Federal Judge Calls for Inquiry Into Bank’s Loans to Iraq : Foreign policy: Jurist says he isn’t getting full story in case that raises questions about U.S. aid. House panel debates need for independent counsel.

In a highly unusual action, a federal judge called Tuesday for an independent counsel to investigate the Justice Department’s handling of a case involving an Italian-owned bank that loaned nearly $5 billion to Iraq.

“This case needs a special prosecutor because I’m not getting the information,” said an angry U.S. District Judge Marvin H. Shoob as he accepted a guilty plea from the former manager of the Atlanta branch of Banca Nazionale del Lavoro. “I’m getting a sanitized version.”

Shoob’s remarks in an Atlanta courtroom came as Christopher P. Drogoul, the former manager of BNL’s Atlanta branch, entered his plea to conspiracy and bank fraud charges as part of an arrangement with the government.

But Drogoul appeared to renege on a deal with federal prosecutors to reveal the names of others, in the United States and elsewhere, that he had said were involved in the scheme to provide Iraq with nearly $5 billion in fraudulent loans between November, 1985, and August, 1989.

The judge’s anger over the turn in the case echoed complaints made by Democrats at a congressional hearing Tuesday into whether an independent counsel should investigate the BNL case and other aspects of the Bush Administration’s assistance to Iraq prior to that country’s invasion of Kuwait.

“Why did the Administration mislead Congress and the American people about the reasons it was giving aid to Iraq in the months and years before that nation invaded Kuwait?” asked Sen. Patrick J. Leahy (D-Vt.).

Leahy and three other Democrats testifying before the House Judiciary Committee said there is evidence that top Administration officials may have violated criminal law in carrying out and later justifying U.S. policy toward Iraq, a situation that would call for the appointment of an independent counsel.

In sharp partisan exchanges punctuated by the slamming of the gavel by committee Chairman Jack Brooks (D-Tex.), Republicans accused Democrats of using the issue to embarrass the Administration in an election year.

“I have to wonder, would we be holding this hearing if the presidential election were not five months away?” asked Rep. Jim Ramstad (R-Minn.). “I’m not so sure we would be.”

But there appeared to be a possibility of bipartisan agreement on the need for an independent counsel to examine alterations in a list of U.S.-approved exports to Iraq that was provided to a congressional subcommittee last year.

The list, prepared by the Commerce Department in late 1990, was altered to disguise the military uses for $1 billion worth of trucks and other technology.

The department’s general counsel told Congress last week that the blame lay with a former undersecretary of commerce, Dennis E. Kloske.

However, Rep. Doug Barnard Jr. (D-Ga.) said Tuesday that the White House was involved in some aspects of the list’s preparation and release. Barnard said Kloske told his staff in 1991 that decisions on the list were made at the White House. Barnard also said his staff negotiated over possible public release of the list with Robert M. Gates, the CIA director who was deputy national security adviser to President Bush at the time.

While Barnard referred the alterations to the Justice Department a year ago, he said the department did not appear to be pursuing the matter aggressively.

Saying that the day’s testimony had raised “troubling questions,” Brooks said the Administration will have an opportunity to respond to the charges and that a final vote may not come for weeks.

But several Democrats said Judge Shoob’s comments made it almost certain that the committee will ask the Justice Department to name a special prosecutor.

Rep. Henry B. Gonzalez (D-Tex.) and others have charged that the Justice Department delayed and limited the BNL investigation in response to the Administration’s political concerns, an accusation denied by Administration officials.

Drogoul, who is to be sentenced Aug. 13, faces up to 390 years in prison.

Last month, Shoob indicated that he believes Drogoul could not have run the scheme without assistance in Italy and the United States. Drogoul’s lawyers told the judge last week that he would plead guilty to all 347 charges and make a lengthy statement implicating others.

Drogoul did not make the promised statement in court. Instead, he told the judge that “no one to my knowledge” from the United States was “directly involved” in directing the scheme. But he offered the names of hundreds who were “indirectly” involved.

When it came time for the plea Tuesday, prosecutors disclosed that Drogoul had agreed to plead guilty to 60 charges and cooperate in the government’s ongoing investigation. In exchange, the government agreed to drop the remaining charges.

In describing the plea agreement, prosecutor Gerrilynn G. Brill said investigators have discovered that Iraq’s central bank laundered more than $1 billion in BNL loans through other banks and used some of the funds to buy military goods.

The disclosure appears to bolster claims by Gonzalez and others that BNL played a central and so far undisclosed role in an Iraqi international arms procurement network.

Frantz reported from Washington and Stanley from Atlanta.