The Federal Reserve’s Inspector General revealed the findings of a 16-month investigation into two big Ron Paul conspiracy theories this week, publishing a new report that claims to disprove Paul’s allegations that the central bank played a role in the Watergate scandal and helped facilitate weapons loans to Iraq in the 1980s.The watchdog investigation was requested in 2010 by then-House Financial Services Committee Chair Barney Frank, after Paul questioned Federal Reserve Chair Ben Bernanke about the charges during a Congressional hearing. The resulting report examines whether:
- The cash used by the Watergate burglars “came through the Federal Reserve.”
- Federal Reserve officials “stonewalled” Congressional inquires about the investigations into the 1970s scandal.
- The Federal Reserve “facilitated a $5.5 billion loan to Saddam Hussein” to help the Iraqi leader buy U.S. weapons in the 1980s.
After more than a year of surprisingly extensive fieldwork, the federal watchdog “did not find any evidence of undue political influence with Federal Reserve officials related to the 1972 Water gate burglary or Iraq weapons purchases during the 1980s,” according to a letter from the Fed’s inspector general to Bernanke included in the report.
It is actually pretty fascinating to see how the federal watchdog went about debunking the obscure conspiracy theories. Here are the highlights from the report:
- When the Watergate burglars were arrested, police found 44 new $100 bills in their possession, some of which were sequentially numbered. The OIG’s investigation found no evidence that Fed officials could have provided the burglars with the cash.
- Right before the Watergate burglary, there was a well-publicised theft at the Federal Reserve Bank of Philadelphia, one of the banks that distributed some of the $100 bills found on the Watergate burglars. The OIG analysed the theft but did not find any connection between the cash stolen and the cash found on the burglars, because the theft involved only “unfit” bills that had been taken out of circulation.
- With regards to Paul’s allegation that the Fed “stonewalled” Congressional investigations, the OIG found that “the Board’s decision not to provide information [about the source of the money] requested by congressional members and staff was consistent with the U.S. Attorney’s Office advising the Board at the time to not disclose the information because such disclosure may impede the investigation and jeopardize the subsequent prosecution.” This finding is actually a little suspect, given that Nixon’s revolving Attorneys General were at the centre of the Watergate scandal. According to the report’s timeline, Richard Kleindienst would have been the Attorney General in charge when the Board was asked to withhold information from Congress. Although he was never charged with anything, Kleindienst was intimately involved in the Watergate coverup and resigned amid the scandal. So while there may not have been any inappropriate political interference between the AG and the Fed, it is tough to accept the claim without more evidence.
- To address the allegations about Iraq weapons loan, the OIG looked at the relationship between Federal Reserve officials and BNL-Atlanta, a branch of the Italian bank Banca Nazionale that was involved in extending $5.5 billion in unauthorised loans to Iraq in the 1980s. A 1989 FBI investigation into BNL-Atlanta found that the Iraq loan transactions weren’t recorded or reported to banking regulators, and were concealed in a secret set of books that were moved back and forth between employees’ homes and cars. Several BNL-Atlanta employees were eventually charged in the case.
- Some of of BNL-Atlanta’s credit arrangements to Iraq were financed through a USDA export guarantee program. After the unauthorised transactions were discovered there was speculation that Iraq had misused funds from the programs, possibly by bartering U.S. agricultural commodities for weapons.
- The Federal Reserve Board, along with other federal agencies, participated in USDA’s export guarantee programs through its advisory body, the National Advisory Council On Monetary and Financial Policies. According to the OIG report, the Board repeatedly raised concerns about Iraq’s creditworthiness” and the amount of the propose guarantees to other members of the NAC. The OIG’s investigation didn’t find any evidence of undue political interference with Fed officials familiar with the NAC or any indication that the Board used its NAC role to facilitate BNL-Atlanta’s loans to Iraq.
It is not clear if Ron Paul, a longtime Fed critic, will be satisfied with the inspector general’s version of events, and it’s doubtful that the new report will curb his calls to abolish the central bank. We’ve emailed Paul’s press secretary to see what he thinks about the report, and will update when we hear back.
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