehicles Terex sold to the Middle East, Hogan reported, were four runway repair vehicles for Jordan and three flatbed load carriers, one of which went to Saudi Arabia. Hogan also wrote that after thoroughly investigating Fuisz's claims, "the Commerce Department and the Customs Service found no evidence that missile launchers were shipped or of any other wrongdoing." Hogan added that his BNL Task force "found no credible evidence that Terex supplied missile launchers to Iraq." Furthermore, Hogan said he was unable to confirm Fuisz's assertion that a United Nations official told him Terex trucks were modified as missile launchers. According to Hogan, the official told the BNL Task Force that only Soviet trucks were found to be so modified. "Ultimately," Hogan wrote, "it does not matter whether the vehicles Fuisz saw in Scotland were missile launchers or flatbed trucks." The only U.S. components of the Terex vehicles were their engines and transmissions, he found. They could be reexported to Iraq without violating U.S. laws "even if they were incorporated into missile launchers after leaving the United States." In conclusion, Hogan praised his employer. "I have found no evidence of corruption or incompetence in the conduct of the [BNL and Iraq] investigation," he wrote. "On the contrary, the work of the [Justice] Department and other agencies has by and large been thorough, persistent and careful." Hogan said the BNL task force also benefitted from the CIA's "extensive cooperation." But he added an odd disclaimer. He admitted that he was not confident the agency had turned over all relevant documents. He wasn't suggesting that anything was willfully withheld. Rather he attributed the suspected information gap to the CIA's limited ability to retrieve reports from its compartmentalized records system. "In the course of our work," Hogan wrote, "we learned of 'sensitive compartments' of information not normally retrievable and of specialized offices that previously were unknown to the CIA personnel who were assisting us. In one instance, it took the CIA two months to identify the intended recipient country of weapons shipped at the CIA's request." Hogan presumed that the documents he wasn't allowed to see wouldn't have had much impact on his investigation. He didn't discuss the implications of the fact that the CIA was either unable or unwilling to deliver all relevant information to a high-priority investigation ordered by the U.S. Attorney General. And yet if the CIA couldn't fully accommodate Hogan, could it do better for the CIA director or for the President? The Hogan report cleared the way for the Clinton Justice Department to let BNL collect $400 million on its CCC loan guarantees. "Now that the investigation of BNL is complete, the CCC is honoring its guarantees," the department said in a statement released one month after Hogan's report. CCC guarantees covered roughly $340 million in BNL-Atlanta loans to Iraq that fell into default when Iraq invaded Kuwait in August 1990. The CCC had promptly reimbursed nine other banks more than $1.6 billion after the invasion triggered defaults on their Iraqi credits. But the Justice Department's civil division balked at paying BNL, prompting the Italian bank to file suit in the U.S. Court of Claims in Washington in December 1992. The civil division resisted paying due to lingering suspicions that the CCC had been the victim of a fraud conspiracy involving BNL-Rome. It was these suspicions that Hogan had first "repudiated" before Judge Shoob in August 1993 and then officially dismissed in his final report in January 1995. BNL's suit had been put on hold, pending the results of the Hogan task force. Meanwhile, interest on the claimed sum mounted. The Italian bank argued that it was due $451 million, but Justice attorneys said they "were able to negotiate a settlement for $400 million." Henry Gonzalez was appalled. "These guarantees would never have been made if Iraq's credit worthiness had been honestly considered, or even if [the Reagan and Bush administrations] had cared about the brutality of the Iraqi regime.. .. "In this time of enormous fiscal constraints, American taxpayers do not deserve to be saddled with $400 million of Saddam Hussein's bad debt." By the time the Justice Department had released Hogan's report and agreed to pay off BNL, Christopher Drogoul was a free man. He was released from an Atlanta halfway house three days after Christmas 1994, having served 33 months. He did not make himself available for interviews. James Tupitza, his college friend from Philadelphia, explained that Drogoul wanted to preserve the rights to his story. According to Tupitza, Drogoul was searching for a job in the import-export field. That was one of his areas of expertise, Tupitza explained. EPILOGUE "... lT] his is precisely the kind of matter in which the government has felt obligated to lie in the past for 'national security." It's one more example of how our cold-war heritage corrupts and poisons relations between government and people." --Russell Baker, The New York Times, August, 31, 1993 Lrom his perspective in the Bush State Department, Kenneth Juster was deeply disturbed by the media's coverage of Iraqgate. When he jumped to the law firm of Arnold & Porter after the 1992 election, he devoted himself to organizing a formal rebuttal. The former aide to Lawrence Eagleburger distilled his arguments into a fourteen-page article in the scholarly Foreign Policy magazine in 1994. He called it "The Myth of Iraqgate." Juster's central theme was that the media, including The New York Times, the Los Angeles Times, U.S. News and World Report, and the London Financial Times, had whipped up a phony scandal. He accused them of sloppy and biased reporting that tended to "criminalize foreign policy differences." The CCC granted Iraq $500 million in guarantees in 1990, not the $1 billion that was widely reported, Juster noted. And those guarantees did not back "loans" that provided Iraq cash, but rather "credits" used to obtain food. And there was no proof, he said, that Iraq bartered any of the food it obtained under CCC guarantees. By overstating the level of Bush administration support for Saddam Hussein, Juster said, the Iraqgate media distorted a legitimate U.S. effort to manage a menace in the Middle East. "Other Arab countries in the region sought to engage Saddam Hussein in an effort to moderate his policies, and they urged the United States and the other Western countries to do so as well," Juster wrote. "And every other Western country maintained political and economic relations with Iraq in an effort to induce stability in the region." Juster's article made a splash. Before long, opinion articles in The Washington Post, New York Newsday, and American Lawyer called his argument persuasive. In the American Lawyer piece, Stuart Taylor dismissed Shoob as a "would-be John Sirica," Gonzalez as "flaky," and Safire as a conspiracy nutcase. The victims of their rampage, Taylor wrote, were "innocent" public officials. In December 1994, The Washington Times wrote a long news story on Taylor's article. The stories all emanated from Juster, who had worked the Iraqgate PR beat for Eagleburger at the State Department in 1992. To some, this suggested orchestrated revisionism. But others, including a few in the Justice Department, were pleased that someone had risen up to expose the excesses of what they saw as a media feeding frenzy. American Lawyer let Juster vent his frustrations that the so-called scandal just wouldn't die: "Refuting charges about Iraqgate is like playing the children's game "Whack-a-mole." Every time you whack down one mole, another pops up.. .." Howard Teicher, a former senior member of President Reagan's National Security Council staff, filed a sworn affidavit in a Miami criminal case in late January 1995, two weeks after John Hogan released his final BNL report. Teicher's statement never mentioned BNL, but it raised new questions about the thoroughness of the Hogan inquiry. According to Teicher, the CIA had "authorized, approved and assisted" Chilean arms dealer Carlos Cardoen in providing cluster bombs to Iraq during the 1980s. He gave his statement at the request of defense attorneys in the case against Cardoen and Teledyne Inc. In his affidavit, Teicher stated that he sat in on meetings in 1982 at which CIA director William Casey described cluster bombs as perfect "force multipliers" that would allow Iraq to stop "human waves" of Iranian attackers. Teicher said Casey was committed to helping Cardoen supply them. In 1983, Teicher added, Casey intervened with the State and Commerce departments to see to it that licensing restrictions did not interrupt the flow of Cardoen cluster bombs to Iraq. Teicher's assertions clashed with the conclusions Hogan offered about U.S. policy toward Iraq. Hogan found that the United States consistently stopped short of supplying arms, directly or indirectly, to Iraq during the 1980s. He cited a series of high-level policy decisions to reject the arms sales option, beginning with a July 1982 interagency group chaired by Assistant Secretary of State Nicholas Veliotes. That group said that intelligence sharing was as far as the United States should go toward helping Iraq win its war with Iran. "The policy against U.S. arms sales was thereafter periodically reexamined and, each time, reaffirmed," Hogan wrote. But Teicher, a Middle East expert on the NSC staff from 1982 to 1987, remembered another crucial event in U.S.-Iraq relations that also happened in July 1982--one that Hogan failed to mention. Teicher said President Reagan signed a secret national security decision directive on Iraq that same month. According to Teicher, the directive itself--even its number--was still classified. He knew about it, he said, because he had helped draft it. The nature of the aid contemplated by the secret directive included "making sure Iraq had the military weaponry lit] required" through legal means, the affidavit stated. Teicher, who left the government in 1987 and joined a Washington computer firm, said his statement would be supported by documents held at the Reagan Presidential Archives in Simi Valley, California. "My NSC files will contain my notes and memoranda from personal meetings with CIA Director Casey or CIA Deputy Director Gates regarding the manufacture and sale of Cardoen's cluster bombs to Iraq," Teicher wrote. Casey died in 1987. Gates denied Teicher's allegations to The New York Times, saying Teicher "just mis remembers or has things confused." Within a week, his affidavit was sealed and classified. The CIA formally denied in 1991 that it ever had a relationship with Cardoen. And the agency told Hogan that it had never conducted a "covert operation" based on a presidential directive in support of Iraq. Teicher said that, technically, Casey's support of Iraq through Cardoen did not constitute a "covert operation" because it was only a "request to a third party." Teicher did not assert that Casey was under a legal obligation to inform Congress or that his activities on behalf of Cardoen broke laws. The Bush Administration conducted a criminal probe of Cardoen and his cluster bomb sales throughout 1991 and 1992. In May 1992, President Bush nominated Cardoen's lead defense attorney, Roberto Martinez, as U.S. Attorney in Miami. That put Martinez in charge of the office handling the Cardoen investigation. Martinez recused himself from the case, and the Bush administration did not press criminal charges. Cardoen was indicted four months into the Clinton administration, along with Teledyne, a U.S. firm that supplied Cardoen zirconium for cluster bombs. Defense lawyers pointed to State Department telexes from the middle 1980s that explicitly referred to Cardoen's cluster bomb business with Iraq. They also sought details on the relationship between Cardoen and James Theberge, who became Cardoen's representative in Washington after stepping down as U.S. Ambassador to Chile. Teledyne had tried to dissuade the Justice Department from issuing the indictment on the grounds that the zirconium exports were part of a secret U.S. foreign policy. Justice said that if such "government complicity" had been present, it would have had a major impact on the department's decision to indict the company. Finding no such complicity, Justice pressed charges. When defendants sought to build a defense with classified documents, the prosecution resisted, saying: "In some cases a balance must be struck between a defendant's need for exculpatory classified information and the public interest in preserving its secrecy." Paul Henderson knew that argument. Four British ministers had used it against him during his 1992 trial in London. Before the Gulf War, the British government winked at Henderson's exporting activity in order to keep tabs on Iraqi arms purchases. But when war broke out, Henderson's government cut and ran. It denied it had tolerated export violations and remained mum on the fact that it had used Henderson as a spy, leaving him exposed to a potentially lengthy prison sentence. Although Henderson's government had documents exonerating him, the four ministers signed "public interest immunity agreements" to keep them sealed. A British justice was asked to help hide the smoking gun. When he refused, hundreds of previously secret documents that backed up Henderson's story were released. The British government abruptly folded up its prosecution, and a profound hypocrisy was exposed. There was no "public interest" at stake in preserving secrecy, only political reputation. Teledyne pleaded guilty to export violations in January 1995 and agreed to pay a $13 million fine. One former Teledyne employee, Edward A. Johnson, was convicted but was expected to appeal. Another former Teledyne employee, Ronald W. Griffin, was acquitted. Cardoen remained a fugitive in the case, but the government did not appear to be actively seeking to extradite him. After settling its case, the company issued a statement. The U.S. government, Teledyne said, had "possessed knowledge and the administrative mechanisms to prevent the shipments in question but failed to do so. "While this does not excuse the later lapses by the company's operating division, criminal prosecution seems inappropriate in such circumstances." Inappropriate, perhaps. But in a court that enforces a tight lid on classified documents, sustainable. So the extent of government "complicity" in illegal acts in support of Iraq lies just beyond the reach of legal discovery, both for defendants in criminal cases and for the American public at large. In a well-run shell game, the dealer always wins. ENDNOTES PAGE introduction 1-3 Description of Scud blast and aftermath: Interviews with Vaughan Leer, 12/30/93 and 1/1/94; Crusade: The Untold Story of the Persian Gulf War, by Rick Atkinson. pp. 418-421; The Associated Press, 2/26/91; Checkerboard (the unofficial quarterly publication of the 99th U.S. Army Reserve Command), Spring 1992, pp. 2829. 3 Description of scene at Latrobe, Pa." airport: Checkerboard, Spring 1991, pp. 1215. 3-4 Kennametal sold Iraq machine tools: The Atlanta Constitution, 5/14/92; Kennametal memo to file by Thomas R. Trempus, 8/19/91, pp. 1, 7. (The company said it determined that its last transaction with Matrix-Churchill was an invoice on 3/ 6/91 for a product that "never left England and was used ... to manufacture automotive parts.") 3 ... after Iraq invaded Kuwait.. .. : The Wall Street Journal, 1/31/92; Kennametal internal memo from Phil Ferraz to Gordon Mortimer, 2/12/91 ("We received an instruction .. . from corporate on the 8th August 1990 instructing us not to deal with Iraq directly or indirectly. In contravention of the instruction, I agreed to accept an order from Matrix-Churchill." Matrix-Churchill was a known Iraq front specializing in weapons purchases.) 