UNITED STATES OF AMERICA,
v. CRIMINAL ACTION
AMEDEO DeCAROLIS and 1:91-cr-78-MHS
THERESE MARCELLE BARDEN,
UNITED STATES OF AMERICA,
v. CRIMINAL ACTION
LEIGH ANN NEW, 1:91-cr-88-MHS
UNITED STATES OF AMERICA,
v. CRIMINAL ACTION
PAUL VON WEDEL, 1:91-cr-89-MHS
UNITED STATES OF AMERICA,
v. CRIMINAL ACTION
THOMAS MOBLEY FIEBELKORN, 1:91-cr-126-MHS
This matter is before the Court on the motions of each of the
defendants for a downward departure from the sentencing
guidelines. Earlier the Court considered and ruled on the various
objections to the pre-sentence reports and determined the
appropriate offense level for each defendant. Because of the
absence of any prior criminal record, each defendant is in
Criminal History Category I.
On August 19, 1993, the government in a sentencing memorandum
advised the Court that it will move for a downward departure
pursuant to § 5K1.1 of the Sentencing Guidelines for defendants
Von Wedel, New, and DeCarolis, and reserved the decision whether
to make a similar motion on behalf of defendants Fiebelkorn and
Barden. The government also advised the Court that it does not
oppose a downward departure for defendant Barden based on her
extraordinary family situation.
While the government's new position makes this Court's task
of imposing a fair and appropriate sentence far less burdensome,
the extent of any downward departure is governed by considerations
which go beyond defendants' cooperation or individual family
The Court has reviewed considerable material, including
National Security Agency reports; CIA documents prepared
by the Directorate of Information and the Directorate of
Operations; the book of 29, which includes 29 documents from these
agencies determined by the government to be discoverable by
defense; the so-called black book, which consists of a series of
State Department memoranda, National Security Council reports and
memoranda, and Defense Intelligence Agency confidential and
unclassified cables and information (the black book was not
furnished to defense Counsel as the information is substantially a
duplicate of that furnished in the form of summaries and the book
of 29); the several reports of the Italian Senate Commission
involving this matter; the diary of P. Di Vito, an official at
BNL; the CIA report of the investigation of its handling of
BNL-related matters; the Senate Select Committee on Intelligence
staff report on the involvement of United States intelligence
agencies in the BNL affair; the summaries of classified
information prepared by the government and furnished to defense
Counsel; the testimony during the three-week sentencing hearing
of defendant Christopher Drogoul; and the various exhibits
introduced during that proceeding.
The preponderance of the evidence well supports this Court's
conclusion that BNL-Rome was not a victim in this case. The
evidence of CIA knowledge of the activities of BNL-Rome and
BNL-Atlanta prior to the August 1989 raid of BNL-Atlanta is less
persuasive but clearly troublesome. Either the CIA knew of the
activities or the CIA failed to detect a five-year international
deception and large-scale illegal financing of arms for Iraq
through a small branch bank in Atlanta, Georgia. That this Court.
The Court does conclude that this is an appropriate case for a
downward departure as to each defendant and will grant defendants'
motions in part and will also grant the government's motions for a
downward departure for substantial assistance and will consider
defendant Barden's extraordinary family situation.
Judicial Order in the BNL Case Issued by
Judge Marvin Shoob on August 23, 1993
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
This case arises out of a loan scheme stretching across
continents and cultures, involving weapons merchants and
multi-national banks, and implicating governments. In February
1991, Christopher Drogoul, the branch manager of BNL-Atlanta and
the alleged mastermind of the scheme, was named, along with an
Iraqi Bank, some foreign nationals, and several of the above-named
defendants, in a 347-count indictment. The indictment centered on
charges that Mr. Drogoul, the branch manager, defrauded BNL over
the course of several years by engineering billions of dollars in
unauthorized loans to Iraq and other nations. A number of these
loans were backed by the U.S. Department of Agriculture's
Commodity Credit Corporation ("CCC").
Since the raid on BNL's Atlanta office in 1989, the scandal
has sparked investigations across the Western world. Several
committees of the United States Congress opened investigations
into this matter, commissions of the Italian Parliament have
explored the scandal, and aspects of this case were raised at a
trial in England. In September 1992, this Court presided over Mr.
