Bank Of Credit And Commerce International Scandal Case Study

Front men often stood in to mask the identity of the real borrowers or purchasers. The Federal Reserve Board believes that the use of front men ultimately enabled B.C.C.I. to buy control of First American Bankshares Inc., Washington's leading banking institution, run by Clark M. Clifford, the prominent lobbyist and lawyer who represented B.C.C.I. when it first began buying banks in the United States. Scheme to Cover Losses

As losses mounted, the bank apparently hatched a scheme to cover them up by making interest payments on loans with deposits from other customers. The idea was to deceive auditors from detecting the red ink in its loan portfolio. The scheme also involved offshore funds parked in lightly regulated countries that could be drawn down to patch up losses elsewhere.

And when capital was needed to absorb further losses, the bank artificially pumped up its share price by lending money to existing shareholders to buy more stock. The proceeds from the stock would help balance the bank's books, but actually the bank was merely taking depositor money and investing it in the bank.

Bankers, regulators and even some law-enforcement officials had only vague notions for years that the BCC Group S.A., the holding company for B.C.C.I. and its affiliates, was a strange and shadowy institution. Since the early 1980's, the company's reputation made banking officials uneasy -- a "stateless" bank that operated in the United States and about 70 other countries, chartered in Luxembourg, run by Pakistanis, owned by Arabs, headquartered in Britain and serviced by outposts in the Cayman Islands, a well-known haven for private banking. Police and intelligence experts nicknamed B.C.C.I. the "Bank of Crooks and Criminals" for its penchant for catering to customers who dealt in arms, drugs and hot money.

"We knew that the bank had financial troubles but not that there was massive fraud," said John Atkinson, the bank inspector for the Cayman Islands and a member of the international team that shut down B.C.C.I. "I was very surprised by the extent and size of the fraud." An Unraveling Fraud Raises New Questions

The documents, charges and testimony -- along with interviews with investigators, regulators and former bank officials in the United States, Europe and the Cayman Islands -- shed light on how B.C.C.I. orchestrated its elaborate fraud. But they also raise new questions about how the bank got away with it for so long. And unraveling the fraud is necessary to address a crucial issue: whether B.C.C.I. was a unique criminal organization or just unusually adept at exploiting the weaknesses in international financial regulation.

Not until June -- days before international banking regulators seized the bank -- did anyone finally possess solid evidence of the multibillion-dollar fraud that had been the private handiwork of the handful of bankers who had engineered it.

Now, fresh evidence seems to arrive almost daily. Last week, several uncensored copies of the bank's independent audits were released on Capitol Hill along with copies of letters between the bank and its accounting firm, Price Waterhouse. There was also a report prepared by the bank's own senior officers last year who completed an internal investigation of the bank.

Two weeks ago, a state grand jury in Manhattan indicted B.C.C.I. for money laundering, bribery and fraud, and the Federal Reserve Board proposed a record $200 million fine on B.C.C.I. for secretly controlling three American banks -- First American, the Centrust Savings Bank of Miami and Independence Bank of Encino, Calif.

All of this activity was touched off by a confidential report last June to the Bank of England, Britain's top banking regulator, stating that B.C.C.I. "generated significant losses over the last decade and may never have been profitable in its entire history." It was that report that prompted the worldwide seizure of B.C.C.I. on July 5. Price Waterhouse Audit

When an international team of bank supervisors gathered in late June at the Bank of England on Threadneedle Street in London, they were shocked by a confidential report prepared by the bank's auditor.

Using codenames like "Sandstorm" for B.C.C.I. and "Fork" for its Cayman Islands affiliate, called the International Credit and Investment Company, Price Waterhouse sketched out in 45 pages what it termed "one of the most complex deceptions in banking history." It included phony loans, unrecorded deposits, secret files and illicit share-buying schemes -- all funneled through a global network of shell companies, friendly banks and wealthy Arab front men to cover up the scam.

The most visible B.C.C.I. front man in the United States, according to the Federal Reserve Board, was Ghaith R. Pharaon, a Harvard-trained Saudi businessman who has owned banks, hotels and manufacturing businesses around the world, including extensive projects in Argentina. From his estate in Richmond Hill, Ga., near Savannah, Mr. Pharaon befriended wealthy American politicans and business leaders, including former Atlanta Mayor Andrew Young and Bert Lance, the Georgia banker who served as budget director in the Carter Administration.