4 Sharing satellite intelligence with Saddam: The Associated Press report by Jim Drinkard in Washington, 3/9/92; "Addendum to the BNL Task Force--Final Report," submitted to Attorney General Janet Reno by John Hogan, declassified 1/17/95, pp. 3-4; Twin Pillars to Desert Storm, by Howard Teicher and Gayle Radley Teicher, p. 207. chapter 1: sad dam bankers 6 "We were asked.. .." Christopher Drogoul, testimony in Atlanta federal court, 9/30/92. 6 Milling in the hotel lobby: Interview with Paul Von Wedel, 1/2/94. 6 Companies from twenty-eight countries: The Death Lobby, by Kenneth Timmerman, p. 331. 7 History of arms deals: For example, BNL financed the sale of eight warships from Italy to Iraq, as well as the sale of Sidewinder missile parts from the United States to Italy. Also, BNL's director general from 1987 to 1989 was convicted of illegally financing arms to Iran during the 1980s. 8 ... a room full of uniformed Iraqi officers: Interview with Paul Von Wedel, 1/2/94. 9 ... including Mack Trucks, Caterpillar, Dresser, and P&H: Confidential June 1989 cable from April Glaspie, U.S. Ambassador to Iraq, to State Department in Washington, declassified 9/14/93. 9 ... the big trucks could be jerry-rigged .. . dispatched the elite Delta force: Crusade, by Atkinson, pp. 145-147. 9 Much of SAAD 16 was built underground: The Death Lobby, by Timmerman, p. 159. 9 ... secret uranium enrichment plant... calutrons: Nuclear Fuel, 6/24/91. (The United States relied on energy-hungry calutrons in its Manhattan Project during World War II to enrich uranium for a bomb. In 1945, an enrichment plant at Oak Ridge, Tenn." that used calutrons drained as much as 20 percent of the power produced by the Tennessee Valley Authority.) 10 ... specific reference to BNL-Atlanta: Glaspie cable of June 1989. ("The Banco de Lavoro [sic] in Atlanta is said to have covered some USD 10 million in U.S. equipment purchases.") 10 Drogoul agreed to supply up to $100 million: Computer message dated 7/28/88, from Manneshann Demag Baumaschinen of Diisseldorf to an individual in the United States. ("There is a financing facility ex USA available-Banco di Lavoro [sic] . granting US-dollar 100 mio especially for Badush project.") 10 Safa al-Habobi describes missile used against Iran: Testimony by Arthur Wade, BNL Task Force investigator, U.S. District Court in Atlanta, 9/15/92. 11 ... a giant cake was rolled in: Interview with Paul Von Wedel, 1/2/94. 11 "You saw shells, cluster bombs, grenades.. ..": Interview with Paul Henderson, 12/9/93. 11 An Egyptian plane accidentally strayed.. .. : The Death Lobby, by Timmerman, p. 333. 11 U.S. military attache in Baghdad roamed around out of uniform: The Death Lobby, by Timmerman, pp. 332-333. (Von Wedel said he heard that April Glaspie had briefly visited the General Motors exhibit at the arms fair on April 28 and that he saw her in person at a reception that evening at an Iraqi officers' club. Drogoul testified that he was introduced to her there.) 12 GM wanted BNL-Atlanta to fund a $600 million truck plant: Interview with Paul Von Wedel, 1/2/94. 12 George Shultz on policy toward Iraq: Turmoil and Triumph: My Years as Secretary of State, by George Shultz, pp. 235-245. 12 U.S. oil purchases from Iraq: Petroleum Imports, 1973-1992: Algeria, Kuwait, Iraq, and Libya, Energy Information Administration, Monthly Energy Review, January 1995, p.98. 12 Giving U.S. oil companies "favorable deals": Secret State Department briefing memo from Paul J. Hare to James Baker III, 3/23/89, placed in Congressional Record by Congressman Henry Gonzalez. 13 "Our main goal was access to cheap oil.. ..": Congressman Henry B. Gonzalez of Texas in floor speech before the U.S. House of Representatives, 9/21/92. 14 ... a secret deal with federal prosecutors: Immunity agreement dated 7/26/89, Endnotes 243 page signed by federal prosecutors and two BNL-Atlanta employees, Jean Ivey and Mela Maggi. 14 "I didn't even know if it was a joke or not.. ..": Interview with Therese Barden, 2/1/93. 14 Barden's memories of France in 1940: Interview with Therese Barden, 1/7/94. CHAPTER 2: ATLANTA: THE HOST CITY 16 "I felt like a little boy.. ..": Renato Guadagnini, testimony on 6/7/91 before an Italian Senate Committee that probed the BNL affair from March 1991 to April 1992. 16 Drogoul had "no interest" in Priscilla Rabb: "Origins of BNL-Atlanta," unpublished manuscript, by Christopher Drogoul, p. 21. 16 "He had the breeding.. ..": Interview with Paul Von Wedel, 1/4/94. 17 "When the campus radicals.. ..": Interview with James Tupitza, 1/11/93. 18 "What we are most looking for.. ..": Staff memo by J. D. C. Burke of Barclays, 3/18/80. 18 The March 2, 1981, telex: From Drogoul to Clariden Bank in Geneva. ("We irrevocably agree to accept, on behalf of our customers, a sum of two [2] billion U.S. dollars for a term of twenty [20] years at an interest rate not to exceed 8.75 pet.. ..") 18 Ivey's signature appeared as notary public: Letter from Marvin Zagoria to Claude H. Piton, 1/6/81. 18 "CD had asked JI to handle $2 bn. deposit.. ..": Undated typed notes in Barclays file on "ghost money" investigation. 18 Piton offered to make loans to two Texas savings institutions: Memo dated 4/2/ 81 from R.A. Dyson, Barclays vice president, to R. Lambert, Barclays senior executive vice president. 19 "Was there any correspondence .. . ?" Internal memo from R.A. Dyson to Drogoul, 4/6/81. (Drogoul told the U.S. House Banking Committee in November 1993 that he'd "spoken] to my boss at the time. My boss said to me, if it is not-if it is something that is beneficial to the branch, by all means, pursue it.") 20 Vincenzino vigorously defended Reagan: "Origins of BNL-Atlanta," by Drogoul, pp. 20-21. 20 Priscilla Rabb worked for the Atlanta office of First National Bank of Chicago, which had been run for a time by Robert Abboud. Abboud later moved to First City Bank in Houston, where he became the chairman of the U.S.-Iraq Business Forum. Ms. Rabb later worked for Lawrence Eagleburger. (In his book Spider's Web: The Secret History of How the White House Illegally Armed Iraq, Alan Friedman quotes Ms. Rabb as describing Drogoul as "a lackey, like a bag-carrier for Vincenzino, like a guy who ran errands," p. 92.) 20-21 Vincenzino and Guadagnini set up BNL-Atlanta's clearing account at Morgan Guaranty: Final Report by the Italian Senate Committee Investigating the Atlanta Branch of BNL, 4/22/92 (p. 100 of translation by the Congressional Research Service of the Library of Congress); Guadagnini testimony before same Italian Senate Committee, 6/7/91. 21 An order from Rome headquarters dated November 30, 1984: Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, p. 105 of Congressional Research Service translation. 21 Fiebelkorn's surprise about laxity at BNL-Atlanta: Thomas Fiebelkorn, testimony in Atlanta federal court, 8/23/93. 21 Drogoul helped manage Pedde's visit to Atlanta: "Origins of BNL-Atlanta," by Drogoul, pp. 21-22. 22 Governor George Busbee wanted Georgia's international banks to be regulated by the state rather than the Federal Reserve. He argued against the International Banking Act of 1978 on the grounds that the federal oversight it called for would inhibit Georgia's ability to attract new foreign banks. As passed, the act allowed states to continue as primary examiners of foreign banks. The Federal Reserve was assigned a backup role. After stepping down as governor, Busbee joined King & Spalding, Griffin Bell's law firm. 23 "Local authorities welcomed us.. ..": Renato Guadagnini, testimony 6/7/91 before Italian Parliamentary Committee of Inquiry on BNLAtlanta. 23 Young and Vincenzino met in Italy: Giuseppe Vincenzino, testimony before Italian Parliamentary Committee of Inquiry on BNL-Atlanta, June 1991. ("I never accompanied Mayor Young to Italy, but I met him in our country one evening with [BNL chairman Nerio] Nesi.") 24 Young was son of a New Orleans dentist: The Atlanta Constitution, 9/22/85 (as reprinted from Esquire magazine article in June 1985 by Art Harris). 26 "If [Abedi] was a con man, he's the world's best": Interview with Andrew Young, 10/27/92. 26 BCCI swindles Bangladesh: "The BCCI Affair: Report to the Senate Committee on Foreign Relations," by Senators John Kerry and Hank Brown of the Subcommittee on Terrorism, Narcotics, and International Operations, (The Kerry Report], 9/30/92, pp. 114-115. 26 Loan from Abedi reportedly allowed Lance to pay off the Chicago bank: The Washington Post, 3/23/78. 26 Lance flies Abedi to Plains, Ga." to meet Carter: The Kerry Report, p. 618. 26-27 "His relationship with us.. ..": Jimmy Carter interview with ABC News's Night-line, 8/8/91. 27 Abedi's ties with Carter and other Georgians: The Kerry Report, pp. 604-629. 27 Young's "troubling appearance of influence-peddling .. .": The Kerry Report, p. 624. 27 "... I didn't do anything for them that wasn't in the interest of poor people . By the time the Olympics came up, they had been exposed ... I will never put my safety above my purpose .. .": Interview with Andrew Young, 10/27/92. 28 BNL-Atlanta borrowed more than $2 billion in short-term, or overnight, funds from BCCI: Internal BNL records of overnight borrowings between its Atlanta branch and BCCI, covering the years 1986-89. (The activities of BCCI and BNL intersected in many ways. For example, BCCI and BNL were neighbors on Wilshire Boulevard in Los Angeles and they operated out of the same building at 1200 Brickell Avenue in Miami. Furthermore, when the manager of BNL's Miami branch left to take a job with Sun Trust Banks in Atlanta, a BCCI-Miami manager wrote a February 1988 memo about him that said: "[He] is aware of [BCCI] and is a 'friend' who could be very instrumental in creating a relationship between [BCCI and SunTrust].") CHAPTER 3: TOO MANY EGGS 29 "... [I]f every citizen of Iraq.. ..": Massimo Riva in the Final Report by the Italian Senate Committee Investigating the Atlanta Branch of BNL, 4/22/92, p. 71 of translation by the Congressional Research Service of the Library of Congress. (The full text of Riva's statement reads: "The president of the New York Federal Reserve fE. Gerald Corrigan] voiced strong suspicion that the affair involved politico-military traffic. He did this in a very amusing way. American agriculture exports passing through the CCC and the Atlanta branch [of BNL] were so great that if every citizen of Iraq had eaten the eggs that had been officially exported, they would have had to eat 100 every day for three years.") 29 "Mr. CCC": Christopher Drogoul, Atlanta court testimony, 9/30/92. n Endnotes 245 PAGE 29 "... a ragtag group of Atlanta banking rejects.. ..": "Origins of BNLAtlanta," by Drogoul, p. 3. 30-31 Only three American banks handled CCC-backed loans to Iraq: Interview with Tom Strzemienski, staff investigator for House Agriculture Committee's Subcommittee on Department Operations, Research and Foreign Agriculture, 3/24/93. (The banks that participated in the CCC program with Iraq were: BNLAtlanta, Gulf International Bank, UBAF-Arab American Bank, National Bank of Kuwait, Morgan Guaranty, Arab Banking Corp." National Bank for Cooperatives, Girozentrale, First City Bank, and DG Bank.) 31 Iraq received $4.98 billion in CCC credits, one sixth of worldwide credits: Testimony of Allan I. Mendelowitz, director of International Trade, Energy and Finance Issues for the General Accounting Office before the House Agriculture Committee's Subcommittee on Department Operations, Research and Foreign Agriculture, 3/14/91. (In November 1990, the GAO concluded that foreign policy had heavily influenced the CCC allocation process during the 1980s. Congress responded by banning the use of the program for foreign aid purposes.) 32 Iraq had a poor repayment period: Iraq's Participation in U.S. Agricultural Export Programs, General Accounting Office, November 1990, p. 16. ("From the mid-1980s on, Iraq had pursued a policy of rescheduling old debt and remaining current only on debt to those countries willing to extend new credits.") 32 Bush team ignored the GAO recommendation to spot-check at foreign ports: Testimony of GAO's Allan Mendelowitz before the House Agriculture Committee's Subcommittee on Department Operations, Research and Foreign Agriculture, 5/6/93. 33 Kattke meets two Iraqis in New York: Kevin Kattke, testimony before House Agriculture Subcommittee on Department Operations, Research and Foreign Agriculture, 9/30/92. 33 Kattke visits It. Col. Oliver North: Kattke, congressional testimony, 9/30/92. 33 ... bantering with North's secretary, Fawn Hall.. . delivering North's dry cleaning: Interview with Kevin Kattke, 6/26/93. 33 "I know all about the Marsoumis.. ..": Kevin Kattke, congressional testimony, 9/30/92. 34 ... offered him a bigger deal involving the CCC: Interview with Kevin Kattke, 6/26/93. 34 Kattke's deal with the Iraqis and Macro International: Kevin Kattke, congressional testimony, 9/30/92, and interview with Kattke, 6/26/93. 34-36 Kattke meetings with Oliver North, Jesse Helms's staff, Vernon Gillespie, Donald "Jamie" Jameson, Richard McCormack, Kerry E. Reynolds, Howard Teicher: Kevin Kattke congressional testimony, 9/30/92. (Donald Jameson was later identified by John Hogan, a special BNL investigator for the Department of Justice, as a participant in a plan to sell Argentine-origin tanks to Iraq. The tanks were never sent. According to Hogan, another participant in the group, Sam Wheatley, claimed Jameson said funds for the deal were available through the Department of Agriculture. Hogan said none of the other members of the group, which was made up of military and intelligence figures, recalled any mention of USDA funding. Hogan identified Jameson as a twenty-two-year CIA veteran who retired in 1973 but remained close to the agency and knew former CIA director William Casey.) 36 Teicher remembered meeting Kattke: Interview with Howard Teicher, 6/16/93. 36 "That was a close and a sale": Interview with Kevin Kattke, 6/26/93. 36 Iraq's CCC allocation almost tripled: GAO's Allan Mendelowitz's statement to House Committee on Banking, Finance and Urban Affairs, 10/6/90. ("Iraq was initially allocated $230 million in loan guarantees under the GSM-102 program page to purchase feed grains rice and wheat.... In 1984, Iraq's allocation was almost tripled, to about $680 million.") 36 "Sue us in Baghdad.. ..": Kevin Kattke, congressional testimony, 9/30/92. 37 Continental Grain's Scott Kirk knew Paul Von Wedel and introduced him to Jim Klatsky: Memorandum of interview with Christopher Drogoul by Maria Fricke, agent of Office of Inspector General of the U.S. Department Agriculture, 8/6/92. 37 Drogoul was forced to make a snap decision on the Continental loan: "Origins of BNL-Atlanta," by Drogoul, p. 12. (Von Wedel said he remembered calling Drogoul about the loan but added that he didn't recall such a tight deadline.) 38 Taha's delegation gave Drogoul a rug with a Babylonian warrior on it: "From the Gates of Babylon to the Gates of Hell," unpublished manuscript by Paul Von Wedel, p. 14. 38 Taha told Drogoul he'd never been treated so rudely: Memorandum of 7/13/92 interview with Christopher Drogoul, transcribed by FBI special agent William Campbell, 7/15/92. 38 "We had to do something to kind of mask the position": Christopher Drogoul, testimony in Atlanta federal court, 6/2/92. 38 "Funny, No? Funny, Yes": Von Wedel manuscript, p. 16. 39 Cash left on board airplane .. . "We take care of the Algerians.. ..": Memorandum of 6/22/92 interview with Christopher Drogoul by FBI's William Campbell, and memorandum of 8/7/92 interview with Drogoul by USDA's Maria Fricke. 