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2548 CONGRESSIONAL RECORD HOUSE April 25, 1991 Export-Import Bank and a Federal Reserve. Board Governor held a meeting to discuss the implications of the BNL scandal. We also know that a farmer employee of BNL was close to Saddam Hussein’s son-in-law, Hussein Karnel, who headed the Iraqi military industrialization effort. We also know that former BNL employees were close to several members of the Central Bank of Iraq including Its Director. BNL employees visited with Mr. Kamel and high ranking Central Bank employees while in Baghdad. The Involvement of such high level United States and Iraqi Government officials is quite revealing of the importance of the BNL scandal. RM.MAJOR SOURCE OP PRIVATE LOANS TO IRAQI The reason the BNL scandal was so important to Iraq was money.. During 1987-89 BNL was the No. 1 source of private Western bank loans to Iraq. Because of Iraq’s poor financial condition, Western banks would not loan money to Iraq without a government guarantee Of repayment. BNL filled the void left by Iraq’s inability to borrow by providing over $3 billion in loans that were not guaranteed by Western governments. About a third of that amount went for food and freight charges while a little over $2 billion was earmarked for the ambitious Iraqi reconstruction program. We have learned that a good portion of those funds were actually used to upgrade Iraqi military capability. BNL also provided almost $1 billion in United States Government guaranteed loans to Iraq. BNL was the largest single bank participant in the $5.5 billion United States Department of Agriculture’s Commodity Credit Corporation [CCC} Program with Iraq. Between $800 to $900 million in BNL loans to Iraq were guaranteed by the CCC. BNL was also the second largest participant in the $267 million ExportImport Bank 1Eximbankl program with Iraq. Over $50 million in BNL loans to Iraq were guaranteed by the Eximbank. Today I will talk about United States policy toward Iraq and several key people in the administration partly responsible for United States policy toward IraqBrent Scowcroft and Lawrence Eagleburger. I will explore their backgrounds, their interlocking relationships and Henry Kissinger’s and Mr. Eagleburger’s relationship to BNL. President Bush, as did his predecessor Ronald Reagan. placed a high value on improving United States-Iraq relations. Both saw Iraq as an important United States ally in the region. Iraq was considered an important piayer in the Middle East peace process. and a key to subduing the Islamic fundamentalist movement in Iran which was perceived as a threat to United States interests in the region. United States policy makers also saw in Iraq a chance to snatch away a key Soviet ally in the gulf. President Reagan and President, Bush followed a similar course of action in pursuing improved United States-Iraq relations. That course was increased trade. Since the United States decided to give the appearance of neutrality in the Iraq-Iran war. it could not provide arms shipments to Iraq. Given that decision, it was left little choice but to offer trade including U.S. high technology transfer as the cornerstone of its policy. The majority of our Western allies followed our lead. A foreign policy based on commercial trade had the advantage of providing Iraq with high quality food and United States technology to upgrade its military capability in order to defeat Iran. It was also easy to sell back home because this policy benefited the American economy as well as some of the most powerful corporations in our country. Remember. during the latter half of the 198G’s the United States was frantically seeking to improve its trade deficit so a tradebased foreign policy with Iraq appeared to serve multiple objectives. In order for this trade-based foreign policy to work, the United. States had to ignore a few Iraqi bad habits including massive human rights abuses, the Imprisonment, torture and execution of political prisoners, an almost complete lack of democracy, the use of poison gas against Iraq’s own Kurds. the use of poison gas against the Iranians, state-sponsored terrorism, making refugees out of over 100,000 Kurds, the execution of a foreign journalist, continual debt, servicing problems, rampant fraud in the,CCC program, and the diversion of United States technology to improve Iraqi nuclear, chemical and biological weapons capability and for many months BNL scandal. A key to keeping trade open with Iraq was the availability of United States. European, and Asian government-guaranteed credit. Because of its costly war with Iran, by 1984 Iraq had exhausted its $35 billion in estimated reserves and plunged into the ranks of the Third World debtor nations. /rag was forced to ask at its creditors to reschedule their loans. The Iraqi debt situation joepardized the trade-based policy. Banks and other private creditors would not touch Iraq without a government guarantee. In order to make the trade-based policy work, Western creditors had to cough up government guarantees which they did in generous amounts. For example, by 1988 the CCC Program with Iraq reached a billion dollars annually and between 1985 and 1990 the CCC Program provided roughly $4 billion in credit for Iraqi purchases of United States agricultural commodities. The Eximbank helped provide $267 million in short-term credit to Iraq between 1985 and 1990. That amount would have gone through the roof had it not been for responsible people at Exirnbank who realized Iraq was not a fundamentally creditworthy nation given the way it was running its economy and prosecuting the war with Iran. At this time I would. like to introduce a couple of lists of projects United States companies wanted to build in Iraq with the help of Eximbank financing. As you can see by 1988, U.S. companies were seeking to secure Eximbank financing for projects totalling nearly $13 billion. As you can imagine, lobbying from the export community and their bankers, along with the urging of the State Department, which was trying to achieve the trade-based policy towards Iraq, was intense. Had it not been for responsible people at Eximbank, I am convinced the taxpayer would have been struck with the tab for many of those projects. As it is, BNL helped to finance many of the very projects on the list. On the industrial side of the ledger the United States export licensing process was used by the State and Commerce Departmetns, with the backing of the President’s National Security Council tNSC1, to increased trade with Iraq. Unfortunately, the export control process often failed to stop Iraq from obtaining militarilyuseful technology even though some Defense Department officials warned that United States technology destined for Iraq was going directly into upgrading Iraqi military capabilty. The following provides an example of the official United States policy toward technology transfer to Iraq. Dr. Stephen D. Bryen, former Deputy Under Secretary of Defense for Trade Security Policy and Director of Trade Technology Security Administration [DTSAI, testifying recently before the Banking Committee, stated: The Department of Defense objected to about 40 percent of the export licenses that came before it for Iraq. Generally speaking, the Defense Department’s strongest objections for Iraq. concerned the potential use of exported goods for Iraq’s nuclear program. for missile testing and construction, and for chemical and biological weapons development. Examples include special computers for missile testing, analytical instruments best suited for chemical and biological weapons development, satellite and airborne surveillance equipment to accurately locate distant targets and furnaces for Iraq’s nuclea weapons development program. Off icially $1.5 billion in United States technology was transferred to Iraq through the United States export control process. Nobody knows for sure what additional United States technology reached Iraq. On the private side, almost immediately after the United States normalized relations with Iraq in 1984, the United States-Iraq Business Forum was formed. It was founded by Mr. Marshall Wiley, a former State Department official stationed in Baghdad prior to the normalization of 8 JULY 4, 1992