The_Info_Web/40 - EVENTS/INTELLIGENCE_SCANDALS/BNL Scandal.md

title	aliases	category	tags	summary	created	updated	start	end	location	relations
BNL Scandal	BNL Scandal Banca Nazionale del Lavoro scandal BNL-Atlanta	Intelligence Scandal	Event Iraq CIA IranContra Banking BNL Iraqgate KissingerAssociates	Discovery in 1989 that the Atlanta branch of Italy's Banca Nazionale del Lavoro had lent Iraq five billion dollars off its books, and a prosecution that Congress and the trial judge said shielded higher officials.	2026-05-14	2026-10-08	1985-01-01	1993-12-31	Atlanta, Georgia	type with reverse start end fn investigated Senate Select Committee on Intelligence true 1992 1993 4 type with reverse start end role fn investigated Frederick Lacey true 1992-10-16 1992-12-09 special review of the Justice Department's handling of the case 15

The BNL scandal (Banca Nazionale del Lavoro scandal) grew from the discovery that the Atlanta branch of Banca Nazionale del Lavoro - Italy's largest state-owned bank - had illegally extended approximately $5 billion in unauthorized loans to Iraq between 1985 and 1989. The loans were used by Saddam Hussein's government to finance purchases of weapons, weapons components, and dual-use industrial equipment. The FBI discovered the scheme on August 4, 1989, when agents raided the Atlanta branch and seized documents showing undisclosed credit facilities to Iraqi state enterprises.¹

The Atlanta Loans

Branch manager Christopher Drogoul claimed to have acted alone, without authorization from BNL's Rome headquarters or his own supervisors in Atlanta. He subsequently recanted this claim, asserting that his superiors and U.S. government officials were aware of the transactions and that the loans were part of an authorized policy of providing financial cover for arms sales to Iraq. Drogoul was convicted in 1993 and sentenced to 37 months in federal prison.¹ The Central Intelligence Agency memorandum of November 6, 1989, "Iraq-Italy: Repercussions of the BNL-Atlanta Scandal," put the branch's unauthorized letters of credit for Iraq at $3.2 billion in 2,500 letters between February 1988 and July 1989, of which about $1.85 billion had been disbursed, including at least $800 million guaranteed by the Commodity Credit Corporation.² The memorandum also stated that BNL's New York headquarters and its directors in Rome publicly denied knowing about the letters of credit, "although a BNL official in Chicago claims he notified New York and Rome several times about the unusual activity in Atlanta, according to press reports," and that Rome "appears satisfied to date with the cooperation of the US investigating agencies and appreciates the low-key manner in which Washington has reacted."²

The Iraqi entities that received the loans included the Nassr State Enterprise for Mechanical Industries and other procurement agencies that were simultaneously purchasing weapons components from Western suppliers. The loans were guaranteed in part by the U.S. Commodity Credit Corporation (CCC), a Department of Agriculture entity whose agricultural export guarantees to Iraq had been used to free up Iraqi hard currency for arms purchases - a mechanism separately documented in congressional investigations of the Iraq relationship.³

CIA Knowledge and Obstruction

The key contested question in the BNL scandal was whether the Central Intelligence Agency knew about the BNL loans and used them as a conduit for authorized assistance to Iraq under the Reagan and George H.W. Bush administrations' policy of supporting Baghdad during the Iran-Iraq War. Evidence assembled by journalists, congressional staff, and House Banking Committee investigators suggested that CIA reports specifically identifying Iraq's use of BNL-Atlanta funding for weapons procurement had been available as early as 1988 and had been circulated within the intelligence community.