39 Drogoul, Von Wedel, Tezeller split $1 million from corn deal: Paul Von Wedel, testimony in Atlanta federal court, 9/24/92, and memorandum of 7/31/92 interview with Drogoul by USDA's Maria Fricke. 40 Entrade pled guilty to felonies related to its BNL business and paid a $1 million fine and $5 million in restitution to BNL. Cargill was named as an unindicted coconspirator in the same criminal case because of its alleged involvement with Drogoul in a Cuban sugar deal. Cargill denied any wrongdoing. The Cuban deal led to felony charges against Drogoul for "trading with the enemy," but those charges were eventually dropped. Federal prosecutors alleged that Cargill also obtained $65.4 million in unauthorized credit lines from BNLAtlanta. 40 Dajani described as "everyone's middleman": The Wall Street Journal, 12/31/92. 40 Drogoul said Dajani negotiated CCC allocations on behalf of Iraq: Memorandum of 8/20/92 interview with Drogoul by FBI's William Campbell, transcribed 8/24/92. 40 Dajani wrote congressional committee: Dajani letter to House Committee on Banking, Finance and Urban Affairs, as quoted in House floor speech by committee chairman Henry Gonzalez, 3/30/92. 41 Dajani's joint ventures: Memorandum of 8/14/92 interview with Drogoul by FBI's William Campbell, transcribed 8/18/92. 41 "Rebagging" costs included under CCC guarantees: Interview with Paul Von Wedel, 1/2/94. 41 ".. . little or no record of the overland portion of the shipments to Iraq": U.S. Department of Agriculture Report on Iraq CCC Program, by Kevin f. Brosch, F. Paul Dickerson, and Lawrence T. McElvain, 5/21/90, p. 27. 42 Moscow gobbled up BNL-Atlanta farm credits even faster than Iraq had: Interview with Paul Von Wedel, 1/6/94. 43 DeCarolis estimates Soviet grain trade at $1.5 billion for 1988. Interview with Amedeo DeCarolis, 1/20/94. CHAPTER 4: KISS1NGER & COMPANY 44 "I am reluctant to be more specific.. ..": Alan Stoga letter dated 10/7/88 to Abol Fazl Helmy of BCCI-New York. 44 The group of five included Henry Kissinger, Pedde, and Drogoul: Interview with Paul Von Wedel, 7/5/94. 45 Drogoul heard Kissinger speak to BNL managers: Notes of interview with FBI on 8/7/92, transcribed by special agent William Campbell on 8/10/92. 45 Nixon and Kissinger met with Shah of Iran: All Fall Down, by Gary Sick, p. 15. 45 ".. . we will accede to any of the Shah's requests.. ..": Kissinger memo to Nixon, as quoted by Walter Isaacson in his book Kissinger, p. 563. 45 ... overruled by a White House directive .. . nearly $10 billion in U.S. weaponry: All Fall Down, by Sick, p. 17. (Both Isaacson and Sick wrote that Kissinger later denied the Shah had been granted "carte blanche" on weapons purchases, mainly because bureaucrats tend to emasculate such orders over time. However, both writers concluded that for all practical purposes the Shah did in fact have "carte blanche." Sick went on to write that the intent of the White House directive had been to provide "an iron-clad presidential directive" that gave bureaucrats no latitude to reinterpret a controversial policy decision.) 45 Kissinger reputation for duplicity: In the index of his biography of Kissinger, Isaacson makes eleven references to his subject's "deceitfulness." He quotes Nahum Goldmann, an American Jewish leader and longtime Kissinger family friend, as saying: "If he were ten percent less brilliant and ten percent more honest, he would be a great man." 46 Eagleburger said it seemed like the best option: Testimony by Lawrence Eagleburger before the House Banking Committee, 5/21/92. (According to The New York Times, 5/22/92, Eagleburger during a break put his hand over the microphone and told Jim Leach of Iowa, the senior Republican on the committee: "Jim, I'm here to defend the policy. It didn't work. When you've got a policy that didn't work, it's not easy to defend.") 46 Kissinger longed to make a political comeback: Kissinger, by Isaacson, pp. 717720. 46 Eagleburger earned $965,000 one year: Baltimore Sun, 3/16/89. (Eagleburger reportedly collected $674,"0 from the Kissinger group and $290,619 from various corporate boards in 1988. On disclosure forms filed in connection with his confirmation as Deputy Secretary of State, Eagleburger listed as his Kissinger Associates clients Anheuser-Busch, ASEA, Daewoo, Ericsson, Flat, H. J. Heinz, Hunt Oil, ITT, Kryti Management, Midland Bank, Three Cities Research, Volvo, Global Motors of Yugoslavia and Union Carbide. Eagleburger also worked for Kent Associates, an affiliate Kissinger formed in 1986. Listed as Eagleburger clients at Kent were Ford Motor Co." Bell Telephone Manufacturing Co. of Belgium, and Coca-Cola.) 46 Kissinger Associates not listed in Park Avenue building directory: Kissinger, by Isaacson, p. 734. 47 "I received a call today from Mr. Stoga.. ..": Memo dated 10/12/88 from Abol Fazl Helmy of BCCI-New York to Swaleh Naqvi, BCCI's second-ranking executive. 47 Kissinger collected at least $ 10,000 per meeting of BNL advisory board: Statement by Representative Henry Gonzalez on floor of U.S. House of Representatives, 4/28/92. 47 Kissinger a member of BNL advisory board from 1985 through 1991: Kissinger letter to Representative Gonzalez, 8/30/91. 47 BNL chairman Nerio Nesi took lead in developing ties to Kissinger.. .. "When Dr. Nesi came to New York.. ..": Renato Guadagnini, BNL regional director for North America, testimony on 6/7/91 to an Italian Senate Committee. 47 "I give the victory of Iran over Iraq at 55 percent": Kissinger quoted in minutes of BNL International Advisory Board meeting in Madrid, Spain, May 1987. 48 Isaacson identified twenty-seven of Kissinger Associates' clients: Kissinger, pp. 733-734. (Isaacson's partial list: American Express and its subsidiary, Shearson Lehman Button; American International Group, the insurer; AnheuserBusch, brewers of Budweiser; ASEA Brown Boveri, the Swiss manufacturer; Atlanta Richfield, the oil company; BNL; Bell Telephone Manufacturing of Belgium; Chase Manhattan Bank; Coca-Cola Co.; Continental Grain; Daewoo, the Korean conglomerate; Ericsson, the Swedish telecommunications company; Flat , the Italian auto maker; Fluor, the global construction company; Freeport-McMoRan, the oil, gas, and minerals company; GTE, the telecommunications company; H. J. Heinz, the foods company; Hollinger Inc." the newspaper chain; Hunt Oil Co.; Merck and Co." the pharmeacutical company; Midland Bank; Revlon, the cosmetics company; Skandinaviska Enskilda Banken, the Stockholm-based bank; Trust Co. of the West, the investment firm; Union Carbide, the chemical company; Volvo, the Swedish auto maker; and S.G. Warburg, the British investment bank. 48 Simels added General Motors and Hewlett-Packard.. .. : Defendant's memorandum in opposition to the motion to quash the subpoena to Kissinger Associates, filed by Robert Simels in U.S. District Court in Atlanta (case 91 CR 078), 7/13/93. 48 Kissinger denies knowing clients of Kissinger Associates received financing from BNL-Atlanta: Affidavit of Henry Kissinger, filed 6/22/93 in U.S. District Court in Atlanta (case 91 CR 078), p. 2. (Kissinger also wrote in his letter to Representative Gonzalez on 8/30/91: "Neither I nor my associates had any personal knowledge of BNL's loans to Iraq, authorized or unauthorized.") 48 Stoga visits Baghdad in summer of 1989, meets with Saddam Hussein: Affidavit of Alan Stoga filed 6/16/93 in U.S. District Court in Atlanta (91 CR 078); The Death Lobby, by Timmerman, p. 349. (Stoga said in his affidavit that the purpose for his trip to Baghdad was "to learn more about the economic situation in Iraq.") 49 "... I have never met or spoken with Mr. Drogoul": Kissinger affidavit, 6/22/93. 49 "I shook Kissinger's hand": Interview with Paul Von Wedel, 7/5/94. 49 Eagleburger named three sons "Lawrence": The Atlanta Constitution, 8/14/92. 50 ".. . minor steps in support of Iraq's prospects in private credit markets": Secret memo dated 3/16/83 from Richard McCormack to George Shultz. 50 Eagleburger wrote Draper: The letter, dated 12/24/83, was placed in the Congressional Record by Congressman Henry Gonzalez of Texas. 50 Bush joined in appeal for Aqaba pipeline financing: Confidential June 1984 "talking points" prepared for Bush's phone call to William Draper. 51 "... It was obviously done over the heads.. ..": Interview with John Sullivan, 10/3/94. 51 "... set up a tent in a muddy field.. ..": Reagan's Ruling Class, by Ronald Brownstein and Nina Easton, p. 554. 51 Boga down played relationship between LBS and BNL-Atlanta: Interview with Cafo Boga, 8/3/92. 52 Guadagnini approved BNL-Atlanta business with LBS: FBI interview with Drogoul on 8/7/92, transcribed by special agent William Campbell on 8/10/92. 52 LBS relations with Guadagnini and Entrade: The Atlanta Constitution, 8/4/92 and 8/9/92. 52 "... An attempt by Eastern Bloc nations": Philadephia Inquirer, 9/7/89. (Customs Commissioner William von Raab's initial characterization of the case was not substantiated.) CHAPTER 5: NETWORKING FOR ARMS 54 "Baghdad has created complex procurement networks.. ..": "Iraq-Italy: Repercussions of the BNL-Atlanta Scandal" declassified CIA report, 11/6/89, p. 3. 54 "... We are all in this together.. ..": Drogoul quotes Raja Hassan All in testimony in Atlanta federal court, 9/30/92. 54 Intelligence sharing: President Reagan signed a National Security Decision Directive in 1984 permitting limited intelligence sharing between the United States and Iraq, Congressman Henry Gonzalez reported to the U.S. House of Representatives in a floor speech on 3/9/92. Alan Friedman, in Spider's Web, wrote that the United States had actually started sharing intelligence with Iraq shortly after the beginning of the Iran-Iraq War in the fall of 1980 (p. 167). 54-55 Mubarak met with Walter Stoessel, Howard Teicher, and others in 1982: Twin Pillars to Desert Storm, by Teicher and Teicher, pp. 177-178. 55 "The driver behind the new Iraqi relations was Bill Casey": Interview with Howard Teicher, 6/16/93. 55 "We can selectively lift restrictions.. ..": State Department cable quoted in the Los Angeles Times, 4/18/92. 55 Soghanalian says CIA set him up with an air charter firm: The DOf Alert (a Washington newsletter that follows the U.S. Justice Department), April 1992. 55 Teledyne confided to the CIA.. .. : The New York Times, 5/17/94. 56 Hussein Kamel had the same swarthy skin.. .. : The Death Lobby, by Tirnmer-man, p. 258. 56 ... the second most powerful man in Iraq: Congressman Henry Gonzalez speech to the U.S. House of Representatives, 8/10/92. 57 "... I would like to express my greetings ... on the occasion of the Easter Festivities.. ..": Telex 3/26/89 from Hussein Kamel to BNLAtlanta. 57 Taha had a weak heart: In the summer of 1990, The Financial Times of London reported that Taha was a target for indictment in the BNL affair. A few days later, the paper reported that he had died. U.S. prosecutors indicted him anyway in February 1991. Special BNL investigator Frederick Lacey reported in 1992 that sources claimed to have spotted Taha in Moscow after the reports of his death. 57 Taha zeroed in on Drogoul in late 1984: "From the Gates of Babylon to the Gates of Hell," unpublished manuscript by Von Wedel, p. 14. 58 MTL 1: A superseding indictment of Drogoul and others in July 1993 (case 91 CR 01-078) summarized the medium-term loan agreements as follows on pp. 19-20: MTL-1, signed in Baghdad 2/22/88, for $200 million; MTL-2, signed in Atlanta 10/6/88, for $300 million; MTL-3, signed in Washington 12/3/88, for $500 million; and MTL-4, signed in London 4/8/89, for $1.155 billion. 58 Von Wedel blew up: FBI notes of 8/18/92 interview with Drogoul, transcribed 8/20/92 by special agent William Campbell, p. 4. 59 Safa al-Habobi had hired Taha.. .. : FBI notes of 8/18/92 interview with Drogoul, transcribed 8/20/92 by special agent William Campbell, p. 6. 59 Safa al-Habobi offered Pierre Drogoul a job: FBI notes of 7/13/92 interview with Drogoul, transcribed 7/15/92 by special agent William Campbell, p. 9. 59 ... washcloths to paddle boats .. : The Atlanta Constitution, 5/14/92. 59-60 HUTEEN was gearing up to make cluster bombs: The Death Lobby, by Timmerman, pp. 232, 250, 263. 60 "I have no idea what they were used for.. ..": Interview with Nash Rehmann, 4/22/92. 60 He called an Atlanta sales representative of Kennametal: The Atlanta Constitution, 5/14/92. 60 Hertel and Krupp-Widia were paid for selling most of the items ordered by Iraq . Rehmann split $665,000: The Atlanta Constitution, 5/14/92. 60 Muscarella told the Los Angeles Times that XYZ's plans were no secret to the U.S. government: Los Angeles Times, 8/6/92. When inspectors from the United PAGE Nations discovered the tool factory after Operation Desert Storm, they blew it up. 61 ... an unsolicited fax from Matrix-Churchill... a 10 percent finder's fee: The Death Lobby, by Timmerman, p. 312. 61 ... the nerve center in America of the London-based Al-Arabi Trading Co.: Congressman Henry Gonzalez, speech to the U.S. House of Representatives, 8/10/92. 61 Gordon Cooper said CIA called Matrix-Churchill's legal counsel in April 1989: Interview with Gordon Cooper, 12/2/93. (The Washington Post reported on 2/14/93 that unidentified sources said the CIA had called the Matrix-Churchill legal counsel in June 1989.) 61-62 Mark Gutteridge and Paul Henderson of Matrix-Churchill Ltd. in England were spies for British intelligence: The Wall Street Journal, 11/2/92. 62 Henderson informed his spymaster about BNL: Interview with Paul Henderson, 11/22/93. 62 "Withholding the lathes.. ..": This undated document, signed by J. R. Young, Middle East Department, of the British Department of Trade and Industry, was produced in discovery at the London trial of Paul Henderson in the fall of 1992. 62 "Screwdrivers are also required.. ..": This memo, 2/6/89, by N. K. Darroch was also classified "secret UK eyes A" and was produced at the Henderson trial. 62 Cardoen blueprints represented.. .. : Interview with Congressman Charlie Rose, 9/10/92. 62 "The drawings depicted.. ..": Kennametal statement, 9/11/92. 63 A congressional study concluded that the CIA had introduced Bull to the South Africans: Los Angeles Times, 10/26/92. 63 "As the CIA came under greater congressional scrutiny.. ..": The Death Lobby, by Timmerman, p. 97. 63 Bull involved with weapons deals with China and Spain during 1980s: Congressman Henry Gonzalez, speech to the U.S. House of Representatives, 10/26/92. 63 The "baby guns" and the "big gun": Congressman Henry Gonzalez, speech to the U.S. House of Representatives, 10/26/92. 63 Bull was murdered: For further details, see Chapter 12. 64 About 190 modified Scud missiles fired at Iran: W. Seth Carus, fellow with the Washington Institute for Near East Policy, testimony before the U.S. House Banking Committee, 4/9/91, 64 ... first space rocket: Congressman Henry Gonzalez, speech to the U.S. House of Representatives, 10/26/92. 64 Egypt and Iraq joined Argentina in Condor II project: The Death Lobby, by Timmerman, p. 155. 64 Condor II missile borrowed technology from U.S. Pershing 2 missile: The Financial Times, 11/21/89. 64 Iraq to receive half the missiles produced: W. Seth Carus, fellow with the Washington Institute for Near East Policy, testimony before the U.S. House Banking Committee, 4/9/91. 65 Helmy was a former employee of Jet Propulsion Laboratory in California: The Death Lobby, Timmerman, p. 291. 65 ".. . completion of the Condor missile program is doubtful": Michael Higgins, technology security intelligence analyst for the Defense Intelligence Agency, to U.S. Attorney for Eastern District of California, 9/19/89. 