Mr. Pharaon bought Mr. Lance's National Bank of Georgia and later sold it to First American Bank. Mr. Young later had a contract with B.C.C.I. with a $50,000-a-year retainer to introduce B.C.C.I. around the world.

The bank curried favor with other prominent people through charitable donations or consulting fees, including former President Jimmy Carter and former Prime Minster James Callaghan of Britain, to lend B.C.C.I. an aura of influence and respectability.

And the bank maintained secret accounts for a collection of people and institutions that reads like a list of characters and organizations for a spy novel: Saddam Hussein, Abu Nidal, Manuel Noriega, the Central Intelligence Agency and an assortment of drug runners and arms merchants. "It was the bank of convenience for people with money to hide," said Jules Kroll, a New York investigator who has tracked the use of B.C.C.I. by the Iraqi leader and Peruvian Government officials.

There is some question whether B.C.C.I. deceived American savings regulators in 1988 and bought time for Centrust Savings in Miami to work itself out of its troubles. A year later, the regulators seized the bank, but not until the cost of bailing out the institution rose considerably. Part of the focus of a Federal investigation in Miami involves a capital injection into Centrust that may have been illusory, Federal investigators say.

But in other countries, where more than a million depositors, ranging from street sweepers to central banks, have funds tied up, people are likely to lose money. Just how much they will lose depends on what assets the liquidators find among the bogus loans -- a process likely to take years. There is a faint hope that the Government of Abu Dhabi and its ruler, Sheik Zayed bin Sultan al-Nahayan, which now own 77 percent of B.C.C.I., may be persuaded to back a rescue plan for a recast version of the bank. The Likely Victims Are Outside the U.S.

The chances are high, however, that the collapse of B.C.C.I. will mean billions of dollars' worth of lost personal savings, much of it expected to be lost by households in developing countries and among the aspiring Asian immigrants in Europe. And American-style deposit insurance, with the government guaranteeing the safety of accounts up to $100,000, does not exist in most countries.

In Britain, for example, deposit insurance covers 75 percent of losses up to a maximum of $:15,000, or about $25,500.

"We have people who had their life savings in B.C.C.I., small companies that deposited their pension-fund money there and local authorities with tax money in B.C.C.I. accounts," said Clive Russell, deputy senior partner of Halpern & Woolf, a London accounting firm that represents creditors of the bank. "For them it's a financial disaster."

The Abu Dhabi owners of the bank have objected to its seizure, though they acknowledged its "various operating problems in recent years," and "substantial losses." They have had little to say except that they were proceeding with a plan to rescue the bank. They also changed management and initiated an internal investigation of its problems last year.

Among the countless figures contained in the piles of documents on B.C.C.I., one of the more instructive is the mention of $2.5 million on page 12 of the confidential auditors' report to the Bank of England in June. That was the modest grubstake of capital invested by the initial shareholders in 1972, when B.C.C.I. was founded.

It was the brainchild of a Pakistani banker, Aga Hassan Abedi, and a handful of compatriots. He had large dreams of creating a globe-spanning bank that could compete with the big Western financial institutions but also cater to developing countries.

"From the outset, B.C.C.I. never had much capital," observed Robert M. Morgenthau, the District Attorney in Manhattan. "But they wanted to be a huge bank, so they were always desperate for funds and deposits." Rapid Growth Route

A rapid growth route was big customers. And Mr. Abedi tapped his contacts in Pakistan for the biggest, the Gulf Group, a shipping and trading conglomerate owned by the Gokal family of Karachi. The relationship began in 1972 when the company made substantial deposits in B.C.C.I.

In 1976, according to Price Waterhouse documents, the Gulf Group began borrowing heavily from B.C.C.I. for trade financing and shipping loans. The following year, the loans had grown to the point that B.C.C.I. transferred the Gulf Group accounts from the London office to its Cayman Islands subsidiary, B.C.C.I. Overseas, to sidestep Bank of England restrictions on lending limits.

But by 1978, the Gulf Group was in financial trouble and so were B.C.C.I.'s loans. To hide its losses, B.C.C.I. funneled money -- often unrecorded deposits -- from elsewhere in the bank into the Gulf Group accounts to make it appear that loan repayments were up to date when they were not.