The Senate Select Committee on Intelligence staff report of February 1993 recorded that CIA analysts concluded in January 1990 that "managers at BNL headquarters in Rome were involved in the scandal," and that in November 1991 CIA reports "confirmed press allegations that more senior BNL officials in Rome had been witting of BNL-Atlanta's activities." The staff wrote that "the evidence does not show that this failure was a deliberate attempt to withhold information from the Department of Justice," and that it "could find no legal support" for the CIA guidance that a report not formally disseminated outside the agency would not be discoverable in a criminal case.⁴

A CIA statement of February 5, 1993 said: "The CIA's Inspector General found no evidence of deliberate withholding of information or wrongdoing by any Agency employee in connection with the BNL case." In the attached memorandum of January 19, 1993 to the Inspector General, the Director of Central Intelligence, Robert Gates, wrote: "None of the information available to CIA establishes that BNL-Rome did know of the activities of BNL-Atlanta that later became the subject of DoJ's investigation and prosecution." and, in the same paragraph, "Nonetheless, several of the CIA reports clearly contain indications that BNL-Rome may have been aware of BNL-Atlanta's actions." He also wrote that "In retrospect, mistakes clearly were made by Agency officers in their handling of events related to the BNL matter, and there was carelessness and a number of instances of poor judgment."⁵

Federal Judge Marvin Shoob in Atlanta became the focal point of the scandal when he publicly criticized the Department of Justice's handling of the case. Shoob accused the DOJ of directing prosecution away from the central question of whether the loans had been authorized at high levels of the U.S. government. He recused himself from the case on October 1, 1992.³

Congressional Investigation

The House Banking Committee under Chairman Henry Gonzalez conducted the most sustained congressional investigation of the BNL scandal. Gonzalez publicly released thousands of pages of classified documents relating to the U.S.-Iraq relationship, including CIA reports on Iraq's use of BNL funds. The investigation documented the Reagan administration and early George H.W. Bush administration's consistent support for Iraq's weapons procurement networks, including knowledge of chemical weapons use, and revealed the internal government debate over whether to continue agricultural credit programs.¹

Sentencing Hearing and Recusal

On September 23, 1992, at the sentencing hearing, Judge Marvin Shoob asked to see the intelligence underlying the Gonzalez summary of CIA reporting. He took the documents home and concluded that one of them did not support the summary's analytical comment. On October 1, 1992 he orally allowed Christopher Drogoul to withdraw his guilty plea and recused himself on the government's motion; the written order is dated October 5, 1992. His order stated: "The Court concludes that officials at BNL-Rome were aware of and approved Mr. Drogoul's activities."⁶

Italian Senate Commissions

The Italian Senate's commission of inquiry on the Atlanta branch (established February 19, 1991; Senator Gianuario Carta, president) approved a preliminary report on December 21, 1991 that put the exposures at about 4,000 billion lire, recorded $2,867.6 million in facilities outside the official books against $991 million registered at July 31, 1989, stated that the fraud-by-employees thesis had proved inconsistent with the evidence, and recorded that the Department of Justice had denied it access to documents and witnesses.⁷ The first commission's final report, presented April 22, 1992 as Doc. XXII-bis n. 4, stated that the severest of BNL's early-1980s crises was connected to "la accertata partecipazione di gran parte dei suoi alti dirigenti alla loggia massonica P2" (p. 6), recorded that credits to Rafidain Bank before June 1987 had been reported to the Rome head office under an internal circular of June 23, 1983 (p. 20), and named Lawrence Eagleburger, Brent Scowcroft and Henry A. Kissinger among those who had worked for BNL or its Yugoslav bank partner (pp. 23, 34). It stated that Drogoul could confirm what he had told the commission, "la consapevolezza e la tolleranza dei vertici di Roma della BNL e delle autorità federali a fronte della macchina finanziaria attivata a favore dell'Iraq" (pp. 34-35).⁸ A second commission under Senator Giampaolo Mora was constituted on February 11, 1993 and approved its final report on February 23, 1994.⁹

Connection to Broader Networks

The BNL scandal intersected with other subjects documented in this vault. Carlos Cardoen, the Chilean arms manufacturer who supplied cluster munitions to Iraq through CIA-connected channels, received financing through mechanisms connected to the BNL funding stream. Matrix Churchill, the British machine-tool company at the center of the Arms-to-Iraq affair, exported equipment to the same Iraqi procurement entities that received BNL funding. The PROMIS software distribution to Iraqi intelligence is separately alleged by Ari Ben-Menashe and others.³

