Testimony of Christopher Drogoul

  My  name  is Christopher Drogoul. I want to thank the committee
for the opportunity to appear here today. I have been hopeful for
over  four  years that I might get an opportunity  to  speak  the
truth  concerning this matter, and although I had intended to  do
so  at  my trial, I will do my best to be forthright and complete
in this appearance.
  I  was the manager of the Atlanta agency of Banca Nazionale Del
Lavoro from 1984 until August, 1989. Although I managed the  bank
in  accordance  with my instructions from my superiors  in  Rome,
when  criminal  charges were being considered in connection  with
the activities of that branch, the bank took the position that it
was a victim of the actions of the Atlanta agency.
  At  the  time of the search I was in France on vacation.  After
learning  of the search I returned to the United States  to  deal
with the potential problems which might arise. Prior to my return
I met with representatives of the Iraqi Central Bank, who assured
me  that I should not be concerned. It had been their position to
me over several years that the lending between the Atlanta agency
and  their  bank  was known to the United States,  and  that  any
irregularities would be resolved with a fine against the Bank.  I
was  also  assured by my knowledge that the General Director  and
other  high officials of BNL knew of my activities that  I  would
not be in harm's way by my return.
  After  the  search of the Bank in August, I became  aware  that
the  investigation  by  the United States  Attorney's  Office  in
Atlanta was focused on my staff and myself. It was always been my
view  that  the  political power of the United States  and  Italy
reached  right  down to the US Attorney's Office  in  Atlanta  to
ensure  that  only  those  associated  with  the  Atlanta  agency
suffered  the  consequences  of the  revelation  surrounding  the
search  of  the agency in 1989, while I do not know whether  Alan
Greenspan's  personal visit to Atlanta shortly after the  search,
or  the  subsequent direct contact by the Bush White House solely
contributed to the bias by the lead prosecutor in Atlanta towards
the investigation, it certainly had an impact.
  The search revealed that the Atlanta agency had been funding  a
number  of countries, Iran, Russia, and Iraq in part through  the
use of what some have called the grey book. While some might view
that  activity as reflecting criminal conduct, it  was  not.  The
need  to  hide from some officials, particularly Mr. Sardelli  in
New York, our activities led to this record keeping process. With
the  removal  of  Mr.  Sardelli in the Spring  of  1989,  we  had
commenced  to remove all grey book entries and to place  all  our
activities  on  the  books.  The  search  prevented   this   from
occurring. I am aware that this process could have prevented  the
State  and  Federal  Banking authorities from learning  the  full
nature of our lending. However, if any legitimate audit had  been
conducted  the full scope of our lending would have  been  easily
uncovered.  It  was  never our intention to  mislead  the  United
States  Banking  authorities  from  knowing  the  extent  of  our
activities. Instead, I acted to carry out the objectives  of  BNL
and  the  Italian government, and that I believed were  also  the
objectives  of  the United States, in my interaction  with  Iraq,
Russia, and Iran.
  Having  been  confined  to  a  prison  cell  since  April  1992
stripped of all my assets, and compelled to have my wife and four
children  suffer the indignity of having to live  on  welfare,  I
have  had  a  great deal of time to consider the  events  of  the
period  between 1984 and 1991 when I was indicted in a 347  count
  It  is  my  view  that  the  local  US  Attorney's  office  was
overwhelmed by political pressure by the United States and Italy,
by the law firm of King and Spalding, and the lack of a competent
staff to properly investigate and understand what had occurred.
  To  begin  to understand the Atlanta agency one must understand
who  Banca  Nazionale Del Lavoro is, their political relationship
to  the  Italian  government, and how Italy itself  conducts  its
business  affairs. The perennial corruption, and the  utilization
by its politicians of entities, such as BNL, to further their own
pecuniary  interests, is self-evident. Whether the activities  of
BNL/Atlanta  enriched any Italian political group I do  not  know
but  it is certainly likely. I do not intend to engage in a  long
winded  explanation of Italy, but I would be glad to  answer  any
questions in this regard that the committee nay have.
  I  am certainly disappointed, but not surprised that Mr. Pedde,
and  the others at BNL who encouraged and endorsed my actions  at
the  Atlanta  agency, have taken a position that I acted  without
authority.  I  am not so unsophisticated not to realize  in  this
international drama that I am an insignificant figure, who can be
sacrificed in the interests of major governments. I was aware  at
all time that the policy of BNL was to further the foreign policy
concerns of both the US and Italy.
  As  I  am  sure the committee is aware, following my  counsel's
subpoenas  to  former President Bush and other officials  of  his
administration, the government approached us about a plea to  end
this  matter.  Recognizing that my trial would  be  postponed  to
1994,  and  my  concern over the fate of  my  wife  and  my  four
children I agreed to a plea which would end this nightmare.
  I  will  now attempt to answer certain questions posed  by  the
Committee in its request for me to appear.


  To  answer  this question properly requires that one understand
the  basis  upon  which I was originally hired,  and  my  banking
background at Barclays.
  Originally  hired  in  December  1981  as  an  assistant   vice
president  and  junior lending officer, I was  promoted  to  vice
president  and lending officer sometime in mid 1982, and  in  mid
1984 was appointed acting manager of the Atlanta branch. In March
1985,   my  position  as  manager  was  formalized  by  Professor
  I  have  often  asked  myself why someone with  little  lending
experience  and  no managerial experience was  appointed  to  the
position  of manager at BNL Atlanta, but it is clear that  I  was
the  only presentable individual available for the job, since the
competent   Italians   shied  away  from   taking   the   Atlanta
stewardship, and there were no Americans in the organization  who
were available to be appointed at that time. I thus received  the
position by default.