Frequently, the funds were routed through B.C.C.I. shell companies. Sometimes payment documents were simply faked. Having B.C.C.I. executives work on to Gulf Group accounts on December nights was an annual ritual at the bank. The loan doctoring became a "full-time occupation," according to Price Waterhouse, and the team set up to handle it was dubbed the bank's "special duties" department.

The head of the team was reportedly Swaleh Naqvi, B.C.C.I.'s former chief executive, who is now living in Abu Dhabi. The elaborate deception involved some 750 accounts over a 15-year period, and loans to the Gulf Group from B.C.C.I. and through its many shell companies totaled more than $700 million. Today, the Gokal brothers holding company in Luxembourg, Gulf Holdings International, is in administrative receivership, the European equivalent of bankruptcy.

The Gulf Group scam highlights how difficult it was to detect B.C.C.I.'s stock manipulation. First, the hidden funds and bogus loans often passed through the International Credit and Investment Company in the Cayman Islands, a B.C.C.I. affiliate. Trying to Track Down A 'Bank Within a Bank'

The International Credit and Investment affiliate operated under the cover of the British colony's strict bank-secrecy laws, and its relationship with B.C.C.I. was misunderstood for years by auditors and regulators. It was thought to be linked to Mr. Abedi's sizable charity programs -- and B.C.C.I. did finance everything from $8 million worth of health and agricultural programs sponsored by Mr. Carter to slum clearance in Karachi and scholarships for poor students as well as third-world musicians and writers.

But regulators are only now learning that the affiliate's purpose was to serve as a conduit for the bank's secret and illicit dealings. It was not until last year that investigators discovered that the Cayman concern was what the Fed called the "alter ego" of B.C.C.I. Now, the Cayman affiliate has been called a "bank within a bank," that is, at the heart of the B.C.C.I. fraud.

The second aspect that made the frauds difficult to detect were the private files of Mr. Naqvi in London; a separate set of books that began with the Gokals' shipping and trading company. When B.C.C.I. was seized, the secret set of books amounted to some 6,000 files. Only recently have the Abu Dhabi owners of the bank agreed to turn over the files to British regulators.

"I.C.I.C. was not the bank within a bank," said Mr. Atkinson, the Cayman bank inspector, who was assigned to the job in 1989 by the Bank of England. "It was those 6,000 files."

Once its loan losses spiraled upward, B.C.C.I. could have admitted the problem, husbanded its capital and struggled to survive. Instead, it hid the losses and rolled the dice, hoping that future profits would come.

Its big bet was its money management and trading actitivies in London. But again, the hush-hush operation was booked in Cayman Island accounts.

The London treasury of B.C.C.I. apparently gambled and lost big on trading in financial futures, options contracts and cotton over several years. The usual internal controls on the size of investments that could be made with depositors' funds were ignored. The bank had a $1 billion limit on its investments, but in desperation the accounts swelled to a stunning $11 billion. From 1977 to 1985, the treasury unit's actual losses totaled $633 million, according to the Price Waterhouse report in June. But, the report added, those figures did not include a $225 million loss in 1985 that the auditors turned up.

In 1985, Luxembourg banking authorities asked Price Waterhouse to investigate the trading activities. The auditors found that B.C.C.I. was losing heavily on options and futures trading, and that these losses were "not being properly recorded." That led to a $225 million charge against earnings in 1985. At the time, the accounting firm concluded that B.C.C.I.'s failure to recognize the losses resulted from "incompetence."

Now, says a somewhat chastened Price Waterhouse, "with the benefit of hindsight, it appears more sinister in that it now seems to have been a deliberate way to fictitiously inflate income." Back in 1985, the accounting firm did not examine the prior year's trading because "no significant losses appeared to have occurred."

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The Bank of Credit and Commerce International (BCCI) was an international bank founded in 1972 by Agha Hasan Abedi, a Pakistani financier.[1] The Bank was registered in Luxembourg with head offices in Karachi and London. A decade after opening, BCCI had over 400 branches in 78 countries, and assets in excess of US$20 billion, making it the 7th largest private bank in the world.[2][3]

BCCI came under the scrutiny of numerous financial regulators and intelligence agencies in the 1980s due to concerns that it was poorly regulated. Subsequent investigations revealed that it was involved in massive money laundering and other financial crimes, and illegally gained the controlling interest in a major American bank. BCCI became the focus of a massive regulatory battle in 1991, and, on 5 July of that year, customs and bank regulators in seven countries raided and locked down records of its branch offices.[4]