66 ... al-Saadi supervised both the chemical weapons and the missile development programs in Iraq: The Poison Gas Connection, by Kenneth R. Timmerman for the Simon Wiesenthal Center, p. 11. 66 Chemical weapons plant at Samarra: The New York Times, 3/30/84, and The Poison Gas Connection, pp. 13-17. (In The Poison Gas Connection, Timmerman also reported on Iraq's biological weapons initiative at the Salman Pak Center, 17 page kilometers south of Baghdad. Iraq had developed strains of anthrax, typhoid, and cholera capable of being packaged into munitions. NBC News reported on 4/11/90 that Salman Pak received three shipments of the West Nile fever virus in 1985 from the Atlanta Centers for Disease Control.) 66 ".. . The gas stung the eyes, skin and lungs.. ..": The New Yorker, 11/2/92. 66 Ethylene oxide to be turned out at PC-2.. .. : W. Seth Carus, fellow with the Washington Institute for Near East Policy, testimony before the U.S. House Banking Committee, 4/9/91. 66 Lummus Co. was lead contractor building first Iraqi petrochemical plant, The New York Times, 12/18/80. 67 "BNL was not to inspect.. ..": Final Report of Italian Senate Committee Investigating BNL-Atlanta, April 1992, p. 127 of translation by Congressional Research Service. 67 Shultz urges Bechtel to get out of Iraq: Spider's Web, by Friedman, p. 118. chapter 6: "dual-use" 68 "Not to do so will harm.. ..": The Washington Post, 11/24/92. 69 Commerce had broad authority on "dual-use" items: "BNL Task Force--Final Report" submitted to Attorney General Janet Reno by John Hogan, 10/21/94 (declassified 1/16/95), pp. 50-51. (Weapons-licensing duties were split between the State and Commerce departments. State held jurisdiction over "defense articles and services" on its Munitions Control List. Commerce regulated a different set of items that didn't make that list. Often, these so-called dual-use items were not required to have licenses; it depended on the item and the importing country. Commerce waived its licensing authority by classifying equipment as "general license G-DEST." Many militarily useful goods and services reached Iraq through the gaping G-DEST loophole.) 69 ... Iraq says it wants furnace, useful in nuclear weapons production, to make artificial limbs: Licensing Mass Destruction, by Gary Milhollin of the Wisconsin Project on Nuclear Arms Control, p. 11. (Commerce did not require it to be licensed.) 69 Commerce Department okays glass-fiber plant useful for Iraq's nuclear and ballistic missile programs: The New York Times, 7/26/92. (When inspectors for the United Nations searched Iraq's nuclear weapons development sites after Operation Desert Storm, they found equipment manufactured by U.S." German, Italian, Swiss, Spanish, and English firms. Telexes between Iraq and BNL-Atlanta showed that in many cases Drogoul's office financed the items. A number of prominent U.S. corporations popped up on the U.N. nuclear-supplier lists. Generally, the companies insisted they had no idea their products were being diverted to Iraq's nuclear program. For example, a Du Pont spokesman said that the special oil used in a vacuum pump at an Iraqi nuclear site had dozens of other applications. "So why would we know where it was being used?" the spokesman told the Associated Press in a report dated 12/11/91.) 70 Iraqis bought $96 million in U.S. computers: Licensing Mass Destruction, by Milhollin, p. 10. 70 Commerce Department let company tied to Gerald Bull ship computer to Iraq: Congressman Henry Gonzalez, testimony before the U.S. Senate Banking Committee, 10/27/92. 70 Items valued at $1.5 billion were approved for shipment to Iraq: Letter dated 3/1/91 from Dennis Kloske, U.S. Department of Commerce, to Congressman Doug Barnard of Georgia, chairman of U.S. House Subcommittee on Commerce, Consumer Protection and Monetary Affairs. 70 "I sympathize with your concerns.. ..": "Talking points" prepared for Vice Pres page ident George Bush by his staff on 2/26/87 before Bush's meeting with Iraqi Ambassador Nizar Hamdoon on 3/2/87. 71 "Iraq's use of this equipment for nuclear purposes.. ..": Marcy Gordon of the Associated Press, 7/23/92. (John Hogan reported in "BNL Task Force--Final Report" in 1994 that the dimensions of the beam welder found at the Iraqi nuclear site in 1991 suggested it was manufactured by Lleybold in Germany, not exported from the United States. It wasn't until 1993, Hogan reported, that the Iraqis disclosed another Lleybold beam welder comparable to the one exported to NASSR from the United States.) 71 "... we believed that our project was one of turning swords into plowshares": Testimony of Beurt SerVaas before U.S. House Banking Committee, 4/9/91. (Ironically, a July 1990 CIA report that detailed Iraq's use of what were ostensibly civilian projects to produce arms was entitled "Beating Plowshares into Swords.") 71-72 ".. . military purposes .. . military use": Congressman Henry B. Gonzalez, statement before the U.S. House of Representatives, 9/25/92. 72 Drogoul and Von Wedel heard rumors that Senator Dan Quayle helped arrange financing; denials by SerVaas, Quayle: Statements by Assistant U.S. Attorney Gale McKenzie to U.S. District Judge Marvin Shoob in hearing 7/7/92 and court testimony by Paul Von Wedel, 9/24/92. (McKenzie said SerVaas told her investigators the Iraqis sought him out, and that, "as far as he knows, Senator Quayle had nothing to do with it.") 72 Sam Naman called Bridgeport Brass: Beurt SerVaas, testimony before U.S. House Banking Committee, 4/9/91. 73 Magazine article on Quayle family Bible and interview with Quayle's mother: The Saturday Evening Post, April 1989 and May 1989. 73 SerVaas owned part of Quayle family publishing business ... his brother-in-law ran Quayle's 1980 Senate campaign: Indianapolis Star, 12/21/91; Indianapolis News, 6/14/90. 74 Eschel Rhoodie spent night at SerVaas home: UPI report, 10/31/85, by Gregory Gordon. 74 Helms says there would be "such a rocking scandal.. ..": UPI report, 10/31/85, by Gregory Gordon. 74 Prospective buyers of UPI worked for the CIA: The Washington Post, 9/19/85. 75 "... I told him it was a goofy idea, .. .": Interview with Harrison Ullmann, 4/30/93. 75 "My intelligence experience.. .. :" UPI, 10/31/85. (In responding to Gregory Gordon's in-depth profile, SerVaas issued a statement that began: "How Quixotic that UPI releases a scare story on Halloween, rattling skeletons alleged to be in Beurt SerVaas's closet.. ..") 75 Bush administration freed up assets to pay SerVaas $16 million: Henry Gonzalez, testimony before the U.S. House of Representatives, 9/25/92. 75 U.S.-Iraq Business Forum, members, annual fees, background: Testimony by Marshall W. Wiley, president, before U.S. House Banking Committee, 10/19/90. 76 Drogoul pressured to draw up plans for Iraqi bank: Memo of interview with Drogoul on 8/4/92 by Maria Fricke, Office of Inspector General of U.S. Department of Agriculture, p. 2. 76-77 Drogoul said Dajani wanted him to explore creating an industrial fund with First City Bank: FBI memo of interview with Drogoul by special agent William Campbell, transcribed on 8/18/92. 77 "Mine is a well-known name.. ..": Reuters, 8/19/91, by Kenneth Cline. 77 "The balance is 'soft' debt.. ..": Marshall Wiley, testimony to the House Banking Committee, 10/19/90. PAGE 77 "... he got right into the nitty-gritty of debt rescheduling.. ..": The Death Lobby, by Timmerman, p. 349. 78 ".. . in a manner inconsistent with proper banking practices .. .": Letter from Davide Croff, vice general director of BNL, to Leon J. Krain, vice president of General Motors, 11/20/89. 78 Drogoul testified that MTL-4 for $1.155 billion was approved largely to provide financing for General Motors: Drogoul, Atlanta court testimony, 9/30/92. 78 Drogoul and Von Wedel met with GM officials in Baghdad: Interview with Paul Von Wedel, 1/2/94. (Drogoul also understood that the rich price of $154 million Iraq paid for the 10,000 Oldsmobiles was effectively a down payment on a future truck plant, according to an FBI memo of interview with Drogoul.) 78 Drogoul and Von Wedel told GM the deal would have to be approved in Rome: Letter from Leon J. Krain, vice president of General Motors, to Davide Croff, vice director general of BNL, on 11/27/89. 79 GM told that approval from Rome was "unlikely": Letter from Croff of BNL to Krain of GM, 11/20/89. 79 GM warns BNL of risk to its standing in the world financial community: Letter from Krain of GM to Croff of BNL, 11/27/89. 79 Details on the Hughes Aircraft deal with Delft: "Banca Nazionale del Lavoro-Report of the Independent Counsel, Part I," by Frederick Lacey, 12/8/92, pp. 3334. 79-80 Fuisz testimony about visit to Terex plant in Scotland: Richard Fuisz, testimony before U.S. House Subcommittee on [Agriculture] Department Operations, Research and Foreign Agriculture, 7/1/92. (Government officials reported that they could not substantiate Fuisz's claims. See Chapter 18.) 80 Terex sued Fuisz and journalist Seymour Hersh: National Law Journal, 1/31/94. (In the lawsuit, Terex charged that Fuisz had unsuccessfully sought a business deal with Terex, implying that this motivated his congressional testimony.) 81 Iraq converted as many as 225 heavy trucks into mobile missile launchers: The New York Times, 1/25/92. 81 Terex sold "10 dump truck chassis.. ..": Letter from Terex attorney Marvin Rosenberg to Congressman Charlie Rose, 6/25/92. 81 "... 81 U.K.-made Terex dumpers.. ..": Confidential June 1989 telex, declassified September 1993, from U.S. Ambassador to Iraq April Glaspie to State Department headquarters in Washington. 82 "... a purchase order from Iraq for 90 to 100 units.. ..": Letter dated 5/14/92 from John J. Clements to Congressman Charlie Rose. (Terex claimed in its lawsuit against Fuisz and Hersh that Clements had reason to be hostile to Terex. The other executive Clements referred to, Woody Baldus, told BNL investigators before he died that he had no knowledge of missile launchers.) 82 ".. . camouflage on cement mixers?": Congressman Charlie Rose at hearing of U.S. House Subcommittee on [Agriculture] Department Operations, Research and Foreign Agriculture. 7/1/92. CHAPTER 7: EVERY MAN FOR HIMSELF 83 "How can anyone.. ..": Letter from Luigi Sardelli to Christopher Drogoul, dated 10/3/88. 84 ".. . she reminded me of Botticelli's Venus.. ..": GO magazine, May 1993. 84 ".. . we saw each other socially.. ..": Jean Ivey, testimony in Atlanta court, 9/25/92. 85 Oil spilled by Leigh Ann New's desk: GO magazine, May 1993. 85 Senator Wyche Fowler described Jean Ivey as "energetic campaign worker": Fowler campaign press release, 9/2/92. (Ivey later testified to the U.S. House Banking Committee that an Atlanta restaurant displayed a photograph of her with Fowler.) 85 Ivey told Fowler she was working for "a bunch of dishonest people .. . doing a lot of business with Iraq.. ..": Assistant U.S. Attorney Gale McKenzie at Atlanta court hearing, 7/7/92. 85 Fowler traveled to Iraq on "official U.S. Senate business" in March 1989: Fowler campaign press release, 9/2/92. 86 Brokers commonly separate clients' billings: Atlanta court testimony by William Duffy of Prebon Umoni U.S.A." 9/22/92. 87 Maggi borrowed by phone in her Cadillac from places like Singapore: The Atlanta Constitution, 8/3/92. 87 "You have placed people in awkward positions, in stressful positions.. ..": Jean Ivey, Atlanta court testimony, 9/25/92. 89 Von Wedel kept in touch with Bill Arnold when he served as a senior official at the U.S. Export-Import Bank: Interview with Paul Von Wedel, 1/2/94. 89 Foodline exported $77 million to Iraq under CCC guarantees: Commodity Credit Corporation records for period beginning 1/17/82 and ending 4/5/91. Foodline exported meats, corn oil, tallow, and sunflower seed oil. 89 Drogoul said he asked Brenda Forrest to stop moonlighting for Foodline and Pacific Export: FBI memo of interview with Drogoul, by special agent William Campbell, transcribed on 7/17/92. 89 Pacific Export claimed a commission for arranging a $ 14 million shipment of steel to Iraq from Arbed: The Atlanta Constitution, 4/9/93. (Coincidentally, Drogoul's father, Pierre Drogoul, worked as a consultant to Arbed, Christopher Drogoul said in Atlanta court testimony on 9/30/92.) 90 "Some of our chickens.. ..": Interview with Cecil Phillips, 4/4/93. 90 Drogoul diverted $957,167: Government's sentencing memorandum in criminal case against Drogoul, filed 10/25/93, p. 39. 91 ".. . Christopher Drogoul would be paid 15 percent.. ..": Engin Bora, testimony in Atlanta court, 12/7/93. 91 Toler bragged about having a security clearance and being a former fighter pilot trainer: Jean Ivey, testimony in Atlanta court, 9/25/92. 92 BNL-Atlanta granted Toler a $350,000 credit line: Internal audit of BNL's Atlanta branch, submitted by Louis Messere on 12/22/88, p. 28. 92 Toler proposed to BNL-Atlanta a $200 million deal with Chrysler: Memo of interview with Drogoul, 6/23/92, by Arthur J. Wade, Office of Inspector General for U.S. Department of Agriculture, p. 1. 92 ".. . Chap Chandler is a friend of mine.. ..": Christopher Drogoul, testimony in Atlanta court, 9/30/92. 92 "I rolled him a fax.. ..": Interview with Chap Chandler, 9/2/93. 92 ".. . asphalt equipment to Iraq.. ..": FBI memo of interview with Drogoul, 6/23/92, by special agent William Campbell. A portion of Chandler's letter to Drogoul is quoted directly in the memo. 93 "... Mr. Dajani said, "Yes, I'm aware that Mr. Chandler works for the CIA.. " ": Christopher Drogoul, testimony in Atlanta court, 9/30/92. 93 Chandler recalls past associations with Ghaith Pharaon and Wafai Dajani: Interview with Chap Chandler, 9/2/93. 93 Drogoul said he met Chandler during a visit to Southwire on behalf of Barclays Bank client Charles Chidiac: Drogoul testimony in Atlanta court, 9/30/92. (Chidiac was named as an unindicted co-conspirator in Drogoul's criminal case. Prosecutors claimed Drogoul helped Selco East, a Chidiac company, repay a $950,000 loan to BNL with the bank's own money. Chidiac denied any wrongdoing, and the charge against Drogoul was later dropped. Chidiac, who owned homes in Hawaii and London, came from a politically powerful family in Lebanon. Drogoul told the FBI Chidiac had contacts in Libya, which--as a favor to Drogoul--he once used to spur Libya to settle an old debt with R.J. Reynolds Tobacco Co." a key BNL customer. Von Wedel testified that Chidiac told him he had worked for the CIA.) 94 Drogoul sent Leigh New, Amedeo DeCarolis to Baghdad in February 1989: Inspection Report Concerning the BNL Atlanta Case, by BNL official Francesco Petti, 4/10/91, p. 68. 94 "I'd never met him before.. ..": Interview with Amedeo DeCarolis, 7/30/93. (Prosecutors reported that Dajani convinced Leigh New to leave the United States after the raid on BNL-Atlanta and hired her to work for him in Paris. She later returned to Atlanta and cooperated with prosecutors, according to an exhibit filed with Frederick Lacey's December 1992 report on the BNL affair.) 95 Official from BNL-New York "suggested that $50 million" would be appropriate credit line for R.J. Reynolds: Christopher Drogoul, memo to file, September 1989, p. 3. (The Italian Senate Committee that investigated BNL in 1991 concluded in its final report that "the practice of regularizing matters after the fact rather than obtaining preliminary authorization was widely tolerated fat BNL].") 96 Guadagnini urged Drogoul to eliminate Rafidain Bank's excess borrowings: Drogoul testimony in Atlanta court, 9/30/92. 96 Sardelli considered Drogoul disrespectful and devious: Interview with Luigi Sardelli, 7/20/92. 97 BNL-Atlanta sold a car to Cannito: Memo of interview with Drogoul, 8/13/92, by Maria Fricke, Office of Inspector General of U.S. Department of Agriculture, pp. 3-4. 