Iran-Contra Supplement: Banca Nazionale del Lavoro & the Shadow Economy

In part seven of the Iran-Contra pseudcast, we discussed an interlocking network of banks that help facilitate the purchasing of weapons by the Iraqi government in the middle of the conflict with Iran (at the precise moment that Oliver North and the ‘Enterprise’ was facilitating the sale of weapons to Iran). Upon listening back to this segment (of which I’m particularly proud), I realized that I mis-identified the Italian bank whose Atlanta branch was at the center of this scheme. I called it the Banca Commerciale Italiana (BCI), which I should have called it Banca Nazionale de Lavoro (BNL). In my defense it’s an easy mistake. Both the BCI and the BNL were close to the BCCI and the American national security establishment, and both were also closely tied to Bruce Rappaport (in the episode we talked about Rappaport’s colleague Alfred Hartmann on the board of BNL; in the case of BCI, he had stake in the BCI ownership company, which he leveraged into increasing his stake in Bank of New York via a series of complex financial maneuvers). To make matters more suspect both BCI and BNL were headed by members of the P2 Lodge. So I apologize for my mistake, and as a mea culpa I’m opening dipping into the note library for some additional information on the BNL.

The Iraq Affair and Faction Fights

To all-too-briefly summarize the context in which we discussed BNL: at the exact moment that Bruce Rappaport was brought into to negotiate with the Israeli government on behalf of Bechtel in order to get construction of the Iraq-Jordan pipeline underway, the BNL began issuing credits to Iraq. These credits were used to purchase weapons, sometimes from Carlos Cardoen – “Pinochet’s favorite arms manufacturer”. Investigators later determined that some of these credits were underwritten by overnight transactions provided by BCCI – and what’s more is that Alfred Hartmann, described in the Senate report on The BCCI Affair as a “BCCI rent-a-face”, was on BNL’s board. Hartmann was a close associate of not only BCCI principles, but Rappaport. He was tied directly to Rappaport’s Inter Maritime Bank.

Bruce and Ruth Rappaport

This revolving structure, we suggested, was indicative of a complex of individuals and institutions that worked to facilitate the flow of money, weapons, oil and drugs in this period. This complex’s activities operated in a transnational conflict, cutting across a whole series of conflicts: its tendrils dipped into the financing of the Contras in Nicaragua, into the arming of Iraq, to the sale of weapons to Iran, and to the support of the rebels in Afghanistan.

But BNL deserves a little deeper dive. In addition to the obvious connection to Rappaport at the very moment he was having meetings with the Reagan administration’s National Security Council, the issuing of credit to Iraq by the bank clearly came from on high. Portions of the credit lines were backed by guarantees and loans from the Department of Agriculture’s Commodity Credit Program (CCC). This was a program “developed to expand U.S. agricultural exports by making available export credit guarantees to encourage U.S. private sector financing of foreign purchases of U.S. agricultural commodities on credit terms”. When the BNL scandal began to break at the dawn of the 1990s, it was quickly discovered that there was a relationship between the Department of Agriculture’s CCC and the bank:

While much of the money involved in BNL’s loan operation was not directly related to the CCC program, approximately $720 million of BNL Atlanta’s loan portfolio consisted of assigned obligations that were backed by CCC export guarantees.

With Iraq having requested billions in “CCC credit guarantees”, the suspicion on the part of the investigators was that BNL was running a “clandestine gray book loan operation” to the country. Ultimately, these suspicions were born out, culminating in the FBI raid on the bank’s Atlanta branch.

It appears that not only did the shadow combine that we’ve traced work above regional divides in the Middle East – it cut across factions internal to the administration itself. The Bechtel pipeline affair, for example, existed in tension with facilitation of weapon sales to Iran, precisely on the basis of the conflict between Iraq and Iran. George Shultz, himself a former Bechtel executive, pushed back on the Iran scheme. We also discussed tensions between North’s Enterprise and a faction around George H.W. Bush. It seems, on some level, that perhaps these are dynamics that intermingled with one another. Seymour Hersh, for example, suggests that it was individuals around Bush who first leaked information to press concerning the Iranian weapons sales:

