First City, Lavoro Were Eyed to Lead Fund for Iraq
With Saddam Hussein desperate for foreign funds in the late 1980s, there was an attempt to establish an overseas financing operation for Iraq with backing from Italy's Banca Nazionale del Lavoro and Houston's First City Bancorp.
Both banks deny any knowledge of the plan, which was promoted by Jordanian businessman Wafai K. Dajani.
Telexes Gave Details
Details of the financing operation, to be called the "Industrial Development Fund," were given in several 1988 telexes sent by Mr. Dajani to Christopher P. Drogoul, then manager of Lavoro's Atlanta branch. State-owned Lavoro is Italy's largest bank.
Copies of the telexes were also apparently sent to Odeh Aburdene, who was First City's London branch manager at the time. Several telexes mentioned First City's chairman, Robert Abboud.
Mr. Abboud, who resigned as chairman and chief executive of First City in March, said last week that he had no knowledge of the fund in question. He also said he had never met Mr. Dajani.
"Mine is a well-known name, and people can use it liberally around the world to try to promote something," Mr. Abboud said. A native-born American, Mr. Abboud has Lebanese ethnic roots.
"That doesn't mean I had anything to do with [the fund], or ever authorized the use of my name. I can tell you categorically that I don't know these men, I never met them, and [First City] had nothing to do with them."
Military Use Likely
The exact purpose of the fund is unclear, but it seems likely that some of the money raised would have been used to finance Iraq's military buildup. Allegations have been made, but never proved, that some loans made by Lavoro's Atlanta branch were used to buy equipment for Iraqi weapons production.
Copies of Mr. Dajani's telexes are now in the hands of Congressional staff members who are investigating $5 billion of loans that were made improperly to Iraq between 1986 and 1989 by Mr. Drogoul through Lavoro's Atlanta branch.
Mr. Drogoul's lawyers declined to comment on the telexes. Mr. Drogoul and two other Lavoro branch employees were indicted in February on 347 counts related to their issuing the $5 billion of unauthorized credits to Iraq.
Although Mr. Dajani did business with Iraq, it is not known how much access he had to senior Iraqi government officials. His telexes suggest that he had been in touch with officials in Baghdad regarding his plan to set up the London financing company for Iraq.
Mr. Dajani could not be reached for comment, but it was learned that he runs a trading company called Amman Resources Ltd., which Dun & Bradstreet describes as an importer with 12 employees and $24.3 million in annual sales.
Mr. Dajani's company imported grain into Iraq in the late 1980s, relying on financing provided by Lavoro's Atlanta branch. A recent filing by assistant U.S. attorney Gale McKenzie in Atlanta states that Mr. Drogoul personally received a $50,000 payment from Mr. Dajani a month before his indictment.
The telexes relating to the Iraqi development fund were apparently uncovered by federal investigators when they raided Lavoro's Atlanta office in August 1989. They appear to have been sent by Mr. Dajani from Baghdad to Mr. Drogoul in Atlanta on Nov. 28, 1988.
Funding by Group Seen
The messages discuss "the possibility of creating" an "Industrial Development Fund" for Iraq. Mr. Dajani envisioned the $2 billion fund to involve "a consortium of leading American banks" to be headed by either First City or Lavoro's Atlanta branch.
Another message, which refers to "the letter forwarded by Bob Aboud [sic] to Iraqi Ministry of Industry," indicates the ministry was planning to send a two-man delegation to Houston to discuss plans for the fund with Mr. Abboud.
Details of Telex
Mr. Abboud has testified before Congress that neither he nor any other First City executive met with the delegation, which was to have included two Iraqi officials who played a prominent role in arranging Iraq's unauthorized financing from Lavoro-Atlanta.
A note to Mr. Aburdene in London, included in the telex, added: "Please note that the team is sent as a tribute to Aboud's contribution towards Iraq. The government has tremendous trust in his willingness to help for furthering and enhancing cooperation between the two countries."
Mr. Abboud said this reference probably relates to various introductory letters in advance of a June 1989 trip he made to Iraq as chairman of the U.S.-Iraq Business Forum. His delegation included representatives of Mobil Oil Corp., General Motors Corp., Hunt Oil Co. and the former Irving Trust Co.
Mr. Abboud speculates Mr. Dajani may have learned of those letters and interpreted them for his own purposes. "In the fall of 1988, we were beginning to get indications that a U.S. trade delegation to Iraq would be welcome," Mr. Abboud said.
Comment by Forum's Chief
Marshall Wiley, president of the Business Forum and a U.S. diplomat in Iraq from 1975 to 1977, said, "Abboud really didn't know this Dajani, and as far as I know, he was not involved in any specific attempt to set up a particular credit facility for Iraq."
First City did lend money to support U.S. rice exports to Iraq, but that was long before Saddam Hussein invaded Kuwait, Mr. Abboud has pointed out.
During a 1989 meeting in Baghdad, Mr. Abboud said he urged Mr. Hussein to straighten out his country's finances, which had been put into a tangle by the recently concluded war with Iran.
Mr. Abboud said he told Mr. Hussein that Iraq must restructure its international debt with foreign banks before it could hope to receive new bank loans. Mr. Abboud recalls that Mr. Hussein "took great umbrage" at this suggestion and said he preferred to deal with Iraq's creditors on a one-to-one basis.
"He was saying they were going to handle it their own way. So we agreed to disagree," Mr. Abboud said.
In April of this year, Mr. Abboud testified before the House Banking Committee that "First City had no dealings whatsoever with Lavoro related to Iraq." He told the congressmen investigating the Lavoro-Iraq scandal that Mr. Drogoul's secretary had called him once to set up an appointment, but no meeting ever took place.
Mr. Drogoul could not be reached for comment, but a source close to him described the telexes from Mr. Dajani as being a kind of business referral, in which Mr. Dajani was suggesting to Mr. Drogoul that Lavoro might be interested in participating in the development fund. The source said Mr. Drogoul never met with Mr. Abboud.
Mr. Abboud said federal investigators have questioned him about the telexes. The matter also came up in the April hearing before the House Banking Committee. A source close to the U.S. prosecutors said Mr. Abboud is not the subject of any investigation.
Ms. McKenzie, the assistant U.S. attorney in Atlanta who brought the indictments against Mr. Drogoul and the other Lavoro branch employees earlier this year, declined to discuss any "evidentiary matters" involving the case. "We have to prove the charges in the indicment, and those deal with Mr. Drogoul's involvement," Ms. McKenzie said, adding that no trial date has yet been set.
Mr. Abboud has ties to Iraq dating to the 1970s. First Chicago Corp., of which he was chairman, was a major lender to Iraq during that period.
First City's only Iraqi exposure involved $50 million in federal guaranteed credits for agricultural exports, mostly rice shipped in 1989. First City recently won a $53.2 million judgment against Iraq in federal court over Iraq's failure to repay those credits.
Mr. Abboud said he got involved with Iraq, both as a lender and as head of the U.S.-Iraq trade group, because of Houston's role as a center for U.S.-Iraqi trade. During the late 1980s. Iraq ranked as Houston's top trading partner.
There are indications First City enjoyed some special favor in the eyes of the Iraqis. Despite the small volume of actual trade business conducted with Iraq, First City received $21.4 million in collateral deposits from the Central Bank of Iraq, money that it now can use to fund its recent damage award.
A former officer with Lavoro-Atlanta, who did not wish to be identified, said it was highly unusual for cash-strapped Iraq to place collateral deposits with banks with which it did business.
Mr. Abboud said there was "no significance" to the Iraqi deposits, which were booked in First City's London branch.