97 BNL-Atlanta employees forged: Superseding indictment of Drogoul, July 1993, p. 27. 97 Exportkhleb's excess borrowings were shifted to the account of Ethyl Corporation: Exhibit 14 to "The Banca Nazionale del Lavoro Investigation--Report of the Independent Counsel," 12/8/92, by Frederick Lacey, p. 22. 97 Government auditors went to lunch with BNL-Atlanta staff: Interview with Therese Barden, 4/7/93. (One of those auditors, Robert Kennedy, a senior bank examiner with the Federal Reserve, later served as the Fed's representative on the BNL Task Force.) 98 "He had them in his hand when I walked into the room.. ..": Interview with Amedeo DeCarolis, July 1992. 99 ".. . He told me to examine your expense account": Interview with Luigi Sardelli, 7/15/92. 99 Messere skimmed over Morgan account: Atlanta Agency Audit by Louis Messere, submitted to Luigi Sardelli on 12/22/88, pp. 50-51. (Messere wrote that the Morgan account cost the agency $45,000 a year, plus a compensating balance of $1 million. He said "consideration should be given" to moving the account to BNL-New York. Failing that, the auditor said, BNL-Atlanta should get written permission from regional manager Sardelli to maintain the Morgan account.) 99 Messere had evidence a telex was fake, but didn't report it: Unsigned confidential letter to Louis Messere from BNL's regional management headquarters in New York, 6/14/91. 99 Messere said audit confirmation was "pending": Atlanta Agency Audit by Messere, 12/22/88, pp. 10-11. CHAPTER 8: WHAT ROME KNEW 100 " '.. . My government made it quite clear to the Italians...."": The Unlikely Spy, by Paul Henderson, p. 155. (Henderson wrote that Dr. Safa told him BNLRome PAGE agreed to provide loans to Iraq at extremely low interest rates as partial compensation for the failure to deliver the ships.) 100 BNL helped finance shipment of Sidewinder missile parts from the United States to Italy in 1986: "BNL Task Force--Final Report," by John Hogan for U.S. Attorney General Janet Reno, released 1/17/95, pp. 75-80. 100 Aldrich Ames accepted $111,000 into account at BNL-Rome: Wedge: The Secret War Between the FBI and CIA, by Mark Riebling, p. 443. 101 Calvi was founding dangling by an orange rope: The Calvi Affair: Death of a Banker, by Larry Gurwin, p. xv. 101 Calvi's secretary plunged to her death: In God's Name, by David A. Yallop, p. 310. 101 Sindona offered Nixon campaign suitcase full of cash: In God's Name, by Yallop, p. 133. 102 Licio Gelli ran P2: The Calvi Affair, by Gurwin, p. 15. 102 P2 used blackmail: In God's Name, by Yallop, p. 116. 102 P2 was nominally a fraternal lodge based on principles of Freemasonry: In God's Name, by Yallop, pp. 120-121. (Freemasonry originated with medieval guilds of stone masons and gradually adopted certain theologies from ancient religions, Christianity, and Islam. Occasionally, Freemasonry was associated with radical movements and it became anathema to the Catholic Church.) 102 John Connally invited Calvi to his Texas ranch: The Calvi Affair, by Gurwin, p. 190. 102 William Colby spoke at Connally anti-Communist seminar: The Calvi Affair, by Gurwin, p. 189. 102 Gelli lieutenant testifies about Bologna train station bombing: In God's Name, by Yallop, pp. 121-122. 103 BNL officials, including director general Alberto Ferrari, appear on seized P2 lists; Ferrari and others step down or are fired from bank: Summary of Documentation to Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, pp. 215, 221. 103 Nesi describes Italian companies' impulse to export: // Mondo, 8/5/91. (The magazine article is quoted at length in the Summary of Documentation to the Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, pp. 223224.) 104 The United Nations estimated Iraq poured $4 billion into its nuclear program by 1980: The Washington Post, 10/13/91. 104 BNL's executive committee approves Iran arms deal in May 1984: Euromoney magazine, 10/1/90. 105 The United States "used" shipments to get extra missile parts to the Mediterranean area: Special Exhibit to Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, entitled "Acquisition of 1,000 AOTDs for Sidewinder Missiles by the Italian Ministry of Defense," p. 143. (Exhibit translated by Diplomatic Language Services Inc." Arlington, Va.) 105 ".. . these missiles were to be transshipped to Iraq.. ..": Memo from Assistant U.S. Attorney Gale McKenzie to Ray Rukstele, chief of criminal division of U.S. Attorney's Office in Atlanta, 7/2/90. (John Hogan concluded in his Final Report to Attorney General Reno that both the Italian Senate Committee and McKenzie had been mistaken. "I am satisfied," Hogan wrote, "that only 1,000 AOTDs were shipped under the contract, and that none were diverted to Iraq or any other country.") 105 Nesi says BNL-Atlanta scheme is probably a covert foreign policy operation: Summary of Documentation to Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, pp. 222-223. 105 Secret September 15, 1989, DIA report: The Senate Intelligence Committee said in a February 1993 report on the BNL affair that the 1989 DIA report had been supplied to the Justice Department in January 1991, a month before Drogoul was indicted. The committee report quoted DIA Deputy General Counsel Robert H. Berry, Jr." as saying that Justice Department officials had interviewed the author of the 1989 DIA report and concluded "that it was mainly cafe conversation and speculation.. .." 107 United States blocked shipment of GE engines to Italy: The New York Times, 9/26/80. 107 Tariq Aziz links Fincantieri ships to BNL-Atlanta lending to Iraq: Defendant's Sentencing Memorandum, case no. 91 CR 078-01 (GET), filed by Drogoul's lawyer, Robert Simels, 11/12/93, p. 34. (Simels quotes the Italian Senate's Commission of Inquiry on the Utilization of the Finance given to Iraq by the Atlanta Branch of Banca Nazionale del Lavoro, 8/4/93, 12th session.) 108 "What are you doing in Baghdad?": Teodoro Monaco, testimony to Italian Senate Committee of Inquiry, 7/4/91, p. 16. 108 Drogoul says he discussed new commercial loan program with Monaco: Christopher Drogoul, testimony in Atlanta court, 9/30/92. 108 ".. . settling the problem with the warships.. ..": Paul Von Wedel, testimony in Atlanta court, 9/24/92. 109 ".. . highly exposed to Iraqi risk.. ..": Middle East Economic Digest, 2/20/88, p. 21. (The report, by John Roberts in Washington, said: "BNL charged the Iraqis just 1/16 percent above the London interbank offered rate (LIBOR) for financing the import transactions. But US banking circles considered the rate too generous and BNL was unable to resell any of it, leaving it highly exposed to Iraqi risk.") 109 "... something we were not aware of was going on in Atlanta": Teodoro Monaco, testimony to Italian Senate Committee Investigating BNL-Atlanta, 7/4/91, p. 19. 109 ... the appearance of huge Iraqi deposits: Arthur Wade, lead investigator for BNL prosecution team, in Atlanta court testimony, 9/15/92. 110 "Would it be helpful if the supplier were to be Italian?": Drogoul quoted Raja Hassan All in September 1989 memo to file, p. 14. 110-111 BNL-Rome and Drogoul worked on Endeco Barazzoul deal: Telex dated 7/21/89 from Dr. A. Rasheed of the Central Bank of Iraq to Mr. Minati of BNLRome discusses the terms of Endeco Barazzoul credit totaling 159.37 million deutsche marks, or about $80 million. (Internal bank documents show that four money transfers of about $20 million each were made from BNL-Atlanta to Endeco Barazzoul from the period 7/24/89 to 8/3/89, the day before the FBI raided the Atlanta branch.) 111 "It is a very ambitious list.. ..": Paolo Di Vito diary entry, early March 1990. chapter 9: let's make a deal 112 "Mr. Lombardi said....": Christopher Drogoul, testimony in Atlanta court, 9/30/92. 112 Ivey sought out lawyer in June 1989: Jean Ivey, testimony in Atlanta court, 9/25/92. 112 Finnell was "Mattingly's minister without portfolio": Interview with Robert Finnell, 4/8/93. 113 Abbott also represented a figure in the probe of BCCI in Georgia: The client, Charlie Jones, accepted roughly $1.2 million in fees from BCCI, which the bank identified as "lobbying" expenses for the purpose of changing Georgia banking law in 1987. The law was changed to allow First American Bank in Washington to acquire National Bank of Georgia, two institutions linked closely with BCCI. In page 1991, a prosecution team headed by Assistant U.S. Attorney Gale McKenzie, who simultaneously supervised a probe of BNL, investigated whether improper influence had been applied to state legislators on behalf of BCCI. 114 "In several recent conversations.. ..": Letter from U.S. Attorney's Office for the Northern District of Georgia to Michael Abbott and Robert Finnell, dated 7/26/89. (The letter was signed by Assistant U.S. Attorney Gale McKenzie and Assistant U.S. Attorney Gerrilyn Brill, who served as chief of the Atlanta office's fraud section. Jean Ivey and Mela Maggi also signed a document promising to turn over to the government all profits from book or movie deals stemming from their work at the bank.) 114 Ivey and Maggi agree to be banned from banking: The immunity agreement, dated 7/26/89, stipulated that the women "consent to a permanent removal from employment or association with federally insured depository institutions...." 114 Jean Ivey had been Oscar Newman's banker at Barclays Bank and BNL: Jean Ivey, testimony in Atlanta court, 9/25/92; Oscar Newman, testimony in Atlanta court, 8/24/92. 115 "You probably wonder.. ..": Jean Ivey, testimony in Atlanta Court, 9/25/92. 115 Newman's $1,069,068 account transferred from BNL: Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, pp. 119-121. (Newman's transfer of $200,000 to the Bank of Credit and Commerce International attracted the attention of BCCI investigators from the Manhattan District Attorney's Office. Oddly, Newman's file at BNL contained a phone number for a different Oscar Newman, a retired warehouse worker. When the New York team went to interview him at his tiny home south of Atlanta, they quickly saw they were talking to the wrong man. They could have saved themselves a wasted trip if they'd only asked Atlanta prosecutors, who were quite familiar with the "real" Oscar Newman.) 115 "... I asked her where she was going.. ..": Oscar Newman, testimony in Atlanta court, 8/24/92. 116 ... Coca-Cola and Delta Airlines.. .. : Final Report of Italian Senate Committee Investigating BNL-Atlanta, 4/22/92, p. 31. 116 Newman didn't know Jean Ivey had changed his account to "Oscar Newman, Inc.": Oscar Newman, testimony in Atlanta court, 9/24/92. (Atlanta federal prosecutors later developed a tax evasion case against Newman. He then agreed to participate in their investigating of a BCCI figure. In 1992, Newman pleaded guilty to tax evasion, was ordered to pay the IRS $500,000, and sentenced to a year in prison. Newman's lawyer was Michael Abbott, who also represented Mela Maggi in the BNL case and Charlie Jones in the BCCI case. When a judge asked Abbott how he came to represent both Newman and one of his personal bankers at BNL, Abbott said it was a coincidence. Newman testified that he had picked Abbott's name out of the Yellow Pages.) 116 Ivey quotes Delta a poor deposit rate: Jean Ivey, testimony in Atlanta court, 9/25/92. (Drogoul later told the FBI that it was Ivey who solicited and managed several of the bank's corporate Eurodollar accounts, including Bell South Drogoul said Ivey worked through a top Bell South finance officer, who placed the company's deposit business up for bid. BNL won the account because of the relatively high interest rates it paid. Bell South also borrowed from BNL-Atlanta. Its Bell South Capital Funding subsidiary obtained a $75 million line of credit that wasn't authorized by BNL-Rome, prosecutors said. Therese Barden said the company drew on that line to finance construction of its new headquarters building in midtown Atlanta.) 116-117 Ivey describes New's actions during FBI raid: Jean Ivey, testimony in Atlanta court, 9/25/92. 1 PAGE 118 Drogoul meeting with Iraqis in London on 8/5/89: Memo of interview with Drogoul, by Arthur Wade, Office of Inspector General of U.S. Department of Agriculture, 6/23/92, p. 2. 119 "Aren't all the documents .. . sequestered material?" : Paul Von Wedel, testimony in Atlanta court, 9/23/92. 119 Von Wedel told investigators he saw Messere feeding a shredder, but Messere denied it: Exhibit 14 to "Report of the Independent Counsel," by Frederick Lacey, 12/8/92, pp. 85, 87-88. (Prosecutors said they found no evidence to support Von Wedel's claim.) 119 "Maybe we watched too much TV.. ..": Paul Von Wedel, testimony in Atlanta court, 9/24/92. 120 Lackland testified the BNL attorney told him of plans for a "joint" defense: Ted Lackland, testimony in Atlanta court, 9/22/92. 120 ".. . He called me at home ... it was a dangerous approach.. ..": Ted Lackland, testimony in Atlanta court, 9/22/92. 121 King & Spalding hired top Justice Department official: The Atlanta Constitution, 7/15/89. (The law firm announced plans to hire William C. Hendricks III in mid-July. The Wall Street Journal later reported that he was hired on 8/4/89, the day of the FBI raid. Hendricks told the Journal that he hadn't known about the impending raid.) CHAPTER 10: THE GUIDED MISSILE 122 ".. . It is not a political matter,": Gale McKenzie, statement in Atlanta court, 6/16/92. 123 "She was the light of his life.. .. She ranked extremely high.. ..": Interview with Vondelle McKenzie, 3/16/92. 123 "She has an ability.. ..": Interview with Robert Barr, 3/17/92. 124 McKenzie had major success in Pharmoney prosecution: The Atlanta Constitution, 3/23/92. 125 ".. . If we were to assist them.. ..": Ted Lackland, testimony in Atlanta court, 9/22/92. 125 McKenzie urged Barr to add the "scheme to defraud BNL" to the list of charges against Drogoul: Memo from McKenzie to Barr, 10/31/89, cited in "Report of the Independent Counsel, Part I," by Frederick Lacey, 12/8/92, p. 42. 125 "A Rome setting is required.. ..": Memo from Barr and McKenzie to Zane Kelly, an official with the Federal Reserve Bank of Atlanta, 1/9/90. 126 Barr viewed as politically ambitious: Barr had worked for the CIA during the 1970s. As U.S. Attorney, Barr won a perjury conviction against U.S. Congressman Pat Swindall, a fellow conservative Republican who represented northeast Atlanta. In 1992, Barr sought Wyche Fowler's U.S. Senate seat, but narrowly lost in the Republican primary to Paul Coverdale, who went on to upset Fowler. In 1994, Barr won a seat in Congress by beating incumbent Democrat Buddy Darden. 126 "A planned trip to Italy .. . was put off.. ..": Memo from Ernest T. Patrikis of the Federal Reserve Bank of New York to other Fed officials, including E. Gerald Corrigan, the bank's president, 2/6/90. 126 The Fed lent $8 billion to save Continental Illinois: Secrets of the Temple, by William Greider, p. 628. 127 Corrigan called Lamberto Dini shortly after lunch the day before the FBI raided BNL-Atlanta: Dini testimony to the Italian Senate Committee Investigating BNLAtlanta, 3/7/91. 127 Fed officials said BNL might need several hundred million dollars a day: Lamberto Dini, testimony to the Italian Senate Committee Investigating BNL-Atlanta, 3/7/ 91. 128 "Dr. Pedde almost collapsed.. ..": Lamberto Dini, testimony to the Italian Senate Committee Investigating BNL-Atlanta, 3/7/91. 129 "What seems to be the problem?": Christopher Drogoul, testimony in Atlanta court, 9/30/92. 