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CIA Found Italian Tie to Atlanta Bank's Sales to Iraq

By R. Jeffrey Smith
The Washington Post

WASHINGTON

A CIA analyst concluded by January 1990 that an illicit scheme to finance Iraqi purchases of food and military equipment was not limited to bank officials in Atlanta but also involved officials at the bank's headquarters in Rome, according to a letter the analyst wrote to the Department of Agriculture.

The classified letter, dated Jan. 31, 1990, and disclosed in part Monday by Rep. Henry B. Gonzalez (D-Texas) represents the most explicit evidence to emerge so far that an intelligence official had reached such a finding about the scheme, which funneled more than $4 billion to Iraq between 1985 and 1989.

The finding contradicted the basic premise of an indictment brought 13 months later by the Justice Department, which pinned responsibility for the scheme on the manager of the Atlanta branch of Italy's Banca Nazionale del Lavoro (BNL). With the case due for trial early next year, the Justice Department is now reassessing its conclusions as new information comes to light suggesting higher-level BNL officials were involved.

The analyst informed the Agriculture Department of the finding nearly three years ago when he passed along a copy of a lengthy CIA memorandum about the BNL case written in November 1989.

In a cover letter, the analyst, Jack Duggan, said some "new information" had "come to light" in the two months since the report was issued. "Managers at BNL headquarters in Rome were involved in the scandal," he wrote. The earlier CIA report had noted that "press reports" pointed toward involvement by BNL officials in Rome but had drawn no conclusions.

Duggan worked in the Persian Gulf division of the CIA's Office of Near East and South Asian Analysis. His letter was addressed to David Kunkel, who worked in a division of the Agriculture Department responsible for implementing U.S. loan guarantees for food purchases by countries such as Iraq.

The disclosure of the letter is expected to fuel congressional criticism of the Bush administration's handling of the BNL case, which is considered politically sensitive because the bank is owned by the Italian government and because some of the illicit BNL loans were guaranteed by the Agriculture Department.

Gonzalez, who as chairman of the House Banking Committee has taken a lead role in investigating U.S. policy toward Iraq, charged in a letter to Agriculture Secretary Edward R. Madigan released Monday that the CIA letter "raises serious questions about the ... (Agriculture Department's) review of the BNL matter and why it failed to investigate" the potential involvement of Rome officials. Gonzalez quoted a part of Duggan's letter in his letter to Madigan. The full text of Duggan's letter was obtained by The Washington Post.

Gonzalez and other Democrats on Capitol Hill have alleged that the Bush administration sought to cover up Rome's involvement as a favor to Italy and a means of deflecting public inquiry into the administration's effort to bolster U.S.-Iraqi ties through expanded commercial trade in 1989 and 1990.

The letter adds to a growing body of evidence that some CIA analysts believed bank officials in Rome were culpable in BNL's scheme to finance Iraqi purchases, during a period when federal prosecutors in Atlanta and senior Justice Department officials were still investigating the scandal and deciding whether to indict the bank or its senior executives.

Last September, Gonzalez quoted from a CIA report he received about a year earlier analyzing some of the raw intelligence the agency had gathered about the involvement of BNL-Rome officials. The report said the intelligence had provided "confirmation of press allegations that more senior BNL officials in Rome had been witting of BNL-Atlanta's activities," according to Gonzalez's reading of the report on the floor of the House.

Some Justice Department officials have said they suspected early in the investigation of the bank, which began in the summer of 1989, that Rome must have been involved given the magnitude of the loans. But while this suspicion continued to be discussed in the department through 1990, it is not clear how vigorously it was pursued.

As late as November 1990, Laurence Urgenson, the chief of the department's fraud section, complained in a memo about "the virtual absence of any hard probing of BNL (officials in) New York or Rome ... an unfortunate concomitant of relying so heavily on BNL for assistance" in investigating the case.

Urgenson and other department officials have said their concerns were allayed by further government investigation, and by early 1991 the department closed ranks with the Atlanta prosecutors in alleging that the scheme was perpetrated solely by the manager of BNL's branch in Atlanta, Christopher P. Drogoul, and other employees in the branch.

In a court hearing in Atlanta in September, Drogoul alleged that BNL officials were aware of his loans to Iraq. The federal judge presiding over the case said he found reasonable grounds for questioning the government's contention that BNL-Rome had been ignorant of the scheme.

