FOR IMMEDIATE RELEASE THURSDAY, FEBRUARY 16, 1995

CIV (202) 616-2765 TDD (202) 514-1888

BNL TO BE PAID $400 MILLION IN AGRICULTURAL LOAN GUARANTEES WASHINGTON, D.C. -- The Department of Justice announced today that the Department of Agriculture's Commodity Credit Corporation (CCC) will pay Banca Nazionale del Lavoro (BNL) $400 million in settlement of the bank's claim for over $450 million filed against the United States in the U.S. Court of Federal Claims. The settlement honors guarantees issued to American farmers and exporters who engaged in credit sales of agricultural products to Iraq in the mid to late 1980s. Iraq defaulted in its payments on the sales in August 1990, shortly before the Gulf War, triggering the government's liability on the guarantees. BNL holds the guarantees by assignment. The guarantees were issued under the CCC's Export Credit Guarantee Program. The program is intended to expand foreign markets for domestic agricultural goods by reducing the risk for American farmers and exporters of doing business with developing countries. The program accomplishes this goal by providing guarantees to farmers and exporters who sell their products on credit to designated countries. Typically, the exporter then assigns the payment rights and the guarantee to banks like BNL in return for immediate cash. When Iraq defaulted on its foreign debt just before the Gulf War, ten banks, including BNL, filed claims with the CCC based on the guarantees. Consistent with the program, the CCC promptly made good on approximately $1.6 billion of its guarantees, all except for those held by BNL whose Atlanta branch was under investigation for fraud. BNL's activities have been the subject of multiple and extensive investigations. Those investigations resulted in seven guilty pleas including those of BNL's Atlanta branch manager, Christopher Drogoul, and five other employees. In September 1993, Drogoul pleaded guilty to concealing billions of dollars in loans to Iraq, most of which was not guaranteed by the government, in violation of the bank's own internal limits and also in violation of state and federal laws requiring accurate disclosure to government banking authorities, including the Federal Reserve. Drogoul was sentenced to 37 months in prison. In 1991, the Federal Reserve issued a cease and desist order enjoining BNL's Atlanta branch from continuing its fraudulent practices and assessing a deficiency penalty. Most recently, an investigation was conducted by a task force appointed by the Attorney General, which issued its final report in January. BNL's civil case against the United States to honor the guarantees was stayed pending conclusion of the government's investigation. The CCC backed transactions were only a small part of BNL's operations being investigated. In the end, the

Justice Department found no evidence to link BNL's alleged fraud to the CCC guarantees which would provide a legal basis for refusing to pay the guarantees. The Department stated, "Now that the investigation of BNL is complete, the CCC is honoring its guarantees." The guarantees plus interest the United States would have been required to pay totaled more than $451 million. The Justice Department's Civil Division attorneys were able to negotiate a settlement for $400 million. The settlement does not relieve Iraq of its indebtedness, and any future recovery on these loans will flow to the United States. ##### 95-094