Justice Dept., White House cleared in handling of Iraqi loan scandal

December 10, 1992|By Lyle Denniston | Lyle Denniston,Washington Bureau

WASHINGTON -- A former federal judge, closing a probe h called "virtually perfect," cleared the Justice Department and the Bush administration yesterday in their handling of the Iraqi loan scandal and said no independent prosecutor should be named to investigate the affair.

The conclusions by Frederick B. Lacey, now a private lawyer in New Jersey, promptly gained the endorsement of Attorney General William P. Barr.

With the law that authorizes independent prosecutors to examine high-level wrongdoing due to expire next Tuesday, it is clear the Bush administration will end without an outside inquiry into the way it reacted to the illegal lending of billions of dollars in U.S. bank funds to Iraq -- money that Baghdad used to build up its military before the Persian Gulf war.

Yesterday's developments immediately triggered harshly fTC worded protests from Democrats in Congress, who vowed to consult with President-elect Bill Clinton on what to do next. Sen. Patrick J. Leahy, a Vermont Democrat, said "the practical effect of this decision is to prevent the public from learning the truth about" the scandal.

The expected early consequences of the developments were these:

* Mr. Clinton will be put under heavy pressure from congressional Democrats to broaden and intensify an ongoing, internal Justice Department criminal investigation -- one that Democrats have not trusted up to now. Mr. Lacey's probe was independent of that, but still was carried out as a department effort.

* Congressional inquiries into the scandal will go on, and probably will deepen.

* An effort will be made next month to push through Congress a revival of the independent counsel law. That effort, however, is expected to provoke a bitter fight on Capitol Hill, with Democrats using the outcome of the Lacey investigation to show the need for the law, and Republicans arguing against a revival because of the abuses they see in the six-year, $35 million-plus probe of the Iran-contra scandal by Independent Counsel Lawrence E. Walsh. The outcome is in doubt at this point.

Mr. Lacey, a combative 72-year-old who built a reputation as a crime-busting prosecutor and no-nonsense federal judge, lashed out in many directions yesterday as he defended his conclusions to reporters in a marathon, one-hour, 51-minute press conference at the FBI Building.

Those who had raised charges of misdeeds or outright criminality in the loan scandal -- congressional Democrats, the press and the federal judge who has presided over the government's prosecution of the key criminal case so far -- came in for tart, and at times blistering, criticism.

He lambasted Rep. Henry B. Gonzalez, a Texas Democrat and a gadfly critic of the government's role in the loan scandal. Some of the congressman's "unbridled attacks," Mr. Lacey said, "would be libelous if uttered outside of Congress."

The scandal involved about $3.6 billion in secret and illegal loans and credit letters extended to Iraq, between 1985 and 1989, by the Atlanta branch office of Banca Nazionale del Lavoro -- Italy's biggest bank, which is principally owned and run by the Italian government. "Substantial sums" of that money, the Lacey report said, went to buy military equipment for Iraq.

The Atlanta branch manager, Christopher P. Drogoul, had agreed at one point this year to plead guilty to 60 criminal charges, but then withdrew his plea and began complaining that the U.S. government had tried to "silence" him in order to avoid having the full story of the Iraqi loans come out.

The shifts by Mr. Drogoul led the judge in that case, U.S. District Judge Marvin H. Shoob, to charge that Mr. Drogoul was being made to "take the fall," that the Italian government bank was involved in the scandal, that federal officials had tried to "sanitize" Mr. Drogoul's story, and that the Justice Department had engaged in a "cover-up" for political and foreign policy reasons.

Mr. Lacey's written report pointedly disputed Judge Shoob on every one of those points, suggesting that there was nothing "in the record" to back up any of them. "Having concluded my investigation, I can only say with confidence that there is little fault I can find with the handling of the investigation and prosecution."

To every charge but one, Mr. Lacey said he had found no evidence of wrongdoing, and nothing of a criminal nature to justify asking a federal court to appoint a new independent prosecutor.

He said one complaint needed further probing -- a claim that a former Commerce Department official altered documents about the scandal before giving the papers to Congress -- but he said that could be handled by the Justice Department itself.

Mr. Lacey, whose verbal jousting with reporters preceded the release of his 190-page report, did have some criticism of some aspects of the government's efforts as it readied the first criminal case to grow out of the scandal.

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