At [George Bush’s] direction, a team of military operatives was set up that bypassed the national security establishment – including the CIA – and wasn’t answerable to congressional oversight. It was led by Vice-Admiral Arthur Moreau, a brilliant navy officer who would be known to those on the inside as ‘M’… over the next couple of years he oversaw a secret team – operating in part out of the office of Daniel Murphy, Bush’s chief of staff – which quietly conducted at least 35 covert operations against drug trafficking, terrorism and, most important, perceived Soviet expansionism in more than twenty countries…

Ollie brings in Dick Secord and Iranian dissidents and money people in Texas to the scheme, and it’s gotten totally out of control,’ the officer said. ‘We’re going nuts. If we don’t manage this carefully, our whole structure will unravel. And so we’ – former members of Moreau’s team who were still working for Bush – ‘leaked the story to the magazine in Lebanon.’ He was referring to an article, published on 3 November 1986 by Ash-Shiraa magazine in Beirut, that described the arms for hostages agreement. He would not say how word was passed to the magazine, nor did he acknowledge that with this leak Moreau’s group was acting with as much self-interest, and as little regard for the consequences, as Moreau had accused the CIA of doing. The officer explained that it was understood by all that the scandal would unravel in public very quickly, and Congress would get involved. ‘Our goals were to protect the Moreau operation, to limit the vice president’s possible exposure, and to convince the Reagan administration to limit Bill Casey’s management of covert operations.

The BNL affair helps draw this out. One element in the story that is under-acknowledged is the fact that BNL was a client of Kissinger Associates, the “geopolitical consulting firm” launched by Henry Kissinger in 1982. Kissinger himself sat for a time on the board of BNL. This can be contextualized alongside a relationship that opened between Kissinger Associates and BCCI in the latter half of the 1980s. In 1986, for example, a Kissinger Associates consultant by the name of Sergio de Costa had been tapped by BCCI to aid the bank for a series of business dealings in Brazil (de Costa had previously been a member of the Brazilian diplomatic corp). Within a year, de Costa was working to bring Kissinger Associates and BCCI together. One of Kissinger’s partners in the firm, Alan Stoga, appears to have been particularly interested in the possibility of a working relationship between the two institutions – and when the BCCI inquiry was underway, Kissinger Associates stated that there was a distance between Stoga and Kissinger where the bank was concerned. But as the investigators soon learned, things weren’t so clear cut:

Kissinger Associates determined to take its time in considering the risks and benefits of any relationship with BCCI, with Kissinger himself apparently taking the view throughout that the relationship was not worth having, while Stoga sought to continue to explore it…

BCCI files tell a different story. According to a December 19, 1988 memorandum from Helmy to Naqvi, he continued to be in communication with Stoga about the proposed relationship, and continued to anticipate that they would work something out despite the drug money laundering indictment:

I am in communication with Mr. Alan Stoga, Partner of Kissinger Associates, Inc. Their response was they are interested in principal but would like to wait a bit longer. I will be meeting Mr. Stoga in the first week of January, 1989 and will be discussing the issue further. It would be of interest for you to know that Mr. Scowcroft is now the National Security Advisor Designate in the Bush Administration and another Partner of Kissinger Associates is being tapped for Assistant Secretary of State in the Bush Administration. I shall keep you informed of my next meeting. You may agree that this association with Kissinger Associates, Inc. needs time to be cultivated. I am working in that direction”…

It is not contested… that Kissinger Associates did make “certain ‘unofficial’ general recommendations” to BCCI.

There are two important take-aways here. The first is that the exact relationship between Kissinger and BCCI was never properly determined by the investigators, and that the matter was ultimately dropped due to the unavailability of evidence – with the caveat that the consulting firm did have some sort of off-the-books dealings with the bank. Given that these maneuvers were happening alongside 1) an active relationship taking place between BCCI and BNL; and 2) and active relationship between Kissinger/Kissinger Associates and BNL, the stakes in these questions becomes higher.