129 NSD 26 section on Iraq: "Report of the Independent Counsel, Part 1," by Frederick Lacey, 12/8/92, p. 94. (Lacey omitted a part of the unclassified section of the directive, which read: "We should pursue and seek to facilitate opportunities for U.S. firms to participate in the reconstruction of the Iraqi economy, particularly in the energy area, where they do not conflict with our non-proliferation and other significant objectives. Also, as a means of developing access to and influence with the Iraqi defense establishment, the United States should consider sales of nonlethal forms of military assistance, e.g." training courses and medical exchanges, on a case by case basis.") 130 Arthur Wade had worked as a civilian analyst at the Pentagon: Exhibit 14 to "Report of the Independent Counsel," by Frederick Lacey, 12/8/92, p. 117. (The other members of McKenzie's core team came from the FBI [Bill Campbell], the IRS [Ron Brackin], the Federal Reserve [Robert Kennedy], and U.S. Customs [Richard Horton].) 131 "If smoke indicates fire.. ..": Memo by Frank Lemay to senior State Department officials, 10/13/89. 131 Baker telex to April Glaspie on his meeting with Tariq Aziz: The document was released by Congressman Henry Gonzalez of Texas in March 1992. 132 Baker told Clayton Yeutter that McKenzie didn't intend to indict Iraqis: "Talking points" for Baker's phone conversation with Yeutter, which were attached to a 10/26/89 State Department memo to Baker urging him to make the call. 132 McKenzie described meeting with Department of Agriculture officials: McKenzie memo to file, 6/16/92. 133 Wade criticized Department of Agriculture summary: The Washington Post, 10/23/92. 133 Jay Bybee of the White House counsel's office twice called McKenzie in November 1989: "BNL Task Force--Final Report," by John Hogan, released 1/16/95, p. 115. 133 "... embarrassment level.. .. ": In a statement made to the U.S. House on 7/7/ 92, Congressman Henry Gonzalez said a Treasury Department official wrote in a memo that McKenzie said a White House official had called her and expressed concern about the embarrassment level of the BNL case. 133 McKenzie ordered to Washington to report to officials of the National Security Council: "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by U.S. Senate Intelligence Committee, February 1993, pp. 6869. CHAPTER 1 1: FIXING THE BLAME 134 "Cantoni .. . said BNL's U.S. lawyers were urging him.. ..": Cable from Peter Secchia, U.S. Ambassador to Italy, to Secretary of State James Baker, 10/19/89. 135 "It is my obligation.. ..": BNL minutes of meeting, 8/8/89, at BNLAtlanta. 135 "... a whole potful of trouble.. ..": Bruce Kirwan, testimony in Atlanta court, 4/ 27/92. 135 BNL-Atlanta couldn't locate a copy of MTL-4: Ted Lackland, testimony in Atlanta court, 9/22/92. (According to a prosecution sentencing memo filed in Drogoul's criminal case 10/25/93, Leigh Ann New said Drogoul tried desperately to avoid signing MTL-4 in London in April 1989 and never did receive a copy before leaving London.) 136 "Drogoul is under fire now.. ..": BNL minutes of meeting, 8/15/89, at BNLAtlanta. page 136 Italian military attache in Baghdad found shot dead: Financial Times (London), 9/12/89. 137 Savona feared scandal might jeopardize BNL's ability to collect on CCC loan guarantees: Peter Secchia, cable to James Baker, 10/19/89. 137 BNL assisted McKenzie in her prosecution of Drogoul: Memo from Laurence Urgenson, chief of the fraud section of the criminal division of the U.S. Department of Justice, to Deputy Assistant Attorney General Paul L. Maloney, 11/29/90, p. 2. (Urgenson noted a "virtual absence of any hard probing [by Atlanta prosecution investigators] of BNL New York or Rome personnel--an unfortunate concomitant of relying so heavily upon BNL for assistance.") 138 "Mr. Kirwan called.. ..": Paolo Di Vito diary entry, dated 1/4/90. 139 At least $150 million of BNL credits would go to Italian companies as down payments on deals with Iraq worth $1 billion: Signed agreement between BNL and Iraq, 1/20/90, nicknamed the "Geneva Agreement." 139 Prosecutors said Pierre Drogoul received $750,000: Government's Sentencing Memorandum in Christopher Drogoul's criminal case, filed 10/25/93, p. 100. 139 Clark wasn't impressed with McKenzie's work: "Report of the Independent Counsel, Part 1," by Frederick Lacey, 12/8/92, p. 47. 140 McKenzie had considered granting immunity to Tezeller: "Report of the Independent Counsel, Part 1," by Frederick Lacey, 12/8/92, p. 44, 46. 140 "We put the horse in the gate.. ..": Interview with William Hinshaw, July 1992, reported in The Atlanta Constitution, 8/3/92. (In the interview, Hinshaw expressed concern about the politicization of justice. "When we start getting criminal prosecution controlled out of Washington, D.C." our system is in great peril.. .. The criminal justice system ... is never [meant] to be a political pawn.") 140 Thornburgh was criticized for BCCI plea bargain: A deal with the Justice Department allowed BCCI to walk away with a wrist slap after evidence in a 1989 Florida case showed that illegal money laundering was bank policy. The settlement postponed the bank's meltdown until the summer of 1991. 140 McKenzie scurried off to King & Spalding: Paolo Di Vito diary entry, 2/8/90, describes "friendly" four-hour meeting between BNL lawyers and McKenzie. 140 Urgenson was skeptical about McKenzie's claim BNL did thorough audits: Laurence Urgenson, testimony before U.S. House Judiciary Committee, 6/22/92. 141 Thornburgh denied speaking to Petrignani about the BNL case: The Associated Press, Marcy Gordon, 11/4/93. 141 Petrignani meetings with Ross and Sofaer; Hendricks proposed technical defenses: Di Vito diary entry, 4/4/90. 141 BNL officials were concerned that bank could be seen as an ideal corporate defendant: Di Vito diary entry, 3/14/90. (Di Vito speculated in the same entry that the Justice Department's consideration of charges against BNL might have been prompted by Drogoul's powerful lawyers at Williams & Connolly. Two days later, Di Vito wrote that he'd contacted a senior Citicorp official for advice on choosing a lawyer to "put up against" Williams & Connolly.) 141 Rogers was to fly to Rome with Vice President Quayle: Di Vito diary entry, 5/7/90. 141 Kirwan tells Di Vito the bank is no longer targeted for indictment: Di Vito diary entry, 5/31/90. 141 Whitley overshadowed by big brother: Columbus [Georgia] Ledger-Enquirer, 4/10/93. 142 "He wanted me to be.. ..": Interview with Joe Whitley, 4/15/92. 142 Dates Whitley left DOJ, moved to Atlanta: Undated chronology by Laurence Urgenson, chief of the fraud section of the criminal division of U.S. Department of Justice, prepared at Whitley's request. 144 McKenzie was exploring possible criminal violations: Letter dated 10/31/89 from John L. Latham of Smith, Gambrell & Russell to Stephen C. Ellis of Arter & Hadden in Cleveland. 144 Legal conference 11/10/89: Handwritten notes of meeting at Matrix-Churchill offices outside Cleveland, 11/10/89. (Congressman Henry Gonzalez distributed the notes to the media in October 1992.) CHAPTER 12: MIXED SIGNALS 145 "You see, Americans are naive, stupid.": Jerry Kowalsky quoted Daghir in testimony before U.S. House Banking Committee, 4/9/91. (Kowalsky was quoting Daghir from translated tape of meeting in London that both attended on 9/11 /89.) 145 Eagleburger's 2/12/90 telex: The message was classified "secret" but later declassified. It began by stating that the subject matter was "possible Iraqi missile and nuclear-related procurement." 146 ... fishing rods and shower stalls.. .. : The New York Times, 7/26/92. (The newspaper reported that Matrix-Churchill Corp. approached Glass Inc. in the spring of 1988.) 146 ".. . the glass could only be used.. ..": Interview with Gordon Cooper, 12/2/93. 146 ".. . intended for missiles.. ..": Interview with Paul Henderson, 12/9/93. 146 Commerce required a promise: Undated letter from Richard Kress, trade specialist with U.S. Department of Commerce, to A. T. Quaddami of Matrix-Churchill Corporation. (Kress's letter called for a "letter of assurance" from Iraq, which was then supplied by Iraq's Technical Corps for Special Projects.) 146 July 1990 State Department cable .. . "leprosy letter": Legal Times 2/25/91. (The newspaper focuses on legal affairs and lobbying in Washington. The article was written by Peter H. Stone.) 147 Bazoft claimed to be working for The Observer: The Associated Press, dateline Baghdad, 3/16/90. 147 "Thatcher wanted him alive.. ..": The Associated Press, dateline Baghdad, 3/16/90. 147 Bazoft had visited site of explosion: The Death Lobby, by Timmerman, pp. 357-358. 147 Bazoft convicted of robbery, reportedly offered himself to police as informer: The Associated Press, dateline London, 3/17/90. (The article quoted a Conservative Party lawmaker who speculated that it was "highly likely" Bazoft was a spy for Israel, but "highly unlikely," because of his criminal record, that he spied for British intelligence.) 148 "Mr. Bush ignores this state murder.. ..": William Safire column, The New York Times, 3/24/90. 148 Fowler's trip to Baghdad was paid for by Arab group: Fowler's Senate Public Financial Disclosure Report, filed 5/15/91. (The report said Fowler visited Iraq from 3/15/90 to 3/20/90.) 148 Saddam invited Fowler to Bazoft hanging: The Atlanta Constitution, 8/9/90. 148 Bull shot twice in back of neck, left with $20,000 in pockets: The New York Times, 10/26/92. 148-149 Voice of America blasts Saddam: The Death Lobby, by Timmerman, p. 372. 149 Iraqis tried to buy nuclear triggers: Jerry Kowalsky, testimony before U.S. House Banking Committee, 4/9/91. 149 "I followed up on your suggestion.. ..": Memo from Thomas C. Baxter, Jr., to E. Gerald Corrigan, 4/5/90. 150 "Operation Quarry": Jerry Kowalsky, testimony before U.S. House Banking Committee, 4/9/91. 150 Shipment of Consarc furnace halted by White House in Philadephia harbor: The Death Lobby, by Timmerman, pp. 385-387. r Endnotes 263 PAGE 151 McKenzie balked at submitting written questions: "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by U.S. Senate Intelligence Committee, February 1993, p. 67. 151 State Department proposed inviting Iraqi suspects as guests to U.S.: Letter from Justice Department official Drew Arena to State Department lawyer Michael Young, 3/15/90. 151 USDA draft report found insufficient evidence of Iraqi complicity in BNLAtlanta loans: "Report of the Independent Counsel, Part 1," by Frederick Lacey, 12/8/92, p. 102. 151 "This office certainly recognizes that we do not 'make policy." .. .": Memo from Gale McKenzie to Laurence Urgenson at the Justice Department in Washington, D.C." 5/7/90. 152 Iraq turned to Brent Scowcroft: State Department memorandum, 3/5/90, cited by Congressman Henry Gonzalez in speech to the House of Representatives, 7/9/92. (A portion of the memo quoted by Gonzalez said: "National Security Council staff contacted USDA March 2 to inquire about the delay fin the CCC program] after the Iraqi Ambassador complained to General Scowcroft.. ..") 152 Scowcroft asked Yeutter to delay cutting off the CCC program to Iraq and Yeutter agreed: Congressman Henry Gonzalez, speech to the House of Representatives, 7/9/92. (Gonzalez cited May 18 notes of a Treasury Department official's conversation with an NSC official that said: "Scowcroft called Yeutter and asked him not to put out a press release today saying 'terminating program." ") 153 McKenzie called to meet with Rostow .. . Gates chaired NSC deputies meeting: "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by U.S. Senate Intelligence Committee, February 1993, pp. 68-69. 154 Glaspie wrote that Saddam Hussein described Bush and Baker as "fine and honorable men": The New York Times, 10/24/92. 154 Bush message seen as weak: The New York Times, 10/24/92. 154 ... one quarter of world's oil reserves: The Prize, by Daniel Yergin, pp. 770-772. 155 Scowcroft's stock portfolio: Congressman Henry Gonzalez, speech to the U.S. House of Representatives, 5/2/91. 155 Waiver of conflict of interest: Memorandum, signed by George Bush, to Attorney General Richard Thornburgh, 8/8/90. 155 "Because of the breadth.. ..": State Department memo, 8/8/90. (The memo didn't clearly identify either its author or its recipient. It begins: "P--Mr. Kimmitt . L--Jim Thessin," followed by the simple greeting, "Bob," and it is unsigned. A handwritten "Jim T" beside the typed name Jim Thessin suggests that Thessin might have been the author.) chapter 13: "operation desert fraud" 157 "Here it is, folks .. .": Quoted in Spider's Web, by Friedman, p. 184. 157 ".. . spreadeagled over the back of a car.. ..": Interview with Gordon Cooper, 12/2/93. 158 Whitley said he never tried to influence McKenzie in BNL probe: Interview with Joe Whitley, 4/15/92. 158 ".. . now that Joe Whitley is in place": Computer message by Peter Clark of the Justice Department, 9/21/90. (The document was released by Congressman Henry Gonzalez. It does not indicate to whom it was originally sent.) 159 ".. . adamant refusal to cut counts to the 100 mark.. ..": Memo from Peter Clark to Laurence Urgenson, chief of the fraud section of the Justice Department's criminal division, 2/15/91. 159 Safa al-Habobi serves as Iraqi oil minister: The Wall Street Journal, 3/13/95. 159 Several drafts of the indictment: "Report of the Independent Counsel, Part I," by Frederick Lacey, 12/8/92, pp. 53-90. 160 "... The ambassador thanked Gale.. ..": Undated memo on the 9/21/90 meeting was sent to Drew Arena, an international specialist at the Justice Department. 160 "It was obvious.. ..": Final Report of the Italian Parliamentary Committee Investigating BNL-Atlanta, April 1992, Section 5.1 of Exhibits. 161 FBI's list of seized items was sketchy: Four pages of handwritten notes of seized items, signed by FBI Special Agent Joe W. Hardy. 161 Italian senators were jolted by visit to Federal Reserve Board: Final Report of the Italian Parliamentary Committee Investigating BNL-Atlanta, April 1992, p. 3. (The report cites "concern and even disbelief" at the Fed's disclosure.) 161 "These verifications could.. ..": Final Report of the Italian Parliamentary Committee Investigating BNL-Atlanta, April 1992, p. 4. 161 Clark memo to Greenberg on McKenzie: The 2112/90 memo is cited in the Senate Intelligence Report on BNL, February 1993, p. 65. 162 Clark speculated that Drogoul's scheme raised BNL's profitability: "Report of the Independent Counsel, Part I," by Frederick Lacey, 12/8/92, p. 61. 162 ".. . manipulation and self-protection.. ..": Laurence Urgenson memo to file, 5/2/90, as quoted in "Report of the Independent Counsel, Part I," by Frederick Lacey, 12/8/92, p. 62. 163 "... I was the operations manager.. ..": Letter from Therese Barden to H. Ross Perot, 2/19/91. 163 Von Wedel grateful to Forrest: Interview with Paul Von Wedel, September 1994. 163 Ward worked for U.S. Attorney's Office and King & Spalding: Interview with Larry Thompson, 9/6/94. 164 ".. the intensity of Forrest's collaboration.. ..": "Inspection Report Concerning the BNL-Atlanta Case," by Francesco Petti, 4/10/91, p. 71. (McKenzie named ten former BNL-Atlanta employees as unindicted co-conspirators: Julie Daniels, Thomas Fiebelkorn, Forrest, Ivey, Maggi, New, Pamela Prosser, Post, Patricia Scudelleri, and Von Wedel. Prosser left BNL in 1988 to work at Entrade in New York.) 164 Post issued reports with "false data": "Inspection Report Concerning the BNLAtlanta Case," by Francesco Petti, 4/10/91, p. 74. 164 Post agreed to be banned from banking: Federal Reserve Board order of prohibition against Robert Post, 3/9/92. 165 "We were destroyed.. ..": Interview with Therese Barden, 1/7/94. 165 Companies' names removed from indictment to protect them from being "unfairly associated with wrongdoing": Justice Department Report to the U.S. House Judiciary Committee, 8/10/92, p. 45. (The report said the decision to omit the company names was made by Assistant Attorney General Robert Mueller.) 