Investigators in the United States and the UK revealed that BCCI had been "set up deliberately to avoid centralized regulatory review, and operated extensively in bank secrecy jurisdictions. Its affairs were extraordinarily complex. Its officers were sophisticated international bankers whose apparent objective was to keep their affairs secret, to commit fraud on a massive scale, and to avoid detection".[5]

The liquidators, Deloitte & Touche, filed a lawsuit against the bank's auditors, Price Waterhouse and Ernst & Young, which was settled for $175 million in 1998. By 2013, Deloitte & Touche claimed to have recovered about 75% of the creditors' lost money.[6]

History[edit]

BCCI's founder, Agha Hasan Abedi, started the bank in 1972. Abedi, a prolific banker, had previously set up the United Bank of Pakistan in 1959. Preceding the nationalization of United Bank in 1974, he sought to create a new supranational banking entity. BCCI was created with capital, 25% of which was from Bank of America and the remaining 75% from Sheikh Zayed bin Sultan Al Nahyan, the ruler of Abu Dhabi in the United Arab Emirates.

BCCI expanded rapidly in the 1970s, pursuing long-term asset growth over profits, seeking high-net-worth individuals and regular large deposits. The company itself divided into BCCI Holdings with the bank under that splitting into BCCI SA (Luxembourg) and BCCI Overseas (Grand Cayman). BCCI also acquired parallel banks through acquisitions: buying the Banque de Commerce et Placements (BCP) of Geneva in 1976, and creating KIFCO (Kuwait International Finance Company), Credit & Finance Corporation Ltd, and a series of Cayman-based companies held together as ICIC (International Credit and Investment Company Overseas, International Credit and Commerce [Overseas], etc.). Overall, BCCI expanded from 19 branches in five countries in 1973 to 27 branches in 1974, to 108 branches in 1976, with assets growing from $200 million to $1.6 billion.[7] This growth caused extensive underlying capital problems. The Guardian alleged that BCCI was using cash from deposits to fund operating expenses, rather than making investments. Investigative journalist and author Joseph J. Trento has argued that the bank's transformation was guided by the head of Saudi intelligence with a view to enabling it to finance covert American intelligence operations at a time, in the aftermath of Watergate, when the American intelligence agencies were defending themselves from investigations by domestic authorities.[8]

BCCI entered the African markets in 1979, and Asia in the early 1980s. BCCI was among the first foreign banks awarded a license to operate in the Chinese Special Economic Zone of Shenzhen which bore testament to Agha Hasan Abedi's public relations skills, a feat that had yet to be achieved by the likes of Citicorp and JP Morgan. Some of China's largest state banks were depositors in BCCI's Shenzhen branch.

There was rigid compartmentalization; the 248 managers and general managers reported directly to Abedi and the CEO Swaleh Naqvi. It was structured in such a way that no single country had overall regulatory supervision over it so as not to hinder potential growth and expansion opportunities.[9] Its two holding companies were based in Luxembourg and the Cayman Islands – two jurisdictions where banking regulation was notoriously weak. It was also not regulated by a country that had a central bank. On several occasions, the Office of the Comptroller of the Currency, a bureau within the U.S. Department of the Treasury, told the Federal Reserve in no uncertain terms that BCCI must not be allowed to buy any American bank because it was poorly regulated.

By 1980, BCCI was reported to have assets of over $4 billion with over 150 branches in 46 countries. Bank of America was "bewildered" by BCCI and reduced its holding in 1980, and the company came to be held by a number of groups, with ICIC[clarification needed] owning 70%.[10] By 1989, ICIC's shareholding was reduced to 11% with Abu Dhabi groups holding almost 40%. However, large numbers of shares were held by BCCI nominees.

In 1982, 15 Middle Eastern investors bought Financial General Bankshares, a large bank holding company headquartered in Washington, D.C. All the investors were BCCI clients, but the Fed received assurances that BCCI would be in no way involved in the management of the company, which was renamed First American Bankshares. To alleviate regulators' concerns, Clark Clifford, an adviser to five presidents, was named First American's chairman. Clifford headed a board composed of himself and several other distinguished American citizens, including former United States SenatorStuart Symington. In truth, BCCI had been involved in the purchase of FGB/First American from the beginning. Abedi had been approached about buying it as early as 1977, but by this time BCCI's reputation in the United States was so poor that it could not hope to buy an American bank on its own (as mentioned above, the OCC was adamantly opposed to BCCI being allowed to buy its way into the American banking industry). Rather, it used the First American investors as nominees. Moreover, Clifford's law firm was retained as general counsel, and also handled most of BCCI's American legal work. BCCI was also heavily involved in First American personnel matters. The relationship between the two was so close that rumors spread BCCI was the real owner of First American.