Drogoul's three-week sentencing hearing, which followed his guilty
plea to sixty counts of the indictment. The Court heard detailed
testimony on the loan scheme, international money markets, and the
organization of BNL. The hearing ended during Mr Drogoul's
testimony when the Government announced that it did not oppose
Drogoul's motion to withdraw his plea. The Court granted Drogoul's
motion and later granted the Government's motion that the Court
recuse itself. Mr. Drogoul is scheduled to go to trial before The
Honorable G. Ernest Tidwell on September 8, 1993. These
defendants, each of whom has pleaded guilty, have been awaiting a
resolution of their involvement since the summer of 1989 - four
Evidence and Standard
While the information and evidence reviewed by the Court are
of uneven reliability and occasionally recount the hearsay
statements of unknown informants, the Court has sifted through the
information to make reliability finding and has considered only
that information which it has found to contain "sufficient indicia
of reliability to support its probable accuracy." U.S.S.G. §
6A1.3(a). In sentencing, the court is permitted to rely on
information that would not be admissible under the rules of
evidence in a trial. "Reliable hearsay evidence may be considered.
Out-of-court declarations by an unidentified informant may be
considered: 'where there is a good cause for the nondisclosure of
his identity and there is sufficient corroboration by other
mens.'" Id. Policy Statement (quoting United States v. Fatico, 579
F.2d 707,713 (2d Cir. 1978)).
The Court also notes that while no single piece of
information or evidence standing on its own would support the
Court's conclusions, when taken as a whole, even in light of the
Government's conflicting information and argument, the information
more than adequately and credibly supports the Court's conclusion
that the defendant employees of BNL-Atlanta, with their personal
agendas and paltry regards, were pawns or bit players in a far
larger and wider-ranging sophisticated conspiracy that involved
BNL-Rome and possibly large American and foreign corporations, and
the governments of the United States, England, Italy and Iraq.
It would be the height of hypocrisy to sentence these
defendants as if this were a simple case of wrongdoing by a branch
bank's employees, the sort of fraud contemplated by the sentencing
guidelines. The Court's conclusions are supported by the following
Evidence supporting Court's conclusion that BNL was aware of the
activities of the Atlanta Branch
1. BNL's relationship with Iraq
* BNL is one of the largest banks in Italy, and the bank has
a longstanding relationship with Iraq.
* In the early 1980's, BNL financed a number of Italian
exports to Iraq, and Iraq helped BNL during a liquidity crisis in
* In late 1987, BNL-Rome helped finance a transaction for
construction of a sewage plant in Iraq.
* BNL was well-known, as were many Italian institutions, for
its political spoils system. Members of the Italian parliament
believed that U.S., Italian, and Iraqi officials received
kickbacks from these deals. At the bank, commissions sometimes
amounted to five percent of any deal. Other source said that BNL
officials received eight percent kickbacks.
2. BNL continued to do business with Iraq after the Iraqis
were implicated in the scandal.
* BNL-Rome honored several letters of credit issued by the
Atlanta branch to companies for carbide cutting tools (often used
in the manufacture of weapons) and BNL-Rome participated in the
financing of an Iraqi petrochemical plant.
* It remained Iraq's correspondent bank for Italy.
* Intelligence sources stated that the BNL-Atlanta loan
scheme was only a continuation of this long-term relationship.
3. Evidence of BNL's knowledge
* A branch of BNL in Udine, Italy referred an Italian steel
company to BNL-Atlanta for financing of an Iraqi project. An
official from the Rome office of BNL had personally handled the
matter, advising the company to use BNL-Atlanta, because that
branch handled the bank's Iraqi business.
* In 1989, General Motors sought financing for an automobile
deal with Iraq from BNL in Rome and Toronto. The financed
automobiles were sold at almost double the unit price. No
explanation is available as to the $75 million overcharge or who
benefitted from it.
* In January 1990, a CIA employee concluded, based on general
intelligence reports and publicly available material, that
managers at BNL-Rome were involved in the scandal.
* A source from the legal department at the bank is quoted as
saying that the transactions from BNL-Atlanta were authorized and
directed by the Italian government and under instructions to make
it appear that the transactions were controlled exclusively by
* Others speculated that the loans could not have been made
without the tacit approval of the BNL Tome office, and Western
bankers assumed that BNL's headquarters knew of the loan scheme
under way in Atlanta.
* The BNL affair was considered by some sources to be part of
an acknowledged cooperative strategy to support Iraq to ensure its
victory in the Iran-Iraq war.
* Italian treasury secretary Carli reported to the Italian
Senate Commission that three BNL-Rome employees may have known
about the unauthorized lending in Atlanta. He also said that the
information of BNL-Atlanta's activities should not have slipped
through the bank's controls.
* Senior BNL officials were indicted and later convicted for
their involvement in arms sales to Iran.
* The Italian embassy in Iraq was under suspicion of
complicity in the BNL matter. The military attache committed
suicide shortly after the raid, and he was rumored to be related
to the scandal.
* An Italian parliamentary commission member stated that the
investigation showed that Drogoul was "no lone wolf."
