MARCH 1991 - VOLUME 12 - NUMBER 3
T H E F R O N T
Bankrolling the War
The day after President Bush ordered a cease-fire with Iraq, the U.S. Department of Justice announced a 347-count indictment of three former officers of the Atlanta branch of Italy's largest government-owned bank, including the bank's former First Vice President and Manager Christopher Drogoul. The indictment charges the Atlanta officers of the Banca Nazionale del Lavoro (BNL) with scheming to conceal $4 billion in loans to Iraq from bank regulators. It also charges that BNL loans were improperly recorded and violated U.S. and Italian lending limits.
Other defendants named in the indictment include Entrade International, a Turkish trading company, and the manager of its New York office, an Iraqi government-owned bank and four Iraqi government officials. Entrade is charged with obtaining unauthorized financing from BNL for exports to Iraq and the four Iraqi government officials are charged with conspiracy, fraud and money laundering. One of the Iraqi defendants was the director general of the economic department for Iraq's Ministry of Industry and Military Production.
Meanwhile, Texas Democrat Henry Gonzalez, chairperson of the House Banking Committee, has recently accused the Bush administration of obstructing the committee's investigation of BNL and covering up its knowledge of BNL's allegedly improper loans.
The loans to Iraq, which were not approved by the Federal Reserve, were made by BNL's Atlanta, Georgia branch between 1985 and 1989. According to the indictment, the illegal transactions were maintained in a secret set of "grey books"--those not reported in the bank's official records--through the use of separate computers, word processors and disks. Written records were kept as "floating files" outside the bank in boxes, car trunks and private homes to escape detection. Gonzales says a good portion of the loans financed Iraq's acquisition of Western military technology through front companies in the United States and Europe. An investigation of BNL by the Italian government in 1989 led to the resignations of the bank's two top executives in its Rome headquarters for their part in concealing the shady loans.
Gonzales charges that the Bush administration knew about BNL's role in procuring military goods for Iraq. Speaking to the House of Representatives on February 21, Gonzales said that he obtained from an unnamed source a memorandum showing that "a top-ranking administration official from a Cabinet-level Department had knowledge that BNL was used for purchasing military goods." In the memo, the administration official expressed concern that public inquiries about BNL's financing might anger Congress and thereby jeopardize his particular program. Gonzalez quoted the official as saying in the memo, "In the worst case scenario, Congressional and other investigators would find a direct link to financing Iraqi military expenditures, particularly the Condor missile."
Now, says Gonzales, the Bush administration is covering up its role in the scandal. The Federal Reserve, at the Justice Department's request, refuses to furnish the Banking Committee with over 70 BNL-related documents. In addition, the National Advisory Council (NAC), an inter-agency coordinating body headed by Treasury Secretary James Brady, refuses to provide the committee with the minutes from two NAC meetings held in 1989 and 1990 regarding BNL. The NAC was responsible for approving agricultural credits to Iraq, and about $1.9 billion of the $4 billion in questionable loans was guaranteed by the U.S. Department of Agriculture through the Commodity Credit Corporation. Because Iraq is currently in default, U.S. taxpayers will likely pay about $347 million on those loans.
Rep. Gonzalez asked, "What [are] the Treasury Department and the other NAC participants hiding? I wonder if they are embarrassed by their decision to grant billions in credit to Iraq even though Iraq was not creditworthy."
When the scandal first became public in 1989, Iraq had already defaulted on most of its debts. But Iraq's ability to repay the loans in a reasonable amount of time was apparently not important to BNL. BNL was operating "like a charity, not a bank," said Gonzalez, and "BNL loans were not ordinary financing." He added that the bank contracted to loan money to Iraq "at interest rates that were not economically feasible. In addition, a good portion of those loans did not have to be paid back for many years; they were long term, which is incredible. The Small Business Administration has not in many years been able to do anything one-tenth as much for any U.S. businessman."
U.S. Attorney General Richard Thornburgh refused to respond directly to reporter's questions about the possible complicity of Bush administration officials when he announced the Justice Department's indictments. Thornburgh said "we have no evidence whatsoever that anyone in the current government is involved in any criminal prosecution."
When asked about the Justice Department's refusal to cooperate with the Banking Committee's investigation of BNL, Thornburgh said, "We have made clear that the requests [Gonzalez has] made of this department would have interfered materially with the progress of the criminal investigation. We have extended as much cooperation as we can to him and his legislative interests without prejudicing the ongoing criminal investigation and the prosecution."
