Bush to Veto Pentagon Funds Over Iraq Provision

President Bush will veto a huge Defense Department bill because of concerns by the Iraqi government that Iraqi assets in American banks could be vulnerable to claims from victims of Saddam Hussein, the White House said Friday in Texas.

“The new democratic government of Iraq, during this crucial period of reconstruction, cannot afford to have its funds entangled in such lawsuits in the United States,” Scott Stanzel, a White House spokesman, said in a statement.

Mr. Stanzel said the president objects to a section in the National Defense Authorization Act that would permit plaintiffs’ lawyers to freeze Iraqi funds and expose Iraq to “massive liability in lawsuits concerning the misdeeds of the Saddam Hussein regime.” At least one pending lawsuit reportedly seeks $1 billion or more.

Mr. Stanzel said the White House would consult with Congressional leaders to fix the bill “as soon as possible upon Congress’s return in January.” White House aides said Iraqi government officials had called attention to what they saw as problems in the bill, which was approved amid the lawmakers’ mid-December rush to adjourn for the holidays.

The White House’s initial explanation on Friday was that the language in the bill would unfairly expose the democratically elected government of the new Iraq, “a friend and ally of the United States,” to lawsuits arising from “the crimes and atrocities” committed by Saddam Hussein, the despot who was overthrown in the American-led military campaign, convicted of crimes against his countrymen and hanged in late 2006.

In any event, the announcement of the president’s intentions caught Democratic leaders off guard. The Senate majority leader, Harry Reid of Nevada, and House Speaker Nancy Pelosi of California quickly issued a statement complaining that they had been blindsided by the news.

“Despite the administration’s earlier support for the Department of Defense authorization bill, it appears that President Bush plans to veto this legislation, which is crucial to our armed forces and their families,” the Democratic leaders said in a joint statement.

Senator Carl Levin, the Michigan Democrat who heads the Armed Services Committee, said it was “unfortunate that the administration failed to identify the concerns upon which this veto is based until after the bill had passed both houses on Congress and was sent to the president for signature.” The senator said he was “deeply disappointed” at Friday’s developments.

The bill is important to members of the military and their families, since it provides for a 3.5 percent pay raise for the troops and contains measures intended to improve the much-criticized health-care system for veterans. (Money for the operations in Iraq and Afghanistan is provided for in separate legislation.)

Mr. Stanzel said the administration would work with Congress to adjust the bill in a way “that protects Iraqi funds in the United States and that ensures that the additional pay raise for our troops is retroactive to Jan. 1.”

But Mr. Reid and Ms. Pelosi were irate, asserting that the president was “bowing to the demands of the Iraqi government, which is threatening to withdraw billions of dollars invested in U.S. banks if this bill is signed.”

“The administration should have raised its objections earlier, when this issue could have been addressed without a veto,” the Democrats said. “The American people will have every right to be disappointed if the president vetoes this legislation, needlessly delaying implementation of the troops’ pay raise” and other items important to military families.

Assuming that President Bush does wield his pen, the veto would be the eighth of his presidency. Since the bill passed by big majorities in both Houses — far more than the two-thirds needed to override a veto — this latest dispute between the White House and Congressional Democrats could be resolved quickly, since neither side wants to be seen as doing anything to make military people unhappy.

The veto announcement was further surprising in view of the fact that earlier White House objections to the legislation were apparently satisfied when Congressional leaders excised a provision that would have passed a law expanding the definition of “hate crimes.”