BCCI had an unusual annual auditing system: Price Waterhouse were the accountants for BCCI Overseas, while Ernst & Young audited BCCI and BCCI Holdings (London and Luxembourg). Other companies such as KIFCO and ICIC were audited by neither. In October 1985, the Bank of England and the Monetary Institute of Luxembourg (Luxembourg's bank regulator) ordered BCCI to change to a single accountant, alarmed at reported BCCI losses on the commodities and financial markets. Price Waterhouse became the sole accountants in 1987.

In 1990, a Price Waterhouse audit of BCCI revealed an unaccountable loss of hundreds of millions of dollars. The bank approached Sheikh Zayed bin Sultan Al Nahyan, who made good the loss in exchange for an increased shareholding of 78%. Much of BCCI's documentation was also then transferred to Abu Dhabi. The audit also revealed numerous irregularities. Most seriously, BCCI had made a staggering $1.48 billion worth of loans to its own shareholders, who used BCCI stock as collateral.

The audit also confirmed what many Americans who watched BCCI long suspected – that BCCI secretly (and illegally) owned First American. When the Fed cleared the group of Arab investors to buy First American, it did so on condition that they supplement their personal funds with money borrowed from banks with no connection to BCCI. Contrary to that agreement, several stockholders had borrowed heavily from BCCI. Even more seriously, they pledged their First American stock as collateral. When they didn't make interest payments, BCCI took control of the shares. It was later estimated that in this manner, BCCI had ended up with 60 percent or more of First American's stock.

Despite these problems, Price Waterhouse signed BCCI's 1989 annual report, largely due to Zayed's firm commitment to propping up the bank. Abedi was succeeded by Swaleh Naqvi as the bank's chief, who, in the aftermath following controversy over BCCI, was replaced by Zafar Iqbal Chaudhry in the late 1990s.

Lending practices[edit]

BCCI contended that its growth was fueled by the increasingly large number of deposits by oil-rich states who owned stock in the bank as well as by sovereign developing nations. However, this claim failed to mollify the regulators. For example, the Bank of England ordered BCCI to cap its branch network in the United Kingdom at 45 branches.[11]

There was particular concern over BCCI's loan portfolio because of its roots in areas where modern banking was still an alien concept. For instance, a large number of its customers were devout Muslims who believed charging interest on loans – a major pillar of modern banking – was riba, or usury. In many third-world countries, a person's financial standing didn't matter as much as his relationship with his banker. One particularly notable example is the Gokal family, a prominent family of shipping magnates. They had a relationship with Abedi dating back to his days at United Bank. Abedi personally handled their loans, with little regard for details such as loan documents or creditworthiness. At one point, BCCI's loans to the Gokal companies were equivalent to US$1.5 billion, three times the bank's capital. Longstanding banking practice dictates that a bank not lend more than 10% of its capital to a single customer.[11]

Money laundering[edit]

In addition to violations of lending laws, BCCI was also accused of opening accounts or laundering money for figures such as Saddam Hussein, Manuel Noriega, Hussain Mohammad Ershad, and Samuel Doe,[11] and for criminal organizations such as the Medellin Cartel and Abu Nidal.[12] Police and intelligence experts nicknamed BCCI the "Bank of Crooks and Criminals" for its penchant for catering to customers who dealt in arms, drugs, and hot money.[13]

William von Raab, a former U.S. Commissioner of Customs, also told the Kerry Committee that the U.S. Central Intelligence Agency held "several" accounts at BCCI. According to a 1991 article in Time magazine, the National Security Council also had accounts at BCCI, which were used for a variety of covert operations, including transfers of money and weapons for Iran-Contra.[14]

Investigations begin[edit]

BCCI’s demise began in 1986, when a U.S. Customs undercover operation led by Special Agent Robert Mazur infiltrated the bank’s private client division and uncovered their active role soliciting deposits from drug traffickers and money launderers. This two-year undercover operation concluded in 1988 with a fake wedding that was attended by BCCI officers and drug dealers from around the world who had established a personal friendship and working relationship with undercover agent Mazur. At the same time he was dealing undercover with BCCI executives, Mazur used his undercover operation to establish a relationship with the hierarchy of the Medellin Cartel as one of their sources for laundering drug proceeds. Mazur's and others roles in the sting operation were highlighted in the 2016 film The Infiltrator.

