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/** mideast.gulf: 34.0 **/
** Topic: BNL - GONZALEZ - Feb 21, 1991 **
** Written  1:00 pm  Jul 29, 1992 by cadwallader in cdp:mideast.gulf **
684
Banca Nazionale del Lavoro - Congressional Record
February 21, 1991
H 1111
 
Rep. Henry Gonzalez
COMMITTEE ON BANKING FINANCE AND URBAN AFFAIRS' 
INVESTIGATION OF BANCA NAZIONALE DEL LAVORO
Mr Speaker, this is the second in a series of special 
orders that I have planned concerning the Committee on 
Banking, Finance and Urban Affairs of the US House of 
Representatives' investigation or the Banco Naxionale del 
Lavoro, otherwise known as the BNL scandal.
        As explained in the first special order on February 
4, the BNL scandal is a sensational bank fraud and 
regulatory blunder in which former employees of the 
Atlanta agency of the BNL, which is really an Italian 
Government-owned bank, were able to loan tIraq three 
billion without presumably reporting those loans to its 
headquarters in Rome or to the Federal Reserve and State 
banking officials.
        I brought out also in the first special order that in 
effect the alarming thing about this, as we first began to 
look into it more than a year and a half ago, was that it 
revealed an absence of suitable regulatory oversight on 
the part of our American regulatory system, which means 
that the United States is the only nation in the 
industrialized world, West or East, that permits such a 
tremendous volume of foreign money, in effect better than 
six hundred and thirty five billion right now, with little 
or no accountability or regulatory power exerted from the 
national interest standpoint of the United States.
        The bank regulatory failure in this case is and 
continues to be the main focus of attention of the 
Committee on Banking, Finance and Urban Affairs. The 
committee will pursue legislative remedies to ensur that 
entities like BNL are properly supervised.
        As a matter of fact, this morning in the Washington 
Post there was a considerable story in which it was 
reported that the Federal Reserve Board was looking into a 
WWashington-based bank's control or ownership influence by 
Iraq or Iraqi elements.
        Well, let me say that if that is coming to light, it 
is coming too late, as in the case of BNL.
        What continues to be disturbing to me is that nobody 
knows what the type of activity involving this huge amount 
of money in the United Atates, in which foreign entities 
owned by foreign governments cam, in the exercise of their 
business, be acting contrary to the basic national policy 
as set forth by our own Government.
        The second main facet of the investigation deals with 
BNL's relationship with Iraq. The committee is 
investigating the role BNL played in upgrading the 
military capability of Iraw, which is quite considerable.
        If our boys, as it looks now, unfortunately and 
tragically will be the case, will to into the ground 
fighting, they will be facing death or serious bodily harm 
by missiles of chemical weapons actually funded and paid 
for by US businesses and guaranteed by the American 
taxpayer.
        As astounding as this is, it is and has happened, and 
continues to, incidentally.
        BNL was one, not the only one, but probably one of 
the more significant, sources of funding for a complicated 
Iraqi scheme to obtain sophisticated Western technology 
and know-how.
        BNL financed the sale of chemicals, specialty steel 
products, sophisticated computer controlled industrial 
machinery, electronic components, computers and 
engineering and construction services. Much of this 
technology had civilian as well as military uses.
        Evidently the United Sttes and other Western nations 
ignored the true intentions of Iraq, though personally I 
think that those intentions were well-known, except that 
at that time, and I think in view of what is happening 
today, and being that we seem to have very short memories 
nowadays, we find it difficult to evoke the environment 
that existed during the Iraq-Iran war for eight years 
immediately folowing the truce in which we had actually, 
as a matter of Government policy, been aiding and 
abtetting the Iraqis against the Iranians.
 
 
PAGE H112
Section 1400 Congressional record:
 
