A gift for George

Why is Bill Clinton's Justice Department so desperate to bury Bush's Iraq-gate scandal?

Bush administration officials spent their final months in office attempting to cover up a scandal--the so-called Iraq-gate affair--that could have landed them in jail. Strangely, their successors have tried desperately to complete the cover-up: in September, the Clinton Justice Department released a statement concluding that the Bush administration had done nothing improper.

Federal Judge Marvin H. Shoob, who for the past four years had presided over the criminal case, was incredulous. Such a conclusion, the judge said, was possible only "in Never-Never Land."

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For those who have forgotten, the scandal centered on $5 billion in U.S.-government-guaranteed loans made to Iraq between 1985 and 1989 by the Atlanta branch of an Italian-government-owned bank, the Banca Nazionale del Lavoro. The loans, backed by two executive-branch agencies--the Export-Import Bank and the Commodities Credit Corporation--were restricted by law to the purchase of U.S. agricultural products and equipment only.

But in August 1989 the FBI received a tip that the BNL loan funds were being fed directly into Saddam Hussein's military machine.

The Department of Justice, claiming that the case was simple bank fraud, indicted five BNL employees and Atlanta manager Christopher Drougal. But Drougal had a more complex explanation: BNL's loans to Iraq, he said, were part of a covert operation coordinated with Italian officials by the Reagan administration and continued by George Bush. The scheme was designed to finance the secret re-arming of Iraq, both to balance the scales in the Iran-Iraq war and to gain bargaining leverage for U.S. hostages.

Drougal's claim was bolstered by hundreds of U.S. government documents, such as a 1987 memo briefing Vice President George Bush for a meeting with the Iraqi ambassador, during which they discussed renewing the U.S. loan guarantees for the coming year. The memo informed the vice president that the war was going well and that Iraq had made steady battlefield gains against Iran.

Nevertheless, the Clinton administration backed up the Bush administration, denying that anyone in the U.S. government had known of the illegal loans. They asked those believing otherwise to accept that what looked like a criminal conspiracy was actually nothing more than a remarkable set of coincidences. We offer a sampler:

  • On August 4, 1989--the day the FBI raided BNL's offices in Atlanta-- William Hendricks III, a top official at the DOJ, resigned to join a law firm representing BNL.
  • The following month, another high-ranking attorney at the DOJ, Joe Whitley, joined an Atlanta law firm representing Matrix Churchill, an arms manufacturer heavily involved in Iraq's BNL-financed supergun.
  • Attorney General Richard Thornburgh then appointed Whitley as the new U.S. attorney for Atlanta. (Whitley did, however, recuse himself from cases dealing with Matrix Churchill or BNL.)
  • Roberto Martinez, a lawyer representing Carlos Cardoen, a Chilean arms dealer who supplied vast quantities of cluster bombs to Iraq, was appointed as U.S. attorney for Miami at the same time that Cardoen's name began to show up prominently in the BNL investigation.
  • Former Secretary of State Henry Kissinger's firm, Kissinger Associates, was BNL's U.S. consultant, and Kissinger sat on BNL's board of advisers from 1985 to 1991. Before joining the Bush administration, both National Security Adviser Brent Scowcroft and Deputy Secretary of State Lawrence Eagleburger served as top officers at Kissinger Associates, where they worked on the BNL account.
  • Two internal investigations of the Commerce Department concluded that department officials altered export licenses on $1 billion worth of military equipment. In testimony to Congress, one official described the alterations as "misunderstandings or miscommunications." No charges have been filed.

Judge Shoob's tolerance for coincidences evaporated in fall 1992, when he openly accused federal prosecutors of trying to obscure the fact that the BNL loans were part of a much broader conspiracy. "Smoke is coming out of every window," Shoob said. "I have to conclude the building is on fire."

Finally, someone began to listen. On October 9, 1992, Attorney General William Barr instructed FBI Director William Sessions to open an investigation into the judge's allegations of obstruction of justice by the government. Four days later Sessions confirmed that the DOJ was conducting its own criminal probe--into "anonymous allegations" that he had abused his expense account. The timing? Just another coincidence. The FBI investigation never got off the ground.

Now Judge Shoob has been silenced as well. Federal prosecutors, claiming that the judge had expressed a distinct bias, had him removed from the remaining active case--the trial of BNL manager Drougal. But in his final slap at federal prosecutors, Judge Shoob refused to sentence to jail the five defendants who had agreed to plea-bargain with prosecutors, describing them as "bit players and pawns in a far more wide-ranging conspiracy."

In July, attorneys for Drougal issued a subpoena for former President George Bush. The Clinton DOJ tried to block the order, and then convinced the new (and less informed) U.S. district judge, Ernest Tidwell, that the case had nothing to do with foreign policy. Drougal's attorneys then subpoenaed former Secretary of State James Baker and his successor, Lawrence Eagleburger. Clinton administration attorneys quashed those subpoenas as well.

Tidwell's ruling, barring the defense from presenting any evidence of a government conspiracy, left Drougal holding the bag for loans he never denied were fraudulent. Government attorneys, sensing that the time was ripe, offered a deal: if Drougal would plead guilty to one count of wire fraud and two relatively minor counts of making false statements, the government would drop the remaining sixty-seven counts. Drougal accepted. Case closed!

Maybe. By the middle of September the DOJ was backpedaling fast. After Special Assistant to the Attorney General John Hogan's "investigation" received a rough, sometimes incredulous response in the press, the DOJ reversed itself and announced that it was still looking into allegations that American companies and some unnamed Bush officials were involved in the BNL loan scheme.

Why would the Clinton administration go to such lengths to cover up a Bush-era scandal? The only explanation is political. With a host of close votes ahead on issues like NAFTA, health care, and welfare reform, Clinton does not want to anger Republicans, whose votes he might need. It's a type of trade-off--principles for process--that is rapidly becoming the hallmark of this administration.

Asked what he thought about the administration's handling of the BNL investigation, Texas Democrat Henry Gonzalez, who has conducted his own three-year investigation as chairman of the House Banking Committee, just shook his head. He said that in January the White House had promised to release executive-branch documents on BNL denied him by the Bush administration, but then reneged on the deal.

"I don't know," he said, dropping his voice. "I've only met the president once, but I can't get up much enthusiasm. I fear he's a shallow man."