The second-take away is the connection alluded to between figures prominent in the administration of George H.W. Bush and Kissinger Associates. The first of these was Brent Scowcroft, who had been preserved in the Ford-era “Halloween Massacre” engineered, it seems, by Bush, Rumsfeld and Cheney (ironically, Scowcroft had taken Kissinger’s position – but this was prior to Kissinger’s ‘drift’ towards the anti-detente position). Scowcroft had been vice-chairman of Kissinger Associates, and subsequently became Bush’s National Security Adviser. The second figure was Lawrence Eagleburger, who became president of Kissinger Associates after serving as Reagan’s Undersecretary of State for Political Affairs. He subsequently left Kissinger Associates to become Reagan’s Secretary of State.

What we have is, perhaps, a fleshing out of the White House faction was tied to the Iraq pipeline affair, and while supportive of the pro-Contra efforts was antagonistic to the Iran deal. Another figure that exemplifies this, outside of the government, is William E. Simon. Simon, a former Treasury Secretary and prominent Knight of Malta, was a Bechtel consultant – and from 1984 onward sat on the board of Kissinger Associates. Interestingly, Simon was in this time affiliated with the Friends of the Democratic Center in Central America (PRODEMCA), an adviser to AmeriCares, and a director of the Nicaraguan Freedom Fund. All three were closely tied to pro-Contra money fundraising efforts. PRODEMCA was a propaganda organization and fundraising body financed by the National Endowment for Democracy, AmeriCares was a humanitarian organization that provided “non-military aid” to Nicaraguan rebel groups (another principle of the organization was Prescott Bush Jr., brother of H.W. Bush), and the Nicaraguan Freedom Fund was a fundraising body that provided money to AmeriCares.

The final link in the chain is a curious episode that occurred in the late 80s. Admiral Daniel Murphy – mentioned above in the quote from Hersh as a member of Bush’s own “secret team” – and Shackley crony Tongsun Park flew to Panama to carry out negotiations “on behalf of Secretary of State Shultz” that would allow General Noriega to “remain in power until February 1989” (Murphy’s testimony can be read here). The episode reeks of dirty dealing: besides the connection between Murphy and Bush, it came out that at the time Park – an agent in the Korean Central Intelligence Agency – was representing the Aoki Corp, a Japanese company attempt to secure a contract to build a hydroelectric plant in Panama. At the same time Prescott Bush Jr. was engaged in business ventures with Aoki.

When Murphy and Park made their trip to Panama, they used the jet of infamous arms dealer Sarkis Soghanalian. Since 1980 – and with the blessing of the CIA – Songhanalian had been brokering arms deals on behalf of the Iraqi government. Many of these came with mind-boggling price tags: he arranged the sale of $1.4 billion worth of 15mm self-propelled howitzers from French arms manufacturers to Iraq.

Sarkis Soghanalian


In 1990, as the BNL investigation was heating up, a former attorney for a company called Kennametal Inc. told a Congressional committee hearing that Iraq had used “letters of credit” from the bank to purchase “carbine tools and inserts from the company”. While Kennametal attorneys and officials denied the claim, the ex-employee charged that the company had sold these tools and parts directly to Iraq and to a UK-based firm, Matrix Churchill. Matrix Churchill, in turn, was also supply Iraq. The destination of all these material flows was to a shadowy project being undertaken with a Canadian weapons engineer named Gerald Bull. This project, codenamed ‘Babylon’, was the construction of a supergun on behalf of Iraq.

Bull’s idea for the supergun was that it would be a long-range device capable of firing projectiles into an orbital position above the earth’s atmosphere. The projectiles would vary – the supergun could be used to launch satellites, and it could be capable of also doubling as a weapons system. With an estimated range of some 600+ miles, the supergun would have turned the tide of the war with Iran – and was also deemed a security threat to Israel.

The Supergun project became something of a scandal in the UK, with British munitions and industrial firms (like Matrix Churchill) having been instrumental in sourcing parts for Bull and Iraq. The shipments of parts were often structured to circumvent embargoes; Kennametal, for example, was said to have “’deliberately transhipped’ military products intended for Iraq through third countries, such as Canada, Germany and Britain, in order to circumvent U.S. export regulations”. A 1992 parliamentary inquiry in the UK focused on something called the “Allivane Affair”: Allivane International Group – a “ghost company” that rapidly cycled itself through a series of different names –

was the name used, with the Government’s knowledge, to ship 680arms to both sides in the Iran-lraq war, in clear breach of the embargo on the sale of arms to Iran since 1983 and to Iraq since 1985… Documents in my possession also show the Allivane International Group’s connection with the Space Research Corporation. A letter from Stuart Blackledge of SRC to Allivane’s company chairman, Terry Byrnes Junior, on 3 August 1987, shows an order for mark 3 155 mm Elite shells by SRC to Allivane International Ltd. The contract was worth in the region of £965 million, according to another informant of mine.