  Officially,  the  duties of branch manager are  administrative;
i.e. to ensure the smooth functioning and appropriate development
of  the branch's activities in its designated nine state business
development  territory (which included Virginia, North  Carolina,
South   Carolina,   Georgia,  Alabama,  Mississippi,   Tennessee,
Kentucky and West Virginia).
  However, since the branch was constituted with a small  capital
base  of  USD 2.000.000, sufficient personnel to properly operate
the  branch  were  not  hired.  Thus  employees  filled  multiple
functions: The manager was also a business development officer, a
business  development officer was also the  credit  manager,  the
support  trader  was  also  a business development  officer,  the
letter  of  credit administrator was also a business  development
officer, the operations officer acted as the comptroller, etc.
  In  reality,  BNL  Atlanta  was never  truly  conceived  of  or
managed  as  a branch. It was instead considered to  be  a  quasi
autonomous business development office.
  Moreover,  whereas  every other branch  in  the  United  States
operated within its established geographic territory, BNL Atlanta
historically   operated  throughout  the   United   States,   and
eventually   throughout  the  world.  It  was  common   knowledge
throughout the BNL system that BNL Atlanta officials traveled  in
other  branches  territories,  and developed  business  in  those
geographic  zones  for  the benefit of BNL  Atlanta,  that  local
branch, and the head office.
  Thus,  when BNL Atlanta traveled to Geneva to develop commodity
business with the international grain traders based there, it was
common for BNL Atlanta officers to find a way to develop business
for the Geneva branch as well. Since most of the Atlanta branch's
business  involved  head  office banking relationships  with  the
central  banks and the principal commercial banking  institutions
in  Eastern  Europe,  the Middle East and North  Africa,  it  was
common   for   Atlanta  officers  to  use  meetings  with   those
institutions   as  forums  to  develop  opportunities   for   the
correspondent banking division at the head office.
  Ted  Monaco's statement to the effect that he was  not  alarmed
at seeing me in Baghdad is in a sense true, for all BNL knew that
Atlanta  roamed  the globe in search of business  (in  that  case
though, Monaco also knew that Sardelli had limited our travel  to
areas inside Atlanta's assigned geographic territory).
  To  summarize my duties therefore, I would say that  officially
I  was  the  senior administrator of the Atlanta office,  but  in
reality  I was a senior business development officer of the  bank
based  in  Atlanta responsible for developing much of the  bank's
multi-national business.
  Indeed,  my  general manager, Dr. Pedde, repeatedly  emphasized
to me the need to develop strong ties to European and U.S. multi-
national corporations for the bank. Dr. Pedde eventually issued a
dictum  stating that officers responsible for the development  of
assigned business should travel to develop such business,  rather
than head office officials.


  It  is  inaccurate  to  consider the "visits"  by  the  Federal
Reserve  Bank, the State Banking Department, and Peat Marwick  to
be  true audits of the branch's records, for they were not.  This
statement  is  not  intended to insult  any  supervisory  agency.
Simply  stated,  the  established parameters  of  those  entities
audits did not call for a comprehensive audit.
  The  task  of the Fed was simply to confirm that the  State  of
Georgia audit revealed no major problems, and thus their audit of
BNL  Atlanta usually consisted of a one or two day review of  the
State  of  Georgia' preliminary results, followed  by  a  cup  of
espresso in the manager's office.
  The  State  of  Georgia inspectors examined credit  folders  to
determine  whether there was an inherent risk  in  lending  to  a
particular  company, financial institution, or  country,  without
any  thorough confirmation of the details reported on the  branch
records.  The role of the State examination was not  designed  to
verify  the branch's records. That responsibility rested  on  the
shoulders of the bank's internal team of inspectors .
  The  Peat Marwick examination was nothing more than an exercise
to place an independent auditor's imprimatur on the branch's year
end  results, and their audit consisted of a verification of  the
assets  and  liabilities recorded on the branch's  books  at  the
close  of  the  financial year, without any  examination  of  the
underlying records. By the third or fourth year of such a review,
the  procedure became so banal that neither KMPG nor BNL  Atlanta
considered  the  audit  to  anything more  than  an  exercise  in
  The   audit   performed   by  BNL's   internal   auditors   was
comprehensive  and  thorough. Had it not been  "tamed,"  all  the
branch's activities would have been revealed, regardless  of  any
attempts  on  the  part of BNL Atlanta's staff to  conceal  those
activities  from  the  internal  auditors.  The  Morgan  transfer
records  were never examined thoroughly, the Rafidain and Central
Bank of Iraq's records were never reviewed, the amount of funding
received  from the interbank market never examined  except  on  a
cursory  basis, and on and on. I considered the internal auditors
omissions  to  be  intentional oversights  the  first  time,  and
concluded  by  the  second audit that  there  would  not  be  any
wholesale  unearthing  of Atlanta's Iraqi relationship  by  BNL's
audit team.
  Having   made   this   statement,   though,   I   recall   many
conversations with bankers from New York, who were  subjected  to
numerous state and federal agency audits. They all discussed  the
thoroughness  of  the  New York audits, so  perhaps  the  Atlanta
auditors simply viewed their responsibilities differently.
  I  do not personally believe that the activities of the Atlanta
office  could  ever have developed in New York. It  would  almost
seem that the environment for BNL Atlanta's was perfect.


  It  is important to understand that in most instances approvals
to  extend  credit or to engage in a transaction came  in  verbal
form,  either through BNL's regional management in New  York,  or
directly by telephone from BNL Rome.