In 1988, the bank was implicated for being the center of a major money-laundering scheme. After a six-month trial, BCCI, under immense pressure from U.S. authorities, pleaded guilty in 1990, but only on the grounds of respondeat superior. While federal regulators took no action, Florida regulators forced BCCI to pull out of the state.[11]

In 1990, U.S. Senator Orrin Hatch presented an impassioned defense of the bank in a speech on the Senate floor. He and his aide, Michael Pillsbury, were involved in efforts to counter the negative publicity that surrounded the bank, and Hatch solicited the bank to approve a $10 million loan to a close friend, Mazur Hourani.[15]

The Sandstorm report[edit]

In March 1991, the Bank of England asked Price Waterhouse to carry out an inquiry. On 24 June 1991, using the code name "Sandstorm" for BCCI, Price Waterhouse submitted the Sandstorm report showing that BCCI had engaged in "widespread fraud and manipulation" that made it difficult, if not impossible, to reconstruct BCCI's financial history.

The Sandstorm report, parts of which were leaked to The Sunday Times, included details of how the Abu Nidal terrorist group had manipulated details and through using fake identities had opened accounts at BCCI's Sloane Street branch in London. Britain's internal security service, MI5, had signed up two sources inside the branch to hand over copies of all documents relating to Abu Nidal's accounts. One source was the Syrian-born branch manager, Ghassan Qassem, the second a young British employee.

The Abu Nidal link man for the BCCI accounts was a man based in Iraq named Samir Najmeddin or Najmedeen. Throughout the 1980s, BCCI had set up millions of dollars worth of letters of credit for Najmeddin, largely for arms deals with Iraq. Qassem later swore in an affidavit that Najmeddin was often accompanied by an American, whom Qassem subsequently identified as the financier Marc Rich. Rich was later indicted in the United States for tax evasion and racketeering in an apparently unrelated case and fled the country.

Qassem also told reporters that he had once escorted Abu Nidal, who was allegedly using the name Shakir Farhan, around town to buy a tie, without realizing who he was. This revelation led in 1991 to one of the London Evening Standard's best-known front-page headlines: "I Took Abu Nidal Shopping".

Forced closure[edit]

BCCI was awaiting final approval for a restructuring plan in which it would have re-emerged as the "Oasis Bank". However, after the Sandstorm report, regulators concluded BCCI was so fraught with problems that it had to be seized. It had already been ordered to shut down its American operations in March for its illegal control of First American.

On 5 July 1991, regulators persuaded a court in Luxembourg to order BCCI liquidated on the grounds that it was hopelessly insolvent. According to the court order, BCCI had lost more than its entire capital and reserves the year before. At 1 pm London time that day (8 am in New York City), regulators in five countries[which?] marched into BCCI's offices and shut them down. Around a million depositors were immediately affected by this action.

On 7 July 1991, Hong Kong Office of the Commissioner of Banking (forerunner of the Hong Kong Monetary Authority) ordered BCCI to shut down its business in Hong Kong on the grounds that BCCI had problem loans and the Sheikh of Abu Dhabi, the major shareholder of BCCI, refused to provide funds to the Hong Kong BCCI. Hong Kong BCCI was liquidated on 17 July 1991.

A few weeks after the seizure, on 29 July, Manhattan District AttorneyRobert Morgenthau announced that a Manhattan grand jury had indicted BCCI, Abedi and Naqvi on twelve counts of fraud, money laundering, and larceny. Morgenthau, who had been investigating BCCI for over two years, claimed jurisdiction because millions of dollars laundered by the bank flowed through Manhattan. Also, Morgenthau cited BCCI's secret ownership of First American, which operated a subsidiary in New York City. Morgenthau said that all of BCCI's deposits had been fraudulently collected because the bank misled depositors about its ownership structure and financial condition. He described BCCI as "the largest bank fraud in world financial history".[16]

On 15 November, BCCI, Abedi and Naqvi were indicted on federal charges that it had illegally bought control of another American bank, Independence Bank of Los Angeles, using Saudi businessman Ghaith Pharaon as the puppet owner.

