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Banca Nazionale Del Lavoro: Judicial Order, October 5, 1992
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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
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[1] The Court will not reveal the contents of these documents
because they remain classified. However, as the Court will discuss
below, the Court is unable to see how they relate to national
security and why they should remain secret from defense Counsel
and the public.
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