Judicial Order in the BNL Case Issued by Judge Marvin Shoob on October 5, 1992.
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION
UNITED STATES OF AMERlCA, Plaintiff, v. CHRISTOPHER P. DROGOUL, Defendant
CRIMINAL ACTION 1:91-cr-078-MHS
This case involves billions of dollars raised and loaned in international finance. It involves allegations of an international bank fraud that may have helped pay for Iraq's military build-up. But the more important issue before this Court involves a man's liberty and serious questions about the integrity of our justice system and the almost unreviewable powers of prosecutorial discretion. The Court's judgment and decisions throughout the hearings and motions before it have been guided by its belief that there is a moral component to the Court's involvement in this case the responsibility to do the right thing.
This order will set forth the reasons the Court will grant the Government's motion to recuse and why the Court, on October 1, 1992, orally granted defendant Christopher P. Drogoul's renewed motion to withdraw his guilty plea.
I. BACKGROUND OF THE CASE
For almost three weeks, the Court has heard evidence relating to the sentencing of Mr. Drogoul who entered a guilty plea to 60 counts of a 347-count indictment on June 2, 1992, and faced a life sentence. The indictment centers on charges that Mr. Drogoul, the manager of the Atlanta branch of one of Italy's largest banks, defrauded the parent bank ("BNL") by making some $2 billion in unauthorized loans to Iraq and other countries. A number of these loans were backed by the Department of Agriculture's Commodity Credit Corporation ("CCC"). The indictment also includes charges of tax evasion, making false reports to government agencies and money laundering. Mr. Drogoul is the highest ranking BNL official indicted and the focus of the Government's prosecution.
Mr. Drogoul entered his guilty plea during a three-hour hearing before this Court, following an unusual sequence of events. In the week or so before the plea hearing, Mr. Drogoul announced his intention to plead guilty to all 347 counts of the indictment and to make a full statement about the case. Several days before the plea hearing, however, he agreed to a surprising offer from the Government to plead to only 60 counts and delayed making any meaningful statement. His sentencing hearing began September 14, 1992.
The Government has said that this hearing was highly unusual, more of a mini-trial than a sentencing hearing. The Court agrees that this hearing was unusual, but this has been an unusual case. The Government initially sought the "mini-trial;" at one point before the plea bargain, prosecutors requested three weeks to present evidence rebutting defendant's anticipated statement at the plea hearing. Following the plea bargain, which was initiated by the Government, the Government sought three days to present witnesses. During the sentencing hearing, the Government proceeded to present detailed evidence as to how the money flowed from one account to another, how much money defendant had promised to Iraq and other nations, and how defendant and alleged co-conspirators covered up these transactions.
The Court has never intended to "put the Government on trial," as suggested by the prosecution but only to determine what transpired and Mr. Drogoul's involvement. The Court also points out that a sentencing hearing is not a trial, and the rules of evidence do not apply. Courts are permitted to rely on hearsay and even on the testimony of confidential informants without knowing their identity. In a sense, evidence at a sentencing hearing is not subject to the same testing as that put on at a trial; the Court simply must satisfy itself that the information is "sufficiently reliable."
II. PLEA WITHDRAWAL
On September 21, 1992, after one week of evidence in the hearing, the Court denied defendant's motion to withdraw his plea of guilty. The Court held that defendant had not shown that there was a "fair and just reason" to permit the withdrawal of his guilty plea. September 21, 1992, Order. However, after daily revelations undermining the Government's case, the prosecution announced on October 1 that it no longer opposed defendant's motion to withdraw his guilty plea. Defendant renewed his motion to withdraw the plea.
In the two weeks of testimony following defendant's first attempt to withdraw his plea, defendant presented credible evidence suggesting that the Government had not fully investigated whether defendant's superiors in the bank approved of and were aware of his activities. The Government also furnished to the Court classified documents from the Central Intelligence Agency ("CIA") suggesting that BNL-Rome was aware of Mr. Drogoul's activities and was not a victim of the alleged fraud. Furthermore, defendant named several BNL superiors who knew of his activities and described their involvement. Defendant did not resolve the questions about why he, a clearly intelligent person represented by counsel, entered his plea of guilty on June 2, 1992, and during a three-hour hearing before this Court testified only that his superiors should have known. However, other evidence presented at the sentencing hearing as outlined below raised such serious questions that the Court concluded that these issues could not appropriately be taken up on a motion for downward departure but should be heard at trial. In light of these conclusions and the Government's and defendant's request for a trial, the Court granted the motion to withdraw the plea.
