Fed watchdog finds no Watergate, Iraq weapons link

WASHINGTON (Reuters) - The Federal Reserve did not help the Watergate burglars get cash, stonewall congressional inquiries in the 1970s political scandal or help Iraqi leader Saddam Hussein get a $5.5 billion loan to purchase weapons in the 1980s, the agency's inspector general said in a report posted on the Fed's website on Tuesday.

The release touches on subjects seldom associated with the U.S. central bank. It comes after an inquiry that grew out of allegations made by U.S. Representative Ron Paul, a Fed critic and Republican presidential candidate, at a congressional hearing in February 2010.

Following the hearing, then-House Financial Services Committee Chairman Barney Frank asked the Fed to investigate what, if any, inappropriate role the central bank played in the Watergate scandal that brought down the presidency of Richard Nixon or weapons purchases by Saddam Hussein.

"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," the Fed's inspector general told Fed Chairman Ben Bernanke in a letter dated March 30.

"Specifically, regarding the first Watergate allegation, 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."

The inspector general's office operates independently of the Fed. It said in its report that the Fed's general counsel reviewed the findings and "stated that our report confirmed past statements by Federal Reserve officials."

(Reporting By Dave Clarke; Editing by Bill Trott)