  In  a  conversation with Dr. Florio during and after  a  dinner
meeting  in  New  York, we were discussing the salubrious  impact
upon  the  branch  that the CCC program had the  previous  fiscal
year.   In  particular,  we  were  discussing  the  prior  year's
approvals for the extension of credit to Mexico and Iraq,  and  I
had  indicated  that given the low level of risk associated  with
these transactions, we at BNL Atlanta wished to continue our  CCC
lending  to  those same countries, as well as to  others.  I  had
mentioned  to  Dr.  Florio  that the CCC  had  recently  accorded
significant   guarantees  to  Mexico  and  Iraq  for   the   U.S.
government's new fiscal year, and on this occasion I specifically
sought  his  verbal approbation to lend anew to those  countries.
His  reply, which I remember quite distinctly, was that  although
he  too  saw  little risk in lending under CCC, the International
Division  of  BNL,  and he especially, were under  pressure  from
political forces, at that time unknown to me, which would use any
increased  lending activities to Mexico as a weapon  against  the
Division,  since  the  New York Branch has  in  years  past  lent
substantially to the Mexican public and private economic sectors,
both  of  which  were embarrassingly delinquent in  paying  their
  Here  I note that BNL Rome officials informed me well afterward
that an impending new BNL administration, which sought to abolish
Dr.  Florio's International Division on the grounds that  it  was
spending  too  many  of the Bank's resources and  not  generating
sufficient  profits, was seeking to use any of the  International
Division's   weaknesses  to  dismiss  Dr.   Florio.   Hence   his
trepidation to engage in further Mexican lending.
  On  the subject of Iraq, he evinced no particular objection  to
further  lending commitments toward Iraq under the  CCC  program,
and  inquired  about my specific intents. I duly noted  that  BNL
Atlanta had not been successful in obtaining full utilization  of
our  facility  in favor of Rafidain Bank, and that we  needed  to
offer  a  considerably larger facility than that of the  previous
year  in  order not to be squeezed out by the banks involved  the
prior year.
  At  this point Dr. Florio sought assurance that the risk was as
it had been represented by the CCC. I assured him that in reality
the  CCC  ensured that on all defaults the borrowing  bank  would
make  arrangements to reimburse the lending bank (BNL,  in  other
words)  for  those  amounts not covered  by  the  CCC  guarantee,
usually  by arranging for the borrowing institution to remit  the
unguaranteed  differential  at  the  time  of  the   CCC's   debt
rescheduling at the Paris Club.
  Having   understood   the  mechanism  by  which   the   lending
institutions  would be "made whole," Dr. Florio then specifically
requested from me the amount which I thought would be appropriate
for  BNL  to  extend  to  Iraq.  I  noted  that  the  anticipated
allocation  by  the  CCC to Iraq would be in  the  area  of  $550
million,  and that we should be prepared to extend  an  offer  to
finance  about  one-half the total amount,  in  order  to  insure
utilization  of our facility, and in order to have  opportunities
to   develop   relations   with  the  U.S.   exporters   shipping
commodities.  I also mentioned that we might wish  to  underwrite
the  entire  facility  and share the business  with  one  or  two
institutions of our choosing, although at the time I had  nothing
formal in mind.
  He  ruminated on the matter for about one minute  and  a  half,
and  as we approached his hotel after leaving the restaurant,  he
said, "Alright, go ahead with Iraq, but keep away from Mexico for
the  time being." The entourage accompanying Dr. Florio exchanged
  His  group  entered  his hotel, BNL regional  management  staff
(Mr. Guadagnini, Mr. Biginelli, et al. parted company with me  to
return to their homes, and I returned to my hotel.
  Such  was  the  manner  of  our  discussions  regarding  credit
facilities  of  all sorts. Upon my return to Atlanta  I  notified
those  parties concerned, most notably Raffaele Galiano and  Paul
von Wedel. Galiano was instructed to prepare a formal proposal to
Rome,  whereas  von  Wedel was requested to begin  marketing  our
services  to the U.S. grain exporters in advance of our  meetings
with the Iraqi CCC delegation.
  The  point of this story is twofold: one, to give you  an  idea
about  how  BNL  bankers discussed and obtained verbal  authority
from superiors regarding all sorts of requests, and two, in order
to  impart  to you the specific conversation in which I  obtained
authority to proceed in my negotiations with the Iraqis.
  As  it  turned out, Mr. Galiano's requests for formal  approval
from  the  area  manager  in Rome with responsibility  for  Iraqi
institutions met with positive encouragement.
  Mr.  Galiano's  comments regarding the  status  of  our  formal
request  suggested that all was proceeding as planned.  The  area
manager reported conversations he had with Dr. Florio who had  by
then  returned to Rome indicating that all was in order,  as  Dr.
Florio  and I had agreed, and therefore, even though we  had  not
yet  received  'board certified' approval, everything  seemed  on
track, and we accordingly proceeded to negotiate with the Iraqis,
who by then were in Washington, D.C.
  After  the  conclusion of our negotiations with the  Iraqis,  I
recall having spoken to Mr. Guadagnini in New York over the phone
to let him know of our success in Washington, and that we planned
to  sell  unwanted  CCC Iraqi loans to several banks  seeking  to
  Approximately one month later, Mr. Galiano approached me in  my
office  and  indicated  that BNL Rome  would  be  "delaying"  the
proposal regarding the CCC Iraqi loans, but that I should not  be
alarmed,  it was just "another instance of their slow  procedural
manner." There was no indication that Dr. Florio was changing his
mind.  Instead, we proceeded as usual, and, given the  successful
conclusion of our negotiations, I prepared for my first visit  to
Baghdad, with Mr. Guadagnini's approval, and with Mr. Biginelli's
complete  awareness  (Biginelli was by  then  the  London  branch
manager,  and I visited with him there just prior to my departure
for Baghdad).