165 Draft indictments listed Dajani as one of the defendants, but his name was dropped: "Report of the Independent Counsel," by Frederick Lacey, 12/8/92, Exhibit 14, pp. 98-99. 165 State Department comments on proposed indictment of Dajani: A February 1991 State Department memo to the Justice Department, quoted by Congressman Henry Gonzalez in a speech to the House of Representatives, 3/30/92. 166 Brill said memo from State Department had no bearing on decision not to indict Dajani: "Report of the Independent Counsel," by Frederick Lacey, 12/8/92, Exhibit 14, p. 99. (The exhibit cited a 2/14/91 memo by Brill, which said the decision to remove Dajani was made at a meeting she had with Assistant Attorney General Robert Mueller.) 166 BNL official's diary refers to a hold put on the indictment by the State Department: Paolo Di Vito diary entry, 11/26/90. (Di Vito's view seems to be supported by a memo Atlanta prosecutor Ray Rukstele sent on 10/1/90 to Assistant Attorney FT Endnotes 265 PAGE General Robert Mueller, which said that "final approval" of the BNL indictment had to come from the State Department and the National Security Council. Mueller disagreed that the agency had such authority, according to Frederick Lacey's 1992 report on BNL, Part II, p. 40.) 166 "I am wondering....": Interview with Luigi Sardelli, 7/15/92. 166 Henderson arrested, questioned by police, released: The Unlikely Spy, by Henderson, pp. 198-203. 167 Alexander conducted interviews with Henderson: Government's memorandum of law filed in the BNL criminal case in Atlanta, 7/12/93, p. 2. (In the filing, federal prosecutors denied that McKenzie attended the interviews with Henderson, but Henderson and his Atlanta attorney, Ken Millwood, later stated in affidavits that she did attend.) 167 Henderson said he told Alexander about Dr. Safa's statements concerning the Fincantieri warships: Interview with Paul Henderson, 9/9/94. 167 Henderson affidavit: Sworn before a solicitor in Coventry, England, 7/19/93. 167 Kent Alexander would join King & Spalding in 1992. In 1993, President Clinton named him U.S. Attorney in Atlanta. 168 Scene at Drogoul's house when federal agents came to arrest him: GQ magazine, May 1993, p. 245. 168 "Operation Desert Fraud": Spider's Web, by Friedman, p. 185. 168 ".. . silently pick the pocket of a major Italian bank.. ..": Department of Justice press release, 2/28/91. 169 ".. . to obtain further concessions.. ..": Paolo Di Vito diary entry, 3/4/91. 169 ".. . definitely advantageous.. ..": Paolo Di Vito diary entry, 3/18/91. CHAPTER 14: THE GONZALEZ FACTOR 170 "First, they tried to ignore.. ..": Congressman Henry Gonzalez statement to press, 9/18/92. 171 Sessions letter to Gonzalez: Dated 10/5/90. 171 Gonzalez, the freshman congressman, in 1963, throws a punch: Dallas Morning News, 11/15/92. 171 "I can still hit.. ..": The Wall Street Journal, 7/31/92. 172 Impeachment resolutions .. . support from Kane: Dallas Morning News, 11/15/92. 174 April 8, 1991, meeting that included Rostow: Spider's Web, by Friedman, p. 209. 174 First of at least eight meetings .. . list of agencies represented: Congressman Henry Gonzalez, speech to the House of Representatives, 7/7/92. 174 "By Monday identify the most sensitive documents.. ..": Gonzalez speech to House, 7/7/92. 175 Scowcroft took the lead in claiming executive privilege: Gonzalez speech to House, 7/7/92. 175 Rostow and the Tower Commission: Spider's Web, by Friedman, pp. 211-213. 175 Archibald testimony: On 5/29/92 to House Banking Committee. 175 Commerce Department memo concerning document requests by Congressman Gejdenson: Document cited by Congressman Henry Gonzalez in speech to House, 7/7/92. 176 ".. . harassing phone calls, blackballing.. ..": Marianne Gasior, testimony before House Subcommittee on [Agriculture] Department Operations, Research and Foreign Agriculture, 8/1/91. 176 Alien Bradley Company, Hewlett-Packard, and Westinghouse identified as trading partners with Iraq: Mednews, a Paris publication that follows Middle East defense issues, identified Alien Bradley as a supplier to Iraqi nuclear programs on 11/9/91. PAGE U.S. News & World Report named Hewlett-Packard and Westinghouse on 11/25/ 91. 176 West Homestead Engineering deal: Congressman Henry Gonzalez, testimony before U.S. Senate Banking Committee, 10/27/92. 177 Gasior felt McKenzie wasn't interested in following her suggested leads: Interview with Marianne Gasior, 3/12/92. 177 Fitzwater says Kennametal under investigation, then retracts statement: The Pittsburgh Press, 4/26/92. 177 "Dick Thornburgh is considered to be a friend of the firm.. ..": Marianne Gasior, testimony before House Agriculture Subcommittee, 8/1/91. 177 Newlin helped Thornburgh redesign state business laws when Thornburgh was governor of Pennsylvania: Philadelphia Inquirer, 4/10/92. (The article quoted a Buchanan Ingersoll spokesman as saying Newlin never had a close relationship with Kennametal.) 178 Rose criticizes Justice Department's handling of both Kennametal and BNL matters: Interview with Charles Rose, 4/7/93. 178 Gonzalez investigates Tigris Trading, Sam Naaman: Congressman Henry Gonzales, speech to the House of Representatives, 8/10/92. 180 McKenzie didn't receive security clearance until after BNL indictment: "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by U.S. Senate Intelligence Committee, February 1993, p. 70. 180 Gates accuses Gonzalez of releasing highly classified document: "Resolution calling for an Ethics Probe of Chairman Gonzalez," sponsored by Congressman Robert Michel, 8/4/92. 180 ".. . piddling, phony charges.. ..": Gonzalez statement to the Associated Press, reported 9/18/92. 181 Gingrich said Gonzalez disclosures might get someone killed: Interview with Newt Gingrich, 8/6/92. 182 ".. . Exhibit A in a future prosecution.. ..": "Justice Corrupts Justice," by William Safire, The New York Times, 8/31/92. 182 "We tried. Because we tried does not mean.. ..": Lawrence Eagleburger, testimony to House Banking Committee, 5/21/92. CHAPTER 15: RISING TO THE DEFENSE 183 "He is guilty of some crimes.. ..": Bobby Lee Cook, speaking at Christopher Drogoul's sentencing hearing, 9/14/92. 183 Drogoul's manuscript mentioned Eagleburger and LBS Bank: The discussion of Eagleburger and LBS runs from p. 17 through p. 20. 184 "He had an inclination to be ironic.. ..": Interview with Alex Hicks, 1/11/93. 184 Drogoul drove a cab in New York: Christopher Drogoul, testimony in Atlanta court at bond hearing, 10/5/92. 185 "I can tell you the judge is not on board": Judge Marvin Shoob in federal court, 6/2/92. 186 Shoob warned of possible plot to kill Drogoul: Interviews with Judge Marvin Shoob, 6/5/92, 11/11/93. 187 Chartash made call to Tyler when McKenzie was out of town: Randy Chartash, statement in federal court, 6/2/92. (The Justice Department offered various explanations about how the plea agreement came about. In a letter to the House Judiciary Committee on 8/10/92, Attorney General Barr said the offer was "exactly the one offered by the lead prosecutor [McKenzie] two weeks before the plea." Six weeks earlier, Assistant Attorney General W. Lee Rawls had told the committee that McKenzie worked the weekend before Drogoul's plea to "draft the final plea agreement." Rawls's statement seemed to conflict with McKenzie's statement page to Judge Shoob in chambers on June 16. A transcript of that meeting showed that when fudge Shoob reminded McKenzie that she first informed him of the June 2 plea agreement on Monday, June 1, she answered: "That's when I first knew.") 187 "... a true intellectual.. ..": Quoted in The Atlanta Constitution, 6/3/92. 187 "gullible": Interview with Judge Marvin Shoob, 11/11/93. 188 Shoob in World War II: Interview with Judge Marvin Shoob, 11/11/93. 189 Shoob recalls Soroa Gonzalez incident, talks with Giuliani, Meese: Interview with Judge Marvin Shoob, 11/11/93. 190 Barr called Shoob sloppy with facts: Letter from Robert Barr to members of the Judiciary Committee, 8/10/92. (Shoob did err on several points, including that Randy Chartash, Gale McKenzie's assistant, had recently moved to Atlanta from the Justice Department in Washington, when in fact he had been in private practice before moving to Atlanta. But Barr's effort to set the record straight was hardly precise either. In the very sentence after he criticized the judge, Barr referred to Christopher Drogoul as "Paul Drogoul.") 191 Cook's former clients: Los Angeles Times, 7/30/86; The Wall Street Journal, 9/16/92. 192 Opening statements by Brill and Cook: Transcripts of court hearing, 9/14/92. 193 Gonzalez released CIA documents: Given that the congressman had held the documents for many months, the timing of the disclosure appeared to be calculated to coincide with the hearing. 193 Wade used alias: Art Wade, testimony in Atlanta court, 9/16/92. 194 Cook's room at Ritz-Carlton: Interview with Bobby Lee Cook in hotel room, evening of 9/29/92. 194 Cook's visitor: Pages from the Di Vito diaries were delivered to Cook by an employee of the Italian magazine // Mondo. 197 "The last meeting, at the end of March.. ..": Paolo Di Vito diary entry, 4/4/90. 197 ".. . safeguard the position of BNL as victim.. ..": Di Vito diary, entry, 9/10/90. CHAPTER 16: FRIENDS IN NEED 201 "I got to know President Bush.. ..": Interview with Griffin Bell, 1/20/93. 201 ... implicated a specific BNL-Rome official: "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by U.S. Senate Intelligence Committee, February 1993, p. 153. 201 "There was no getting around this one.. ..": "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by U.S. Senate Intelligence Committee, February 1993, p. 154. 201 ".. . absolutely incorrect... At least it's not something they didn't know about": Senate Intelligence Committee Report, February 1993, p. 154. (A separate classified 1/31/90 CIA letter on BNL was not shared with the FBI or the Justice Department until October 1992. It said: "new information has come to light that . managers at BNL headquarters in Rome were involved in the scandal." Frederick Lacey, in the highly classified Part II of his 1992 report on the BNL affair, listed that letter and nine other intelligence reports suggesting that "BNLRome knew." Although Part II of Lacey's report was later declassified, details of the ten messages, including the one that had shocked CIA lawyer Holmes, were heavily red acted 202 Jameson spoke to Brill early on the morning of October 1, before she agreed to allow Drogoul to withdraw his guilty plea: Senate Intelligence Committee Report, February 1993, p. 159. 202 Prosecution was concerned Drogoul might claim the CIA knew about his activities: Senate Intelligence Committee Report, February 1993, p. 160. (In November 1989, the FBI warned the CIA that one of its reports on BNL might be "discoverable" at Drogoul's trial, that is, the defense might have a legal right to have it produced as evidence. In its response a month later, the CIA said the report would not be produced, adding: "Although defendants regularly allege CIA involvement in their activities in hopes of derailing the prosecution, we have devised ways to protect our information and sources against discovery by the defendant or exposure in an open court proceeding.") 202 DIA letter was "carefully crafted": Senate Intelligence Committee Report, February 1993, p. 50. 203 NSA's letter to Brill was too highly classified to be read: Senate Intelligence Committee Report, February 1993, p. 106. (Two days after Christmas 1990, two Justice Department lawyers had driven to NSA headquarters to review some of the agency's "thousands" of documents related to BNL. But due to a snowstorm, they didn't finish their review and they never returned.) 203 Prosecutors had never seen the CIA summary Gonzalez released: "Report of the Independent Counsel, Part I," by Frederick Lacey, December 1992, p. 177. 203 Urgenson said Atlanta prosecutors saw their case falling apart: Senate Intelligence Committee Report, February 1993, p. 110. 203 CIA answer to Question 8: The CIA released an unclassified version of the classified 9/4/92 letter on 9/17/92 that contained identical answers to ten questions. 203 Mueller demanded clarification from CIA: Senate Intelligence Committee Report, February 1993, pp. 127-128. 203 ".. . what [Mueller] wanted us to deny": Senate Intelligence Committee Report, February 1993, p. 132. 204 CIA discussed pros and cons of altering their answer to Question 8; Urgenson wanted to expose original CIA answer: Senate Intelligence Committee Report, February 1993, pp. 121-122. ("You would have to be deaf, dumb, blind, and stupid not to appreciate that there was an inconsistency in what the CIA had said to us and what they said to Congressman Gonzalez," Urgenson told Intelligence Committee investigators, 10/9/92.) 204 "... appears to "corroborate.. ..": Senate Intelligence Committee Report, February 1993, p. 138. 204 "Gerrilyn's misgivings.. ..": Senate Intelligence Committee Report, February 1993, p. 153. 205 Prosecutors worked to "absolve BNL-Rome of complicity": Court order by Judge Marvin Shoob, 10/5/92. 206 Shoob said he was impressed with Lacey: Interview with Judge Marvin Shoob, 11/16/92. 206 British abruptly halted Henderson's trial: The New York Times, 11/9/92. 206 Henderson told British intelligence about BNL-Atlanta financing in 1988: Interview with Paul Henderson, 11/18/93. 206 Four British ministers signed papers to block release of documents in Henderson case on national security grounds: Spider's Web, by Friedman, p. 248. 207 "... I am fairly confident.. ..": Interview with Paul Henderson, 11/19/93. 207 Lacey received fax from Cook: "Report of the Independent Counsel, Part I," by Frederick Lacey, December 1992, p. 162. 207 CCC documents shredded were "unrelated" to BNL: "Report of the Independent Counsel, Part I," by Frederick Lacey, December 1992, p. 168. 207 E-mail messages: Justice Department computer messages, obtained by and released by Congressman Henry Gonzalez. 208 Thornburgh's document requests in 1991, 1992: General Accounting Office letter to Congressman John Conyers, Jr." 5/13/93. 208 Wilson says Thornburgh took few BNL documents: Interview with Nancy Wilson, 11/30/93. PAGE 208 Thornburgh's copying costs: The Washington Post, 5/31/93. 209 "... I know more about this case.. .." Frederick Lacey, statement to media, 12/8/92. 209 Leboeuf, Lamb served as Lloyd's of London's general counsel in the United States: The Wall Street Journal, 3/25/94. (Lacey's resume listed him as a senior litigation partner with the firm.) 209 Lacey said he wasn't aware of the legal dispute between BNL and Lloyd's: Interview with Frederick Lacey, 1/9/95. (BNL and Lloyd's sued each other in Fulton County Superior Court in Atlanta in July 1993. Lloyd's employed an Atlanta firm-not LeBoeuf, Lamb--as its counsel. After a judge granted Lloyd's motion for summary judgment to dismiss BNL's suit, the Georgia Court of Appeals reversed in 1995, sending the matter back to the Fulton court. 210 "In fairness to Judge Shoob.. ..": "Report of the Independent Counsel, Part I," by Frederick Lacey, December 1992, p. 131. 210 "Teapot Dome": Judge Marvin Shoob in Atlanta federal court, 8/23/93. (The judge was referring to the 1922 scandal that nearly toppled President Warren G. Harding.) 211 BNL Attorney Griffin Bell, as U.S. Attorney General in 1979, had sought out Lacey to become his number-two official in the Justice Department: The New York Times, 8/5/79. 211 "Trading in their robes.. ..": The Puzzle Palace, by James Bamford, pp. 465-466. 211 "No, man, how would I know that.. ..": Interview with Griffin Bell, 1/20/93. 213 North wanted to obtain a lawyer for Hasenfus: "Final Report of the Independent Counsel for Iran-Contra Matters," by Lawrence E. Walsh, 8/4/93, Vol. I, p. 166. 