Judicial Order in the BNL Case Issued by


Judge Marvin Shoob on August 23, 1993





UNITED STATES DISTRICT COURT 
NORTHERN DISTRICT OF GEORGIA 
ATLANTA DIVISION
UNITED STATES OF AMERICA, Plaintiff, v. CRIMINAL ACTION AMEDEO DeCAROLIS and 1:91-cr-78-MHS THERESE MARCELLE BARDEN, Defendants UNITED STATES OF AMERICA, Plaintiff, v. CRIMINAL ACTION LEIGH ANN NEW, 1:91-cr-88-MHS Defendant UNITED STATES OF AMERICA, Plaintiff, v. CRIMINAL ACTION PAUL VON WEDEL, 1:91-cr-89-MHS Defendant UNITED STATES OF AMERICA, Plaintiff, v. CRIMINAL ACTION THOMAS MOBLEY FIEBELKORN, 1:91-cr-126-MHS Defendant This matter is before the Court on the motions of each of the defendants for a downward departure from the sentencing guidelines. Earlier the Court considered and ruled on the various objections to the pre-sentence reports and determined the appropriate offense level for each defendant. Because of the absence of any prior criminal record, each defendant is in Criminal History Category I. On August 19, 1993, the government in a sentencing memorandum advised the Court that it will move for a downward departure pursuant to § 5K1.1 of the Sentencing Guidelines for defendants Von Wedel, New, and DeCarolis, and reserved the decision whether to make a similar motion on behalf of defendants Fiebelkorn and Barden. The government also advised the Court that it does not oppose a downward departure for defendant Barden based on her extraordinary family situation. While the government's new position makes this Court's task of imposing a fair and appropriate sentence far less burdensome, the extent of any downward departure is governed by considerations which go beyond defendants' cooperation or individual family circumstances. The Court has reviewed considerable material, including National Security Agency reports; CIA documents prepared by the Directorate of Information and the Directorate of Operations; the book of 29, which includes 29 documents from these agencies determined by the government to be discoverable by defense; the so-called black book, which consists of a series of State Department memoranda, National Security Council reports and memoranda, and Defense Intelligence Agency confidential and unclassified cables and information (the black book was not furnished to defense Counsel as the information is substantially a duplicate of that furnished in the form of summaries and the book of 29); the several reports of the Italian Senate Commission involving this matter; the diary of P. Di Vito, an official at BNL; the CIA report of the investigation of its handling of BNL-related matters; the Senate Select Committee on Intelligence staff report on the involvement of United States intelligence agencies in the BNL affair; the summaries of classified information prepared by the government and furnished to defense Counsel; the testimony during the three-week sentencing hearing of defendant Christopher Drogoul; and the various exhibits introduced during that proceeding. The preponderance of the evidence well supports this Court's conclusion that BNL-Rome was not a victim in this case. The evidence of CIA knowledge of the activities of BNL-Rome and BNL-Atlanta prior to the August 1989 raid of BNL-Atlanta is less persuasive but clearly troublesome. Either the CIA knew of the activities or the CIA failed to detect a five-year international deception and large-scale illegal financing of arms for Iraq through a small branch bank in Atlanta, Georgia. That this Court. The Court does conclude that this is an appropriate case for a downward departure as to each defendant and will grant defendants' motions in part and will also grant the government's motions for a downward departure for substantial assistance and will consider defendant Barden's extraordinary family situation.

Background

This case arises out of a loan scheme stretching across continents and cultures, involving weapons merchants and multi-national banks, and implicating governments. In February 1991, Christopher Drogoul, the branch manager of BNL-Atlanta and the alleged mastermind of the scheme, was named, along with an Iraqi Bank, some foreign nationals, and several of the above-named defendants, in a 347-count indictment. The indictment centered on charges that Mr. Drogoul, the branch manager, defrauded BNL over the course of several years by engineering billions of dollars in unauthorized loans to Iraq and other nations. A number of these loans were backed by the U.S. Department of Agriculture's Commodity Credit Corporation ("CCC"). Since the raid on BNL's Atlanta office in 1989, the scandal has sparked investigations across the Western world. Several committees of the United States Congress opened investigations into this matter, commissions of the Italian Parliament have explored the scandal, and aspects of this case were raised at a trial in England. In September 1992, this Court presided over Mr. Drogoul's three-week sentencing hearing, which followed his guilty plea to sixty counts of the indictment. The Court heard detailed testimony on the loan scheme, international money markets, and the organization of BNL. The hearing ended during Mr Drogoul's testimony when the Government announced that it did not oppose Drogoul's motion to withdraw his plea. The Court granted Drogoul's motion and later granted the Government's motion that the Court recuse itself. Mr. Drogoul is scheduled to go to trial before The Honorable G. Ernest Tidwell on September 8, 1993. These defendants, each of whom has pleaded guilty, have been awaiting a resolution of their involvement since the summer of 1989 - four years.