III. RECUSAL
The Government has filed a written motion requesting recusal, and the Court will grant the motion. A judge should disqualify himself from "any proceeding in which his impartiality might reasonably be questioned." 28 U.S.C. [[section]] 455(a). Although the Court believes that it would be able to hear the evidence with an open mind, the Government's concerns that it would not act impartially counsel against this Court remaining on the case. From the evidence presented during the hearing, this Court has reached and voiced certain preliminary conclusions and concerns about this case and the Government's conduct in investigating and prosecuting defendant that may, from the prosecution's viewpoint, interfere with this Court's ability to hear evidence with an open and impartial mind. Furthermore, while some of the concerns raised by this Court may have legitimate explanations, the sheer number of unusual circumstances led this Court to reach these tentative conclusions. Accordingly, the Court will set forth some of the tentative conclusions it has reached in hearing this matter and its reasoning in arriving at those conclusions. Set forth below are the bases for the granting of the motions to withdraw the plea and to recuse.
A. The knowledge of officials at BNL-Rome
The Court concludes that officials at BNL-Rome were aware of and approved Mr. Drogoul's activities. At the very least, BNL-Rome chose to ignore what were obvious signs of Mr. Drogoul's extraordinary relationship with Iraq and his unusual lending practices. In support of this conclusion, the Court notes:
1) Classified reports from the CIA conclude, in part, that a number of high level BNL-Rome officials supported Mr. Drogoul's activities.[1]
2) A senior BNL official, Mr. Monaco, referred an Italian company seeking financing for a major construction project in Iraq to BNL-Atlanta.
3) The former head of BNL's North American operations, Dr. Luigi Sardelli, provided credible testirnony showing that senior officials in Rome approved or had knowledge of Mr. Drogoul's activities.
* Sardelli's letter criticizing defendant's activities was never delivered by the auditor to officials in Rome.
* Instead of auditing or investigating BNL-Adanta, BNL-Rome officials elected to investigate Dr. Sardelli who appears to be the only "straight shooter" in the organization.
* BNL-Rome was an extremely political organization operating more as an agency of the Italian govemment than as a bank.
* Dr. Sardelli voiced his frustration with BNL-Rome in testifying that the BNL-Rome officials sent to the United States to investigate the Atlanta branch after the raid were the officials who should have been investigated.
* Dr. Sardelli testified that he believes officials at BNL-Rome knew of Mr. Drogoul's activities.
4) There is evidence that documents may have been shredded by BNL officials shortly after the raid and that some files and documents are missing.
5) BNL branches in Germany, England and Canada were aware of BNL Atlanta's substantial financing of Iraqi purchases and projects.
6) The Government's witnesses from Morgan Guaranty and the Bank of New York and confidential CIA reports concluded that it was well-known in intemational banking circles that BNL-Atlanta provided substantial financing for Iraq's purchase of agricultural, military and non-military products.
7) The Italian parliament's extensive report on the "BNL scandal" concludes that Mr Drogoul was not a "lone wolf" and that BNL-Rome's failure to adequately supervise the Atlanta branch permitted the continued illegal activity.
8) Mr. Drogoul's co-defendant Paul Von Wedel and Jean Ivey, a BNL-Atlanta employee who was granted immunity, testified that they believed that officials in Rome were aware of BNL-Atlanta's involvement with Iraq's testimony the Court found credible. Mr. Von Wedel also testified that Mr. Drogoul had regular access to Dr. Giacomo Pedde, the director general of BNL, that Mr. Drogoul met with Mr. Monaco, a senior BNL official, in Baghdad, and that Mr. Florio, another senior BNL official, verbally approved early CCC loans to Iraq.
9) Mr. Drogoul's first attorney, Theodore Lackland, testified credibly that several individuals involved with the allegedly fraudulent transactions told him that officials in Rome were aware of the transaction and in fact had in their possession one of the allegedly fraudulent loan agreements (MTL-4).
10) As the "victim" in this matter, BNL-Rome may be able to recover $1-2 billion in unpaid CCC-backed loans to the Iraqis.
11) When notified of the August 4, 1990, raid, Mr. Drogoul returned immediately to the United States, leaving his family in France. He met with BNL officials in New York, was furnished an attorney who was to be paid by the bank, and continued as manager of the Atlanta branch for a week.
12) Mr. Drogoul's chief mentor at BNL in 1986-87 retired from BNL in 1987 and became a consultant at Entrade, a defendant in this case and a participant in the scheme.
B. The Investigation and Prosecution of Mr. Drogoul
The Court has also come to a number of preliminary conclusions about the Government's investigation of this case. Primarily, the Court concludes that prosecutors failed to investigate seriously whether BNL-Rome knew of defendant Drogoul's activities. This failure, coupled with or provoked by the involvement of other departments of the United States Government, indicates an effort to absolve BNL-Rome of complicity in the Atlanta branch loans to Iraq. The Court notes:
1) High-level officials in the Justice Department and the State Department met with the Italian ambassador to discuss the case. They appeared to help steer this case and gave support to BNL-Rome's position that it was a victim in this matter, assuring the ambassador that there "would be no surprises" for the Italians.
2) The Justice Department cancelled investigators' necessary trip to Italy and Turkey, where they intended to interview bank officials and others with knowledge of the transactions and scheme.