The Senate intelligence committee last month began a formal probe into what the CIA knew about the BNL case and so far has obtained nearly a dozen classified CIA documents, mostly written in late 1989 and early 1990, that suggest involvement by BNL officials in Rome.

Several of the documents are based on statements by informants the CIA considers highly reliable, although none provides proof of BNL-Rome's involvement, according to knowledgeable sources.

In his letter, Duggan did not reveal the basis for the conclusion that BNL-Rome officials were involved or say whether other CIA officials shared the finding. CIA officials Monday declined to comment on the letter.

A senior Agriculture Department official, who asked not to be identified, said the CIA analyst's letter was passed along to the Justice Department last September, more than 19 months after the government's February 1991 indictment of Drogoul for masterminding the illicit scheme.

"To the best of our knowledge, we did not receive this document until very recently," said Justice Department spokesman Paul McNulty. He said that the document falls within the scope of a special investigation into the department's handling of the BNL case ordered last month by Attorney General William P. Barr.

More than $1 billion of the loans to Iraq by BNL's Atlanta branch were guaranteed by the Agriculture Department before 1988. Since the 1991 Persian Gulf War, Iraq has defaulted on payments still owed, prompting BNL officials in Rome to petition Washington for an estimated $360 million in compensation.

Gonzalez said Monday that Duggan's letter, asserting BNL-Rome's involvement in the scandal, raises questions about whether the bank should be paid. He also accused Agriculture Department officials of seeking to mislead his committee staff by claiming last June that the department had no intelligence documents in its possession.

GM Overhauls Its Top Management, Halves Dividend

By Warren Brown and Frank Swoboda

The Washington Post

General Motors Corp., with its president acknowledging that the company's "mark of excellence has faded," Monday remodeled its top management structure, slashed its dividend and promised American consumers it would start building better cars.

The GM board of directors named retired Procter & Gamble Co. chairman John G. Smale as chairman and gave the duties of chief executive to GM President John F. Smith Jr., the man it picked last April to run the day-to-day operations of the company. The two men replace former chairman Robert C. Stempel, who resigned last week under pressure from the board.

Smith immediately announced in a nationwide video broadcast to GM employees that he was now firmly in charge of the company. With Smale sitting at his side, Smith said, "He will not run the company, I will."

Smith has over the past six months developed a strategy to streamline GM's money-losing manufacturing operations and reduce the number of overlapping, look-alike car models sold by the company's five car divisions. Each GM division is expected to reduce the number of models it offers in an effort to stop competing with itself for a dwindling share of the sales market.

The board's halving of the dividend, to 20 cents a share per quarter, is another move that will save the company money, as much as $1 billion a year.

But it could hurt Wall Street's view of GM's creditworthiness. Shortly after the dividend announcement, Standard & Poor's Corp., the financial rating service, said it was reevaluating its view of GM securities with what it called negative implications. A downgrading of the company's debt would make it more costly for GM to borrow money on the securities markets.

GM has been forced to issue nearly $6 billion worth of stock in the past 18 months to help cover its operating costs.

GM last year lost more than $7 billion in its core North American car and truck operations. North American operating losses for the third quarter of this year were more than $800 million, and its sales and market share continued to decline.

Smith, in his presentation to GM's employees, talked about the need for change because of the huge financial losses GM has suffered in recent years, "losses so large that even General Motors could not continue to sustain them."

But company officials said Monday GM had no plans to close additional plants, as some Wall Street analysts had apparently been hoping.

Last December, GM announced it would eliminate 74,000 jobs and close 21 parts and assembly plants by 1995 in an effort to reduce costs.

GM also said it had no immediate plan to try and reopen its contract with the United Auto Workers union before its expiration date next September, another rumor that had been circulating recently.

As part of the shake-up in GM's top management, Stempel Monday was named a "special consultant" to help Smith with automotive engineering matters. It was not clear how much, if anything, Stempel would be paid above his $515,000 annual pension.

Three top executives who had fallen out of favor with the board also announced their retirements effective immediately. The three were Vice Chairman Robert J. Schultz, former president Lloyd Reuss and Executive Vice President F. Alan Smith. The board had requested their resignations, sources said.

The board's actions Monday culminated a year-long management takeover by the 11 outside directors that began last November, when major financial ratings firms, including Standard & Poor's, threatened to lower the company's credit standing because of its enormous financial losses. The threat energized the board to force Stempel to act.

