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Board Report:  March 30, 2012

Inquiry into Allegations of Undue Political Interference with Federal Reserve Officials Related to the 1972 Watergate Burglary and Iraq Weapons Purchases during the 1980s

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We initiated this inquiry in response to a request from the then Chairman of the House Committee on Financial Services to the Board for an investigation into allegations raised by a member of Congress, Representative Ron Paul, during the February 2010 Humphrey-Hawkins hearing before the committee, which the Board referred to our office.

We performed this inquiry to identify and assess any available evidence of undue political interference with Federal Reserve officials related to the 1972 Watergate burglary and Iraq weapons purchases during the 1980s. In assessing undue political interference, our review sought to identify any available evidence of the improper use of the political process or political authority that could have affected the conduct or decisionmaking of Federal Reserve officials. Based on our review of the February 2010 hearing record and discussions with the staffs of the then committee Chairman and Representative Paul, we focused our analysis on allegations that (1) the cash found on the Watergate burglars came through the Federal Reserve, (2) the Federal Reserve "stonewalled" congressional members and staff investigating the source of the cash found on the burglars, and (3) the Federal Reserve facilitated a $5.5 billion loan to Iraq for weapons purchases during the 1980s.

To identify any evidence regarding these matters, we searched voluminous Board and Federal Reserve Bank archives, as well as congressional records. We interviewed employees and examined documentation at the Board and on-site at the Federal Reserve Banks of Philadelphia, Atlanta, and New York. Additionally, we visited the Gerald R. Ford Presidential Library and Museum in Ann Arbor, Michigan, to review the library collection of Arthur Burns, Board Chairman at the time of the Watergate burglary. In conducting our inquiry, we also reviewed documents and reports written by the Federal Bureau of Investigation (FBI), the Government Accountability Office, and the Department of Justice.

We did not find any evidence of undue political interference with Federal Reserve officials related to the 1972 Watergate burglary or Iraq weapons purchases during the 1980s. Specifically, related to the Watergate allegations, we did not find any evidence of undue political interference with or improper actions by Federal Reserve officials related to the cash found on the Watergate burglars. We also did not find any evidence of undue political interference with Federal Reserve officials or inaccurate responses by Board officials regarding the allegation that the Federal Reserve officials "stonewalled" congressional members and staff regarding the source of the cash found on the burglars. With regard to the Iraq allegation, we did not find any evidence of undue political interference with Federal Reserve officials or any indications that the Federal Reserve facilitated a $5.5 billion loan to Saddam Hussein or Iraq for weapons purchases during the 1980s. We did not find evidence of any loans between the Federal Reserve and Saddam Hussein or Iraq during the 1980s.

In his comments on a draft of our report, the Board's General Counsel stated that our report confirmed past statements by Federal Reserve officials in relation to these incidents, and he indicated his appreciation for the thoroughness of our review. Our report did not contain any recommendations.