* The former head of BNL's North American operations, Dr.
Luigi Sardelli, provided credible testimony that senior officials
in Rome approved or had knowledge of Mr. Drogoul's activities.
* Sardelli's letter criticizing defendant's activities was
never delivered by the auditor to officials in Rome.
* Instead of auditing or investigating BNL-Atlanta, BNL-Rome
officials elected to investigate Dr. Sardelli, who appears to this
Court to be the only "straight shooter: in the organization.
* BNL-Rome was an extremely political organization, operating
more as an agency of the Italian government than as a bank.
* Dr. Sardelli voiced his frustration with BNL-Rome in
testifying that the BNL-Rome officials sent to the United States
to investigate the Atlanta branch after the raid were the
officials who should have been investigated.
* Co-defendant Paul Von Wedel and Jean Ivey, a BNL-Atlanta
employee who was granted immunity, testified at Drogoul's hearing
that they believed that officials in Rome were aware of
BNL-Atlanta's involvement with Iraq testimony the Court found
credible. Mr. Von Wedel also testified that Mr. Drogoul had
regular access to Dr. Giacomo Pedde, the director general of
BNL, that Mr. Drogoul met with Mr. Monaco, a senior BNL official,
in Baghdad, and that Mr. Florio, another senior BNL official,
orally approved early CCC loans to Iraq.
* Senior officials in Rome signed onto some of the loans made
by BNL-Atlanta to Iraq, at the request of the Iraqis.
* From early in the investigation, BNL's lawyers and Italian
officials urged that this case be raised to a political level.
Connections with the weapons network
Matrix-Churchill, an Iraqi front company and a major
component of the arms procurement network, was a major participant
in the BNL-Atlanta scheme. The CIA became aware that
Matrix-Churchill was an Iraqi front company in 1987. No CIA
reports indicated a relationship with BNL-Atlanta. Later, in a
criminal proceeding in Great Britain, it was confirmed that two
employees of Matrix-Churchill, one of whom was a director, Paul
Henderson, were sources for British intelligence. The charges
against the two men were dropped.
BNL-Atlanta was reported to have provided financing for major
parts of the Iraqi procurement network, involving such companies
as Space Research Corporation, Lear Fan, the Italian Endeco
Barazuol, and Matrix-Churchill. BNL-Atlanta was reported to have
helped finance large parts of the Condor II missile program, a
joint program of Iraq, Egypt, and Argentina.
Awareness of U.S. Intelligence community
The CIA had non-public information from various sources
about BNL and BNL-Atlanta lending activities, though not
information that they were unauthorized.
Miscellaneous Government Information
In the fall of 1989, shortly after the raid on BNL-Atlanta,
there were a number of contacts between the prosecutors in the
case and the federal agencies involved in the decision to approve
new agricultural loan guarantees for Iraq. The Atlanta prosecutors
met directly with representatives of the Agriculture Department.
There were at least two telephone calls from a junior attorney in
the White House Counsel's office to the chief prosecutor in this
case; the calls sought information concerning the case in
connection with the decision to approve loan guarantees. In the
spring of 1990, the prosecutors and investigators were invited to
Washington on at least one occasion to discuss the case with
National Security Council staff members and other administration
officials concerned about the approval of a second tranche of loan
guarantees. Later, in September 1990, the chief prosecutor and
chief investigator on the case were part of a Justice Department
delegation which met with the Italian ambassador to the United
States, who argued that BNL was the victim of a "terrible fraud."
During a November 1989 meeting of the National Advisory
Deputies Committee, certain officials reported that Iraq had not
been implicated and that the scandal appeared to involve internal
BNL matters. Some high-level members of the Executive Branch
wanted to continue the CCC program with Iraq, arguing it was
essential to the U.S. relationship with Iraq.
* Following the execution of the search warrant and the
implication of the Iraqis, the United States Government,
particularly its foreign policy branches, continued to push for
granting agricultural credits to Iraq.
* A generally reliable source believed that BNL-Atlanta could
not have operated without the knowledge and acquiescence of the
Federal Reserve Board, the Department of Agriculture, and the
Commodity Credit Corporation.
* After 1985, the Exim bank maintained a rotating, short-term
$200,000,000 facility for Iraq; it was the only listed country
receiving Exim coverage. In January 1990, President Bush signed a
waiver of sanctions to permit the Exim program for Iraq to
continue through 1990. The United States also determined to
release $500 million in CCC guarantees with the possibility that
another $500 million would be released later.
