Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post
Newsgroups: americast.wpost
From: americast-post@AmeriCast.Com
Organization: American Cybercasting
Approved: americast-post@AmeriCast.com
Subject: Resurrection of Scandal Haunts Italian Bank; New Investigations of BNL Atlanta
Date: Sat, 31 Oct 92 08:47:18 EST
Message-ID: <28.1992Oct31.084718@AmeriCast.com>

Resurrection of Scandal Haunts Italian Bank; New Investigations
of BNL Atlanta Branch's Loans to Iraq in 1980s Loom in U.S.,
Rome<By William Drozdiak=Washington Post Foreign Service=

ROME, Oct. 30 - Just across the street from the palatial American
Embassy here, at one of the poshest addresses along the fashion-
able Via Veneto, a climate of fear and suspicion weighs heavily
over the imposing headquarters of Italy's Banca Nazionale del La-
voro.

Barely three years after its Atlanta branch was implicated in a
multibillion-dollar loan scam that helped Iraq bolster its arse-
nal ahead of the Kuwait invasion, the largely government-owned
bank believed - for a short while - that it was winning a diffi-
cult struggle to salvage its reputation and international busi-
ness interests.

Giampiero Cantoni, the BNL chairman who was appointed a month
after the scandal broke in August 1989 to clean up the mess left
by his disgraced predecessor, had revamped the bank's organiza-
tion and strengthened its audit process in a bid to restore pub-
lic confidence in the country's second largest bank.

"When I arrived, morale was terrible and the big concern was
whether my 26,000 employees would get paid by the end of the
month," Cantoni said in an interview. "A lot of people were
frightened that we might not survive that phase, yet we did."

But the ghost of the BNL scandal, once buried after a few harrow-
ing months, has been resurrected here as new investigations loom
in the United States and Italy to explore the possibility that an
international political conspiracy may lay behind the scale and
haste of Western efforts to rebuild Iraq in the late 1980s.

The revived interest in the case has been fueled by populist re-
bellion against the Christian Democrats and Socialists, who ruled
in tandem for decades to keep the Communists in opposition. Be-
sides Italy's steep economic crisis, voters have become incensed
over proliferating corruption scandals.

The Christian Democrats, including their long-time prime minis-
ter, Giulio Andreotti, have been linked by investigating magis-
trates with Mafia activities; the Socialists stand accused of
taking cash kickbacks for public work contracts, and some inves-
tigators want to see whether BNL's close association with the So-
cialists over the years has involved paybacks on international
deals.

The spreading disenchantment with Italy's political establishment
has provided fertile ground for new suspicions to grow about the
real motives behind the BNL case, as political pressure grows to
root out the deeper truths.

Locked behind the bank's fortress mentality, BNL executives have
kept a low profile, hoping the crisis will fade. But only they
may provide the necessary insights to resolve several puzzling
questions to the case: How could the Rome hierarchy not be aware
of the huge loans being doled out in its name? How much political
orchestration was involved, given the bank's close ties to the
ruling Socialists and its extensive links with Iraq? Why was the
U.S.-Italian partnership considered to be at stake in the
prosecution of the case?  Following its own internal investiga-
tion, BNL headquarters claimed to have been duped and defrauded
by the Atlanta branch manager, Christopher Drogoul, who purport-
edly funneled more than $4 billion in loans and loan guarantees
to Iraq hidden on "gray books" that eluded detection by the
bank's lax supervisors. Drogoul was convicted of fraud, but is
now appealing the verdict on grounds that his superiors were
aware of his activities.

Bank officials acknowledge that oversight, at the time, was ex-
tremely lax because Giacomo Pedde, the bank's powerful general
manager, had ordered a reorganization of the bank and issued a
directive to trim costs by scaling back audits. The weakened
internal controls, they say, allowed Drogoul to pursue his frau-
dulent scheme without getting caught by his bosses in Rome.

A September 1988 inquiry by BNL's New York regional office, how-
ever, condemned several irregularities committed by the Atlanta
branch, such as repeatedly exceeding its lines of credit. But the
report was buried, and a translated copy had not reached Rome be-
fore the FBI raided the branch on Aug. 4, 1989.

Bank officials claim Drogoul exploited BNL's Triple A rating and
covered up his shadowy deals by juggling the massive loans on his
"gray books." Yet a 14-month investigation by the Italian Senate
concluded the enormous loans to Iraq could not have gone un-
detected unless aided and abetted by higher-ups.  Moreover,
Italian Senate investigators contended that a political decision
may lay at the root of the case. Investigators were precluded
from pursuing this avenue when Parliament was dissolved before
national elections last April, but they want a new inquiry to
look into possible connections between BNL executives, the So-
cialist Party that has close vested interests in the bank, and an
extensive array of arms, oil and construction contracts between
Italy and Iraq that stretch back more than three decades.

Of particular interest, investigators say, is a visit to Washing-
ton in March 1985 by Socialist prime minister Bettino Craxi, when
he discussed what to do about Iraq and the Middle East with
President Reagan, Secretary of State George Shultz and other top
U.S. officials. During the week Craxi was in Washington, the
sources said, directors of Iraq's state-owned Rafidain bank were
holding financial discussions in Rome with BNL executives.

Cantoni, Craxi's close friend and personal banker, refused in the
interview to discuss any possible connection between the two
events.

The notion of a political conspiracy behind the BNL scandal has
gained ground following revelations that the CIA and Justice
Department were less than candid with U.S. congressional investi-
gators and failed to release documents, until pressed by an
Atlanta judge, that suggested Rome headquarters knew about the
loan scam.

In the interview, Cantoni said it was his "duty and right" to
warn U.S. Ambassador Peter Secchia in 1989 about the risks to BNL
and the U.S.-Italian partnership posed by U.S.  prosecution of
the bank. But Cantoni insisted he was not exerting pressure for
the American government to abort a criminal investigation.

Following a subsequent encounter in July 1990, Secchia sent a ca-
ble to Washington saying Cantoni "expressed once more his concern
over the ongoing investigation of BNL's Atlanta branch's Iraq
loans. . . . Cantoni did not ask for any intervention, perhaps
discouraged by the embassy's previous refusals to become involved
in an ongoing investigation of possible criminal activity. Yet,
he made a pitch for the U.S. government to go slowly before mak-
ing any indictments."

The cable goes on to say Cantoni noted that Adm. Fulvio Martini,
head of Italy's military intelligence service, told him the loan
problems were exposed "because it was beneficial for the Israelis
to make it public. . . . He also commented that the assistant
U.S. attorney in Atlanta is a 'mean and vindictive woman' who is
being led by Israeli sources who have pointed her toward Turkey
as the basis of where all this began. He (Cantoni) is positive
that Mossad (Israel's intelligence service) wanted to publicize
the BNL involvement."

In the interview, Cantoni refused to discuss many details about
the case, citing the ongoing investigations. But he angrily
denied making any assertion about an Israeli plot.<02:24 10-
31C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

For more information, send-email to American Cybercasting Cor-
poration (usa@AmeriCast.COM)