  It  was  only upon my return from Iraq that I understood  there
was a problem with our proposed facility, and it was expressed to
me more or less in these words:
  "Yes,  I  know  that  Dr.  Florio  told  you  to  proceed,  but
apparently  in  the past several weeks he has had temporarily  to
cease  lending activity to Iraq; but I'm sure the situation  will
be back to normal soon. Continue about your business, even though
I  have  or will be send you a telex declining approval  of  your
facility for the time. We'll work it out soon."
  In  hindsight,  I  suppose  that I should  have  called  Florio
directly  and  confronted him with the situation. Yet  I  assumed
that  the  "delay" would indeed be temporary, since in  the  past
Rome  had  always  delivered, although  sometimes  well  after  a
verbally  authorized  credit  had been  repaid.  Additionally,  I
thought  the problem to be linked to the same reason  Dr.  Florio
sought  to avoid Mexican risk... to protect his division  against
political  swashbucklers. As a result, I  gave  the  matter  only
momentary thought.
  We  continued to honor our commitments, both to the Iraqis  and
to  the  exporters,  and reflected the loans accordingly  on  the
branch's records .
  Then,  while at an International Division managers  meeting  in
Venice, Mr. Guadagnini mentioned to me that Dr. Florio had  noted
to  him that BNL Atlanta's exposure to Iraq was in excess of  the
first  year's  CCC  credit  line to  Iraq,  and  it  might  cause
[political]  problems  for  Florio. Accordingly,  Mr.  Guadagnini
asked  that  I  regularize the Iraqi credit line  as  soon  as  I
  Having  had an approval of which Dr. Florio was well  aware,  I
was  genuinely  perplexed by Florio's and Guadagnini's  comments.
Thus,  upon my return to Atlanta, I called a meeting of the local
officers  and  stated  something to the effect  that  Florio  was
having difficulties in Rome politically, had found himself  boxed
into  a corner temporarily regarding Iraq, and had asked that  we
"eliminate" for a time the Iraqi exposure above $ 100 million, to
help him. It was only in 1988 while discussing the matter of Iraq
that  Ted Monaco admitted the problem Florio had with BNL's loans
to  Iraq,  only a part of which related to BNL Atlanta.  Although
BNL  Atlanta's  Iraqi  loans did not  constitute  a  problem  for
Florio,  since ultimately we had elected to remove  our  branch's
Iraqi  exposure from the records on the last day  of  the  month,
thereby  insuring he would have no problems from us,  there  were
sizable amounts of unsecured loans to Rafidain Bank authorized by
Florio  for  BNL's Italian branches which caused him considerable
anguish when the new BNL administration sought to find fault with
the International Division.
  My  next meeting with Florio was scheduled to be in New York in
October  of  that  same  year, and it was my  intention  to  seek
clarification  on the matter of Atlanta's Iraqi  loans.  At  that
meeting, however, Nesi and Florio appeared ashen, Guadagnini  had
been  forced to announce his resignation, and Dr. Pedde had taken
control of the meetings, where he lamented the ineptitude of  the
International Division under the guidance of Dr. Florio, who  was
not  even  allowed to utter any formal statement to his managers.
If  I  am  not  mistaken,  the ever ebullient  Dr.  Sardelli  was
present,  having flown in from the far east to be  introduced  to
the North American managers as the new regional manager.
  The  odor  of controlled chaos was in the air, and all  parties
became skittish and extremely cautious around each other. It  was
clear  there had been political upheaval at BNL Rome, and no  one
either  in  Rome  or at the foreign branches understood  the  new
rules  by which the bank was to be operated. Florio spoke  to  no
one,  Nesi's  political base had obviously  disappeared.  Pedde's
position  was  still somewhat uncertain to us. Only Dr.  Sardelli
spoke  eloquently  about his goals for the BNL network  in  North
America. It was truly a somber event, for seemingly overnight the
political  hierarchy  changed and rumors abounded  regarding  the
imminent demise of Florio and his international division.
  In  this environment, I did not dare burden Florio with another
problem, although I did make an effort to discuss the matter with
him,  and was politely rebuffed with a comment to the effect that
the  issue  of CCC guaranteed loans to Iraq was insignificant  in
the face of what loomed ahead for the International Division.  My
dilemma appeared rather insignificant and at the same time, I was
genuinely  uncertain  to  whom  I  was  to  direct  my  questions
regarding  my international lendings. Guadagnini, in  one  of  my
conversations  with  him  about the  general  state  of  affairs,
acknowledged  "apres moi, le deluge." Florio was  dismissed  soon
after  this  meeting, the International Division was erased  from
the  corporate  organization chart, and its headquarters  palazzo
across from BNL's headquarters on Via Veneto put up for sale.
  Once  Sardelli was installed as the new North American Regional
Manager,  it  was  quite  unclear to all  branch  managers  whose
political interests Sardelli represented, for he was critical  in
the  extreme  about Mr. Guadagnini's prior management  team,  its
lending  and  administrative practices, and  its  objectives.  In
concert  with Dr. Pedde, he seemingly delighted in deconstructing
Professor  Nesi's international network in the U.S., Canada,  and
Mexico,  and deriding the previous efforts of messrs. Florio  and
Guadagnini who were acknowledged Nesi lieutenants .