        That sounds unbelievable today, but it is true. Truth 
is stranger than fiction.
        It is equally true that forty seven point six billion 
dollars-worth in an eight-year period, of sophisticated 
weaponry was provided Iraq, by not only the United States 
but almost every other country, including the so-called 
People's Republic or People's Country of China which used 
the technology that our licensing agreements enabled the 
CHINESE  to produce, such as the Silkworm missile which, 
incidentally, was the missile that sank or damaged and 
killed thirty seven of our sailors just a few years ago, 
fired by an Iraqi source when our Navy was flying the flag 
for Kuwaiti oil tankers and patrolling the fulf.
        Indicentally, the reason that all this financing 
could be done by the Iraqi Government through its central 
bank and through these foreign government-opwwned banks 
with either branches or agencies, as they call them in the 
United States, and the one particularly in Atlanta, is 
that President Reagan in 1983 saw fit to remove Iraq from 
the list of nations that he himself listed as terrorist 
nations. And when he removed Iraq from that designation it 
opened the sluice gates for considerable commerce and 
weapons trading.
        The BNL was also a major source of agricultural 
financing for Iraq. BNL financed the sale of over eight 
hundred and fifty billion in United States agricultural 
products to Iraq: seven hundred and twenty million of that 
amount was guaranteed and ultimately is being paid for by 
the United States Department of Agriculture's Commodity 
Credit Corporation, or the taxpayer.
        Between 1983 and 1990, the CCC granted credit 
guarantees which enabled Iraq to purchase a total of five 
point five billion dollars in United States farm products. 
In addition, the Export-Import Bank granted Iraq a two 
hundred million insurance polity to protect United States 
companies against the potential risk of loss related to 
exporting goods to Iraq, and of course they did suffer 
that loss and, of course, the taxpayers pay that guarantee 
or insurance.
        These United States Government guarantees were very 
important to Iraq. It not only permitted Iraq to purchase 
high-quality food for its people and its army, it freed up 
a like amount in foreign exchange, more importantly, which 
was used to purchase the technology and military goods 
from various countries around the globe.
        The BNL scandal which burst onto the scene publicly 
in August 1989 played a key role in the disintegration of 
United States-Iraq relations. As we are now tragically 
aware, the break in United States-Iraq relations 
ultimately ended in war.
        Revelation of the BNL scandal was important to United 
States-Iraq relations because of several reasons. BNL was 
a major bank participant in the Commodity Credit program 
with Iraq. Alleged violation of CC regulations by bnL in 
Iraq, still being investigated by our United States 
attorney in Atlanta and by the Department of Agriculture, 
made and compelled the administration, this 
administration, to rethink the billions of dollars in 
agriculture credit guarantees provided to Iraq. Iraq 
received one billion dollars in agriculture credit from 
1989.
        Mind you, it was in August 1989 that we had the first 
exposure of the deal, but at that time the climate was 
very favorable in our country and in our Government, as a 
matter of policy toward Iraq, as contradistinguished from 
Iran. The Department of Agriculture was in the midst of 
granting Iraq another one billion program for 1990 when 
the BNL scandal surfaced.
        Facing pressure from possible irregularities in the 
Iraqi program, the Agriculture department was reluctantly 
forced to limit the program with Iraq in 1990 to five 
hundred million. The Iraqis were incensed, because Iraq 
was effectively bankrupt and had little money to purchase 
food with. It was counting on an increase in the CCC 
program, and not a huge cut in the program. This was a 
blow at the time for Iraq. Iraq took the lowering of the 
five hundred million level as an insult. They claimed this 
action was indefensible because they were not violating 
American law at that time, as indeed they were not since 
Mr Reagan removed them from the list in 1983, and that no 
formal charges had been filed against them because of the 
BNL scandal.
        Lowering the level of the CC credit to five hundred 
million also placed increased pressure on Iraq's already 
scant resources.
        The implication of the BNL scandal did not end there. 
As I have mentioned earlier, BNL was a major source of 
financing for a complicated Iraqi technology procurement 
network. During the 1980's, Iraq established ownership or 
control of a sophisticated network of United States and 
European front companies whose primary mission was to 
obtain Westen military technology and know-how and export 
it back to Iraq.
        Of course, the Iraqis were very secretive in their 
dealings and were careful to conceal their true 
affiliation. During the latter half of the 1980's they 
relied heavily on these BNL loans to finance the 
procurement of much of the Western technology they were 
seeking, including the so-called big gun, the chemical 
weapons component and other missile and munition 
facilities, one of which plants was established in 
Baghdad.
        But BNL loans were not ordinary financing. BNL 
contracted to loan Iraq two point one five five billion 
dollars at interest rates that were not economically 
feasible. In addition, a good portion of those loans did 
not have to be paid back for many years: they were long 
term, which is incredible. The Small Business 
Administration has not in many years been able to do 
anything one-tenth as much for any US businessman.
        The former employees of BNL were operating like a 
charity, not a bank. The BNL raid in August 1989 put an 
end to this practice at that point and certainly put a 
damper on the Iraqi procurement of a long list of United 
States and Western technology. About one billion dollars 
at that point had not yet been disbursed under the charity 
loan schemes when BNL was raided in August 1989. 
        The BNL scandal also made the Baghdad dipiomatic 
community worry that Iraq was so desperate for credit it 
was willing to engage in illegal activity. Iraq feared its 
already tarnished financial reputation because of their 
defaults would be further damaged by BNL's scandal, and 
they were woried that the scandal would possible 
jeaopardize high-profit Iraqi projects being constructed 
by foreign companies.
        While BN: money and United States credit guarantees 
would not have been significant to a financially strong 
nation, it was critically important to a country like Iraq 
because it was in such a poor financial shape after the 
terribly inhuman eight-year was with Iran.
 
Section 1410
 
By the end of 1989, Iraq had already defaulted on most of 
its debts with the governmentss and private companies of 
most Western countries as well as with Japan and Jorea. 
Until the BNL scandal, the United States had almost been 
the only exception in this rule. Iraq had remained 
relatively current on its United States obligation.
        But limiting United States Government credit programs 
becasuse of BNL lending to Iraq was eventually the 
proverbial last straw  that broke the camel's back in that 
effectively rendering Iraq bankrupt.
        The impact of the BNL scandal and its effect on Iraq 
is echoed in the words of the Iraqi Foreign Minister 
during his meeting with Secretary of State James Baker 
just prior to the allied offensive against Iraq. Iraq had 
offered many escuses for its brutal invasion of Kuwait. 
Among others, it accused the United States, other Western 
nations, Israel, and Kuwait of conspiring to destroy it 
economically. Related to the United States role in this 
supposed scheme, Tariq Aziz, the diplomat and Foreign 
Minister, stated in his Geneva meeting with Secretary 
Baker, and I am going to quote:
>The United States actually implemented an embargo on Iraq
>before August 2, 1990. We had dealing with the United 
>in the field of foodstuffs. We used to buy more than one
>billion of American products. Early in 1990, the American 
>administration suspended that deal which was profitable 
>for both sides. Then the United States Government 
>decided to deny Iraq the purchase of a very large list of
> items.
        Evidently, to the Iraqis, the impact of the BNL 
scandal was a key factor in the decline of the United 
States-Iraqi relations.
 