Evidence and Standard

While the information and evidence reviewed by the Court are of uneven reliability and occasionally recount the hearsay statements of unknown informants, the Court has sifted through the information to make reliability finding and has considered only that information which it has found to contain "sufficient indicia of reliability to support its probable accuracy." U.S.S.G. § 6A1.3(a). In sentencing, the court is permitted to rely on information that would not be admissible under the rules of evidence in a trial. "Reliable hearsay evidence may be considered. Out-of-court declarations by an unidentified informant may be considered: 'where there is a good cause for the nondisclosure of his identity and there is sufficient corroboration by other mens.'" Id. Policy Statement (quoting United States v. Fatico, 579 F.2d 707,713 (2d Cir. 1978)). The Court also notes that while no single piece of information or evidence standing on its own would support the Court's conclusions, when taken as a whole, even in light of the Government's conflicting information and argument, the information more than adequately and credibly supports the Court's conclusion that the defendant employees of BNL-Atlanta, with their personal agendas and paltry regards, were pawns or bit players in a far larger and wider-ranging sophisticated conspiracy that involved BNL-Rome and possibly large American and foreign corporations, and the governments of the United States, England, Italy and Iraq. It would be the height of hypocrisy to sentence these defendants as if this were a simple case of wrongdoing by a branch bank's employees, the sort of fraud contemplated by the sentencing guidelines. The Court's conclusions are supported by the following credible evidence:

Evidence supporting Court's conclusion that BNL was aware of the activities of the Atlanta Branch

1. BNL's relationship with Iraq * BNL is one of the largest banks in Italy, and the bank has a longstanding relationship with Iraq. * In the early 1980's, BNL financed a number of Italian exports to Iraq, and Iraq helped BNL during a liquidity crisis in the 1970's, * In late 1987, BNL-Rome helped finance a transaction for construction of a sewage plant in Iraq. * BNL was well-known, as were many Italian institutions, for its political spoils system. Members of the Italian parliament believed that U.S., Italian, and Iraqi officials received kickbacks from these deals. At the bank, commissions sometimes amounted to five percent of any deal. Other source said that BNL officials received eight percent kickbacks. 2. BNL continued to do business with Iraq after the Iraqis were implicated in the scandal. * BNL-Rome honored several letters of credit issued by the Atlanta branch to companies for carbide cutting tools (often used in the manufacture of weapons) and BNL-Rome participated in the financing of an Iraqi petrochemical plant. * It remained Iraq's correspondent bank for Italy. * Intelligence sources stated that the BNL-Atlanta loan scheme was only a continuation of this long-term relationship. 3. Evidence of BNL's knowledge * A branch of BNL in Udine, Italy referred an Italian steel company to BNL-Atlanta for financing of an Iraqi project. An official from the Rome office of BNL had personally handled the matter, advising the company to use BNL-Atlanta, because that branch handled the bank's Iraqi business. * In 1989, General Motors sought financing for an automobile deal with Iraq from BNL in Rome and Toronto. The financed automobiles were sold at almost double the unit price. No explanation is available as to the $75 million overcharge or who benefitted from it. * In January 1990, a CIA employee concluded, based on general intelligence reports and publicly available material, that managers at BNL-Rome were involved in the scandal. * A source from the legal department at the bank is quoted as saying that the transactions from BNL-Atlanta were authorized and directed by the Italian government and under instructions to make it appear that the transactions were controlled exclusively by BNL-Atlanta. * Others speculated that the loans could not have been made without the tacit approval of the BNL Tome office, and Western bankers assumed that BNL's headquarters knew of the loan scheme under way in Atlanta. * The BNL affair was considered by some sources to be part of an acknowledged cooperative strategy to support Iraq to ensure its victory in the Iran-Iraq war. * Italian treasury secretary Carli reported to the Italian Senate Commission that three BNL-Rome employees may have known about the unauthorized lending in Atlanta. He also said that the information of BNL-Atlanta's activities should not have slipped through the bank's controls. * Senior BNL officials were indicted and later convicted for their involvement in arms sales to Iran. * The Italian embassy in Iraq was under suspicion of complicity in the BNL matter. The military attache committed suicide shortly after the raid, and he was rumored to be related to the scandal. * An Italian parliamentary commission member stated that the investigation showed that Drogoul was "no lone wolf." * The former head of BNL's North American operations, Dr. Luigi Sardelli, provided credible testimony 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-Atlanta, BNL-Rome officials elected to investigate Dr. Sardelli, who appears to this Court to be the only "straight shooter: in the organization. * BNL-Rome was an extremely political organization, operating more as an agency of the Italian government 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. * Co-defendant Paul Von Wedel and Jean Ivey, a BNL-Atlanta employee who was granted immunity, testified at Drogoul's hearing that they believed that officials in Rome were aware of BNL-Atlanta's involvement with Iraq 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, orally approved early CCC loans to Iraq. * Senior officials in Rome signed onto some of the loans made by BNL-Atlanta to Iraq, at the request of the Iraqis. * From early in the investigation, BNL's lawyers and Italian officials urged that this case be raised to a political level.