By April, the board had grown impatient with Stempel and Reuss, who was still president. In an effort to shake up the company's legendary management bureaucracy, the board, led by Smale and the outside directors, demoted Reuss and stripped Stempel of most of his powers as chief executive and appointed Smith as president. Smale replaced Stempel as chairman of the board's policy-making executive committee, and Smith was given many of the powers of a CEO, but not the formal title.

Since then, Smale and Smith have been operating under a position of shared power but without the titles.

Several members of the board went out of their way Monday to support Smith's claim that he was in charge and not Smale. "There is no shared power here. He (Smith) is in charge. He's got all the power," said one board member who asked not to be identified.

"The implication that the board is running the business isn't true," said one of the outside directors. He pointed out that even under the new arrangement, Smale would not have an office in Detroit.

"This is not an exercise in corporate governance," the board member said, implying that the board's actions were not taken in response to outside shareholder pressure.

Another longtime board member, who also asked not to be identified, conceded Monday that "we were too inactive for too long" as GM's troubles began to mount in the late 1980s. "In the past I don't think the board was as helpful to the chairman as it needed to be. I think that is going to change."

Creation of Smale's new position as nonexecutive chairman -- a post that does not require the chairman to be an officer or even an employee of the company -- was the subject of a great deal of debate on the board, according to one member.

"There was some feeling that perhaps the nonexecutive chairmanship would undermine the strength of Smith," a board member said. He said they were concerned that the unusual setup would blur the lines of authority within GM.

In recent weeks, the board had been talking about the creation of a new "office of the chairman" that would accommodate the wishes of Smale, who did not want to take the full duties of a CEO, and Smith, who wanted to run the day-to-day operations of the company, but did not want to be distracted from his efforts to try and solve the problems of the core auto operations.

The arrangement announced Monday appeared to be a product of those discussions in everything but name.

Executive Vice President William Hoglund, who was named chief financial officer last April, was appointed Monday to a head up a new corporate affairs and staff support group, where he will work closely with Smale. Hoglund also was named to the board of directors.

In addition to the changes at the highest management levels, the board announced a series of other management appointments that appeared designed to rid the company of many of the managers left over from the days of Stempel and former GM chairman Roger Smith.

Roger Smith, meanwhile, remains a member of GM's board of directors.

Nissan Shows First Loss, Will Skip Dividend

By Leslie Helm

Los Angeles Times

TOKYO

In its first negative financial report in 41 years as a public concern, Nissan Motor Co. said Monday it lost $178 million in the first half of its current fiscal year, and, for the first time ever, will not pay a mid-year dividend to shareholders.

The loss underscores the difficulties Japanese car companies are having in coping with declining auto sales at home, a sluggish world market and a shrinking gap between it and its U.S. rivals in cost and quality.

Nissan has fared worst than its Japanese rivals in holding on to market share and is additionally burdened by heavy investments in new factories at home and abroad.

"The results are a disappointment to management and to investors," Nissan Executive Vice President Atsushi Muramatsu said at a press conference. He blamed the loss on sluggish markets worldwide.

Muramatsu promised a turnaround by next summer, but the company projected that it's annual loss would equal about $163 million when the fiscal year ends next April. The company also said that the first half loss might be larger when results from subsidiary companies are included.

The company said its biggest problem in the first half was a 20 percent drop in car sales in Japan, which caused revenue to fall 8.5 percent to $15.6 billion.

The Japanese market in general is slow and virtually all Japanese auto makers are losing market share in Europe and the United States this year. Mazda Motors, concerned about its market share decline in the United States, last week canceled its plans for a U. S. Amati luxury car division. And Honda Motor Co. recently canceled sponsorship of Formula One auto racing.

Japanese companies have increased manufacturing overseas to head off pressure against its exports, but the decline in the Japanese market has saddled them with excess capacity at home.

But Nissan's problems go beyond the sudden downturn in the Japanese economy. The company is losing market share relative to other Japanese auto makers at home and abroad and its balance sheet is also far weaker than that of its key competitors.

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Nissan's cash position has not been as strong as its rivals and it has had to borrow at high interest rates to carry out its aggressive program to build and modernize factories around the world in order to put more of its models on the market.

Last spring, Nissan opened a highly automated plant in the southern island of Kyushu where car bodies glide down the assembly line on independent, motor-driven dollies that rise and tilt to make the worker's job easier and increase the factory's flexibility. The price tag of this ultra modern factory -- $800 million. Nissan is also building new factories in Mexico, the United States and the United Kingdom.