  Yet  at  the  same  time  Dr. Sardelli  raged  about  the  "fat
buffoon"  who  had no international experience and who  appointed
political  cronies to positions of importance in the BNL  network
throughout  the  world, and particularly in New York.  He  openly
criticized  the  new administration, and after a time  it  became
obvious that he was not one of their men either.
  It  remained  therefore up to each branch manager to  seek  his
own  alliances  with  BNL Rome in order to protect  his  branch's
interests.  We in Atlanta solidified our ties directly  to  those
individuals  who were not ejected from the bank in the  purge  of
the  International Division, and simultaneously  worked  hard  to
understand  Dr. Pedde's objectives and align our activities  with
his developing strategic designs.
  You  will  note that the initialization of concealment occurred
after  Dr. Florio changed his directive to me regarding Iraq,  at
least three months after he had instructed me to proceed with the
branch's CCC activities there, as his International Division  was
collapsing  about him. The initial process was  not  designed  to
withhold  information from BNL Rome, for Rome was  aware  of  our
true  exposure from a variety of sources, not the least of  which
was  the  asset report sent to New York, and to Rome,  every  ten
days,  and  from  the daily asset and liability reports  for  the
Atlanta branch which New York examined daily.
  Once  Mr.  Sardelli settled into his position in New  York,  he
regularly poked and probed at our operations, and put pressure on
us daily to alter the manner in which the branch has operated for
the  previous six years. He attempted to have us cease  relations
with  many mid size companies that had been established customers
of  BNL  Atlanta  since  the branch's inception,  and  originally
promoted  by the previous regional management officials,  yet  he
sought  for  us  to  lend to new companies of  similar  size.  He
attempted  initially to curtail our commodity lending activities,
and   threatened  to  move  them  to  BNL  New  York,  under  the
responsibility of Albert Daiboch, an individual who did not share
the  same rapport with the grain companies as Atlanta's commodity
officials.  He  sought to limit our travel  to  the  southeastern
U.S., when he was plainly aware from existing documentation  that
we   maintained   relations   with   corporations   and   banking
institutions  nationwide, in western and  central  Europe,  North
Africa and the Middle East.
  In our conversations with various officials in Rome about
  our  difficulties  with  Dr.  Sardelli,  we  were  advised  and
encouraged to strengthen our ties to Rome, "for Sardelli's  reign
will  be  short"; and so we oriented ourselves towards Rome,  and
kept  Rome,  rather than New York abreast of our activities.  Dr.
Sardelli  was  declared  'out of the loop'  and  it  thus  became
necessary for us to mask our relations from Dr. Sardelli  pending
Rome's  initiatives  to  replace him,  for  his  volatility  only
jeopardized  the relations we had established with the  commodity
merchants, the industrial multinationals, the overseas importers,
and  heir  financial institutions. Accordingly, when the regional
management  auditors came to Atlanta to convert our records  onto
the  Mantec accounting systems, BNL Atlanta had no choice but  to
conceal our complete activity from the eyes of Mr. Sardelli, much
to  the  delight of BNL Rome, I might add, for now their official
responsibility  ended. Additionally, we were obliged  to  do  the
same  when  Dr. Sardelli's auditor, Luigi Messere,  came  to  our
offices. Documentation which was altered and/or omitted from  the
branch's records was not intended to officially mislead Rome, but
only Sardelli.
  Indeed,  Rome  officials (and in particular  Mr.  Monaco)  were
well  aware  of  our  activities  in  Iraq,  but  also  in  other
countries.  They were aware in a detailed manner of most  of  the
transactions in which we were involved, for we obtained  guidance
from them in one form or another.
  Once  Sardelli's  departure  was  effected,  and  Mr.  Lombardi
assigned to the area managership, an open flow of information  to
regional  management commenced and the branch's  activities  were
being  brought into the open. Mr. Lombardi, in concert  with  BNL
Rome officials, were again openly assisting us to bring order  to
much  of the Atlanta branch's records and to obtain the necessary
formal approvals from Rome.
  As  you know, Mr. Monaco and his team from Rome were in Baghdad
at  the  same  time  as Paul von Wedel and  I  in  1988,  and  as
indicated by Mr. von Wedel and a colleague of Mr. Monaco, a 20 to
30  minute  dialogue  between Ted Monaco and  myself  took  place
separately  from  von Wedel and Monaco's group. In  this  private
dialogue,  Monaco  explained to me the purpose  of  his  trip  to
Baghdad,  which as I understood was to expeditiously re-negotiate
old  BNL  -  Rafidain debt, with a view to then establishing  new
facilities in favor of Iraqi government financial institutions.
  I  explained  that  von Wedel and I were  in  Iraq  to  discuss
previous years CCC and related activity, to determine the  extent
of  upcoming CCC allocations, and also to discuss with the  Iraqi
Central  Bank  its earlier proposal for BNL to provide  selective
project  finance to U.S. and European multinationals  engaged  in
the  reconstruction of Iraq's infrastructure. I detailed in broad
terms  the level of commitment expected by Markazi, and indicated
that  several government loan guarantee institutions (ECGD, Exim,
Coface,  Sace, and Hermes) were all considering various  projects
which   could  potentially  be  interwoven  into  our   financial
arrangements.  Monaco expressed exactly the same aspirations  and
asked  that  I keep him informed of the results of my meeting  in
Baghdad, which I did subsequently.
  Within  the  Atlanta branch, all employees were  aware  of  the
Iraqi loans.
  In  Rome,  the following departments were aware of the  overall
activity with Iraq:
      A.  Correspondent  banking division (area  finanza)  -
     unit responsible for relations with Middle Eastern  and
     African banking institutions.