* A U.S. Government memorandum prepared for the Executive
Branch urged continued approval of the CCC program for Iraq, but
acknowledged the improbability that Iraqi bank officials were
unaware of kickbacks, deeply discounted interest rates, and other
gross irregularities in the program. The U.S. Government was also
aware that there were allegations of double and triple overpricing
of some commodities, diversion and transshipment of commodities,
and that CCC financing had been used for goods that did not
originate in the United States.
Di Vito Diary
Attorney General Richard Thornburgh met with the Italian
ambassador at a White House dinner. The ambassador pushed the idea
that BNL was a victim and said incriminating BNL would be seen as
an insult to Italy.
Overruns by BNL-Atlanta from 1986 were signaled to the North
American office of BNL by the foreign credit office of the bank.
A number of new transactions, after the raid, between
BNL-Rome and Iraq totalled more than $228,000,000 as outlined in
the July 31, 1990 confirmations.
These factual findings support the following reasons.
One, the Court finds that there is substantially reliable
evidence that the alleged victim in this case, BNL-Rome,
encouraged defendants to act as they did and superiors at the bank
were in fact complicit in the scheme. The defendants saw their
superior, Mr. Drogoul, rewarded for his acts, and could reasonably
conclude that the bank approved of their acts or was deliberately
ignorant of their activities.
Section 5K2.10 of the Sentencing Guidelines provides:
If the victim's wrongful conduct contributed significantly to provoking the offense behavior, the Court may reduce the sentence below the guideline range to reflect the nature and circumstance of the offense.
U.S.S.G. § 5K2.10. Downward departures relying on this section
usually involve cases of a physical assault and the policy
statement provides that the section is usually not "relevant in
the context of non-violent offenses." Id. Neither the guideline
nor the commentary, however, prohibits the section's application
to a fraud case, and the fraud guideline clearly contemplates that
the victim of the fraud was not complicit with the alleged fraud.
See § 2F1.1.
The Court has considered the Government's argument that §
5K2.11 applies only to victim conduct that provoked a defendant's
offenses. The Court finds, however, that it is within this Court's
discretion to consider the victim's conduct throughout the course
of this scheme in departing downward, and the Court concludes that
this conduct permitted and encouraged the scheme. This conduct
does not fit neatly in the category set out in § 5K2.11, but
clearly this was not a pattern of conduct considered by the
Commission in formulating the guidelines.
The evidence of BNL officials' knowledge of these loans and
of the loans' role in international finance suggests that these
defendants were merely functionaries in a scheme that benefitted
the management of BNL and furthered the foreign policy of the
United States and Italy. CCC loans to Iraq continued to be
approved at the highest levels of the United States Government
long after the scheme was uncovered, and BNL-Rome continued to do
business with the Iraqis and other entities who had participated
in the scheme "to defraud" the bank. The Di Vito diary lists in
detail a total of $228 million in new loans by BNL-Rome to Iraq
following a July 26, 1990 conversation. (Di Vito diary, July 31,
Two, departure is proper because the offense level is
exaggerated by the dollar value involved in the scheme. There is
little evidence that defendants' activities were the factual or
proximate cause of the loss. As recounted above, defendants' roles
were a minuscule part of the offense, and the offense level "bears
little relation to" defendants' role in the offense. United States
v. Restrepo, 936 F.2d 661 (2d Cir. 1991). Indeed, it is difficult
to pinpoint the cause of the "loss" in this action. Until the Gulf
War intervened, Iraq had continued to make payments on many of the
loans extended. On other loans, however, Iraq had defaulted. The
amount of loss caused by these defendants, then, "is complicated
by considerations of multiple causation." United States v.
Gregorio, 956 F.2d 341 (1st Cir. 1992) (permitting a downward
departure for "multiple causation"); United States v. Schneider,
930 F.2d 555 (7th Cir. 1991); United States v. Kopp, 951 F.2d 521
(3d Cir. 1991). More important, the role [of] these defendants was
trivial in relation to the scope of this scheme. Also, as
recounted above, the victims' conduct likely led to an
increase in the amount loaned and the amount lost. This
combination of causes takes the defendants outside the "heartland"
of the fraud guideline and makes these cases appropriate for a
Finally, the Court concludes that a downward departure is
appropriate because there is simply no way the Sentencing
Commission could have considered the vast range of conduct that is
relevant to this case, dwarfing these individuals' involvement.
Neither this Court nor the public is likely to know the underlying
motivations and purposes of the scheme that touched the branch
bank, but it is clear that this case and all its permutations are
unlike any set of facts covered by the mathematical formulas of
the sentencing guidelines. Accordingly, a downward departure in
this case is appropriate.
The Court GRANTS the motions for downward departure.
IT IS SO ORDERED, this 23d day of August, 1993.
Marvin H. Shoob, Senior Judge
United States District Court
Northern District of Georgia