This company mentioned in conjunction with Allivane, Space Research Corporation, was the company of Gerald Bull that was overseeing the Project Babylon supergun program. And it wasn’t only BNL that was facilitating these moves: here too we find the specter of BCCI. The parliamentary inquiry noted that Allivane maintained accounts with BCCI, and in 1987 “BCCI was prepared to ensure the sale 50,000 sets of fuses by the Allivane International Group”. Others involved with Space Research Corporation have claimed that BCCI also provided loans directly to them for the Supergun Project.

A 1993 US House of Representatives ‘update on the BNL affair’ noted that founder of Allivane was one Terry Byrne, who had previously ran a New Jersey-based firm called Rexon Corp. Rexon, they noted further, was then under “criminal investigation for illegal shipments of artillery fuse parts and technology to Iraq”, and for material support of the Supergun Project. “Rexon”, they continued “is also under investigation involving Chilean arms dealer Carlos Cardoens’ activites in Iraq”.

Similar concerns swirled about in the chambers of Parliament. The allegations of Ari Ben-Menasche – a former agent for Mossad – that Mark Thatcher’s Texas-based company “was used to move equipment directly from Britain to Iraq”. And then, once again, the figures of Bull and Cardoen re-appeared:

The allegation was that Mark Thatcher introduced the supergun designer, Gerald Bull – who was subsequently murdered – to the South African military intelligence general, Pieter Van der Westhuizen, who then introduced Gerald Bull to the Iraqi deputy chief of procurement, who arranged a payment for Gerald Bull’s services via Cardoen Industries financial network…

When Ari Ben-Menashe–who was then still working for United States intelligence and trying to discourage Gerald Bull from going ahead with the supergun–arrived at Dr. Cardoen’s office, he found Mark Thatcher there. What was Mark Thatcher doing with Iraq’s main procurer of weapons in the west? The book alleges that Dr. Cardoen was introduced to Mr. Bull by Mark Thatcher, who was the link person.

In 1990, Gerald Bull opened the door to his apartment in Belgian and was shot multiple times in the head.

Gerald Bull

The P2 Connection

Earlier it was mentioned that, like Banco Ambrosiano and Banca Commerciale Italiana, the leadership of the BNL consisted of members of the Propaganda Due (P2) masonic lodge. Beyond that, the BNL seems to have had something of a particularly special relationship to the lodge, going right back to its founding. This relationship involved a company called Centro Mondiale Commerciale (CMC) – a name that will be instantly recognizable for JFK assassination buffs. The CMC was the Italian subsidiary of Permindex, a CIA-linked industrial firm that Jim Garrison famously examined during his attempt to prove that the CIA was behind the president’s assassination.

In the book On the Trail of Clay Shaw, Italian journalist Michele Metta shows – working primarily from CMC corporate documents and the discoveries made in various criminal proceedings – illustrates how, when the P2 Lodge came into being, it was fundamentally indistinguishable from CMC. Predating the P2 was another Masonic group called the Hod Lodge, and it seems that it was from Hod that P2 itself began to emerge. It was Hod’s grandmaster, an Italian attorney named Roberto Ascarelli, that brought P2’s eventual grandmaster Licio Gelli into Freemasonry. But soon Gelli – who was working with both American and Italian security services – was recruiting Masons into the P2 Lodge. These meetings took places in an office at the address Piazza di Spagna 72-A – an address that was, in actuality, the law offices of Ascarelli.