      Gian Maria Sartoretti
      Teodoro Monaco
      as well as several of their staff.
  Monaco  in  particular was completely aware of  the  extent  of
Atlanta's  CCC lending, for over the years beginning in  1985  in
telephone  conversations he was kept abreast of  our  annual  CCC
pilgrimages to Washington. He knew the general amounts which  BNL
Atlanta  agreed to finance, and indeed encouraged me to  proceed,
for  he  time  and  again  indicated that Iraqi  approvals  would
eventually be forthcoming.
  He  was aware of overall extent of our MTL commitments, for  he
was   apprised   by   me  initially  in  Baghdad   of   Atlanta's
negotiations,   told  me  to  develop  the  post  Iran-lraq   war
reconstruction business, and indicated that he too was developing
his  lending  activities along the same lines, but  that  he  had
several  administrative hurdles to surmount  in  Rome  before  he
could charge ahead.
  We  had  regular discussions regarding Atlanta's  CCC  activity
and,  as  MTL  business developed, conversations regarding  those
loans also.
  By  1989,  Monaco  was  instructing BNL's Italian  branches  to
telephone  the  Atlanta  office directly regarding  Iraqi  loans.
Although Monaco has contended that these referrals were for  cash
collateralized  business  only,  this  is  not  the  case.   Cash
collateralized  business was being handled by BNL  London,  under
Monaco's control.
      B.  Multinational corporation lending  division  (area
     commerciale)  unit  responsible for  the  1000  largest
     corporations worldwide
      Ademaro Lanzara
      Carlo Salvatore
  These   officials  monitored  relations  with   BNL   Atlanta's
multinational  clientele  and  met with  these  companies  senior
officers periodically at BNL Rome and also on occasion the  these
corporation's corporate headquarters.
  On   several   occasions,  the  most   senior   executives   of
Continental   Grain  and  Cargill  visited  messrs  Lanzara   and
Salvatore  and detailed the scope and breadth of their  relations
with BNL Atlanta. They met with no unusual remarks.
  On  another occasion, Mr. Lanzara met with officials of Nestle,
at  the  company's  headquarters in Vevey, Switzerland.  At  that
time,   Lanzara  received  complete  information  regarding   BNL
Atlanta's activities on behalf of Nestle in Iraq. Lanzara  called
me shortly upon his return to express his thanks to us for having
made  his job at Nestle that much easier...for we had effectively
established a positive reputation for BNL at Nestle.  The  Nestle
loans were neither CCC nor MTL credits.
  They were unsecured one year credits to Iraq to facilitate  the
purchase  of  powdered  milk and baby formula,  amounting  to  an
aggregate of more than USD 50 million. Lanzara was fully aware of
these credits, and others.
      C.  credit  division (area crediti)  unit  responsible
     for granting credits companies based overseas
      Dr. Carini
      Dr. Frattini
  As  head  of the credit area, it was Dr. Carini's role to  host
the  visits  of  senior  executives from  overseas  multinational
corporations  seeking  to  update the  head  office  about  their
financial  standing. Thus on many occasions, Dr.  Carini  or  his
successor, Dr. Lupo met with the same senior corporate executives
who  met  with  Drs.  Lanzara  and  Salvatore.  Here  too,  these
executives   have  confirmed  explaining  to  the  area   crediti
officials  the nature of their relationship with BNL Atlanta,  at
times   in  the  same  meeting  or  luncheon  attended  by   area
commerciale's officials.
  Dr.  Frattini, a middle level officer specifically  responsible
for Atlanta's credit portfolio, saw the computer reports relating
to the branch's exposure.
  This  exposure  was  reflected erratically,  causing  the  head
office   inspection  centre  to  question  Frattini  on  numerous
occasions  about  Atlanta's  activities.  Frattini,  who  visited
Atlanta  and  spent several weeks there, understood that  Atlanta
was  using  its credit facilities for purposes and  time  periods
other than those formally approved in Rome.
  Nonetheless,  he  continued  to  be  one  of  Atlanta's  strong
  Similar  computer reports evidencing BNL Atlanta's exposure  to
correspondent  banks  was reviewed too  by  the  Rome  inspection
centre,   and  Monaco  was  similarly  queried  about   Atlanta's
activities. Given his parallel strategy to support Iraq, his team
worked  with  Atlanta  officials to quell any  suspicion  in  the
inspection centre.
      D. office of the managing director
      Dr. Pedde
      Pietro Lombardi
  Formerly  the  head  of area crediti, Dr. Pedde  was  appointed
managing director after the initial political purges of 1986  and
1987, shortly after the Socialists under Bettino Craxi lost power
in the Italian Parliament.
  Aware  of  Atlanta's shadow activities, through other  sources,
he  provided  immeasurable support for BNL  Atlanta,  in  essence
acting as the branch's protector. On occasions when I was in Rome
on  official  visits, he would pull me aside for  short  periods,
express  his  satisfaction with the manner  in  which  the  Iraqi
business was progressing, and encourage me to continue our  Iraqi
activities,  but  with  an emphasis on developing  multi-national
industrial clients in Europe and North America.
  Whenever  my  nemesis  Dr.  Sardelli  in  New  York  caused  me
difficulty  in New York, he intervened to protect the branch  and
its activities .