BNL's questionable loans to Iraq appear to be a significant means by which the United States helped Saddam Hussein's regime arm itself prior to the war. According to Gonzalez, "the failure of our bank regulatory system to detect $3 billion in shady loans to Iraq, coupled with billions in questionable credits to Iraq, along with our inability to stop Saddam from importing BNL financed technology which was used for military purposes ... all worked together to cause our war with Iraq."
- Jim Donahue
Skyrocketing oil prices in the months following Iraq's invasion of Kuwait may have hurt consumers and most business, but they were a major boon to U.S. oil companies. While the economy has suffered through a recession due in part to high gas and oil prices, the combined profits of the top five U.S. oil companies totalled $4.8 billion in the fourth quarter of 1990.
After they announced their fourth quarter profits, the oil companies quickly began defending themselves against accusations of profiteering. Chevron's chairman Kenneth Derr called the profits an "aberration" and Amoco said they were due to "an unusual set of circumstances."
In fact, it was an "unusual" pricing system which led to the oil companies' large profits. When the price of gasoline jumped in August, the oil companies said it reflected the rising prices on the spot market, where crude oil is traded. When spot prices began to fall in early October, however, retail gas prices stayed high. When retail prices finally started falling in early November, they did so slowly. The difference in the speed with which gas prices rose and fell relative to the spot price accounts for the oil companies' huge profits.
But by the time the oil companies' fourth quarter profits were revealed in early 1991, gas prices had fallen significantly, and public outrage was muted.
Many observers charge that the whole phenomenon of skyrocketing prices could have been prevented had the Bush administration quickly released supplies from its Strategic Petroleum Reserve (SPR), a reserve held by the government to respond to oil supply disruptions. The government finally test released the SPR in mid-October, after which prices began falling, though it is not clear exactly what role the SPR had in the decline. But a full- scale release of the SPR was delayed until the day the war began.
The Department of Energy says the Bush administration did not release the SPR sooner because it did not want to control pricing. And some Wall Street analysts say the SPR would have only slightly affected the price of oil. Michael Young of Smith Barney and Associates says, "SPR's only have a supplementary effect."
But oil industry critics say an early release of the SPR would have calmed Wall Street fears of an oil disruption and stabilized the spot market. "Because of the embargo, market participants feared a supply shortfall and responded by buying up immediate supplies and bidding up forward supplies," Edwin Rothschild of Citizen Action, a Washington, D.C.-based consumer organization, told the House of Representatives Committee on Energy and Commerce in early January. A release of the SPR would have quieted those fears, he said. "For an administration which claims to believe in the operation of the marketplace, it demonstrated a remarkable case of amnesia or stupidity or incompetence when it came time to respond to oil price increases."
- Noah Lucas
It should come as no surprise that the war which television portrayed as a giant Nintendo game should itself have heightened interest in war games and toys.
In the wake of Desert Storm, sales of toy missiles and war planes are booming, and Topps, the baseball card manufacturer, has introduced a line of "Operation Desert Storm" trading cards and stickers.
Mary Roberts of Estes Industries, the largest producer of model rockets, reports that there has been "exceptional" demand for Estes' newly introduced model Patriot missile. According to Roberts, the models fly hundreds of feet, "pretty much the way the real [Patriot] does, except that it has no on-board computers and it does not shoot down Scuds." She notes that her company introduced a Scud model about 10 years ago but pulled it from the market because it sold poorly.
Sales of Revell/Monogram's model planes have risen "dramatically," says Ed Sexton a product manager at the Des Plaines, Illinois-based company. Interest has been greatest in planes that have been most visible on television, such as the A-10 Warthog and the F-117A Stealth fighter, he states. Based on the high demand, Revell is considering marketing a single package which would include four planes involved in the Persian Gulf War.
But the enthusiasm for these toys is not uniform. Critics warn that skyrocketing war toy sales may have serious consequences for children. Kate Donnelly, a member of the executive board of the New York-based War Resisters' League, says war toys "tend to make kids more aggressive" and more prone to fighting.
The manufacturers defend their products, claiming that war toys are a healthy way for children to deal with their fears about war. Roberts says that playing with toy rockets is useful for both children and adults who are "trying to go on or understand the war."
But Donnelly disputes this notion. "Kids have a lot of fears," she says. "Toys capitalize on their interest in war, and do not deal with their fears." Donnelly distinguishes between war play and war toys. She asserts that war play, including all facets of war--death and medical care, for example--can be helpful with parental involvement, but that war toys themselves "condone the use of violence."
She is also concerned about how recently released war toys encourage support for the Persian Gulf war. The toys "support the war unequivocally," and encourage a sort of blind "patriotism and nationalism" in children, she says. The toys encourage children to draw lines of good and evil, us and them, with the "scary" result that many "children start hating Iraqis."
