'Iraq-Gate': Were We Soft On Saddam?

The White House has long since abandoned any hope that George Bush can glide to re-election on the strength of his triumph in the Persian Gulf-and now, 15 months after Operation Desert Storm, it is uneasily facing up to the possibility that U.S. policy toward Iraq may be a political liability in 1992. The reason: bit by bit and month by month, congressional investigators have unearthed disturbing evidence that the Bush administration not only turned a blind eye toward Saddam Hussein's aggressive designs in the Middle East but may actually have helped the dictator rebuild his military machine for the invasion of Kuwait. To congressional Democrats, the gestating "Iraq-gate" scandal points up the president's underlying vulnerability on foreign-policy issues, while administration officials, indignant at what they consider to be cheap shots from Capitol Hill, are belatedly trying to defend a policy that unquestionably failed.

"Iraq-gate"--a term created by the Democrats-is a complicated story with plenty of blame to go around. It begins in the early 1980s, after the Ayatollah Khomeini's revolution in Iran, and it ends on or about the day, Aug. 2, 1990, that Iraq's tanks rolled into Kuwait. It involves billions of dollars in U.S. loan guarantees, a major bank scandal and some of the biggest names in the Republican foreign-policy establishment. It involves the sale of billions of dollars' worth of militarily useful U.S. technology to the Iraqi government, and it has prompted widespread allegations of a Bush-administration cover-up. Essentially, it is the story of a grotesque misjudgment by the United States and its allies-the belief that Saddam Hussein could be appeased or bought. And the bottom line, in the minds of some administration critics, is that Washington's long-term "tilt" toward Iraq may have made Operation Desert Storm inevitable. The players include:

This little-known federal agency, a subsidiary of the U.S. Agriculture Department, was the primary conduit for $5 billion in U.S. loan guarantees to Saddam Hussein between 1983 and 1990. The program guaranteed loans for the purchase of American grain by Iraq. According to congressional allegations, however, millions of federally guaranteed dollars were either skimmed by corrupt middlemen-or worse, used by Iraqi-government officials to buy military weaponry in Europe and the Soviet bloc. The CCC program continued well into the late spring of 1990, only months before the invasion of Kuwait and, says a congressional source, well after U.S. officials had received intelligence reports suggesting that Saddam Hussein might be turning the U.S. grain program into a weapons-procurement bonanza. Administration of the program was certainly lax, but despite critics' charges, Congress has produced no evidence that weapons were actually bought with CCC money.

BNL, the largest government-owned bank in Italy, has a branch bank in Atlanta that officials say supplied much of the credit for U.S. sales to Saddam Hussein. Officials at the Atlanta branch, which was raided by U.S. authorities in 1989, allegedly kept multiple sets of books to conceal the fact that about $4 billion, including the $2 billion underwritten by the Commodity Credit Corporation, was lent to Iraq. The bank's manager, Christopher Drogoul, has been charged under a 347-count federal indictment that also names senior Iraqi officials as codefendants. According to federal sources, Drogoul has announced he will plead guilty to all counts this week-but also that he intends to make a lengthy statement to the court. This statement may reignite the sputtering " Iraq-gate" controversy, since few investigators believe Drogoul acted without the knowledge of Italian or U.S. officials.

By current count, the Commerce Department approved 771 separate export licenses for the sale of so-called dual-use technologies to Iraq, including 71 licenses for direct sales to various Iraqi military bases and nuclear-research facilities. The term "dual use" refers to civilian equipment or technologies that can have military applications-and the list of equipment sold to Iraq includes computers that could be used to control the Iraqi air-defense system or design nuclear weapons, and heavy-duty off-road trucks that can carry troops. The Commerce Department admits that department officials doctored some records of these licenses, and the Justice Department is investigating whether the alterations were intended to conceal the military potential of the sales. That inquiry, together with allegations of foot-dragging by the Justice Department in the Banca Nazionale del Lavoro scandal, may lead to a call for the appointment of a special prosecutor. (The House Judiciary Committee opens hearings on the special-prosecutor issue this week.)

Rep. Henry Gonzalez, chairman of the House Banking Committee, charges that Eagleburger, who is currently Jim Baker's right-hand man at the State Department, and national-security adviser Scowcroft organized what he claims is the administration's cover-up. Before joining the Bush administration, Gonzalez notes, both men worked for Henry Kissinger at Kissinger Associates, and all three were paid advisers to BNL. Henry Kissinger replies that he and his firm were merely once-a-year foreign-policy advisers to BNL management, and that Gonzalez's charges are "an outrageous smear." Eagleburger denies any cover-up by the Bush administration, and he and Scowcroft deny having played any role in handling the BNL case while in government or handling any requests for information from Congress.

It was Reagan who, in 1982, approved the U.S. tilt toward Iraq as a way of containing revolutionary Iran. At the same time, France and other U.S. allies shored up Saddam by selling him arms. The Reagan decision led U.S. officials to remove Iraq from the list of Arab governments engaged in state terrorism and to share U.S. satellite intelligence with Iraq during the Iran-Iraq War. The war ended in August 1988-but in 1989, George Bush signed a presidential directive that continued Washington's efforts to "constructively engage" Saddam Hussein. Today, administration officials grudgingly concede the policy looks powerfully dumb. But they insist the United States had no better option and that no one believed Iraq would launch another war after its bloodbath with Iran. "Jordan, Egypt and Saudi Arabia were all telling us, 'Don't reject this opportunity to bring Saddam back into the house'," a senior U.S. official said last week. "[They said,] 'If you back him into a corner, he'll lash out'."

What happens now is anybody's guess: Iraq-gate" could become the sleeper issue of the 1992 campaign or, like Iran-contra, turn into a megasnooze. Despite the rumbling on Capitol Hill, congressional Democrats were generally informed about the U.S. tilt toward Iraq and arguably bear some responsibility for its failure. Bill Clinton's advisers say, meanwhile, that Clinton hasn't decided how he will use the issue--but say it's sure to be one in the campaign. For voters, the obvious moral is that yet another administration has been embarrassed in the Middle East--and that well-intended policies can lead to bad results.