Indictment and Pleas

The indictment, No. 1:91-CR-078 in the United States District Court for the Northern District of Georgia, was returned on February 28, 1991, the day after the Gulf War ceasefire, and charged Christopher Drogoul on 347 counts with two branch officers, Entrade International and its manager Yavuz Tezeller, Rafidain Bank, and four Iraqi officials including Safa al-Habobi. Two branch employees, Leigh Ann New and Thomas Fiebelkorn, were dropped from the indictment after negotiating plea agreements (New pleaded guilty on March 6, 1991 and Fiebelkorn on April 3, 1991), and Paul Von Wedel pleaded guilty as a cooperating individual; the five Atlanta employees were sentenced by an order of August 24, 1993.¹⁰ Drogoul pleaded guilty to 60 counts in June 1992 and withdrew the plea on October 1, when Judge Marvin Shoob recused himself with the stated conclusion "that officials at BNL-Rome were aware of and approved Mr. Drogoul's activities." On September 2, 1993 the United States Court of Appeals for the Eleventh Circuit held that the district court had abused its discretion in refusing depositions of thirteen Italian nationals in Rome, seven of whom had declared they would not testify in the United States.¹¹ Drogoul pleaded guilty to three counts and was sentenced in December 1993 to 37 months.¹²¹³

Court of Federal Claims suit

On December 15, 1992, BNL filed suit in the United States Court of Federal Claims in Washington to recover over 340 million dollars in principal on defaulted Iraqi loans guaranteed under the Commodity Credit Corporation program of the Department of Agriculture. Henry B. Gonzalez told the House on January 21, 1993 that the suit followed the Department's refusal to pay the claims because of unanswered questions about BNL's role, that he had repeatedly asked the Department to withhold payment until it could be determined whether BNL had defrauded the program, and that the Department's administrative review, which was not assigned to its inspector general, was "a complete whitewash."¹⁴

Lacey and the Senate Staff Report

United States Attorney General William Barr appointed the retired judge Frederick Lacey as special counsel on October 16, 1992. Lacey reported on December 9, 1992 that there were no grounds for an independent counsel and that he had "seen nothing" to suggest that Brent Scowcroft and Lawrence Eagleburger knew of the loans. Part of the report was classified.¹⁵ Representative Henry Gonzalez called it a whitewash. Acting United States Attorney Joseph D. Whitley had recused himself on June 1, 1990, because his former firm represented Matrix Churchill. The staff of the Senate Select Committee on Intelligence found in February 1993 that the CIA's grounds for withholding reports from prosecutors had "no legal support" and did not find deliberate concealment. In December 1992 prosecutors in Venice indicted 59 people, including executives of the bank, for financing arms sales to Iran.¹⁶¹⁷¹⁸ Gonzalez told the House on January 21, 1993 that the 523-page Venice indictment charged senior BNL executives in Rome and branch officials in Paris and Turin with providing over $100 million in support for secret arms shipments to Iran, and that in total 59 persons had been indicted.¹⁹

Footnotes

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1. Friedman, Alan. Spider's Web: The Secret History of How the White House Illegally Armed Iraq. Bantam Books, 1993. ↩︎

2. Central Intelligence Agency, Directorate of Intelligence, "Iraq-Italy: Repercussions of the BNL-Atlanta Scandal," November 6, 1989, printed in House Committee on Banking, Finance and Urban Affairs, Testimony of Former Employees of the Banca Nazionale del Lavoro, Serial No. 103-95 (1994), pp. 194-195; CIA reading room document 0000491425, pp. 2, 6. https://www.cia.gov/readingroom/document/0000491425 ; also https://archive.org/details/testimonyofforme1994unit ↩︎

3. Gonzalez, Henry. Congressional Record, selected statements 1992-1993. https://www.congress.gov/member/henry-gonzalez/G000272 ↩︎

4. Senate Select Committee on Intelligence, The Intelligence Community's Involvement in the Banca Nazionale del Lavoro (BNL) Affair, Committee Print S. Prt. 103-12, February 1993, pp. 26, 28, 34. https://www.intelligence.senate.gov/sites/default/files/publications/10312.pdf ↩︎

5. Central Intelligence Agency, "CIA Statement: Release of BNL-related Report," February 5, 1993, with Memorandum for the Inspector General from the Director of Central Intelligence, "BNL Investigation," January 19, 1993, pp. 1-2 (reading room document 0005617864). https://www.cia.gov/readingroom/document/0005617864 ↩︎