Connections with the weapons network

Matrix-Churchill, an Iraqi front company and a major component of the arms procurement network, was a major participant in the BNL-Atlanta scheme. The CIA became aware that Matrix-Churchill was an Iraqi front company in 1987. No CIA reports indicated a relationship with BNL-Atlanta. Later, in a criminal proceeding in Great Britain, it was confirmed that two employees of Matrix-Churchill, one of whom was a director, Paul Henderson, were sources for British intelligence. The charges against the two men were dropped. BNL-Atlanta was reported to have provided financing for major parts of the Iraqi procurement network, involving such companies as Space Research Corporation, Lear Fan, the Italian Endeco Barazuol, and Matrix-Churchill. BNL-Atlanta was reported to have helped finance large parts of the Condor II missile program, a joint program of Iraq, Egypt, and Argentina.

Awareness of U.S. Intelligence community

The CIA had non-public information from various sources about BNL and BNL-Atlanta lending activities, though not information that they were unauthorized.

Miscellaneous Government Information

In the fall of 1989, shortly after the raid on BNL-Atlanta, there were a number of contacts between the prosecutors in the case and the federal agencies involved in the decision to approve new agricultural loan guarantees for Iraq. The Atlanta prosecutors met directly with representatives of the Agriculture Department. There were at least two telephone calls from a junior attorney in the White House Counsel's office to the chief prosecutor in this case; the calls sought information concerning the case in connection with the decision to approve loan guarantees. In the spring of 1990, the prosecutors and investigators were invited to Washington on at least one occasion to discuss the case with National Security Council staff members and other administration officials concerned about the approval of a second tranche of loan guarantees. Later, in September 1990, the chief prosecutor and chief investigator on the case were part of a Justice Department delegation which met with the Italian ambassador to the United States, who argued that BNL was the victim of a "terrible fraud." During a November 1989 meeting of the National Advisory Deputies Committee, certain officials reported that Iraq had not been implicated and that the scandal appeared to involve internal BNL matters. Some high-level members of the Executive Branch wanted to continue the CCC program with Iraq, arguing it was essential to the U.S. relationship with Iraq. * Following the execution of the search warrant and the implication of the Iraqis, the United States Government, particularly its foreign policy branches, continued to push for granting agricultural credits to Iraq. * A generally reliable source believed that BNL-Atlanta could not have operated without the knowledge and acquiescence of the Federal Reserve Board, the Department of Agriculture, and the Commodity Credit Corporation. * After 1985, the Exim bank maintained a rotating, short-term $200,000,000 facility for Iraq; it was the only listed country receiving Exim coverage. In January 1990, President Bush signed a waiver of sanctions to permit the Exim program for Iraq to continue through 1990. The United States also determined to release $500 million in CCC guarantees with the possibility that another $500 million would be released later. * A U.S. Government memorandum prepared for the Executive Branch urged continued approval of the CCC program for Iraq, but acknowledged the improbability that Iraqi bank officials were unaware of kickbacks, deeply discounted interest rates, and other gross irregularities in the program. The U.S. Government was also aware that there were allegations of double and triple overpricing of some commodities, diversion and transshipment of commodities, and that CCC financing had been used for goods that did not originate in the United States.