Page H1113 - Congressional record
 
        As we know, Saddam Hussein reacted to his dire 
financial straits by invading Kuwait which ironically, 
along with several other Arab nations, had loaned Iraq 
tens of billions of dollars during the conflit with Iran.
        To summarize, the failure of our bank regulatory 
system to detect the three billion dollars in shady loans 
to Iraq, coupled with billions in questionable credits to 
Iraq, along with our inability to stop Saddam from 
importing BNL-financed technology whicy was used for 
military purposes, is being used now in  {ways] which our 
soldiers will confront, all worked together to cause our 
war with Iraq.
        Hopefully, the committee's investigation of BNL will 
shed light on how these failures occurred. I would hope an 
understanding of these failures would work to reduce the 
risk of more Iraqis on our horizon, even now especially 
before we are forced to risk many more lives of our 
soldiers.
        I would like to take this opportunity to demonstrate 
another important reason for proceeding with the Banking 
Committee's investigation. I have obtained from a source I 
must protect a memorandum that indicates a top-ranking 
administration official from a Cabinet-level Department 
had knowledge that BNL was used for purchasing military 
goods. This administration official was concerned that the 
revelation of BNL financing of military articles would be 
bad for his particular program, because it would cause 
considerable adverse congressional reaction and press 
coverage.
        He stated in this memorandum:
 
>In the worst-case scenario, congressional and other
>investigators would find a direct link to financing Iraqi 
>military expenditures, particularly the Condor missile.
 
        The astonishing contents of this memorandum shed 
significant light on the administration's and the Federal 
Reserve Board's efforts to thwart our Banking Committee 
and its investigation of BNL. To date, they remain silent 
on the topic of BNL financing of military articles.
        With all the lessons we cold learn from the BNL 
scandal, let me say by the way of parentheses, I am 
submitting in furtherance of what this comment from this 
official implies, in this RECORD, Mr Speaker, at this 
point, an article in the Financial Times of London, an 
article of February 21, 1991, entitled <Warning Forced 
Bechtel Out of Iraq Chemical Project>, and believe it or 
not, this involves a former Secretary of State, George 
Schultz, who after he left the secretaryship went back to 
his employer, the Bechtel Corporation, which is where he 
had come from, and this article by Alan Friedman, 
reporting out of New York for the London Financial Times, 
says, <I said something is going to go very wrong in Iraq, 
and if Bechtel was there, it would get blown up.>
[From the Financial Times, Feb. 21, 1991]
WARNING FORCED BECHTEL OUT OF IRAW CHEMICAL PROJECT
By Alan Friedman
        Bechtel, the California construction group, withdrew 
from an Iraqi petrochemicals project on the advice of Mr 
George Schultz, the former US secretary of State, who 
hoined the company's board of directors after leaving the 
Reagan administration in 1989. Mr Schultz disclosed his 
role in an interview with the Financial Times.
        Bechtel has also revealed, separately, that it was 
instructed by the government of Iraq to obtain payment for 
work it did on the petrochemicals project from the 
Atlanta, Georgia, branch of Banca Nazionale del Lavoro 
(BNL).
        BNL is the Italian bank caught up in the scandal over 
three billion dollars (one point five billion pounds) of 
Iraqi loans made in 1988 - 1989 by its Atlanta branch. 
Indictments of US bank employees and Iraqi officials 
implicated in the scandal were due to have been announced 
last week, but they have been delayed after a fresh round 
of consultations in Washington.
        The disclosures by Bechtel come amid allegations by 
US chemical weapons experts that Baghdad planned to use 
intermediate products from the apparently civilian Iraqi 
project, known as PC2 - for the minufacture of mustard 
gas.
        Mr Schultz, who has served as president of Bechtel 
before joining the Reagan administration in 1982, said he 
first learned of Bechtel's work as project manager of the 
Iraqi petrochemicals complex in 1989 when he <spent a 
little time at Bechtel's London office and found there was 
work going on in Iraq.>
        Mr Schultz said he checked into the PC2 project in 
1989 and was given assurances that it had nothing to do 
with chemical weapons. <But I thought about it a little 
more and I have my advice they should get out,> said the 
former secretary of state.
        He recalled that at a Bechtel meeting in the Spring 
of 1990, as work was continuing, <I really hit it very 
hard and I said something is going to go very wrong in 
Iraq and blow up too. So I told them to get out.>
        The revelations by Bechtel, which says it had no 
knowledge of any plans by Iraq to apply the petrochemical 
plant's products for military huse, mark the first time a 
US company has provided details of the direct involvement 
of Iraqi officials in the BNL Atlanta affair.
        Western intelligence officials say that a substantial 
portion of the three billion dollars of BNL money was used 
by Iraq to finance its development of unconventional 
weapons systems, including the Condor-II ballistic missile 
project [with Carlos Cardoen - see SIPRI 1990 yearbook] 
and nuclear and chemical weapons projects.
        The Iraqi project was handled by Bechtel Overseas of 
Hammersmith Road in London, the company's UK affiliate. 
The Financial Times has obtained a copy of a 1988 telex 
instruction from the central bank of Iraq to BNL's ATLANTA 
Branh, asking that Bechtel's UK subsidiary pe paid ten 
million dollars.
        Mr Tom Flynn, a senior vice-president at Bechtel, 
said the company never knew there was anything suspect 
about the ten million dollars of BNL funds, provided in he 
form of two letters of credits that were issued in 
Septamber 1988 and amended three months later.
        <We were hired by the government of Iraq to be the 
project manager for an ethylene plant. Our client, the 
government of Iraq, told us we would be paid through 
letters of credit from the BNL Atlanta branch.>
 