The rising value of the yen has also eaten away at Nissan's profits and has reduced its competitiveness relative to U.S. auto makers. Some analysts believe that, with the exception of Toyota, the $500 a car cost advantage Japanese car makers once enjoyed may be gone.

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And quality may no longer be the huge advantage to Japanese makers it once was. In the race to add new models to their line up, many Japanese auto makers skimped on product testing, according to Fumio Matsuda, a former Nissan quality control expert who is now president of the Japan Automobile Consumers Union. Matsuda estimates the cost of settling consumer complaints and lawsuits at Nissan to be in the hundreds of millions of dollars.

Monrovia's Archbishop Demands Release of Slain Nuns

By Michael A. Hiltzik

Los Angeles Times

NAIROBI, Kenya

Monrovia's Roman Catholic archbishop demanded Monday that rebel leader Charles Taylor and his forces release for burial the bodies of five American nuns and four Liberian novices whose killings were reported over the weekend.

"We hold Mr. Taylor responsible, directly or indirectly, consciously or unconsciously, for the deaths of these ... lovely people," Archbishop Michael Francis told an audience at a memorial for the nuns in Monrovia. He publicly asked Taylor to allow the church to retrieve the nuns' bodies for burial "no matter their state of decomposition."

The report of the nuns' deaths was the latest grisly news from the West African country founded by freed American slaves. There, fighting in a three-year civil war has taken as many as 60,000 lives, two-thirds of them from famine.

The United Nations said that 50 more civilians have been killed and 500 wounded since Taylor's National Patriotic Front of Liberia, or NPFL, began its latest offensive on Oct. 15. Some 200,000 refugees have filed into Monrovia since the fighting reopened.

Taylor began the Liberian civil war at Christmas 1989, when he invaded from neighboring Ivory Coast with a tiny, ragtag force, determined to oust President Samuel K. Doe from power.

Doe was later captured and murdered by a second rebel group. By then, the seizure of Monrovia by a Nigerian-led, seven-nation army dispatched by the Economic Community of West African States, had reduced the military situation in the country to a stalemate.

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The economic community's force later helped establish a new Liberian government under the leadership of former Vice President Amos Sawyer. But Sawyer's attempt to fashion a functioning administration has been stymied by Taylor's consistent refusal to participate and his threats to retake Monrovia by force.

In recent days, combat between Taylor's forces and those of the West African community has intensified around key locations in the capital, including its harbor and downtown airport.

The Nigerian contingent of the six-nation "peacekeeping" force has increased to 6,000 from 4,250, bringing the West African force's garrison to 10,000 men. Taylor also claims to have 10,000 troops fighting under his leadership.

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The circumstances under which the nuns and novices were killed remains cloudy.

Francis, at services Monday, contended that two were killed while trying to rescue a wounded child down the road from their convent on Oct. 20. The others, he said, were shot in front of the convent. Francis has refused to identify the source who confirmed the murders and gave the details. The convent is in Gardnersville, a Monrovia suburb long under Taylor's control.

Whether the nuns and novices -- members of the Illinois-based order of the Adorers of the Precious Blood of Christ -- had been specifically targeted for death was unclear. But observers in Monrovia speculated that their deaths were more likely due to the lack of discipline and control that Taylor exerts over his troops, rather than of any rebel policy.

Liberian troops on all sides are famous for their savagery and lack of control. Human rights groups have accused all rebel groups of tribal-based atrocities, and guerrillas have routinely kidnapped and assaulted foreign relief workers and others. The West African force itself has apparently ascribed the loss of a key military post to Taylor to the preoccupation of its Liberian defenders with looting the district rather than defending it.

Magic Retires Again, Cites Controversy of Return

By Mark Heisler

Los Angeles Times

INGLEWOOD, Calif.

In a last twist in his unprecedented saga, Magic Johnson retired again from basketball Monday, suddenly, unexpectedly and, he says, finally.

Johnson announced his decision in a prepared release, issued through the Los Angeles Lakers, who will open the season Friday night against the cross-town Los Angeles Clippers.

Johnson's physician, Michael Mellman, said there had been no recent change in the player's medical status and that health was not a factor in his decision.

"Earvin Johnson's health has not changed since the day he returned to basketball," Mellman said at a Forum press conference.