6. Senate Select Committee on Intelligence, The Intelligence Community's Involvement in the Banca Nazionale del Lavoro (BNL) Affair, Committee Print S. Prt. 103-12, February 1993, p. 24; Order of Judge Marvin H. Shoob, orally entered October 1, 1992 and dated October 5, 1992, printed in Serial No. 103-95, pp. 205-206. https://archive.org/details/testimonyofforme1994unit ↩︎

7. Senato della Repubblica, X Legislatura, Commissione parlamentare d'inchiesta sul caso della filiale di Atlanta della Banca nazionale del lavoro e sue connessioni, Rapporto preliminare, December 21, 1991, Doc. XXII-bis n. 3, pp. 2-9. https://www.parlamento.it/service/PDF/PDFServer/BGT/914635.pdf ↩︎

8. Senato della Repubblica, X Legislatura, Doc. XXII-bis n. 4 (Relazione conclusiva, relatore Carta), April 22, 1992, pp. 6, 20, 23, 34-35. https://www.senato.it/documenti/repository/relazioni/archiviostorico/commissioni/X%20LEG_BNL.ATLANTA_DOC_RELAZ/X_%20LEG_BNL-ATLANTA_DOC%20XXIIBIS_4_22.4.92.pdf ↩︎

9. Senato della Repubblica, Archivio storico, repertorio of commissions, "Bnl Atlanta (monocamerale d'inchiesta)." https://patrimonio.archivio.senato.it/repertorio-commissioni/commissione/IT-SEN-COM001-000161/bnl-atlanta-monocamerale-d-inchiesta?t=sintesi ↩︎

10. Lacey, "The Banca Nazionale del Lavoro Investigation: Report of the Independent Counsel," printed in Serial No. 103-95, pp. 362-366, 411, 413; hearing record, Serial No. 103-95, p. 200 (order of August 24, 1993 sentencing the Atlanta employees); General Accounting Office, T-NSIAD-91-13, March 14, 1991. https://archive.org/details/testimonyofforme1994unit ↩︎

11. United States v. Drogoul, No. 93-8964, 1 F.3d 1546 (11th Cir. September 2, 1993). https://static.case.law/f3d/1/cases/1546-01.json ↩︎

12. United States v. Drogoul, 1 F.3d 1546 (11th Cir. 1993). ↩︎

13. "Drogoul gets 37 months in BNL bank scandal," United Press International, December 9, 1993. ↩︎

14. Rep. Henry B. Gonzalez, "Update on BNL Investigation," Congressional Record, House of Representatives, January 21, 1993, p. H132. https://irp.fas.org/congress/1993_cr/h930121-bnl.htm ↩︎

15. Senate Select Committee on Intelligence, The Intelligence Community's Involvement in the Banca Nazionale del Lavoro (BNL) Affair, Committee Print S. Prt. 103-12, February 1993, pp. 4-5; Lacey, "The Banca Nazionale del Lavoro Investigation: Report of the Independent Counsel," printed in Serial No. 103-95, pp. 344-345. https://www.intelligence.senate.gov/sites/default/files/publications/10312.pdf ↩︎

16. Lacey, Frederick B. "The Banca Nazionale del Lavoro Investigation: Report of the Independent Counsel," reproduced in House Committee on Banking, Finance and Urban Affairs, Testimony of Former Employees of the Banca Nazionale del Lavoro, Serial No. 103-95, November 9, 1993. https://archive.org/details/testimonyofforme1994unit ↩︎

17. Senate Select Committee on Intelligence, The Intelligence Community's Involvement in the Banca Nazionale del Lavoro (BNL) Affair, staff report, S. Prt. 103-12, February 1993. ↩︎

18. Gonzalez, Henry B. "Update on BNL Investigation," Congressional Record, House, January 21, 1993. ↩︎

19. Gonzalez, Henry B. "Update on BNL Investigation," Congressional Record, House, January 21, 1993, pp. H133-H134. https://irp.fas.org/congress/1993_cr/h930121-bnl.htm ↩︎