  He   discussed  particulars  with  me  about  Atlanta's   Iraqi
lending,  especially as it related to Italian clients, and  asked
that  I  liase confidentially with him as required through Pietro
Lombardi,  the  man who ultimately replaced Dr. Sardelli  in  New
  As  financing the Iraqi portfolio became too onerous a task for
the  Atlanta staff, it was through Pietro Lombardi to  Dr.  Pedde
that I communicated our inability to continue our lending to Iraq
in  the  same manner, stating that Rome would have to  fund  this
activity directly from Rome or from other units. I expressed  the
same  sentiment to the Mr. Ali in Iraq, and before long both were
proposing  the  removal of operations to a  larger  venue...  the
heart of the U.S. industrial belt... Chicago.
  After  04  aug 89, upon my immediate return to the  US,  I  met
with Pietro Lombardi in New York, who in essence looked at me and
said,  with  the expression of an individual who had  been  found
out, "What are WE going to do?"
  In  that  same meeting, Mr. Carlo Vecchi, the New  York  branch
manager and head of treasury operations for North America,  said,
"we  knew  what you were doing in Atlanta all along." I  was  not
aware until then that individuals in New York were also aware  of
Atlanta's activities.
  While  Rome  officials  were  informed  of  my  activities  and
somehow in liaison with Baghdad, I felt that Dr. Sardelli and New
York branch officials were in the dark. Now I knew otherwise.
      E. New York regional management
      Carlo Vecchi
      Quirino di Mano
      Several officials of the comptrollers division
  Although Atlanta was careful not to disseminate information  to
Dr.  Sardelli's  area about the activities of BNL Atlanta  (hence
the  need  for  shadow accounting) we were aware  that  Atlanta's
activities  in the money markets would come to the  attention  of
New  York's treasury division, and indeed, our movements  in  the
marketplace  caused BNL New York's traders to become  upset  with
us. Given the branch's need for substantial amounts of funds,  it
regularly  squeezed  New York, with its USD 7 billion  portfolio,
out  of the money markets. Vecchi and his senior trader, Rino  di
Mano, called us to inquire on numerous occasions why, with only a
USD  750  million  portfolio,  we  were  purchasing  much  larger


  I  do  believe  that  all three countries, the  United  States,
Italy,  and Great Britain were aware of the loans being  extended
by  the  Atlanta agency of BNL. First of all I am aware from  the
accounts offered by Paul Henderson, and the proceedings in  Great
Britain  against  him and others, that MI5 and  MI6,  were  being
furnished copies of all documents relating to our loans to Matrix
Churchill. Moreover, I was informed by messrs Ali and Habobi that
there   were   several  individuals  in  the   Matrix   Churchill
organization with contacts to British intelligence, and that  Mr.
Habobi's  driver  was  an observer of TDG's  activities  for  the
English  intelligence  community. These facts  did  not  seem  to
bother them, as I had mentioned in prior testimony. When I  noted
to  Mr.  Ali  that  U. S. intelligence figures  appeared  in  the
shadows of BNL Atlanta's customer  portfolio he shrugged,  looked
at  me  as if I were some sort of dunce and stated that Iraq  and
the  U.S.  worked  very closely together. He  therefore  did  not
understand my expression of surprise.
  Also, in a brief conversation with Mr. Habobi's driver, when  I
was being taken to a restaurant or to my hotel, the driver stated
that  he  had formerly worked for the British army and,  although
retired,  was still obliquely involved with the British  military
by virtue of his current position. He spoke to me openly as if  I
too  had some connection to western intelligence, which I thought
peculiar.  My  general  view  after  many  such  encounters   and
discussions   was   that  Iraqi,  Italian,   British   and   U.S.
intelligence   services  were  fully  aware  and  supported   BNL
Atlanta's  activities. In addition, based upon my  meetings  with
several  of  our German customers involved in the  MTL  loans,  I
considered  that German intelligence was also keeping updated  on
BNL  Atlanta's  affairs, but that there was  little  intelligence
sharing  on  their  part, unlike that taking  place  between  the
previously mentioned countries.
  As  to the United States, I concluded that they must have  been
aware  of our activities. Certainly, our loans to Russia  and  to
Iraq,  much of which was conducted by telex and telephone, should
have  been  the subject of interception by U. S. authorities.  In
addition,  the  USDA  officials,  who  received  copies  of   all
documentation,  should  have  been alerted  to  the  considerable
exposure   BNL   had  to  Iraq.  The  Commerce  Department   also
participated  in the yearly negotiations for CCC  allocations  in
Washington,  which  I  attended.  I  believe  that  the  Commerce
Department  would have also been made aware as a  result  of  the
applications  for  export licenses required  for  these  exports.
Further, the awareness of the United States officials in Iraq  of
my  presence,  as well as statement by Wafai Dejani,  led  me  to
conclude  that  United  States intelligence  agencies  and  other
United  States  officials were knowledgeable  about  our  lending
  It  is my belief that many of the companies doing business with
Iraq   under  the  MTL  loans  program  had  relationships   with
intelligence services. Among these companies, were Lummus  Crest,
Bechtel,  Hewlett  Packard  etc. I am  also  aware  that  William
Muscarella  of  the XYZ Options was visited by CIA  officials  in
connection with his activities to build a carbide plant in  Iraq.
Of  course, the Committee is already familiar with the names Dale
Toler, Chap Chandler and Charles Chidiac, all of whom represented
themselves  as  being connected with U.S. intelligence  services,
and all of whom sought to do business under the MTL program.


  I  had  no  awareness at the time of the events that there  may
have been diversions. It is certainly not inconceivable that this
was  occurring. I have subsequently learned that a BNL  executive
in Italy acknowledged that such activities were taking place.


  My  initial  awareness of Kissinger Associates  involvement  in
these  matters  began at the time we commenced  our  relationship
with  LBS.  As  time  progressed I became  aware  that  Kissinger
Associates was a component in many of the loans taking place. For
example,  Wafai Dejani had told me that Henry Kissinger  was  the
architect of these loans as they related to U.S. foreign  policy.