[During hearings held by the House Judiciary committee in 
June 1992 on the subject of falsified documents and 
coverup of the BNL/USDA funding affair, a representative 
from the Department of commerce noted that it was 
extremely unusual for a tiny branch of a foreign bank to 
be handling such a volume of cash - and further that it 
was simply unprecedented that all these corporations 
funnelling items into Iraq should seek funds and financing 
FROM ONE SINGLE BANK.]
 
        The Bechtel official also said that the company 
received <direct encouragement> for the PC2 project from 
the US Department of Commerce. A spokeswoman for the 
Commerce Department said <we were aware of Bechtel's work 
in Iraq through the US embassy in Baghdad, but our role 
was a passive one.>
        Bechtel said there was no suggestion at the time 
about the final use that Iraq might make of ethylene 
oxide, a product that has multiple civilian applications, 
but also has military uses.
        Mr Seth Carus, an export on Iraq's chemical weaspons 
programmes who is a fellow at the Washington Institute for 
Near East Policy, said the PC2 Iraqi project was intended 
for several purposes, both military and civilian.
        "I think it is very clear, however, tht the Iraqis 
understood what they were doing. It is evident that they 
wanted to limit their import dependence on chemicals that 
are used for weapons.>
        A key feature of the PC2 project was the plan to 
manufacture ethylene oxide, a precursor chemical that Mr 
Carus said <Is easily converted to thodioglycol, which is 
used in one step to make mustard gas.>
        Mr Schultz asked about the possible production of 
mustard gas, said he was not <a technically proficient 
person> but that  <I kept going back and saying these 
things could be converted pretty easily.> Bechtel 
subsequently followed the advice of Mr Schultz, just 
months before the invasion of Kuwait.
        Bechtel is currently one of several US and UK firms 
seeking contracts for the eventual reconstruction of 
Kuwait. 
 
Mr Gonzalez:
        Well, of course, Bechtel was there and, of course, 
after the Secretary left being Secretary, he was bound to 
know that ultimately Iraq was going to be a problem. But 
this is just one example of the nature and type of the 
larges corporations in our country that did extensive 
business. And what in? Chemical projects.
        With all the lessons we could learn from the BNL 
scandal, I am saddened, of course, as I always am, and 
have been, and perplexed to report that the Banking 
Committee's investigation of BNL is being OBSTRUCTED and 
FRUSTRATED by the Federal Reserve, the Justice Department, 
the State Department, the State of Illinois and the 
Treasury Department.
        Another serious example of the onstruction faced by 
the Banking Committee is the unwillingness of the Federal 
Reserve to supply over seventy BNL-related documents 
subpoenaed by the committee. Our committee subpoenaed, on 
my request, better than forty documents.
        The Federal Reserve states that it has reacted or 
withheld these State documents at the request of the 
Justice Department, and in the February 4 first report 
that I made, I incorporated the exchange of letters I had 
with the Attorney General, Thornburgh [now at the UN 
Secretary General's office], who apparently was, and maybe 
continues to be, ignorant of the constitutional 
prerogatives involved here in the US Congress' basic right 
to know, which is one of the last three basic powers that 
the Congress, I think, still preserves inviolate.
        Supreme Court decision after Supreme Court decision 
has said nothing, not even a pending investigation, not 
even a pending contemporaneous judicial procedure shall 
prevent the Congress from having knowledge, and the 
Congress knowing what the facts are.
        But we are obstructed blatantly, premeditadedly and 
coldly, and in defiance of the plain constitutional 
prerogative of the Congress to know. The Justice 
Department, at first, said, well, they were involved in 
criminal prosecution in Atlanta, and they did not want to 
have anything to frustrate it.
 
[However, we learned at the June 1992 Judiciary Committee 
hearings that a Washington District Attorney employed by 
the Justice department, who had been hired by an Atlanta 
law firm to defend BNL had an assistant who remained at 
the Justice Department. This person telephoned the 
defendant's lawyer and asked that she <be forwarded the 
ILLEGALLY OBTAINED EVIDENCE, for evaluation.> So it seems 
that the Justice Department messed up it's own prosecution 
of BNL, which is difficult to understand.]
 