"It was not a medical decision. I have not advised him to not play, based on any factors that I have perceived."

Johnson was unavailable for comment. He made no public appearances Monday, nor did he contact Laker owner Jerry Buss, team officials or his teammates.

His agent, Lon Rosen, called Laker general manager Jerry West Sunday night and told him of Johnson's decision.

"After much thought and talking it over with Cookie (his wife) and my family, I've decided that I will retire -- for good -- from the Lakers," Johnson said in his statement.

"It has become obvious that the various controversies surrounding my return are taking away from both basketball as a sport and the larger issue of living with HIV, for me and the many people affected."

Johnson retired last Nov. 7, shortly after learning that he had tested positive for the human immunodeficiency virus, which causes AIDS.

However, he soon began planning a comeback, playing in the NBA All-Star game last February, then in the Olympics, and finally announcing a return to the Lakers Sept. 29.

However, his return was as controversial as it was triumphant.

David Kindred, a columnist for <\I<\>>The Sporting News,<\I<\>> wrote skeptically of Johnson's claim to having been infected during heterosexual sex. Johnson replied sharply, urging Kindred to make a specific charge so he could sue him but later acknowledged that he had been hurt by the allegation.

"I thought we were beyond that," Johnson said then.

Johnson subsequently disclosed that he had confronted a fellow player who had been saying that Johnson was bisexual. <\I<\>>Newsday<\I<\>> reported that the player was Johnson's one-time best friend, Isiah Thomas.

The NBA Players Association, after consulting nationally recognized AIDS experts, had accepted their assessment of the risk of transmitting the virus through anything connected with basketball. Columbia University's Dr. David Rogers, vice chairman of the President's National Commission on AIDS, called the chances "infinitesimal."

The union distributed brochures to assure players that the risk was minimal.

As the season neared, however, more and more players, and some owners -- the Phoenix Suns' Jerry Colangelo was one -- began making public their concerns.

"Everybody's talking about it," Cleveland Cavalier guard Gerald Wilkins told <\I<\>>The New York Times.<\I<\>> "Some people are scared. This could be dangerous to all of us but you're dealing with Magic Johnson so people are handling it with kid gloves."

Even among Johnson's Olympic teammates, most of whom were supportive, there were exceptions.

"The Dream Team was a concept everybody loved," Utah Jazz all-star forward Karl Malone said. "But now we're back to reality."

Malone was especially dubious of Johnson's return in a story in Sunday's New York Times.

"Look at this, scabs and cuts all over me," Malone was reported to have said. "They can't tell you that you're not at risk, and you can't tell me there's one guy in the NBA who hasn't thought about it."

Johnson played his final exhibition game Friday night in Chapel Hill, N.C., missing nine of 10 shots in a loss to the Cleveland Cavaliers.

That same day, he also passed up a light workout without informing Coach Randy Pfund.

Johnson flew home with the team late Friday night but said nothing of his doubts to his teammates.

Saturday morning, however, he called Rosen and told him of his decision. They decided to think about it for a day. Sunday night Johnson told Rosen to inform the Lakers.

"I was surprised, sure," Rosen said.

"I was surprised but nothing could surprise me. The last couple of weeks had been difficult.

"But he's not upset at all. To me, he seems like he's relieved. It's a burden that's off his shoulders.

"He anticipated (the controversy) but he didn't believe it would overshadow the basketball and the message he was trying to get out. It was getting to be a carnival-type of atmosphere with all the different controversies. It's not one specific incident but they keep coming up. That's what he didn't anticipate."

Rosen said Johnson retired again, not only because of the distractions but because he found that the game was keeping him away from his family and his work with his own AIDS foundation.

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West stopped Laker practice Monday morning at Loyola Marymount and told the players. Johnson's former teammates wished him well but left somberly and quickly.

"He's just doing what's best for him and that's the bottom line," said guard Byron Scott, Johnson's closest friend on the team. "That's Earvin and that's what he wants to do and I respect that."

Said West: "This is a very reflective time for the people in our organization because this was so unexpected. But we want what's best for Earvin. If it's best for him, God bless him."

Rosen said he expects Johnson to hold a press conference soon -- "You know Earvin, he doesn't stay away too long" -- but will leave town on a vacation first.

"Earvin's Earvin," said Rosen. "He's probably at the gym now, working out and trying to figure out what movie he's going to see tonight."