Ex-judge to probe Iraq-loan scandal Barr's appointee assailed as 'fig leaf'

WASHINGTON — WASHINGTON -- The Bush administration's top legal official named a former federal judge yesterday to probe possible government wrongdoing in the scandal over billions of dollars in illegal loans to Iraq in the years before the Persian Gulf war.

Attorney General William P. Barr continued to resist demands by Democrats in Congress that he hand the entire affair over to a special prosecutor outside the Justice Department, choosing instead to keep the probe within the department for the time being.


The move did next to nothing to satisfy Capitol Hill critics of the administration's handling of the bank fraud scandal. House Judiciary Committee Chairman Jack Brooks, D-Texas, for example, denounced Mr. Barr's new appointee as "a fig leaf of an investigator." More mildly, Senate Agriculture Committee Chairman Patrick J. Leahy, D-Vt., said the action "does not go far enough."

The "BNL" scandal (the initials are for an Italian bank, Banca Nazionale del Lavoro) involves myriad acts of alleged wrongdoing in illegal loans to Iraq through BNL's Atlanta


branch bank and in the Bush administration's handling of the criminal investigation into those loans.

Federal prosecutors have charged Christopher Dragoul, the Atlanta branch manager, with defrauding the parent bank in Rome by lending Iraq billions of dollars in violation of bank regulations.

Mr. Dragoul pleaded guilty to charges that he acted alone but later withdrew his plea. The case will now go to trial.

Critics charge that the BNL loans were used to finance Iraq's massive military buildup in the years before the gulf war and that the Bush administration deliberately concealed information needed by prosecutors to follow the money trail.

Cries of an official "cover-up" -- by the Justice Department, the CIA and possibly others -- are coming regularly from congressional Democrats.

Mr. Barr said at a news conference that there still is no indication of wrongdoing within his department but that he felt it necessary "in the current politically charged environment" to have someone "independently examine this entire matter."

He argued that it was too early even to face the question of seeking the appointment of a BNL special prosecutor, who, unlike Mr. Barr's investigator, would have no duty to report to the Justice Department.

The new investigator, retired New Jersey federal Judge Frederick B. Lacey, vowed to reporters that he would resign if his probe was stymied by uncooperative officials and agencies, and said he would conduct his investigation on the premise that "where the chips fall, they fall."


Mr. Lacey, 72, said that Mr. Barr promised him he could get all the documents and conduct all the interviews he wanted and could use a federal grand jury to gather evidence from any reluctant sources.

One of Mr. Lacey's tasks is to help the attorney general find out whether there is enough evidence of potential crimes by high-level U.S. officials to justify asking a federal court here to name a special prosecutor. But aides to Mr. Barr said that Mr. Lacey's appointment was not intended to be simply a prelude to going outside for a prosecutor.

The attorney general, seeking to counter reporters' questions about whether his own appointee would be really independent, said of Mr. Lacey, "He is an independent counsel." Mr. Barr noted that the one-time judge had been given the assignment with the full powers of the Justice Department in his hands and with a promise that he could be fired only for "just cause."

Mr. Lacey, a Republican named to the bench by President Richard M. Nixon in 1971, made his reputation before becoming a judge as a tough prosecutor of political corruption in New Jersey. He is now a private lawyer in Washington and New York.

One of the immediate practical consequences of Mr. Barr's action yesterday was to put off until after the presidential election next month any significant developments in the BNL scandal. Mr. Barr has until mid-November to report to Congress.

Mr. Lacey was named under an in-house Justice Department regulation and not under the 1978 Ethics in Government Act, which provides for special prosecutors who operate with no government supervision and with unlimited budgets.


Mr. Barr is strongly opposed to the 1978 law in its current form. His Democratic critics in Congress have accused him of letting that opposition guide him in deciding what to do about the BNL scandal.