Di Vito Diary

Attorney General Richard Thornburgh met with the Italian ambassador at a White House dinner. The ambassador pushed the idea that BNL was a victim and said incriminating BNL would be seen as an insult to Italy. Overruns by BNL-Atlanta from 1986 were signaled to the North American office of BNL by the foreign credit office of the bank. A number of new transactions, after the raid, between BNL-Rome and Iraq totalled more than $228,000,000 as outlined in the July 31, 1990 confirmations.

Specific Findings

These factual findings support the following reasons. One, the Court finds that there is substantially reliable evidence that the alleged victim in this case, BNL-Rome, encouraged defendants to act as they did and superiors at the bank were in fact complicit in the scheme. The defendants saw their superior, Mr. Drogoul, rewarded for his acts, and could reasonably conclude that the bank approved of their acts or was deliberately ignorant of their activities. Section 5K2.10 of the Sentencing Guidelines provides:
If the victim's wrongful conduct contributed significantly to provoking the offense behavior, the Court may reduce the sentence below the guideline range to reflect the nature and circumstance of the offense. 

U.S.S.G. § 5K2.10. Downward departures relying on this section
usually involve cases of a physical assault and the policy
statement provides that the section is usually not "relevant in
the context of non-violent offenses." Id. Neither the guideline
nor the commentary, however, prohibits the section's application
to a fraud case, and the fraud guideline clearly contemplates that
the victim of the fraud was not complicit with the alleged fraud.
See § 2F1.1. 

     The Court has considered the Government's argument that §
5K2.11 applies only to victim conduct that provoked a defendant's
offenses. The Court finds, however, that it is within this Court's
discretion to consider the victim's conduct throughout the course
of this scheme in departing downward, and the Court concludes that
this conduct permitted and encouraged the scheme. This conduct
does not fit neatly in the category set out in § 5K2.11, but
clearly this was not a pattern of conduct considered by the
Commission in formulating the guidelines. 

     The evidence of BNL officials' knowledge of these loans and
of the loans' role in international finance suggests that these
defendants were merely functionaries in a scheme that benefitted
the management of BNL and furthered the foreign policy of the
United States and Italy. CCC loans to Iraq continued to be
approved at the highest levels of the United States Government
long after the scheme was uncovered, and BNL-Rome continued to do
business with the Iraqis and other entities who had participated
in the scheme "to defraud" the bank. The Di Vito diary lists in
detail a total of $228 million in new loans by BNL-Rome to Iraq
following a July 26, 1990 conversation. (Di Vito diary, July 31,
1990.)

     Two, departure is proper because the offense level is
exaggerated by the dollar value involved in the scheme. There is
little evidence that defendants' activities were the factual or
proximate cause of the loss. As recounted above, defendants' roles
were a minuscule part of the offense, and the offense level "bears
little relation to" defendants' role in the offense. United States
v. Restrepo, 936 F.2d 661 (2d Cir. 1991). Indeed, it is difficult
to pinpoint the cause of the "loss" in this action. Until the Gulf
War intervened, Iraq had continued to make payments on many of the
loans extended. On other loans, however, Iraq had defaulted. The
amount of loss caused by these defendants, then, "is complicated
by considerations of multiple causation." United States v.
Gregorio, 956 F.2d 341 (1st Cir. 1992) (permitting a downward
departure for "multiple causation"); United States v. Schneider,
930 F.2d 555 (7th Cir. 1991); United States v. Kopp, 951 F.2d 521
(3d Cir. 1991). More important, the role [of] these defendants was
trivial in relation to the scope of this scheme. Also, as
recounted above, the victims' conduct likely led to an
increase in the amount loaned and the amount lost. This
combination of causes takes the defendants outside the "heartland"
of the fraud guideline and makes these cases appropriate for a
downward departure.

     Finally, the Court concludes that a downward departure is
appropriate because there is simply no way the Sentencing
Commission could have considered the vast range of conduct that is
relevant to this case, dwarfing these individuals' involvement.
Neither this Court nor the public is likely to know the underlying
motivations and purposes of the scheme that touched the branch
bank, but it is clear that this case and all its permutations are
unlike any set of facts covered by the mathematical formulas of
the sentencing guidelines. Accordingly, a downward departure in
this case is appropriate. 

     The Court GRANTS the motions for downward departure. 

     IT IS SO ORDERED, this 23d day of August, 1993. 

                              Marvin H. Shoob, Senior Judge 
                              United States District Court 
                              Northern District of Georgia