Well, of course not. We are sensitive to that. We are not 
an executive branch investigating body. We are not a 
judicial body. We are a legislative body, and under the 
rules of the House and pursuant to the Constitution, we 
have investigative powers in pursuance of legislative 
objectives which is what we are.
        There is no doubt the committee has the right and 
needs to have and obtain this information. If we have 
reached the point in our country, and we have in othe 
respects, where in effect there is no Constitution, who 
else but the Congress them remains?
 
Section 1420
        If the Congress abdicates, then, in effect, 
ironically, at this two-hundred year point, or a little 
bit better, of the celebration over this sytem of 
constitutional government, we in effect have repudiated it 
through our abdication of our plain constitutional 
responsibilities. The committee must not be needlessly 
thwarted in fulfilling its legislative and oversigh 
responsibilities.
        Accordingly, the Justice Department has the 
responsibility to show the Committee on Banking, Finance 
and urban Affairs, not the other way around, access to the 
supoenaed documents, and hos, if they were to comply with 
the subpoena, thgat would hinder their criminal 
prosecution. They cannot, and they have not, up to this 
date, given any reason that would happen. The Justice 
Department failed to reveal to the committee and failed to 
give the committee access to these documents, and after 
repeated requests, to show how the delivery of those 
documents would diminish their ability to successfully 
prosecute the case against the former employees of BNL in 
Atlanta.
 
[The security clearances of congressional staffers 
researching and preparing the above-mentioned Judiciary 
committee hearings, were cancelled. Since the 
Administration considers everything potentially 
embarassing is secret, they have evoked the National 
Security threat behind which to cover participation of 
many departments in the exporting to Iraq of nuclear and 
high-technology goods, prior to the war.]
 
        The documents being withheld, the carelessness in 
which some documents were redacted, and the number of 
people with access to redacted documents, all lead me to 
question absolutely the Justice Department and the Federal 
Reserve employees for trying to live up to their 
responsibility. They are needlessly, I charge again, 
impeding the committee investigation. I doubt that they 
have, even now, recognized their true understanding of the 
investigative and legislative functions of the Congress. 
But I will not yield, and I will continue to insist, and 
the committee will pursue this matter, because time has 
long gone by that our regulatory system needs to be 
overhauled, where the American people will be insured that 
they will not continue to be patsies of foreign 
governments and banking interests operating in our 
country, as they are now.
        There is nobody, the Rederal Reserve Board of the 
banking commissions in the individual States that charter 
these banks, this is how they get around it. The Federal 
Reserve Board says: <Well, these are chartered by the 
State of Georgia, so what?> The Federal Reserve Board is 
the prime responsible regulatory body for foreign entities 
doing business, banking business, in the United States. 
Yet they cannot, and no banking commission can, tell any 
person in America today, including the Congress, how those 
six hundred and thirty five plus billions of dollars are 
operating, even long the same channels as a BNL bank in 
Atlanta. I think this is grievous. I think this is 
unpardonable. I think this is a serious attack on our 
basic tenets, upon which our Government is predicated. I 
am concerned, as chairman of this committee, that the 
regulation and examination of the US branches and agencies 
of foreign banks is inadequate. As I stated, these 
entities, in the United States, and a significant portion 
of their liabilities are now being guaranteed by THE 
FEDERAL DEPOSIT INSURANCE CORPORATION. That is the bank 
insurance fund. It is broke right now. Those  foreign 
entities, this massive, and I said five hundred billion 
dollars, someone else said six hundred billion, most of 
these are in such form that they are insured deposits. It 
is incredible.
        For years I had unsuccessfully, before I was chairman 
of this committee, attempted to convince two prior 
chairmen of the committee to have some kind of hearings 
with respect to this international financing. I was 
chairman of the subcommittee on International Development, 
Finance, Trade and Monetary Policy, so I think I have some 
reason to be charged with knowledge. The magnitude of the 
BNL fiasco certainly raises a question of the adequacy of 
State and Federal regulations and oversight of these 
entities. The committee on Banking, Finance and Urban 
Affairs has a responsibility to ensure tht US branches and 
agencies of foreign banks are properly and accountably 
regulated and supervised. The BNL case provides a clear 
case of regulatory breakdown that firmst muyst be 
understood and analyzed, and then immediately addressed 
and remedied. Those documents that provide clues to help 
the committee understand and correct these breakdowns. 
This is a reason we had them subpoenaed. However, the 
Justice Department and theFederal Reserve apparently feel 
the Committee on Banking, Finance and Urban Affairs could 
not have the right to know the committee story surrounding 
the BNL scandal. I can understand.. It is embarassing now, 
in view of the fact that our boys will be facing death or 
serious bodily harm with the very procurement that those 
banking credits made it possible for Saddam Hussein to 
obtain, this weaponry. It is embarassing.
        However, it ought to be worse than that. It ought to 
be defined as criminal negligence by denying the committee 
information related to the BNL affair. The Justice 
Department and the Federal Reserve could very well be 
impeding the committee's ability to legislate, a 
responsibility given to the people's representative and 
surely one of the cornerstones of our democratic form of 
government. The State Department has also asked the 
Federal Reserve to withhold subpoanaed documents related 
to its involvement in the BNL scandal. Well, I guess so. 
If we have now former secretaries of state saying <Hey, I 
told this corporation once. I came back and said, hey, you 
better got out,> well, I think in retrospect a lot of 
these documents will point a sor of culpatory finger to 
that State Department. One can only speculate what these 
documents contained. Obviously, the State Department 
played the key role in the United States-Iraqi relations. 
When did the State Department learn about the BNL scandal? 
Did the State Department know that BNL was financing 
companies that were exporting technology to Iraq, that was 
employed in its Iraqi military machine? Certainly, former 
Secretary Schultz' statement indicates they must have. The 
State Department documents withheld by the Federal Reserve 
may or may not provide answers to these [questions]. At 
this time, the committee can only guess about the content 
of these important documents.
        The Federal Reserve is, of course, better known as 
the Nation's equivalent to a central bank. But over the 
years, Congress has entrusted the Federal Reserve with 
substantial banking regulatory responsibilities. The 
Congress relies on the Federal Reserve to carry out many 
of the banking laws it has enacted. It regulates thousands 
of our Nation's domestic banks, large and small, and has 
prime supervisory authority over foreign banks operating 
in the United States. In hat capaicty, Congress relies on 
the Federal Reserve, as well as the other banking 
regulatory bodies, to ensure our Nation's financial system 
is operating in a safe, sound and efficient manner.
        I always ask this question when bankers and 
everybopdy else who have become inured to being the 
biggest reliefers on the Government dole ever. Why is it 
that we have had thousands, tens of thousands of bank 
failures in one hundred years, and especially here in this 
llast decade, when Great Britain, England, has not had any 
major banks fail? Why? During the Depression when we had a 
moratorium and the banks were closed, Canada never did. 
Why?
 