Gelli himself made clear that Ascarelli himself was intimately involved in the formation of P2:

In the first phase we celebrated the initiation rituals [of P2] in Ascarelli’s office, at number 72 in Piazza de Spagna, on the third floor… The ceremony lasted about an hour and a quarter because many ritual passages were skipped. Ascarelli initiated the new brothers and I was the witness. As it wasn’t a Masonic headquarters, we used a portable temple which we carried in a briefcase that we opened on the table. It had everything inside: a to-scale reproduction of the columns, the checkerboard floor, an altar that faced the east. The sword was foldable. For each initiation I provided Ascarelli with the new Freemason’s curriculum vitae, so that when ceremony was finished, he could talk to the neophyte about his job and his experiences. In general these conversations always ended up being about great historical figures.

Licio Gelli

What makes this significant is that Ascarelli’s office wasn’t only the founding site of the P2 Lodge – it was also the registered headquarters of two companies. The first was CMC, and the second was one called IAHC – which itself was simply a subsidiary of IAHC. This close-knit relationship between the CMC and the P2 Lodge was further reinforced, Metta discovered, by the fact that multiple individuals on the company’s board were themselves members of the lodge. One such figure was Giuseppe Pieche, who was also at this time working for NATO as a member of its Civil Protection Committee (CPC). Italian researchers have long-argued that the CPC was a component in NATO’s ‘stay-behind’ networks, which in Italy were dubbed ‘Gladio’. NATO’s own description of the CPC seems to suggest this was not unlikely:

The CPC was one of eight Civil Emergency Planning (CEP) planning boards and committees which were intended to ensure, in the event of an attack, the survival of populations, the support of military operations, the protection and use of vital resources, and the early recovery and rehabilitation of countries… The CPC dealt with the international coordination of planning in the area of civil protection at times of crisis or war…

In the late 1960s, journal Mario Ugazzi demonstrated that the CMC subsidiary IAHC was receiving financing from the International Credit Bank (IBC) of Geneva – which is quite notable, as IBC was set up by John Pullman and Tibor Rosenbaum (Rosenbaum has been erroneously identified as a member of Permindex; it is more accurate to say that his attorney, Louis Mortimer Bloomfield, was also Permindex’s attorney). Pullman had also set up the Bank of World Commerce in the Bahamas in the early 1960s, which provided money laundering services for the Italian-American mafia’s casinos and worked closely with the CIA’s Bahamas-based Castle Bank and Trust. Bank of World Commerce and IBC would have a close relationship. As Alan Block explains, the IBC served as a “laundromat for smugged funds” in connection to mob interests – and almost certainly for the intelligence services with which organized crime was so fundamentally bound.

When IAHC/CMC received its funding from IBC, it didn’t come directly from the Geneva bank. It came, instead, through an intermediary: BNL. Given that BNL would be revealed as deeply tied to P2, what appears at first as a sprawling network becomes, instead, quite compact.

In the US Congressional hearings on BNL, the question of the P2 Connection emerged quite clearly, and plainly illustrated the role that this bank played within this network:

Prof. A. Ferrari… [was] BNL’s managing director who had to resign in shame in 1981 because of his affiliation with the Lodge P2.. Ferrarri asked me to go to Gulf area, specifically the Emirates, Oman, and whatever was left of Beirut, Lebanon, to explore the possibility that BNL plant there a merchant bank in partnership, as he put it, with a group of BNL friends… the people whom I had met were his friends (Pakistani nationals connected to BCCI)…

Since Ferrari was a close friend of R. Calvi’s, the Chairman of the Board of Banco Ambrosiano who has suicided under the Black Friar’s Bridge in London… he, assisted by A. Florio, was able to put on the books of BNL’s affiliate “Capitalfin” (a company organized with the Italian ‘elite’ like Banco Ambrosiano) deals that invariably lost money. “Capitalfin” was managed by Ferrari’s handpicked president A. Caloni who then went on to replace Msgr. Marcinkus… at the helm of the Vatican Bank… Other than that it has to be said that the relationship with BCCI and people like Garth (sic) Pharaon were the exclusive domain of A. Ferrari, A. Florio and A. Conzara.

Given that Ferrari was forced down from BNL’s leadership in the early 80s, and the bank was working with BCCI towards the end of the decade, it is clear that the culture and the climate fostered in the many years prior only continued to perpetuate itself.

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