Just a month later, BCCI's liquidators (Deloitte, PWC) pleaded guilty to all criminal charges pending against the bank in the United States (both those lodged by the federal government and by Morgenthau), clearing the way for BCCI's formal liquidation that fall. BCCI paid $10 million in fines and forfeited all $550 million of its American assets – at the time, the largest single criminal forfeiture ever obtained by federal prosecutors. The money was used to repay losses to First American and Independence and to make restitution to BCCI's depositors. None of this was enough to rescue both banks, however; Independence was seized later in 1992, while First American was forced into a merger with First Union in 1993.

However, many of the major players in the scandal have never been brought to trial in American or UK courts. Abedi, for example, died in 1995. He was under indictment in the United States and UK for crimes related to BCCI, but Pakistani officials refused to give him up for extradition because they felt the charges were politically motivated. Even without this to consider, he'd been in poor health since suffering a stroke in the 1980s. Pharaon remained a fugitive until his death in 2017.[17]

In 2002, Denis Robert and Ernest Backes, former number three of financial clearing house Clearstream, discovered that BCCI had continued to maintain its activities after its official closure, with microfiches of Clearstream's illegal unpublished accounts.[18]

American inquiries and legal actions[edit]

In 1992, United States Senators John Kerry and Hank Brown became the co-authors of a report on BCCI, which was delivered to the Committee on Foreign Relations. The BCCI scandal was one of a number of disasters that influenced thinking leading to the Public Interest Disclosure Act (PIDA) of 1998. The report found that Clifford and his legal/business partner Robert A. Altman had been closely involved with the bank from 1978, when they were introduced to BCCI by Bert Lance, the former director of the Office of Management and Budget, to 1991. Earlier, Pharaon was revealed to have been the puppet owner of National Bank of Georgia, a bank formerly owned by Lance before being sold back to First American (it had previously been an FGB subsidiary before Lance bought it). Clifford and Altman testified that they had never observed any suspicious activity, and had themselves been deceived about BCCI's control of First American. However, the federal government and Morgenthau contended that the two men knew, or should have known, that BCCI controlled First American. Pharaon also was revealed to be the puppet controlling owner of CenTrust Bank in Miami, Florida.

Morgenthau and the federal government brought indictments against Clifford and Altman, but did not pursue Clifford due to his age and deteriorating health (he died in 1998). Altman was indicted and tried in New York, though he was ultimately acquitted following a jury finding of not guilty. Altman later accepted a de facto lifetime ban from any role in the banking industry to settle a civil suit by the Fed.

Books about BCCI[edit]

British inquiry and litigation[edit]

The British government set up an independent inquiry, chaired by Lord Justice Bingham, in 1992. Its House of Commons Paper, Inquiry into the Supervision of the Bank of Credit and Commerce International, was published in October of that year. Following the report, BCCI liquidators Deloitte Touche filed suit against the Bank of England for £850m, claiming that the Bank was guilty of misfeasance in public office. The suit lasted 12 years. It ended in November 2005, when Deloitte withdrew its claims after England's High Court ruled that it was "no longer in the best interests of creditors" for the litigation to continue.[20][21] Deloitte eventually paid the Bank of England £73m for its legal costs. According to news reports at the time, it was the most expensive case in British legal history.[21]

Litigation elsewhere[edit]

Although major litigation has ended in the case, suits and legal actions relating to the bank were still being brought in 2013, over 20 years after the bank's failure.[22]

Former directors[edit]

  • Khalid bin Mahfouz – non-executive director. Mahfouz and his brothers owned a 20% stake in BCCI between 1986 and 1990.[23]
  • Alfred Hartman
  • Shaikh Mohammed Ishaq

Legal cases involving BCCI[edit]

See also[edit]

Notes[edit]