3) The Italian ambassador met with then-Attorney General Richard Thorn burgh in Spring 1990 and told him that incriminating BNL-Rome in these transactions would be tantamount to "a slap in the face" of the Italians and would not be understood by the government of Italy
4) The local prosecutor in this matter received one or more highly unusual and inappropnate telephone calls from the White House Office of Legal Counsel about this case, indicating the potential embarrassment level of the case.
5) The draft indictment was delayed by the Justice Department from early 1990 until the end of the Gulf War, February 1991 -- almost one year. Also, the plea bargain in which Mr. Drogoul agreed to plead guilty to only 60 counts rather than 347 and initiated by an assistant prosecutor when the chief prosecutor was out of the city effectively silenced Mr. Drogoul who had announced his intention to make a filll disclosure at the plea hearing.
6) The Government failed to produce and, apparently, made no effort to bring in any knowledgeable bank officials from Rome -- including Pedde, Guadagnini, Monaco, Florio -- for the sentencing hearing.
7) The Government failed to interview Wafai Dajani, despite evidence of his substantial involvement with the scheme, when he was in Atlanta and had agreed to meet with the prosecution. Mr. Dajani, who has ties to the King of Jordan, was not indicted.
8) Investigators were blocked by the Department of Agriculture from interviewing Iraqi officials who were in the United States negotiating CCC guaranties and later were prohibited from travelling to Iraq to interview potential co-conspirators and witnesses.
9) In early 1990, Atlanta prosecutors met with BNL-Rome lawyers, discussing the bank's position as a victim.
10) The American Ambassador to Italy notified the Secretary of State, Justice Department and others in the Fall 1989 that BNL's management was worried about the prosecution of the case and wanted it raised "to a political level" and to achieve "damage control."
11) Matrix Churchill, an Iraqi front company that was a clearinghouse for weapons procurement, was not indicted, although one of its officers was.
12) The Government has provided no credible explanation for its failure to indict Wafai Dajani, Matrix Churchill, Enka, and the Central Bank of Iraq.
C. Intelligence agencies
The Court also tentatively concluded during the course of the hearings that it is likely that the United States intelligence agencies were aware of BNL-Atlanta's relationship with Iraq. For example:
1) The Central Intelligence Agency did not respond to repeated requests from the Court concerning CIA knowledge of and involvement in the activities of the Atlanta branch. The agency's earlier response to the carefully crafted September 1, 1992, request from the Acting United States Attorney was evasive and concerned only knowledge of and involvement in unauthorized funding. The CIA continues to be uncooperative in attempts to discover information about its knowledge of or involvement in the funding of Iraq by BNL-Atlanta.
2) The raw intelligence reports indicate an awareness of extensive funding of Iraq by BNL-Atlanta.
3) There was no explanation as to the intelligence community's awareness or lack of awareness of BNL-Atlanta's role in funding the Iraqi military build-up despite extensive cable traffic between Baghdad and Atlanta and several trips to Baghdad by Drogoul, including one to an Iraqi military fair attended by U.S. officials, such as the U.S. Ambassador.
D. Classified Informatlon
The Court is also concerned that the local prosecutors lacked access to classified information which may have provided evidence on important elements of this case. The September 17, 1992, letter from the CIA to the local prosecutors shows that the CIA was not forthcoming with information it may have about the transactions at issue in this case -- the one area of classified information made available to the Court supports Mr. Drogoul's contention that his superiors approved of his activities. While the Court is well aware that there may be classified inforrnation in support of the Government's theory of this case, the Court is concerned that the prosecutors may have been blocked by agencies with political agendas from developing a full picture of this affair. This is particularly troubling in light of the fact that this information no longer seems relevant to national security and that, even if it is, there are procedures through which the CIA, and other agencies, can make classified information available without revealing sources and methods.
IV. CONCLUSION
These are grave questions as to how the prosecutors made their decisions in this case both as to the nature of the charges and whom to prosecute. It is apparent that decisions were made at the top levels of the United States Justice Department, State Department, Agriculture Department and within the intelligence community to shape this case and that information may have been withheld from local prosecutors seeking to investigate the case or used to steer the prosecution. Furthermore, the Attorney General's exceptional refusal to grant the Congressional request for an independent Counsel in itself raises concerns for the Court about the Government's impartiality in handling this case.
Accordingly, this Court again strongly recommends that an independent prosecutor be named to investigate this matter. The Court also recommends that the trial of Mr. Drogoul and the sentencing of the other defendants in this case be postponed to enable the United States Government to employ its full resources to obtain all the facts rather than to continue with the prosecution's acceptance of BNL-Rome's version that BNL is a victim to avoid embarrassing a foreign government or to contain criticism of a failed foreign policy. The naming of an independent prosecutor in this matter would be an appropriate response to the 1990 Federal Reserve memorandum, commenting that the Iraqis are willing to sacrifice one individual to the vagaries of the United States criminal justice system.
The Court GRANTS defendant's motion to withdraw his plea of guilty and GRANTS the Government's motion to recuse.
IT IS SO ORDERED, this 5th day of October, 1992.
Marvin H. Shoob, Senior Judge
United States District Court
Northern District of Georgia