Section 1430
        There is a good reason, and this is what I have been 
trying for twenty nine years to broach to the committee 
that I have belonged to for thirty years, the US House of 
Representatives Baanking Committee.
        First, the Federal Reserve has been derelict in its 
reponsibilities because it never notified the Congress 
about the forty three billion BNL scandal. Obviously, it 
is not possible for the Congress to monitor each of the 
roughly thirty thousand Federal financial institutions 
operating in the United States. This is why we have the 
constitutional responsibility of being the policymaking 
body and the executive branch being the faithful executor 
of that policy, faithfully executing the laws.
        The Congress created the Bank Regulatory Agency, like 
the Federal Reserve, to perform this function. The Federal 
Reserve and other Federal bank regulatory agencies have a 
responsibility to keep the Congress informed of 
significant developments affecting our financial system.
        I will say this in all fairness, and I have said this 
for thirty years. No matter how much I may point my finger 
at the Federal Reserve, if the Congress had not abdicated 
its responsibility all through these years, the Federal 
Reserve Board would not have gotten away with any of this. 
It always hass to be traced back to somewhere in our 
system, this marvellous apparatus that has given us all 
your opportunities ad our freedom. Whenever we have had a 
shortchanging of that constitutional system, we have 
always had a great deal of mischief to the national 
interest.
        I feel that no longer do we have the luxury of time 
as we have had in the past and that hanging perilously 
dangling by a thin thread is a very treat threat to our 
basic freedoms.
        The Federal Reserve also attempted to frustrate the 
request of the committee for information involving a Bank 
of Italy examination report of the BNL.
        Now, mind you, meanwhile I have had delegations of 
the Italian Parliamen, the Italian Senate, who are 
investigating their Government because the BNL is 
primarily owned by the Government of Italy, and they are 
distressed because all of the deals, the settling of the 
letters of credit and the like, have been done by Iraq in 
the banking room in secret. So now it is not only the 
United States, but the Italian Government, is out a couple 
billion dollars because of Iraqi defaults; so the Italian 
Parliament, the Senate did the investigating, and while 
the Federal Reserve Board says, <Oh, we can't give you 
this because we don't want to impair our relationship with 
the Italian bank.>
        Can you believe that? The Italian Government 
officials are giving us what is otherwise denied by our 
own agencies.
        We are not interested in knowing every leaf falling 
from the Banking and Federal Reserve Board system. We do 
not want to know when a bank executive stubs his toe, but 
it surely is reasonable to expect that a three billion 
dollar bank fraud falls into a category that would be 
worthy of congressional notification.
        Sadly, this Banking Committee chairman had to learn 
about the BNL scandal from other independent sources, 
mostly foreign journalists, which to this day continues to 
be a great source of information to me, as they have 
throughout the years.
        Another example of the efforts of the Federal Reserve 
to frustrate the committee was the request or the 
information involving the Bank of Italy, and its 
examination of the BNL. The bank of Italy acts as Italy's 
central bank, a well as having supervisory authority over 
all Italian banks. Being an Italian government-owned bank, 
BNL's worldwide banking operations are subject to 
regulation by the Bank of Italy. Upon being notified of 
the BNL scandal in August 1989, the Bank of Italy decided 
to do an examination of the Atlanta agency of BNL, which 
was completed shortly thereafter.
        The Central bank of Italy shared the result of its 
examination with the Federal Reserve and provided the 
Federal Reserve with a copy of its examination.
        The Federal Reserve has acted irresponsibly by 
refusing to provide to the Banking committee a copy of 
this examination report. To this date, they are refusing.
        The Bank of Italy examination would be valuable to 
the committee's investigation, for several reasons. First, 
it would offer the committee a chance to compare and 
contrast the Bank of Italy's examination with those of the 
Federal Reserve, or the Commission of Georgia.
        In effect, this would provide the committee with 
insight into the competency of the Federal Reserve, and 
this is why the Federal Reserve does not want us to see 
it.
        By comparing examination results, the committee might 
find the Federal Reserve did do an exact and exemplary job 
and that its fidings are far more comprehensive than that 
of the Bank of Italy. Such a comparison might also reveal 
the Federal Reserve was asleep at the switch and that the 
examination of BNL was totally inadequate.
        By refusing to allow the committee to see the Bank  
of Italy's examination of BNL, are not then to feel 
suspicious of the motives of the Fed?
        The Bank of Italy examination may turn out to be the 
key document in the committee's investigation of BNL. 
        Did BNL finance the sale of military articles to 
Iraq? Did top officials of BNL in Rome know about the 
activities of the Atlanta Branch? Were the former 
employees of BNL that perpetrated the fraud Iraqi agents? 
Was the CIA involved with BNL?
 