  1. ^Adams and Frantz, p. ix.
  2. ^Kanas, Angelos (May 2005). "Pure Contagion Effects in International Banking: The Case of BCCI's Failure"(PDF). Journal of Applied Economics. 8 (1): 101–123. 
  3. ^Salaam Knowledge, Biographical data on Agha Hasan Abedi
  4. ^Trento, Prelude to Terror, 370.
  5. ^Kerry, John. The BCCI Affair: A Report to the Committee on Foreign Relations. Lulu.com. p. 60. ISBN 1105096858. 
  6. ^"BCCI bank fraud begets silver lining 13 years later". Archived from the original on 20 November 2007. Retrieved 2009-02-28. 
  7. ^Hemraj, Mohammed B. (October 2005). "The Regulatory Failure: The Saga of BCCI". Journal of Money Laundering Control. 8 (4): 346–353. doi:10.1108/13685200510735329. 
  8. ^Trento, Prelude to Terror, 99–105 & 370.
  9. ^Passas, Nikos; Groskin, Richard B. (1 January 2001). "Overseeing and Overlooking: The US Federal Authorities' Response to Money Laundering and Other Misconduct at BCCI". The Organized Criminal Activities of the Bank of Credit and Commerce International: Essays and Documentation. Springer Netherlands: 141–175. doi:10.1007/978-94-017-3413-4_5. 
  10. ^Kerry, John; Hank Brown (December 1992). "The Origin and Early Years of BCCI". The BCCI Affair: A Report to the Committee on Foreign Relations, United States Senate. 102d Congress 2d Session Senate Print 102-140. pp. Chapter 3. Archived from the original on 30 September 2007. Retrieved 2007-09-28. 
  11. ^ abcdPeter Truell, Larry Gurwin, False Profits. The Inside Story of BCCI, The World’s Most Corrupt Financial Empire, 1992, Houghton, Mifflin Company, Boston, New York, ISBN 0-395-62339-1
  12. ^"Follow The Money". Washington Monthly. 4 September 2004. Archived from the original on 11 September 2004. Retrieved 2004-09-11. ]
  13. ^https://www.nytimes.com/1991/08/12/business/world-class-fraud-bcci-pulled-it-off-special-report-end-twisted-trail-piggy-bank.html?pagewanted=all
  14. ^"Iran-Contra: The Cover-Up Begins to Crack", TIME, 22 July 1991
  15. ^Dean Baquet; Jeff Gerth (26 August 1992). "Lawmaker's Defense of B.C.C.I. Went Beyond Speech in Senate". New York Times. Retrieved 11 February 2018. 
  16. ^Spalek, Basia (1 May 2001). "Regulation, White–Collar Crime and the Bank of Credit and Commerce International". The Howard Journal of Criminal Justice. 40 (2): 166–179. doi:10.1111/1468-2311.00199. ISSN 1468-2311. 
  17. ^Spike, Justin (11 January 2017). "Saudi businessman Ghaith Pharaon confirmed dead in Beirut". The Budapest Beacon. 
  18. ^"L'affaire BCCI". Archived from the original on 1 March 2007. 
  19. ^Malik, M. B. (2016-03-10). Double Standards. Place of publication not identified: Matador. ISBN 9781785891540. 
  20. ^Gray, Joanna. "Court castigates BCCI liquidators' claim against Bank of England". Journal of Financial Regulation and Compliance. 14 (4): 411–417. doi:10.1108/13581980610711180. 
  21. ^ abTait, Nikki (2006-06-08). "Costs settlement brings to an end record-breaking BCCI litigation 12-YEAR ACTION: [LONDON 1ST EDITION]". Financial Times. London (UK), United Kingdom. p. 4. ISSN 0307-1766. 
  22. ^Pujol, Veronique (8 November 2013). "Comment ressusciter la BCCI?". Paperjam Luxembourg. Paperjam.lu. Retrieved 2013-11-11. 
  23. ^Kerry, John; Brown, Hank (December 1992). "BCCI in the United States, Part Two: Acquisition, Consolidation, and Consequences". The BCCI Affair, A Report to the Committee on Foreign Relations. United States Senate Committee on Foreign Relations. Retrieved 2006-06-26. 

References[edit]

  • James Ring Adams, Douglas Frantz: A Full Service Bank. London 1991
  • Denis Robert, Ernest Backes: Révélations Arènes Editions, 2001, ISBN 2-912485-28-2
  • Jean-Charles Brisard, Guillaume Dasquié, Ben Laden: La Vérité interdite. Gallimard, 2002, ISBN 2-07-042377-8, pp. 166–168.
  • "The BCCI Affair", Report to the Committee on Foreign Relations, United States Senate, Senator John Kerry and Senator Hank Brown, 1992, 102nd Congress 2nd Session Senate Print 102-140 (Kerry Report).
  • Rachel Ehrenfeld, Evil Money. Encounters along the Money Trail, 1992, Harper Business, ISBN 0-88730-560-1).

External links[edit]

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