213 Bell said he took Hasenfus as a client after Mondale and Vance declined: Interview with Griffin Bell, 1/20/93. 214 Adamson met with Bush over Clarence Thomas nomination and later coached Thomas before his Senate confirmation hearings: The Atlanta Constitution, 9/10/91. 215 "It had nothing to do with business at all.. ..": Interview with Griffin Bell, 1/20/93. 215 BNL filed suit: The case was filed in the U.S. Court of Claims in Washington, D.C., where plaintiffs may bring claims against the federal government. 215 C. Boyden Gray called Bell to ask if he'd be interested in being President Bush's private attorney for Iran-Contra matters: Interview with Griffin Bell, 1/20/93. 216 "... I did that myself.": Interview with Griffin Bell, 1/20/93. CHAPTER 17: BUSINESS AS USUAL 217 "This case .. . has been blown way out of proportion.. ..": Judge G. Ernest Tidwell, Atlanta federal court, 12/9/93. 217 Convicted felon said Drogoul told him he planned to flee: The Atlanta Constitution, 1/8/93. 218 Shoob met Janet Reno at White House reception: Interview with Judge Marvin Shoob, 11/11/93. 219 Simels had represented Henry Hill: Simels resume, released to media January 1993. 220 Simels said he lined up Ross Perot to foot the bill for a Drogoul security detail: In a motion in Atlanta federal court dated 7/1/93, Simels wrote: "We have advised the court of the prominent Texas benefactor who has offered to defray the expense of the defendant's release." He later told a reporter that the benefactor was Perot. 221 Hogan tells Judge Shoob he has concluded that BNL-Rome wasn't involved with Drogoul's schemes: Statement in Atlanta federal court, 8/23/93. 222 Jack Martin argued that Von Wedel was a pawn of higher BNL management: page Martin obtained a high security clearance in order to review classified documents that might support Von Wedel's claims to be a pawn. In a sentencing memorandum dated 8/16/93, he wrote that the classified documents he saw indicated that BNL-Atlanta's off-book loans were known to senior officials in Rome, "including at least one member of the bank's 'central directorate." " Martin also wrote that the head of BNL's legal department stated that BNL was "authorized and directed" by the Italian government to, in Martin's words, process the loans through the Atlanta branch so that the loans would appear to have been originated in Atlanta. 223 Prosecutors deliver superseding indictment against Drogoul: The new charges were filed by John Hogan's prosecution team on 7/28/93. Drogoul was the only defendant named. 223 Tidwell blocked prosecution's planned depositions in Italy: Fulton County Daily Report, 5/4/93. 223 Drogoul pleaded guilty to three felonies: Criminal information filed 9/2/93 by Hogan and the U.S. Justice Department against Drogoul. 225 Petrignani faced bribery charge in Italy: Congressman Henry Gonzalez, statement on 11/4/93, describing subpoenaed witnesses for his hearing, 11/9/93. 225 "I want to go on with my life": Interview with Jean Ivey, 11/9/93. 226 ".. . people similarly situated, Mr. Milken, Mr. Boesky.. ..": Robert Simels in Atlanta federal court, 12/9/93. 227 "The end is in sight now": Interview with Lynn Drogoul, 12/9/93. CHAPTER 18: MOPPING UP 228 "... a single pistol that was given to Saddam Hussein": "Addendum to the BNL Task Force--Final Report," by John Hogan, declassified and released 1/17/95, p. 2. 228 "When you sit down with the next president.. ..": Interview with Richard Fuisz, 2/20/95. 229 Blum said Fuisz was determined to spur an investigation: Interview with Jack Blum, 12/14/93. 229 Terex filed suit against Fuisz: National Law journal, 1/31/94. (The suit was filed in 1992. Terex attorney Jonathan L. Lerner of Skadden, Arps in New York said the company denied making missile launchers for Iraq.) 229 "George Bush wants the American people.. ..": Speech by vice-presidential candidate Al Gore in Washington, D.C." 9/29/92. 229 Hogan stirs controversy after buying discounted suits: Janet Reno: Doing the Right Thing, by Paul Anderson, p. 99. 230 Hogan got orders July 6: "BNL Task Force--Final Report," by John Hogan, released 1/17/95, p. 1. 230 Hogan "repudiated" arguments advanced by the Justice Department at the U.S. Court of Claims: John Hogan, statement in Atlanta federal court, 8/23/93. 230 Hogan found Pedde to be "credible," discounted significance of Drogoul letter to Pedde signed "Chris": "BNL Task Force--Final Report," by John Hogan, released 1/17/95, pp. 31-34. 230 Hogan convened grand juries in Atlanta, Washington: National Law Journal, 3/14/94. 231 "Matrix-Churchill, Spies and Lies": Congressman Henry Gonzalez, speech to the U.S. House of Representatives, 2/2/93. 231 ".. . this administration believes.. ..": The Washington Post, 2/10/94. 231 Gonzalez restricted Republicans on House Banking Committee from airing White-water charges: The Wall Street Journal, 7/29/94. 231 Clinton eases inspections of ships headed to Aqaba: The Christian Science Monitor, 7/18/94. 232 ".. . tantamount to lifting the embargo against Iraq": The Christian Science Monitor, 7/19/94. 232 Hussein of Jordan, Rabin of Israel shake hands: The Wall Street Journal, 7/26/94. 232 Clinton decides to consider condition of defense industry in making licensing decisions for military exports: The Wall Street Journal, 11/16/94. 232 Average U.S. exports of conventional arms to the Third World tripled: "Conventional Arms Transfers to the Third World," by Richard F. Grimmett, for Congressional Research Service of the Library of Congress, 7/19/93, Table la. 233 Hogan found no illegal conspiracy: "BNL Task Force--Final Report," by John Hogan, released 1/17/95, pp. 4-5. 233 White House consistently turned down proposals to sell arms to Iraq: "Addendum to BNL Task Force--Final Report," by John Hogan, released 1/17/95, pp. 3-4. 233 ".. . no covert actions.. ..": "Addendum to BNL Task Force--Final Report," by John Hogan, released 1/17/95, p. 8. 233 Not illegal to barter or sell CCC commodities: "Addendum to BNL Task Force-Final Report," by John Hogan, released 1/17/95, p. 11. 233 Hogan found cases where Iraq swapped food for weapons: "Addendum to BNL Task Force--Final Report," by John Hogan, released 1/17/95, p.14. 234 "Ultimately it does not matter whether the vehicles Fusiz saw.. ..": "BNL Task Force--Final Report," by John Hogan, released 1/17/95, p. 74. 234 Hogan learned of "sensitive compartments" within the CIA: "Addendum to BNL Task Force--Final Report," by John Hogan, released 1/17/95, pp. 2-3. 234 "Now that the investigation of BNL is complete.. ..": Department of Justice press release, 2/16/95. 235 In negotiations, the Justice Department reduced the settlement amount from $451 million to $400 million: Department of Justice press release, 2/16/95. 235 ".. Saddam Hussein's bad debt": Henry Gonzalez statement, 2/16/95. 235 Tupitza said Drogoul was looking for an import-export job. Interview with James Tupitza, 1/4/95. EPILOGUE 236 ".. . [TJhis is precisely.. ..": Russell Baker column, The New York Times, 8/31/93. (In his column, entitled "Frequent Liar Program," Baker speculated that the Clinton Justice Department's position on the BNL affair "may be a lie." In the past, he wrote, such lying has often been carried out in the name of "national security," and a cynical public has grown hardened to the assumption that government is a frequent liar.) 236 "The Myth of Iraqgate," by Kenneth Juster, Foreign Policy magazine, Spring 1994. 237 Opinion articles support Juster's view: The Washington Post, Richard Harwood, 4/16/94; New York Newsday, Lars-Erik Nelson, 3/6/94; American Lawyer, Stuart Taylor, Jr." November 1994. 237 Taylor's opinion piece becomes a news story: The Washington Times, 12/9/94. 237 Teicher files affidavit in Miami criminal case: The New York Times, 2/5/95. 238 "The policy against U.S. arms sales.. ..": "Addendum to the BNL Task Force-Final Report," by John Hogan, released 1/17/95, p. 4. 238 Teicher said he helped write a secret 1982 national security decision directive on Iraq: Draft of affidavit Teicher filed in February 1995 in U.S. District Court in Miami for defendants U.S. vs. Cardoen, et al. (93-241-CR-Highsmith). 238 CIA denied relationship with Cardoen: CIA press release, 7/16/91. (The full text of the release: "Allegations that the Central Intelligence Agency provided or facilitated the transfer of military equipment or technology to Iraq, with or without authorization, are totally false. There has never been a covert action program authorizing such action. Reports suggesting the contrary are without basis. More PAGE over, the CIA has never had a relationship of any type with Carlos Cardoen.") 238 Martinez nominated by Bush: The Washington Post, 5/9/92. 239 State Department telexes referred to Cardoen cluster bomb sales: Confidential telex from U.S. Ambassador James Theberge to State Department in Washington, D.C." December 1984. (The telex, declassified in 1992, mentioned "... Cardoen's existing presumably lucrative market for cluster bombs in Iraq.") 239 Defense lawyers sought information on Theberge's relations with Cardoen: Motion for production of favorable evidence, U.S. vs. Cardoen, et al. (93-241-CR-High smith, U.S. District Court, Southern District of Florida), 8/30/93. 239 Four British ministers: In his book Spider's Web, Alan Friedman identified the four ministers as Kenneth Clarke, the home secretary; Tristan Garel-Jones, a Foreign Office minister; Michael Heseltine, the secretary of state for trade and industry; and Malcolm Rifkind, the secretary of state for defense. 240 "... knowledge and the administrative mechanisms to prevent the shipments.. ": Teledyne statement quoted in the Los Angeles Times, 1/27/95. SELECTED BIBLIOGRAPHY BOOKS AND UNPUBLISHED MANUSCRIPTS Anderson, Paul. Janet Reno: Doing the Right Thing. New York: John Wiley & Sons, Inc." 1994. Atkinson, Rick. Crusade: The Untold Story of the Persian Gulf War. Boston: Houghton Mifflin, 1992. Bamford, James. The Puzzle Palace. 1982; rev. ed. New York: Penguin, 1993. Brownstein, Ronald, and Nina Easton. Reagan's Ruling Class. New York: Pantheon, 1983. Drogoul, Christopher. "Origins of BNL-Atlanta," unpublished manuscript. Friedman, Alan. Spider's Web: The Secret History of How the White House Illegally Armed Iraq. New York: Bantam Books, 1993. Greider, William. Secrets of the Temple. New York: Simon & Schuster, 1992. Gurwin, Larry. The Calvi Affair. London: Pan Books, 1984. Henderson, Paul. The Unlikely Spy. London: Bloomsbury Publishing Ltd." 1993. Isaacson, Walter. Kissinger. New York: Simon & Schuster, 1992. Riebling, Mark. Wedge: The Secret War Between the FBI and CIA. New York: Knopf, 1994. Shultz, George P. Turmoil and Triumph: My Years as Secretary of State. New York: Scribner, 1993. Sick, Gary. All Fall Down. New York: Penguin, 1986. Teicher, Howard, and Gayle Radley Teicher. Twin Pillars to Desert Storm. New York: Morrow, 1993. Timmerman, Kenneth. The Death Lobby. Boston: Houghton Mifflin, 1991. Von Wedel, Paul. "From the Gates of Babylon to the Gates of Hell," unpublished manuscript. Yallop, David A. In God's Name. New York: Bantam, 1985. Yergin, Daniel. The Prize. New York: Simon & Schuster, 1992. 274 Selected Bibliography GOVERNMENT REPORTS "BNL Task Force--Final Report," submitted to Attorney General Janet Reno by John Hogan. Washington, D.C. October 1994; declassified, January 1995. "Addendum to the BNL Task Force--Final Report." Washington, D.C. October 1994; declassified, January 1995. Final Report by the Italian Senate Committee Investigating BNL-Atlanta. Rome, Italy. April 1992. "Banca Nazionale del Lavoro--Report of the Independent Counsel, Parts I and II" by Frederick Lacey. Washington, D.C. December 1992. "The Intelligence Community's Involvement in the Banca Nazionale del Lavoro Affair," by the U.S. Senate Intelligence Committee. Washington, D.C. February 1993. OTHER REPORTS Milhollin, Gary. "Licensing Mass Destruction." Wisconsin Project on Nuclear Arms Control: Washington, D.C." June 1991. Timmerman, Kenneth. "The Poison Gas Connection." Commissioned by the Simon Wiesenthal Center and Middle East Defense News: Los Angeles, 1990. ACKNOWLEDGMENTS underestimated the time and effort it would take to complete this project. Fortunately, I benefited time and time again from the encouragement of a few uncommonly generous people. Warren Culpepper graciously allowed me to use a private office at his company for most of a year. It was a quiet place that allowed me to concentrate without any interruption. What a gift! Bill Rankin read and reread my manuscripts and even convinced his father, Jim Rankin, an experienced editor, to plow through a rough early draft. At various times, Bill served as sounding board, cheerleader, and shrink. I appreciated it. The demands of the project--three years on the job outside my regular job--naturally put a strain on my family. My wife, Laura, bent without breaking and was a constant source of love and support. I am very grateful to her for that and for so much more. This book was not my idea. Rather, it was Mark Curriden who challenged me to try to write it and then introduced me to his agent, Ed Vesneske. Ed helped me polish a proposal and, with the help of Ling Lucas, shopped it around to more than twenty publishers. I am grateful that St. Martin's Press took a chance on the project in spite of the soft market for "bank scandal" books. My editor at St. Martin's, George Witte, helped me shape the book and tactfully convinced me to eliminate my worst tangents. St. Martin's attorney for the project, Paul Sleven, scrutinized the manuscript with a clear eye and was a pleasure to work with. 276 Acknowledgments I also want to acknowledge that Hyde Post and Keith Herndon of The Atlanta Constitution helped me arrange a six-month leave of absence from the newspaper to write the first draft. When I returned to the paper, Rochelle Bozman was very understanding about my strange schedule requests. A number of others at the newspaper offered wonderful advice and support, including Scott Bronstein and Gary Pomerantz. Pietro Banas, the New York bureau chief of // Mondo, was consistently helpful in obtaining documentation, translating papers, and providing an intelligent Italian perspective on many matters. Dennis Kane and the rest of the staff of the U.S. House Banking Committee were an extraordinary resource, as was Tom Strzemienski, a staffer for Congressman Charlie Rose of North Carolina. Joyce Battle of the National Security Archives shared a few key documents, and staffers for the General Accounting Office were very cooperative. I am grateful to Jack Martin for opening a key door and to Alan Baverman for delivering in a pinch. Finally, I want to thank a group of close friends who were especially helpful to Laura and me (and our children, Katie, Peter, and Meme) in keeping a healthy perspective on the whole project: Steve, Brenda, Tom, Claire, Jeff, Bonnie, Gay, Dave, and Dottie. Thank you all. Throughout the book, dialogue was reconstructed from the recollections of at least one of the participants. English translations of Italian documents, including the final report of the Italian Senate Committee investigating BNL-Atlanta, were supplied by the Congressional Research Service of the Library of Congress (except where otherwise noted). Christopher Drogoul, through spokesman James Tupitza, declined to be interviewed for this book. Tupitza explained that Drogoul wanted to tell his story in his own words. Several other individuals mentioned in the book, including Henry Kissinger, Lawrence Eagleburger and Beurt SerVaas, either declined to be interviewed or did not respond to requests for interviews.