Did the Bank of Italy examination of BNL find answers to 
any of these criticially important questions? Only the 
Bank of Italy and the dozens of employees of the Federal 
Reserve know.
        By refusing to provide the Bank of Italy examination, 
the Federal Reserve takes the position that the Congress 
of the United States does not have the right to know if 
the Bank of Italy report even addresses these issues.
        Of course, the Federal Reserve knows what the report 
says. It is the Congress that does not [in its view] have 
the right to know.
        I find the Federal Reserve position preposterous and 
absolutely outlandish. It is a prime example of a 
regulatory agency that is no longer accountable, either to 
the Congress or to the President, but particularly to the 
Congress that created it.
        BNL has branches in New York, Los Angeles and 
Chicago. The State examination reports of the BNL offices 
were among the subpoenaed documents that we requested. The 
Federal Reserve notified each State that the documents had 
been subpoenaed. After initial delays, the reports of 
examination by the States of California, Florica, Georgia 
and New York were provided to this committee. Illinois, 
however, objected to the production of documents by the 
Federal Reserve and FILED A LAWSUIT  to prohibit the 
Federal Reserve from providing the committee with 
Illinois' examination report of the BNL's Chicago office.
        To date, the courts have sided, that is, the State 
courts have sided with the State of Illinois, but we are 
appealing this decision in the Congress. Hopefully we will 
prevail, because without the Illinois examination report 
the committee does not have a complete picture of how BNL 
was examined by bank regulators, State bank regulators who 
chartered the bank to begin with.
        The Federal Reserve used the Illinois decision as the 
basis for withholding information taken from examination 
reports of BNL prepared by other State regulators. In 
addition, the superintendent of banks for the State of New 
York wrote the committee requesting that the committee 
reach an accommodation with each State bank regulatory 
agency related to the confidentiality of their bank 
examination process.
        The committee understands that request, as well as 
other State communications related to this issue, to mean 
that every State and perhaps every company and bank will 
want individual treatment if such treatment is granted to 
the State of Illinois.
        The actions of New York and the Federal Reserve 
confirm the committee's suspicion tht forcing the 
committee to subpoena documents from each State would 
result in an endless round of negotiations, then rumors, 
then disputes and coordination problems related to such 
negotiations, causing the investigation to grind to a 
halt.
 