I  had attended a speech given by Mr. Kissinger in Venice to  the
International managers of BNL, and learned of his relationship as
a  member  of  the International Advisory Board of  BNL.  I  also
learned  through  conversations with the officials  at  LBS  that
Lawrence  Eagleburger  was associated with Kissinger  Associates,
which  apparently  accounted for his ability to  accomplish  many
tasks  on their behalf. Moreover, I was aware of the trips  taken
by  Alan  Stoga of Kissinger Associates to see the  Iraqis.  This
latter  information was derived from individuals associated  with
the  Iraqi-American Business Forum, who advised me  that  several
officials of Kissinger Associates had traveled to Iraq to develop
business relationships for their clients.


  In  1992 1 attempted to cooperate with the US Attorney's Office
after pleading guilty. Some have asked why I plead guilty in 1992
if I was indeed not guilty. There is a very simple explanation. I
had  been  Jailed with no hope of bail in April 1992. I had  been
relegated  to  a  Federal  Defender to represent  me  in  a  very
complicated case since I had no assets, and owed my prior counsel
several  hundred  thousand dollars. My federal defender  was  not
able  to  understand the case, having said to me after months  of
representation, "what is a letter of credit?" Feeling that it was
likely  under  those circumstances that I might be convicted  and
face lengthy incarceration, I agreed at my attorney's request  to
plead guilty.
  I  withdrew  my  original plea because I believed  I  had  been
misled  by  the  government.  Again,  from  the  outset  of  this
incident,  I had been led to believe by the Iraqis and  BNL  that
there  would  be  no criminal proceedings against  me.  They  had
assured  me that perhaps regulatory violations against  the  bank
would be brought, but that I would not be in jeopardy of going to
jail.  When my federal defender persuaded me to enter my original
guilty plea, I was under the impression that if I cooperated with
the  government, that I would receive a letter from  them  asking
the  court  to downwardly depart from the Sentencing  Guidelines.
However, the government's attorneys didn't provide such a letter,
and  instead sought to have me imprisoned for life. It  was  then
that my new counsel, sought to withdraw my plea.
  But  for the persistence of Mr. Bobby Lee Cook, and the efforts
by  Judge  Marvin Shoob, which led to the discovery  of  the  CIA
documents,  I  would  have been sentenced to jail  in  September,
1992. The disclosure of exculpatory materials, led the government
to  agree  to permit a withdrawal of my plea. It is worth  noting
that Mr. Simels' efforts led to the further disclosure that there
were  additional exculpatory materials in the possession  of  the
government,  which included the debriefings of Paul Henderson  by
the government's attorney prior to my indictment.
  My  efforts  at cooperation with the US Attorney's office  were
frustrated by their continued unwillingness to allow me  to  tell
them  the truth. They would pose a question, and when I began  to
tell  them an answer which was inconsistent with their theory  of
the  case, they would either say we're not interested, or  you're
lying.  My  then  attorney kept pulling me out of  the  room  and
warning  me  to just say what they want to hear, so you  can  get
them  to  write  a  letter  seeking a downward  departure  in  my
sentence.  I  finally  accepted  this  premise  and  limited   my
responses to say yes, you're right.
  It  was  obvious  that  the government team  investigating  the
matter  was  wedded to a particular theory, in part because  they
never looked at the most significant documents which had been  at
the  bank. I learned in the course of the debriefing that King  &
Spalding had limited their opportunity to review the files at the
bank, and had kept the most important documents in their custody.
Whenever  I attempted to explain matters to them I would  request
specific  documents, which they did not have  at  their  offices.
They  had  to  go  to  King & Spalding to  obtain  the  requested
documents.  Indeed,  it  was  only after  Mr.  Simels  began  too
represent  me  that  he was able to compel  King  &  Spalding  to
provide  those  documents to me to review. Although  those  files
have been sanitized since 1989, I was able to reconstruct some of
the  most significant evidence pointing to BNL's awareness of  my
  I  can  only  state that I was disappointed when I  read  Judge
Lacey's  report. No one could appreciate the complexity  of  this
matter  in  the  brief period of review he spent  conducting  his
investigation.  Certainly  he did not seek  or  obtain  essential
documents  to  an understanding of this matter. His rejection  of
the  premise  that  the Department of Justice  and  other  United
States  agencies  had  attempted  to  cover  up  this  matter  is
extraordinary to me. I believe that all of the BNL employees from
Atlanta,  who were interviewed by original BNL Task  Force  would
tell  you that any time they attempted to implicate BNL they were
told  that  they were not telling the truth, or the  subject  was
changed.  Moreover,  I  believe that the  Department  of  Justice
officials  that  Judge  Lacey interviewed  had  every  reason  to
protect  themselves in their statements to him. I further believe
that  had  Judge  Lacey  pursued  the  information  developed  by
Chairman Gonzalez and Chairman Rose he could not have reached the
conclusions reflected in his report.


  The  use of BNL Atlanta to finance the Sidewinder missiles  was
not  surprising to me. It was one of several transactions  routed
through   BNL  Atlanta  by  the  Italian  military.   While   the
instructions  relating to the merchandise were often  cryptic,  I
was  able  to understand their significance. Indeed, the  initial
description  on  the Sidewinder purchases did not  refer  to  the
commodity   being   purchased.  It   was   only   after   several
communications  that  I became aware that the  purchase  involved
Sidewinder missiles. I initially believed that those purchases
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