Some of Donnelly's concerns are confirmed by Roberts, who acknowledges the political overtones of Persian Gulf war toys. She says unabashedly that buying toy Patriot missiles and other war toys is "the silent majority's way of showing support" for the war effort.
Others respond to war toy critics more cautiously. Revell's Sexton says "we are selling the same products we have sold over the last 30 to 40 years. We are not making anything special to capitalize on the conflict." Sexton says Revell markets models of military planes because they are the most technologically advanced. "We don't play up war toys," he states, but "we don't make, say, civilian 747s because they are not interesting to people."
Other companies decided not to introduce Persian Gulf war toys for fear that public sentiment could have turned against the war. The Wall Street Journal reported that Lewis Galoob Toys decided not to go forward with an "Operation Desert Shield" line of planes, tanks and vehicles because it might be too controversial. Though public support for this war has remained high, these fears reflect toy makers' historical experience with the Vietnam War, when war toy sales plummeted.
War toy sales recovered from this fall in the early 1980s, when the Federal Communications Commission deregulated children's television [see "The Return of G.I. Joe," Multinational Monitor, December 1983 and "Babes in the Marketplace," Multinational Monitor, September 1987]. Free to advertise more heavily and to create cartoons which featured characters with toy counterparts, toy manufacturers developed a combination of cartoons and products that led to a rapid rise in war toy sales. War toy sales levelled off and fell in the mid-to-late 1980s, as child advocacy and peace groups mounted campaigns against them.
War toy sales clearly correlate to the country's cultural climate. The question now is whether the U.S. public's massive support for the Persian Gulf War represents a fundamental change in its attitudes or is just a temporary abberation. President Bush, who is celebrating what he believes to be the end of the "Vietnam syndrome"--the U.S. public's reluctance to support the use of military force--clearly thinks the cultural climate is shifting. If he is right, the most vulnerable segment of the U.S. population is likely to be subjected to even greater militaristic influences in the coming years.
- Robert Weissman
Immune from the Law
A U.S. Food and Drug Administration (FDA) regulation which permits the military to use unapproved experimental drugs on soldiers without their informed consent substantially erodes the human rights of soldiers and violates the Fifth Amendment and other laws, charges a recent class-action lawsuit filed by Public Citizen, a Washington, D.C.-based public interest organization. The FDA promulgated the regulation, at the urging of the Defense Department, last December in preparation for the war in the Persian Gulf.
Public Citizen filed the suit on January 11, 1991 on behalf of an anonymous serviceman and his wife, and the approximately 500,000 U.S. troops stationed in the Persian Gulf, claiming that the plaintiffs could be "irreparably harmed" as a result of the legislation. Public Citizen is seeking a court declaration of the regulation's illegality and sought a preliminary injunction against its implementation. "The FDA regulation violates FDA law, a Defense Department statute and the Fifth Amendment, all of which forbid the use of experimental, unapproved drugs without informed consent, if such consent is possible," says Public Citizen attorney Michael Tankersley.
On January 31, a District of Columbia U.S. district judge however, ruled in favor of the FDA and the Defense Department. In his written opinion, Judge Stanley S. Harris explained that the court's authority does not extend to such military matters, and that the FDA regulation should therefore stand. "The DOD's decision to use unapproved drugs is precisely the type of military decision that courts have repeatedly refused to second- guess. ... Clearly, judicial interference in this type of strategic decision would not be proper."
Much of the debate over the regulation's legality centered on the two sides' different interpretations of the Food, Drug, and Cosmetic Act (FDCA). Under the FDCA, investigators are required to obtain the informed consent of their subjects "except where they deem it not feasible" to do so. The exact meaning of the term "feasible", however, is unclear. As Judge Harris noted, "longstanding FDA regulations [have] stated that obtaining informed consent 'is deemed feasible' unless the subject is unable to communicate, unconscious, or incompetent." But Harris accepted the Defense Department standard that, in "actual or threatened" combat situations, it may not be "feasible" to allow soldiers the option of refusing treatment, even if it is possible to inform them of the risks.
The Department of Defense outlined its argument in an October 30, 1990 letter to the Department of Health and Human Services requesting the military be exempt from informed consent requirements. "It is not an option to excuse a nonconsenting soldier from the military mission," the letter stated, "nor would it be defensible militarily--or ethically--to send the soldier unprotected into danger."
The decision is currently under appeal, with a hearing scheduled for March 18 in the District of Columbia Court of Appeals.
"As a physician, it is difficult to emphasize how strongly I condemn this regulation and its departure from that which is moral, ethical and legal," says Dr. Sidney Wolfe, director of Public Citizen's Health Research Group. "Even though someone is in the military, the law requires that they be treated as a human being."
- Nadav Savio