Section 1440
        The State of Illinois lawsuit has delayed the 
committee's investigation, and in the process is damaging 
the national interest. First, it prevents the Congress 
from finding out how BNL's offices in the United States 
facilitated the arming of our enemy. It is intolerable 
that the Congress should be enjoined, by court order, from 
obtaining records related to how this bank helped arm 
Iraq, and whether or not the Federal Reserve and State 
bank supervisory officials were. as they claim, blameless 
for not discovering this travesty.
        Second, entities similar to BNL hold over seven point 
five billion in deposits that are guaranteed by the FDIC. 
As the world knows, the FDIC is already in a very 
unwholesome position. If there is, in fact, a structural 
flaw in the system of regulating and supervising entities 
like BNL, the FDIC, and sadly, as we have learned from the 
savings and loan crisis, the American taxpayer, face a 
substantial financial risk.
        To date, the Illinois lawsuit has delayed the 
committee's inquiry into this matter. It has prevented the 
Congress from fully identifying structural weaknesses in 
bank supervision that were exploited by BNL and its 
lending officers. As a result, unevenness and flaws in the 
system of bank supervision, which could be revealed by the 
committee's investigation, remain hidden and unresolved. 
The FDIC and the American taxpayer remain at risk, because 
in the subterranean there flourish these scandals and 
frauds which are flourishing and finding nurture only in 
secrecy. We want to bring the sunlight in. What is wrong 
with that?
        Third, the Illinois lawsuit prevents the Congress 
from having all the information necessary as to what exact 
legislative reforms involving not only foreign banks but 
our dual system of bank regulation are warranted.
        Finally, the Illinois lawsuit creates a dangerous 
precedent that could seriously hinder future 
copngressional oversight and investigations, our 
investigatory efforts.
        The Secretary of the Treasury Departments as the 
Chairman of the National Advisory Council [NAC], an 
interagency coordination body which was responsible for 
approving the five point gfive billion in agriculture 
credits to Iraq as well as a two hundred million insurance 
policy, as I explained, offered by the Export-Import Bank 
to cover exports to Iraq. One component of the committee's 
investigation deals with the role of the NAC in granting 
such a large credit line to Iraq and the effect the BNL 
scandal had on Iraq participation in agriculture and 
export credit programs.
        On octber 6, 1990, I wrote Secretary Brady requesting 
that Banking Committee investigators be permitted to 
review the minutes of NAC meetings dealing with BNL 
involvement with Iraq in the above programs. The Treasury 
Department could not find the time to permit this to occur 
for over a period of four months. Finally, after repeated 
insistence on our part on February 14, 1991, Treasury 
allowed a committee investigator an opportunity to review 
the pertinent NAC minutes, of which only  a portion were 
related to the decision of the NAC to approve the Iraqi 
credits. But Treasury withhelkd minutes from the two most 
important NAC meetings in 1989 and 1990.
        Why would they withhold? If they were so right then, 
even though it may not look so good now, why would they be 
hesitant? When you are right, you want to proclim it from 
the rooftops, you do not want to hide it. It is only when 
you fear something, as Treasury does, that you have fear.
        To the committee's surprise, the Treasury had 
classified the minutes of the meetings and would not 
permit the committee to look at them because of a lack of 
security clearance. Of course the Treasury Department had 
failed to mention that the minutes of the two important 
meetings had been classified. When asked how often the 
Treasury Department classified minutes of meetings of the 
NAC, the counsel, the lawyer for the Treasury Department 
stated, <To the best of my recollection, and I may be 
wrong, I CANNOT REMEMBER THE MINUTES OF THE MEETINGS BEING 
CLASSIFIED OVER THE ROUGHLY TEN YEARS I HAVE HAD CONTACT 
WITH THEM.>
        The Treasury's unusual action raises several 
interesting questions. What is the Treasury Department and 
the other NAC participants hiding? I wonder if they are 
embarassed by their decision to grant billions in credit 
to Iraq even though Iraq was not creditworthy? It had 
already defaulted. I bet the United States taxpayer, who 
is out over TWO BILLION DOLLARS  because of Iraqi defaults 
on these programs, would sure like to know if this was the 
case. It couldn't be that NAC participants, the State 
Department, the Federal Reserve, the United States Trade 
Representative, the Commerce Department, the Agency for 
International Development and the Export-Import Bank are 
embarassed by their decision to grant billions in credit 
to Iraq even though Iraq was:
 
        Using poison gas on its own people;
        Using poison gas in its war with Iran;
        Supporting international terrorism;
        Repeatedly violating the human rights of its people, 
including placing severe limits on free speech, and 
freedom of assembly;
        Detaining political prisoners without charge or 
trial;
        Torturning and executing political prisoners;
        Destroying cities housing over one hundred thousant 
Kurds and making refugees out of these people;
        Developing nuclear weapons; [which by International 
treaty it had agreed not to do.]
        Cheating on Agriculture Department programs, and
        Executing a foreign journalist, just to mention a few 
of the known faults of the Iraq regime.
        Can it be that this august body, known as the 
National Advisory Council, knowing full well and charged 
with knowledge of this, would still grant these huge 
billions of dollars of credit to Iraq? I guess it would be 
embarassed.
        Rest assured, the Banking Committee, as long as I am 
chairman, plans to investigate the factors pertinent to 
the administration's decision to grant billions in credit 
to the oppressive regime of Saddam Hussein and also to act 
forthwith and as soon as possible to prevent ongoing 
transactions that are now going underway in the case of 
other foreign banking institutions that could be contrary 
to the national interest. In fact, after the President 
announced on August w, the decision to freeze assets -- 
and by that time, of course, the country of Iraq did not 
have any assets, it had its liabilities over here on which 
it had defaulted -- but we also announced the embargo.
        In November, Germany alone -- and there ae a lot of 
German banking interests' activities in our country -- 
were given a list of fifty companies in Germany by the 
National Security Agency that were violating the embargo 
in November. Was anything done? No.
        How much of that is still going on?
        Rest assured, the Banking Committee will not let go 
of this.
        While the committee continues to encounter efforts to 
thwart its BNL investigation, the BNL investigation is 
going to go through. I plan to go ahead full steam with 
the investigation to learn the entire truth about the 
scandal in order to understand fully its effect on United 
States-Iraqi relations, plus the other and most important, 
which is the necessary legislative revforms to plug up 
these leaks and patch up and, if possible, develop an 
efficient regulatory system in our country.
        We must learn from our mistakes in order to stop 
avoidable wars. The public demands and deserves no less 
from us, their Representatives.
 
 
 
** End of text from cdp:mideast.gulf **